AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997.
REGISTRATION NO. 333-
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NATIONWIDE STAFFING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 7363 76-0526381
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
LARRY E. DARST
CHIEF EXECUTIVE OFFICER
NATIONWIDE STAFFING, INC.
600 TRAVIS, SUITE 6200
HOUSTON, TEXAS 77002
(713) 223-7742
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
GEOFFREY A. LONG
BRACEWELL & PATTERSON, L.L.P. ROBERT F. GRAY, JR.
SOUTH TOWER PENNZOIL PLACE FULBRIGHT & JAWORSKI L.L.P.
711 LOUISIANA STREET, SUITE 2900 1301 MCKINNEY, SUITE 5100
HOUSTON, TEXAS 77002-2781 HOUSTON, TEXAS 77010-3095
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SECURITIES TO BE REGISTERED BE REGISTERED (1) SHARE PRICE (2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 4,370,000 $13.75 $60,087,500 $18,208.34
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 570,000 shares which may be purchased by the underwriters pursuant
to an over-allotment option.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997
PROSPECTUS
, 1997
3,800,000 SHARES
[LOGO NATIONWIDE STAFFING, INC.]
NATIONWIDE STAFFING, INC.
COMMON STOCK
------------------
All of the 3,800,000 shares of common stock, $0.01 par value ("Common
Stock"), offered hereby are being offered by Nationwide Staffing, Inc. (the
"Company"). Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price for the Common Stock will be between $ and $
per share. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering price.
Application has been made for listing of the Common Stock on the New York
Stock Exchange under the symbol " ," subject to official notice of
issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS
THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Per Share............................ $ $ $
Total(3)............................. $ $ $
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE SEVERAL UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY ESTIMATED
AT $4,000,000.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
570,000 ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO THE PUBLIC, LESS
UNDERWRITING DISCOUNTS AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF
ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITING."
------------------
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in New
York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
LADENBURG THALMANN & CO. INC.
<PAGE>
[MAP SHOWING THE STATES IN WHICH THE FOUNDING COMPANIES DO BUSINESS, THE
CITIES IN WHICH THEY ARE HEADQUARTERED AND THE COMPANY'S HEADQUARTERS.]
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUSLY WITH AND AS A CONDITION TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THE "OFFERING"), NATIONWIDE STAFFING, INC. WILL
ACQUIRE, IN SEPARATE MERGER OR EXCHANGE TRANSACTIONS (COLLECTIVELY, THE
"MERGERS"), IN EXCHANGE FOR CASH AND SHARES OF COMMON STOCK, ALL OF THE
CAPITAL STOCK OF EIGHT BUSINESSES ENGAGED IN PROVIDING TEMPORARY STAFFING, STAFF
LEASING, RECRUITING, PERMANENT PLACEMENT, PAYROLL PROCESSING AND HUMAN RESOURCE
CONSULTING SERVICES (EACH, A "FOUNDING COMPANY" AND, COLLECTIVELY, THE
"FOUNDING COMPANIES"). UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN TO
THE "COMPANY" INCLUDE THE FOUNDING COMPANIES AND NATIONWIDE STAFFING, INC. AND
REFERENCES TO "NATIONWIDE STAFFING" MEAN NATIONWIDE STAFFING, INC. PRIOR TO
THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE COMBINED, PRO FORMA
COMBINED AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION (I) HAS BEEN ADJUSTED TO GIVE EFFECT
TO THE MERGERS; (II) ASSUMES AN INITIAL PUBLIC OFFERING PRICE OF $ PER SHARE
(THE "OFFERING PRICE"); (III) HAS BEEN ADJUSTED TO REFLECT AN ESTIMATED
1,084-FOR-ONE STOCK SPLIT IN THE FORM OF A DIVIDEND; AND (IV) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. UNLESS OTHERWISE INDICATED,
ALL REFERENCES TO COMMON STOCK INCLUDE BOTH COMMON STOCK, $0.01 PAR VALUE, AND
RESTRICTED VOTING COMMON STOCK, $0.01 PAR VALUE (THE "RESTRICTED COMMON
STOCK"), OF THE COMPANY.
THE COMPANY
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,200 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma revenues for the year ended December 31, 1996 of $133.8
million were derived 69.3% from temporary staffing and 30.7% from staff leasing
or professional employer organization ("PEO") services. Upon consummation of
the Offering, Nationwide Staffing will acquire through the Mergers the eight
Founding Companies, which have been in business for an average of 15 years and
currently have 28 offices and operations in 39 states and the District of
Columbia.
The Company believes that as businesses increasingly outsource a wider
range of human resource functions in order to focus on their core operations,
they will require more sophisticated and diverse services from their staffing
providers. In order to serve these needs, the Company offers significantly
broader services than those provided by traditional staffing companies. In
addition to supplying temporary workers for short-term needs, the Company also
provides extended-term temporary employees, staff leasing or PEO services,
temporary-to-permanent placements, recruiting, permanent placements, payroll
processing, vendor-on-premises and human resource consulting. In addition, the
Company is pursuing strategic alliances with selected human resource consulting
firms that will enable the Company to expand its range of staffing services to
include additional human resource department outsourcing services and executive
compensation and employee benefits consulting.
The Company's emphasis on providing comprehensive staffing solutions
affords it a competitive advantage by appealing to a broader universe of
potential clients, including regional and national companies, while also
creating cross-marketing opportunities within its existing client base. The
Company intends to provide companies with single-source solutions to their
staffing needs by combining and integrating the extensive services already being
provided by the Founding Companies, along with additional services that may
become available through acquisitions and strategic alliances. This
comprehensive service offering will allow the Company to offer cost-effective
service to companies who can select those staffing services that best satisfy
their particular needs. In addition, the Company will be able to cross market
services to existing
3
<PAGE>
and new clients, thereby reducing the Company's business development costs, and
will be able to serve larger companies seeking comprehensive staffing services
on a regional or national basis. Finally, the Company believes that a
comprehensive service offering will assist the Company in establishing multiple
contacts within existing and new clients that should contribute to more
extensive and longer-term relationships.
INDUSTRY OVERVIEW
The staffing industry encompasses a wide range of services to businesses,
professional and service organizations and governmental agencies. The U.S.
staffing industry has grown rapidly in recent years as organizations have sought
to reduce costs and improve operating efficiency by outsourcing more of their
human resource functions. Staffing Industry Analysts, Inc. ("SIA"), an
independent industry research firm, estimates that gross revenues in the U.S.
staffing industry have grown since 1991 at a compound annual growth rate of
18.8%, from approximately $31.4 billion in 1991 to approximately $74.4 billion
in 1996.
According to SIA, temporary staffing and PEO services represented
approximately 63.3% and 23.3%, respectively, of total staffing industry gross
revenues in 1996. The use of temporary staffing services has grown rapidly in
recent years as competitive pressures have caused businesses to focus on
reducing overhead, including converting fixed labor costs to variable costs. The
use of temporary employees also enables companies to improve flexibility in
employee hiring and scheduling and to focus on their core business operations.
According to SIA, the U.S. market for temporary staffing services has grown
since 1991 at a compound annual rate of 17.0%, from approximately $21.5 billion
in revenue in 1991 to approximately $47.1 billion in revenue in 1996. PEO
services have also grown substantially in recent years, driven in large part by
the increasingly complex legal and regulatory burdens placed on employers, as
well as trends relating to the growth of small businesses in the United States
and their efforts at improving productivity and competitiveness. SIA estimates
that gross revenues in PEO services have grown since 1991 at a compound annual
rate of 28.2%, from approximately $5.0 billion in 1991 to approximately $17.3
billion in 1996. With its broad offering of staffing solutions, the Company
provides services typically associated with temporary staffing companies, such
as recruiting, screening and training employees, while also providing services
typically associated with PEO companies, such as risk management, employee
benefits administration, payroll processing and other human resource
administration functions.
The Company believes that the U.S. staffing industry is highly fragmented
and has begun to experience consolidation, particularly with respect to
temporary staffing and PEO companies. Based on data available from Dun &
Bradstreet and the National Association of Professional Employer Organizations
("NAPEO"), in the United States over 9,300 companies provide temporary
staffing services and more than 1,800 companies provide PEO services. Many of
these companies are small, owner-operated businesses with limited access to
capital for development and expansion. The Company believes that temporary
staffing and, to a lesser extent, PEO companies are consolidating in response to
(i) the increased demands of local, regional and national companies for a single
supplier of a full range of staffing and human resource services, (ii) increased
competition from larger, better capitalized competitors and (iii) owners'
desires for liquidity. Although some consolidation activity has already
occurred, the Company believes that consolidation in the U.S. staffing industry
will continue and that there will be numerous available acquisition candidates.
BUSINESS STRATEGY
The Company plans to achieve its objective of becoming a leading national
provider of comprehensive staffing solutions through the implementation of a
cohesive business strategy consisting of the following elements:
o OFFER A DIVERSIFIED RANGE OF STAFFING SERVICES. The Company offers
a wide range of staffing services, including short and extended-term
temporaries, PEO services, temporary-to-permanent placements, recruiting,
permanent placements, payroll processing, vendor-on-premises
4
<PAGE>
and human resource consulting. Each of the Company's services is
available on a stand-alone basis or as part of a comprehensive staffing
solution, thereby affording the Company the flexibility to provide
customized services based on individual client requirements. By offering
a broad range of staffing services, the Company believes that it will be
able (i) to offer its services on a more cost-effective basis, (ii) to
cross market services to existing and new clients, (iii) to capitalize on
new marketing opportunities with clients demanding comprehensive staffing
services, particularly regional and national companies, and (iv) to
solidify long-term relationships with clients.
o CONTINUE TO DEVELOP NICHE MARKETS. As U.S. corporations have
become more accustomed to using specialized employees on a temporary
basis, the Company has developed a strong reputation in certain markets
either by focusing on specific industries, such as aerospace,
petrochemical and insurance, or by providing temporary employees with
specialized skills, such as engineers, computer technicians and health
care specialists. These "niche" markets tend to yield longer-term
staffing placements and, in many instances, higher margins. The Company
intends to continue to expand its services in these speciality markets by
leveraging the Founding Companies' expertise on a company-wide basis and
to pursue additional niche market opportunities.
o CONTINUE TO DEVELOP LONG-TERM CLIENT RELATIONSHIPS. The Company's
emphasis on providing high quality, value-added staffing solutions has
enabled it to establish long-term relationships with a number of clients.
The Company's 25 largest clients have utilized its services on average
for approximately seven years. By continuing to focus on providing
superior client service and by continuing to expand its range of
services, the Company intends to further its relationships with
long-standing clients and to establish long-term relationships with new
clients. The Company believes that long-standing client relationships
provide it with the in-depth knowledge necessary to continue to provide
focused and customized service, affording the Company with an advantage
over competitors.
o INCREASE OPERATING EFFICIENCIES. The Company believes that it can
provide significant opportunities to achieve cost savings and greater
operating efficiencies that are not available to the Founding Companies
on an individual basis. The Company intends to support its subsidiaries
and branch offices by combining a number of general and administrative
functions at the corporate level, such as risk management, certain
purchasing (including workers' compensation and health insurance), cash
management, human resource and other systems and administrative support
services. The Company will also implement a program to identify "best
practices" among the Founding Companies to enhance operating
efficiencies that can be implemented successfully throughout its
operations. However, while maintaining strong operating and financial
controls at the corporate level, the Company will also maintain a
decentralized operating structure at the local level that will retain the
entrepreneurial spirit present in each of the Founding Companies and will
allow the Company to capitalize on the considerable local and regional
market knowledge and customer relationships possessed by the Founding
Companies.
o FOCUS ON INTERNAL GROWTH OPPORTUNITIES. A key component of the
Company's strategy is to build on the Founding Companies' history of
internal growth. By combining the Founding Companies, Nationwide Staffing
will be able to significantly expand the available service offering of
each individual Founding Company, thereby allowing them to present a
wider variety of services to both existing clients and potential clients.
This wider service offering will also appeal to regional or national
companies searching for a one-stop source of staffing solutions who
previously may not have considered utilizing a Founding Company on a
stand alone basis. Furthermore, the Company's assumption of many
administrative functions formerly carried out by the Founding Companies
will allow them to devote increased management efforts towards the
cultivation of new clients.
5
<PAGE>
o EXPAND THROUGH ACQUISITIONS. The Company believes that providers
of temporary staffing and PEO services in the United States are highly
fragmented and consolidating, thereby offering significant opportunities
for the Company to complement its internal growth by aggressively
pursuing strategic acquisitions. The key objectives of the Company's
acquisition program are (i) to enhance the Company's position in its
existing niche markets and to establish a position in new niche markets,
(ii) to broaden further the Company's range of staffing services, (iii)
to enter new geographic markets, and (iv) to expand the Company's
presence within its existing geographic markets. The Company's focus will
be to acquire companies that have a history of growth and profitability,
a strong management team, a reputation for quality services and the
infrastructure necessary to be a core business into which other
operations may be consolidated. The Company believes that there are
significant opportunities to expand by acquiring companies that satisfy
the Company's acquisition criteria. Once the Company has entered a
geographic market, the Company will also pursue "tuck-in" acquisitions
of smaller companies whose operations can be assimilated into an existing
operation thereby leveraging the Company's established infrastructure.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company................... 3,800,000 Shares
Common Stock to be outstanding after the Offering.....
8,671,433 Shares(1)
Use of Proceeds.......................................To pay the cash portion of the
purchase prices for the Founding
Companies, to repay the debt of the
Founding Companies assumed by the
Company in the Mergers, to pay the
expenses incurred in connection with
the organization of Nationwide
Staffing and the Offering, and for
working capital and general corpo-
rate purposes, including future
acquisitions. See "Use of
Proceeds."
NYSE symbol...........................................
</TABLE>
- ------------
(1) Includes (i) 1,300,715 shares of Common Stock previously issued and now held
by WJG Capital, L.L.C. ("WJG Capital") and management of Nationwide
Staffing (1,083,929 shares of which will be exchanged for Restricted Common
Stock prior to the consummation of this Offering) and (ii) 3,570,718 shares
of Common Stock to be issued to the stockholders of the Founding Companies
in connection with the Mergers and excludes (a) 50,000 shares of Common
Stock reserved for issuance upon exercise of outstanding warrants, (b) up to
850,000 shares available for issuance under the 1997 Stock Awards Plan,
325,000 of which have been granted to date and (c) up to 100,000 shares
available for issuance under the 1997 Directors Stock Option Plan, 20,000 of
which have been granted to date and 10,000 of which will be issued upon the
consummation of the Offering. Each share of Restricted Common Stock is
entitled to 0.35 of one vote held on all matters submitted to stockholders.
See "Management -- 1997 Stock Awards Plan", "-- Directors Compensation",
"Certain Transactions" and "Description of Capital Stock."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
Nationwide Staffing will acquire the Founding Companies simultaneously with
and as a condition to the consummation of this Offering. The following summary
presents unaudited pro forma combined financial data for the Company, adjusted
for (i) the effects of the Mergers on a historical basis, (ii) the effects of
certain pro forma adjustments to the historical financial statements described
below and (iii) the consummation of the Offering and the application of the net
proceeds therefrom. See "Selected Financial Data," the Unaudited Pro Forma
Combined Financial Statements and the historical Financial Statements of
Nationwide Staffing and the Founding Companies and the Notes thereto included
elsewhere in this Prospectus.
PRO FORMA COMBINED(1)
------------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
(IN THOUSANDS)
Income statement data:
Revenues........................ $ 133,768 $ 60,503 $ 77,259
Cost of services................ 116,626 53,053 66,672
------------- --------- ---------
Gross profit.................... 17,142 7,450 10,587
Operating costs and
expenses(2)................... 11,017 4,591 6,411
Depreciation and
amortization(3)............... 1,541 772 761
------------- --------- ---------
Operating income................ 4,584 2,087 3,415
Interest and other, net(4)...... 95 37 56
------------- --------- ---------
Income before income tax........ 4,679 2,124 3,471
Income tax expense(5)........... 2,291 1,062 1,590
------------- --------- ---------
Net income...................... $ 2,388 $ 1,062 $ 1,881
============= ========= =========
Net income per share............ $ 0.31 $ 0.14 $ 0.25
Shares used in computing pro
forma net income per
share(6)...................... 7,640 7,640 7,640
AS OF JUNE 30, 1997
--------------------------
PRO FORMA AS
COMBINED(7) ADJUSTED(8)
(IN THOUSANDS)
Balance sheet data:
Working capital(9).............. $ 1,324 $19,878
Total assets.................... 65,776 79,272
Long-term debt, net of current
portion........................ 431 --
Stockholders' equity(9)......... 28,154 69,773
- ------------
(1) During the periods presented above, the Founding Companies were not under
common control or management. The unaudited pro forma combined income
statement data assume that the Mergers and the Offering were consummated on
January 1, 1996 and are not indicative of the results the Company would have
achieved had these events actually occurred on such date or of the Company's
future performance. Neither the potential cost savings from consolidating
certain operational and administrative functions nor the costs of corporate
overhead have been included in the pro forma combined financial information.
(2) The unaudited pro forma combined income statement data include an aggregate
of approximately $2.7 million, $1.2 million and $1.3 million for the year
ended December 31, 1996 and the six months ended June 30, 1996 and 1997,
respectively, in pro forma reductions in salary, bonuses and benefits paid
to the owners of the Founding Companies to which they have agreed
prospectively (collectively, the "Compensation Differential").
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
(3) Includes amortization of goodwill over a 40-year period.
(4) Adjusted to repay $5.5 million of debt assumed by the Company in the Mergers
and to eliminate the related interest expense.
(5) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill amortization for federal income tax purposes.
(6) The number of outstanding shares used in computing net income per share
includes (i) 1,300,715 shares outstanding prior to the Mergers and Offering,
(ii) 3,570,718 shares issued to owners of the Founding Companies, (iii)
31,538 net shares that would be outstanding if the warrants and options were
exercised and the proceeds used to repurchase shares at the Offering Price
and (iv) 2,737,038 of the 3,800,000 shares sold in the Offering necessary to
pay the cash portion of the purchase prices for the Founding Companies, to
repay indebtedness and to pay estimated Offering expenses. The remaining
1,062,962 shares have been excluded from shares outstanding in computing net
income per share and represent the net cash proceeds to be used for working
capital and general corporate purposes.
(7) The unaudited pro forma combined balance sheet data assume that the Mergers
were closed on June 30, 1997.
(8) Adjusted for the sale of the 3,800,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Certain Transactions."
(9) Several of the Founding Companies are S corporations. Prior to the Mergers,
these Founding Companies will distribute an aggregate of $0.4 million to
their former stockholders (the "S Corporation Distributions").
Additionally, several of the Founding Companies which are C corporations
have elected to withdraw retained earnings prior to the Mergers in an
aggregate of $0.9 million (the "C Corporation Distributions"). In order to
fund these distributions, the Founding Companies will utilize existing cash
and incur liabilities of approximately $0.3 million prior to closing.
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary income statement data for each of the
individual Founding Companies' three most recent fiscal years. Operating income
has not been adjusted for the Compensation Differential, potential cost savings
from consolidating certain operational and administrative functions or the costs
of corporate overhead. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Introduction" and the historical
Financial Statements of the Founding Companies and the Notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED(1) ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ALTERNATIVE SOLUTIONS
Revenues........................ $ 11,461 $ 12,381 $ 13,681 $ 5,898 $ 6,936
Operating income................ 159 90 162 47 151
ASAP
Revenues........................ 3,370 4,099 6,132 2,517 4,049
Operating income................ 356 380 579 286 363
CARDINAL
Revenues........................ 14,136 17,531 20,292 8,643 9,735
Operating income (loss)......... 155 103 5 53 (4)
EMPLOYMENT ENTERPRISES
Revenues........................ 29,252 33,172 36,675 16,944 20,849
Operating income................ 161 227 241 12 604
EVINS GROUP
Revenues........................ 5,954 6,743 7,833 3,492 4,851
Operating income (loss)......... (140) (64) 379 119 176
GTS
Revenues........................ 25,227 23,167 28,661 13,608 20,205
Operating income (loss)......... (219) 404 853 455 794
HP SERVICES
Revenues........................ 5,868 6,488 9,063 4,055 4,217
Operating income................ 310 410 479 255 338
TECHNOLOGY PLUS
Revenues........................ 6,580 9,828 12,256 5,346 6,417
Operating income................ 172 379 490 307 430
</TABLE>
- ------------
(1) The fiscal years presented are as follows: Alternative Solutions -- the
fiscal years ended April 30, 1995, 1996 and 1997; Cardinal -- the fiscal
years ended June 30, 1995, 1996 and 1997; Employment Enterprises -- the
fiscal years ended November 30, 1994 and 1995 and the year ended December
31, 1996; and ASAP, Evins Group, GTS, HP Services and Technology Plus -- the
years ended December 31, 1994, 1995 and 1996.
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK.
ABSENCE OF COMBINED OPERATING HISTORY. Nationwide Staffing was organized
in February 1997 but has conducted no operations and generated no revenues to
date. Nationwide Staffing has entered into definitive agreements to acquire the
Founding Companies simultaneously with and as a condition to the closing of this
Offering. The Founding Companies have been operating as separate, independent
entities and there can be no assurance that the Company will be able to
integrate the operations of these businesses successfully or to institute the
necessary systems and procedures to manage the combined enterprise on a
profitable basis, including accounting and financial reporting systems. The
Company's management group has been assembled only recently and there can be no
assurance that the management group will be able to manage effectively the
combined entity or to implement effectively the Company's business strategy. The
pro forma combined historical financial results of the Founding Companies cover
periods when the Founding Companies and Nationwide Staffing were not under
common control or management and, therefore, may not be indicative of the
Company's future financial or operating results. The inability of the Company to
integrate the Founding Companies successfully will have a material adverse
effect on the Company's business, financial condition and results of operations
and will make it unlikely that the Company's acquisition program will be
successful. The Founding Companies have not previously been required to prepare
interim financial statements for public reporting purposes but will have to do
so following this Offering. If the Founding Companies are unable to generate
interim financial statements on a timely basis, the Company will have difficulty
in managing its overall business and in complying with its obligations as a
public company. See "Business -- Business Strategy" and "Management."
ABILITY TO MANAGE INTERNAL GROWTH. The Company intends to seek to improve
the profitability of the Founding Companies by various means, including
introducing a broader range of staffing services to the Founding Companies and
achieving economies of scale, purchasing savings and operating efficiencies. The
Company's ability to increase the revenues of the Founding Companies will be
affected by various factors, including client acceptance of the expanded
services, changes in the unemployment rates in the United States and in the
local markets in which the Founding Companies operate and the Company's ability
to negotiate lower insurance premiums. Many of these factors are beyond the
control of the Company and there can be no assurance that the Company's
operating and internal growth strategies will be successful or that it will be
able to generate cash flow adequate for its operation and to support internal
growth. See "Business -- Business Strategy."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company also
intends to grow significantly through the acquisition of additional temporary
staffing, staff leasing and complementary businesses. The Company expects to
face competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or manage
profitably additional businesses or to integrate successfully any acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Further, acquisitions involve a number of
special risks, including possible adverse effects on the Company's operating
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
may consider acquiring complementary businesses involved in permanent placements
and human resource consulting and there can be no assurance that these
complementary businesses can be successfully integrated. In addition, there can
be no assurance that businesses acquired in the future will achieve anticipated
revenues and earnings. See "Business -- Business Strategy."
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for a portion of the
consideration to be
10
<PAGE>
paid. In the event that the Common Stock does not maintain a sufficient market
value, or potential acquisition candidates are otherwise unwilling to accept
Common Stock as part of the consideration for the sale of their businesses, the
Company may be required to utilize more of its cash resources, if available, in
order to initiate and maintain its acquisition program. Upon completion of this
Offering, the Company will have approximately $ million of net proceeds
remaining for future acquisitions and working capital after payment of expenses
of the Mergers and this Offering, outstanding Founding Company indebtedness and
the cash portion of the purchase prices for the Founding Companies. If the
Company does not have sufficient cash resources, its growth could be limited
unless it is able to obtain additional capital through debt or equity financing.
The Company intends to obtain a bank line of credit to fund its working capital
and acquisition needs upon consummation of this Offering. However, there can be
no assurance that the Company will be able to obtain the line of credit or other
financing it will need for its acquisition program on terms that the Company
deems acceptable. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY. Demand for the Company's
temporary staffing and permanent placement services is significantly affected by
the general level of economic activity and unemployment in the United States.
When economic activity increases, temporary employees are often added before
full-time employees are hired. However, as economic activity slows, many
companies reduce their utilization of temporary employees prior to undertaking
layoffs of full-time employees. The Company may experience more competitive
pricing pressure during periods of economic downturn. Additionally, decreased
economic activity also leads to a decreased need for permanent placement
services. Therefore, any significant economic downturn could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL. In providing
temporary staffing services, the Company depends on its ability to attract,
train and retain personnel who possess the skills and experience necessary to
meet the staffing requirements of its clients. Competition for individuals with
proven skills in certain areas, particularly engineering, medical and technical,
is intense. The Company competes in several markets in which unemployment is
relatively low thereby increasing competition for employees. The Company must
continually evaluate, train and upgrade its base of available personnel to keep
pace with the needs of its clients. There can be no assurance that qualified
personnel will continue to be available to the Company in sufficient numbers and
on terms of employment acceptable to the Company. The inability to attract and
retain qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Industry Overview."
SUBSTANTIAL COMPETITION AND NEW MARKET ENTRANTS. The provision of
temporary staffing services is highly competitive and highly fragmented,
consisting of more than 9,300 firms. There are limited barriers to entry and new
competition frequently enters the market. Principal competitors in the Company's
markets are generally national temporary personnel companies with substantially
greater financial and marketing resources than those of the Company. Due to the
limited barriers to entry and as the temporary staffing industry grows, the
Company expects additional well-organized competitors to enter markets serviced
by the Company, some of which may have greater resources than the Company. Such
competition could limit the Company's ability to maintain or increase its market
share in the temporary staffing industry or maintain or increase gross margins
on temporary staffing services, any one of which could have a material adverse
effect on the financial condition and results of operations of the Company.
The provision of PEO services is also highly fragmented, with approximately
1,800 companies performing PEO services to some extent. The Company believes
that many of the PEO companies have limited operations; however, several leading
participants are significantly larger than the Company's PEO operations. The
Company encounters competition from "fee for service" companies, such as
payroll processing firms, insurance companies and human resource consultants.
Moreover, the Company expects that, as the provision of PEO services grows and
its regulatory framework becomes better established, well-organized competitors
with greater resources than the Company may enter the PEO market, possibly
11
<PAGE>
including large "fee for service" companies currently providing a more limited
range of services. See "Business -- Industry Overview" and
" -- Competition."
WORKERS' COMPENSATION INSURANCE AND BENEFIT PLANS; UNEMPLOYMENT TAXES AND
WORKERS COMPENSATION RATES. The maintenance of workers' compensation and health
insurance plans that cover worksite employees will be a significant part of the
Company's business. The health and workers' compensation contracts used by the
Founding Companies are provided by vendors with whom such Founding Companies
have established relationships and on terms that the Company believes to be
favorable. While the Company believes that replacement contracts could be
secured on competitive terms without causing significant disruption to the
Company's business, there can be no assurance in this regard. The Company is
evaluating various forms of workers' compensation insurance and will implement a
new program at such time as, in management's judgment, a more cost-effective
program is identified. The Company's future workers' compensation insurance
premiums are subject to adjustment based upon audits of the Company's employee
classification practices and other data provided to the insurance carrier.
Health insurance premiums, state unemployment taxes and workers'
compensation rates will be determined, in part, by the Company's (including the
Founding Companies) claims experience and will comprise a significant portion of
the Company's direct costs. The Company will employ extensive risk management
procedures in an attempt to control its claims incidence. However, should the
Company experience a large increase in claim activity, its unemployment taxes,
health insurance premiums or workers' compensation insurance rates may increase.
The Company's ability to incorporate such increases into its service fees to
clients could be constrained by contractual arrangements with clients, which
could result in a delay before such increases can be reflected in service fees.
As a result, such increases could have a material adverse effect on the
Company's financial condition or results of operations.
LIABILITY FOR WORKSITE EMPLOYEE PAYROLL. In both the temporary staffing
and PEO situations, the Company is obligated to pay the salaries, wages and
related benefit costs and payroll taxes of worksite employees. This obligation
will be as a principal, not merely as an agent of the client company and must be
fulfilled even if the client company does not make timely payment to the
Company. No assurance can be given whether the Company's ultimate liability for
worksite employee payroll and benefits costs will have a material adverse effect
on its financial condition or results of operations.
LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS. By providing temporary
staffing and PEO services, the Company will be exposed to the risk of claims
under employment and discrimination laws. A number of legal issues remain
unresolved with respect to the employment arrangement between a PEO and its
worksite employees. The Company's PEO agreement will establish the contractual
division of responsibilities between the Company and its clients for various
personnel management matters, including compliance with and liability under
various governmental regulations. However, the Company may act as a co-employer
in its PEO business, thereby subjecting it to liability for violations of these
or other laws despite these contractual provisions, even if it does not
participate in such violations. In addition, worksite employees may be deemed to
be agents of the Company, subjecting the Company to liability for the actions of
such worksite employees. See "Business -- Customers" and "Regulation."
GOVERNMENT REGULATION. The Company's costs could increase if there are any
material changes in government regulations. Recent federal and certain state
legislative proposals have included provisions extending health insurance
benefits to employees who do not presently receive such benefits. Due to the
wide variety of national and state proposals currently under consideration, the
impact of such proposals cannot be predicted. There can be no assurance that the
Company will be able to increase the fees charged to its clients in a timely
manner and in a sufficient amount to cover increased costs related to any new
benefits that may be extended to temporary employees. It is not possible to
predict whether other legislation or regulations affecting the Company's
operations will be proposed or enacted at the federal or state level. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Regulation."
While many states do not explicitly regulate PEO activities, 15 states have
passed laws that have licensing or registration requirements for PEO companies
and other states are considering such regulation.
12
<PAGE>
Immediately after the closing of this Offering, the Company will conduct PEO
operations in five of the states that regulate PEO operations. Such laws vary
from state to state but generally provide for monitoring the fiscal
responsibility of PEO companies. There can be no assurance that the Company will
be able to satisfy licensing requirements or other applicable regulations of any
particular state in which the Company subsequently commences PEO operations. For
a more complete description of these regulations, see "Regulation -- PEO."
In providing temporary staffing services, the Company is treated as the
employer of record. In providing PEO services, the Company assumes certain
obligations and responsibilities of an employer. However, laws applicable to the
employment situation (such as ERISA and federal and state employment tax laws)
do not specifically address the obligations and responsibilities of
non-traditional employers such as PEO companies. In addition, many states have
not addressed the PEO relationship for purposes of compliance with applicable
state laws governing the employer/employee relationship. If these or other
federal or state laws are ultimately applied to the Company's PEO relationship
with its worksite employees in a manner adverse to the Company, such an
application could adversely affect the Company's results of operations or
financial condition. See "Regulation." Additionally, the federal immigration
laws and regulations are becoming increasingly complex, stringent and expensive,
and there can be no assurance that continued compliance with existing or future
laws or regulations will not adversely affect the operations of the Company.
The IRS has established an Employee Leasing Market Segment Group for the
purpose of identifying specific compliance issues prevalent in certain segments
of the PEO industry. One issue that has arisen is whether a PEO can be a
co-employer of worksite employees, including officers and owners of client
companies, for various purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), including participation in the PEO's 401(k) plan. Should
the IRS conclude that a PEO is not a "co-employer" of worksite employees for
purposes of the Code, worksite employees could not continue to make salary
deferral contributions to a 401(k) Plan or pursuant to a cafeteria plan or
continue to participate in certain other employee benefit plans which may be
established by the Company. The Company believes that, although unfavorable to
the Company, a prospective application of such a conclusion (that is, one
applicable only to periods after the conclusion by the IRS is finalized) would
not have a material adverse effect on its financial position or results of
operations, as the affected Founding Company could continue to make available
similar benefit programs to its client companies at comparable cost. If such
conclusion were applied retroactively to disqualify a 401(k) Plan of the
Founding Companies, the employees' vested account balances under the 401(k) Plan
would become taxable and the affected Founding Company would lose its tax
deductions to the extent its matching contributions were not vested, a Founding
Company's Plan trust would become a taxable trust and such Founding Company
would be subject to liability with respect to trust earnings and its failure to
withhold applicable taxes with respect to certain contributions and trust
earnings. Further, the affected Founding Company or the Company would be subject
to liability, including penalties, with respect to its cafeteria plan for the
failure to withhold and pay taxes applicable to salary deferral contributions by
employees, including worksite employees. In such a scenario, the affected
Founding Company or the Company also would face the risk of client
dissatisfaction and potential litigation. Retroactive application by the IRS of
an adverse conclusion could have a material adverse effect on the Company's
financial position and results of operations.
POTENTIAL MALPRACTICE LIABILITY AND INSURANCE. Providing engineering,
specialty medical, legal and accounting services entails an inherent risk of
professional malpractice and other similar claims. The Company expects to
maintain insurance coverage that it believes will be adequate both as to risks
and amounts. Each Founding Company will maintain its existing insurance coverage
at its existing levels after the Mergers. The Company is evaluating various
insurance options and intends to implement a new program at such time as, in
management's judgment, a more cost-effective program is identified. The Company
believes that such insurance will extend to professional liability claims that
may be asserted against worksite employees of the Company. While the Company
believes that replacement insurance contracts could be secured on competitive
terms without causing significant disruption to the Company's business, there
can be no assurance in this regard. Additionally, although management believes
its
13
<PAGE>
professional malpractice coverage amounts are adequate, there can be no
assurance that the Company's actual future claims will not exceed the coverage
amounts. Should the Company experience a large claim on its professional
malpractice insurance, the rates for such insurance may increase. The Company's
ability to incorporate such increases into service fees to clients could be
constrained by contractual arrangements with clients, which could result in a
delay before such increases can be reflected in service fees. As a result, such
increases could have a material adverse effect on the Company's financial
condition or results of operations.
FLUCTUATIONS IN OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS. The
Company's results of operations may fluctuate significantly from quarter to
quarter or year to year. Results may fluctuate due to a number of factors,
including the timing of future acquisitions and branch office openings, seasonal
fluctuations in the businesses of the Company's clients, seasonal fluctuations
in the demand for staffing services and competitive factors. Accordingly,
quarterly comparisons of the Company's revenues and operating results should not
be relied on as an indication of future performance and the results of any
quarterly period may not be indicative of results to be expected for a full
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RELIANCE ON KEY PERSONNEL. Due in part to the Company's decentralized
business strategy, the Company will be highly dependent on the continuing
efforts of its executive officers and the senior management of the Founding
Companies, and will likely depend on the senior management of any significant
business it acquires in the future. The business or prospects of the Company
could be affected adversely if these persons do not continue in their management
role until the Company is able to attract and retain qualified replacements.
VOTING CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the
completion of the Mergers and this Offering, the Company's executive officers
and directors, former stockholders of the Founding Companies and entities
affiliated with any of them will hold shares representing voting interests of
approximately 48.1% (45.1% if the Underwriters' over-allotment option is
exercised in full), assuming the conversion by certain individuals of Common
Stock into Restricted Common Stock. These persons, if acting in concert, could
exercise control over the Company's affairs, elect the entire Board of Directors
or control the outcome of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon the closing of the Mergers and the Offering, 8,671,433 (9,241,433
if the Underwriters' over-allotment option is exercised) shares of Common Stock
will be outstanding. The 3,800,000 shares sold in this Offering (other than
shares that may be purchased by affiliates of the Company) will be freely
tradable. The remaining outstanding shares may be resold publicly only following
their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 and Rule 145 promulgated under the Securities Act
following a one-year holding period for previously unregistered shares). The
holders of those remaining shares have certain rights to have their shares
registered in the future under the Securities Act, but may not exercise such
registration rights and have agreed with the Company that they will not sell,
transfer or otherwise dispose of any of their shares, for one year following the
closing of this Offering. See "Shares Eligible for Future Sale." On completion
of this Offering, the Company also will have outstanding warrants to purchase up
to 50,000 shares of Common Stock, outstanding options to purchase 345,000 shares
of Common Stock and 605,000 shares of Common Stock reserved for issuance
pursuant to the 1997 Stock Awards Plan and 1997 Directors Stock Option Plan. The
Company intends to register all the shares subject to the options under the
Securities Act for public resale. The Company intends to register 3,000,000
additional shares of Common Stock under the Securities Act within 90 days after
completion of the Offering for issuance in connection with future acquisitions.
These shares generally will be freely tradable after their issuance by persons
not affiliated with the Company unless the Company contractually restricts their
resale. Sales, or the availability for sale of, substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the future ability of the Company to raise equity capital and
complete any additional acquisitions for Common Stock. See "Shares Eligible for
Future Sale."
14
<PAGE>
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE. Prior to this
Offering, there has been no public market for the Common Stock. Therefore, the
initial public offering price for the Common Stock will be determined by
negotiation between the Company and the Representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. See "Underwriting" for the factors to be considered in
determining the initial public offering price. The Company has applied to list
the Common Stock on the New York Stock Exchange. However, there can be no
assurance that an active trading market will develop subsequent to this Offering
or, if active trading develops, that it will be sustained. Additionally, the
Company must maintain certain financial and equity thresholds to continue to
have its Common Stock listed on the New York Stock Exchange.
After this Offering, the market price of the Common Stock may be subject to
significant fluctuations in response to numerous factors, including the timing
of any acquisitions by the Company, variations in the annual or quarterly
financial results of the Company or its competitors, changes by financial
research analysts in their estimates of the earnings of the Company, conditions
in the economy in general or in the Company's industry in particular,
unfavorable publicity or changes in applicable laws and regulations (or judicial
or administrative interpretations) affecting the Company or the staffing
business. From time to time, the stock market experiences significant price and
volume volatility, which may affect the market price of the Common Stock for
reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate and substantial dilution in the net tangible
book value of their stock of $ per share and may experience further dilution
in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. The Company's
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
authorizes the Board of Directors to issue, without stockholder approval, one or
more series of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the Common
Stock respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Company's Certificate of Incorporation provides for a classified
Board of Directors, which may also have the effect of inhibiting or delaying a
change in control of the Company. Certain provisions of the Delaware General
Corporation Law may also discourage takeover attempts that have not been
approved by the Board of Directors. See "Management" and "Description of
Capital Stock."
NONPAYMENT OF DIVIDENDS. The Company has never paid any cash dividends and
intends for the foreseeable future to retain any earnings otherwise available
for dividends for the future operation and growth of the Company's business. In
addition, the Company's financing arrangements will likely prohibit the payment
of cash dividends on its capital stock. See "Dividend Policy."
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements. Actual results
could differ materially from those projected in the forward-looking statements
as a result of any number of factors, including the risk factors set forth above
and elsewhere in this Prospectus. When used in this Prospectus, the words
"anticipate," "estimate," "believe," "project" and similar expressions
are intended to identify forward-looking statements. Such statements are subject
to certain risks, uncertainties and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated,
believed or projected. Among the key factors that have a direct bearing on the
Company's results of operations and the staffing business are the effects of
general economic factors and of various governmental regulations, the
fluctuation of the Company's direct costs and the costs and effectiveness of the
Company's business strategy. These and other factors are discussed above and
elsewhere in this Prospectus.
15
<PAGE>
THE COMPANY
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,200 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma combined 1996 revenues of $133.8 million were derived 69.3%
from temporary staffing and 30.7% from staff leasing or PEO services. Upon
consummation of the Offering, Nationwide Staffing will acquire through the
Mergers the eight Founding Companies, which have been in business for an average
of 15 years and currently have 28 offices and operations in 39 states and the
District of Columbia. The following is a description of the Founding Companies:
ALTERNATIVE SOLUTIONS, INC. -- Alternative Solutions, Inc.
("Alternative Solutions"), founded in 1982, is headquartered in Boston,
Massachusetts and also has branch offices in Springfield, Massachusetts and
East Hartford, Connecticut. Alternative Solutions provides temporary and
permanent, administrative and technical workers in specialized areas such
as the medical, legal and insurance industries, and PEO services. In
addition, Alternative Solutions also provides temporary light industrial
workers to various manufacturing industries. As of June 30, 1997,
Alternative Solutions provided approximately 688 worksite employees serving
240 clients in the Boston, Springfield and East Hartford areas. None of
Alternative Solutions' customers accounted for more than 10.0% of
Alternative Solutions' revenue for the twelve-month period ended June 30,
1997. Stephen M. Alter, Chief Executive Officer and founder of Alternative
Solutions and Keith D. Alter, President of Alternative Solutions, have been
employed by Alternative Solutions since its inception and will sign
three-year employment agreements to continue in their present positions
following consummation of the Offering. In addition, Mr. Stephen Alter will
become a director of the Company.
A.S.A.P. SERVICES, INC. -- A.S.A.P. Services, Inc. ("ASAP"),
founded in 1990, is headquartered in Springdale, Arkansas and has branch
offices in Fayetteville and Rogers, Arkansas and Joplin, Missouri. ASAP
specializes in supplying light industrial labor to the food processing and
manufacturing industries. As of June 30, 1997, ASAP provided approximately
668 worksite employees serving approximately 35 clients, primarily in
Arkansas and Missouri. One of ASAP's clients, Butterball Turkey Company, a
division of Armour Swift Eckrich, a division of Conagra Foods Incorporated,
generated approximately 67.8% of ASAP's revenue for the twelve-month period
ended June 30, 1997. Brenda S. Dougan and L. Paul Dobbs, the President and
Vice President of ASAP, respectively, will sign three-year employment
agreements to continue in their present positions with ASAP following
consummation of this Offering. In addition, Ms. Dougan will become a
director of the Company.
CARDINAL SERVICES, INC. -- Cardinal Services, Inc. ("Cardinal"),
founded in 1988, is headquartered in Coos Bay, Oregon and has four branch
offices in Eugene, Roseburg, Florence and Newport, Oregon. Cardinal
provides temporary and leased employees to numerous industries, including
the timber, paper and light industrial industries. As of June 30, 1997,
Cardinal employed approximately 1,456 worksite employees serving
approximately 400 clients in Oregon and California. None of Cardinal's
clients accounted for more than 10.0% of Cardinal's revenue for the
twelve-month period ended June 30, 1997. Quincy T. Freeman, Chief Executive
Officer of Cardinal, will sign a three-year employment agreement to
continue in his present position with Cardinal following consummation of
this Offering. In addition, Mr. Freeman will become a director of the
Company.
EMPLOYMENT ENTERPRISES, INC. -- Employment Enterprises, Inc.,
("Employment Enterprises") is headquartered in Manasses, Virginia and was
founded in 1980. Employment Enterprises operates through two wholly-owned
subsidiaries: (i) Temporary Solutions, Inc., a temporary staffing company
and (ii) Checks and Balances, Inc, a PEO. Employment Enterprises has five
branch offices in North Carolina and Virginia. Both subsidiaries specialize
in providing professional and clerical workers to the insurance and high
technology industries. As of June 30, 1997, Employment Enterprises provided
approximately 2,893 worksite employees in 37 states serving over 1,300
clients. Two of Employment
16
<PAGE>
Enterprises' clients, Allstate Insurance Company and Nationwide Mutual
Insurance Company, generated approximately 43.1% and 32.4% respectively, of
Employment Enterprises' revenue for the twelve-month period ended June 30,
1997. Jana W. Yeates and Lovey L. Hammel have served as the Chief Executive
Officer and President, respectively, of Employment Enterprises since its
inception and both will sign three-year employment agreements to continue
in their present positions with Employment Enterprises following
consummation of the Offering. In addition, Ms. Hammel will become a
director of the Company.
EVINS PERSONNEL GROUP -- Evins Personnel Group is comprised of an
affiliated group of corporations that are collectively referred to in this
Prospectus as the "Evins Group." The first Evins Group corporation was
founded in 1967, and all the companies are headquartered in Austin, Texas.
Evins Group maintains branch offices in Austin, Abilene, Killeen and San
Angelo, Texas and specializes in providing temporary staffing, permanent
placements and PEO services to companies in the Austin and central Texas
area and to various agencies of the State of Texas. Evins Group's employees
fill a wide range of roles including clerical and computer, circuit board
and semi-conductor fabrication. As of June 30, 1997, Evins Group provided
approximately 488 worksite employees serving approximately 154 clients.
Various agencies of the State of Texas accounted for approximately 47.7% of
Evins Group's revenue for the twelve-month period ended June 30, 1997. Mary
E. Evins has served as the President of Evins Group since its inception and
will sign a three-year employment agreement to continue in her present
position with Evins Group following consummation of this Offering. In
addition, Ms. Evins will become a director of the Company.
GLOBAL TECHNICAL SERVICES, INC. -- Global Technical Services, Inc.
("GTS"), located in Fort Worth, Texas, began operations in 1973 as a
division of The Global Group, Inc., a privately held printing and
publishing company located in Fort Worth. GTS was operated as a division of
The Global Group until 1989 when it was spun off as a separate corporation.
As of June 30, 1997, GTS provided approximately 677 worksite employees in
12 states serving 30 clients. GTS specializes in supplying engineers and
skilled and unskilled labor to the aerospace industry. Two of GTS's
customers, Lockheed Martin & Bell Helicopter (Textron) generated
approximately 19.9% and 12.2%, respectively, of GTS's revenues for the
twelve-month period ended June 30, 1997. Paul L. Milligan has served as the
President of GTS since 1989 and will sign a three-year employment agreement
to continue in his present position with GTS following consummation of this
Offering. In addition, Mr. Milligan will become a director of the Company.
HP SERVICES, INC. -- HP Services, Inc. ("HP Services"), was founded
in 1990 to acquire the assets of Gulf Coast Maintenance, Inc., which had
been in operation since 1978. HP Services is headquartered in Alvin, Texas
and specializes in supplying light industrial labor to the petrochemical
industry. As of June 30, 1997, HP Services provided approximately 411
worksite employees to eight clients located in the Texas Gulf Coast region.
One of HP Services' clients, Formosa Plastics Corporation, USA, generated
approximately 38.1% of HP Services revenue for the twelve-month period
ended June 30, 1997. Gary D. Pitts has served as President of HP Services
since its inception and will sign a three-year employment agreement to
continue in his present position with HP Services following consummation of
this Offering. In addition, Mr. Pitts will become a director of the
Company.
TECHNOLOGY PLUS, INC. -- Technology Plus, Inc. ("Technology Plus"),
founded in 1985, is headquartered in Lee's Summit, Missouri, a suburb of
Kansas City, Missouri and has branch offices in St. Louis, Missouri;
Birmingham, Alabama and New Orleans, Louisiana. Technology Plus specializes
in providing engineers, designers, CAD personnel and CAD services to the
petrochemical, oil and gas refining and gas transportation industries. As
of June 30, 1997, Technology Plus provided approximately 139 worksite
employees in 20 states to approximately 49 clients. Four of Technology
Plus' clients, Monsanto Company, Bayer Corporation, Waldenar S. Nelson and
Company Incorporated, and Bechtel Corporation generated approximately
32.9%, 14.2%, 12.1% and 10.9%, respectively, of Technology Plus' revenue
for the twelve-month period ended June 30, 1997. Mr. Richard L. Bronson
17
<PAGE>
and Bobby W. Watson have served as President and Executive Vice President,
of Technology Plus, for 12 and seven years, respectively, and both will
sign three-year employment agreements to continue in their present
positions with Technology Plus following consummation of the Offering. In
addition, Mr. Bronson will become a director of the Company.
The Company's executive offices are located at 600 Travis, Suite 6200, in
Houston, Texas and its telephone number is (713) 223-7742.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, after deducting the underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $ million ($
million if the Underwriters' over-allotment option is exercised in full).
Of the net proceeds, $22.6 million will be used to pay the cash portion of
the purchase prices for the Founding Companies, of which approximately $15.8
million will be paid to former stockholders of the Founding Companies who will
become directors or holders of more than 5.0% of the Common Stock of the
Company. Approximately $5.5 million of the net proceeds will be used to repay
indebtedness assumed by the Company in the Mergers. Of such amount, $0.5
million, $0.3 million and $1.1 million are owed to stockholders and affiliates
of Cardinal, Evins Group, and GTS, respectively. See "Certain Transactions."
The approximately $ million of remaining net proceeds will be used for
working capital and general corporate purposes, which are expected to include
future acquisitions. The Company currently has no binding agreements or letters
of intent to effect any acquisitions. Pending such uses, the net proceeds will
be invested in short-term, interest-bearing, investment grade securities.
The Company is currently negotiating with various banks to obtain a $30
million credit facility, which the Company believes will be available upon the
closing of this Offering. There can be no assurance that any line of credit will
be obtained or that, if obtained, it will be on terms that are favorable to the
Company. See "Risk Factors -- Risks Related to Acquisition Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions. The Company does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. In addition, in the event the Company
is successful in obtaining one or more lines of credit, it is likely that any
such facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender. See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Combined."
Several of the Founding Companies will make S Corporation Distributions and
C Corporation Distributions prior to the Mergers totaling $1.3 million. In order
to fund these distributions, the Founding Companies will incur liabilities of
approximately $0.3 million.
19
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term debt
obligations and capitalization as of June 30, 1997 (i) of the Company on a pro
forma combined basis to give effect to the Mergers; and (ii) of the Company on a
pro forma combined as adjusted basis to give effect to both the Mergers and the
Offering and the application of the estimated net proceeds therefrom. See
"Selected Financial Data" and "Use of Proceeds." This table should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company and the Notes thereto included elsewhere in this Prospectus.
JUNE 30, 1997
-------------------------
PRO FORMA
COMBINED AS ADJUSTED
(IN THOUSANDS)
Total short-term debt................ $ 4,735 $--
========= ===========
Long-term debt obligations, less
current maturities................. $ 431 $--
Stockholders' equity:
Common Stock: $0.01 par value,
55,000,000 shares authorized;
4,871,433 and 8,671,433 shares
issued and outstanding,
respectively(1)............... 49 87
Additional paid-in capital...... 29,388 70,969
Retained earnings............... (1,283) (1,283)
--------- -----------
Total stockholders'
equity..................... 28,154 69,773
--------- -----------
Total
capitalization........ $28,585 $69,773
========= ===========
- ------------
(1) Excludes (a) 50,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants, (b) up to 850,000 shares available for
issuance under the 1997 Stock Awards Plan, 325,000 of which have been
granted to date, and (c) up to 100,000 shares available for issuance under
the 1997 Directors Stock Option Plan, 20,000 of which have been granted to
date and 10,000 of which will be issued upon the consummation of the
Offering. See "Management -- 1997 Stock Awards Plan", "-- Directors
Compensation", "Certain Transactions" and "Description of Capital
Stock."
20
<PAGE>
DILUTION
The deficit in pro forma combined net tangible book value of the Company at
June 30, 1997 was approximately $19.7 million, or $4.05 per share of Common
Stock. The deficit in pro forma combined net tangible book value per share
represents the amount of the Company's stockholders' equity, less intangible
assets, divided by the number of shares of Common Stock issued and outstanding
after giving effect to the Mergers. Net tangible book value dilution per share
represents the difference between the amount per share paid by purchasers of
shares of Common Stock in the Offering and the pro forma net tangible book value
per share of Common Stock immediately after completion of the Offering. After
giving effect to the sale of 3,800,000 shares of Common Stock by the Company in
the Offering at the Offering Price and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
June 30, 1997 would have been $21.9 million or $2.52 per share. This represents
an immediate increase in pro forma net tangible book value of $6.57 per share to
stockholders as of June 30, 1997 and an immediate dilution in pro forma net
tangible book value of $ per share to purchasers of Common Stock in
the Offering. The following table illustrates the dilution per share:
Assumed initial public offering price
per share.......................... $
---------
Pro forma deficit in net
tangible book value per share
before the Offering............ ($ 4.05)
Increase in pro forma net
tangible book value per share
attributable to new
investors...................... 6.57
---------
Pro forma net tangible book value per
share after the Offering........... 2.52
---------
Dilution per share to new
investors.......................... $
=========
The following table shows, on a pro forma basis as of June 30,1997, the
difference between existing stockholders prior to the Offering and new investors
with respect to the number of shares purchased from the Company, the aggregate
cash consideration paid and the average price per share paid to the Company.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION(1) AVERAGE
----------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C>
Existing stockholders................ 4,871,433 56.2% $ % $5.78
New investors........................ 3,800,000 43.8% %
--------- ------- ------ -------
Total........................... 8,671,433 100.0% $ 100.0%
========= ======= ====== =======
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity of the Founding Companies before this Offering,
adjusted to reflect: (i) the cash portion of the consideration payable to
the stockholders of the Founding Companies in connection with the Mergers;
and (ii) the S Corporation Distributions and C Corporation Distributions.
See "Use of Proceeds" and "Capitalization."
21
<PAGE>
SELECTED FINANCIAL DATA
Nationwide Staffing will acquire the Founding Companies simultaneously with
and as a condition to the consummation of this Offering. For financial statement
presentation purposes, however, Alternative Solutions has been identified as the
accounting acquiror. The following selected historical financial data of
Alternative Solutions for the years ended, and as of, April 30, 1995, 1996 and
1997 and December 31, 1996 have been derived from the audited financial
statements of Alternative Solutions included elsewhere in this Prospectus. The
following selected historical financial data for Alternative Solutions for the
years ended, and as of, April 30, 1993 and 1994 and for the six months ended
June 30, 1996 and 1997 and as of June 30, 1997 have been derived from unaudited
financial statements and, in the opinion of Alternative Solutions, reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such data. The following summary unaudited pro forma financial
data presents certain data for the Company, as adjusted for (i) the effects of
the Mergers on a historical basis, (ii) the effects of certain pro forma
adjustments to the historical financial statements described below and (iii) the
consummation of the Offering and the application of the net proceeds therefrom.
See the Unaudited Pro Forma Combined Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, YEAR ENDED JUNE 30,
----------------------------------------------------- DECEMBER 31, --------------------
1993 1994 1995 1996 1997 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
ALTERNATIVE SOLUTIONS:
Revenues............................. $ 7,050 $ 10,053 $ 11,461 $ 12,381 $ 13,681 $ 12,855 $ 5,898 $ 6,936
Cost of services..................... 5,238 7,742 8,990 9,805 10,278 9,792 4,548 5,183
--------- --------- --------- --------- --------- ------------ --------- ---------
Gross profit......................... 1,812 2,311 2,471 2,576 3,403 3,063 1,350 1,753
Operating costs and expenses......... 1,641 2,130 2,312 2,486 3,241 2,988 1,303 1,602
--------- --------- --------- --------- --------- ------------ --------- ---------
Operating income..................... 171 181 159 90 162 75 47 151
Interest and other, net.............. (30) (38) (44) (18) 13 (25) (14) 14
--------- --------- --------- --------- --------- ------------ --------- ---------
Income before income tax............. 141 143 115 72 175 50 33 167
Income tax expense................... 41 57 51 36 80 15 13 82
--------- --------- --------- --------- --------- ------------ --------- ---------
Net income........................... $ 100 $ 86 $ 64 $ 36 $ 95 $ 35 $ 20 $ 85
========= ========= ========= ========= ========= ============ ========= =========
PRO FORMA COMBINED(1):
Revenues.................................................................................... $133,768 $ 60,503 $ 77,259
Cost of services............................................................................ 116,626 53,053 66,672
------------ --------- ---------
Gross profit................................................................................ 17,142 7,450 10,587
Operating costs and expenses(2)............................................................. 11,017 4,591 6,411
Depreciation and amortization(3)............................................................ 1,541 772 761
------------ --------- ---------
Operating income............................................................................ 4,584 2,087 3,415
Interest and other, net(4).................................................................. 95 37 56
------------ --------- ---------
Income before income tax.................................................................... 4,679 2,124 3,471
Income tax expense(5)....................................................................... 2,291 1,062 1,590
------------ --------- ---------
Net income.................................................................................. $ 2,388 $ 1,062 $ 1,881
============ ========= =========
Net income per share........................................................................ $ 0.31 $ 0.14 $ 0.25
Shares used in computing pro forma net income per share(6).................................. 7,640 7,640 7,640
<CAPTION>
ALTERNATIVE SOLUTIONS, INC.
----------------------------------------------------------------------------------------
AS OF APRIL 30, AS OF AS OF
--------------------------------------------------------- DECEMBER 31, JUNE 30,
1993 1994 1995 1996 1997 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(9)................... $ 95 $ 70 $ 163 $ 267 $ 378 $ 380 $ 466
Total assets......................... 1,071 1,637 1,636 1,434 1,976 1,875 1,948
Long term debt, net of current
portion............................ -- -- -- -- -- -- --
Stockholders' equity(9).............. 229 315 387 329 425 434 519
</TABLE>
COMBINED COMPANIES
-------------------------
PRO FORMA AS
COMBINED(7) ADJUSTED(8)
BALANCE SHEET DATA:
Working capital(9)................... $ 1,324 $19,878
Total assets......................... 65,776 79,272
Long term debt, net of current
portion............................ 431 --
Stockholders' equity(9).............. 28,154 69,773
(FOOTNOTES ON FOLLOWING PAGE)
22
<PAGE>
- ------------
(1) During the periods presented above, the Founding Companies were not under
common control or management. The unaudited pro forma combined income
statement data assume that the Mergers and the Offering were consummated on
January 1, 1996 and are not indicative of the results the Company would have
achieved had these events actually occurred on such date or of the Company's
future performance. Neither the savings from consolidating certain
operational and administrative functions nor the costs of corporate overhead
have been included in the pro forma combined financial information.
(2) The unaudited pro forma combined income statement data include an aggregate
of approximately $2.7 million, $1.2 million and $1.3 million for the twelve
months ended December 31, 1996 and the six months ended June 30, 1996 and
1997, respectively, in pro forma reductions for the Compensation
Differential.
(3) Includes amortization of goodwill over a 40-year period.
(4) Adjusted to repay $5.5 million of debt assumed by the Company in the Mergers
and to eliminate the related interest expense.
(5) Assumes a corporate income tax rate of 39% and the non-deductibility of
goodwill amortization for federal income tax purposes.
(6) The number of outstanding shares used in computing net income per share
includes (i) 1,300,715 shares outstanding prior to the Mergers and Offering,
(ii) 3,570,718 shares issued to owners of the Founding Companies, (iii)
31,538 net shares that would be outstanding if the warrants and options were
exercised and the proceeds used to repurchase shares at the Offering Price
and (iv) 2,737,038 of the 3,800,000 shares sold in the Offering necessary to
pay the cash portion of the purchase prices for the Founding Companies, to
repay indebtedness and to pay estimated Offering expenses. The remaining
1,062,962 shares have been excluded from shares outstanding in computing net
income per share and represent the net cash proceeds to be used for working
capital and general corporate purposes.
(7) The unaudited pro forma combined balance sheet data assume that the Mergers
were closed on June 30, 1997.
(8) Adjusted for the sale of the 3,800,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Certain Transactions."
(9) Several of the Founding Companies are S corporations. Prior to the Mergers,
these Founding Companies will make an aggregate of $1.3 million of S
Corporation Distributions and C Corporation Distributions. In order to fund
these distributions, the Founding Companies will utilize existing cash and
incur liabilities of approximately $0.3 million prior to closing.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS, THE HISTORICAL FINANCIAL STATEMENTS OF
NATIONWIDE STAFFING AND THE FOUNDING COMPANIES AND THE NOTES THERETO AND
"SELECTED FINANCIAL DATA" APPEARING ELSEWHERE IN THIS PROSPECTUS.
INTRODUCTION
The Company's revenues are derived from providing services, to clients with
billings related to a variety of services, including temporary staffing, staff
leasing, temporary to permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting services.
Cost of services consist primarily of salaries and benefits for employees
provided to clients. Operating costs and expenses consist primarily of
compensation and related benefits to the Founding Companies' owners and certain
key employees, administrative salaries and benefits, marketing, communications
and professional fees.
The Founding Companies have been managed throughout the periods presented
as independent private companies, and as such, their results of operations
reflect a variety of tax structures (S corporations and C corporations) which
have influenced, among other things, their historical levels of owners'
compensation. These owners and certain key employees have agreed to certain
reductions in their compensation and benefits in connection with the
organization of the Company and the Mergers.
The Company, which has conducted no operations to date other than in
connection with this Offering and the Mergers, has estimated the savings that it
expects to realize by consolidating certain general and administrative
functions. To the extent the owners and certain key employees of the Founding
Companies have agreed prospectively to reductions in salary, bonuses, benefits
and rent expense paid to the owners, these reductions have been reflected in the
unaudited pro forma combined statements of income. With respect to other
potential costs savings, the Company has not and cannot quantify these savings
until completion of the combination of the Founding Companies. It is anticipated
that these savings will be partially offset by the costs of being a publicly
held company and the incremental increase in costs related to the Company's new
management. However, these costs, like the savings that they offset, cannot be
estimated at this time. These costs and possible savings may also make a
comparison of historical operating results not comparable to, or indicative of,
future performance.
COMBINED FOUNDING COMPANIES
RESULTS OF OPERATIONS -- COMBINED
The Combined Founding Companies Statements of Operations data for fiscal
1994, 1995 and 1996 and the six months ended June 30, 1996 and 1997 do not
purport to present results of operations of the combined Founding Companies in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, gross profit and operating costs and expenses of the
individual Founding Companies on a historical basis and exclude the effects of
pro forma adjustments. This data 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 Founding Companies used different tax structures (S
corporations and C corporations) during the periods presented; (iii) the Company
will incur incremental costs related to its new corporate management and the
costs of being a public company; (iv) the Company will use the purchase method
to record the Mergers, resulting in the recording of goodwill that will be
amortized over 40 years; and (v) the combined data does not reflect the
Compensation Differential and potential benefits and costs savings the Company
expects to realize when operating as a combined entity.
24
<PAGE>
The following table sets forth certain unaudited combined data and data as
a percentage of revenues of the Founding Companies on a historical basis and
excludes the effects of pro forma adjustments for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED(1) JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 101.8 100.0% $ 113.4 100.0% $ 134.6 100.0% $ 60.5 100.0%
Cost of services..................... 90.2 88.6% 100.1 88.3% 117.1 87.0% 53.0 87.6%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 11.6 11.4% 13.3 11.7% 17.5 13.0% 7.5 12.4%
Operating costs and expenses......... 10.6 10.4% 11.4 10.1% 14.3 10.6% 6.0 9.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 1.0 1.0% $ 1.9 1.7% $ 3.2 2.4% $ 1.5 2.5%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 77.3 100.0%
Cost of services..................... 66.7 86.3%
--------- ---------
Gross profit......................... 10.6 13.7%
Operating costs and expenses......... 7.8 10.1%
--------- ---------
Operating income..................... $ 2.8 3.6%
========= =========
- ------------
(1) The fiscal years presented are as follows: Alternative Solutions -- the
fiscal years ended April 30, 1995, 1996 and 1997; Cardinal -- the fiscal
years ended June 30, 1995, 1996 and 1997; Employment Enterprises -- the
fiscal years ended November 30, 1994 and 1995 and the year ended December
31, 1996; and ASAP, Evins Group, GTS, HP Services and Technology Plus -- the
years ended December 31, 1994, 1995 and 1996.
COMBINED RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
REVENUES. Revenues increased $16.8 million, or 27.8%, from $60.5 million
for the six months ended June 30, 1996 to $77.3 million for the six months ended
June 30, 1997. The increase in revenues occurred primarily at GTS and Employment
Enterprises. Revenues at GTS increased $6.6 million primarily as a result of
several new contracts which were entered into subsequent to June 30, 1996.
Revenues at Employment Enterprises increased $3.9 million primarily as a result
of obtaining new clients in the banking industry prior to and during the period
ended June 30, 1997. All of the Founding Companies reported an increase in
revenues from the six months ended June 30, 1996 when compared to the six months
ended June 30, 1997.
GROSS PROFIT. Gross profit increased $3.1 million, or 41.3%, from $7.5
million for the six months ended June 30, 1996 to $10.6 million for the six
months ended June 30, 1997. Gross profit, as a percent of total revenues,
increased from 12.4% for the six months ended June 30, 1996 to 13.7% for the six
months ended June 30, 1997 primarily due to an increase in profitability for
Alternative Solutions associated with permanent placements and also due to cost
savings from technological improvements made at Employment Enterprises.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $1.7
million, or 28.3%, from $6.0 million for the six months ended June 30, 1996 to
$7.7 million for the six months ended June 30, 1997. Operating costs and
expenses increased from 9.9% of total revenues in the six months ended June 30,
1996 to 10.0 % of sales in the six months ended June 30, 1997. The increase in
operating costs and expenses primarily was due to an increase in owners'
compensation as well as increased expenses related to internal staff to support
new public-sector contracts awarded to Evins Group in prior periods.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $1.4 million, or 93.3%, from $1.5 million for the six months ended
June 30, 1996 to $2.9 million for the six months ended June 30, 1997. Operating
income as a percent of total revenue increased from 2.5% for the six months
ended June 30, 1996 to 3.8% of sales for the six months ended June 30, 1997.
COMBINED RESULTS FOR FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues increased $21.2 million, or 18.7%, from $113.4 million
for 1995 to $134.6 million for 1996. The increase in revenues occurred primarily
at GTS, Employment Enterprises and Technology Plus. Revenues at GTS increased
$5.5 million primarily as a result of several new contracts. Revenues at
Employment Enterprises increased $3.5 million primarily as a result of obtaining
new clients in 1996 from sales efforts started in prior periods. Technology Plus
revenues increased $2.5 million due
25
<PAGE>
primarily to overtime billings associated with existing clients and partially
due to billings with new clients. All of the Founding Companies reported an
increase in revenues from 1995 to 1996.
GROSS PROFIT. Gross profit increased $4.2 million, or 31.6%, from $13.3
million for 1995 to $17.5 million for 1996. Gross profit, as a percent of total
revenues, increased from 11.7% in 1995 to 13.0% in 1996 due to a combination of
factors, such as a reduction in workers' compensation insurance expense for
Alternative Solutions and an increase in revenues without a commensurate
increase in costs for worksite employees for Evins Group.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $2.9
million, or 25.4%, from $11.4 million for 1995 to $14.3 million for 1996.
Operating costs and expenses increased from 10.1% of total revenues in 1995 to
10.6% of total revenues in 1996. The dollar and percentage increase in operating
costs and expenses was primarily due to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $1.3 million or 68.4% from $1.9 million for 1995 to $3.2 million for
1996. Operating income as a percent of total revenue increased from 1.7% for
1995 to 2.4% of sales for 1996.
COMBINED RESULTS FOR FISCAL 1995 COMPARED TO FISCAL 1994
REVENUES. Revenues increased $11.6 million, or 11.4%, from $101.8 million
for 1994 to $113.4 million for 1995. The increase in revenues occurred primarily
at Employment Enterprises, Technology Plus and Cardinal. Revenues increased at
Employment Enterprises by $3.9 million, at Cardinal by $3.4 million and at
Technology Plus by $3.2 million primarily as a result of the development of the
existing client base in each instance. All of the Founding Companies, except
GTS, experienced an increase in revenues from 1994 to 1995. GTS reported a
decline in revenues of $2.0 million primarily due to a significant downturn in
the fourth quarter of 1995 for two existing clients which subsequently returned
to historical revenue levels in the first quarter of 1996.
GROSS PROFIT. Gross profit increased $1.7 million, or 14.7%, from $11.6
million for 1994 to $13.3 million for 1995. Gross profit, as a percent of total
revenues, increased from 11.4% in 1994 to 11.7% in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.8
million, or 7.5%, from $10.6 million for 1994 to $11.4 million for 1995.
Operating costs and expenses decreased from 10.4% of total revenues in 1994 to
10.1% of sales in 1995. The dollar increase in operating costs and expenses was
primarily due to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased $0.9 million or 90.0% from $1.0 million for 1994 to $1.9 million for
1995. Operating income as a percent of total revenue increased from 1.0% for
1994 to 1.7% of sales for 1995.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED
On a combined basis, the Founding Companies generated $2.1 million of net
cash from operating activities for the six months ended June 30, 1997, primarily
at HP Services, GTS, ASAP and Technology Plus. There was no material cash used
in investing activities. Net cash used in financing activities was $1.8 million
and consisted of net decreases in debt and distributions to stockholders. At
June 30, 1997 the combined Founding Companies had working capital of $2.6
million and $4.9 million of outstanding debt.
In connection with and prior to the Mergers, certain Founding Companies
will make S Corporation Distributions to their owners of substantially all of
their previously taxed undistributed earnings. In addition, several of the
Founding Companies which are C corporations have elected to withdraw retained
earnings prior to the Merger. The pro forma combined financial statements as of
June 30, 1997 and for the six months then ended, included elsewhere in this
Prospectus, reflect pro forma adjustments for the estimated amount of $1.3
million for such distributions.
On a combined basis, the Founding Companies generated $1.6 million of net
cash from operating activities during fiscal 1996, primarily at ASAP, HP
Services and Employment Enterprises. Net cash used
26
<PAGE>
in investing activities was $0.4 million on a combined basis, primarily for
equipment purchases at GTS. Net cash used in financing activities was $1.4
million on a combined basis, consisting of net reductions in debt and
distributions to stockholders. At December 31, 1996, the combined Founding
Companies had working capital of $1.6 million and total debt of $5.6 million.
The Company is negotiating a $30 million revolving line of credit facility
with various banking organizations. Such proposed credit facility will be used
for acquisitions, capital expenditures, and for general corporate purposes. The
proposed credit facility most likely will require the Company to comply with
various loan covenants including (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness, and (iii) restrictions on liens,
guarantees, advances and dividends. The proposed credit facility should also be
subject to customary drawing conditions and the consummation of the Offering.
The Company expects to pursue acquisition opportunities and to fund those
acquisitions through the issuance of additional Common Stock, borrowings,
including the use of amounts available under the proposed credit facility, and
cash flow from operations. The Company anticipates that its cash flow from
operations will provide cash in excess of the Company's normal working capital
needs, debt service requirements and planned capital expenditures for equipment.
On a combined basis, the Founding Companies made capital expenditures of $0.5
million in fiscal 1996.
After giving effect to the Mergers and the Offering and the S Corporation
Distributions and C Corporation Distributions, the Company will have combined
pro forma working capital of $19.9 million and no long-term debt as of June 30,
1997. The Company anticipates that its existing working capital, cash flow from
operations and credit facilities will be sufficient to meet the Company's
working capital needs through the end of fiscal 1998.
ALTERNATIVE SOLUTIONS
Founded in 1982, Alternative Solutions is headquartered in Boston,
Massachusetts, and also has two other branch offices. Alternative Solutions
specializes in providing temporary administrative workers in specialized areas
such as the medical, legal and insurance industries and provides temporary light
industrial workers to various manufacturing industries primarily in
Massachusetts and Connecticut.
RESULTS OF OPERATIONS -- ALTERNATIVE SOLUTIONS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED APRIL 30, JUNE 30,
---------------------------------------------------------------- --------------------
1995 1996 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 11,461 100.0% $ 12,381 100.0% $ 13,681 100.0% $ 5,898 100.0%
Cost of services..................... 8,990 78.4% 9,805 79.2% 10,278 75.1% 4,548 77.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,471 21.6% 2,576 20.8% 3,403 24.9% 1,350 22.9%
Operating costs and expenses......... 2,312 20.2% 2,486 20.1% 3,241 23.7% 1,303 22.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 159 1.4% $ 90 0.7% $ 162 1.2% $ 47 0.8%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 6,936 100.0%
Cost of services..................... 5,183 74.7%
--------- ---------
Gross profit......................... 1,753 25.3%
Operating costs and expenses......... 1,602 23.1%
--------- ---------
Operating income..................... $ 151 2.2%
========= =========
ALTERNATIVE SOLUTIONS RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased $1.0 million, or 16.9%, from $5.9 million for
the six months ended June 30, 1996 to $6.9 million for the six months ended June
30, 1997. This increase was attributable to an increase in permanent placement
revenue and expansion with three new divisions.
GROSS PROFIT. Gross profit increased $0.4 million or 28.6% from $1.4
million for the six months ended June 30, 1996 to $1.8 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, increased from
22.9% for the six months ended June 30, 1996 to 25.3% of sales for the six
months
27
<PAGE>
ended June 30, 1997 primarily due to an increase in permanent placement revenues
which enjoy higher profit margins than other lines of business.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.3
million, or 23.1%, from $1.3 million for the six months ended June 30, 1996 to
$1.6 million for the six months ended June 30, 1997. Operating costs and
expenses as a percent of total revenues increased from 22.1% in the six months
ended June 30, 1996 to 23.1% in the six months ended June 30, 1997. The dollar
and percentage increase in operating costs and expenses was primarily
attributable to an increase in owner compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 325.5%, from approximately $47,000 or 0.8% of revenues in the six
months ended June 30, 1996 to $0.2 million, or 2.2% of revenues, in the six
months ended June 30, 1997.
ALTERNATIVE SOLUTIONS RESULTS FOR YEAR ENDED APRIL 30, 1997 COMPARED TO YEAR
ENDED APRIL 30, 1996
REVENUES. Revenues increased $1.3 million or 10.5%, from $12.4 million in
1996 to $13.7 million in 1997. The increase was related to an increase in sales
to new clients.
GROSS PROFIT. Gross profit increased $0.8 million or 30.8% from $2.6
million for 1996 to $3.4 million for 1997. Gross profit, as a percent of sales,
increased from 20.8% in 1996 to 24.9% of sales in 1997 primarily attributed to a
reduction in workers' compensation insurance expenses.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.7
million or 28.0% from $2.5 million in 1996 to $3.2 million in 1997. Operating
costs and expenses as a percent of total revenues increased from 20.1% in 1996
to 23.7% of sales in 1997. The dollar and percentage increase was primarily
related to an increase in owner compensation.
OPERATING INCOME. As a result of the foregoing, operating income increased
100.0% from $0.1 million, or 0.7% of revenues, in 1996 to $0.2 million or 1.2%
of revenues in 1997.
ALTERNATIVE SOLUTIONS RESULTS FOR YEAR ENDED APRIL 30, 1996 COMPARED TO YEAR
ENDED APRIL 30, 1995
REVENUES. Revenues increased $0.9 million or 7.8%, from $11.5 million in
1995 to $12.4 million in 1996. The increase was primarily related to an increase
in revenues generated from new clients.
GROSS PROFIT. Gross profit increased $0.1 million or 4.0% from $2.5
million for 1995 to $2.6 million for 1996. Gross profit, as a percent of sales,
decreased from 21.6% in 1995 to 20.8% of sales in 1996 primarily due to an
increase in costs of worksite employees relative to pricing to clients.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million or 8.7% from $2.3 million in 1995 to $2.5 million in 1996. Operating
costs and expenses, as a percent of revenues, decreased from 20.2% in 1995 to
20.1% of sales in 1996.
OPERATING INCOME. As a result of the foregoing, operating income decreased
50.0% from $0.2 million, or 1.4% of revenues in 1995, to $0.1 million or 0.7% of
revenues in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- ALTERNATIVE SOLUTIONS
Alternative Solutions generated no material net cash from operations for
the six months ended June 30, 1997. Net cash used in investing activities and
net cash used in financing activities was likewise not material. At June 30,
1997, Alternative Solutions had working capital of $0.5 million and $0.3 million
in outstanding debt.
Alternative Solutions generated $0.2 million in net cash from operating
activities for the twelve months ended April 30, 1997. No cash was used in
investing activities. No net cash was used in financing activities nor in
financing activities. At April 30, 1997, Alternative Solutions had working
capital of $0.4 million and $0.3 million of outstanding debt.
28
<PAGE>
ASAP
Founded in 1990, ASAP specializes in supplying light industrial labor to
the food processing and manufacturing industries. ASAP is headquartered in
Springdale, Arkansas with branches in three other cities and services clients
primarily in Arkansas and Missouri.
RESULTS OF OPERATIONS -- ASAP
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 4,099 100.0% $ 6,132 100.0% $ 2,517 100.0% $ 4,049 100.0%
Cost of services..................... 3,447 84.1% 5,016 81.8% 2,045 81.2% 3,298 81.5%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 652 15.9% 1,116 18.2% 472 18.8% 751 18.5%
Operating costs and expenses......... 272 6.6% 537 8.8% 186 7.4% 388 9.6%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 380 9.3% $ 579 9.4% $ 286 11.4% $ 363 9.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
ASAP RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
REVENUES. Revenues increased $1.5 million, or 60.0%, from $2.5 million for
the six months ended June 30, 1996 to $4.0 million for the six months ended June
30, 1997. This increase was attributable to the addition of two new branch
locations.
GROSS PROFIT. Gross profit increased $0.2 million or 40.0% from $0.5
million for the six months ended June 30, 1996 to $0.7 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, decreased from
18.8% in the six months ended June 30, 1996 to 18.5% of sales in the six months
ended June 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million, or 100.0%, from $0.2 million for the six months ended June 30, 1996 to
$0.4 million for the six months ended June 30, 1997. Operating costs and
expenses as a percent of total revenues increased from 7.4% in the six months
ended June 30, 1996 to 9.6% in the six months ended June 30, 1997. The dollar
and percentage increase in operating costs and expenses were primarily
attributable to an increase in administrative overhead related to the opening of
the new branch facility as well as expenses associated with a new management
information system.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 33.3%, from $0.3 million, or 11.4% of revenues, in the six months
ended June 30, 1996 to $0.4 million, or 9.0% of revenues, in the six months
ended June 30, 1997.
ASAP RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER
31, 1995
REVENUES. Revenues increased $2.0 million or 48.8%, from $4.1 million in
1995 to $6.1 million in 1996. The increase was related to a significant increase
in revenues with an existing client and addition of a new branch location.
GROSS PROFIT. Gross profit increased $0.4 million or 57.1% from $0.7
million for 1995 to $1.1 million for 1996. Gross profit, as a percent of sales,
increased from 15.9% in 1995 to 18.2% of sales in 1996 primarily due to
economies of scale associated with certain operational improvements made in
prior periods.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million or 66.7% from $0.3 million in 1995 to $0.5 million in 1996. Operating
costs and expenses as a percent of total revenue increased from 6.6% of sales in
1995 to 8.8% of sales in 1996. The dollar and percentage increase in operating
costs and expenses was primarily related to opening a branch office and other
administrative overhead in 1996 at both existing and new branch locations.
29
<PAGE>
OPERATING INCOME. As a result of the foregoing, operating income increased
50.0% from $0.4 million, or 9.3% of revenues, in 1995 to $0.6 million or 9.4% of
revenues in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- ASAP
ASAP generated $0.4 million in net cash from operating activities for the
six months ended June 30, 1997. Net cash used in investing activities was
approximately $0.1 million, principally for equipment purchases. Net cash used
in financing activities was $0.3 million, representing shareholder
distributions. At June 30, 1997, ASAP had working capital of $0.5 million and no
outstanding debt.
ASAP generated $0.7 million in net cash from operating activities for the
twelve months ended December 31, 1996. There was no significant cash used in
investing activities. Net cash used in financing activities was $0.4 million,
representing distributions to shareholders. At December 31, 1996, ASAP had
working capital of $0.5 million and no outstanding debt.
CARDINAL
Founded in 1988, Cardinal is headquartered in Coos Bay, Oregon and has four
branch offices in Oregon. Cardinal provides temporary and leased employees to
numerous industries, including the timber, paper and other light manufacturing
industries.
RESULTS OF OPERATIONS -- CARDINAL
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, JUNE 30,
---------------------------------------------------------------- --------------------
1995 1996 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 14,136 100.0% $ 17,531 100.0% $ 20,292 100.0% $ 8,643 100.0%
Cost of services..................... 12,869 91.0% 15,794 90.1% 17,814 87.8% 7,727 89.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,267 9.0% 1,737 9.9% 2,478 12.2% 917 10.6%
Operating costs and expenses......... 1,112 7.9% 1,634 9.3% 2,473 12.2% 863 10.0
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss).............. $ 155 1.1% $ 103 0.6% $ 5 0.0% $ 54 0.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 9,735 100.0%
Cost of services..................... 8,399 86.3%
--------- ---------
Gross profit......................... 1,336 13.7%
Operating costs and expenses......... 1,340 13.8%
--------- ---------
Operating income (loss).............. $ (4) (0.0)%
========= =========
CARDINAL RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1996
REVENUES. Revenues increased $1.1 million, or 12.8%, from $8.6 million for
the six months ended June 30, 1996 to $9.7 million for the six months ended June
30, 1997. This increase was attributable to an increase in revenues with
existing clients.
GROSS PROFIT. Gross profit increased $0.4 million or 44.4% from $0.9
million for the six months ended June 30, 1996 to $1.3 million for the six
months ended June 30, 1997. Gross profit as a percent of sales, increased from
10.6% for the six months ended June 30, 1996 to 13.7% of sales for the six
months ended June 30, 1997 primarily due to an increase in volume without a
corresponding increase in costs of worksite employees.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.5
million, or 44.4%, from $0.9 million for the six months ended June 30, 1996 to
$1.3 million for the six months ended June 30, 1997. Operating costs and
expenses as a percent of total revenues increased from 10.0% in the six months
ended June 30, 1996 to 13.8% in the six months ended June 30, 1997. The dollar
and percentage increase in operating costs and expenses was primarily attributed
to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
decreased from $0.1 million or 0.6% of revenues, for the six months ended June
30, 1996 to a loss of approximately $4,000 for the six months ended June 30,
1997.
30
<PAGE>
CARDINAL RESULTS FOR YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30,
1996
REVENUES. Revenues increased $2.8 million, or 16.0%, from $17.5 million
for 1996 to $20.3 million for 1997. This increase was attributable to an
increase in revenues with existing clients.
GROSS PROFIT. Gross profit increased $0.8 million or 47.1% from $1.7
million for 1996 to $2.5 million for 1997. Gross profit as a percent of sales,
increased from 9.9% in 1996 to 12.2% of sales in 1997 sales revenue increases
without a commensurate increase in wages for worksite employees.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.9
million, or 56.3%, from $1.6 million for 1996 to $2.5 million for 1997.
Operating costs and expenses as a percent of total revenues increased from 9.3%
in 1996 to 12.2% in 1997. The dollar and percentage increase in operating costs
and expenses was primarily attributed to an increase in owners' compensation.
OPERATING INCOME. As a result of the aforementioned, operating income
decreased 95.0%, from $0.1 million or 0.6% of revenues, in 1996 to approximately
$5,000 in 1997.
CARDINAL RESULTS FOR YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30,
1995
REVENUES. Revenues increased $3.4 million or 24.1%, from $14.1 million in
1995 to $17.5 million in 1996. The increase was related to an increase in sales
with existing clients and the opening of a new branch in 1996.
GROSS PROFIT. Gross profit increased $0.4 million or 30.8% from $1.3
million for 1995 to $1.7 million for 1996. Gross profit, as a percent of sales,
increased from 9.0% for 1995 to 9.9% of sales in 1996 due to a reduction in
workers' compensation insurance expenses.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.5
million or 45.5% from $1.1 million in 1995 to $1.6 million in 1996. Operating
costs and expenses increased from 7.9% of sales in 1995 to 9.3% of sales in
1996. This dollar and percentage increase was primarily related to an increase
in owners' compensation.
OPERATING INCOME. As a result of the foregoing, operating income decreased
50.0% from $0.2 million, or 1.1% of revenues, in 1995 to $0.1 million or 0.6% of
revenues in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- CARDINAL
Cardinal generated $0.1 million in net cash from operating activities for
the six months ended June 30, 1997. There was no material net cash used in
investing activities while net cash used in financing activities was $0.1
million, representing shareholder distributions and a net reduction in debt.
Cardinal generated $0.2 million in net cash from operating activities for
the twelve months ended June 30, 1997. Net cash used in investing activities was
approximately $0.1 million, principally for equipment purchases. Net cash
provided by financing activities was $0.1 million, representing net increases in
debt. At June 30, 1997, Cardinal had working capital of $0.2 million and $0.5
million in outstanding debt.
EMPLOYMENT ENTERPRISES
Founded in 1980, Employment Enterprises is headquartered in Manasses,
Virginia with five branches in North Carolina and Virginia. Employment
Enterprises specializes in providing professional and clerical workers to the
insurance and high technology industries and had employees serving clients in 37
states as of June 30, 1997.
31
<PAGE>
RESULTS OF OPERATIONS -- EMPLOYMENT ENTERPRISES
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SIX MONTHS ENDED
---------------------------------------------------------------- JUNE 30,
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, --------------------
1994 1995 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 29,252 100.0% $ 33,172 100.0% $ 36,675 100.0% $ 16,944 100.0%
Cost of services..................... 26,109 89.3% 29,789 89.8% 32,874 89.6% 15,300 90.3%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 3,143 10.7% 3,383 10.2% 3,801 10.4% 1,644 9.7%
Operating costs and expenses......... 2,982 10.2% 3,157 9.6% 3,560 9.7% 1,632 9.6%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 161 0.6% $ 226 0.6% $ 241 0.7% $ 12 0.1%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 20,849 100.0%
Cost of services..................... 18,534 88.9%
--------- ---------
Gross profit......................... 2,315 11.1%
Operating costs and expenses......... 1,711 8.2%
--------- ---------
Operating income..................... $ 604 2.9%
========= =========
EMPLOYMENT ENTERPRISES RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED
TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased $3.9 million, or 23.1%, from $16.9 million
for the six months ended June 30, 1996 to $20.8 million for the six months ended
June 30, 1997. This increase was primarily attributable to new temporary
staffing clients in the banking industry.
GROSS PROFIT. Gross profit increased $0.7 million or 43.8% from $1.6
million for the six months ended June 30, 1996 to $2.3 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, increased from
9.7% for the six months ended June 30, 1996 to 11.1% of sales for the six months
ended June 30, 1997 due to economies of scale associated with technological
improvements made in prior periods which enhanced operational efficiencies.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 6.3%, from $1.6 million for the six months ended June 30, 1996 to
$1.7 million for the six months ended June 30, 1997. Operating costs and
expenses as a percent of total revenues declined from 9.6% in the six months
ended June 30, 1996 to 8.2% in the six months ended June 30, 1997. The dollar
increase in operating costs and expenses was primarily attributable to an
increase in management information systems staffing and related expenses.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 4,900.0% from approximately $12,000, or 0.1% of revenues, in the six
months ended June 30, 1996 to $0.6 million, or 2.9% of revenues, in the six
months ended June 30, 1997.
EMPLOYMENT ENTERPRISES RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO
THE YEAR ENDED NOVEMBER 30, 1995
REVENUES. Revenues increased $3.5 million or 10.5%, from $33.2 million in
1995 to $36.7 million in 1996. The increase was related to a number of new
clients from sales efforts started in prior periods.
GROSS PROFIT. Gross profit increased $0.4 million or 11.8% from $3.4
million for 1995 to $3.8 million for 1996. Gross profit, as a percent of sales,
increased from 10.2% in 1995 to 10.4% of sales in 1996.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.4
million or 12.5% from $3.2 million in 1995 to $3.6 million in 1996. Operating
costs and expenses, as a percent of sales, increased from 9.5% in 1995 to 9.7%
of sales in 1996. The dollar and percentage increase was primarily related to
expenses associated with technological improvements.
OPERATING INCOME. As a result of the foregoing, operating income remained
at $0.2 million and 0.7% of revenues in both 1995 and 1996.
32
<PAGE>
EMPLOYMENT ENTERPRISES RESULTS FOR YEAR ENDED NOVEMBER 30, 1995 COMPARED TO
YEAR ENDED NOVEMBER 30, 1994
REVENUES. Revenues increased $3.9 million or 13.3%, from $29.3 million in
1994 to $33.2 million in 1995. The increase was related to development of the
existing client base.
GROSS PROFIT. Gross profit increased $0.3 million or 9.7% from $3.1
million for 1994 to $3.4 million for 1995. Gross profit, as a percent of sales,
declined from 10.7% in 1994 to 10.2% of sales in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million or 6.7% from $3.0 million in 1995 to $3.2 million in 1995. Operating
costs, as a percent of sales, declined from 10.2% of revenues in 1994 to 9.5% of
revenues in 1995.
OPERATING INCOME. As a result of the foregoing, operating income remained
at $0.2 million for both 1994 and 1995. Operating income as a percent of total
revenues increased from 0.6% in 1994 to 0.7% in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- EMPLOYMENT ENTERPRISES
Employment Enterprises generated no material net cash from operating
activities for the six months ended June 30, 1997. Net cash used in investing
activities and net cash used in financing activities was likewise not material.
At June 30, 1997, Employment Enterprises had working capital of $0.4 million and
$0.6 million in outstanding debt.
Employment Enterprises generated $0.4 million in net cash from operating
activities for the twelve months ended December 31, 1996. No net cash was used
in investing activities and net cash used in financing activities was $0.5
million, representing a net reduction of long-term debt. At December 31, 1996,
Employment Enterprises had no working capital and had $0.6 million of
outstanding debt.
EVINS GROUP
The first Evins Group company was formed in 1967 and all of the companies
are headquartered in Austin, Texas. Evins Group specializes in providing
temporary staffing, permanent placement and PEO services to companies in the
Austin and central Texas area and to various agencies of the State of Texas.
Evins Group has three branch offices in Texas.
RESULTS OF OPERATIONS -- EVINS GROUP
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
SIX MONTHS ENDED JUNE 30,
------------------------------------------
1996 1997
-------------------- --------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 7,833 100.0% $ 3,492 100.0% $ 4,851 100.0%
Cost of services..................... 5,824 74.4% 2,616 74.9% 3,517 72.5%
--------- --------- --------- --------- --------- ---------
Gross profit......................... 2,009 25.6% 876 25.1% 1,334 27.5%
Operating costs and expenses......... 1,630 20.8% 757 21.7% 1,158 23.9%
--------- --------- --------- --------- --------- ---------
Operating income..................... $ 379 4.8% $ 119 3.4% $ 176 3.6%
========= ========= ========= ========= ========= =========
</TABLE>
EVINS GROUP RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
REVENUES. Revenues increased $1.4 million, or 40.0%, from $3.5 million for
the six months ended June 30, 1996 to $4.9 million for the six months ended June
30, 1997. This increase was attributable to an increase in public sector
contracts due to new and renewed contracts during the third and fourth quarter
of 1996, and also due to the opening of a new medical service division.
GROSS PROFIT. Gross profit increased $0.4 million or 44.4% from $0.9
million for the six months ended June 30, 1996 to $1.3 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, increased from
25.1% in the six months ended June 30, 1996 to 27.5% of sales in the six months
33
<PAGE>
ended June 30, 1997 due to economies of scale associated with operational
improvements made in prior periods.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.4
million, or 50.0%, from $0.8 million for the six months ended June 30, 1996 to
$1.2 million for the six months ended June 30, 1997. Operating costs and
administrative expenses, as a percent of sales, increased from 21.7% in the six
months ended June 30, 1996 to 23.9% in the six months ended June 30, 1997. The
dollar and percentage increase in operating costs and expenses were primarily
attributable to an increase in owner compensation and expenses related to
internal staff to support new public sector contracts awarded in prior periods.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 100.0%, from $0.1 million, or 3.4% of revenues, in the six months
ended June 30, 1996 to $0.2 million, or 3.6% of revenues, in the six months
ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES -- EVINS GROUP
Evins Group generated $0.1 million in net cash from operating activities
for the six months ended June 30, 1997. No net cash was used in investing
activities nor was any net cash used in financing activities. At June 30, 1997,
Evins Group had negative working capital of $0.1 million and $1.2 million in
outstanding debt.
Evins Group used $0.2 million in net cash from operating activities for the
twelve months ended December 31, 1996, primarily due to a $0.4 million increase
in trade receivables. No net cash was used in investing activities. Net cash
provided by financing activities was $0.2 million, representing a net increase
in debt. At December 31, 1996, Evins Group had negative working capital of $0.1
million and $1.2 million of outstanding debt.
GTS
GTS began operations in 1973 as a division of The Global Group, Inc., a
privately held company located in Fort Worth, Texas. GTS was operated as a
division of The Global Group until 1989 when it was incorporated and spun-off as
a separate entity. GTS specializes in supplying engineers and skilled and
unskilled labor to the aerospace industry and, as of June 30, 1997, provided
employees to clients in 12 states.
RESULTS OF OPERATIONS -- GTS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 25,227 100.0% $ 23,167 100.0% $ 28,661 100.0% $ 13,608 100.0%
Cost of services..................... 23,751 94.1% 21,677 93.6% 26,561 92.7% 12,598 92.6%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,476 5.9% 1,490 6.4% 2,100 7.3% 1,009 7.4%
Operating costs and expenses......... 1,695 6.7% 1,086 4.7% 1,247 4.4% 554 4.1%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss).............. $ (219) (0.9%) $ 404 1.7% $ 853 3.0% $ 455 3.3%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 20,205 100.0%
Cost of services..................... 18,641 92.3%
--------- ---------
Gross profit......................... 1,564 7.7%
Operating costs and expenses......... 770 3.8%
--------- ---------
Operating income (loss).............. $ 794 3.9%
========= =========
GTS RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE
30, 1996
REVENUES. Revenues increased $6.6 million, or 48.5%, from $13.6 million
for the six months ended June 30, 1996 to $20.2 million for the six months ended
June 30, 1997. This increase was attributable to several new contracts entered
into after June 30, 1996.
GROSS PROFIT. Gross profit increased $0.6 million or 60.0% from $1.0
million for the six months ended June 30, 1996 to $1.6 million for the six
months ended June 30, 1997. Gross profit, as a percent of
34
<PAGE>
sales, increased from 7.4% in the six months ended June 30, 1996 to 7.7% of
sales in the six months ended June 30, 1997.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.3
million, or 60.0%, from $0.5 million for the six months ended June 30, 1996 to
$0.8 million for the six months ended June 30, 1997. Operating costs and
expenses, as a percent of sales, decreased from 4.1% in the six months ended
June 30, 1996 to 3.8% in the six months ended June 30, 1997.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 60.0%, from $0.5 million, or 3.3% of revenues, in the six months ended
June 30, 1996 to $0.8 million, or 3.9% of revenues, in the six months ended June
30, 1997.
GTS RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995
REVENUES. Revenues increased $5.5 million or 23.7%, from $23.2 million in
1995 to $28.7 million in 1996. The increase was related to a substantial
increase in revenues with existing clients and two new contracts with new
clients.
GROSS PROFIT. Gross profit increased $0.6 million or 40.0% from $1.5
million for 1995 to $2.1 million for 1996. Gross profit, as a percent of sales,
increased from 6.4% in 1995 to 7.3% of sales in 1996.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million or 9.1% from $1.1 million in 1995 to $1.2 million in 1996. Operating
costs and expenses as a percent of total revenues decreased from 4.7% in 1995 to
4.4% in 1996.
OPERATING INCOME. As a result of the foregoing, operating income increased
125.0% from $0.4 million, or 1.7% of revenues, in 1995 to $0.9 million or 3.0%
of revenues in 1996.
GTS RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994
REVENUES. Revenues decreased $2.0 million or 7.9%, from $25.2 million in
1994 to $23.2 million in 1995. The decline was primarily related to a
significant downturn in the fourth quarter of 1995 for two existing clients
which subsequently returned to historical revenue levels in the first quarter of
1996.
GROSS PROFIT. Gross profit remained at $1.5 million for 1994 and 1995.
Gross profit, as a percent of sales, increased from 5.9% in 1994 to 6.4% of
sales in 1995.
OPERATING COSTS AND EXPENSES. Operating costs and expenses decreased $0.6
million or 35.3% from $1.7 million in 1994 to $1.1 million in 1995. Operating
costs and expenses as a percent of sales declined from 6.7% in 1994 to 4.7% in
1995. The decrease in operating costs and expenses is primarily attributed to
the write-off, in 1994, of $0.6 million of subsidiary receivables when those
subsidiaries were discontinued.
OPERATING INCOME. As a result of the foregoing, operating income increased
from a loss of $0.2 million in 1994 to a profit of $0.4 million or 1.7% of
revenues in 1995.
LIQUIDITY AND CAPITAL RESOURCES -- GTS
GTS generated $0.5 million in net cash from operating activities for the
six months ended June 30, 1997. Net cash provided by investing activities was
approximately $0.3 million, principally for receipts of receivables from related
parties. Net cash used in financing activities was $0.3 million, representing
net reductions of debt. At June 30, 1997, GTS had negative working capital of
$0.1 million and $2.1 million in outstanding debt.
GTS used $0.2 million in net cash from operating activities for the twelve
months ended December 31, 1996, primarily due to an increase in trade
receivables of $1.1 million. Net cash used in investing activities was
approximately $0.2 million, principally for equipment purchases. Net cash used
in financing activities was $0.2 million, representing distributions to
shareholders. At December 31, 1996, GTS had negative working capital of $0.9
million and $2.4 million of outstanding debt.
35
<PAGE>
HP SERVICES
Founded in 1990, HP Services acquired the assets of Gulf Coast Maintenance,
Inc. which had been in operation since 1978. Headquartered in Alvin, Texas, HP
Services specializes in supplying light industrial labor to the petrochemical
industry.
RESULTS OF OPERATIONS -- HP SERVICES
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------------------- --------------------
1994 1995 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 5,868 100.0% $ 6,488 100.0% $ 9,063 100.0% $ 4,055 100.0%
Cost of services..................... 5,220 89.0% 5,697 87.8% 7,943 87.6% 3,528 87.0%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 648 11.0% 791 12.2% 1,120 12.4% 527 13.0%
Operating costs and expenses......... 338 5.8% 381 5.9% 641 7.1% 272 6.7%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income (loss).............. $ 310 5.3% $ 410 6.3% $ 479 5.3% $ 255 6.3%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
SIX MONTHS ENDED
JUNE 30,
--------------------
1997
Revenues............................. $ 4,217 100.0%
Cost of services..................... 3,587 85.1%
--------- ---------
Gross profit......................... 630 14.9%
Operating costs and expenses......... 292 6.9%
--------- ---------
Operating income (loss).............. $ 338 8.0%
========= =========
HP SERVICES RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1996
REVENUES. Revenues increased $0.2 million, or 5.0%, from $4.0 million for
the six months ended June 30, 1996 to $4.2 million for the six months ended June
30, 1997. This increase was attributed to increased revenues with existing
clients.
GROSS PROFIT. Gross profit increased $0.1 million or 20.0% from $0.5
million for the six months ended June 30, 1996 to $0.6 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, increased from
13.0% in the six months ended June 30, 1996 to 14.9% of sales in the six months
ended June 30, 1997 primarily due to a reduction in expenses associated with
workers' compensation insurance.
OPERATING COSTS AND EXPENSES. Operating costs and expenses remained at
$0.3 million for the six months ended June 30, 1996 and the six months ended
June 30, 1997. Operating costs and expenses as a percent of sales increased from
6.7% in the six months ended June 30, 1996 to 6.9% in the six months ended June
30, 1997.
OPERATING INCOME. As a result of the aforementioned, operating income
remained at $0.3 million for both the six months ended June 30, 1996 and the six
months ended June 30, 1997. Operating income as a percent of total revenue
increased from 6.3% of revenues in the six months ended June 30, 1996 to 8.0% in
the six months ended June 30, 1997.
HP SERVICES RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
REVENUES. Revenues increased $2.6 million or 40.0%, from $6.5 million in
1995 to $9.1 million in 1996. The increase was related to a significant increase
in revenues with existing clients in the third and fourth quarters of 1996.
GROSS PROFIT. Gross profit increased $0.3 million or 37.5% from $0.8
million for 1995 to $1.1 million for 1996. Gross profit, as a percent of sales,
increased from 12.2% in 1995 to 12.4% of sales in 1996. The dollar increase in
the gross profit was primarily attributable to an increase in revenues of 40.0%.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.2
million or 50.0% from $0.4 million in 1995 to $0.6 million in 1996. Operating
costs and expenses increased from 5.9% of revenues in 1995 to 7.1% of revenues
in 1996. The dollar and percentage increase was primarily related to an increase
in owners' compensation in 1996.
OPERATING INCOME. As a result of the foregoing, operating income increased
25.0% from $0.4 million, or 6.3% of revenues, in 1995 to $0.5 million or 5.3% of
revenues in 1996.
36
<PAGE>
HP SERVICES RESULTS FOR YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
DECEMBER 31, 1994
REVENUES. Revenues increased $0.6 million or 10.2%, from $5.9 million in
1994 to $6.5 million in 1995. The increase was related to an increase in
revenues with existing clients.
GROSS PROFIT. Gross profit increased $0.2 million or 33.3% from $0.6
million for 1994 to $0.8 million for 1995. Gross profit, as a percent of sales,
increased from 11.0% in 1994 to 12.2% of sales in 1995 primarily related to
pricing increases without a commensurate increase in worksite employee costs.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million or 33.3% from $0.3 million in 1994 to $0.4 million in 1995. Operating
costs and expenses as a percent of total revenues increased from 5.8% in 1994 to
5.9% of sales in 1995.
OPERATING INCOME. As a result of the foregoing, operating income increased
33.3% from $0.3 million in 1994, or 5.3% of revenues, to $0.4 million or 6.3% in
1995.
LIQUIDITY AND CAPITAL RESOURCES -- HP SERVICES
HP Services generated $0.7 million in net cash from operating activities
for the six months ended June 30, 1997. No net cash was used in investing
activities. Net cash used in financing activities was $0.7 million, representing
shareholder distributions. At June 30, 1997, HP Services had working capital of
$0.9 million and $0.3 million in outstanding debt.
HP Services generated $0.4 million in net cash from operating activities
for the twelve months ended December 31, 1996. Net cash provided by investing
activities was approximately $0.1 million, principally for sales of equipment.
Net cash used in financing activities was $0.6 million, representing
distributions to shareholders and reductions in loans to shareholders. At
December 31, 1996, HP Services had working capital of $1.2 million and $0.3
million of outstanding debt.
TECHNOLOGY PLUS
Founded in 1985, Technology Plus is headquartered in Lee's Summit,
Missouri, a suburb of Kansas City, Missouri. Technology Plus specializes in
providing technical manpower, including engineers, designers and CAD personnel
to the chemical, petrochemical, refinery, gas transportation and heavy
industries. Technology Plus has branch offices in St. Louis, Missouri;
Birmingham, Alabama; and New Orleans, Louisiana and as of June 30, 1997 provided
employees to clients in 20 states.
RESULTS OF OPERATIONS -- TECHNOLOGY PLUS
The following table sets forth certain selected financial data and data as
a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------------------
1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 9,828 100.0% $ 12,256 100.0% $ 5,346 100.0% $ 6,417 100.0%
Cost of services..................... 8,571 87.2% 10,802 88.1% 4,637 86.7% 5,514 85.9%
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,257 12.8% 1,454 11.9% 709 13.3% 903 14.1%
Operating costs and expenses......... 878 8.9% 964 7.9% 402 7.5% 473 7.4%
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income..................... $ 379 3.9% $ 490 4.0% $ 307 5.7% $ 430 6.7%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
TECHNOLOGY PLUS RESULTS FOR SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased $1.1 million, or 20.8%, from $5.3 million for
the six months ended June 30, 1996 to $6.4 million for the six months ended June
30, 1997. This increase was attributable primarily to an increase in revenues
with existing clients due to overtime and partially due to revenues from new
clients.
GROSS PROFIT. Gross profit increased $0.2 million or 28.6% from $0.7
million for the six months ended June 30, 1996 to $0.9 million for the six
months ended June 30, 1997. Gross profit, as a percent of sales, increased from
13.3% in the six months ended June 30, 1996 to 14.1% of sales in the six months
ended June 30, 1997 attributed to the favorable timing of price increases to
clients without a commensurate increase in the costs of worksite employees.
37
<PAGE>
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million, or 25.0%, from $0.4 million for the six months ended June 30, 1996 to
$0.5 million for the six months ended June 30, 1997. Operating costs and
expenses, as a percent of sales, decreased from 7.5% in the six months ended
June 30, 1996 to 7.4% in the six months ended June 30, 1997.
OPERATING INCOME. As a result of the aforementioned, operating income
increased 33.3%, from $0.3 million or 5.7% of revenues in the six months ended
June 30, 1996 to $0.4 million, or 6.7% of revenues, in the six months ended June
30, 1997.
TECHNOLOGY PLUS RESULTS FOR YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
REVENUES. Revenues increased $2.5 million or 25.5%, from $9.8 million in
1995 to $12.3 million in 1996. The increase was primarily related to revenues
from new clients and partially due to overtime billings with existing clients.
GROSS PROFIT. Gross profit increased $0.1 million or 7.7% from $1.3
million for 1995 to $1.4 million for 1996. Gross profit, as a percent of sales,
decreased from 12.8% in 1995 to 11.9% of sales in 1996 primarily due to the
unfavorable timing of increased costs for worksite employees compared to price
increases to clients.
OPERATING COSTS AND EXPENSES. Operating costs and expenses increased $0.1
million or 11.1% from $0.9 million in 1995 to $1.0 million in 1996. Operating
costs and expenses as a percent of total revenue decreased from 8.9% to 7.9%
OPERATING INCOME. As a result of the foregoing, operating income increased
25.0% from $0.4 million, or 3.9% of revenues, in 1995 to $0.5 million or 4.0% of
revenues in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- TECHNOLOGY PLUS
Technology Plus generated $0.3 million in net cash from operating
activities for the six months ended June 30, 1997. Net cash used by investing
activities was approximately $0.1 million. Net cash used by financing activities
was $0.4 million, representing net decreases in debt. At June 30, 1997,
Technology Plus had working capital of $0.8 million and $0.2 million in
outstanding debt.
Technology Plus used $0.1 million in net cash from operating activities for
the twelve months ended December 31, 1996, primarily due to a decrease in trade
accounts receivable of $0.6 million. Net cash used in investing activities was
approximately $0.1 million, principally for purchases of equipment. Net cash
provided by financing activities was $0.1 million, representing net increases in
debt. At December 31, 1996, Technology Plus had working capital of $0.6 million
and $0.6 million of outstanding debt.
SEASONALITY, INFLATION AND QUARTERLY FLUCTUATIONS
The Company's operating results have historically fluctuated from quarter
to quarter. In addition, due to the timing of the assessment of employment
related taxes, the Company's gross profit margin typically improves from quarter
to quarter within each year with the first quarter generally being the least
favorable. Employment related taxes are based on the cumulative earnings of
individual employees up to a specified wage level. Since the Company's revenues
related to an individual employee are generally earned and collected at a
relatively constant rate throughout each year, payment of such unemployment tax
obligations has a substantial impact on the Company's financial condition and
results of operations during the first six months of each year. In addition, the
Company's operations are also affected by the seasonal fluctuations in the
businesses of the Company's clients, as well as the fluctuations in the demand
for staffing services, which are typically stronger in the second and third
quarters.
The Company believes the effects of inflation have not had a significant
impact on its results of operations or financial condition.
38
<PAGE>
BUSINESS
INTRODUCTION
Nationwide Staffing was organized in February 1997 to become a leading
national provider of comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. The Company
provides professional, skilled industrial and commercial (clerical and light
industrial) employees to over 2,200 clients in a wide variety of industries,
including aerospace, petrochemicals, petroleum refining, insurance, food
processing, legal and high technology, and to the government sector. The
Company's pro forma revenues for the year ended December 31, 1996 of $133.8
million were derived 69.3% from temporary staffing and 30.7% from staff leasing
or professional employer organization ("PEO") services. Upon consummation of
the Offering, Nationwide Staffing will acquire through the Mergers the eight
Founding Companies, which have been in business for an average of 15 years and
currently have 28 offices and operations in 39 states and the District of
Columbia.
The Company believes that as businesses increasingly outsource a wider
range of human resource functions in order to focus on their core operations,
they will require more sophisticated and diverse services from their staffing
providers. In order to serve these needs, the Company offers significantly
broader services than those provided by traditional staffing companies. In
addition to supplying temporary workers for short-term needs, the Company also
provides extended-term temporary employees, staff leasing or PEO services,
temporary-to-permanent placements, recruiting, permanent placements, payroll
processing, vendor-on-premises and human resource consulting. In addition, the
Company is pursuing strategic alliances with selected human resource consulting
firms that will enable the Company to expand its range of staffing services to
include additional human resource department outsourcing services and executive
compensation and employee benefits consulting.
The Company's emphasis on providing comprehensive staffing solutions
affords it a competitive advantage by appealing to a broader universe of
potential clients, including regional and national companies, while also
creating cross-marketing opportunities within its existing client base. The
Company intends to provide companies with single-source solutions to their
staffing needs by combining and integrating the extensive services already being
provided by the Founding Companies, along with additional services that may
become available through acquisitions and strategic alliances. This
comprehensive service offering will allow the Company to offer cost-effective
service to companies who can select those staffing services that best satisfy
their particular needs. In addition, the Company will be able to cross market
services to existing and new clients, thereby reducing the Company's business
development costs, and will be able to serve larger companies seeking
comprehensive staffing services on a regional or national basis. Finally, the
Company believes that a comprehensive service offering will assist the Company
in establishing multiple contacts within existing and new clients that should
contribute to more extensive and longer-term relationships.
INDUSTRY OVERVIEW
The staffing industry encompasses a wide range of services to businesses,
professional and service organizations and government agencies. The U.S.
staffing industry has grown rapidly in recent years as organizations have sought
to reduce costs and improve operating efficiency by outsourcing human resource
functions. Staffing Industry Analysts, Inc. ("SIA") estimates that gross
revenues in the U.S. staffing industry have grown since 1991 at a compound
annual growth rate of 18.8%, from approximately $31.4 billion in 1991 to
approximately $74.4 billion in 1996. According to SIA, temporary staffing and
PEO services represented approximately 63.3% and 23.3%, respectively, of total
staffing industry gross revenues in 1996.
The U.S. staffing industry is highly fragmented and has begun to experience
consolidation, particularly with respect to temporary staffing and PEO
companies. Based on data available from Dun & Bradstreet and the National
Association of Professional Employer Organizations ("NAPEO"), in the United
States over 9,300 companies provide temporary staffing services and more than
1,800 companies provide PEO services.
39
<PAGE>
Many of these companies are small, owner-operated businesses with limited access
to capital for development and expansion. The Company believes that temporary
staffing and, to a lesser extent, PEO companies are consolidating in response to
(i) the increased demands of local, regional and national companies for a single
supplier of a full range of staffing and human resource services, (ii) increased
competition from larger, better capitalized competitors and (iii) owners'
desires for liquidity. Although some consolidation activity has already
occurred, the Company believes that consolidation in the U.S. staffing industry
will continue and that there will be numerous available acquisition candidates.
TEMPORARY STAFFING. Temporary staffing has grown rapidly in recent years
as competitive pressures have caused businesses to focus on reducing overhead,
including converting fixed labor costs to variable costs. The use of temporary
employees also enables companies to improve flexibility in employee hiring and
scheduling and allows them to focus on their core business operations. According
to SIA, the United States market for temporary services has grown since 1991 at
a compound annual growth rate of 17.0%, from approximately $21.5 billion in
revenue in 1991 to approximately $47.1 billion in 1996. National Association of
Temporary and Staffing Services ("NATSS") data also shows that temporary
staffing personnel now account for approximately 1.9% of the total U.S.
workforce. The Company believes that the use of temporary personnel has become
widely accepted as a valuable tool for managing personnel costs, supplementing
permanent workforces and meeting specialized or fluctuating employment
requirements. Vacations, illnesses, resignations, seasonal increases in work
volume, marketing promotions and month-end accounting requirements have
historically created demand for temporary staffing. More recently, the growing
cost and difficulty of administering, hiring and terminating full-time workers
has also encouraged greater use of temporary workers.
Organizations have also begun using temporary staffing to reduce
administrative overhead by outsourcing operations that are not part of their
core business operations, such as recruiting, training and benefits
administration. By utilizing temporary personnel, businesses are able to avoid
the management and administrative costs that would be incurred if full-time
employees were employed. An ancillary benefit, particularly for smaller
businesses, is that use of temporary personnel reduces certain employment costs
and risks (for example, workers' compensation and medical and unemployment
insurance) that a temporary personnel provider can spread over a much larger
pool of employees. Businesses are also utilizing temporary staffing services as
a method of selectively hiring and adding to their full-time staff. This
concept, typically referred to as "temp-to-perm," provides the client with an
opportunity to evaluate the skills and proficiency of workers prior to extending
full-time employment offers. NATSS estimates that approximately 38.0% of
temporary personnel are offered full-time employment while on assignment.
PEO. PEO services have also grown substantially in recent years, driven
by the increasingly complex legal and regulatory burdens placed on employers as
well as trends relating to the growth of small businesses in the United States
and their efforts at improving productivity and competitiveness. While various
service providers, such as payroll processing firms, benefits and safety
consultants and temporary services firms were available to assist these
businesses with specific tasks, PEO service companies began to emerge as
providers of a more comprehensive range of services relating to the
employer/employee relationship. Growth in PEO services has been significant. SIA
estimates that gross revenues in the PEO industry have grown since 1991 at a
compound annual rate of 28.2%, from approximately $5.0 billion in 1991 to
approximately $17.3 billion in 1996. Because of the numerous benefits realized
by small businesses using PEO services, growth in PEO services has also been
influenced by growth of the small business sector. According to reports
published by the Small Business Administration ("SBA"), at year end 1994 there
were more than 5.2 million businesses in the United States with fewer than 500
employees. In addition, the Company believes that attempts to achieve higher
levels of productivity in the workplace have supported a movement toward the
outsourcing of services such as payroll administration and consulting on
benefits, safety and other employment issues. The Company believes that the key
factors driving demand for PEO services include (i) complex regulation of labor
and employment issues and the related costs of compliance, including the
allocation of time and effort to such functions by owners and key executives,
(ii) the need to provide competitive health care and related benefits to
employees of small businesses, (iii) the increasing costs associated with
workers' compensation and health insurance coverage, workplace safety
40
<PAGE>
programs, employee-related complaints and related litigation, (iv) trends
relating to the growth and productivity of the small business community in the
United States and (iv) the desire of business owners to focus on their core
operations.
BUSINESS STRATEGY
The Company plans to achieve its objective of becoming a leading national
provider of comprehensive staffing solutions through the implementation of a
cohesive business strategy consisting of the following elements:
o OFFER A DIVERSIFIED RANGE OF STAFFING SERVICES. The Company offers a wide
range of staffing services, including short and extended-term temporaries, PEO
services, temporary-to-permanent placements, recruiting, permanent placements,
payroll processing, vendor-on-premises and human resource consulting. Each of
the Company's services is available on a stand-alone basis or as part of a
comprehensive staffing solution, thereby affording the Company the flexibility
to provide customized services based on individual client requirements. By
offering a broad range of staffing services, the Company believes that it will
be able (i) to offer its services on a more cost-effective basis, (ii) to cross
market services to existing and new clients, (iii) to capitalize on new
marketing opportunities with clients demanding comprehensive staffing services,
particularly regional and national companies, and (iv) to solidify long-term
relationships with clients.
o CONTINUE TO DEVELOP NICHE MARKETS. As U.S. corporations have become more
accustomed to using specialized employees on a temporary basis, the Company has
developed a strong reputation in certain markets either by focusing on specific
industries, such as aerospace, petrochemical and insurance, or by providing
temporary employees with specialized skills, such as engineers, computer
technicians and health care specialists. These "niche" markets tend to yield
longer-term staffing placements and, in many instances, higher margins. The
Company intends to continue to expand its services in these speciality markets
by leveraging the Founding Companies expertise on a company-wide basis and to
pursue additional niche market opportunities.
o CONTINUE TO DEVELOP LONG-TERM CLIENT RELATIONSHIPS. The Company's
emphasis on providing high quality, value-added staffing solutions has enabled
it to establish long-term relationships with a number of clients. The Company's
25 largest clients have utilized its services on average for approximately seven
years. By continuing to focus on providing superior client service and by
continuing to expand its range of services, the Company intends to further its
relationships with long-standing clients and to establish long-term
relationships with new clients. The Company believes that long-standing client
relationships provide it with the in-depth knowledge necessary to continue to
provide focused and customized service, affording the Company with an advantage
over competitors.
o INCREASE OPERATING EFFICIENCIES. The Company believes that it can provide
significant opportunities to achieve cost savings and greater operating
efficiencies that are not available to the Founding Companies on an individual
basis. The Company intends to support its subsidiaries and branch offices by
combining a number of general and administrative functions at the corporate
level, such as risk management, certain purchasing (including workers'
compensation and health insurance), cash management, human resource and other
systems and administrative support services. The Company will also implement a
program to identify "best practices" among the Founding Companies to enhance
operating efficiencies that can be implemented successfully throughout its
operations. However, while maintaining strong operating and financial controls
at the corporate level, the Company will also maintain a decentralized operating
structure at the local level that will retain the entrepreneurial spirit present
in each of the Founding Companies and will allow the Company to capitalize on
the considerable local and regional market knowledge and customer relationships
possessed by the Founding Companies.
o FOCUS ON INTERNAL GROWTH OPPORTUNITIES. A key component of the Company's
strategy is to build on the Founding Companies' history of internal growth. By
combining the Founding Companies, Nationwide Staffing will be able to
significantly expand the available service offering of each individual Founding
Company, thereby allowing them to present a wider variety of services to both
existing clients and potential clients. This wider service offering will also
appeal to regional or national companies searching for a one-
41
<PAGE>
stop source of staffing solutions who previously may not have considered
utilizing a Founding Company on a stand alone basis. Furthermore, the Company's
assumption of many administrative functions formerly carried out by the Founding
Companies will allow them to devote increased management efforts towards the
cultivation of new clients.
o EXPAND THROUGH ACQUISITIONS. The Company believes that providers of
temporary staffing and PEO services in the United States are highly fragmented
and consolidating, thereby offering significant opportunities for the Company to
complement its internal growth by aggressively pursuing strategic acquisitions.
The key objectives of the Company's acquisition program are (i) to enhance the
Company's position in its existing niche markets and to establish a position in
new niche markets, (ii) to broaden further the Company's range of staffing
services, (iii) to enter new geographic markets, and (iv) to expand the
Company's presence within its existing geographic markets. The Company's focus
will be to acquire companies that have a history of growth and profitability, a
strong management team, a reputation for quality services and the infrastructure
necessary to be a core business into which other operations may be consolidated.
The Company believes that there are significant opportunities to expand by
acquiring companies that satisfy the Company's acquisition criteria. Once the
Company has entered a geographic market, the Company will also pursue
"tuck-in" acquisitions of smaller companies whose operations can be
assimilated into an existing operation thereby leveraging the Company's
established infrastructure.
OPERATIONS
The Company will offer its comprehensive staffing solutions on a nationwide
basis through the Founding Companies, which are headquartered in Arkansas,
Massachusetts, Missouri, Oregon, Texas and Virginia, and their 20 branch
offices. The Company currently provides staffing services in 39 states and the
District of Columbia. In order to capitalize on established local reputations
and name recognition, each of the Founding Companies will operate as a separate
subsidiary with subsidiary presidents exercising a significant degree of
autonomy, authority and accountability for their operations.
The Company intends to form an Operating Committee comprised of the Chief
Executive Officer, Senior Vice President -- Operations and certain subsidiary
presidents. The Operating Committee will be responsible for certain senior level
planning and oversight of Company activities pertaining to areas such as
strategic planning, national sales and marketing, development of strategic
alliances, advertising, insurance, risk management and safety programs and the
identification and evaluation of acquisition candidates.
The Company also intends to centralize various administrative functions to
enable management of the Founding Companies to focus on serving clients,
coordinating new business opportunities and improving efficiencies. Some of the
administrative functions expected to be centralized include risk management and
insurance coordination, employee benefit programs, selected accounting and
information technology activities, certain purchasing activities, marketing,
treasury and cash management.
Within established guidelines, subsidiary presidents will be responsible
for establishing and maintaining incentive compensation programs designed to
motivate and reward branch managers and other personnel based on the growth and
profitability of their operations. Subsidiary chairman and presidents will also
participate in incentive compensation programs established by the Company's
Board of Directors. Branch managers will report to regional managers or
subsidiary presidents and will be responsible for certain functions on a local
and regional basis such as sales and marketing, safety programs, employee
recruitment and retention and client relations.
ACQUISITIONS
The Company believes that it will be regarded by acquisition candidates as
an attractive acquiror due to (i) its operation as a comprehensive service
provider, which should appeal to an acquired company's desire to offer expanded
services and grow in its local and regional markets; (ii) the potential for
improved profitability as a result of the Company's centralization of certain
administrative functions, greater purchasing power and economies of scale; (iii)
its decentralized management structure, which will often offer an acquired
company's management the opportunity to remain involved in local operations;
(iv) the
42
<PAGE>
Company's access to financial resources as a public company; (v) training and
job promotion opportunities that will allow employees to advance their careers;
(vi) the potential for the owners of acquired businesses to realize liquidity
and to participate in the Company's planned growth; and (vii) the Company's
increased visibility as a public company.
The Company believes that management of the Founding Companies will be
instrumental in identifying and completing future acquisitions due to their
industry knowledge and experience. Also, the Company has executed a contract
with Messrs. Warren L. Williams and Jerry L. Hyde (both of whom are members of
WJG Capital) as well as W. Sherman Adcock that provides for two years after the
consummation of the Offering they will assist the Company in identifying
qualified acquisition candidates. Since January 1997, Messrs. Williams, Hyde and
Adcock have been identifying potential merger or acquisition candidates and are
primarily responsible for introducing the eight Founding Companies to the
Company. The Company believes this agreement with Messrs. Williams, Hyde and
Adcock will significantly enhance the Company's ability to implement the
acquisitions contemplated in its business strategy. See "Certain Transactions
- -- Other Transactions." The Company currently has no agreements, other
arrangements or understandings to effect any acquisition other than with the
Founding Companies.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, other capital stock, cash and debt.
The consideration for each future acquisition will vary on a case-by-case basis,
with the major factors in establishing the purchase price being historical
operating results, future prospects of the business to be acquired and the
ability of that business to complement the services offered by the Company and
to implement additional service offerings. The Company intends to register
3,000,000 additional shares of Common Stock under the Securities Act for its use
in connection with future acquisitions.
SALES AND MARKETING
The Company intends to develop a comprehensive sales and marketing strategy
that will focus on cross-marketing services to existing clients and developing
additional regional and national clients. Local accounts will be targeted by
account managers at the subsidiaries and branch offices, thereby permitting the
Company to capitalize on the local expertise and established relationships of
its subsidiaries and branch offices. The Company's marketing strategy will
include personal sales presentations, telephone marketing, direct mail
solicitation, referrals from clients and advertising in a variety of local and
national media. It is contemplated that advertisements will appear in general
circulation newspapers, in trade and industry specific newspapers, in
publications and telephone directories. The Company also intends to conduct
additional public relations activities designed to enhance public recognition of
the Company and its services. Local employees will be encouraged to be active in
civic organizations and industry trade groups to facilitate the development of
new customer relationships. Lastly, when a specialty or niche market is served
by one or more of its subsidiaries, the Company will implement a program by
which such subsidiaries can share information, cross market services and
employment candidates and eliminate duplicative functions.
INFORMATION TECHNOLOGY
Each of the Founding Companies currently operates a variety of management
information systems to generate the information necessary to operate their
businesses and serve clients. These systems enable the Company to maintain
customer profile data, communicate with clients, process order entry and
billing, track employee utilization and supply customized reporting to clients.
Additionally, these systems enable the Company to maintain employee profile data
and screen prospective employees for the skills needed for proper job placement.
These information systems also perform accounting, Internet, E-mail and other
miscellaneous applications, such as computer testing of potential employees and
employee training.
For operating and financial reporting purposes, the Company will utilize
comprehensive reporting and information systems packages prepared by branch
offices. These packages will provide both local and corporate management with
daily, weekly, monthly and quarterly operating and financial data necessary to
manage its business and report operating results. In addition, the Company will
evaluate its existing
43
<PAGE>
management information systems and its present and future information technology
needs. Based on this evaluation, the Company plans to implement Company-wide
management information systems that will enable all of the Company's offices to
readily share pertinent information and provide those capabilities required to
meet the increasing needs of clients, regulatory authorities and management of
the Company. Until such evaluation is completed, the Company believes that it
can operate successfully utilizing the management information systems maintained
by the Founding Companies.
WORKERS' COMPENSATION PROGRAM AND SAFETY PROGRAM
The maintenance of workers' compensation and health insurance plans that
cover worksite employees will be a significant aspect of the Company's business.
The workers' compensation and health insurance contracts used by the Founding
Companies are provided by vendors with whom the Founding Companies have
established relationships and on terms that the Company believes to be
favorable. The Company believes there are savings to be achieved by
consolidating its workers' compensation and employee benefits and intends to
implement a new program at such time as, in management's judgment, a more
cost-effective program can be identified.
The Company intends to maintain and improve existing safety programs in
each of its subsidiary and branch offices pursuant to which it will provide
safety training to employees prior to job assignment. The Company's risk
managers and field personnel will also perform safety inspections at customer
locations to help determine potential risks for employee injury and to assist
customers in making the workplace safer. The Company's policies will prohibit
staffing of high-risk work such as roofing, the handling of hazardous materials
or other high risks that could have an adverse effect on the Company's workers'
compensation rates and liability.
COMPETITION
The Company believes that the U.S. temporary staffing and PEO markets are
highly competitive and fragmented, with an estimated 9,300 and 1,800 firms,
respectively, providing such services, some of which operate on a regional,
national and international basis. There are limited barriers to entry and new
competition frequently enters the markets. There are many national and regional
temporary personnel companies and PEOs with substantially greater financial and
marketing resources than those of the Company. See "Risk Factors -- Substantial
Competition and New Market Entrants."
The key competitive factors in obtaining clients for temporary staffing
services are a strong sales and marketing program, the timely availability of
qualified temporary personnel, the ability to match client requirements with
available temporary personnel, competitive pricing of services and meeting the
clients' work production requirements. Moreover the key competitive factors in
the PEO industry are the breadth, quality and value of services provided and the
prices of such services. The Company anticipates that its long-term client
relationships and strong emphasis on providing comprehensive, value-added
staffing solutions to clients and to temporary employees will be important
competitive advantages.
44
<PAGE>
EMPLOYEES
At June 30, 1997, the Founding Companies had the following temporary and
leased employees working at client worksites:
TEMPORARY LEASED
NAME EMPLOYEES(1) EMPLOYEES
Alternative Solutions................ 495 193
ASAP................................. 668 --
Cardinal............................. 887 569
Employment Enterprises............... 541 2,352
Evins Group.......................... 487 1
GTS.................................. 569 108
HP Services.......................... 411 --
Technology Plus...................... 139 --
------------ ---------
Total........................... 4,197 3,223
============ =========
- ------------
(1) Temporary employees include some employees of the Company who have been at
the same job site for over a year.
The Company will have approximately 199 employees in its corporate
headquarters, subsidiary and branch offices. These employees will consist of 59
employees in corporate services, 16 in accounting and finance, five in benefits
administration, one in legal, nine in marketing, five in information technology,
17 in human resources and 87 in client services (including sales associates).
LEGAL AND ADMINISTRATIVE PROCEEDINGS
None of the Founding Companies is a party to any pending legal proceedings
that would be material to the Company, other than ordinary routine litigation
incidental to its business. In the ordinary course of their business, the
Founding Companies are periodically threatened with or named as a defendant in
various lawsuits, including personal injury, discrimination and harassment and
other similar claims. The Company will maintain insurance in such amounts and
with such coverage and deductibles as management believes are reasonable.
INTELLECTUAL PROPERTY
The Company owns and licenses several state and federal trademarks used by
the Founding Companies. The Company believes that it has all rights to
trademarks and tradenames necessary for the conduct of its business.
FACILITIES
The Company will lease from third parties its corporate headquarters office
as well as many of the facilities for the Founding Companies and the Company's
branch offices. In addition, several of the Founding Companies lease office
space from their former owners or affiliates. The Company believes that the
lease terms are at least as favorable as could be obtained from any unrelated
third party. See "Certain Transactions -- Leases of Real Property by Founding
Companies."
45
<PAGE>
REGULATION
GENERAL
As an employer, the Company is subject to all federal and state laws
regarding the employer-employee relationship, including numerous federal and
state laws relating to labor, tax and discrimination matters. In a temporary
staffing situation, these obligations are directly applicable to the Company. In
a PEO situation, the Company assumes certain of these obligations of the client
company. Because many of these federal and state laws were enacted prior to the
development of non-traditional employment relationships, such as temporary
staffing, PEO and outsourcing arrangements, many of these laws do not
specifically address the obligations and responsibilities of non-traditional
employers.
State-mandated workers' compensation and unemployment insurance premiums
may change from year to year that directly impact the Founding Companies' cost
of services. In addition, the extent and type of health insurance benefits that
employers are required to provide employees have been the subject of intense
scrutiny and debate in recent years at both the national and state levels.
Proposals have been made to mandate that employers provide health insurance
benefits to staffing employees and that some states could impose sales taxes, or
raise sales tax rates, on staffing services. Further increases in such premiums
or rates, or the introduction of new regulatory provisions, could substantially
raise the costs associated with hiring and employing employees for the Company.
TEMPORARY STAFFING
The Company's temporary staffing operations are not generally subject to
state or local licensing requirements or other regulations specifically
governing the provision of commercial and professional temporary staffing
services. There can be no assurance, however, that states in which the Company
operates or may in the future operate will not adopt such licensing or other
regulations affecting the Company.
PEO
While many states do not explicitly regulate PEO operations, 15 states have
enacted legislation containing licensing or registration requirements. In
addition, the Company believes that other states are considering such
regulation. Such laws vary from state to state but generally provide for
monitoring the fiscal responsibility of PEO companies. Five of the Founding
Companies hold licenses in states that regulate PEO operations. State regulation
assists in screening insufficiently capitalized PEO operations and has the
effect of resolving interpretive issues concerning employee status under
applicable state law. The Company does not view the compliance with these
regulations as material to its business operations.
Some governmental agencies that regulate employment and labor laws have
developed rules that specifically address labor and employment issues raised by
the relationship among PEO companies, client companies and worksite employees.
Existing regulations are relatively new and, therefore, their interpretation and
application by administrative agencies and federal and state courts is very
limited. The development of additional regulations and interpretations of
existing regulations can be expected to evolve over time. The Company cannot
predict the nature or direction of the development of federal, state and local
regulations.
EMPLOYEE BENEFIT PLANS
The Founding Companies offer various employee benefit plans to their
employees, including temporary and leased employees. These employee benefit
plans are treated by the Founding Companies as constituting "single-employer"
plans of each Founding Company rather than multiple employer plans. Of the
Founding Companies, six companies provide a 401(k) Plan, which is a
profit-sharing plan with (i) a cash or deferral arrangement ("CODA") under
Section 401(k) of the Internal Revenue Code of 1986, as amended ("Code"), (ii)
a discretionary matching contribution feature under Code Section 401(m)
("Matching Contribution") and (iii) an additional discretionary contribution
feature which is allocated based on an employee's compensation ("Profit Sharing
Contribution"). Since the inception of each 401(k) Plan, any Matching
Contributions or Profit Sharing Contributions to such plans have been minimal,
if made
46
<PAGE>
at all. Additionally, each Founding Company maintains a group health plan on
behalf of its employees with at least six maintaining such medical plan through
a cafeteria plan under Code Section 125. Several of the Founding Companies
provide group life insurance, group disability plans and dependent care plans.
Generally, all the employee benefit plans provided by the Founding Companies are
subject to provisions of both the Code and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
After the Offering, the Company intends to evaluate each of the 401(k)
Plans of the Founding Companies and intends, if prudent, to merge the 401(k)
Plans of the Founding Companies into one single-employer 401(k) Plan sponsored
by the Company to provide retirement benefits to its headquarters and branch
office personnel and, possibly, to its temporary and leased employees.
Additionally, after the Offering, the Company intends to evaluate all other
employee benefit plans provided by the Founding Companies, and based on such
evaluation, the Company intends to offer those employee benefits to its
headquarters and branch office personnel and to its temporary and leased
employees as the Company deems reasonable.
EMPLOYER STATUS. In order to qualify for favorable tax treatment under the
Code, the benefit plans of the Founding Companies and the benefit plans to be
implemented by the Company must be established and maintained by an employer for
the exclusive benefit of its employees. Generally, an entity is an "employer"
of certain workers for federal employment tax purposes if an employment
relationship exists between the entity and the workers under the common law test
of employment. In addition, the officers of a corporation are deemed to be
employees of that corporation for federal employment tax purposes. The common
law test of employment, as applied by the Internal Revenue Service ("IRS"),
involves an examination of approximately 20 factors to ascertain whether an
employment relationship exists between a worker and a purported employer. That
test is generally applied to determine whether an individual is an independent
contractor or an employee for federal employment tax purposes and not to
determine whether each of two or more companies is a "co-employer."
Substantial weight is typically given to the question of whether the purported
employer has the right to direct and control the details of an individual's
work. Among the various categories of factors which appear to be considered more
important by the IRS are (i) the employer's degree of behavioral control (the
extent of instructions, training and the nature of the work), (ii) the financial
control of the economic aspects of the relationship and (iii) the intended
relationship of the parties, as evidenced by any contracts, permanency (that is,
are services ongoing or for a project) and penalties for discharge/termination.
The IRS has established a Market Segment Study Group on Employee Leasing
for the purpose of identifying specific compliance issues prevalent in certain
segments of the PEO industry. Approximately 70 PEO companies have been randomly
selected by the IRS for audit pursuant to this program. One issue that has
arisen from these audits is the issue of whether a PEO company can be a
co-employer of worksite employees, including officers and owners of client
companies, for various purposes under the Code ("Industry Issue"). If it is
determined that the PEO company is not a co-employer with respect to its
worksite employees, then such worksite employees may not be able to participate
in the employee benefit plans of a PEO company, including a 401(k) Plan and a
cafeteria plan. Additionally, the IRS may treat temporary employees who have
been on the same job for over one year as leased employees, who are not
considered to be employees of the Company. NAPEO is cooperating with the IRS in
this study. The Company also understands that, with respect to the Market
Segment Study, the IRS is similarly referring the Industry Issue to its National
Office. The Company understands that it is the IRS's view that such a co-
employer status is not recognized under current tax law. If the Market Segment
Study were to reach a conclusion that is adverse to the PEO industry, there is
an administrative procedure available to appeal that conclusion. In addition to
working with the Market Segment Study, NAPEO is actively engaged in policy
discussions with both the Treasury Department and with members of Congress in an
effort to reduce the likelihood of unfavorable conclusions and to procure
favorable legislation.
The Company is unable to predict whether the Treasury Department will issue
a policy statement with respect to its position on the Industry Issue or, if
issued, whether such a statement would be favorable to the Company. If it were
ultimately determined that a PEO company is not a co-employer of its leased
worksite
47
<PAGE>
employees, then the leased worksite employees could not continue to make salary
deferral contributions to a 401(k) Plan or a cafeteria plan or continue to
participate in certain other employee benefit plans of the affected Founding
Company or participate in various employee benefit plans which may be
established by the Company. The Company believes that, although unfavorable to
the Company, a prospective application by the IRS of such an adverse conclusion
(that is, one applicable only to periods after such a conclusion is reached)
would not have a material adverse effect on its financial position or results of
operations, as the affected Founding Company could continue to make available
similar benefit programs to its client companies at comparable cost. If such
unfavorable conclusion were applied retroactively to disqualify a 401(k) Plan of
the Founding Companies, the employees' vested account balances under the 401(k)
Plan would become taxable and the affected Founding Company would lose its tax
deductions to the extent its Matching Contributions and Profit Sharing
Contributions were not vested, a Founding Company's plan trust would become a
taxable trust and such Founding Company would be subject to liability with
respect to trust earnings and its failure to withhold applicable taxes with
respect to certain contributions and trust earnings. Further, the affected
Founding Company or the Company would be subject to liability, including
penalties, with respect to its cafeteria plan for the failure to withhold and
pay taxes applicable to salary deferral contributions by employees, including
worksite employees. In such a scenario, the affected Founding Company or the
Company also would face the risk of client dissatisfaction and potential
litigation. Retroactive application by the IRS of an adverse conclusion could
have a material adverse effect on the Company's financial position and results
of operations. While the Company believes that a retroactive disqualification is
unlikely, there can be no assurance as to the ultimate resolution of these
issues by the IRS.
ERISA REQUIREMENTS. Employee benefit plans are also governed by ERISA.
ERISA defines "employer" as "any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an employee benefit
plan." ERISA defines the term "employee" as "an individual employed by an
employer." The United States Supreme Court has held that the common law test of
employment must be applied to determine whether an individual is an employee or
an independent contractor under ERISA. A definitive judicial interpretation of
"employer" in the context of employee leasing arrangement has not been
established.
If a Founding Company were found not to be an employer for ERISA purposes
in its PEO operations, its plans would not comply with ERISA. Further, as a
result of such finding the Founding Company and its plans would not enjoy, with
respect to worksite employees, the preemption of state laws provided by ERISA
and could be subject to varying state laws and regulations, as well as to claims
based upon state common laws. Even if such a finding were made, however, the
Company believes that the Founding Company would not be materially adversely
affected because it could continue to make available similar benefits at
comparable cost.
POSSIBLE MULTIPLE EMPLOYER TAX TREATMENTS. The U.S. Department of Labor
("DOL") issued an Advisory Opinion in December 1995 to a PEO company advising
that particular company that its health plan, which covered worksite employees,
was a multiple employer plan, rather than a single employer plan. Because the
Company believes that the five Founding Companies which conduct PEO operations
are co-employers with respect to their worksite employees, the Company views
such Founding Company group health plans to be single employer plans. However,
if this DOL opinion were applied to a Founding Company, it is possible, although
the Company believes it is unlikely, that the DOL would assert penalties against
the Founding Company for having incorrectly filed annual reports treating its
plan as a single employer plan. Such a conclusion, if applied to the other
employee benefit plans that cover worksite employees, could result in additional
liabilities of the affected Founding Company. The Company does not believe that
any such penalties will, individually or in the aggregate, be material. Further,
even if such a conclusion is reached, the Company believes that it would
continue to be able to make available comparable benefit programs to client
companies.
48
<PAGE>
FEDERAL AND STATE EMPLOYMENT TAXES
In a temporary staffing situation, the Company is the employer for tax
purposes. In a PEO situation, the Company assumes from its clients the clients'
responsibility and liability for the payment of federal and state employment
taxes with respect to wages and salaries paid to its worksite employees. There
are essentially three types of federal employment tax obligations: (i)
withholding of income tax governed by Code Section 3401; (ii) obligations under
FICA governed by Code Section 3101; and (iii) obligations under the FUTA
governed by Code Section 3301. Under the Code, employers have the obligation to
remit the employer portion and, where applicable, withhold and remit the
employee portion of these taxes.
The IRS Market Segment Study Group discussed above is examining, among
other issues, whether PEO companies are employers of worksite employees under
the Code provisions applicable to federal employment taxes and, consequently,
responsible for payment of employment taxes on wages and salaries paid to such
worksite employees.
The uncertainties associated with new and developing regulatory positions
and the IRS studies and investigations could have the effect of discouraging
companies from enrolling with PEO companies.
State employment tax obligations vary from state to state; therefore, the
Company's responsibilities with respect to state employment tax obligations will
be dependent upon the particular states in which the worksite employees are
performing services.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors, executive officers and key employees upon completion of this
Offering.
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------
Larry E. Darst...................... 46 Chairman of the Board, President,
Chief Executive Officer and Director
Dean G. Walberg..................... 58 Senior Vice President -- Operations
Gary J. Petry....................... 48 Senior Vice President and Chief
Financial Officer
Stephen M. Alter.................... 58 Chief Executive Officer of
Alternative Solutions, Director*
Brenda S. Dougan.................... 47 President of ASAP, Director*
Mary E. Evins....................... 66 President of Evins Group, Director*
Lovey L. Hammel..................... 38 President of Employment Enterprises,
Director*
Paul L. Milligan.................... 43 President of GTS, Director*
Gary D. Pitts....................... 40 President of HP Services, Director*
Richard L. Bronson.................. 52 President of Technology Plus,
Director*
Quincy T. Freeman................... 59 Chief Executive Officer of Cardinal,
Director*
Carl L. Norton...................... 54 Director
George C. Woods..................... 39 Director
Thomas N. Amonett................... 53 Director*
- ------------
* Election as a director effective as of the consummation of this Offering.
LARRY E. DARST became the Chief Executive Officer of the Company and a
director in April 1997. From 1974 to 1996, Mr. Darst was employed by Ernst &
Young LLP, an international professional services firm. From 1983 until he
departed in 1996, Mr. Darst was a partner in Ernst & Young LLP. At the time of
his departure, Mr. Darst had served for two years as the Associate Regional
Director of Accounting and Auditing. In addition, from 1984 to 1988, Mr. Darst
was Ernst & Young LLP's Regional Director of Human Resources.
DEAN G. WALBERG became Senior Vice President -- Operations of the Company
in August 1997. From June 1991 through August 1992, Mr. Walberg served as
President of Questco, Inc., a staff leasing company. From August 1992 to May
1995, Mr. Walberg was with Unisource Services, Inc. as a consultant working
primarily in the staffing industry, and from May, 1995 to August 1997, he was
Vice President of Southwestern Headquarters with Digital Solutions, Inc., a
staff leasing company. He is a member of NAPEO.
GARY J. PETRY became Senior Vice President and Chief Financial Officer of
the Company in August 1997. Prior to joining the Company, Mr. Petry was employed
in various management capacities from 1979 to 1997 by Air Liquide America
Corporation and Big Three Industries, Inc., before it was acquired by Air
Liquide. During his tenure with Air Liquide America Corporation, Mr. Petry
served as Vice President and Controller (Chief Accounting Officer) from 1994 to
1997 and Vice President -- Finance from 1992 to 1994. Mr. Petry is a Certified
Public Accountant, licensed in the State of Texas.
STEPHEN M. ALTER will become a director of the Company upon the
consummation of this Offering. He has been the Chief Executive Officer of
Alternative Solutions since April 1982 and he will continue in that capacity
after the consummation of this Offering. Mr. Alter is active in both the
National Association of Temporary and Staffing Services and the Massachusetts
Association of Staffing Services.
BRENDA S. DOUGAN will become a director of the Company upon the
consummation of this Offering. She has been the President of ASAP since its
founding in September 1990. Ms. Dougan will continue as President of ASAP after
the consummation of this Offering.
50
<PAGE>
MARY E. EVINS will become a director of the Company upon the consummation
of this Offering. She has been the Chairman of the Board and President of Evins
Group since its founding in July 1967. Ms. Evins will continue as President of
Evins Group after the consummation of this Offering. Ms. Evins has held numerous
industry association officer positions, including Chairman of the Certification
Committee for the National Association of Personnel Consultants and currently
serves as a member of the Board of Directors for the Texas Chapter of NAPEO. Ms.
Evins was designated a Certified Personnel Consultant in 1969 and a Certified
Professional Employer Specialist in 1994.
LOVEY L. HAMMEL will become a director of the Company upon the consummation
of this Offering. She has been a co-owner and Vice President of Employment
Enterprises, Inc. since March 1980. Ms. Hammel will continue as President of
Employment Enterprises after the consummation of this Offering.
PAUL L. MILLIGAN will become a director of the Company upon the
consummation of this Offering. Mr. Milligan has served as President of GTS since
its inception in October 1989. From 1984 to 1989 Mr. Milligan was Regional Vice
President for PDS Technical Services Inc., a contract staffing services firm. He
will continue as President of GTS after the consummation of this Offering.
GARY D. PITTS will become a director of the Company upon the consummation
of this Offering. He has been President of HP Services since its founding in
1990 and will continue as President of HP Services after the consummation of the
Offering.
RICHARD L. BRONSON will become a director of the Company upon the
consummation of this Offering. Mr. Bronson has served as President of Technology
Plus since December 1985. He will continue as President of Technology Plus after
the consummation of this Offering.
QUINCY T. FREEMAN will become a director of the Company upon the
consummation of this Offering. Mr. Freeman has served as Chief Executive Officer
of Cardinal since 1988. He will continue as Chairman of the Board of Cardinal
after the consummation of this Offering.
CARL L. NORTON has been a director of the Company since February 1997. He
has been a partner in the Houston, Texas law firm of Norton, Jacobs, Kuhn &
McTopy, L.L.P. since 1994. From 1982 through 1994, Mr. Norton was a shareholder,
director and officer in the law firm of Norton & Blair, P.C. and its
predecessors.
GEORGE C. WOODS has been a director of the Company since February 1997. He
has been a manager of WJG Capital since February 1997. From 1987 to 1996, Mr.
Woods held senior financial and accounting positions with Quality Tubing, Inc.
at which company he was the Chief Financial Officer, Vice President -- Finance
and Administration, Secretary and Treasurer.
THOMAS N. AMONETT will become a director of the Company upon the
consummation of the Offering. He served as President and Chief Executive Officer
of Weatherford Enterra, Inc. from July 1996 to May 1997. From 1992 to 1996, he
served as Chairman of the Board and President of Reunion Resources Company
(previously known as Buttes Gas and Oil Company and now known as Reunion
Industries, Inc.). Prior thereto, he was Of Counsel with the law firm of
Fulbright & Jaworski L.L.P. from 1986 to 1992. He was President and a director
of Houston Oil Fields Company from 1982 to 1986. Mr. Amonett also currently
serves as a director of ITEQ, Inc., PetroCorp Incorporated, Reunion Industries,
Inc. and Weatherford Enterra, Inc.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of four directors, respectively, with directors
serving staggered three-year terms, expiring at the annual meeting of
stockholders in 1998, 1999 and 2000, respectively. Directors whose terms expires
in 1998 are: Brenda S. Dougan, Carl L. Norton, Paul L. Milligan and Gary D.
Pitts. Directors whose terms expire in 1999 are: Stephen M. Alter, Lovey L.
Hammel, Quincy T. Freeman and George C. Woods. Directors whose terms expire in
2000 are: Mary E. Evins, Richard L. Bronson, Larry E. Darst and Thomas N.
Amonett. At each annual meeting of stockholders, one class of directors will be
elected for a full term of three years to succeed that class of directors whose
terms are expiring. All officers serve at the discretion of the Board of
Directors.
51
<PAGE>
The Board of Directors will establish an Audit Committee, Nominating
Committee, Compensation Committee and an Executive Committee. The members of
these committees will be selected following the consummation of the Offering.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was organized in February 1997, has conducted limited
operations and generated no revenue to date. The Company anticipates that during
1997 and 1998 its most highly compensated executive officers will be Messrs.
Darst, Walberg and Petry.
Each of Messrs. Darst, Walberg and Petry has entered into an employment
agreement with the Company pursuant to which he will act as the Company's Chief
Executive Officer, Senior Vice President -- Operations and Senior Vice
President -- Chief Financial Officer, respectively. Pursuant to the agreements,
each executive will receive a base salary, a performance bonus in an amount up
to 100% of his annual salary, certain insurance, vacation, pension and profit
sharing benefits and an opportunity to receive options to purchase additional
shares of Common Stock on conditions consistent with the Company's 1997 Stock
Awards Plan (as hereinafter defined) and agreed to by the Compensation Committee
and the executive. Prior to the consummation of this Offering, the base salaries
of the executives are as follows: Mr. Darst -- $10,000 per month; Mr.
Walberg -- $7,500 per month; Mr. Petry -- $6,000 per month. After the
consummation of this Offering, the annual base salaries of the executive
officers become: Mr. Darst -- $175,000; Mr. Walberg -- $150,000; and Mr.
Petry -- $150,000. The $6,000 per month salary due to Mr. Petry prior to closing
this Offering is not payable until the consummation of this Offering. Each bonus
will be payable upon the satisfaction of certain performance criteria to be
established annually by the Company's Board of Directors. The initial term of
each employment agreement is for three years from the date of the closing of
this Offering, with automatic one year extensions thereafter unless the
agreement is terminated by either party at least 30 days prior to the expiration
of any term. Each agreement may also be terminated upon (i) the death or
disability of the executive, (ii) three months prior notice by the executive to
the Company, (iii) notice by the Company to the executive, "for cause," (iv)
notice by the Company to the executive without "cause," (v) notice by the
executive to the Company, within 60 days after a "constructive termination,"
or (vi) immediately, in the event (a) the Company fails to consummate an initial
public offering prior to January 31, 1998 in the case of Mr. Darst, or March 15,
1998, in the case of Messrs. Walberg and Petry, (b) the Offering is abandoned by
the Board of Directors, or (c) in the case of Mr. Darst, prior to the Offering a
majority of the representatives of the Founding Companies inform the Board of
Directors that they do not want Mr. Darst to serve as Chief Executive Officer.
Each agreement provides for the payment of certain severance benefits in the
event the executive is terminated due to disability. If any executive is
terminated without cause, such executive will be paid a severance amount payable
in equal monthly payments over a period of 24 months as follows: Mr.
Darst -- $350,000; Mr. Walberg -- $300,000 and Mr. Petry -- $300,000. Each
agreement also contains a covenant not to compete with the Company for a period
of two years after termination of employment.
1997 STOCK AWARDS PLAN
In September 1997, the Board of Directors and the Company's stockholders
approved the Company's 1997 Stock Awards Plan (the "1997 Stock Awards Plan").
The 1997 Stock Awards Plan is intended to provide employees, consultants and
other service providers with an opportunity to acquire a proprietary interest in
the Company and additional incentive and reward opportunities based on the
growth in the Common Stock price of the Company and to aid the Company in
attracting and retaining outstanding personnel. The 1997 Stock Awards Plan
provides for the granting of options (either incentive stock options within the
meaning of Code Section 422(b), or options that do not constitute incentive
stock options ("non-qualified stock options"), restricted stock awards, stock
appreciation rights, performance awards and phantom stock awards, or any
combination thereof. The maximum number of shares of Common Stock that may be
subject to outstanding awards, determined immediately after the grant of any
award, may not exceed the greater of 850,000 shares or 10% of the aggregate
number of shares of Common Stock outstanding.
52
<PAGE>
Shares of Common Stock which are attributable to awards which have expired,
terminated or been canceled or forfeited are available for issuance or use in
connection with future awards.
GRANTS. The following individuals or groups have been granted options
under the 1997 Stock Awards Plan contingent on the completion of the Offering:
Mr. Darst (non-qualified stock options for 175,000 shares which have an exercise
price equal to the price of the shares sold in this Offering), Mr. Walberg
(non-qualified stock options for 100,000 shares, 50,000 of which have an
exercise price equal to the price of the shares sold in this Offering and 50,000
of which have an exercise price of $3.00 less than the price of the shares sold
in this Offering), and Mr. Petry (non-qualified stock options for 50,000 shares
which have an exercise price equal to the price of the shares sold in this
Offering) and all Named Executive Officers (three in number) as a group
(non-qualified stock options for 325,000 shares). In addition, the Company has
reserved 525,000 shares of Common Stock for issuance pursuant to the 1997 Stock
Awards Plan. The options will be granted at an exercise price equal to the price
of the shares sold in this Offering.
ADMINISTRATION. The 1997 Stock Awards Plan will be administered by the
Compensation Committee of the Company. The Compensation Committee will have the
power to determine which employees, consultants and other service providers will
receive an award, the time or times when such award will be made, the type of
the award and the number of shares of Common Stock to be issued under the award
or the value of the award. Only persons who at the time of the award are
employees of or service providers to the Company or of any subsidiary of the
Company will be eligible to receive awards under the 1997 Stock Awards Plan. A
director of the Company is not eligible to receive an award under the 1997 Stock
Awards Plan unless such director is an employee of the Company or any of its
subsidiaries.
OPTIONS. The 1997 Stock Awards Plan will provide for two types of options:
incentive stock options and nonqualified stock options. The Compensation
Committee will designate the persons to receive the options, the number of
shares subject to the options and the terms and conditions of each option
granted under the 1997 Stock Awards Plan. No person may be awarded an option in
any calendar year to purchase more than 200,000 shares of Common Stock. The term
of any option granted under the 1997 Stock Awards Plan shall be determined by
the Compensation Committee; provided, however, that an incentive stock option
may only be awarded to an employee and that the term of any incentive stock
option cannot exceed ten years from the date of the grant and any incentive
stock option granted to an employee who possesses more than 10.0% of the total
combined voting power of all classes of shares of the Company or of its
subsidiary within the meaning of Section 422(b)(6) of the Code must not be
exercisable after the expiration of five years from the date of grant. No option
may be exercised earlier than six months from the date of grant. The exercise
price of options granted under the 1997 Stock Awards Plan will be determined by
the Compensation Committee; provided, however, that an incentive stock exercise
price cannot be less than the fair market value of a share of Common Stock on
the date such option is granted (subject to certain adjustments provided under
the 1997 Stock Awards Plan). Further, the exercise price of any incentive stock
option granted to an employee who possesses more than 10.0% of the total
combined voting power of all classes of shares of the Company or of its
subsidiaries within the meaning of Section 422(b)(6) of the Code must be at
least 110% of the fair market value of the Common Stock on the date such option
is granted. The exercise price of options granted under the 1997 Stock Awards
Plan will be paid in full in a manner prescribed by the Compensation Committee.
RESTRICTED STOCK AWARDS. Pursuant to a restricted stock award, Common
Stock will be to an eligible person at the time the award is made without any
cash payment to the Company, except to the extent otherwise provided by the
Compensation Committee or required by law; provided, however, that such shares
will be subject to certain restrictions on the disposition thereof and certain
obligations to forfeit such shares to the Company as may be determined in the
discretion of the Compensation Committee. The restrictions on disposition may
lapse based upon (a) the Company's attainment of specific performance targets
established by the Compensation Committee that are based on (i) the fair market
value of a share of Common Stock, (ii) the Company's earnings per share, (iii)
the Company's revenue, (iv) the revenue of a business unit of the Company
designated by the Compensation Committee, (v) the return on stockholders' equity
achieved by the Company, or (vi) the Company's pre-tax cash flow from
operations, (b) the grantee's
53
<PAGE>
tenure with the Company, or (c) a combination of factors. The Company will
retain custody of the Common Stock issued pursuant to a restricted stock award
until the disposition restrictions lapse. An employee may not sell, transfer,
pledge, exchange, hypothecate, or otherwise dispose of such shares until the
expiration of the restriction period. However, upon the issuance to the employee
of Common Stock pursuant to a restricted stock award, except for the foregoing
restrictions, such employee will have all the rights of a stockholder of the
Company with respect to such shares, including the right to vote such shares and
to receive all dividends and other distributions paid with respect to such
shares. No person may be awarded more than 200,000 shares of restricted stock in
any calendar year.
STOCK APPRECIATION RIGHTS. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof
(as determined by the Compensation Committee), equal in value to the number of
stock appreciation rights exercised by the holder multiplied by the excess of
the fair market value of Common Stock on the exercise date over the stock
appreciation rights' exercise price. Stock appreciation rights may or may not be
granted in connection with the grant of an option and no stock appreciation
right may be exercised earlier than six months from the date of grant. A stock
appreciation right may be exercised in whole or in such installments and at such
time as determined by the Compensation Committee. No person may be awarded more
than 200,000 stock appreciation rights in any calendar year.
PERFORMANCE AND PHANTOM STOCK AWARDS. The 1997 Stock Awards Plan will
permit grants of performance awards and phantom stock awards, which may be paid
in cash, Common Stock, or a combination thereof as determined by the
Compensation Committee. Performance awards granted under the 1997 Stock Awards
Plan will have a maximum value established by the Compensation Committee at the
time of the grant. No person may be granted a performance award in any calendar
year where the value of such award exceeds the Fair Market Value of 200,000
shares of Common Stock. A grantee's receipt of such amount will be contingent
upon satisfaction by the Company, or any subsidiary, division or department
thereof, of future performance conditions established by the Compensation
Committee prior to the beginning of the performance period. Future performance
conditions may be based on (i) the price of a share of Common Stock, (ii) the
Company's earnings per share, (iii) the Company's revenue, (iv) the revenue of a
business unit of the Company designated by the Compensation Committee, (v) the
return on stockholder's equity achieved by the Company, (vi) the Company or
business unit's pre-tax cashflow from operations or (vii) a combination of such
factors. Such performance awards, however, may be subject to later revisions as
the Compensation Committee deems appropriate to reflect significant unforeseen
events or changes. A performance award will terminate if the grantee's
employment with the Company terminates during the applicable performance period
except as otherwise provided by the Compensation Committee at the time of grant.
Phantom stock awards granted under the 1997 Stock Awards Plan are awards of
Common Stock or rights to receive amounts equal to stock appreciation over a
specific period of time. No person may be granted a phantom stock award in any
calendar year for more than 200,000 shares of Common Stock. Such awards vest
over a period of time or upon the occurrence of a specific event(s) (including,
without limitation, a change of control) established by the Compensation
Committee, without payment of any amounts by the holder thereof (except to the
extent required by law) or satisfaction of any performance criteria or
objectives. Future performance conditions may be based on (i) the price of a
share of Common Stock, (ii) the Company's earnings per share, (iii) the
Company's revenue, (iv) the revenue of a business unit of the Company designated
by the Compensation Committee, (v) the return on stockholder's equity achieved
by the Company, (vi) the Company or business unit's pre-tax cashflow from
operations or (vii) a combination of such factors. A phantom stock award will
terminate if the grantee's employment with the Company terminates during the
applicable vesting period or, if applicable, the occurrence of a specific
event(s), except as otherwise provided by the Compensation Committee at the time
of grant. In determining the value of performance awards or phantom stock
awards, the Compensation Committee must take into account the employee's
responsibility level, performance, potential, other awards under the 1997 Stock
Awards Plan and such other considerations as it deems appropriate. Such payment
may be made in a lump sum or in installments as prescribed by the Compensation
Committee. Any payment made in Common Stock will based upon the fair market
value of the Common Stock on the payment date.
54
<PAGE>
INCOME TAX CONSIDERATIONS. Upon the exercise of a nonqualified option, the
optionee will recognize ordinary taxable income on the amount that the fair
market value of the Common Stock purchased exceeds the price paid for such
Common Stock under the option. The Company shall be able to deduct the same
amount for federal income tax purposes. The exercise of an incentive stock
option has no tax consequence to an optionee or the Company. At the time the
restrictions lapse on a restricted stock award, the holder of such award will
recognize ordinary taxable income in an amount equal to the fair market value of
the shares of Common Stock on which the restrictions lapse. The amount of
ordinary taxable income recognized by such holder of a restricted stock award is
deductible by the Company. Upon the exercise of a stock appreciation right, the
holder of such right must include in ordinary taxable income the amount of cash
or the fair market value of the shares of Common Stock received. The amount of
ordinary taxable income recognized by such holder of the stock appreciation
right is deductible by the Company. A holder of a performance award as phantom
stock award will include in his or her ordinary taxable income the fair market
value of the shares of Common Stock related to such award when the holder's
rights in such award first becomes transferable or is no longer subject to a
substantial risk of forfeiture. The amount of ordinary taxable income recognized
by the holder of such an award is deductible by the Company.
SECTION 162(M). Code Section 162(m) generally disallows a public company's
tax deduction for compensation to the chief executive officer and the four other
most highly compensated executive officers in excess of $1.0 million in any
calendar year. Compensation that qualifies as "performance-based compensation"
is excluded from the $1.0 million deductibility cap, and therefore remains fully
deductible by the company that pays it. The Company intends that the awards
granted under the 1997 Stock Awards Plan qualify as such "performance-based
compensation."
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $2,000 for attendance at each Board of Directors meeting and $1,000 for
each committee meeting (unless held on the same day as a Board of Directors
meeting). Under the 1997 Nonqualified Stock Option Plan for Non-Employee
Directors (the "1997 Directors Stock Option Plan"), each current non-employee
director and, upon the election of a new non-employee director, such additional
non-employee director will be granted an option to acquire 10,000 shares of
Common Stock at an exercise price equal to fair market value of a share of
Common Stock as the date of grant. In addition, each non-employee director will
automatically be granted an annual option to acquire 5,000 shares at an exercise
price equal to the then fair market value of a share of Common Stock at each
annual meeting of the Company's stockholders at which such director is
re-elected or remains a director, unless such annual meeting is held within
three months of such person's initial election as a director. Each non-employee
director also may elect to receive shares of Common Stock or credits
representing "deferred shares" in lieu of cash directors' fees. Directors are
also reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board of Directors or committees thereof.
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, the Company issued to WJG
Capital a total of 1,000 shares of Common Stock for an aggregate cash
consideration of $1,000. These shares will be converted into 1,083,929 shares of
Common Stock after the 1,084-for-one stock split. See "Description of Capital
Stock." WJG Capital is a Texas limited liability company that is managed by
three managers: Messrs. Warren L. Williams, Jerry L. Hyde and George C. Woods.
Mr. Hyde and Woods, Williams & Company, a Texas general partnership of which
Messrs. Woods and Williams are the only partners, are members of WJG Capital.
The Norton Family Trust, of which Carl L. Norton is a beneficiary, is also a
member of WJG Capital. Mr. Norton is a director of the Company and has a
consulting agreement with WJG Capital pursuant to which he is assisting the
Company with the Mergers and the Offering. For such consulting
55
<PAGE>
services, WJG Capital will pay Mr. Norton $10,000 upon the consummation of this
Offering and the Company will reimburse WJG Capital for this payment. Shortly
after consummation of this Offering, the Company expects that WJG Capital will
distribute its shares of Common Stock in the Company to its equity owners. WJG
Capital has agreed with the Company not to sell any shares of Common Stock for
one year after the consummation of this Offering.
The members of WJG Capital intend to exchange their shares of Common Stock
for Restricted Common Stock which will have 0.35 of one vote for each share
held. As a result WJG Capital will have effective voting shares of 379,375 and
all existing stockholders of Nationwide Staffing will have 596,161 effective
voting shares collectively.
WJG Capital has agreed to advance whatever funds are necessary to pay the
expenses incurred to effect the Mergers and this Offering. As of August 31,
1997, WJG Capital had outstanding advances to the Company in the aggregate
amount of approximately $800,000, all of which is non-interest-bearing. All of
WJG Capital's advances will be repaid from the net proceeds of this Offering.
In February 1997, for nominal consideration, the Company sold the Norton
Family Trust and Sabrina A. McTopy warrants to purchase 45,000 and 5,000 shares
of Common Stock, respectively, at the exercise price equal to the lower of $8.00
per share or 60% of the per share price at which shares of Common Stock are sold
in this Offering. See "Description of Capital Stock." The Norton Family Trust
is also a member of WJG Capital. Mr. Norton, a beneficiary of the Norton Family
Trust, is also a director of the Company and Mr. Norton and Ms. McTopy are
partners in a Houston, Texas law firm.
In April 1997 and September 1997, the Company issued a total of 216,786
shares of Common Stock to various members of management, as follows: Mr.
Darst -- 173,429 shares at $0.0028 per share and Mr. Petry 43,357 shares at
$0.056 per share. The Company also granted options to purchase 10,000 shares of
Common Stock to each of Messrs. Norton and Woods, directors of the Company, and
will grant Mr. Amonett an option to purchase 10,000 shares of Common Stock upon
the consummation of this Offering.
Simultaneously with the closing of this Offering, Nationwide Staffing will
acquire in the Mergers all of the issued and outstanding stock of the eight
Founding Companies, at which time each Founding Company will become a
wholly-owned subsidiary of the Company. The aggregate consideration to be paid
by Nationwide Staffing in the Mergers is $22.6 million in cash and 3,570,718
shares of Common Stock. In addition, immediately prior to the Mergers certain of
the Founding Companies will make S Corporation Distributions and C Corporation
Distributions of approximately $1.3 million to their respective stockholders.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of Nationwide Staffing, the performance
by each of them of all covenants included in the agreements relating to the
Mergers and the non-existence of a material adverse change in the results of
operations, financial condition or business of each Founding Company. There can
be no assurance that the conditions to closing of the Mergers will be satisfied
or waived or that the acquisition agreements will not be terminated prior to
consummation. If any of the Mergers is terminated for any reason, the Company
does not intend to consummate this Offering on the terms described herein.
56
<PAGE>
The following table sets forth the consideration to be paid by Nationwide
Staffing for each of the Founding Companies based on the Offering Price:
CASH SHARES OF
NAME (IN THOUSANDS) COMMON STOCK
Alternative Solutions................ $ 1,802 731,669
A.S.A.P.............................. 1,358 293,830
Cardinal............................. 2,136 447,856
Employment Enterprises............... 3,999 667,971
Evins Group.......................... 1,843 200,550
GTS.................................. 6,552 380,969
HP Services.......................... 2,534 428,022
Technology Plus...................... 2,399 419,851
-------------- ------------
Total........................... $ 22,623 3,570,718
============== ============
Pursuant to the agreements entered into in connection with the Mergers, the
stockholders of the Founding Companies have agreed not to compete with the
Company for five years, commencing on the date of consummation of this Offering.
In addition, the employment agreements entered into by certain stockholders of
the Founding Companies contain a covenant not to compete with the Company for a
period of two years after termination of employment.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or their affiliates. At June 30,
1997, the aggregate amount of indebtedness of these Founding Companies that was
subject to personal guarantees was approximately $0.6 million. The Company
intends to repay such indebtedness from the proceeds of this Offering. See "Use
of Proceeds."
In connection with the Mergers and as consideration for their interests in
the Founding Companies, certain officers, directors, and holders of more than
5.0% of the outstanding shares of the Company, together with their spouses and
trusts for which they act as trustees, will receive cash and shares of Common
Stock of the Company as follows:
SHARES OF
NAME CASH COMMON STOCK
(IN THOUSANDS)
Quincy T. Freeman & Diane Gail
Freeman, JTWROS.................... $2,136 447,856
Jana W. Yeates....................... 2,667 445,314
Richard L. Bronson................... 1,799 314,888
Lovey L. Hammel...................... 1,332 222,657
Brenda S. Dougan..................... 950 205,681
Mary E. Evins........................ 1,843 200,550
Paul L. Milligan..................... 2,883 167,628
Stephen M. Alter..................... 991 135,038
Gary D. Pitts........................ 1,267 128,407
The Company believes that the minimum price per share of the Common Stock
offered in the Offering will be in excess of $10.50.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, Alternative Solutions will continue to lease its
office space at Boston, Massachusetts from Commonwealth Realty Trust of which
Stephen M. Alter owns a 40% interest. Mr. Stephen M. Alter owns a 25% interest
of Alternative Solutions and will become a director of the Company upon the
consummation of the Mergers. The lease expires on April 30, 1998, and can be
renewed for one year at the option of Alternative Solutions. The annual base
rent for 1997 and 1998 is $156,000 per year. Additionally, Alternative Solutions
will pay all utilities, taxes and insurance costs on the leased premises. The
Company believes that the rent for this property does not exceed fair market
value.
57
<PAGE>
Following the Mergers, ASAP will continue to lease its office space at
Springdale, Arkansas from Ms. Brenda S. Dougan. Ms. Dougan owns a 70% interest
in ASAP and will become a director of the Company upon the consummation of the
Mergers. The lease expires May 31, 1998, and provides for minimum aggregate
annual rent of $13,200 in 1997 and $5,500 in 1998. An extension has also been
executed which provides for rent of $13,200 per year and expires in 2003. The
Company believes that the rent for this property does not exceed fair market
value.
Following the Mergers, HP Services will continue to lease its office space
at Alvin, Texas from GEM Enterprises, Inc., a company in which Gary D. Pitts
owns a 30% interest. Mr. Pitts owns a 30% interest in HP Services and will be a
director of the Company upon the consummation of the Mergers. The lease provides
for rent of $12,000 per year and expires in 2002. Additionally, HP Services will
pay all utilities, taxes and insurance costs on the leased premises. The Company
believes that the rent for this property does not exceed fair market value.
Following the Mergers, Employment Enterprises will continue to lease its
office space at Woodbridge, Virginia from Jana W. and Marvin D. Yeates. Ms.
Yeates owns 66.67% of Employment Enterprises. The term of the lease expires on
August 31, 1997, and provides for aggregate minimum annual rent of $10,812.
Employment Enterprises has the option to renew the lease for an additional one
year term at a 7% rent increase. Additionally, Employment Enterprises will pay
all condominium fees, utilities and insurance costs on the leased premises. The
Company believes that the rent for this property does not exceed fair market
value.
Following the Mergers, Evins Group will continue to lease its office space
at Austin, Texas, from C&M Properties. C&M Properties is a Texas company that is
wholly owned by Ms. Mary E. Evins. Ms. Evins will be a director of the Company
upon the consummation of the Mergers. The leases are for terms of 56 and 60
months each, and combined provide for future annual minimum rent payments of
$142,018 in 1997, $133,600 in 1998, $136,350 in 1999 and $45,450 in 2000. Both
leases expire on April 1, 2000 and can be renewed at the Company's option.
Additionally, Evins Group will pay all utilities, taxes and insurance costs on
the leased premises. The Company believes that the rent for this property does
not exceed fair market value.
Following the Mergers, Cardinal will continue to lease its office space at
Coos Bay, Oregon from Freeman Industries which is owned by Quincy T. Freeman and
Diane Gail Freeman. Mr. Freeman will be a director of the Company upon
consummation of the Mergers. The lease expires on September 30, 2000 and
provides for minimum aggregate annual rent of $39,000. The Company believes that
the rent for this property does not exceed fair market value.
OTHER TRANSACTIONS
Pursuant to an agreement among Nationwide Staffing and Messrs. Williams,
Adcock and Hyde, for two years after the consummation of this Offering, Messrs.
Williams, Adcock and Hyde will be paid a finder's fee with respect to any
acquisition by the Company of a temporary staffing, PEO, permanent placement
and/or human resource consulting or outsourcing company that they introduce to
the Company. Such fee will be based on a sliding scale of 5.0% of the first
$1,000,000 of the consideration paid for the acquired business, declining
ratably to 1.0% of the consideration in excess of $4,000,000 paid for such
business and will be payable with respect to all acquired businesses other than
the Founding Companies. In addition, as a group, Messrs. Williams, Adcock and
Hyde will receive from the Company $30,000 per month as an advance against
potential fees to be earned. However, in no event will such advances exceed the
aggregate of $90,000. If the aggregate of such advances exceeds the fees earned
by Messrs. Williams, Adcock and Hyde, they will be jointly and severally
obligated to repay such excess to the Company. The agreement is terminable by
Nationwide Staffing or any of Messrs. Williams, Adcock or Hyde upon 30 days
prior written notice.
From time to time, HP Services provides light industrial labor for BEAED
Corporation, a company owned by Mr. W.M. Hartman. Mr. Hartman is a 70% owner of
HP Services. Revenues derived from
58
<PAGE>
BEAED totaled $433,849 in 1996, $525,576 in 1995 and $263,990 in 1994. As of
June 30, 1997, the outstanding amount owed by BEAED to HP Services for such
services was $64,275.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal and will be approved in advance by
a majority of disinterested members of the Board of Directors.
59
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company, after giving effect to the Mergers
and this Offering, by (i) each person known to own beneficially more than 5.0%
of the outstanding shares of Common Stock; (ii) each Company director and person
who has consented to be named as a director ("named directors"); (iii) each
named executive officer; and (iv) all executive officers, directors and named
directors as a group. Unless otherwise noted, the address of each such person is
c/o Nationwide Staffing, Inc., 600 Travis, Suite 6200, Houston, Texas 77002. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
SHARES BENEFICIALLY
OWNED AFTER OFFERING
----------------------
NUMBER PERCENT
WJG Capital, L.L.C................... 1,083,929 12.5%
Quincy T. Freeman and Diane Gail
Freeman, JTWROS.................... 447,856 5.2%
Jana W. Yeates....................... 445,314 5.1%
George C. Woods...................... 331,430(1) 3.8%
Richard L. Bronson................... 314,888 3.6%
Lovey L. Hammel...................... 222,657 2.6%
Brenda S. Dougan..................... 205,681 2.4%
Mary E. Evins........................ 200,550 2.3%
Larry E. Darst....................... 173,429 2.0%
Paul L. Milligan..................... 167,628 1.9%
Stephen M. Alter..................... 135,038 1.6%
Gary D. Pitts........................ 128,407 1.5%
Carl L. Norton....................... 93,043(2) 1.1%
Gary J. Petry........................ 43,357 *
Thomas N. Amonett.................... 10,000 *
--------- --------
All executive officers, directors and
named directors as
a group (13 persons)............... 2,473,963 28.43%
========= ========
- ------------
* Less than 1.0%
(1) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's 1997 Directors Stock Option Plan and 321,430
shares of Common Stock issued to WJG Capital. Of the shares of Common Stock
issued to WJG Capital, 316,815 shares will be distributed to Woods, Williams
& Company, of which Mr. Woods is the general partner, and 4,615 shares will
be distributed to another member of WJG Capital. Mr. Woods has acquired the
right to acquire the 4,615 shares of Common Stock issued to the other member
of WJG Capital.
(2) Includes 10,000 shares of Common Stock issuable upon exercise of options
granted under the Company's 1997 Directors Stock Option Plan and 83,043
shares of Common Stock issued to WJG Capital. Of the shares of Common Stock
issued to WJG Capital, 67,659 shares of Common Stock will be distributed to
the Norton Family Trust and 15,384 shares of Common Stock will be
distributed to a member of WJG Capital. Mr. Norton is the sole beneficiary
of the Norton Family Trust, and he has acquired the right to receive the
15,384 shares of Common Stock issued to the other member of WJG Capital.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 60,000,000 shares
of capital stock consisting of 55,000,000 shares of Common Stock, of which
5,000,000 are Restricted Common Stock, and 5,000,000 shares of Preferred Stock
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 8,671,433 shares of Common Stock (9,241,433 if the
Underwriters' over-allotment option is exercised in full) and no shares of
Restricted Common Stock or Preferred Stock. The following discussion is
qualified in its entirety by reference to the Restated Certificate of
Incorporation of Nationwide Staffing, which is included as an exhibit to the
Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.35 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes of
four, with the term of each class expiring on a staggered basis. The
classification of the Board of Directors may make it more difficult to change
the composition of the Board of Directors and thereby may discourage or make
more difficult an attempt by a person or group to obtain control of the Company.
Cumulative voting for the election of directors is not permitted. Any director,
or the entire Board of Directors, may be removed at any time, with cause, by a
majority of the aggregate number of votes which may be cast by the holders of
outstanding shares of Common Stock and Restricted Common Stock entitled to vote
for the election of directors, provided, however, that only the holders of the
Restricted Common Stock may remove the director such holders are entitled to
elect. See "Management -- Directors and Executive Officers."
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted Common Stock have no preemptive rights
to purchase shares of stock of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment thereof, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986)), (ii) in the event any person
acquires beneficial ownership of 15% or more of the outstanding shares of Common
Stock of the Company, (iii) in the event any person offers to acquire 15% or
more of the outstanding shares of Common Stock of the Company, (iv) in the event
the holder of Restricted Common Stock elects to convert it into Common Stock at
any time after the second anniversary of the date of this Prospectus, (v) on the
fifth anniversary of the date of this Prospectus or (vi) earlier, upon the
affirmative vote of a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock. After December 1, 1998, the Board of Directors may elect to convert any
outstanding shares of Restricted Common Stock into shares of Common
61
<PAGE>
Stock in the event 80% or more of the originally outstanding shares of
Restricted Common Stock have been previously converted into shares of Common
Stock.
Application has been made for listing of the Common Stock on the New York
Stock Exchange under the symbol " ," subject to official notice of
issuance. The Restricted Common Stock will not be listed on any exchange.
WARRANTS
Effective February 1997, for nominal consideration, the Company sold to the
Norton Family Trust and Sabrina A. McTopy warrants to purchase 45,000 shares and
5,000 shares of Common Stock, respectively, at an exercise price equal to the
lower of $8.00 or 60.0% of the per-share price at which shares of Common Stock
are sold in this Offering. The warrants are exercisable for a four-year period
beginning one year after the date of this Offering. In addition, the warrants
contain anti-dilution provisions providing for adjustment of the exercise price
upon the occurrence of certain events, including the issuance of shares of
Common Stock or other securities convertible into or exercisable for shares of
Common Stock at a price per share less than the exercise price or the market
price of the Common Stock, or in the event of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. Such anti-dilution provisions could, under certain circumstances,
afford the holders of these warrants the opportunity to purchase a substantial
amount of the Company's securities at a price significantly below market.
Further, the warrants grant to the holders thereof certain "piggyback"
registration rights. Mr. Norton is a beneficiary of the Norton Family Trust. Mr.
Norton is serving as a consultant to WJG Capital and is a director of the
Company. See "Directors and Executive Officers and "Certain
Transactions -- Organization of the Company."
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative participating, optional or other special rights, qualifications,
limitations or restrictions, including dividend rights (including whether
dividends are cumulative), dividend rates, terms of redemption (including
sinking fund provisions), redemption prices, conversion rights and liquidation
preferences of the shares constituting any series of the Preferred Stock, in
each case without any further action or vote by the stockholders. The Company
has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise and to protect the continuity of the Company's management. The
issuance of shares of the Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Common Stock. For example, Preferred Stock issued by the Company may rank prior
to the Common Stock as to dividend rights, liquidation preference or both, may
have full or limited voting rights and may be convertible into shares of Common
Stock. Accordingly, the issuance of shares of Preferred Stock may discourage
bids for the Common Stock or may otherwise adversely affect the market price of
the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which, with certain exceptions, prohibits a Delaware corporation
from engaging in any of a broad range of business combinations with any
"interested stockholder" for a period of three years following the date that
such stockholder became an interested stockholder, unless: (i) prior to such
time, the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the
62
<PAGE>
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85.0% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) at or subsequent
to such time, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. An "interested stockholder" is defined as any
person that is (a) the owner of 15.0% or more of the outstanding voting stock of
the corporation or (b) an affiliate or associate of the corporation and, in
either instance, was the owner of 15.0% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation and the Bylaws of the
Company provide that directors and officers of the Company shall be and at the
discretion of the Board of Directors non-officer employees and agents may be,
indemnified by the Company to the fullest extent authorized by Delaware law, as
it now exists or may in the future be amended, against all expenses and
liabilities actually and reasonably incurred in connection with service for or
on behalf of the Company and further permits the advancing of expenses incurred
in defense of claims. The Certificate of Incorporation also provides that any
action required or permitted to be taken by the stockholders of the Company at
an annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders in
lieu thereof.
The Company's Bylaws provide that a special meeting of stockholders may be
called only by the Chief Executive Officer, by a majority of the Board of
Directors, or by a majority of the Executive Committee of the Board of
Directors. The Bylaws provide that only those matters set forth in the notice of
the special meeting may be considered or acted upon at that special meeting. The
Company's Bylaws may be amended or repealed, or new Bylaws may be adopted by the
Board of Directors, subject to the right of the stockholders entitled to vote
thereon to amend or repeal such Bylaws as adopted or amended by the Board of
Directors; provided that such stockholder right to amend or repeal the Bylaws
requires at least a 66 2/3% vote of the stockholders.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Company's Bylaws. If the Chairman of the Board of
Directors determines that a person was not nominated in accordance with the
Nomination Procedure, such person will not be eligible for election as a
director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at an annual meeting must give prior written notice, in proper form,
to the Secretary of the Company. The requirements as to the form and timing of
that notice are specified in the Company's Bylaws. If the Chairman of the
63
<PAGE>
Board of Directors determines that the other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 8,671,433 shares of Common Stock (9,241,433 if the
Underwriters' over-allotment option is exercised in full). The 3,800,000 shares
sold in this Offering (plus any additional shares sold upon exercise of the
Underwriters' over-allotment option) will be freely tradeable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock have been registered under the Securities
Act, which means that they may be resold publicly only upon registration under
the Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act, including the exemption provided by Rule 144
or Rule 145 thereunder.
In general, under Rule 144 and Rule 145, if a period of at least one year
has elapsed between the later of the date on which restricted securities were
acquired from the Company or the date on which they were acquired from an
affiliate, the holder of such restricted securities (including an affiliate) is
entitled to sell a number of shares within any three-month period that does not
exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock (approximately 86,714 shares upon completion of this Offering) or
(ii) the average weekly reported volume of trading of the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 and Rule 145
are also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
securities in accordance with the foregoing volume limitations and other
requirements but without regard to the one year holding period. Under Rule
144(k), if a period of at least two years has elapsed between the later of the
date on which restricted securities were acquired from the Company and the date
on which they were acquired from an affiliate, a holder of such restricted
securities who is not an affiliate at the time of the sale and has not been an
affiliate for a least three months prior to the sale is entitled to sell the
shares immediately without regard to the volume limitations and other conditions
described above.
The Company and its officers, directors and certain stockholders who
beneficially own 4,871,433 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, except that the Company may issue
Common Stock in connection with acquisitions or in connection with its 1997
Stock Awards Plan. See "Underwriting." In addition, all of the stockholders of
the Founding Companies and the Company's officers and all members of WJG Capital
have agreed with the Company that they will not sell any of their shares for a
period of one year after the closing of this Offering. Such stockholders,
however, have the right, in the event the Company proposes to register under the
Securities Act any Common Stock for its own account or for the account of
others, subject to certain exceptions, to require the Company to include their
shares in the registration, subject to the right of the Company to exclude some
or all of the shares in the offering upon the advice of the managing
underwriter.
64
<PAGE>
Within 90 days after the closing of this Offering, the Company intends to
register 3,000,000 shares of its Common Stock under the Securities Act for use
by the Company in connection with future acquisitions. Upon such registration,
these shares will generally be freely tradeable after their issuance. In some
instances, however, the Company may contractually restrict the sale of shares
issued in connection with future acquisitions. The piggyback registration rights
described above do not apply to the registration statement relating to these
3,000,000 shares.
Prior to this Offering, there has been no public market for the Common
Stock and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
65
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, (the
"Underwriting Agreement"), the Underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Legg Mason
Wood Walker Incorporated and Ladenburg Thalmann & Co. Inc. (the
"Representatives"), have severally agreed to purchase from the Company the
respective numbers of shares of Common Stock set forth opposite their names
below.
NUMBER OF
UNDERWRITERS SHARES
Donaldson, Lufkin & Jenrette
Securities Corporation
Legg Mason Wood Walker Incorporated
Ladenburg Thalmann & Co. Inc.
---------
Total...................... 3,800,000
=========
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 570,000 additional shares of Common
Stock at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions noted
below, not to (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any of
the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for a
period of 180 days after the date of this Prospectus without the prior written
consent of DLJ. In addition, during such period, the Company has also agreed not
to file any registration statement with respect to, and each of its executive
officers, directors and certain stockholders of the Company has agreed, except
as noted below, not to make any demand for, or exercise any right with respect
to, the registration of any shares of
66
<PAGE>
Common Stock or any securities convertible into or exercisable or exchangeable
for Common stock without DLJ's prior written consent.
The Underwriters have agreed to allow the Company to issue shares of Common
Stock in connection with acquisitions after the thirtieth day following the date
of the Prospectus. In addition, the Company intends to register 3,000,000 shares
of Common Stock under the Securities Act for use by the Company in future
acquisitions. See "Shares Eligible For Future Sale."
Prior to the Offering, there has been no established trading market of the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Founding
Companies, the historical results of operations of the Founding Companies, the
prospects for future earnings of the Company, the recent market prices of
securities of generally comparable companies and the general condition of the
securities markets at the time of the Offering.
Application has been made to list the Common Stock on the New York Stock
Exchange (the "NYSE"). In order to meet the requirements for listing the
Common Stock on the NYSE, the Underwriters have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial owners.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal matters
will be passed on for the Underwriters by Fulbright & Jaworski L.L.P., Houston,
Texas.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
67
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act, with respect to the offered Common Stock.
This Prospectus, which is part of the Registration Statement, does not contain
all the information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted in accordance with the
rules and regulations of the SEC. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is hereby
made to the exhibit for a more complete description of the matter involved and
each such statement shall be deemed qualified in its entirety by such reference.
For further information with respect to the Company, reference is hereby made to
the Registration Statement and such exhibits and schedules filed as a part
thereof, which may be inspected, without charge, at the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511. The SEC
maintains a World Wide Web site on the Internet at HTTP://WWW.SEC.GOV that
contains reports, proxy and information statements regarding registrants that
file electronically with the SEC. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
SEC, upon payment of the prescribed fees.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
NATIONWIDE STAFFING, INC., AND FOUNDING
COMPANIES UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma
Combined Financial Statements..... F-3
Unaudited Pro Forma Combined
Balance Sheet..................... F-4
Unaudited Pro Forma Combined
Statements of Operations.......... F-5
Notes to Unaudited Pro Forma
Combined Financial Statements..... F-8
NATIONWIDE STAFFING, INC.
Report of Independent Public
Accountants....................... F-11
Balance Sheets..................... F-12
Statement of Operations............ F-13
Statement of Stockholders'
Equity............................ F-14
Statement of Cash Flows............ F-15
Notes to Financial Statements...... F-16
FOUNDING COMPANIES
ALTERNATIVE SOLUTIONS, INC.
Report of Independent Public
Accountants....................... F-18
Balance Sheets..................... F-19
Statements of Operations........... F-20
Statements of Changes in
Shareholders' Equity.............. F-21
Statements of Cash Flows........... F-22
Notes to Financial Statements...... F-23
A.S.A.P SERVICES, INC.
Report of Independent Public
Accountants....................... F-28
Consolidated Balance Sheets........ F-29
Consolidated Statements of
Operations........................ F-30
Consolidated Statements of Changes
in Shareholders' Equity........... F-31
Consolidated Statements of Cash
Flows............................. F-32
Notes to Consolidated Financial
Statements........................ F-33
CARDINAL SERVICES, INC.
Report of Independent Public
Accountants....................... F-36
Balance Sheets..................... F-37
Statements of Operations........... F-38
Statements of Changes in
Shareholders' Equity.............. F-39
Statements of Cash Flows........... F-40
Notes to Financial Statements...... F-41
EMPLOYMENT ENTERPRISES, INC.
Report of Independent Public
Accountants....................... F-47
Combined Balance Sheets............ F-48
Combined Statements of
Operations........................ F-49
Combined Statements of Changes in
Shareholders' Equity.............. F-50
Combined Statements of Cash
Flows............................. F-51
Notes to Financial Statements...... F-52
F-1
<PAGE>
PAGE
-----
EVINS PERSONNEL CONSULTANTS, INC., AND
AFFILIATES
Report of Independent Public
Accountants....................... F-58
Balance Sheets..................... F-59
Statements of Operations........... F-60
Statements of Changes in
Shareholders' Equity.............. F-61
Statements of Cash Flows........... F-62
Notes to Financial Statements...... F-63
GLOBAL TECHNICAL SERVICES, INC.
Report of Independent Public
Accountants....................... F-68
Balance Sheets..................... F-69
Statements of Operations........... F-70
Statements of Changes in
Shareholders' Equity.............. F-71
Statements of Cash Flows........... F-72
Notes to Financial Statements...... F-73
HP SERVICES, INC.
Report of Independent Public
Accountants....................... F-80
Balance Sheets..................... F-81
Statements of Operations........... F-82
Statements of Changes in
Shareholders' Equity.............. F-83
Statements of Cash Flows........... F-84
Notes to Financial Statements...... F-85
TECHNOLOGY PLUS, INC.
Report of Independent Public
Accountants....................... F-88
Balance Sheets..................... F-89
Statements of Operations........... F-90
Statements of Changes in
Shareholders' Equity.............. F-91
Statements of Cash Flows........... F-92
Notes to Financial Statements...... F-93
F-2
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the acquisition by Nationwide Staffing, Inc. (Nationwide Staffing), of
substantially all of the net assets of (a) Employment Enterprises, Inc.
(Employment Enterprises), (b) Alternative Solutions, Inc. (Alternative
Solutions), (c) Cardinal Services, Inc. (Cardinal), (d) Global Technical
Services, Inc. (GTS), (e) HP Services, Inc. (HP Services), (f) A.S.A.P. Staffing
Services, Inc. (ASAP), (g) Technology Plus, Inc. (Technology Plus), and (h)
Evins Personnel Group (Evins Group) (together, the Founding Companies).
Nationwide Staffing and the Founding Companies are hereinafter referred to as
"the Company." These mergers (the Mergers) will occur simultaneously with the
closing of Nationwide Staffing's initial public offering (the Offering) and will
be accounted for using the purchase method of accounting. Alternative Solutions
has been identified as the accounting acquiror because it will receive the
largest portion of voting rights of the Company.
These statements are based on the historical financial statements of
Nationwide Staffing and the Founding Companies included elsewhere in this
Prospectus. The unaudited pro forma combined balance sheet gives effect to the
Mergers and the Offering as if they had occurred on June 30, 1997. The unaudited
pro forma combined statements of operations give effect to these transactions as
if they were consumated on January 1, 1996.
The Company has estimated the savings that it expects to be realized by
consolidating certain operational and general and administrative functions. To
the extent the owners and certain key employees of the Founding Companies have
agreed prospectively to reductions in salary, bonuses, benefits, and rent
expense paid to the owners, these reductions have been reflected in the
unaudited pro forma combined statement of income. With respect to other
potential cost savings, the Company has not and cannot quantify these savings
until completion of the combination of the Founding Companies. It is anticipated
that these savings will be partially offset by the costs of being a publicly
held company and the incremental increase in costs related to the Company's new
management. However, these costs, like the savings that they offset, cannot be
estimated at this time. Neither the anticipated savings nor the anticipated
costs have been included in the pro forma combined financial information. In
addition the pro forma combined statement of operations does not include an
adjustment for a nonrecurring, noncash charge of $0.6 million for issuing common
stock and stock options to employees and officers of Nationwide Staffing. Such
issuance will occur subsequent to June 30, 1997 and prior to completion of the
Offering and will be recorded in the period in which it occurs.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The unaudited pro forma financial data do not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates and
are not representative of the Company's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See "Risk
Factors" included elsewhere herein.
F-3
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents........................ $ 67 $ 7 $ 372 $ 271 $-- $ 104 $ 479 $ 43
Trade accounts receivable............ -- 1,783 562 1,223 3,231 927 3,367 1,116
Other current assets................. -- 105 12 582 226 -- 105 144
---------- ----------- --------- -------- ---------- ------ --------- --------
Total current assets............... 67 1,895 946 2,076 3,457 1,031 3,951 1,303
Property and equipment, net.......... 5 53 124 133 213 86 484 11
Goodwill............................. -- -- -- 4 -- -- -- --
Other assets......................... 323 -- -- 274 -- 164 285 --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total assets....................... $ 395 $ 1,948 $ 1,070 $2,487 $3,670 $1,281 $ 4,720 $1,314
========== =========== ========= ======== ========== ====== ========= ========
Accounts payable and accrued
liabilities........................ $ 484 $ 1,129 $ 431 $1,382 $2,397 $ 387 $ 2,017 $ 187
Borrowings under lines of credit..... -- 300 3 5 -- 738 2,067 259
Notes payable, current portion....... -- -- -- 525 643 -- -- --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total current liabilities.......... 484 1,429 434 1,912 3,040 1,125 4,084 446
Notes payable, long term............. -- -- 8 11 -- 116 11 --
Other long term liabilities.......... -- -- -- 8 -- 336 5 --
---------- ----------- --------- -------- ---------- ------ --------- --------
Total liabilities.................. 484 1,429 442 1,931 3,040 1,577 4,100 446
---------- ----------- --------- -------- ---------- ------ --------- --------
Common stock......................... 13 10 -- 1 3 1 10 1
Additional paid-in capital........... -- -- -- -- 7 -- 190 --
Retained earnings
(deficit).......................... (102) 509 628 555 620 (297) 420 867
---------- ----------- --------- -------- ---------- ------ --------- --------
Total shareholders' equity
(deficit)........................ (89) 519 628 556 630 (296) 620 868
---------- ----------- --------- -------- ---------- ------ --------- --------
Total liabilities and shareholders'
equity............................. $ 395 $ 1,948 $ 1,070 $2,487 $3,670 $1,281 $ 4,720 $1,314
========== =========== ========= ======== ========== ====== ========= ========
</TABLE>
<TABLE>
<CAPTION>
TECHNOLOGY MERGER PRO FORMA OFFERING AS
PLUS ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
---------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
Cash and cash
equivalents........................ $ 43 $(1,045) $ 341 $ 13,819 $14,160
Trade accounts receivable............ 1,338 -- 13,547 -- 13,547
Other current assets................. 190 -- 1,364 -- 1,364
---------- ----------- --------- ----------- --------
Total current assets............... 1,571 (1,045) 15,252 13,819 29,071
Property and equipment, net.......... 78 -- 1,187 -- 1,187
Goodwill............................. -- 47,889 47,893 -- 47,893
Other assets......................... 398 -- 1,444 (323) 1,121
---------- ----------- --------- ----------- --------
Total assets....................... $2,047 $46,844 $65,776 $ 13,496 $79,272
========== =========== ========= =========== ========
Accounts payable and accrued
liabilities........................ $ 579 $ 200 $ 9,193 -- $ 9,193
Borrowings under lines of credit..... 195 -- 3,567 (3,567) --
Notes payable, current portion....... -- -- 1,168 (1,168) --
---------- ----------- --------- ----------- --------
Total current liabilities.......... 774 200 13,928 (4,735) 9,193
Notes payable, long term............. -- 285 431 (431) --
Other long term liabilities.......... -- 22,914 23,263 (22,957) 306
---------- ----------- --------- ----------- --------
Total liabilities.................. 774 23,399 37,622 (28,123) 9,499
---------- ----------- --------- ----------- --------
Common stock......................... 1 9 49 38 87
Additional paid-in capital........... -- 29,191 29,388 41,581 70,969
Retained earnings
(deficit).......................... 1,272 (5,755) (1,283) -- (1,283)
---------- ----------- --------- ----------- --------
Total shareholders' equity
(deficit)........................ 1,273 23,445 28,154 41,619 69,773
---------- ----------- --------- ----------- --------
Total liabilities and shareholders'
equity............................. $2,047 $46,844 $65,776 $ 13,496 $79,272
========== =========== ========= =========== ========
</TABLE>
F-4
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $-- $12,855 $ 6,132 $ 20,292 $ 36,676 $ 7,833 $ 28,661 $ 9,063
Cost of services..................... -- (9,792) (5,016) (17,814) (32,874) (5,824) (26,561) (7,943)
---------- ----------- --------- -------- ---------- ------- --------- --------
Gross profit..................... -- 3,063 1,116 2,478 3,802 2,009 2,100 1,120
---------- ----------- --------- -------- ---------- ------- --------- --------
Operating costs and expenses......... -- (2,988) (537) (2,473) (3,560) (1,630) (1,247) (641)
Interest expense..................... -- (30) -- (11) (113) (99) (173) (10)
Other income (expense) net........... -- 4 6 29 -- -- (3) 14
---------- ----------- --------- -------- ---------- ------- --------- --------
Net income before income tax....... -- 49 585 23 129 280 677 483
Income tax........................... -- (14) -- (11) (54) (114) (291) --
---------- ----------- --------- -------- ---------- ------- --------- --------
Net income (loss).................. $-- $ 35 $ 585 $ 12 $ 75 $ 166 $ 386 $ 483
========== =========== ========= ======== ========== ======= ========= ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 12,256 $-- $133,768
Cost of services..................... (10,802) -- (116,626)
---------- ----------- ---------
Gross profit..................... 1,454 -- 17,142
---------- ----------- ---------
Operating costs and expenses......... (964) 2,679 (e) (12,558)
(1,197)(f)
Interest expense..................... (67) 503 (g) --
Other income (expense) net........... 45 -- 95
---------- ----------- ---------
Net income before income tax....... 468 1,985 4,679
Income tax........................... (197) (1,610)(h) (2,291)
---------- ----------- ---------
Net income (loss).................. $ 271 $ 375 $ 2,388
========== =========== =========
Earnings per share................... .31
=========
Shares used in computing pro forma
earnings per share................. 7,640,009
=========
F-5
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- ------- -------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $ -- $ 5,898 $ 2,517 $ 8,643 $ 16,944 $ 3,492 $ 13,608 $ 4,055
Cost of Services..................... -- (4,548) (2,045) (7,727) (15,300) (2,615) (12,653) (3,528)
---------- ----------- ------- -------- ---------- ------- -------- --------
Gross profit....................... -- 1,350 472 916 1,644 877 955 527
---------- ----------- ------- -------- ---------- ------- -------- --------
Operating costs and expenses......... -- (1,303) (186) (863) (1,632) (757) (499) (272)
Interest expense..................... -- (15) -- (13) (75) (28) (85) (5)
Other income
(expense), net..................... -- 1 2 3 -- -- 1 1
---------- ----------- ------- -------- ---------- ------- -------- --------
Net income before income tax....... -- 33 288 43 (63) 92 372 251
Income tax........................... -- (13) -- (21) 14 (40) (159) --
---------- ----------- ------- -------- ---------- ------- -------- --------
Net income (loss).................. $ -- $ 20 $ 288 $ 22 $ (49) $ 52 $ 213 $ 251
========== =========== ======= ======== ========== ======= ======== ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 5,346 $ -- $ 60,503
Cost of Services..................... (4,637) -- (53,053)
---------- ----------- ---------
Gross profit....................... 709 -- 7,450
---------- ----------- ---------
Operating costs and expenses......... (403) (599)(e) (5,363)
1,151 (f)
Interest expense..................... (28) 245 (g) (4)
Other income
(expense), net..................... 33 -- 41
---------- ----------- ---------
Net income before income tax....... 311 797 2,124
Income tax........................... (132) (711)(h) (1,062)
---------- ----------- ---------
Net income (loss).................. $ 179 $ 86 $ 1,062
========== =========== =========
Earnings per share................... .14
=========
Shares used in computing pro forma
earnings per share................. 7,640,009
=========
F-6
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX-MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ALTERNATIVE EMPLOYMENT EVINS HP
NATIONWIDE SOLUTIONS ASAP CARDINAL ENTERPRISES GROUP GTS SERVICES
---------- ----------- --------- -------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from services............... $-- $ 6,936 $ 4,049 $ 9,735 $ 20,849 $ 4,851 $ 20,205 $ 4,217
Cost of services..................... -- (5,182) (3,298) (8,399) (18,534) (3,517) (18,641) (3,587)
---------- ----------- --------- -------- ---------- --------- --------- --------
Gross profit..................... -- 1,754 751 1,336 2,315 1,334 1,564 630
---------- ----------- --------- -------- ---------- --------- --------- --------
Operating costs and expenses......... (91) (1,602) (389) (1,340) (1,711) (1,158) (770) (292)
Interest expense..................... -- (13) -- (4) (31) (114) (85) (9)
Other income
(expense), net..................... -- 28 3 16 -- -- (1) --
---------- ----------- --------- -------- ---------- --------- --------- --------
Net income before income tax..... (91) 167 365 8 573 62 708 329
Income tax........................... -- (82) -- (4) (227) (29) (298) --
---------- ----------- --------- -------- ---------- --------- --------- --------
Net income (loss)................ $ (91) $ 85 $ 365 $ 4 $ 346 $ 33 $ 410 $ 329
========== =========== ========= ======== ========== ========= ========= ========
Earnings per share...................
Shares used in computing pro forma
earnings per share.................
</TABLE>
TECHNOLOGY PRO FORMA PRO FORMA
PLUS ADJUSTMENTS COMBINED
---------- ----------- ---------
Revenues from services............... $ 6,417 $-- $ 77,259
Cost of services..................... (5,514) -- (66,672)
---------- ----------- ---------
Gross profit..................... 903 -- 10,587
---------- ----------- ---------
Operating costs and expenses......... (473) 1,253 (e) (7,172)
(599)(f)
Interest expense..................... (23) 279 (g) --
Other income
(expense), net..................... 10 -- 56
---------- ----------- ---------
Net income before income tax..... 417 933 3,471
Income tax........................... (170) (780) (1,590)
---------- ----------- ---------
Net income (loss)................ $ 247 $ 153 $ 1,881
========== =========== =========
Earnings per share................... .25
=========
Shares used in computing pro forma
earnings per share................. 7,640,009
=========
F-7
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BUSINESS:
Nationwide Staffing was formed to create a leading national provider of
comprehensive staffing solutions to businesses, professional and service
organizations and governmental agencies. The Founding Companies provide
professional skilled industrial and commercial (clerical and light industrial)
employees in a wide variety of industries, including aerospace and defense,
petrochemicals, petroleum refining, insurance, food processing, legal and
high-technology, and the government sector. Nationwide Staffing has conducted no
operations to date and will acquire the Founding Companies simultaneously with
the consummation of the Offering.
2. HISTORICAL FINANCIAL STATEMENTS:
The historical financial statements represent the financial position and
results of operations of Nationwide Staffing and the Founding Companies and were
derived from their respective financial statements. All Founding Companies have
been presented as of a December 31 year-end, except for Cardinal which has been
presented as of June 30. Interim results of operations for Cardinal for the six
months ended June 30, 1997 and June 30, 1996, have been included in the pro
forma statements of operations for those periods.
3. ACQUISITION OF FOUNDING COMPANIES:
Concurrent with the closing of the Offering, Nationwide Staffing will
acquire substantially all of the net assets of the Founding Companies. The
Acquisitions will be accounted for using the purchase method of accounting and
Alternative Solutions has been identified as the acquiror.
The following table sets forth for each Founding Company the estimated
consideration to be paid its common stockholders (a) in cash and (b) in shares
of common stock. The estimated consideration is subject to certain adjustments
at and following closing. See "Certain Transactions Organization of the
Company."
SHARES OF
CASH COMMON STOCK
--------- -------------
Alternative Solutions................ $ 1,802 731,669
ASAP................................. 1,358 293,830
Cardinal............................. 2,136 447,856
Employment Enterprises............... 3,999 667,971
Evins Group.......................... 1,843 200,550
GTS.................................. 6,552 380,969
HP Services.......................... 2,534 428,022
Technology Plus...................... 2,399 419,851
--------- -------------
Total................. $ 22,623 3,570,718
========= =============
F-8
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records distribution of certain Founding Company's S Corporation
Accumulated Adjustment Accounts and the deferred income taxes
attributable to temporary differences between the financial reporting
and tax basis of assets and liabilities held by these S Corporations
and distributions of retained earnings by C Corporations prior to the
Mergers.
(b) Records the purchase of the Founding Companies consisting of $22.6
million in cash and 3,570,718 shares of Common Stock for a total
estimated purchase price of $59.8 million (based on an estimated fair
value per share, which represents a discount of twenty percent from
the estimated initial public offering price) resulting in excess
purchase price over the fair value of assets acquired of $47.9
million.
(c) Records the proceeds of $41.9 million from the issuance of 3,800,000
shares of Common Stock net of estimated offering costs of $4.0 million
(based on an estimated offering price).
(d) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Mergers
and the repayment of certain debt obligations with the proceeds of
this Offering.
The following tables summarize unaudited pro forma combined balance sheet
adjustments:
MERGER
(a) (b) ADJUSTMENTS
--------- ---------- ------------
Cash and cash equivalents............ $ (1,045) $ -- $ (1,045)
Other assets......................... 47,889 47,889
Accounts payable and accrued
liabilities........................ (200) (200)
Notes payable, long term............. (285) (285)
Other long term liabilities.......... (292) (22,622) (22,914)
Common stock......................... (9) (9)
Additional paid-in capital........... (29,191) (29,191)
Retained earnings.................... 1,622 4,133 5,755
--------- ---------- ------------
$ -- $ -- $ --
========= ========== ============
OFFERING
(c) (d) ADJUSTMENTS
---------- ---------- -----------
Cash and cash equivalents............ $ 41,942 $ (28,123) $ 13,819
Other assets......................... (323) (323)
Borrowings under lines of credit..... 3,567 3,567
Notes payable, current portion....... 1,168 1,168
Notes payable, long term............. 431 431
Other long term liabilities.......... 22,957 22,957
Common stock......................... (38) (38)
Additional paid-in capital........... (41,581) -- (41,581)
---------- ---------- -----------
$ -- $ -- $ --
========== ========== ===========
F-9
<PAGE>
NATIONWIDE STAFFING, INC., AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
(e) Adjust salaries, bonuses, benefits and amounts established in
contractual agreements between the Company and certain owners and key
employees of the Founding Companies.
(f) Record pro forma goodwill amortization using a 40 year estimated life.
(g) Eliminate interest expense related to certain debt obligations repaid
with the proceeds of this Offering.
(h) Adjust the provision for federal and state income taxes to an
estimated 39 percent effective tax rate for the Company and to reflect
the effect of non-deductible goodwill.
6. NET INCOME PER SHARE:
The number of shares used in computing net income per share includes (i)
1,300,715 shares outstanding prior to the Mergers and Offering, (ii) 3,570,718
shares issued to owners of the Founding Companies, (iii) 31,538 net shares that
would be outstanding if the warrants and options were exercised and the proceeds
used to repurchase shares at the assumed Offering Price and (iv) 2,737,038 of
the 3,800,000 shares sold in the Offering necessary to pay the purchase prices
for the Founding Companies, repay indebtedness and pay estimated offering
expenses. The remaining 1,062,962 shares excluded reflects the net cash proceeds
to be used for working capital and general corporate purposes.
F-10
<PAGE>
After the stock split discussed in Note 2 to the Nationwide Staffing, Inc.
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
September 9, 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nationwide Staffing, Inc.:
We have audited the accompanying balance sheet of Nationwide Staffing,
Inc., (a Delaware corporation) as of June 30, 1997, and the related statements
of operations, changes in stockholders' equity (deficit) and cash flows for the
period from inception of operations (February 12, 1997) through June 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nationwide Staffing, Inc.,
as of June 30, 1997, and the results of its operations and cash flows for the
period from inception of operations (February 12, 1997) through June 30, 1997,
in conformity with generally accepted accounting principles.
Houston, Texas
, 1997
F-11
<PAGE>
NATIONWIDE STAFFING, INC.
BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 66,745
------------
Total current
assets............... 66,745
------------
OTHER ASSETS:
Deferred offering costs......... 322,818
Property and equipment.......... 4,868
------------
Total other assets.... 327,686
------------
Total assets.......... $ 394,431
============
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES AND AMOUNTS DUE
TO STOCKHOLDER..................... $ 483,875
------------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value,
55,000,000 shares authorized,
1,257,358 shares outstanding... 12,573
Retained deficit................ (102,017)
------------
Total stockholders'
equity............... (89,444)
------------
Total liabilities and
stockholders'
equity............... $ 394,431
============
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH JUNE 30, 1997
REVENUES............................. $ --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 90,794
----------
LOSS BEFORE INCOME TAXES............. (90,794)
INCOME TAX EXPENSE................... --
----------
NET LOSS............................. $ (90,794)
==========
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Initial Capitalization............... 1,083,929 $ 10,839 $ (9,839) $ 1,000
Issuance of Warrant............. -- -- 50 50
Issuance of Management Shares... 173,429 1,734 (1,434) 300
Net Loss........................ -- -- (90,794) (90,794)
---------- --------- ----------- --------------
Balance at June 30, 1997............. 1,257,358 $ 12,573 $ (102,017) $(89,444)
========== ========= =========== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
NATIONWIDE STAFFING, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (FEBRUARY 12, 1997)
THROUGH JUNE 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (90,794)
Adjustments to reconcile net
loss to net cash provided by
operating activities --
Increase in deferred
offering costs............. (322,818)
Increase in accrued
liabilities and amounts due
to stockholder............. 483,875
-----------
Net cash provided by
operating activities.... 70,263
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............ (4,868)
-----------
Net cash used in
investing activities.... (4,868)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common
stock.......................... 1,350
-----------
Net cash provided by
financing activities.... 1,350
-----------
NET INCREASE IN CASH................. 66,745
CASH, beginning of period............ --
-----------
CASH, end of period.................. $ 66,745
===========
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
NATIONWIDE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Nationwide Staffing, Inc., a Delaware corporation (Nationwide Staffing or
the Company), was organized in February 12, 1997 to become a leading national
provider of comprehensive staffing solutions to businesses, professional and
service organizations and governmental agencies and to pursue aggressively the
consolidation of the highly fragmented temporary staffing and employee leasing
industry. Nationwide Staffing intends to acquire eight businesses (the Mergers),
contemporaneously complete an initial public offering (the Offering) of its
common stock and, subsequent to the Offering, continue to acquire through merger
or purchase, similar companies to expand its national operations.
Nationwide Staffing has not conducted any operations, and all activities to
date have related to the Offering and the Mergers. Initial capitalization of the
Company by WJG Capital, Inc. (WJG) was $1,000 which was less than the par value
of the Common Stock. All expenditures to date have been funded by WJG, on behalf
of the Company. As of June 30, 1997, costs of approximately $322,818 have been
incurred by WJG in connection with the Offering. Nationwide Staffing has treated
these costs as deferred offering costs. Nationwide Staffing is dependent upon
the Offering to execute the pending Mergers and to repay WJG. There is no
assurance that the pending Mergers discussed below will be completed or that
Nationwide Staffing will be able to generate future operating revenues.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK
Nationwide Staffing has entered into agreements whereby the total shares of
Nationwide Staffing held by WJG and management of the Company, excluding shares
to be issued to the Founding Companies and to the public, will represent 15
percent of the total shares outstanding immediately upon completion of the
Offering. Of these shares, certain members of management will hold 2.5 percent
of the total shares outstanding immediately upon completion of the Offering and
WJG will hold the remaining shares. Based on these agreements and the estimated
total shares to be outstanding upon completion of the Offering, the shares
presented herein have been restated to effect an assumed 1,084-for-one stock
split and an increase in authorized shares of common stock to 50,000,000 shares.
In connection with the organization and initial capitalization of
Nationwide Staffing, the Company issued 1,083,929 shares of common stock to WJG.
In April 1997, management of the Company acquired 173,429 shares of common stock
for .28 cents per share. Certain members of management who joined the Company
subsequent to June 30, 1997 will be issued an additional 43,357 shares for .55
cents per share. As a result of the issuance of 43,357 shares the Company will
record a non-recurring, non-cash compensation charge of approximately $450,723
based on an estimated Offering price to the public net of a twenty percent
discount.
WARRANTS
At the date of the Company's organization, warrants were issued for 50,000
shares of common stock with an exercise price equal to the lesser of $8 per
share or 60 percent of the initial public offering price. These shares were
issued to legal and investment advisors for $50. As the Company was subject to
significant uncertainties, the value of the warrants and their underlying shares
was de minimus at that date and no value beyond the consideration received has
been assigned to them.
F-16
<PAGE>
NATIONWIDE STAFFING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLANS
The board of directors of the Company intends to adopt the Non-Employee
Director Stock Plan, whereby non-employee directors are eligible to receive
awards, and the 1997 Stock Awards Plan (the Plan). The Company anticipates that
upon or shortly after the consummation of its Offering that it will have granted
options to purchase up to 575,000 shares of common stock under the Plan. Under
this arrangement, the Company has granted certain members of management options
for 50,000 shares of common stock at a discount of $3 from the Offering price to
the public. As a result of issuing these options, the Company will record a
non-recurring, non-cash compensation charge of $120,000 in the third quarter of
1997, net of a twenty percent discount. The Company will account for options
issued to employees and non-employee directors under the Plan in accordance with
APB Opinion No. 25, and accordingly no compensation cost will be recognized to
the extent that shares are issued at the fair market value as of the date of
grant. The Company will provide the pro forma disclosure of net earnings per
share in the notes to the financial statements as if the fair value-based method
of accounting has been applied to awards as required by Statement of Financial
Standard No. 123, "Accounting for Stock-Based Compensation."
3. NEW ACCOUNTING PRONOUNCEMENT:
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." For the Company, SFAS No. 128 will be effective for
the year ended December 31, 1997. SFAS No. 128 simplifies the standards required
under current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per share
with a presentation of basic earnings per share (basic EPS) and diluted earnings
per share (diluted EPS). Basic EPS excludes dilution and is determined by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts to issue
common stock were exercised or converted into common stock. Diluted EPS is
computed similarly to fully diluted earnings per share under current accounting
rules. The implementation of SFAS No. 128 is not expected to have a material
effect on the Company's earnings per share as determined under current
accounting rules.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alternative Solutions, Inc.:
We have audited the accompanying balance sheets of Alternative Solutions,
Inc. (a Massachusetts corporation) as of April 30, 1996 and 1997, and December
31, 1996, and the related statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended April 30,
1997 and the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alternative Solutions, Inc.,
as of April 30, 1996 and 1997, and December 31, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
April 30, 1997 and the year ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 15, 1997
F-18
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------------ ------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash and cash equivalents....... $ 6,080 $ 168,806 $ 7,089 $ 6,774
Trade accounts receivable, net
of allowance of $28,439,
$44,615, $54,584 and
$61,584....................... 1,198,805 1,570,693 1,577,560 1,782,799
Employee loans receivable....... 39,119 36,983 41,876 33,278
Prepaid expenses and other
assets........................ 94,972 84,999 159,655 19,443
Deferred tax asset.............. 33,153 68,709 34,958 52,736
------------ ------------ ------------ -----------
Total current assets....... 1,372,129 1,930,190 1,821,138 1,895,030
PROPERTY AND EQUIPMENT, net.......... 62,330 46,289 53,831 53,047
------------ ------------ ------------ -----------
Total assets............... $ 1,434,459 $ 1,976,479 $1,874,969 $ 1,948,077
============ ============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit.................. $ 313,092 $ 300,000 $ 320,000 $ 300,000
Accounts payable................ 234,984 79,662 292,304 30,606
Accrued payroll and related
taxes......................... 512,781 979,863 786,413 1,003,861
Other current liabilities....... 44,308 192,441 41,934 94,603
------------ ------------ ------------ -----------
Total liabilities.......... 1,105,165 1,551,966 1,440,651 1,429,070
SHAREHOLDERS' EQUITY:
Common stock, no par value,
12,500 shares authorized,
10,000 issued and
outstanding................... 10,000 10,000 10,000 10,000
Retained earnings............... 319,294 414,513 424,318 509,007
------------ ------------ ------------ -----------
Total shareholders'
equity.................. 329,294 424,513 434,318 519,007
------------ ------------ ------------ -----------
Total liabilities and
shareholders' equity.... $ 1,434,459 $ 1,976,479 $1,874,969 $ 1,948,077
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED APRIL 30, YEAR ENDED ENDED JUNE 30,
---------------------------------------- DECEMBER 31, ------------------------
1995 1996 1997 1996 1996 1997
------------ ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES............. $ 11,461,267 $ 12,380,866 $ 13,681,206 $12,855,116 $ 5,898,129 $ 6,935,782
COST OF SERVICES................... 8,989,533 9,804,639 10,278,122 9,791,696 4,548,218 5,182,416
------------ ------------ ------------ ------------ ----------- -----------
Gross profit.............. 2,471,734 2,576,227 3,403,084 3,063,420 1,349,911 1,753,366
OPERATING COSTS AND EXPENSES....... 2,312,297 2,486,575 3,241,406 2,988,253 1,302,524 1,601,942
------------ ------------ ------------ ------------ ----------- -----------
Operating income.......... 159,437 89,652 161,678 75,167 47,387 151,424
OTHER INCOME....................... 7,751 30,580 41,501 4,209 804 28,433
INTEREST EXPENSE................... 52,241 48,146 28,357 29,640 15,318 13,271
------------ ------------ ------------ ------------ ----------- -----------
Income before income tax
expense................. 114,947 72,086 174,822 49,736 32,873 166,586
INCOME TAX EXPENSE................. 51,044 36,094 79,603 14,296 13,149 81,897
------------ ------------ ------------ ------------ ----------- -----------
NET INCOME......................... $ 63,903 $ 35,992 $ 95,219 $ 35,440 $ 19,724 $ 84,689
============ ============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- --------- ---------
<S> <C> <C> <C> <C>
BALANCE, April 30, 1994................. 10,000 $10,000 $ 219,399 $ 229,399
Net income......................... -- -- 63,903 63,903
------ ------- --------- ---------
BALANCE, April 30, 1995................. 10,000 10,000 283,302 293,302
Net income......................... -- -- 35,992 35,992
------ ------- --------- ---------
BALANCE, April 30, 1996................. 10,000 10,000 319,294 329,294
Net income......................... -- -- 95,219 95,219
------ ------- --------- ---------
BALANCE, April 30, 1997................. 10,000 $10,000 $ 414,513 $ 424,513
====== ======= ========= =========
BALANCE, December 31, 1995.............. 10,000 $10,000 $ 388,878 $ 398,878
Net income......................... -- -- 35,440 35,440
------ ------- --------- ---------
BALANCE, December 31, 1996.............. 10,000 10,000 424,318 434,318
Net loss (unaudited)............... -- -- 84,689 84,689
------ ------- --------- ---------
BALANCE, June 30, 1997.................. 10,000 $10,000 $ 509,007 $ 519,007
====== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
APRIL 30, YEAR ENDED ENDED JUNE 30,
---------------------------------- DECEMBER 31, --------------------------
1995 1996 1997 1996 1996 1997
---------- ---------- ---------- ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C> <C>
Net income......................... $ 63,903 $ 35,992 $ 95,219 $ 35,440 $ 19,723 $ 84,689
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation..................... 36,348 33,796 30,694 32,526 17,198 13,108
Changes in operating assets and
liabilities --
Trade accounts receivable...... (22,499) 175,313 (371,888) (288,600) (3,420) (205,239)
Employee receivables........... (5,241) 5,493 2,136 462 3,452 8,598
Prepaid expenses and other
assets...................... (1,055) (86,259) (25,583) (190,467) (31,795) 122,434
Accounts payable and accrued
liabilities................. 61,144 (15,855) 459,893 597,381 218,872 8,419
---------- ---------- ---------- ------------ ------------ ------------
Net cash provided by
operating activities...... 132,600 148,480 190,471 186,742 224,030 32,009
---------- ---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment........................ (7,899) (10,540) (14,653) (14,779) (11,178) (12,324)
---------- ---------- ---------- ------------ ------------ ------------
Net cash used in investing
activities................ (7,899) (10,540) (14,653) (14,779) (11,178) (12,324)
---------- ---------- ---------- ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on line of credit......... 622,616 492,000 247,908 272,908 115,000 --
Principal payments on line of
credit........................... (746,907) (630,000) (261,000) (511,000) (395,000) (20,000)
---------- ---------- ---------- ------------ ------------ ------------
Net cash used in financing
activities................ (124,291) (138,000) (13,092) (238,092) (280,000) (20,000)
---------- ---------- ---------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 410 (60) 162,726 (66,129) (67,148) (315)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 5,730 6,140 6,080 73,218 73,218 7,089
---------- ---------- ---------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 6,140 $ 6,080 $ 168,806 $ 7,089 $ 6,070 $ 6,774
========== ========== ========== ============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 52,469 $ 48,948 $ 27,568 $ 32,283 $ 14,981 $ 12,650
Cash paid for taxes................ $ 43,500 $ 25,409 $ 70,808 $ 49,633 $ 10,833 $ 32,008
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Alternative Solutions, Inc. (ASI or the Company), incorporated in the state
of Massachusetts in March 1987, provides temporary and permanent personnel to
business, professional service organizations, health care facilities and
government agencies located primarily in Massachusetts and Connecticut.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployemnt taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company provides, if necessary, allowances which management believes
are adequate to absorb losses to be incurred in realizing the amounts recorded
in the accompanying financial statements. The Company periodically evaluates the
creditworthiness of its customers' financial conditions to determine credit to
be extended and to determine the adequacy of the allowance for bad debts.
Historically, bad debts have not been significant.
The Company operates primarily in the healthcare industry. The Company is
obligated to pay the salaries, wages and related benefit costs and payroll taxes
of worksite employees. Accordingly, the Company's ability to collect amounts due
from customers could be affected by economic fluctuations in its markets or
these industries.
F-23
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straightline method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from three to nine years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
ASI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, ASI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment related taxes and (c) workers'
compensation insurance premiums. ASI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to ASI's revolving line of
credit agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- DECEMBER 31, JUNE 30,
1996 1997 1996 1997
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Furniture and fixtures.................. $ 21,916 $ 27,083 $ 21,523 $ 27,084
Office equipment........................ 121,272 104,971 130,758 115,560
Leasehold improvements.................. 51,924 51,924 51,924 51,924
------------ ------------ ------------ -----------
195,112 183,978 204,205 194,568
Less -- Accumulated depreciation........ (132,782) (137,689) (150,374) (141,521)
------------ ------------ ------------ -----------
$ 62,330 $ 46,289 $ 53,831 $ 53,047
============ ============ ============ ===========
</TABLE>
F-24
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LINE OF CREDIT:
The Company maintains a revolving line of credit that allows for borrowings
of up to 80 percent of temporary service and 75 percent of permanent service
trade accounts receivable which are less than 90 days old. Borrowings made under
this arrangement bear interest at prime plus 1/4 percent. The line is secured by
all of the business assets and guaranteed by two shareholders up to $150,000
each.
In August 1996, the agreement was amended to include a LIBOR revolving loan
option available to the Company. The amended agreement allows the Company to
borrow funds subject to an interest rate of LIBOR plus 2.5 percent. Such
borrowings must equal at least $300,000 and in increments of $100,000
thereafter. Maximum borrowings under the two available interest options are
$1,500,000. The agreement expires April 30, 1998, and is renewable annually. The
line of credit is subject to certain financial covenants including minimum net
worth, minimum net income and certain financial ratio requirements. The Company
was in compliance with such covenants for all periods presented.
The amounts outstanding at April 30, 1996 and 1997 were $313,092 and
$300,000, respectively. The weighted average interest rates for the years ended
April 30, 1996 and 1997 were 10% and 9.5%, respectively. The amounts outstanding
and weighted average interest rate in the year ended December 31, 1996 were
$320,000 and 8%.
5. INCOME TAXES
Income tax (benefit) expense consisted of the following components:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------------- DECEMBER 30, JUNE 30, JUNE 30,
1995 1996 1997 1996 1996 1997
--------- ---------- ---------- ------------ ------------ ------------
(UNAUDITED] (UNAUDITED)
Current:
<S> <C> <C> <C> <C> <C> <C>
Federal......................... $ 40,208 $ 48,689 $ 87,480 $ 12,569 $ 17,186 $ 89,871
State........................... 12,722 15,405 27,679 1,921 4,009 15,178
--------- ---------- ---------- ------------ ------------ ------------
52,930 64,094 115,159 14,490 21,195 105,049
--------- ---------- ---------- ------------ ------------ ------------
Deferred:
Federal......................... (1,433) (21,270) (27,010) (162) (7,003) (17,679)
State........................... (453) (6,730) (8,546) (32) (1,043) (5,473)
--------- ---------- ---------- ------------ ------------ ------------
(1,886) (28,000) (35,556) (194) (8,046) (23,152)
--------- ---------- ---------- ------------ ------------ ------------
Total...................... $ 51,044 $ 36,094 $ 79,603 $ 14,296 $ 13,149 $ 81,897
========= ========== ========== ============ ============ ============
</TABLE>
F-25
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax (benefit) expense differs from amounts computed by applying the
statutory rate to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
SIX MONTHS ENDED
APRIL 30, ----------------------------
--------------------------------- DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1997 1996 1996 1997
--------- ---------- ---------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income tax (benefit) expense at the
statutory rate..................... $ 40,231 $ 25,230 $ 61,188 $ 17,408 $ 11,506 $ 58,305
Increase (decrease) resulting from:
State income tax, net of benefit
for federal deduction......... 7,975 5,639 12,436 3,986 2,642 16,514
Nondeductible expenses.......... 2,838 5,225 5,979 (7,098) (999) 7,078
--------- ---------- ---------- ------------ ------------ ------------
$ 51,044 $ 36,094 $ 79,603 $ 14,296 $ 13,149 $ 81,897
========= ========== ========== ============ ============ ============
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------- DECEMBER 30, JUNE 30,
1996 1997 1996 1997
---------- ---------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Deferred income tax assets --
Allowance for doubtful
accounts...................... $ 12,789 $ 24,546 $ 20,627 $ 26,505
Accrued expenses................ 33,450 56,913 25,351 37,083
---------- ---------- ------------ --------
Total................. 46,239 81,459 45,978 63,588
---------- ---------- ------------ --------
Deferred income tax liabilities --
Property and equipment.......... (10,298) (6,970) (8,080) (6,416)
State taxes..................... (2,788) (5,780) (2,940) (4,436)
---------- ---------- ------------ --------
Total................. (13,086) (12,750) (11,020) (10,852)
---------- ---------- ------------ --------
Net deferred income tax assets....... $ 33,153 $ 68,709 $ 34,958 $ 52,736
========== ========== ============ ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space under noncancelable leases. One location is
leased from a related party (see Note 7) and expires on April 30, 1998. The
future minimum lease payments under this operating lease is $164,328 for the
year ending April 30, 1998. During 1995 and 1996, the Company also leased motor
vehicles and office equipment under operating lease agreements. Rent paid each
of the years ended 1995, 1996 and 1997 was $225,632, $231,068 and $238,723,
respectively.
In the ordinary course of its business, the Company has been threatened
with or named as defendant in various lawsuits, including claims related to the
actions of its clients and their employees. Management does not believe that any
claims would have a material adverse effect on the Company's financial position
or results of operations.
7. RELATED-PARTY TRANSACTIONS:
The Company has a lease commitment with an entity controlled by two
shareholders for one office facility. The annual base rent for this facility was
$156,000 for April 30, 1996 and 1997 and December 31, 1996, respectively. The
lease expires on April 30, 1998, and can be renewed for one year at the option
of the Company.
F-26
<PAGE>
ALTERNATIVE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company pays a management fee to a company owned by a principal
shareholder. Management fees of $150,000 were paid by the Company for the years
ended April 30, 1996 and 1997, and December 31, 1996, respectively.
8. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To A.S.A.P. Services, Inc.:
We have audited the accompanying balance sheet of A.S.A.P. Services, Inc.
(an Arkansas Corporation) as of December 31, 1996, and the related statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A.S.A.P. Services, Inc., as
of December 31, 1996 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 1, 1997
F-28
<PAGE>
A.S.A.P. SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $378,176 $ 372,405
Trade accounts receivable....... 312,038 561,675
Prepaid expenses and other
assets.......................... 8,885 12,257
------------ -----------
Total current assets....... 699,099 946,337
PROPERTY AND EQUIPMENT, net.......... 58,220 123,665
------------ -----------
Total assets............... $757,319 $ 1,070,002
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 71,814 $ 98,721
Accrued payroll and related
taxes........................... 115,945 332,218
Notes payable................... 5,101 3,363
------------ -----------
Total current liabilities.. 192,860 434,302
NOTES PAYABLE, less current
portion.............................. 9,645 7,597
------------ -----------
Total liabilities.......... 202,505 441,899
SHAREHOLDERS' EQUITY:
Common stock, no par value,
100,000 shares authorized, 100
shares issued and
outstanding.................... 300 300
Retained earnings............... 554,514 627,803
------------ -----------
Total shareholders' equity. 554,814 628,103
------------ -----------
Total liabilities and
shareholders' equity.... $757,319 $ 1,070,002
============ ===========
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES FROM SERVICES............. $ 4,099,136 $ 6,131,833 $ 2,516,831 $ 4,049,433
COST OF SERVICES................... 3,446,516 5,015,748 2,044,806 3,297,842
------------ ------------ ------------ ------------
Gross profit............. 652,620 1,116,085 472,025 751,591
OPERATING COSTS AND EXPENSES....... 272,431 537,106 186,241 388,627
------------ ------------ ------------ ------------
Operating income......... 380,189 578,979 285,784 362,964
OTHER INCOME....................... 4,682 6,243 2,120 3,160
------------ ------------ ------------ ------------
NET INCOME......................... $ 384,871 $ 585,222 $ 287,904 $ 366,124
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 100 $ 300 $ 300,502 $ 300,802
Distributions...................... -- -- (260,445) (260,445)
Net income......................... -- -- 384,871 384,871
------ ------ --------- ------------
BALANCE, December 31, 1995.............. 100 300 424,928 425,228
Distributions...................... -- -- (455,636) (455,636)
Net income......................... -- -- 585,222 585,222
------ ------ --------- ------------
BALANCE, December 31, 1996.............. 100 300 554,514 554,814
Distributions (unaudited).......... -- -- (292,835) (292,835)
Net income (unaudited)............. -- -- 366,124 366,124
------ ------ --------- ------------
BALANCE, June 30, 1997 (unaudited)...... 100 $ 300 $ 627,803 $ 628,103
====== ====== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
A.S.A.P. SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
1995 1996 1996 1997
------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income......................... $ 384,871 $ 585,222 $ 287,904 $ 366,124
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation.................. 4,027 12,092 5,162 15,689
Changes in operating assets
and liabilities --
Trade accounts
receivable............ (16,463) (41,984) (177,352) (249,637)
Prepaid expenses and
other assets.......... 64,563 27,743 35,753 (3,372)
Accounts payable and
accrued liabilities... (78,055) 71,814 8,344 26,907
Accrued payroll and
related taxes......... (17,312) 58,474 89,294 216,273
------------ ------------ ------------ ------------
Net cash provided by operating
activities................. 341,631 713,361 249,105 371,984
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and
equipment........................ (38,112) (22,424) (1,588) (81,135)
------------ ------------ ------------ ------------
Net cash used in investing
activities....................... (38,112) (22,424) (1,588) (81,135)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable........ -- 14,634 -- --
Payments on notes payable.......... (2,279) (3,116) (791) (3,785)
Shareholder distributions.......... (260,445) (455,636) (249,862) (292,835)
------------ ------------ ------------ ------------
Net cash used in financing
activities................. (262,724) (444,118) (250,653) (296,620)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......... 40,795 246,819 (3,136) (5,771)
CASH AT BEGINNING OF PERIOD............. 90,562 131,357 131,357 378,176
------------ ------------ ------------ ------------
CASH AT END OF PERIOD................... $ 131,357 $ 378,176 $ 128,221 $ 372,405
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
A.S.A.P. Services, Inc. (ASAP or the Company), incorporated in the state of
Arkansas on December 28, 1990, specializes in the placement of clerical and
light industrial labor to companies in northwest Arkansas and southern Missouri.
The majority of revenues are derived from companies in the food processing
industry.
ASAP is owned by two shareholders who, together with the Company intend to
enter into a definitive agreement with Nationwide Staffing, Inc. (Nationwide),
pursuant to which all shares of the Company will be exchanged for cash and
shares of Nationwide's common stock concurrent with the consummation of an
initial public offering (the Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company provides, if necessary, allowances which management believes
are adequate to absorb losses to be incurred in realizing the amounts recorded
in the accompanying financial statements. Historically, bad debts have not been
significant.
The Company operates in the food processing and manufacturing industry. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
F-33
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
ASAP, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Instead of paying corporation
income taxes, the shareholders are taxed individually on the taxable income.
Therefore, no provision or liability for federal income taxes has been made in
the accompanying financial statements.
REVENUE AND COST RECOGNITION
ASAP's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, ASAP
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. ASAP accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues, and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The fair value of other debt was estimated by discounting future cash
flows, including interest payments, using rates currently available for debt of
similar terms and maturities based on ASAP's credit standing and other market
factors. At December 31, 1996, the carrying amounts of ASAP's other debt
approximates fair value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Office equipment and leasehold
improvements............................ $ 59,871 $ 141,006
Vehicles................................ 18,898 18,898
------------ -----------
78,769 159,904
Less -- Accumulated depreciation........ (20,549) (36,239)
------------ -----------
$ 58,220 $ 123,665
============ ===========
F-34
<PAGE>
A.S.A.P. SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Note payable to bank, secured by auto, bearing interest at 10%, payable in 42
monthly installments of $415, balance
due February 2000..................... $ 13,448 $10,960
Note payable to bank, secured by
property, bearing interest at 8.5%,
payable in 36 monthly installments of
$190, balance due May 1997............ 1,298 --
------------ -----------
Total notes payable........... 14,746 10,960
Less -- Current portion....... (5,101) (3,363)
------------ -----------
Long-term portion............. $ 9,645 $ 7,597
============ ===========
Future maturities of notes payable are as follows:
1997.................................... $ 5,101
1998.................................... 4,201
1999.................................... 4,641
2000.................................... 803
---------
$ 14,746
=========
5. COMMITMENTS AND CONTINGENCIES:
ASAP leases office space from the majority owner. Rent paid in 1995 and
1996 was $13,500 and $11,500, respectively. The lease requires monthly payments
of $1,100 and expires May 31, 1998. Future minimum lease payments due as of
December 31, 1996, are as follows: 1997 -- $13,200, 1998 -- $5,500 and none
thereafter.
In the ordinary course of its business, the Company has been threatened
with or named as defendant in various lawsuits, including claims related to the
actions of its clients and their employees. Management does not believe that any
claims will have a material adverse effect on the Company's financial position
or results of operations.
6. SALES TO SIGNIFICANT CUSTOMERS:
ASAP derived approximately 68 percent of its 1996 revenues and 53 percent
of its 1995 revenues from one customer. Accounts receivable for such customer
was $151,956 in 1996 and $138,643 in 1995. The loss of this customer could have
a material adverse effect on the operations of ASAP.
7. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In 1997, the Company and its shareholders entered into a definitive
agreement with Nationwide, providing for the merger of the Company with
Nationwide.
In connection with the merger, the Company will make a cash distribution of
approximately $355,000 prior to the merger which represents the Company's
estimated S Corporation accumulated adjustment account. Had these transactions
been recorded at June 30, 1997, the effect on the accompanying unaudited balance
sheet would be a decrease in assets and shareholders' equity of $355,000.
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cardinal Services, Inc.:
We have audited the accompanying balance sheets of Cardinal Services, Inc.
(an Oregon corporation) as of June 30, 1996 and 1997, and the related statements
of operations, changes in shareholders' equity and cash flows for the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cardinal Services, Inc., as
of June 30, 1996 and 1997 and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 29, 1997
F-36
<PAGE>
CARDINAL SERVICES, INC.
BALANCE SHEETS
JUNE 30,
--------------------------
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ -- $ 270,968
Trade accounts receivable, net of
allowance of $174,200 and
$162,470 for 1996 and 1997,
respectively.................... 969,960 1,223,380
Prepaid expenses and other
assets.......................... 135,885 65,621
Workers' compensation receivable... 420,399 516,502
------------ ------------
Total current assets....... 1,526,244 2,076,471
PROPERTY AND EQUIPMENT, net........ 122,716 133,270
OTHER ASSETS:
Notes receivable................... 22,324 --
Notes receivable, related
parties......................... 247,719 274,227
Goodwill........................... 4,168 3,833
------------ ------------
Total assets............... $ 1,923,171 $ 2,487,801
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 815,012 $ 777,351
Accrued payroll and related
taxes........................... 523,676 605,052
Current portion of notes payable... 6,259 4,807
Notes payable, related parties..... -- 525,000
------------ ------------
Total current
liabilities............. 1,344,947 1,912,210
NOTES PAYABLE........................ 15,315 10,612
DEFERRED INCOME TAX LIABILITY........ 8,934 8,384
------------ ------------
Total liabilities.......... 1,369,196 1,931,206
SHAREHOLDERS' EQUITY:
Common stock, no par value, 100
shares authorized, 100 shares
issued and outstanding.......... 1,000 1,000
Retained earnings.................. 552,975 555,595
------------ ------------
Total shareholders'
equity.................. 553,975 556,595
------------ ------------
Total liabilities and
shareholders' equity.... $ 1,923,171 $ 2,487,801
============ ============
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES FROM SERVICES............... $ 14,135,623 $ 17,531,485 $ 20,292,311
COST OF SERVICES..................... 12,868,713 15,793,831 17,813,808
-------------- -------------- --------------
Gross profit.................... 1,266,910 1,737,654 2,478,503
OPERATING COSTS AND EXPENSES......... 1,112,314 1,634,243 2,473,155
-------------- -------------- --------------
Operating income................ 154,596 103,411 5,348
INTEREST EXPENSE..................... 2,140 14,813 11,487
OTHER INCOME (EXPENSE), net.......... 7,585 5,678 28,649
-------------- -------------- --------------
INCOME BEFORE INCOME TAX EXPENSE..... 160,041 94,276 22,510
INCOME TAX EXPENSE................... 63,204 38,782 10,751
-------------- -------------- --------------
NET INCOME........................... $ 96,837 $ 55,494 $ 11,759
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- ------- --------- ----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1994............... 100 $1,000 $ 422,493 $ 423,493
Distributions................... -- -- (9,833) (9,833)
Net income...................... -- -- 96,837 96,837
------- ------- --------- ----------
BALANCE, June 30, 1995............... 100 1,000 509,497 510,497
Distributions................... -- -- (12,016) (12,016)
Net income...................... -- -- 55,494 55,494
------- ------- --------- ----------
BALANCE, June 30, 1996............... 100 1,000 552,975 553,975
Distributions................... -- -- (9,139) (9,139)
Net income...................... -- -- 11,759 11,759
------- ------- --------- ----------
BALANCE, June 30, 1997............... 100 $1,000 $ 555,595 $ 556,595
======= ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
CARDINAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 96,837 $ 55,494 $ 11,759
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and
amortization.................. 21,195 31,244 35,531
Provision for bad debts....... 125,000 100,000 130,000
Loss (gain) on sale of assets... (4,437) 654 315
Changes in operating assets
and liabilities-
Trade accounts receivable,
net........................ (659,390) (54,008) (700,198)
Prepaid expenses and other
assets..................... 49,348 (12,262) 32,774
Workers' compensation
receivable................. -- (420,399) (96,103)
Accounts payable and
accrued liabilities........ 270,971 111,442 (722)
Accrued payroll and related
taxes...................... 112,437 (66,453) 81,376
---------- ---------- ----------
Net cash provided by (used
in) operating activities... 11,961 (254,288) (505,268)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property
and equipment...................... 20,451 -- 1,400
Purchases of property and
equipment.......................... (43,433) (69,673) (47,464)
Notes receivable................... -- 2,265 22,324
Notes receivable, related
parties............................ 16,829 (71,184) (26,508)
---------- ---------- ----------
Net cash used in investing
activities......................... (6,153) (138,592) (50,248)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable, related parties..... -- -- 525,000
Proceeds from accounts receivable
factoring.......................... -- 387,327 316,778
Distributions to shareholders...... (9,833) (12,016) (9,139)
Notes payable...................... 4,025 17,569 (6,155)
---------- ---------- ----------
Net cash provided by financing
activities......................... (5,808) 392,880 826,484
INCREASE IN CASH AND CASH
EQUIVALENTS.......................... -- -- 270,968
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. -- -- --
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ -- $ -- $ 270,968
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for income taxes......... $ 17,087 $ 42,723 $ 3,729
========== ========== ==========
Cash paid for interest............. $ 2,140 $ 12,589 $ 13,711
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Cardinal Services, Inc. (Cardinal or the Company), incorporated in 1988 in
the state of Oregon, specializes in providing temporary employees, part-time and
replacement employees and full-time leased employees to a vast array of
employers primarily in southwest Oregon. The Company's headquarters are located
in Coos Bay, Oregon, with other offices in Florence, Eugene, Roseburg and
Newport, Oregon.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
The Company is obligated to pay the salaries, wages and related benefit
costs and payroll taxes of worksite employees. Accordingly, the Company's
ability to collect amounts due from customers could be affected by economic
fluctuations in its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. For federal income
tax purposes, depreciation is computed using the accelerated methods in
accordance with the Internal Revenue Code. Leasehold improvements are amortized
over the lesser of the term of the related lease or the estimated useful lives
of the assets.
Since October 1993, the Company has been insured for workers compensation
under a policy that includes a provision to retroactively adjust premiums. The
policy also contains a stop-loss limit whereby the
F-41
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's maximum loss exposure to the Company is 120 percent of standard rates,
as defined. Premiums are paid to the insurance carrier based on estimates of
current year loss experience and payroll. The loss estimates are based on
several factors, including the Company's current experience, relative health
care costs, regional influences and other factors. While estimated losses may
not be paid for several years, an accrual for premiums is made based on actual
payroll and these estimated loss experiences. The estimated premiums are
continually reviewed by the Company's management, and any adjustments are
reflected as a component of direct costs in the period of change, as they become
known.
In July 1997, the Company received a reduction of $516,552 in its premiums
paid on its workers compensation policy for the period ended October 1996. This
amount was treated as a reduction in direct costs over the period affected.
INCOME TAXES
The Company (Cardinal) has adopted the liability method of accounting for
income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." Deferred income taxes are
recognized for temporary differences between financial statement and income tax
bases of assets and liabilities and net operating loss carryforwards for which
tax benefits will be realized in future years.
REVENUE AND COST RECOGNITION
Cardinal's revenues consist of service fees paid by its clients under
client service agreements. In consideration for payment of such service fees,
Cardinal agrees to pay the following direct costs associated with the worksite
employees: (a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. Cardinal accounts for service fees and the
related direct payroll costs using the accrual method of accounting. Under the
accrual method, service fees relating to worksite employees with earned but
unpaid wages at the end of each period are recognized as unbilled revenues and
the related direct payroll costs for such wages are accrued as a liability
during the period in which wages are earned by the worksite employee. Subsequent
to the end of each period, such wages are paid and the related service fees are
billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, bank overdrafts, unearned revenue, accrued
expenses and notes payable, related parties approximate fair value at the
applicable balance sheet dates due to the short-term maturity of these
instruments. The carrying amount of notes payable at each balance sheet date
approximates fair value as the interest rates on such agreements are at rates
similar to what could be obtained for debt with similar remaining maturities and
collateral requirements. The fair value of the accounts receivable recourse
obligation for accounts sold under the factoring agreement is based on the
Company's estimated exposure for uncollectable receivables, which was determined
by considering the Company's past collection experience and performing an
assessment of each of the individual accounts that were sold. The carrying
amounts of notes receivable and notes receivable, related parties were
calculated based on expected future cash flows, discounted at each balance sheet
date, using rates at which loans would be made to borrowers with similar credit
ratings. The carrying amount of notes receivable and notes receivable, related
parties, approximate fair value at each applicable balance sheet date.
F-42
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
JUNE 30,
--------------------------
1996 1997
------------ ------------
Equipment and machinery.............. $ 55,574 70,549
Furniture and fixtures............... 28,436 37,592
Computer equipment and software...... 98,987 121,474
Trucks and autos..................... 34,473 26,573
Leaseholds........................... 5,734 6,459
------------ ------------
223,204 262,647
Less -- Accumulated depreciation..... (100,488) (129,377)
------------ ------------
$ 122,716 $ 133,270
============ ============
4. NOTE RECEIVABLE:
During the year ended June 30, 1995, the Company sold real estate and
received for partial consideration, a note in the amount of $25,000, bearing
interest at the rate of 9 percent. As of June 30, 1997, the note had been paid
in full.
5. ACCOUNTS RECEIVABLE FACTORING AGREEMENT:
The Company entered into a credit agreement with Security Bank on March 1,
1996, which provided for a line of credit of $150,000, which was personally
guaranteed by shareholders. During 1996, the line of credit was increased to
$295,000 and was secured by a pledge of accounts receivable and personal assets
of a shareholder. No borrowings were made under the line of credit.
Simultaneously, the Company entered into an agreement with the bank, whereby
trade accounts receivable would be discounted at 1.65 percent of the face amount
and sold to the bank with recourse. The recourse provision stated the Company
was responsible for any receivables deemed uncollectable by the bank plus any
attorneys' fees incurred by the bank during collection proceedings. The bank
required an initial reserve, subject to the bank's right of adjustment, equal to
5 percent of the face amount of receivables purchased by the bank. The proceeds
from accounts receivable that had been sold to the bank for the years ended June
30, 1996 and 1997, were $387,327 and $316,778, respectively, with $7,861 in
reserves posted by the Company at June 30, 1996. The total finance and
administrative fees incurred by the Company for the years ended June 30, 1996
and 1997, were $8,185 and $14,803, respectively. Both agreements were terminated
during fiscal year 1997, at which time all amounts owed to the bank under the
factoring agreement were settled.
F-43
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. NOTES PAYABLE:
Notes payable include the following:
JUNE 30,
--------------------
1996 1997
--------- ---------
Ford Motor Credit, bearing interest
at 10%, monthly
payments of $421, secured by
vehicle............................ $ 17,142 $ 13,648
Xerox Corporation, bearing interest
at 15.5%, monthly
payments of $183, secured by office
equipment.......................... 2,181 181
Ikon Capital, bearing interest at
23.965%, monthly
payments of $90, secured by office
equipment.......................... 2,251 1,590
--------- ---------
Total debt................. 21,574 15,419
Less -- Current portion.............. (6,259) (4,807)
--------- ---------
Long-term portion.......... $ 15,315 $ 10,612
========= =========
Maturities of long-term debt for future years are as follows:
For the year ending June 30 --
1998............................ $ 4,807
1999............................ 5,088
2000............................ 4,692
2001............................ 832
---------
$ 15,419
=========
7. RELATED-PARTY TRANSACTIONS:
NOTES RECEIVABLE
The Company is a closely held corporation and engages in financial
transactions with its shareholders and immediate family members. As of June 30,
1996 and 1997, the shareholders and family members owed the corporation as
follows:
JUNE 30
----------------------
1996 1997
---------- ----------
Shareholders......................... $ 240,326 $ 249,826
Other related parties................ 4,500 6,900
Accrued interest..................... 2,893 17,501
---------- ----------
$ 247,719 $ 274,227
========== ==========
The notes receivable bear interest at 6% and require monthly payments. The
notes stipulate if a payment is missed, all amounts are due and callable at the
option of the holder. Current payments have not been made, but the Company has
not called the notes.
NOTES PAYABLE
The Company accrued bonuses to an officer of $525,000 for the year ended
June 30, 1997, to an officer. A note, which is noninterest bearing with five
monthly payments of $105,000 beginning September 1, 1997, was issued for the
bonus payable to the officer.
MANAGEMENT FEE PAYABLE
Cardinal is affiliated, through related shareholders, with Freeman
Industries, Inc. The Company has contracted with Freeman Industries, Inc. to
provide management services for the Company. The contract is
F-44
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
still in effect, yet Cardinal has not incurred any expenses or fees since the
fiscal year ended June 1995, when services were last provided. For the periods
ended June 30, 1996 and 1997, the Company was indebted to Freeman Industries,
Inc. for $102,950 and $102,350, respectively, for past management services
provided.
8. INCOME TAX:
The income tax (benefit) expense consists of the following components:
YEAR ENDED JUNE 30,
--------------------------------
1995 1996 1997
--------- --------- ----------
Current
Federal......................... $ 33,037 $ 2,217 $ 62,067
State........................... 6,670 448 12,531
--------- --------- ----------
39,707 2,665 74,598
--------- --------- ----------
Deferred --
Federal......................... 19,550 30,050 (53,122)
State........................... 3,947 6,067 (10,725)
--------- --------- ----------
23,497 36,117 (63,847)
--------- --------- ----------
Total...................... $ 63,204 $ 38,782 $ 10,751
========= ========= ==========
Income tax expense differs from amounts computed by applying the statutory
rate to income before income taxes:
YEAR ENDED JUNE 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
Income tax expense at the statutory
rate............................... $ 56,014 $ 32,997 $ 7,879
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction......... 6,901 4,235 1,174
Nondeductible expenses.......... 289 1,550 1,698
--------- --------- ---------
$ 63,204 $ 38,782 $ 10,751
========= ========= =========
The net deferred income tax assets and liabilities are comprised of the
following:
JUNE 30,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
Deferred income tax assets --
Allowance for doubtful
accounts...................... $ 34,528 $ 72,467 $ 67,588
Management fees................. 24,960 24,960 24,960
State taxes..................... 8,851 10,974 7,221
Other........................... 5,103 9,704 6,972
------------ ------------ ------------
$ 73,442 $ 118,105 $ 106,741
------------ ------------ ------------
Deferred income tax liabilities --
Revenue accruals................ $ (213,884) $ (232,778) $ (15,699)
Accrued wages................... -- (44,039) (172,894)
Depreciation.................... (10,100) (9,459) (8,877)
Other........................... (18,489) (32,083)
------------ ------------ ------------
(223,984) (304,765) (229,553)
------------ ------------ ------------
Net deferred income tax
liabilities............. $ (150,542) $ (186,660) $ (122,812)
============ ============ ============
9. COMMITMENTS AND CONTINGENCIES:
The Company leases office space at each of its five locations. The lease
for the Coos Bay office is with a related party. The lease is on a
month-to-month basis with total lease payments for the Coos Bay location
F-45
<PAGE>
CARDINAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for the years ended June 30, 1995, 1996 and 1997, totaling $48,528, $26,760 and
$29,669, respectively. Monthly lease payments for the other four locations range
from $540 to $1,614. Total property lease expense, including Coos Bay, amounted
to $62,488, $91,682 and $112,748 for the years ended June 30, 1995, 1996 and
1997, respectively.
The Company also has various operating leases for automobiles and office
equipment. Minimum future lease commitments for all noncancellable operating
leases including property leases are as follows:
For the year ending June 30 --
1998............................ $ 72,536
1999............................ 15,533
---------
$ 88,069
=========
10. EMPLOYEE BENEFIT PLAN:
Cardinal sponsors a 401(k) defined contribution plan (the Plan) that
originated January 1, 1997. The Plan covers all non-highly compensated full-time
employees of Cardinal who are over 21 and have completed at least one year of
employment. The Plan is subject to provisions of the Employee Retirement Income
Security Act of 1974. Company contributions are discretionary, and no amounts
were contributed during fiscal year 1997.
11. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
In connection with the merger, the Company will make a cash distribution of
approximately $555,595 prior to the merger which represents the Company's
estimated C Corporation accumulated adjustment account. Had these transactions
been recorded at June 30, 1997, the effect on the accompanying unaudited balance
sheet would be a decrease in assets of $270,595 and an increase in liabilities
of $285,000 and a decrease in shareholders' equity of $555,595.
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Employment Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Employment
Enterprises, Inc. (a Virginia corporation) and subsidiaries as of November 30,
1995, and December 31, 1996, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended November 30, 1995 and the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Employment Enterprises,
Inc., as of November 30, 1995, and December 31, 1996 and the results of their
operations and their cash flows for each of the two years in the period ended
November 30, 1995 and the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 22, 1997
F-47
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and cash equivalents.......... $ 50,132 $ -- $ --
Trade accounts receivable, net of
allowance of $94,884, $39,297 and
$93,559.......................... 2,553,518 2,629,811 3,231,484
Deferred tax asset................. 81,950 89,093 117,918
Prepaid expenses and other
assets........................... 53,205 104,964 108,355
------------ ------------ -----------
Total current assets.......... 2,738,805 2,823,868 3,457,757
PROPERTY AND EQUIPMENT, net............. 302,141 238,147 212,994
OTHER ASSETS............................ 5,761 7,076 --
------------ ------------ -----------
Total assets.................. $3,046,707 3,069,091 $ 3,670,751
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit..................... $ 502,000 $ 13,000 $ --
Accounts payable................... 129,208 395,788 229,863
Accrued payroll and related
taxes............................ 819,197 913,839 1,347,468
Deferred compensation.............. 765,267 819,929 819,929
Loans from shareholders............ 645,906 643,406 643,406
------------ ------------ -----------
Total liabilities............. 2,861,578 2,785,962 3,040,666
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 5,000
shares authorized, 3,000 shares
issued and outstanding........... 3,000 3,000 3,000
Additional paid in capital......... 7,000 7,000 7,000
Retained earnings.................. 175,129 273,129 620,085
------------ ------------ -----------
Total shareholders' equity.... 185,129 283,129 630,085
------------ ------------ -----------
Total liabilities and
shareholders' equity....... $3,046,707 $3,069,091 $ 3,670,751
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
----------------------------------------------- --------------------------
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------- ------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES............... $29,251,670 $33,172,417 $ 36,675,731 $16,944,437 $20,848,718
COST OF SERVICES..................... 26,109,015 29,789,041 32,874,334 15,300,424 18,533,948
------------- ------------- ------------- ----------- -----------
Gross profit.................... 3,142,655 3,383,376 3,801,397 1,644,013 2,314,770
OPERATING COSTS AND EXPENSES......... 2,981,331 3,156,565 3,559,868 1,631,954 1,710,621
------------- ------------- ------------- ----------- -----------
Operating income................ 161,324 226,811 241,529 12,059 604,149
INTEREST EXPENSE..................... 75,884 125,042 112,975 74,931 30,569
------------- ------------- ------------- ----------- -----------
Income (Loss) before income tax
expense/benefit.................... 85,440 101,769 128,554 (62,872) 573,580
EXPENSE (BENEFIT) FOR INCOME TAX..... 39,387 49,082 54,262 (13,832) 226,624
------------- ------------- ------------- ----------- -----------
NET INCOME (Loss).................... $ 46,053 $ 52,687 $ 74,292 $ (49,040) $ 346,956
============= ============= ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT APIC EARNINGS TOTAL
------ ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, November 30, 1993........... 3,000 $3,000 $7,000 $ 76,389 $ 86,389
Net income...................... -- -- -- 46,053 46,053
------ ------ ------ --------- ----------
BALANCE, November 30, 1994........... 3,000 3,000 7,000 122,442 132,442
Net income...................... -- -- -- 52,687 52,687
------ ------ ------ --------- ----------
BALANCE, November 30, 1995........... 3,000 3,000 7,000 175,129 185,129
Net income (unaudited).......... -- -- -- 23,708 23,708
------ ------ ------ --------- ----------
BALANCE, December 31, 1995........... 3,000 3,000 7,000 198,837 208,837
Net income...................... -- -- -- 74,292 74,292
------ ------ ------ --------- ----------
BALANCE, December 31, 1996........... 3,000 3,000 7,000 273,129 283,129
Net income (unaudited).......... -- -- -- 346,956 346,956
------ ------ ------ --------- ----------
BALANCE, June 30, 1997 (unaudited)... 3,000 $3,000 $7,000 $ 620,085 $ 630,085
====== ====== ====== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-50
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTHS ENDED
-------------------------------------------- --------------------------
NOVEMBER 30, NOVEMBER 30, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income......................... $ 46,053 $ 52,687 $ 74,292 $ (49,040) $ 346,956
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation.................... 38,556 75,878 74,237 46,492 44,789
Change in net deferred income
tax assets.................... (68,668) (9,052) (7,143) -- (28,825)
Changes in operating assets and
liabilities --
Trade accounts receivable..... (500,763) 120,316 (71,648) (256,581) (601,673)
Prepaid expenses and other
assets..................... (8,265) (18,139) (35,025) (20,251) 3,685
Accounts payable and accrued
liabilities................ 342,736 2,158 380,767 492,916 267,704
------------ ------------ ------------ -------------- ----------
Net cash provided by (used
in) operating
activities.............. (150,351) 223,848 415,480 213,536 32,636
------------ ------------ ------------ -------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and
equipment....................... (118,909) (156,681) (17,061) 5,383 (19,636)
------------ ------------ ------------ -------------- ----------
Net cash provided by (used
in) investing
activities.............. (118,909) (156,681) (17,061) 5,383 (19,636)
------------ ------------ ------------ -------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit....... 4,690,000 5,094,000 5,914,000 3,428,000 251,000
Principal payments on line of
credit.......................... (4,451,000) (5,280,000) (6,386,000) (3,723,000) (264,000)
Loans from shareholders............ (4,131) 90,000 (2,500) -- --
------------ ------------ ------------ -------------- ----------
Net cash provided by (used
in) financing
activities.............. 234,869 (96,000) (474,500) (295,000) (13,000)
------------ ------------ ------------ -------------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................... (34,391) (28,833) (76,081) (76,081) --
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 113,356 78,965 76,081 76,081 --
------------ ------------ ------------ -------------- ----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 78,965 $ 50,132 $ -- $ -- $ --
============ ============ ============ ============== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest............. $ 75,871 $ 107,988 $ 75,584 $ 42,391 $ 30,533
Cash paid for income taxes......... $ 79,187 $ 105,405 $ 107,345 $ 56,568 $ 66,929
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Employment Enterprises, Inc. (EEI or the Company), incorporated in the
state of Virginia in February 1989, specializes as a provider of temporary and
leased employment opportunities for individuals. EEI is composed of two wholly
owned subsidiaries, Temporary Solutions, Inc., and Checks & Balances, Inc.
Temporary Solutions, Inc. (TSI), offers companies in Virginia a wide variety of
staffing solutions including temporary, temp-to-hire, permanent contract,
project and specialty recruitment. Checks & Balances, Inc. (C&B), is a
nationwide professional employer organization (PEO) that provides comprehensive
personnel management services including benefit and payroll administration,
medical and workers' compensation programs and tax filings.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1997 and 1996, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
EEI and its wholly owned subsidiaries, TSI and C&B. All material intercompany
transactions have been eliminated in consolidation.
ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
The Company operates within several industries including the insurance and
high-tech industries. The Company is obligated to pay the salaries, wages and
related benefit costs and payroll taxes of worksite
F-52
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees. Accordingly, the Company's ability to collect amounts due from
customers could be affected by economic fluctuations in its markets or these
industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Acconting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE RECOGNITION
EEI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, EEI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. EEI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to EEI's revolving credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
F-53
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures.................. $ 111,402 $ 114,649 $ 114,649
Leasehold improvements.................. 26,210 26,210 26,210
Computer equipment...................... 491,819 524,001 543,737
Vehicles................................ 18,131 -- --
------------ ------------ -----------
647,562 664,860 684,596
Less -- Accumulated depreciation........ (345,421) (426,713) (471,602)
------------ ------------ -----------
$ 302,141 $ 238,147 $ 212,994
============ ============ ===========
</TABLE>
4. DEBT:
Short-term notes payable are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Unsecured notes payable to shareholders,
bearing interest at rates ranging from
<S> <C> <C> <C>
9% to 10%............................. $ 645,906 $643,406 $643,406
Line of credit up to $1,750,000,
$2,050,000, and $2,050,000,
respectively, with bank bearing
interest at 8.75%, 8.25% and 8.5%
respectively.......................... 502,000 13,000 --
------------ ------------ ------------
$1,147,906 $656,406 $643,406
============ ============ ============
</TABLE>
The line of credit bears interest at various rates ranging from prime to
prime plus 7/8 percent, depending on the amounts outstanding. The weighted
average interest rate for the years ended November 30, 1995, and December 31,
1996, and for the six-month period ended June 30, 1997, was 8.75 percent, 8.25
percent and 8.5 percent, respectively.
The line of credit is subject to certain financial reporting covenants and
certain financial ratio requirements. The Company was in compliance with such
covenants for all periods presented.
F-54
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Income tax expense (benefit) consists of the following components.
<TABLE>
<CAPTION>
NOVEMBER 30
-------------------- DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
--------- --------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Current:
<S> <C> <C> <C> <C> <C>
Federal......................... $ 58,088 $ 50,853 $ 51,350 $ (7,162) $213,620
State........................... 11,374 9,957 10,055 (4,961) 41,829
--------- --------- ------------ ------------ ------------
69,462 60,810 61,405 (12,123) 255,449
--------- --------- ------------ ------------ ------------
Deferred:
Federal......................... (25,150) (9,808) (5,973) (1,037) (24,105)
State........................... (4,925) (1,920) (1,170) (672) (4,720)
--------- --------- ------------ ------------ ------------
(30,075) (11,728) (7,143) (1,709) (28,825)
--------- --------- ------------ ------------ ------------
Total...................... $ 39,387 $ 49,082 $ 54,262 $(13,832) $226,624
========= ========= ============ ============ ============
</TABLE>
Income tax expense (benefit) differs from amounts computed by applying the
statutory rate to income before income taxes as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
NOVEMBER 30 ENDED
-------------------- DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
--------- --------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
Tax provision at the statutory
<S> <C> <C> <C> <C> <C>
rate............................... $ 29,904 $ 35,619 $ 44,994 $(21,716) $200,753
Increase (decrease) resulting from:
State income tax, net of benefit
for federal deduction......... 4,195 5,224 5,775 5,256 24,121
Nondeductible expenses.......... 5,288 8,239 3,493 2,628 1,750
--------- --------- ------------ ------------ ------------
$ 39,387 $ 49,082 $ 54,262 $(13,832) $226,624
========= ========= ============ ============ ============
</TABLE>
The net deferred income tax assets and liabilities are comprised of the
following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ---------
(UNAUDITED)
Deferred income tax assets --
Bad debts....................... 9,775 16,274 38,746
Deferred compensation........... 316,926 339,564 350,883
Other........................... 2,679 -- --
------------ ------------ ---------
Total...................... $ 329,380 $ 355,838 $ 389,629
============ ============ =========
Deferred income tax liabilities --
Property, plant and equipment... (12,200) (17,325) (20,639)
Deferred income................. (235,230) (235,230) (235,230)
Other........................... -- (14,190) (15,842)
------------ ------------ ---------
Total...................... (247,430) (266,745) (271,711)
------------ ------------ ---------
Net deferred income tax assets....... $ 81,950 $ 89,093 $ 117,918
============ ============ =========
F-55
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and office equipment under operating lease
agreements expiring in 2000. Rent paid in each of the years ended November 30,
1994, and 1995, December 31, 1996, and the six months ended June 30, 1997, was
$148,638, $212,783 and $249,632, $129,259, respectively. Future lease
commitments through 2000 under its operating leases are as follows:
1997.................................... $ 114,582
1998.................................... 181,758
1999.................................... 134,244
2000.................................... 33,561
2001.................................... --
Thereafter.............................. --
----------
$ 464,145
==========
Providing certain services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is mitigated by its existing insurance coverage. In the ordinary
course of its business, the Company has been threatened with or named as
defendant in various lawsuits, including claims related to the actions of its
clients and their employees. Management does not believe that any claims will
have a material adverse effect on the Company's financial position or results of
operations.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (See "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the "employer" of certain worksite
employees for the purposes of the Code, the 401(k) plan tax-exempt status could
be revoked and those worksite employees would not be permitted to make tax
deferred salary contributions to the 401(k) plan. The Company believes that,
although unfavorable to the Company, the prospective application of an
unfavorable conclusion would not have a material adverse effect on its financial
postion or the results of its operations. A retroactive application of such a
decision would have an adverse financial effect on the Company. However, the
Company is unable to determine the ultimate resolution of this matter by the
IRS, and therefore, cannot assess or reasonably estimate the effect on the
Company's financial position or results of operations if an unfavorable decision
is reached by the IRS.
7. SALES TO SIGNIFICANT CUSTOMERS:
During 1994, one customer accounted for 66 percent of the Company's service
revenue. During 1995, one customer accounted for 63 percent of the Company's
service revenue. During 1996, two customers accounted for 56 percent and 15
percent, respectively, of the Company's service revenue. The loss of these
customers could have a material adverse effect on the operations of the Company
in the near term.
8. RELATED-PARTY TRANSACTIONS:
The Company owed $645,906, $643,406 and $643,406 to shareholders of the
Company for the years ended November 30, 1995, and December 31, 1996, and the
six months ended June 30, 1997, respectively. The notes bear interest at annual
rates of 9 percent and 10 percent and are subordinated to the line of credit.
Subsequent to June 30, 1997 the notes were repaid in full.
At December 31, 1996 and June 30, 1997 EEI has accrued $819,929 to officers
and shareholders of the Company under deferred compensation arrangements.
F-56
<PAGE>
EMPLOYMENT ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EEI leases a portion of its office space from directors of the Company.
Rental expense incurred for each of the years ended November 30, 1994, and 1995,
and December 31, 1996, was $10,800.
9. EMPLOYEE BENEFIT PLAN:
C&B sponsors a 401(k) retirement plan that originated January 1, 1994, and
is a defined contribution plan (the Plan) covering all full-time employees of
EEI and its wholly owned subsidiaries, C&B and TSI, who have completed at least
one year of employment and 1,000 hours of service. There is no minimum age
requirement for participation. The Plan is subject to provisions of the Employee
Retirement Income Security Act of 1974. The Company made no contributions to the
Plan.
10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
F-57
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Evins Personnel Consultants, Inc., and Affiliates:
We have audited the accompanying combined balance sheet of Evins Personnel
Consultants, Inc. (a Texas corporation) and affiliates as of December 31, 1996
and the related combined statements of operations, changes in shareholder's
equity (deficit) and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Evins Personnel
Consultants, Inc., and affiliates as of December 31, 1996 and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 15, 1997
F-58
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 11,716 $ 104,129
Trade accounts receivable --
Factored to third party............ 728,480 738,300
Unfactored......................... 233,605 188,323
------------ -----------
Total trade accounts
receivable................. 962,085 926,623
------------ -----------
Total current assets.......... 973,801 1,030,752
PROPERTY AND EQUIPMENT, net............. 88,678 85,503
OTHER ASSETS............................ 146,368 164,001
------------ -----------
Total assets.................. $1,208,847 $ 1,280,256
============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities........................ $ 141,085 $ 153,893
Accrued payroll and related taxes..... 207,628 232,649
Notes payable, due to factor.......... 728,480 738,300
------------ -----------
Total current liabilities..... 1,077,193 1,124,842
LONG-TERM LIABILITIES:
Notes payable to shareholder.......... 345,742 335,742
Notes payable to insurance company.... 115,562 115,562
------------ -----------
Total long-term liabilities... 461,304 451,304
------------ -----------
Total liabilities............. 1,538,497 1,576,146
SHAREHOLDER'S EQUITY (DEFICIT):
Common stock, $1 par value, 10,000
shares authorized, 1,000 shares
issued and outstanding............. 1,000 1,000
Accumulated deficit................... (330,650) (296,890)
------------ -----------
Total shareholder's equity
(deficit).................. (329,650) (295,890)
------------ -----------
Total liabilities and
shareholder's equity
(deficit).................. $1,208,847 $ 1,280,256
============ ===========
The accompanying notes are an integral part of these combined financial
statements.
F-59
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
SIX-MONTH PERIOD
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, --------------------------
1996 1996 1997
------------ ------------ ------------
(UNAUDITED)
REVENUES FROM SERVICES.............. $7,832,520 $ 3,491,586 $ 4,850,718
COST OF SERVICES.................... 5,824,275 2,615,242 3,516,816
------------ ------------ ------------
Gross profit................... 2,008,245 876,344 1,333,902,
OPERATING COSTS AND EXPENSES........ 1,629,504 756,943 1,157,587
------------ ------------ ------------
Operating income............... 378,741 119,401 176,315
INTEREST EXPENSE.................... 98,560 27,503 113,740
------------ ------------ ------------
INCOME BEFORE INCOME TAX EXPENSE.... 280,181 91,898 62,575
INCOME TAX EXPENSE.................. 113,693 39,645 28,815
------------ ------------ ------------
NET INCOME.......................... $ 166,488 $ 52,253 $ 33,760
============ ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
------ ------ ----------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995.............. 1,000 $1,000 $(497,138) $ (496,138)
Net income......................... -- -- 166,488 166,488
------ ------ ----------- ------------
BALANCE, December 31, 1996.............. 1,000 1,000 (330,650) (329,650)
Net income (unaudited)............. -- -- 33,760 33,760
------ ------ ----------- ------------
BALANCE, June 30, 1997 (unaudited)...... 1,000 $1,000 $(296,890) $ (295,890)
====== ====== =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income............................ $ 166,488 $ 52,253 $ 33,760
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 7,272 3,636 3,636
Changes in operating assets and
liabilities --
Trade accounts receivable........ (439,164) (19,338) 35,462
Employee advances................ -- 1,800 --
Prepaid expenses................. 1,100 1,100 --
Accounts payable and accrued
liabilities................... 57,729 11,528 12,808
Accrued payroll and related
taxes......................... (730) (7,894) 25,021
Other assets..................... 19,501 13,737 (17,633)
------------ ---------- ----------
Net cash provided by (used in)
operating activities............. (187,804) 56,822 93,054
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (22,250) (29,240) (461)
------------ ---------- ----------
Net cash used in investing
activities....................... (22,250) (29,240) (461)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Factoring Agreement..... 728,480 -- 9,820
Payments on revolving credit
agreement.......................... (500,000) (598) --
Payments on notes payable to
shareholder........................ (24,956) (19,358) (10,000)
------------ ---------- ----------
Net cash provided by (used in)
financing activities............. 203,524 (19,956) (180)
------------ ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (6,530) 7,626 92,413
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. 18,246 18,246 11,716
------------ ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 11,716 $ 25,872 $ 104,129
============ ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 43,435 $ 27,488 $ --
Cash paid for income taxes............ 1,307 1,307 788
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-62
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Evins Personnel Consultants, Inc., and affiliates (the Company or Evins),
was incorporated in 1967 as a Texas corporation. Evins Personnel Consultants,
Inc., and affiliates specialize in the permanent and temporary placement of
clerical, light industrial and specialty medical labor to clients in Austin,
Texas and other southeast regions of Texas.
The accompanying combined financial statements include the following
entities, which are each wholly owned by the sole shareholder of the Company:
Evins Personnel Consultants, Inc., Evins Personnel Consultants, Inc. # One,
Evins Personnel Consultants, Inc. # Two, Evins Personnel Consultants Inc., of
Abilene, Exceptional Resource Services, Inc., Excelsior Personnel Consultants,
Inc., Excellent Personnel Consultants, Inc. and Elite Personnel Consultants,
Inc. All significant intercompany accounts and transactions have been eliminated
in order to present the combined financial statements of Evins Personnel
Consultants, Inc., and affiliates.
The Company and its sole shareholder intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering of
the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim combined financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results for the entire fiscal
year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the direct write-off method for recognition of bad debts.
The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
F-63
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is obligated to pay the salaries, wages and related benefit
costs and payroll taxes of worksite employees. Accordingly, the Company's
ability to collect amounts due from customers could be affected by economic
fluctuations in its markets or these industries.
Trade accounts receivable as of December 31, 1996 and June 30, 1997,
respectively, includes $728,480 and $738,300 which has been factored to a third
party (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation are five
years for all categories of property and equipment.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
Revenues from services consist of service fees paid by its clients under
client service agreements. In consideration for payment of such service fees,
Evins agrees to pay the following direct costs associated with the worksite
employees: (a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. Evins accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, trade accounts receivable (factored and
unfactored), accounts payable, other accrued expenses and notes payable, due to
factor approximate their fair values due to the short-term maturities of these
instruments.
The fair values of notes payable to shareholder and notes payable to
insurance company were estimated by discounting future cash flows, including
interest payments, using rates currently available for debt of similar terms and
maturities, based on Evins' credit standing and other market factors. At
December 31, 1996, and June 30, 1997,the carrying amount of these loans
approximates fair value.
3. TRADE ACCOUNTS RECEIVABLE -- FACTORED TO THIRD PARTY:
Effective September 19, 1996, Evins entered into a Receivables Purchase
Agreement (the Agreement) with Brentwood Service Group, Inc. (Brentwood), an
unrelated third party. Pursuant to the Agreement, Evins factored 95 percent,
with recourse, of all outstanding accounts receivables on that date to
Brentwood. On this effective date, proceeds of $467,350 were paid to Bank One,
Texas, N.A., to repay a revolving line-
F-64
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of-credit agreement (see Note 5). The corresponding notes payable, due to factor
represents Evins' obligation to Brentwood for factored accounts receivable not
collected as of December 31, 1996.
The Agreement is for a 24-month period, commencing September 19, 1996, and
may be terminated by either party giving written notice of termination at least
90 days prior to the termination date. Brentwood is entitled to a nonrefundable
2 percent administrative fee which is calculated on the face amount of each
factored receivable, as well as finance charges calculated as follows: 1 percent
of the face amount on receivables collected between 30 days and 45 days of the
factoring date, and an additional 1 percent finance charge on those receivables
collected between 46 days and 60 days of the factoring date. For the year ended
December 31, 1996 and the six-month period ended June 30, 1997, such finance
charges amounted to $54,574 and $113,740, respectively. Any receivable which
remains uncollected by Brentwood 60 days after the factoring date shall be
deemed Defaulted Receivables and must be immediately paid by Evins, including
applicable finance charges. As of December 31, 1996 and June 30, 1997, there
were no factored receivables which were outstanding for greater than 60 days.
The Agreement requires that Evins comply with certain representations and
warranties, which include maintaining a positive Tangible Net Worth, as defined
by the Agreement, of at least $100,000 during the term of the Agreement. Evins
has not been in compliance with this and certain other provisions of the
Agreement since the inception of the Agreement. In the event of a breach of
warranty, Brentwood must allow a reasonable period for Evins to cure the breach.
If Evins does not cure the breach within this time period, Brentwood may
accelerate payment of accrued administrative and interest fees. As of December
31, 1996, and June 30, 1997 (unaudited), Evins has accrued all such
administrative and interest fees due to Brentwood. Brentwood has made no demand
of accelerated payment as of August 15, 1997.
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Furniture and fixtures.................. $ 41,283 $ 41,744
Computer equipment...................... 80,694 80,694
Vehicles................................ 28,200 28,200
Leasehold improvements.................. 77,854 77,854
------------ -----------
228,031 228,492
Less -- Accumulated depreciation........ 139,353 142,989
------------ -----------
$ 88,678 $ 85,503
============ ===========
5. REVOLVING LINE OF CREDIT AGREEMENT:
During June 1995, Evins entered into a one-year revolving line-of-credit
agreement with Bank One, Texas, N.A., for borrowings up to $500,000 for working
capital requirements. The agreement had a stated interest rate of the bank's
base rate plus 2 percent. The loan was repaid in September 1996. The average
interest rate on the agreement for 1996 was 10.25 percent.
6. NOTES PAYABLE TO SHAREHOLDER:
At December 31, 1996, Evins had two notes payable outstanding to its sole
shareholder. Both notes related to advances to the Company in 1995 for operating
purposes. The notes payable had principal balances at December 31, 1996, of
$320,100 and $25,642, respectively. Both note agreements bear interest of 10
percent per annum on any unpaid principal balance. The sole shareholder has
waived all interest
F-65
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
charges since the inception of the notes. The note agreements do not state a
repayment schedule or a maturity date. The Company made payments on such notes
payable of $24,956 during 1996.
7. NOTES PAYABLE TO INSURANCE COMPANY:
Evins purchased key employee life insurance policies for four individuals,
which have a total cash surrender value of $130,260 and $132,160 (unaudited) as
of December 31, 1996 and June 30, 1997, respectively. During 1987 and 1988,
Evins entered into eight notes payables with Texas Life Insurance Company (Texas
Life), related to funds borrowed against these key employees' life insurance
policies. As of December 31, 1996, total principal and accrued interest payable
on such notes amounted to $115,562. The notes accrue interest annually at the
rate of 7.4 percent. Any monthly unpaid interest is added to the principal of
the loans. The notes do not require annual payments, nor do the notes state a
specific term or maturity date. The total of the accrued interest and principal
outstanding will be deducted from any amount payable by Texas Life during any
settlement of amounts due for any reason. Evins has not repaid any principal or
made any accrued interest payments since the inception of the notes.
8. INCOME TAXES:
Income tax expense consists of the following components:
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
YEAR ENDED --------------------------
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Current --
Federal............................ $ 65,827 $ 22,953 $27,929
State.............................. 8,862 3,091 3,760
------------ ----------- -----------
74,689 26,044 31,689
Deferred --
Federal............................ 34,374 11,986 (2,533)
State.............................. 4,630 1,615 (341)
------------ ----------- -----------
39,004 13,601 (2,874)
------------ ----------- -----------
Total......................... $113,693 $ 39,645 $28,815
============ =========== ===========
</TABLE>
Income tax expense differs from amounts computed by applying the statutory
rate to income before taxes as follows:
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
YEAR ENDED --------------------------
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Tax provision at the statutory rate..... $ 92,243 $ 32,164 $20,472
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ 8,769 4,385 2,225
Nondeductible expenses............. 12,681 3,096 6,118
------------ ----------- -----------
$113,693 $ 39,645 $28,815
============ =========== ===========
</TABLE>
F-66
<PAGE>
EVINS PERSONNEL CONSULTANTS, INC., AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred income tax assets and liabilities are comprised of the
following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Deferred income tax assets --
Property and equipment............. $ 5,706 $ 7,142
Accrued expenses................... 4,661 64,307
------------ -----------
Total......................... 10,367 71,449
------------ -----------
Deferred income tax liabilities --
State taxes and other.............. (10,004) (68,076)
------------ -----------
Total......................... (10,004) (68,076)
------------ -----------
Net deferred income tax
assets..................... $ 363 $ 3,373
============ ===========
9. COMMITMENTS AND CONTINGENCIES:
COMMITMENTS
The following is a schedule of future minimum lease payments due as of
December 31, 1996 (such lease arrangements are described below):
1997.................................... $ 138,018
1998.................................... 121,600
1999.................................... 124,350
2000.................................... 41,450
Thereafter.............................. --
The Company leases three buildings from C&M Properties, a company wholly
owned by its sole shareholder. The lease terms range from 40 to 60 months with
monthly lease payments ranging from $2,800 to $6,250 and are subject to annual
escalations. Total rental payments to C&M Properties in 1996 and for the
six-month period ended June 30, 1997, were $94,304 and $44,550 (unaudited),
respectively. The leases require that the Company pay C&M Properties a
proportionate share of any increase in the real property taxes assessed against
the premises as compared to a designated base rate. Total property tax payments
to C&M Properties during 1996 were $9,517. There were no property tax payments
made to C&M Properties for the six-month period ended June 30, 1997 (unaudited).
CONTINGENCIES
Providing specialty medical services entails an inherent risk of
professional malpractice and other similar claims. The Company believes that its
exposure to these risks is substantially mitigated by its existing insurance
coverage.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its customers and their employees. Management does not believe
that any claims would have a material adverse effect on the Company's combined
financial position or results of operations.
10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Technical Services, Inc.:
We have audited the accompanying balance sheets of Global Technical
Services, Inc. (a Texas corporation) as of December 31, 1995 and 1996, and the
related statements of operations, changes in shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Technical Services,
Inc., as of December 31, 1995 and 1996 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 15, 1997
F-68
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 604,573 $ 32,362 $ 479,436
Trade accounts receivable....... 1,285,463 2,445,714 3,366,619
Notes receivable --
Related parties............ 2,615 2,533 216
Other...................... 4,757 2,578 --
Prepaid expenses and other
assets........................ 237,124 62,916 50,984
Deferred income tax asset....... -- -- 53,266
------------ ------------ -----------
Total current
assets............. 2,134,532 2,546,103 3,950,521
PROPERTY AND EQUIPMENT, net.......... 276,691 399,217 484,015
NOTES RECEIVABLE, related parties.... 583,688 575,389 204,721
NOTE RECEIVABLE, other............... 5,629 3,780 4,516
OTHER ASSETS, net.................... 90,900 86,944 75,818
------------ ------------ -----------
Total assets.......... $ 3,091,440 $ 3,611,433 $ 4,719,591
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities................... $ 264,921 $ 415,023 $ 722,053
Accrued payroll and related
taxes......................... 485,203 624,812 1,295,226
Notes payable, related party,
GGI........................... 2,299,099 5,953 6,249
Line of credit, GGI............. -- 2,373,627 2,060,728
Deferred income tax liability... -- 6,140 --
------------ ------------ -----------
Total current
liabilities........ 3,049,223 3,425,555 4,084,256
DEFERRED INCOME TAX LIABILITY........ 1,870 3,116 4,563
NOTES PAYABLE, related party, GGI.... -- 14,423 11,223
------------ ------------ -----------
Total liabilities..... 3,051,093 3,443,094 4,100,042
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.10 par value;
1,000,000 shares authorized,
100,000 shares issued and
outstanding................... 10,000 10,000 10,000
Additional paid-in capital...... 190,000 190,000 190,000
Retained earnings (deficit)..... (159,653) (31,661) 419,549
------------ ------------ -----------
Total shareholders'
equity (deficit)... 40,347 168,339 619,549
------------ ------------ -----------
Total liabilities and
shareholders'
equity (deficit)... $ 3,091,440 $ 3,611,433 $ 4,719,591
============ ============ ===========
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- ------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES.................. $ 25,226,912 $ 23,167,009 $ 28,660,793 $ 13,607,632 $ 20,205,002
COST OF SERVICES........................ 23,750,703 21,677,286 26,560,689 12,598,600 18,641,378
-------------- -------------- -------------- -------------- --------------
Gross profit....................... 1,476,209 1,489,723 2,100,104 1,009,032 1,563,624
OPERATING COSTS AND EXPENSES............ 1,694,963 1,085,511 1,247,033 554,302 769,745
-------------- -------------- -------------- -------------- --------------
Operating income (loss)............ (218,754) 404,212 853,071 454,730 793,879
OTHER (INCOME) EXPENSE, net............. 15,993 (37,529) 3,440 (767) 639
INTEREST EXPENSE, net................... 95,820 101,786 173,406 84,583 84,522
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAX
(BENEFIT) EXPENSE..................... (330,567) 339,955 676,225 370,914 708,718
INCOME TAX (BENEFIT) EXPENSE............ (124,183) 149,561 290,649 159,313 298,145
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS)....................... $ (206,384) $ 190,394 $ 385,576 $ 211,601 $ 410,573
============== ============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------- ------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993.............. 100,000 $10,000 $ 190,000 $ (13,732) $ 186,268
Net (loss)......................... -- -- -- (206,384) (206,384)
Contributions...................... -- -- -- 103,078 103,078
------- ------- ---------- --------- ------------
BALANCE, December 31, 1994.............. 100,000 10,000 190,000 (117,038) 82,962
Net income......................... -- -- -- 190,394 190,394
Distributions...................... -- -- -- (233,009) (233,009)
------- ------- ---------- --------- ------------
BALANCE, December 31, 1995.............. 100,000 10,000 190,000 (159,653) 40,347
Net income......................... -- -- -- 385,576 385,576
Distributions...................... -- -- -- (257,584) (257,584)
------- ------- ---------- --------- ------------
BALANCE, December 31, 1996.............. 100,000 10,000 190,000 (31,661) 168,339
Net income (unaudited)............. -- -- -- 410,573 410,573
Contributions (unaudited).......... -- -- -- 40,637 40,637
------- ------- ---------- --------- ------------
BALANCE, June 30, 1997 (unaudited)...... 100,000 $10,000 $ 190,000 $ 419,549 $ 619,549
======= ======= ========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C> <C>
Net income (loss)..................... $ (206,384) $ 190,394 $ 385,576 $ 211,601 $ 410,573
Adjustments to reconcile net
income/(loss) to net cash (used in)
provided by operating activities
Depreciation and amortization....... 100,546 76,171 89,747 40,922 42,400
(Gain) loss on disposal of fixed
assets........................... (1,684) (27,301) 0 0 859
Change in net deferred income tax
assets........................... (254,610) 264,083 7,386 (4,302) (57,959)
Changes in operating assets and
liabilities --
Trade accounts receivable........ (891,212) 912,539 (1,160,251) (949,185) (920,905)
Prepaid expenses and other
assets......................... 47,060 (169,776) 174,208 122,638 11,932
Other assets, net................ 380 (14,233) (16,044) (36,215) 1,126
Accounts payable and other
accrued expenses............... 215,971 4,731 150,102 (88,740) 307,030
Accrued payroll and related
taxes.......................... 199,213 76,068 139,609 492,881 670,414
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities......... (790,720) 1,312,676 (229,667) (210,400) 465,470
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.... (152,263) (253,706) (192,273) (115,028) (119,056)
Sales of property and equipment....... 5,945 89,835 0 0 999
Proceeds from notes
receivable -- related party......... 54,591 154,840 44,816 43,497 372,985
Advances on notes
receivable -- related party......... (309,355) (83,152) (36,435) (4,000) 0
Proceeds from notes
receivable -- other................. 0 0 4,028 1,959 1,842
Advances on notes
receivable -- other................. 0 (10,386) 0 0 0
------------ ------------ ------------ ------------ ------------
Net cash flows provided by
investing activities......... (401,082) (102,569) (179,864) (73,572) 256,770
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable........... 80,000 0 0 0 0
Payments on notes payable............. (14,064) (65,936) 0 0 (2,904)
Proceeds from notes payable -- related
party............................... 0 0 29,499 0 0
Payment on notes payable -- related
party............................... 0 0 (9,123) 0 0
Proceeds from line of credit.......... 22,522,535 20,430,852 25,534,031 11,590,782 17,228,101
Payments on line of credit............ (21,374,288) (20,863,000) (25,459,503) (11,626,002) (17,541,000)
Contributions from shareholders....... 103,078 0 0 0 40,637
Distributions to shareholders......... 0 (233,009) (257,584) (88,970) 0
------------ ------------ ------------ ------------ ------------
Net cash flows provided by
financing activities......... 1,317,261 (731,093) (162,680) (124,190) (275,166)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH......... 125,459 479,014 (572,211) (408,162) 447,074
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR............................... 100 125,559 604,573 604,573 32,362
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR.................................. $ 125,559 $ 604,573 $ 32,362 $ 196,411 $ 479,436
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION...........................
Cash paid for income taxes............ $ 115,000 $ 42,200 $ 200,000 $ $
Cash paid for interest................ 180,195 232,052 231,365 115,577 113,053
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Global Technical Services, Inc. (GTS or the Company), incorporated in the
state of Texas in 1989, specializes in providing temporary contract labor,
engineers and aircraft maintenance technicians to businesses primarily within
the aerospace and defense industries throughout the United States. Contracts to
provide such services vary in length, usually less than one year. The Company's
corporate offices are located in Fort Worth, Texas.
GTS is owned by eight shareholders who, together with the Company, intend
to enter into a definitive agreement with Nationwide Staffing, Inc.
(Nationwide), pursuant to which all shares of the Company will be exchanged for
cash and shares of Nationwide's common stock concurrent with the consummation of
an initial public offering (the Offering) of the common stock of Nationwide.
In anticipation of the Offering, the accompanying financial statements have
been retroactively adjusted to reflect the reversal of the effects of certain
investments, namely a 55 percent owned subsidiary, Tuff-Bilt Manufacturing,
Inc., a 25.5 percent equity investment in All Star Truck Parts & Equipment,
Inc., and a 49 percent equity investment in Arapaho Trailer Sales & Services,
Inc. In addition, the Company had a division of operations, named Americom,
which was involved in the administration of workplace drug testing. Americom was
sold to a third party on March 19, 1997. Therefore, Americom's net assets and
results of operations have been removed from the accompanying financial
statements and notes thereto. Distributions to shareholders of $233,009 and
$257,584 in 1995 and 1996, respectively, and contributions to shareholders of
$103,078 in 1993 and $40,637 for the six-month period ended June 30, 1997, are a
result of certain losses and gains on these transactions which have been
recharacterized for financial reporting purposes. Management believes that this
recharacterization of the reporting entity is appropriate because these
investments and division were in dissimilar businesses, and have been managed
and financed historically as if they were autonomous and have had no more than
incidental common facilities and costs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
F-73
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with an original maturity of three months or less.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of this method approximate those of the allowance method. In the event
of complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance. The Company performs ongoing credit evaluations of its
customers' financial conditions to determine credit to be extended.
Historically, bad debts have not been significant.
The Company operates within the aerospace and defense industries. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its market or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated using the double
declining-balance method over the estimated useful lives of the related assets,
which range from three to thirty-nine years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
PROFIT-SHARING PLAN
The Company has a 401(k) deferred compensation plan for all eligible
employees. Active participants may elect to have the Company make salary
reduction contributions on their behalf based on a percentage of their earnings,
not to exceed 20 percent. The Company has the option of making annual
discretionary contributions to the plan up to a predetermined limit. For the
years ended December 31, 1994, 1995 and 1996, the Company made no contributions
to the plan.
REVENUE AND COST RECOGNITION
GTS's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, GTS
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. GTS accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues, and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
F-74
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to the Company's line of credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market values. The fair value of notes payable was
estimated by discounting future cash flows, including interest payments, using
rates currently available for debt with similar terms and maturities, based on
the Company's credit standing and other market factors. At December 31, 1995 and
1996, the carrying amounts of notes payable approximate fair value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
Airplane............................ $ 25,292 $ 50,539 $ 83,018
Airplane hanger..................... 119,221 204,068 204,068
Vehicles............................ 5,933 5,933 --
Furniture and equipment............. 192,656 259,008 338,578
Leasehold improvements.............. 7,834 7,834 9,538
Software............................ 65,861 81,688 86,992
------------ ------------ ------------
416,797 609,070 722,194
Less -- Accumulated depreciation.... (140,106) (209,853) (238,179)
------------ ------------ ------------
$ 276,691 $ 399,217 $ 484,015
============ ============ ============
4. RELATED PARTY TRANSACTIONS:
NOTES RECEIVABLE, RELATED PARTIES
Notes receivable consisting of loans to affiliated companies were as
follows:
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
Global Staff Solutions, Inc., 10% per
annum, $1,675 interest and principal due
monthly, balance due December 1,
1999.................................. $ 163,392 $ 199,037 $ 204,937
All Star Truck Parts & Equipment, Inc.,
10.5% per annum, $3,500 interest and
principal due monthly, balance due
December 31, 1998, secured by inventory,
accounts receivable and
equipment............................. 380,477 378,885 --
Other................................... 42,434 -- --
---------- ---------- -----------
Total notes receivable,
related parties............ 586,303 577,922 204,937
Less -- Current portion................. (2,615) (2,533) (216)
---------- ---------- -----------
Long-term portion............. $ 583,688 $ 575,389 $ 204,721
========== ========== ===========
These notes receivable represent advances made by GTS. Accrued interest is
payable monthly. The notes mature with balloon payments due in December 1998 and
1999. The note receivable from All Star Truck Parts & Equipment, Inc. was paid
subsequent to year-end.
F-75
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accrued interest receivable related to the above notes totaled $7,940 and
$6,629 at December 31, 1995 and 1996, respectively. During the years ended
December 31, 1994, 1995, and 1996, the Company recorded interest income from
these notes of $60,918, $70,060 and $57,982, respectively.
NOTES PAYABLE, GGI
The notes payable to Global Group, Inc. (GGI) at December 31, 1996, were
for the purchase of the computer system referred to above for $29,499, payable
in monthly installments of $640, including interest of 9.75 percent, through
January 2000. Interest expense recorded was $1,021 and $4,314 during 1995 and
1996, respectively. GGI owns approximately 49 percent of the outstanding common
stock of GTS.
The total future debt service requirements of this note payable are $20,376
principal and $3,297 interest. The annual requirements of this note are
illustrated in the table below:
PRINCIPAL INTEREST TOTAL
--------- -------- -------
1997.................................... $ 5,953 $ 1,725 $ 7,678
1998.................................... 6,560 1,118 7,678
1999.................................... 7,229 449 7,678
2000.................................... 634 5 640
--------- -------- -------
$ 20,376 $ 3,297 $23,674
========= ======== =======
LINE OF CREDIT, GGI
The Company's major source of financing during 1994, 1995 and 1996 was
through GGI. Advances from GGI are due on demand with interest payable monthly
at bank prime plus 1 percent. If no demand is made, the note is due and payable
on August 1, 1998. Payment of the note is secured by the accounts receivable of
the Company, subordinate to a first priority security interest held by Overton
Bank and Trust, NA (Overton), on a revolving line of credit of GGI. The note
payable has been classified as a current liability in the accompanying balance
sheets as of December 31, 1995 and 1996. Interest paid to GGI in 1994, 1995 and
1996 totaled $180,195, $232,052 and $231,365, respectively. Accrued interest
payable to GGI at December 31, 1994, 1995 and 1996, was $17,350, $19,588 and
$21,757, respectively.
As of December 31, 1994, 1995 and 1996, all accounts receivable and rights
to payments are pledged to secure payments of GGI's revolving line of credit in
the amount of $2,500,000 with Overton. The principal of the note is due and
payable on or before August 1, 1998. At December 31, 1996, GGI was in compliance
with or obtained waivers for all covenants related to its revolving
line-of-credit agreement.
GENERAL AND ADMINISTRATIVE EXPENSE
The Company's facilities during 1994 and part of 1995 were leased from GGI
on a month-to-month basis. Rent paid to GGI in 1994 and 1995 was $13,200 and
$11,624, respectively. Computer consulting services purchased from GGI totaled
$19,400 and $21,657 in 1994 and 1995, respectively. The Company purchased repair
and maintenance services, advertising and supplies from GGI totaling $18,040 in
1996.
The Company purchased payroll services of $617,764 and $749,296 during 1995
and 1996, respectively, from Global Staff Solutions, Inc. Amounts payable to
Global Staff Solutions, Inc., at December 31, 1995 and 1996, were $11,914 and
$90,842, respectively. Global Staff Solutions, Inc., and the Company have a
common shareholder which owns significant amounts of the outstanding shares of
each of the companies.
5. SALES TO SIGNIFICANT CUSTOMERS:
The Company has two customers who combined accounted for approximately 76
percent and 65 percent of the Company's total sales during 1995 and 1996,
respectively. The amount due from these two
F-76
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
customers, included in accounts receivable, was $475,729 and $691,769, or
approximately 35 percent and 30 percent of the balances, at December 31, 1995
and 1996, respectively. The Company has three customers who, combined, accounted
for approximately 78 percent of the Company's total sales during 1994. The loss
of these customers could have a material adverse effect on the operations of the
Company.
6. INCOME TAXES:
Income tax (benefit) expense consists of the following components:
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- ----------------------
1994 1995 1996 1996 1997
------------ ------------ ---------- ---------- ----------
(UNAUDITED)
Current --
<S> <C> <C> <C> <C> <C>
Federal............................ $ 111,803 $ (88,574) $ 219,081 $ 119,070 $ 275,419
State.............................. 32,753 (25,948) 64,182 35,566 80,686
------------ ------------ ---------- ---------- ----------
144,556 (114,522) 283,263 154,636 356,105
------------ ------------ ---------- ---------- ----------
Deferred --
Federal............................ (207,849) 204,247 5,713 3,116 (44,827)
State.............................. (60,890) 59,836 1,673 1,561 (13,133)
------------ ------------ ---------- ---------- ----------
(268,739) 264,083 7,386 4,677 (57,960)
------------ ------------ ---------- ---------- ----------
Total......................... $ (124,183) $ 149,561 $ 290,649 $ 159,313 $ 298,145
============ ============ ========== ========== ==========
</TABLE>
Income tax (benefit) expense differs from amounts computed by applying the
statutory rate to income (loss) before income taxes:
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ----------------------
1994 1995 1996 1996 1997
------------ ---------- ---------- ---------- ----------
(UNAUDITED)
Income tax (benefit) expense at the
<S> <C> <C> <C> <C> <C>
statutory rate........................ $ (115,699) $ 118,984 $ 236,679 $ 129,820 $ 248,051
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ (18,289) 22,027 42,806 23,263 43,910
Nondeductible expenses............. 9,805 8,550 11,164 6,230 6,184
------------ ---------- ---------- ---------- ----------
$ (124,183) $ 149,561 $ 290,649 $ 159,313 $ 298,145
============ ========== ========== ========== ==========
</TABLE>
F-77
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
Deferred income tax assets --
Accruals and other................. $ 3,708 $ 1,741 $53,266
--------- --------- -----------
Total......................... 3,708 1,741 53,266
--------- --------- -----------
Deferred income tax liabilities --
State taxes and other.............. (5,578) (10,997) (4,563)
--------- --------- -----------
Total......................... (5,578) (10,997) (4,563)
--------- --------- -----------
Net deferred income tax
(liabilities) assets....... $ (1,870) $ (9,256) $48,703
========= ========= ===========
7. COMMITMENTS AND CONTINGENCIES:
The Company is a party to various operating leases, including its office
building, copier, facsimile machine and two pad sites at Decatur Municipal
Airport. Such operating leases range in terms from 36 months to 20 years.
Minimum rental payments required under the above operating leases are as
follows:
1997.................................... $ 60,384
1998.................................... 52,132
1999.................................... 10,872
2000.................................... 8,644
2001.................................... 840
2002 and thereafter..................... 10,920
----------
$ 143,792
==========
Providing engineering services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is substantially mitigated by its existing insurance coverage.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its clients and their employees. Management does not believe that
any claims would have a material adverse effect on the Company's financial
position or results of operations.
From March 1993 to March 1997, the Company did not subscribe to the Texas
Workers' Compensation Plan. Therefore, the Company does not have any legal
protection from any of its employees who may not believe that they have received
sufficient coverage for employment related injuries. In March 1997, the Company
elected to again subscribe to the workers' compensation program in Texas.
Potential outstanding liabilities exist for the four years in which the Company
was not in the Texas Workers' Compensation plan, primarily related to any legal
defense costs that may be incurred. However, the Company is not currently aware
of any such claims and the potential liability cannot be reasonably estimated
due to uncertainties inherent in such an estimation process.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (see "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the
F-78
<PAGE>
GLOBAL TECHNICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
"employer" of certain worksite employees for the purposes of the Code, the
401(k) plan tax-exempt status could be revoked and those worksite employees
would not be permitted to make tax deferred salary contributions to the 401(k)
plan. The Company believes that, although unfavorable to the Company, the
prospective application of an unfavorable conclusion would not have a material
adverse effect on its financial position or the results of its operations. A
retroactive application of such a decision would have an adverse financial
impact on the Company. However, the Company is unable to determine the ultimate
resolution of this matter by the IRS, and therefore, cannot assess or reasonably
estimate the effect on the Company's financial position or results of operations
if an unfavorable decision is reached by the IRS.
8. SUBSEQUENT EVENT:
Nationwide intends to acquire Global Staff Solutions, Inc. (GSS), an
employee leasing company, subsequent to the Offering. Therefore, the notes
receivable which the Company holds from GSS as of June 30, 1997 of approximately
$204,000, will be settled upon the consolidation of Nationwide and GSS.
9. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
In connection with the merger, the Company will make a cash distribution of
approximately $419,549 prior to the merger which represents the Company's
estimated C Corporation accumulated adjustment account. Had these transactions
been recorded at June 30, 1997, the effect on the accompanying unaudited balance
sheet would be a decrease in assets and shareholders' equity of $419,549.
F-79
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HP Services, Inc.:
We have audited the accompanying balance sheets of HP Services, Inc. (a
Texas corporation) as of December 31, 1995 and 1996, and the related statements
of operations, changes in shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996 . These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HP Services, Inc., as of
December 31, 1995 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 8, 1997
F-80
<PAGE>
HP SERVICES, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------- JUNE 30,
1995 1996 1997
------------ ------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 146,591 $ 39,856 $ 42,560
Trade accounts receivable....... 1,332,581 1,637,713 1,116,308
Due from affiliates............. 75,381 23,246 83,903
Prepaid expenses and other
assets........................ 170,640 129,800 60,102
------------ ------------ ------------
Total current assets....... 1,725,193 1,830,615 1,302,873
PROPERTY AND EQUIPMENT, net.......... 53,322 14,830 10,830
------------ ------------ ------------
Total assets............... $ 1,778,515 $ 1,845,445 $ 1,313,703
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 49,128 $ 155,834 $ 23,973
Accrued payroll and related
taxes......................... 119,388 177,096 163,236
Notes payable................... 283,447 259,149 258,450
------------ ------------ ------------
Total current
liabilities................ 451,963 592,079 445,659
LOANS FROM SHAREHOLDERS.............. 300,000 -- --
------------ ------------ ------------
Total liabilities.......... 751,963 592,079 445,659
------------ ------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value,
1,000,000 shares authorized,
1,000 shares issued and
outstanding................... 1,000 1,000 1,000
Retained earnings............... 1,025,552 1,252,366 867,044
------------ ------------ ------------
Total shareholders'
equity..................... 1,026,552 1,253,366 868,044
------------ ------------ ------------
Total liabilities and
shareholders' equity.... $ 1,778,515 $ 1,845,445 $ 1,313,703
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-81
<PAGE>
HP SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES FROM SERVICES.................. $ 5,867,792 $ 6,487,601 $ 9,062,752 $ 4,055,244 $ 4,217,160
COST OF SERVICES........................ 5,219,827 5,696,887 7,943,249 3,528,374 3,587,014
------------ ------------ ------------ ------------ ------------
Gross profit....................... 647,965 790,714 1,119,503 526,870 630,146
OPERATING COSTS AND EXPENSES............ 337,814 381,081 640,660 271,590 291,530
------------ ------------ ------------ ------------ ------------
Operating income................... 310,151 409,633 478,843 255,280 338,616
INTEREST EXPENSE........................ -- (11,753) (9,935) (5,089) (9,010)
OTHER INCOME, net....................... 380 -- 14,337 810 291
------------ ------------ ------------ ------------ ------------
NET INCOME.............................. $ 310,531 $ 397,880 $ 483,245 $ 251,001 $ 329,897
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE>
HP SERVICES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993........... 1,000 $1,000 $ 401,495 $ 402,495
Distributions................... -- -- (41,890) (41,890)
Net income...................... -- -- 310,531 310,531
------ ------ ---------- ------------
BALANCE, December 31, 1994........... 1,000 1,000 670,136 671,136
Distributions................... -- -- (42,464) (42,464)
Net income...................... -- -- 397,880 397,880
------ ------ ---------- ------------
BALANCE, December 31, 1995........... 1,000 1,000 1,025,552 1,026,552
Distributions................... -- -- (256,431) (256,431)
Net income...................... -- -- 483,245 483,245
------ ------ ---------- ------------
BALANCE, December 31, 1996........... 1,000 1,000 1,252,366 1,253,366
Distributions (unaudited)....... -- -- (715,219) (715,219)
Net income (unaudited).......... -- -- 329,897 329,897
------ ------ ---------- ------------
BALANCE, June 30, 1997 (unaudited)... 1,000 $1,000 $ 867,044 $ 868,044
====== ====== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-83
<PAGE>
HP SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------- --------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Net income............................ $ 310,531 $ 397,880 $ 483,245 $ 251,001 $ 329,897
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 22,005 22,005 17,058 11,003 4,000
Gain on sale of property and
equipment........................ -- -- (16,966) -- --
Changes in operating assets and
liabilities --
Trade accounts receivable........ (535,986) (15,565) (305,132) 80,694 521,405
Due from affiliates.............. (3,639) (75,381) 52,135 47,048 (60,657)
Prepaid expenses and other
assets........................ (189,156) 53,644 40,840 91,553 69,698
Accounts payable and accrued
expenses...................... 185,434 (18,620) 164,414 60,963 (145,721)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... (210,811) 363,963 435,594 542,262 718,622
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.......................... -- -- 38,400 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by investing
activities......................... -- -- 38,400 -- --
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt......... 234,802 200,000 200,000 -- 50,000
Principal payments on short-term
debt............................... -- (151,355) (224,298) (59,985) (50,699)
Loans from shareholders............... 239,541 (291,450) (300,000) (300,000) --
Shareholder distributions............. (41,890) (42,464) (256,431) (320,000) (715,219)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities............... 432,453 (285,269) (580,729) (679,985) (715,918)
------------ ------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... 221,642 78,694 (106,735) (137,723) 2,704
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................. (153,745) 67,897 146,591 146,591 39,856
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................ $ 67,897 $ 146,591 $ 39,856 $ 8,868 $ 42,560
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest................ $ 3,821 $ 11,753 $ 9,935 $ 5,089 $ 9,010
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-84
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
HP Services, Inc. (HP or the Company), incorporated in the state of Texas
in 1990, specializes in the permanent placement of light industrial labor to the
petrochemical industry in southeast Texas.
The Company and its shareholders intend to enter into a definitive
agreement with Nationwide Staffing, Inc. (Nationwide), pursuant to which all
shares of the Company will be exchanged for cash and shares of Nationwide's
common stock concurrent with the consummation of an initial public offering (the
Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1997 and 1996, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term investments
with original maturities of three months or less when purchased.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company uses the allowance method for estimating the allowance for bad
debts. The Company periodically evaluates the creditworthiness of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts. Historically, bad debts have not been
significant.
The Company operates within the petrochemical production industry. The
Company is obligated to pay the salaries, wages and related benefit costs and
payroll taxes of worksite employees. Accordingly, the Company's ability to
collect amounts due from customers could be affected by economic fluctuations in
its markets or these industries.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and
F-85
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the accumulated depreciation applicable thereto are eliminated from the
accounts, and the resulting gain or loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using the straight-line method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
HP, with the consent of its shareholders, has elected to be an S
Corporation under the Internal Revenue Code. Instead of paying corporation
income taxes, the shareholders are taxed individually on the taxable income.
Therefore, no provision or liability for federal income taxes has been made.
REVENUE RECOGNITION
HP's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, HP agrees
to pay the following direct costs associated with the worksite employees: (a)
salaries and wages, (b) employment-related taxes and (c) workers' compensation
insurance premiums. HP accounts for service fees and the related direct payroll
costs using the accrual method of accounting. Under the accrual method, service
fees relating to worksite employees with earned but unpaid wages at the end of
each period are recognized as unbilled revenues, and the related direct payroll
costs for such wages are accrued as a liability during the period in which wages
are earned by the worksite employee. Subsequent to the end of each period, such
wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables and accrued expenses approximate
their fair values due to the short-term maturities of these instruments.
The carrying amounts of borrowings pursuant to HP's revolving credit
agreement approximate fair value because the rates on such agreements are
variable, based on current market rates.
The fair value of other debt was estimated by discounting future cash
flows, including interest payments, using rates currently available for debt of
similar terms and maturities, based on HP's credit standing and other market
factors. At December 31, 1996, the carrying amount of HP's other debt
approximates fair value.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
Miscellaneous equipment................. $ 22,500 $ 22,500 $ 22,500
Office equipment........................ 15,901 15,901 15,901
Computer equipment...................... 2,162 2,162 2,162
Vehicles................................ 102,148 26,173 26,173
---------- ---------- -----------
142,711 66,736 66,736
Less -- Accumulated depreciation........ (89,389) (51,906) (55,906)
---------- ---------- -----------
$ 53,322 $ 14,830 $ 10,830
========== ========== ===========
F-86
<PAGE>
HP SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. NOTES PAYABLE:
Short-term notes payable are as follows:
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
---------- ---------- --------
(UNAUDITED)
Unsecured notes payable to finance
companies, bearing interest at rates
ranging from 8.7% to 10.5%............ $ 83,447 $ 59,149 $ 8,450
Line of credit up to $600,000 with bank,
bearing interest at prime rate plus
0.5%.................................. 200,000 200,000 250,000
---------- ---------- --------
$ 283,447 $ 259,149 $258,450
========== ========== ========
5. SALES TO SIGNIFICANT CUSTOMERS:
During 1994, 1995 and 1996, one customer accounted for approximately 60
percent, approximately 48 percent and approximately 60 percent, respectively, of
the Company's service revenue. The loss of this customer could have a material
adverse impact on the operations of the Company.
6. COMMITMENTS AND CONTINGENCIES:
HP leases office space from a related entity. Rent paid in each of the
years ended 1994, 1995 and 1996 was $40,000, $60,000 and $184,000, respectively.
The lease term expires June 30, 1997. Future minimum lease payments due in 1997
are $30,000.
In the ordinary course of its business, the Company has been threatened
with or named as a defendant in various lawsuits, including claims related to
the actions of its clients and their employees. Management does not believe that
any claims would have a material adverse effect on the Company's financial
position or results of operations.
7. RELATED PARTY TRANSACTIONS:
HP provides light industrial labor for an entity related through common
ownership. Revenues derived from this entity totaled $433,849 in 1996, $525,576
in 1995 and $263,990 in 1994.
HP entered into a consulting agreement with a former shareholder effective
January 1, 1997, through December 31, 1997. HP pays the consultant $8,333 per
month. The agreement may be renewed with the same terms and conditions in effect
at January 1, 1997.
8. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
In connection with the merger, the Company will make a cash distribution of
approximately $298,000 prior to the merger which represents the Company's
estimated S Corporation accumulated adjustment account. Had these transactions
been recorded at June 30, 1997, the effect on the accompanying unaudited balance
sheet would be a increase in liabilities, and a decrease in shareholders'
equity, of $298,000.
F-87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Technology Plus, Inc.:
We have audited the accompanying balance sheet of Technology Plus, Inc. (a
Kansas corporation) as of December 31, 1996, and the related statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Technology Plus, Inc., as of
December 31, 1996 and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
August 20, 1997
F-88
<PAGE>
TECHNOLOGY PLUS, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
1996 1997
------------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 112,133 $ 43,312
Trade accounts receivable....... 1,607,113 1,338,119
Prepaid expenses and other
assets.......................... 11,030 140,591
Deferred income tax asset....... 55,041 49,076
------------- ------------
Total current assets....... 1,785,317 1,571,098
PROPERTY AND EQUIPMENT, net.......... 98,514 78,030
MARKETABLE SECURITIES,
available-for-sale................. 118,325 128,619
DEFERRED INCOME TAX ASSET............ -- 2,337
------------- ------------
Total assets............... $ 2,002,156 $ 1,780,084
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities..................... $ 185,051 $ 255,001
Accrued payroll and related
taxes........................... 446,753 324,226
Line of credit.................. 561,352 194,576
------------- ------------
Total current
liabilities.................. 1,193,156 773,803
DEFERRED INCOME TAX LIABILITY........ 31,755 --
------------- ------------
Total liabilities.......... 1,224,911 773,803
SHAREHOLDERS' EQUITY:
Common stock, $0.10 par value,
250,000 shares authorized,
10,000 shares issued and
outstanding.................... 1,000 1,000
Receivable from shareholder..... (248,629) (267,400)
Unrealized holding loss on
marketable securities.......... (9,117) (9,117)
Retained earnings............... 1,033,991 1,281,798
------------- ------------
Total shareholders'
equity....................... 777,245 1,006,281
------------- ------------
Total liabilities and
shareholders' equity.... $ 2,002,156 $ 1,780,084
============= ============
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX-MONTHS ENDED JUNE 30,
---------------------------- --------------------------
1995 1996 1996 1997
------------ -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES FROM SERVICES............... $ 9,827,635 $ 12,255,946 $ 5,346,476 $ 6,417,012
COST OF SERVICES..................... 8,570,461 10,802,445 4,636,872 5,514,042
------------ -------------- ------------ ------------
Gross profit.................... 1,257,174 1,453,501 709,604 902,970
OPERATING COSTS AND EXPENSES......... 877,620 963,830 402,786 472,549
------------ -------------- ------------ ------------
Operating income................ 379,554 489,671 306,818 430,421
OTHER INCOME......................... (26,249) (44,703) (32,958) (9,885)
INTEREST EXPENSE..................... 58,153 67,170 27,880 22,758
------------ -------------- ------------ ------------
INCOME BEFORE INCOME
TAX EXPENSE........................ 347,650 467,204 311,896 417,548
INCOME TAX EXPENSE................... 144,431 197,389 131,776 169,741
------------ -------------- ------------ ------------
NET INCOME........................... $ 203,219 $ 269,815 $ 180,120 $ 247,807
============ ============== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-90
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED ACCOUNTS
COMMON STOCK GAIN (LOSS) RECEIVABLE
--------------- ON MARKETABLE FROM RETAINED
SHARES AMOUNT SECURITIES SHAREHOLDER EARNINGS TOTAL
------ ------ ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994.............. 10,000 $1,000 $ -- $ (111,534) $ 672,015 $ 561,481
Unrealized holding gain on
marketable securities............ -- -- 15,249 -- -- 15,249
Receivable from shareholder........ -- -- -- (100,867) -- (100,867)
Net income......................... -- -- -- -- 123,314 123,314
------ ------ ------------- ----------- ---------- ------------
BALANCE, December 31, 1995.............. 10,000 1,000 15,249 (212,401) 795,329 599,177
Distributions...................... -- -- -- -- (31,153) (31,153)
Unrealized holding loss on
marketable securities............ -- -- (24,366) -- -- (24,366)
Receivable from shareholder........ -- -- -- (36,228) -- (36,228)
Net income......................... -- -- -- -- 269,815 269,815
------ ------ ------------- ----------- ---------- ------------
BALANCE, December 31, 1996.............. 10,000 1,000 (9,117) (248,629) 1,033,991 777,245
Receivable from shareholder
(unaudited)...................... -- -- -- (18,771) -- (18,771)
Net income (unaudited)............. -- -- -- -- 247,807 247,807
------ ------ ------------- ----------- ---------- ------------
BALANCE, June 30, 1997 (unaudited)...... 10,000 1,000 (9,117) (267,400) 1,281,798 1,006,281
====== ====== ============= =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-91
<PAGE>
TECHNOLOGY PLUS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------------------
1995 1996 1996 1997
------------- ------------- ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income............................ $ 203,219 $ 269,815 $ 180,120 $ 247,807
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities --
Depreciation....................... 81,464 75,703 31,400 21,300
Realized (gain) loss on sale on
marketable securities, available
for sale......................... 10,053 (11,935) (5,390) --
Change in net deferred income tax
assets........................... 4,538 (71,923) 31,776 14,741
Changes in operating assets and
liabilities --
Trade accounts receivable........ 10,841 (643,055) (627,503) 268,994
Prepaid expenses and other
assets........................ (16,892) 9,400 (65,879) (130,344)
Accounts payable and accrued
liabilities................... (28,035) 120,512 88,888 (79,277)
Accrued payroll and related
taxes......................... 48,061 223,242 89,054 (15,668)
------------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities....... 313,249 (28,241) (277,534) 327,553
------------- ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.... (105,527) (42,507) (42,261) (3,132)
Proceeds from sale of property and
equipment.......................... 8,380 6,050 450 2,600
Purchase of marketable securities
available-for-sale................. (38,506) (192,485) (27,485) (10,294)
Proceeds from sale of marketable
securities available-for-sale and
other investments.................. 32,500 165,663 33,281 --
Advances to shareholder............... (100,867) (36,228) (52,328) (18,771)
------------- ------------- ------------ ------------
Net cash used in investing
activities................. (204,020) (99,507) (88,343) (29,597)
------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit.......... 10,514,778 12,984,069 5,324,882 7,382,196
Payments on line of credit............ (10,517,956) (12,904,673) (5,040,892) (7,748,973)
Proceeds from notes payable........... 36,888 -- -- --
Payments on notes payable............. (19,612) (40,424) (21,975) --
------------- ------------- ------------ ------------
Net cash provided by (used in)
financing activities....... 14,098 38,972 262,015 (366,777)
------------- ------------- ------------ ------------
INCREASE (DECREASE) IN CASH............. 123,327 (88,776) (103,862) (68,821)
CASH AT BEGINNING OF PERIOD............. 77,582 200,909 200,909 112,133
------------- ------------- ------------ ------------
CASH AT END OF PERIOD................... $ 200,909 $ 112,133 $ 97,047 $ 43,312
============= ============= ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Net change in unrealized holding gain
(loss) on available-for-sale
securities......................... $ 15,249 $ (24,366) $ -- $ --
Cash paid for income taxes............ 146,161 139,228 69,850 265,269
Cash paid for interest................ 58,153 67,170 27,880 22,758
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BUSINESS AND ORGANIZATION:
NATURE OF OPERATIONS
Technology Plus, Inc. (TPI or the Company), incorporated in the state of
Kansas on March 6, 1985, specializes in providing temporary engineers,
designers, and CAD personnel to companies throughout the United States. The
majority of revenues are derived from companies in the heavy industrial,
refinery, chemical and petrochemical industries.
TPI is owned by two shareholders who, together with the Company, intend to
enter into a definitive agreement with Nationwide Staffing, Inc. (Nationwide),
pursuant to which all shares of the Company will be exchanged for cash and
shares of Nationwide's common stock concurrent with the consummation of an
initial public offering (the Offering) of the common stock of Nationwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of June 30, 1997, and for the
six-months ended June 30, 1996 and 1997, are unaudited, and certain information
and footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The Company provides for workers' compensation, health care insurance and
unemployment taxes related to its employees. A deterioration in claims
experience could result in increased costs to the Company in the future. The
Company has recorded an estimate of any existing liabilities under these
programs at each balance sheet date. The Company's future costs could also
increase if there are any material changes in government regulations related to
employment law or employee benefits.
TRADE ACCOUNTS RECEIVABLE -- CREDIT RISK
The Company periodically performs credit evaluations of its customers'
financial conditions to determine credit to be extended and to determine the
adequacy of the allowance for bad debts.
Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of this method approximate those of the allowance method. In the event
of complete nonperformance by the Company's customers, the maximum exposure to
the Company is the outstanding accounts receivable balance at the date of
nonperformance. Historically, bad debts have not been significant.
The Company operates primarily within the chemical industry. The Company is
obligated to pay the salaries, wages and related benefit costs and payroll taxes
of worksite employees. Accordingly, the Company's ability to collect amounts due
from customers could be affected by economic fluctuations in its markets or
these industries.
F-93
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Maintenance and repairs are
charged to expense as incurred; renewals and betterments are capitalized. The
cost of property sold or otherwise disposed of and the accumulated depreciation
applicable thereto are eliminated from the accounts, and the resulting gain or
loss is reflected in operations.
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets using an accelerated method. The estimated useful
lives of property and equipment for purposes of computing depreciation range
from five to seven years.
INCOME TAXES
The Company has adopted the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Deferred income taxes are recognized for
temporary differences between financial statement and income tax bases of assets
and liabilities and net operating loss carryforwards for which tax benefits will
be realized in future years.
REVENUE AND COST RECOGNITION
TPI's revenues consist of service fees paid by its clients under client
service agreements. In consideration for payment of such service fees, TPI
agrees to pay the following direct costs associated with the worksite employees:
(a) salaries and wages, (b) employment-related taxes and (c) workers'
compensation insurance premiums. TPI accounts for service fees and the related
direct payroll costs using the accrual method of accounting. Under the accrual
method, service fees relating to worksite employees with earned but unpaid wages
at the end of each period are recognized as unbilled revenues and the related
direct payroll costs for such wages are accrued as a liability during the period
in which wages are earned by the worksite employee. Subsequent to the end of
each period, such wages are paid and the related service fees are billed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, trade accounts receivable, accounts payable
and other accrued liabilities approximate their fair values due to the
short-term maturities of these instruments.
The carrying amount of the line of credit approximates fair value because
the interest rate varies based on market rates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
(UNAUDITED)
Furniture and equipment.............. $395,966 $ 385,881
Vehicles............................. 31,507 31,507
------------ ----------
427,473 417,388
Less -- Accumulated depreciation..... 328,959 339,358
------------ ----------
$ 98,514 $ 78,030
============ ==========
4. RELATED-PARTY TRANSACTION:
TPI has a receivable from its majority shareholder. The receivable
represents advances made by TPI to this shareholder. The receivable totaled
$248,629 and $267,400 at December 31, 1996 and June 30, 1997, respectively.
Accrued interest is payable semiannually at the Internal Revenue Service blended
annual rate
F-94
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and totaled $9,826, and $13,250 at December 31, 1995 and 1996, respectively.
Accrued interest totaled $6,987 and $7,337 at June 30, 1996, and 1997,
respectively. Interest rates applicable to amounts outstanding averaged 4.80%,
6.58% and 5.77% during 1995, 1996 and the six months ended June 30, 1997,
respectively.
5. LINE OF CREDIT:
At December 31, 1996 and June 30, 1997 (unaudited), TPI had a revolving
line of credit agreement with United Missouri Bank, N.A. for up to $1,100,000.
The credit borrowings are due on demand with accrued interest payable monthly on
the 30th at bank prime plus .75 percent. Payment of the line of credit is
secured by the accounts receivable of TPI. Outstanding borrowings under the
agreement totaled $561,352 and $194,576 (unaudited) at December 31, 1996 and
June 30, 1997, respectively. The average interest rates applicable to amounts
outstanding were 9.0%, 9.25% and 9.25% during 1995, 1996 and the six months
ended June 30, 1997, respectively.
6. INCOME TAXES:
Income tax (benefit) expense consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX-MONTHS ENDED JUNE 30,
------------------------ --------------------------
1995 1996 1996 1997
---------- ------------ ---------- ----------
(UNAUDITED)
Current --
<S> <C> <C> <C> <C>
Federal............................ $ 120,880 $ 245,358 $ 163,764 $ 162,847
State.............................. 25,995 52,765 35,218 35,022
---------- ------------ ---------- ----------
146,875 298,123 198,982 197,869
---------- ------------ ---------- ----------
Deferred --
Federal............................ (2,012) (82,908) (55,311) (23,149)
State.............................. (432) (17,826) (11,895) (4,979)
---------- ------------ ---------- ----------
(2,444) (100,734) (67,206) (28,128)
---------- ------------ ---------- ----------
Total......................... $ 144,431 $ 197,389 $ 131,776 $ 169,741
========== ============ ========== ==========
</TABLE>
Income tax expense differs from amounts computed by applying the statutory
rate to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX-MONTHS ENDED JUNE 30,
---------------------- ---------------------------
1995 1996 1996 1997
---------- ---------- ----------- -----------
(UNAUDITED)
Income tax expense at the statutory
<S> <C> <C> <C> <C>
rate.................................. $ 121,677 $ 163,522 $ 109,163 $ 146,142
Increase (decrease) resulting from --
State income tax, net of benefit
for federal deduction............ 16,616 22,708 11,354 19,528
Nondeductible expenses............. 6,138 11,159 11,259 4,071
---------- ---------- ----------- -----------
$ 144,431 $ 197,389 $ 131,776 $ 169,741
========== ========== =========== ===========
</TABLE>
F-95
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred income tax assets and liabilities are comprised of the
following:
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
Deferred income tax assets --
Accrued liabilities................ $ 69,337 $ 59,454
State taxes and other.............. 17,816 15,781
------------ -----------
87,153 75,235
------------ -----------
Deferred income tax liabilities --
Accrued revenues and other......... (27,663) (23,822)
Section 481(a) adjustment.......... (36,204) --
------------ -----------
(63,867) (23,822)
------------ -----------
Net deferred income tax
assets................ $ 23,286 $ 51,413
============ ===========
7. SALES TO SIGNIFICANT CUSTOMERS:
TPI derived approximately 48 percent of its 1995 revenues and 46 percent of
its 1996 revenues from two customers. These two customers accounted for
approximately 45 percent and 38 percent of TPI's revenue for the six-months
ended June 30, 1996 and 1997, respectively (unaudited). Accounts receivable for
these two customers were $654,923 at December 31, 1996 and $596,547 at June 30,
1997 (unaudited), respectively. The loss of these customers could have a
material adverse effect on the operations of TPI in the near term.
8. COMMITMENTS AND CONTINGENCIES:
TPI leased three office spaces in 1995 located in Kansas City, Missouri;
St. Louis, Missouri; and Birmingham, Alabama. In 1996, TPI leased an additional
office space in Midland, Texas. Rent paid for all of the offices in 1995 and
1996 was $68,000 and $77,000, respectively. Rent paid for the six-months ended
June 30, 1996 and 1997 was $34,000 and $35,000, respectively. In 1997, TPI moved
the Midland operations to Metairie, Louisiana. Future minimum lease payments due
as of December 31, 1996 are as follows: 1997 -- $69,086; 1998 -- $40,992; and
1999 -- $11,352.
Providing engineering services entails an inherent risk of professional
malpractice and other similar claims. The Company believes that its exposure to
these risks is substantially mitigated by its existing insurance coverage.
In the ordinary course of its business, the Company has the potential to be
threatened with or named as a defendant in various lawsuits, including claims
related to the actions of its customers and their employees. Management does not
believe that any claims would have a material adverse effect on the Company's
financial position or results of operations.
The Internal Revenue Service (IRS) is currently reviewing specific
compliance issues prevalent in certain segments in the professional employer
organization (PEO) industry (see "Regulation -- Employee Benefit Plans"). One
issue that has arisen is whether a PEO can be a co-employer of worksite
employees for various purposes under the Internal Revenue Code of 1986, as
amended (the Code), including participation in the PEO company's 401(k) plan. If
the IRS concludes that the Company is not the "employer" of certain worksite
employees for the purposes of the Code, the 401(k) plan tax-exempt status could
be revoked and those worksite employees would not be permitted to make tax
deferred salary contributions to the 401(k) plan. The Company believes that,
although unfavorable to the Company, the prospective application of an
unfavorable conclusion would not have a material adverse effect on its financial
position or the results of its operations. A retroactive application of such a
decision would have an adverse financial effect on the Company. However, the
Company is unable to determine the ultimate
F-96
<PAGE>
TECHNOLOGY PLUS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
resolution of this matter by the IRS, and therefore, cannot assess or reasonably
estimate the effect on the Company's financial position or results of operations
if an unfavorable decision is reached by the IRS.
9. STOCK OPTIONS:
On March 4, 1993, TPI granted an employee an option to buy up to 2,500
shares of common stock at a price of $110. Currently, this employee owns 328
shares totaling 3.28% of the 10,000 shares issued and outstanding. The option is
fully vested and extends for a period of ten years. The option is not
transferable or assignable by this minority shareholder.
The Company has elected to account for these plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost has been recognized. Had compensation cost for
these plans been determined consistent with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," the Company's
reported net income and earnings per share would have been adjusted to the
following pro forma amounts:
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1996 1995
---------- ----------
Net Income:
As Reported..................... $ 269,215 $ 203,219
Pro Forma....................... 176,908 110,312
The valuation of the option is based on the consideration offered in the
proposed transaction by Nationwide amortized over the four years since the
option was granted. The option will be terminated if not exercised prior to the
proposed transaction.
10. EVENT SUBSEQUENT TO DATE OF AUDITORS' REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS (UNAUDITED):
In September 1997, the Company and its shareholders entered into a
definitive agreement with Nationwide, providing for the merger of the Company
with Nationwide.
F-97
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE COMMON STOCK IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE HAS BEEN ANY CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................
Risk Factors.........................
Disclosure Regarding Forward-Looking
Statements.........................
The Company..........................
Use of Proceeds......................
Dividend Policy......................
Capitalization.......................
Dilution.............................
Selected Financial Data..............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations......................
Business.............................
Regulation...........................
Management...........................
Certain Transactions.................
Principal Stockholders...............
Description of Capital Stock.........
Shares Eligible for Future Sale......
Underwriting.........................
Legal Matters........................
Experts..............................
Additional Information...............
Index to Financial Statements........ F-1
------------------------
UNTIL [ ] [ ], 1997 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3,800,000 SHARES
[LOGO -- NATIONWIDE STAFFING, INC.]
NATIONWIDE
STAFFING, INC.
COMMON STOCK
_____________________
PROSPECTUS
_____________________
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEGG MASON WOOD WALKER
INCORPORATED
LADENBURG THALMANN & CO. INC.
[ ], 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
SEC registration fee................. $18,208.34
Printing expenses.................... *
Legal fees and expenses.............. *
Accounting fees and expenses......... *
NASD fees............................ $ 6,509.00
NYSE listing fee..................... *
Blue sky fees and expenses........... *
Transfer Agent's and Registrar's
fees................................. *
Miscellaneous........................ *
----------
TOTAL...................... $4,000,000
==========
- ------------
* To be filed by Amendment
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Restated Certificate of Incorporation and Bylaws incorporate
substantially the provisions of the Delaware General Corporation Law ("DGCL")
providing for indemnification of directors and officers of the Company against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact that such person is or was an officer or director of the Company or is or
was serving at the request of the Company as a director, officer or employee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
As permitted by Section 102 of the DGCL, the Company's Restated Certificate
of Incorporation contains provisions eliminating a director's personal liability
for monetary damages to the Company and its stockholders arising from a breach
of a director's fiduciary duty except for liability (a) for any breach of the
director's duty of loyalty to the Company or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL, or (d) for any transaction
from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if, in the case
of other than derivative suits, such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Restated Certificate of Incorporation may be
indemnified by the corporation for reasonable expenses, including attorneys'
fees, if such person has acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in the case of a
derivative suit in respect of any claim as to which an officer, employee or
agent has been adjudged to be liable to the corporation unless that person is
fairly and reasonably entitled to indemnity for proper expenses. Indemnification
is mandatory in the case of a director or officer who is successful on the
merits in defense of a suit against such person and is permissible at the
discretion of the Board of Directors in the case of an employee or agent who is
successful on the merits in defense of a suit against such person.
II-1
<PAGE>
The Company has entered into Indemnity Agreements with its directors and
certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company intends to purchase liability insurance policies covering
directors and officers in certain circumstances.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company, its officers and directors and persons who control the
Company within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNRESTRICTED SECURITIES.
On February 12, 1996, the Company issued and sold 1,083,929 shares of
Common Stock to WJG Capital, L.L.C. for a consideration of $1,000. This sale was
exempt from registration under Section 4(2) of the Securities Act, no public
offering being involved.
Effective as of February 12, 1997, the Company issued to the Norton Family
Trust and Sabrina A. McTopy warrants to purchase 45,000 shares and 5,000 shares,
respectively, of Common Stock. The issuance of the warrants and the sales of
Common Stock upon exercise of the warrants were and will be exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On April 1, 1997, the Company issued and sold 171,409 shares of Common
Stock to Larry E. Darst. This sale was exempt from registration under Section
4(2) of the Securities Act, no public offering being involved.
On September 5th and 8th, 1997, the Company issued and sold an aggregate of
42,852 shares of Common Stock to Gary J. Petry. This sale was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On September 11, 1997, the Company issued and sold shares of Common Stock
to the stockholders of the Founding Companies as set forth below. These sales
were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved.
SHARES OF
FOUNDING COMPANY COMMON STOCK
Alternative Solutions:
John Cogliano, Jr............... 282,544
John M. Cogliano................ 33,240
Herbert Cogliano................ 33,240
James J. Cogliano............... 33,240
John Cogliano, Jr. (Family
Trust).......................... 33,240
Newbury Personnel, Inc.......... 316,165
ASAP:
Brenda S. Dougan................ 205,681
L. Paul Dobbs................... 88,149
Cardinal:
Quincy Tarver Freeman and Diane
Gail
Freeman as JTWROS............... 447,856
Employment Enterprises:
Jana W. Yeates.................. 445,314
Lovey L. Hammel................. 222,657
Evins Group:
Mary E. Evins................... 200,550
II-2
<PAGE>
SHARES OF
FOUNDING COMPANY COMMON STOCK
GTS:
The Global Group, Inc........... 186,661
Paul L. Milligan................ 167,628
Sherry A. Wood.................. 1,272
Glenn W. Wood................... 20,321
M. Nell Dahl.................... 1,272
Kirk M. Humphries............... 1,272
William J. White................ 1,272
Dorris A. Bright................ 1,272
HP Services:
W.M. Hartman.................... 299,615
Gary D. Pitts................... 128,407
Technology Plus:
Richard L. Bronson.............. 314,888
Bobby Wayne Watson.............. 104,963
Effective September 11, 1997, the Company effected a 1,084-to-1 stock split
in the form of a dividend of the shares of Common Stock outstanding as of
September 10, 1997.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., Alternative Solutions, Inc., Newbury Employment, Inc. and the Stockholders and
Newbury Stockholders named therein.
2.2 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., A.S.A.P Acquisition Corp., A.S.A.P. Services, Inc. and the Stockholders named
therein.
2.3 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., Cardinal Acquisition Corp., Cardinal Services, Inc. and the Stockholders named
therein.
2.4 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., EEI Acquisition Corp., Employment Enterprises, Inc. and the Stockholders named
therein.
<C> <S>
2.5 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., EPG Sub 1 Acquisition Corp., EPG Sub 2 Acquisition Corp., EPG Sub 3 Acquisition
Corp., EPG Sub 4 Acquisition Corp., EPG Sub 5 Acquisition Corp., EPG Sub 6 Acquisition
Corp., EPG Sub 7 Acquisition Corp., EPG Sub 8 Acquisition Corp., Evins Personnel
Consultants, Inc., Evins Personnel Consultants, Inc., No. One, Evins Personnel
Consultants, Inc., No. Two, Exceptional Resource Services Inc., Excelsior Personnel
Consultants, Inc., Excellent Personnel Consultants, Inc., Evins Personnel Consultants of
Abilene, Inc., Elite Personnel Consultants, Inc. and the Stockholder named therein.
2.6 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., GTS Acquisition Corp., Global Technical Services, Inc. and the Stockholders named
therein.
2.7 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., HPSI Acquisition Corp., HP Services, Inc. and the Stockholders named therein.
2.8 -- Agreement and Plan, dated as of September 11, 1997, by and among Nationwide Staffing,
Inc., TPLUS Acquisition Corp., Technology Plus, Inc. and the Stockholders named therein.
2.9* -- Services Marketing Agreement between Nationwide Staffing, Inc. and HR Source.
II-3
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------------------------ ------------------------------------------------------------------------------------------
3.1 -- Amended and Restated Certificate of Incorporation of Nationwide Staffing, Inc.
3.2 -- Bylaws of Nationwide Staffing, Inc., as amended.
4.1 -- Stock Restriction and Registration Rights Agreement dated as of September 11, 1997 between
WJG Capital, L.L.C. and Nationwide Staffing, Inc.
4.2* -- Form of certificate evidencing ownership of Common Stock of Nationwide Staffing, Inc.
4.3 -- Warrant to Purchase Shares of Common Stock of Nationwide Staffing, Inc., Warrant No. N-1.
4.4 -- Warrant to Purchase Shares of Common Stock of Nationwide Staffing, Inc., Warrant No. N-2.
5.1* -- Opinion of Bracewell & Patterson, L.L.P.
10.1 -- 1997 Stock Awards Plan of Nationwide Staffing, Inc.
10.2 -- 1997 Nonqualified Stock Option Plan for Non-Employee Directors.
10.3 -- Employment Agreement dated April 1, 1997, between Nationwide Staffing, Inc. and Larry E.
Darst, as amended by that certain Amendment to Employment Agreement dated August 8, 1997,
between Nationwide Staffing, Inc. and Larry E. Darst.
10.4 -- Employment Agreement dated August 8, 1997, between Nationwide Staffing Inc. and Dean G.
Walberg.
10.5 -- Employment Agreement dated September 5, 1997, between Nationwide Staffing Inc. and Gary J.
Petry.
10.6 -- Employment Agreement between Brenda Dougan and A.S.A.P. Services, Inc.
10.7 -- Employment Agreement between Steve Alter and Alternative Solutions, Inc.
10.8 -- Employment Agreement between Quincy Tarver Freemen and Cardinal Services, Inc.
10.9 -- Employment Agreement between Lovey Hammel and Employment Enterprises, Inc.
10.10 -- Employment Agreement between Mary Evins and Evins Personnel Consultants, Inc.
10.11 -- Employment Agreement between Paul Milligan and Global Technical Services, Inc.
10.12 -- Employment Agreement between Gary Pitts and HP Services, Inc.
10.13 -- Employment Agreement between Richard Bronson and Technology Plus, Inc.
10.14 -- Nationwide Staffing, Inc. Introduction Agreement, by and among Nationwide Staffing, Inc.,
Woods and Williams collectively, W. Sherman Adcock, and Jerry L. Hyde.
21.1 -- List of subsidiaries of Nationwide Staffing, Inc.
23.1 -- Consent of Arthur Andersen LLP.
23.2* -- Consent of Bracewell & Patterson, L.L.P. (included in Exhibit 5.1).
23.3 -- Consent of Stephen M. Alter.
23.4 -- Consent of Brenda S. Dougan.
23.5 -- Consent of Mary E. Evins.
23.6 -- Consent of Lovey L. Hammel.
23.7 -- Consent of Paul L. Milligan.
23.8 -- Consent of Gary D. Pitts.
23.9 -- Consent of Richard L. Bronson.
23.10 -- Consent of Quincy T. Freeman.
23.11 -- Consent of Thomas N. Amonett.
24.1 -- Power of Attorney (contained on Page II-6).
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
II-4
<PAGE>
(b) Financial Statement Schedules
The following financial statement schedules are included herein.
None.
All other schedules for which provision is made in the applicable
accounting regulation of the SEC are not required under the related
instructions, are inapplicable, or the information is included in the
consolidated financial statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; (ii) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, NATIONWIDE
STAFFING, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF HOUSTON, STATE OF TEXAS, ON SEPTEMBER 12, 1997.
NATIONWIDE STAFFING, INC.
By: LARRY E. DARST
LARRY E. DARST
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of Larry E. Darst and Gary J. Petry with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the SEC, to sign any and all applications, registration
statements, notices and other documents necessary or advisable to comply with
the applicable state securities laws and to file the same, together with all
other documents in connection therewith, with the appropriate state securities
authorities, granting unto said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, full power and authority to perform and
do each and every act and thing necessary and advisable as fully to all intents
and purposes as he might or could perform and do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON SEPTEMBER 12, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------------------------------------------
<C> <S>
LARRY E. DARST Chief Executive Officer; President;
LARRY E. DARST and Director
GARY J. PETRY Senior Vice President and Chief
GARY J. PETRY Financial Officer
CARL L. NORTON Director
CARL L. NORTON
GEORGE C. WOODS Director
GEORGE C. WOODS
</TABLE>
II-6
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
ALTERNATIVE SOLUTIONS, INC.
the STOCKHOLDERS
NEWBURY EMPLOYMENT, INC.
and
the NEWBURY STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE EXCHANGE..............................................................4
1.1 The Exchange.....................................................4
1.2 Board of Directors and Officers of the COMPANY and NEWBURY.......5
1.3 Certain Information With Respect to the Capital Stock of the
COMPANY, PARENT and NEWBURY......................................5
2. REGARDING THE PARENT STOCK................................................6
3. DELIVERY OF EXCHANGE CONSIDERATION........................................6
4. CLOSING...................................................................7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
STOCKHOLDERS, NEWBURY AND NEWBURY STOCKHOLDERS............................7
5.1 Due Organization.................................................8
5.2 Authorization....................................................8
5.3 Capital Stock of the COMPANY.....................................8
5.4 Transactions in Capital Stock; Organization Accounting...........9
5.5 No Bonus Shares..................................................9
5.6 Subsidiaries.....................................................9
5.7 Predecessor Status; Etc..........................................9
5.8 Spin-off by the COMPANY..........................................9
5.9 Financial Statements, Etc.......................................10
5.10 Liabilities and Obligations.....................................10
5.11 Accounts and Notes Receivable...................................11
5.12 Permits and Intangibles.........................................11
5.13 Environmental Matters...........................................12
5.14 Personal Property...............................................13
5.15 Significant Customers; Material Contracts and Commitments.......13
5.16 Real Property...................................................14
5.17 Insurance.......................................................15
5.18 Compensation; Employment Agreements; Organized Labor Matters....15
5.19 Employee Plans..................................................16
-i-
<PAGE>
5.20 Compliance with ERISA...........................................17
5.21 Conformity with Law; Litigation.................................18
5.22 Taxes...........................................................18
5.23 No Violations...................................................19
5.24 Government Contracts............................................19
5.25 Absence of Changes..............................................19
5.26 Deposit Accounts; Powers of Attorney............................21
5.27 Validity of Obligations.........................................21
5.28 Relations with Governments......................................21
5.29 Disclosure......................................................21
5.30 Prohibited Activities...........................................22
5.31 Authority; Ownership............................................23
5.32 Preemptive Rights...............................................23
5.33 No Intention to Dispose of Parent Stock.........................23
5.34 Organization....................................................23
5.35 No Foreign Qualification........................................23
5.36 Taxes...........................................................23
5.37 Company Stock...................................................24
5.38 No Business.....................................................24
5.39 No Claims.......................................................24
5.40 Indemnity.......................................................24
5.41 Authority; Ownership............................................24
5.42 Preemptive Rights...............................................24
5.43 No Intention to Dispose of Parent Stock.........................25
6. REPRESENTATIONS OF PARENT................................................25
6.1 Due Organization................................................25
6.2 Authorization...................................................25
6.3 Capital Stock of PARENT.........................................25
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................26
6.8 Conformity with Law; Litigation.................................26
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................27
6.11 Parent Stock....................................................27
6.12 No Side Agreements..............................................27
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
-ii-
<PAGE>
6.15 Absence of Changes. ...........................................28
6.16 Disclosure. ...................................................29
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................30
7.3 Prohibited Activities...........................................31
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................33
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................36
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with Hart-Scott......................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS,
COMPANY, NEWBURY AND NEWBURY STOCKHOLDERS................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................38
8.6 Consents and Approvals..........................................38
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Effect......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters. ..................................................38
8.13 Parallel Transfer Restrictions..................................39
8.14 Mergers.........................................................39
8.15 Listing.........................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................40
9.3 Secretary's Certificate.........................................40
-iii-
<PAGE>
9.4 No Material Adverse Effect......................................40
9.5 STOCKHOLDERS' and NEWBURY STOCKHOLDERS' Release.................40
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................41
9.9 Consents and Approvals..........................................41
9.10 Good Standing Certificates......................................41
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10. COVENANTS OF PARENT, STOCKHOLDERS AND NEWBURY STOCKHOLDERS
AFTER CLOSING.........................................................42
10.1 Repayment of Certain Obligations................................42
10.2 Preservation of Tax Treatment...................................42
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................43
10.5 Preservation of Employee Benefit Plans..........................43
10.6 Dividends.......................................................43
11. INDEMNIFICATION.......................................................43
11.1 Indemnification by the STOCKHOLDERS and NEWBURY
STOCKHOLDERS....................................................43
11.2 Indemnification by PARENT.......................................44
11.3 Third Person Claims.............................................45
11.4 Exclusive Remedy................................................46
11.5 Limitations on Indemnification..................................46
12. TERMINATION OF AGREEMENT..............................................47
12.1 Termination.....................................................47
12.2 Liabilities in Event of Termination.............................48
13. NONCOMPETITION........................................................48
13.1 Prohibited Activities...........................................48
13.2 Damages.........................................................49
13.3 Reasonable Restraint............................................49
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................50
-iv-
<PAGE>
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................50
14.1 STOCKHOLDERS and NEWBURY STOCKHOLDERS...........................50
14.2 PARENT..........................................................51
14.3 Damages.........................................................51
14.4 Survival........................................................51
15. TRANSFER RESTRICTIONS.................................................51
15.1 Transfer Restrictions...........................................52
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................52
16.1 Compliance with Law.............................................52
16.2 Economic Risk; Sophistication...................................53
17. REGISTRATION RIGHTS...................................................53
17.1 Piggyback Registration Rights...................................53
17.2 Registration Procedures.........................................54
17.3 Underwriting Agreement..........................................54
17.4 Availability of Rule 144........................................54
18. GENERAL...............................................................54
18.1 Cooperation.....................................................54
18.2 Successors and Assigns..........................................55
18.3 Entire Agreement................................................55
18.4 Counterparts....................................................55
18.5 Brokers and Agents..............................................55
18.6 Expenses........................................................55
18.7 Notices.........................................................56
18.8 Governing Law...................................................57
18.9 Survival of Representations and Warranties......................58
18.10 Exercise of Rights and Remedies.................................58
18.11 Time............................................................58
18.12 Reformation and Severability....................................58
18.13 Remedies Cumulative.............................................58
18.14 Captions........................................................58
18.15 Amendments and Waivers..........................................58
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
CONSIDERATION TO BE PAID TO NEWBURY STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
STOCKHOLDERS AND STOCK OWNERSHIP OF NEWBURY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY, NEWBURY,
STOCKHOLDERS, AND NEWBURY STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY AND NEWBURY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9 JOINT SCHEDULES:
SCHEDULE 5.10
SCHEDULE 5.11 SCHEDULE 9.12
SCHEDULE 5.12 SCHEDULE 18.5
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), ALTERNATIVE SOLUTIONS, INC., a Massachusetts corporation (the
"COMPANY"), all of the COMPANY's stockholders specified on the attached Company
Stockholder Signature Page (the "STOCKHOLDERS"), NEWBURY EMPLOYMENT, INC., a
Massachusetts corporation ("NEWBURY"), and all of NEWBURY's stockholders
specified on the attached Newbury Stockholder Signature Page ("NEWBURY
STOCKHOLDERS"), who agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, the NEWBURY STOCKHOLDERS are all of the stockholders of
NEWBURY; and
WHEREAS, the respective Boards of Directors of the COMPANY and
NEWBURY deem it advisable and in the best interests of the COMPANY and
NEWBURY and their respective stockholders that such STOCKHOLDERS exchange
their shares of capital stock in the COMPANY and NEWBURY for cash and
capital stock of PARENT pursuant to this Agreement; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective STOCKHOLDERS in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the Consolidation Plan is an integrated plan pursuant to
which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share exchanges that are
intended to qualify as tax-free transfers of property under Section 351 of
the Internal Revenue Code of 1986, as amended ("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY, the Board of Directors of NEWBURY, the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS have approved this Agreement as part of the
Consolidation Plan in order for the PARENT to acquire the COMPANY and
NEWBURY; and
-1-
<PAGE>
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY and NEWBURY, any subsidiary of the
COMPANY or NEWBURY and any member of a Relevant Group.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Exchange" shall mean the time as of which the
Exchange becomes effective, which shall occur on the Funding and Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Exchange" has the meaning set forth in Section 1.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation, and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
-2-
<PAGE>
Evins Personnel Group which consists of the following Texas
corporations: Evins Personnel Consultants, Inc., Evins
Personnel Consultants, Inc. # One, Evins Personnel
Consultants, Inc. # Two, Exceptional Resource Services, Inc.,
Excelsior Personnel Consultants, Inc., Excellent Personnel
Consultants, Inc., Evins Personnel Consultants of Abilene,
Inc. and Elite Personnel Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"NEWBURY" has the meaning set forth in the first paragraph of the
Agreement.
"NEWBURY Agreements" has the meaning set forth in Section 5(C).
"NEWBURY Stock" means the common capital stock of NEWBURY.
"NEWBURY STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
-3-
<PAGE>
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY or NEWBURY, as the case may be, and any
affiliated, combined, consolidated, unitary or similar group of which the
COMPANY or NEWBURY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE EXCHANGE
1.1 THE EXCHANGE. On the Closing Date, but effective as of the Effective
Date of the Exchange, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS will deliver
all Company Stock and Newbury Stock to PARENT for exchange pursuant to this
Agreement.
-4-
<PAGE>
On the Effective Date of the Exchange, PARENT shall deliver to the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS the number of shares of Parent Stock
and the amount of cash set forth in Annex II.
The exchange of Company Stock and Newbury Stock for Parent Stock and cash,
in accordance with this Agreement, is referred to as the "Exchange."
1.2 BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY AND NEWBURY. At the
Effective Time of the Exchange:
(i) the Boards of Directors of the COMPANY and NEWBURY shall consist
of the persons who are on the Boards of Directors of the COMPANY and
NEWBURY immediately prior to the Effective Time of the Exchange, provided
that (x) Larry E. Darst shall be elected as an additional director of the
COMPANY and NEWBURY as of the Effective Time of the Exchange and (y) the
number of directors shall be reduced to take into account any directors
who choose to resign as of the Effective Time of the Exchange; the members
of the Boards of Directors of the COMPANY and NEWBURY shall be entitled to
hold office until the next annual meeting of STOCKHOLDERS, subject to the
provisions of the Corporation Statute and of the Articles or Certificate
of Incorporation and By-laws of the COMPANY and NEWBURY, as the case may
be; and
(ii) the officers of the COMPANY and NEWBURY immediately prior to
the Effective Time of the Exchange shall continue as the officers of the
COMPANY and NEWBURY in the same capacity or capacities, and effective upon
the Effective Time of the Exchange, Larry E. Darst shall be appointed as a
Vice President of both the COMPANY and NEWBURY and Gary J. Petry shall be
appointed as an Assistant Secretary of both the COMPANY and NEWBURY, each
of such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the COMPANY and NEWBURY, until
their respective successors are duly elected and qualified.
1.3 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND NEWBURY. The respective designations and numbers of outstanding
shares of each class of outstanding capital stock of the COMPANY, PARENT and
NEWBURY as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which
-5-
<PAGE>
55,000,00 shares are common stock, the number of issued and outstanding
shares of which will be set forth in the Registration Statement, and
5,000,000 shares of preferred stock, $.01 par value, of which no shares
will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWBURY consists of 1,000 shares of common stock no par value per
share, of which 1,000 shares are issued and outstanding and owned as set
forth in Annex III.
2. REGARDING THE PARENT STOCK
All Parent Stock received by the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS pursuant to this Agreement shall, except for restrictions on resale
or transfer described in Sections 15 and 16 hereof, have the same rights as all
the other shares of outstanding Parent Stock by reason of the provisions of the
Certificate of Incorporation of PARENT or as otherwise provided by the Delaware
General Corporation Law. All voting rights of such Parent Stock received by the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS and the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS shall not be deprived nor restricted in exercising those rights. At
the Effective Time of the Exchange, PARENT shall have no class of capital stock
issued and outstanding other than Parent Stock.
3. DELIVERY OF EXCHANGE CONSIDERATION
3.1 On the Closing Date, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS
shall deliver to PARENT the certificates representing Company Stock and Newbury
Stock, duly endorsed in blank by the STOCKHOLDERS and the NEWBURY STOCKHOLDERS,
or accompanied by blank stock powers, with signatures guaranteed by a national
or state chartered bank or other financial institution, and with all necessary
transfer tax and other revenue stamps, acquired at the STOCKHOLDERS' and NEWBURY
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS and the NEWBURY
STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock and Newbury Stock or with respect to the stock
powers accompanying any Company Stock or Newbury Stock.
3.2 At the Effective Time of the Exchange and on the Funding and
Consummation Date, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS, who are all
the holders of all outstanding certificates representing shares of Company Stock
and Newbury Stock, shall, upon surrender of such certificates, receive the
number of shares of Parent Stock and the amount of cash determined in accordance
with Annex II, said cash to be payable by certified check or wire transfer, at
the option of the respective STOCKHOLDERS and NEWBURY STOCKHOLDERS.
-6-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Sections 2 and 3 hereof; provided, that such actions shall not
include the actual completion of the Exchange or the exchange and delivery of
the shares and certified check(s) or the initiation of wire transfer(s) referred
to in Section 3 hereof, each of which actions shall only be taken upon the
Funding and Consummation Date. The taking of the actions described in clauses
(i) and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell & Patterson, L.L.P., South Tower
Pennzoil Place, 711 Louisiana, Suite 2900, Houston, Texas 77002. On the Funding
and Consummation Date, (y) all transactions contemplated by this Agreement,
including the exchange and delivery of shares, the delivery of a certified check
or checks or the initiation of a wire transfer or transfers in an amount equal
to the cash portion of the consideration which the STOCKHOLDERS and NEWBURY
STOCKHOLDERS shall be entitled to receive pursuant to the Exchange and (z) the
closing with respect to the IPO shall occur and be deemed to be completed. The
date on which the actions described in the preceding clauses (y) and (z) occurs
shall be referred to as the "Funding and Consummation Date." Except as otherwise
provided in Section 12, during the period from the Closing Date to the Funding
and Consummation Date, this Agreement may only be terminated by the parties if
the underwriting agreement in respect of the IPO is terminated pursuant to the
terms of such agreement. This Agreement shall in any event terminate if the
Funding and Consummation Date has not occurred within 15 business days of the
Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
STOCKHOLDERS, NEWBURY AND NEWBURY STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY, STOCKHOLDERS AND
NEWBURY STOCKHOLDERS.
The COMPANY, STOCKHOLDERS, NEWBURY and the NEWBURY STOCKHOLDERS
jointly and severally represent and warrant that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true on the Closing Date
and on the Funding and Consummation Date, and that such representations and
warranties shall survive the Funding and Consummation Date for a period of 12
months (the last day of such period being the "Expiration Date"), except that
(i) the warranties and representations set forth in Section 5.22 hereof shall
survive until such time as the limitations period has run for all Tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, (ii) solely for purposes of determining
whether a claim for indemnification under Section 11.1(iii) hereof has been made
on a timely basis, and solely to the extent that in connection with the IPO,
PARENT actually incurs liability under the 1933
-7-
<PAGE>
Act, the 1934 Act, or any other federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable limitations period, which shall be deemed to be the
Expiration Date for such purposes, and (iii) the Newbury Agreements shall never
expire. For purposes of this Section 5, the term COMPANY includes any and all of
its subsidiaries unless the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS or NEWBURY STOCKHOLDERS
which have not been made available to PARENT, and all of such minutes are
correct and complete in all respects. The most recent minutes of the COMPANY,
which are dated no earlier than ten business days prior to the date hereof,
affirm and ratify all prior acts of the COMPANY, and of its officers and
directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement. All requisite approval of the shareholders of the COMPANY has
been given and is confirmed by the signatures on the Stockholder Signature Page.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY and NEWBURY are owned by the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS, respectively, in the amounts set
forth in Annex III (or are owned by the Company in the case of any subsidiary)
and further, except as set forth on Schedule 5.3, are owned 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 the capital stock
-8-
<PAGE>
of the COMPANY have been duly authorized and validly issued, are fully paid and
nonassessable, are owned of record and beneficially by the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS, respectively, and such shares were offered, issued, sold
and delivered in compliance with all applicable state and Federal laws
concerning the issuance and distribution of securities. Further, none of such
shares were issued in violation of any preemptive rights of any past or present
stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY and NEWBURY have not acquired any Company
Stock or Newbury Stock. Except as set forth on Schedule 5.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
the COMPANY or NEWBURY to issue any of its capital stock, and (ii) the COMPANY
and NEWBURY have 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 5.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list of all outstanding options, warrants or other rights to
acquire shares of the COMPANY's or NEWBURY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY and NEWBURY,
including the names of any entities or businesses acquired by the COMPANY (by
stock purchase, asset purchase, merger or otherwise) or owned by the COMPANY or
from whom the COMPANY previously acquired material assets. Except as disclosed
on Schedule 5.7, the COMPANY has not been a subsidiary or division of another
corporation or a part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
-9-
<PAGE>
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of April 30,
1996 and 1997, December 31, 1996, and June 30, 1997, and Statements of Income,
Shareholders' Equity and Cash Flows for all periods therein stated. The date of
June 30, 1997 is hereinafter referred to as the "Balance Sheet Date." Such
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted therein or on Schedule 5.9). Except as set forth on
Schedule 5.9, such Balance Sheets as of April 30, 1996 and 1997, December 31,
1996, and June 30, 1997 present fairly the financial position of the COMPANY as
of the dates indicated thereon, and such Statements of Income, Shareholders'
Equity and Cash Flows present fairly the results of operations and cash flows
for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation, or other liabilities which are not fixed or otherwise accrued or
reserved, a good faith and reasonable estimate of the maximum amount which may
be payable. For any such contingent liability or liability for which the amount
is not fixed or is contested, the COMPANY has provided to PARENT the following
information:
(i) a summary description of the liability together with the
following:
-10-
<PAGE>
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of August 25, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 25, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
25, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANY. The COMPANY and its employees (for the
benefit of the COMPANY) are licensed or registered as professional employer
organizations and/or as control persons thereof, as appropriate, in each
jurisdiction in which their activities require such licensing or registration,
except where failure to be so licensed or registered could not have a Material
Adverse Effect on the COMPANY. The COMPANY has delivered to PARENT an accurate
list and summary description (which is set forth on Schedule 5.12) of all such
licenses, registrations, franchises, permits and other governmental
-11-
<PAGE>
authorizations, including permits, titles (including motor vehicle titles and
current registrations), fuel permits, licenses, registrations, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the COMPANY or any of its employees (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 5.13). To the
knowledge of the COMPANY, the licenses, registrations, franchises, permits and
other governmental authorizations listed on Schedules 5.12 and 5.13 are valid,
and the COMPANY 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. The COMPANY has conducted and is conducting
its business in compliance with the requirements, standards, criteria and
conditions set forth in the licenses, registrations, franchises, permits and
other governmental authorizations listed on Schedules 5.12 and 5.13 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 the COMPANY. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a material default under or a material breach or
violation of, or materially adversely affect the rights and benefits afforded to
the COMPANY by, any such licenses, registrations, franchises, permits or
government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY or PARENT for any clean-up cost, remedial work, damage to
natural resources, property damage or personal injury, including, but not
limited to, any claim under the
-12-
<PAGE>
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; and (v) the COMPANY has no contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in on the balance sheet of the COMPANY, (y) all other personal
property owned by the COMPANY with a value in excess of $10,000 (i) as of the
Balance Sheet Date or (ii) acquired since the Balance Sheet Date and (z) all
leases and agreements in respect of personal property, including, in the case of
the of (x), (y) and (z), (1) true, complete and correct copies of all such
leases and (2) an indication as to which assets are currently owned, or were
formerly owned, by STOCKHOLDERS or NEWBURY STOCKHOLDERS, relatives of
STOCKHOLDERS or NEWBURY STOCKHOLDERS, or affiliates of the COMPANY or NEWBURY.
Except as set forth on Schedule 5.14, (i) all personal property used by the
COMPANY in its business is either owned by the COMPANY or leased by the COMPANY
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted and (iii) all leases and agreements included on Schedule 5.14
are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being
-13-
<PAGE>
understood and agreed that a "significant customer," for purposes of this
Section 5.15, means a customer (or person or entity) representing 5% or more of
the COMPANY's annual revenues as of the Balance Sheet Date. Except to the extent
set forth on Schedule 5.15, none of the COMPANY's significant customers (or
persons or entities that are sources of a significant number of customers) have
canceled or substantially reduced or, to the knowledge of the COMPANY, are
currently attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
-14-
<PAGE>
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or NEWBURY STOCKHOLDERS
or business or personal affiliates of the COMPANY or NEWBURY. Except as set
forth on Schedule 5.16, all of such leases included on Schedule 5.16 are in full
force and effect and constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, NEWBURY, any STOCKHOLDER, any NEWBURY
STOCKHOLDER or any affiliate of the COMPANY, NEWBURY, any NEWBURY STOCKHOLDER or
any STOCKHOLDER has any financial or ownership interest.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
-15-
<PAGE>
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS and NEWBURY STOCKHOLDERS have
delivered to PARENT an accurate schedule (Schedule 5.19) showing all employee
benefit and employee welfare plans of the COMPANY (including COMPANY's
subsidiaries), including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19,
COMPANY (including a COMPANY subsidiary) does not sponsor, maintain or
contribute to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement plan pursuant
to the provisions of any collective bargaining agreement establishing the terms
and conditions or employment of any of COMPANY's or any subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
-16-
<PAGE>
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
any STOCKHOLDERS, any NEWBURY STOCKHOLDERS any such plan listed in Schedule
5.19, or COMPANY (including a COMPANY subsidiary) or NEWBURY has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such Plan listed in Schedule 5.19 has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and COMPANY (including a COMPANY subsidiary) has not
incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the PBGC. In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
-17-
<PAGE>
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
pro ceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, vari ances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes, whether pending or threatened, has been received.
Except as set forth on Schedule 5.22, all Taxes, including interest and
penalties (whether or not shown on any Tax return) owed by the COMPANY, any of
the COMPANY's subsidiaries, any member of an affiliated or consolidated group
which includes or included the COMPANY or any of the COMPANY's subsidiaries, or
with respect to any payment made or deemed made by the COMPANY or any of the
COMPANY's subsidiaries, have been paid. The amounts shown as accruals for Taxes
on the Company Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal
periods. Copies of (i) any Tax examinations, (ii) extensions of statutory
limitations and (iii) the federal and local income Tax returns and franchise Tax
returns of COMPANY (including the COMPANY subsidiaries) for their last three (3)
fiscal years, or such shorter period of time as any of them shall have existed,
are attached hereto as Schedule 5.22. The COMPANY has a taxable year ended April
30 and has not made an election to retain a fiscal year other than April 30
under Section 444 of the Code. The COMPANY's methods of accounting have not
changed in the past five years. The COMPANY is not an investment company as
defined in Section 351(e)(1) of the Code.
-18-
<PAGE>
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the COMPANY from freely providing
services to any other customer or potential customer of the COMPANY, the PARENT
or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
-19-
<PAGE>
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any
officers, directors, STOCKHOLDERS, NEWBURY STOCKHOLDERS, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS, NEWBURY STOCKHOLDERS, or
any affiliate thereof; or
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS, NEWBURY STOCKHOLDERS, or
any affiliate thereof; or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii)any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
-20-
<PAGE>
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY or
NEWBURY has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY or
NEWBURY and a description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and NEWBURY and the performance of the transactions contemplated
herein have been duly and validly authorized by (i) the Board of Directors and
the STOCKHOLDERS of the COMPANY, and (ii) the Board of Directors and the NEWBURY
STOCKHOLDERS of NEWBURY and this Agreement has been duly and validly authorized
by all necessary corporate action and is a legal, valid and binding obligation
of the COMPANY and the STOCKHOLDERS and of NEWBURY and the NEWBURY STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no
-21-
<PAGE>
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY (which fact
or circumstance was, or should reasonably, after due inquiry, have been known to
the COMPANY) that is not disclosed pursuant hereto or thereto. If, prior to the
25th day after the date of the final prospectus of PARENT utilized in connection
with the IPO, the COMPANY, the STOCKHOLDERS, NEWBURY or the NEWBURY STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY, STOCKHOLDERS, NEWBURY or the NEWBURY STOCKHOLDERS in this Agreement
or would affect any document delivered pursuant hereto in any material respect,
the COMPANY and the STOCKHOLDERS shall immediately give notice of such fact or
circumstance to PARENT. However, subject to the provisions of Section 7.8, such
notification shall not relieve either the COMPANY or the STOCKHOLDERS of their
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of PARENT, the truth and accuracy of any and all warranties
and representations of the COMPANY, or on behalf of the COMPANY and of
STOCKHOLDERS at the date of this Agreement and on the Closing Date and on the
Funding and Consummation Date, shall be a precondition to the consummation of
this transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY,
NEWBURY, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS acknowledge and agree (i)
that there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither PARENT or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY,
NEWBURY, the STOCKHOLDERS, the NEWBURY STOCKHOLDERS or any other person
affiliated or associated with the COMPANY or NEWBURY for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or within a particular range of prices or to occur at all; and (iii) that
the decision of STOCKHOLDERS and NEWBURY STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed Exchange, has been
or will be made independent of, and without reliance upon, any statements,
opinions or other communications, or due diligence investigations which have
been or will be made or performed by any prospective Underwriter, relative to
PARENT or the prospective IPO; provided, however, that the COMPANY, NEWBURY, the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS retain their right to insist that the
IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
-22-
<PAGE>
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. Such STOCKHOLDER is not
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of Parent Stock received as described in Section 3.1.
(C) NEWBURY AGREEMENTS.
The NEWBURY STOCKHOLDERS jointly and severally represent, warrant and
agree, without expiration, as follows (the "Newbury Agreements"):
5.34 ORGANIZATION. NEWBURY is a Massachusetts corporation which is duly
formed and organized and in good standing in Massachusetts.
5.35 NO FOREIGN QUALIFICATION. NEWBURY is not required to be qualified to
do business as a foreign corporation in any State.
5.36 TAXES. NEWBURY has paid all Taxes owed by it and has filed all Tax
returns. There are no claims, damages, actions, suits, proceedings, demands,
liabilities, debts, assessments, adjustments, costs or expenses owed or due by,
or pending or threatened against or relating to,
-23-
<PAGE>
NEWBURY (collectively "Newbury Claims") with respect to Taxes or any Tax matter,
nor is there any basis for any Newbury Claims with respect to Taxes or any Tax
matter.
5.37 COMPANY STOCK. NEWBURY owns 5,000 shares of outstanding Company
Common Stock, constituting 50% of all outstanding shares of Company Common
Stock.
5.38 NO BUSINESS. Except for owning 5,000 shares of Company Common Stock,
NEWBURY has never had any business, has never conducted any operations and has
never had any employees.
5.39 NO CLAIMS. There are no existing, pending or threatened Newbury
Claims with respect to any condition, occurrence, matter, event or circumstance
whatsoever; and there is no basis for any Newbury Claims with respect to any
condition, occurrence, matter, event or circumstance.
5.40 INDEMNITY. Jointly and severally the NEWBURY STOCKHOLDERS will
defend, indemnify and hold harmless NEWBURY, COMPANY and PARENT from and against
(i) any existing, pending or threatened Newbury Claims of any nature and arising
out of any condition, occurrence, matter, event or circumstance whatsoever and
(ii) any breach, inaccuracy or noncompliance of or in any respect of any of the
Newbury Agreements.
(D) REPRESENTATIONS AND WARRANTIES OF NEWBURY STOCKHOLDERS
Each NEWBURY STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.41 and 5.42 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.41 and 5.42.
5.41 AUTHORITY; OWNERSHIP. Such NEWBURY STOCKHOLDER has the full legal
right, power and authority to enter into this Agreement. Such NEWBURY
STOCKHOLDER owns beneficially and of record all of the shares of the Newbury
Stock identified on Annex III as being owned by such STOCKHOLDER, and, except as
set forth on Schedule 5.41, such NEWBURY Stock is owned free and clear of all
liens, encumbrances and claims of every kind.
5.42 PREEMPTIVE RIGHTS. Such NEWBURY STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of Newbury Stock or
Parent Stock that such NEWBURY STOCKHOLDER has or may have had other than rights
of any NEWBURY STOCKHOLDER to acquire Parent Stock pursuant to (i) this
Agreement or (ii) any written option granted by PARENT.
-24-
<PAGE>
5.43 NO INTENTION TO DISPOSE OF PARENT STOCK. Such NEWBURY STOCKHOLDER is
not under any binding commitment or contract to sell, exchange or otherwise
dispose of shares of Parent Stock received as described in Section 3.1.
6. REPRESENTATIONS OF PARENT
PARENT represents and warrants that all of the following
representations and warranties in this Section 6 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true on the Closing Date
and the Funding and Consummation Date, and that such representations and
warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all Tax
periods ended on or prior to the Funding and Consummation Date, which shall be
deemed to be the Expiration Date for Section 6.14 and (ii) solely for purposes
of determining whether a claim for indemnification under Section 11.2(iv) hereof
has been made on a timely basis, and solely to the extent that, in connection
with the IPO, PARENT actually incurs liability under the 1933 Act, the 1934 Act,
or any other federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
6.1 DUE ORGANIZATION. PARENT is a corporation duly organized, 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 except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Certificate of Incorporation
and By-laws, as amended, of PARENT (the "Parent Charter Documents") are attached
hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT executing this Agreement
have the authority to enter into and bind PARENT to the terms of this Agreement.
PARENT has the corporate power and authority to enter into this Agreement and
the Exchange.
6.3 CAPITAL STOCK OF PARENT. The authorized capital stock of PARENT is as
set forth in Sections 1.3(ii) and (iii), respectively. All of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT have been duly authorized and validly issued, are fully paid and
nonassessable. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder of PARENT.
-25-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT to issue any of their authorized but unissued capital stock; and (ii)
PARENT 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 6.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list, accurate as of the date hereof, of all outstanding
options, warrants or other rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. PARENT has no subsidiaries except for the companies
identified as "ACQUISITION CORP." in the Other Agreements. PARENT 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, and PARENT,
directly or indirectly, is not a participant in any joint venture, partnership
or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT has no material liabilities, contingent or otherwise, except as set forth
in or contemplated by this Agreement and the Other Agreements and except for
fees incurred in connection with the transactions contemplated hereby and
thereby.
-26-
<PAGE>
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, PARENT is not in violation of any law or regulation or any order
of any court or Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them which would have a Material Adverse Effect; and except to the
extent set forth in Schedule 6.8, there are no material claims, actions, suits
or proceedings, pending or, to the knowledge of PARENT, threatened, against or
affecting PARENT, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT has conducted and is conducting its businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which might have a Material Adverse Effect.
6.9 NO VIOLATIONS. PARENT is not in violation of any Parent Charter
Document. None of PARENT, or, to the knowledge of PARENT, any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which PARENT is a party, or by which PARENT or any of its properties,
are bound (collectively, the "Parent Documents"); and (a) the rights and
benefits of PARENT under the Parent Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Parent Documents or the Parent Charter Documents. Except as set forth on
Schedule 6.9, none of the Parent Documents requires notice to, or the consent or
approval of, any governmental agency 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 right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of PARENT and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of PARENT.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS and the NEWBURY STOCKHOLDERS pursuant to this
Agreement will constitute valid and legally issued shares of PARENT, fully paid
and nonassessable, and with the exception of restrictions upon resale set forth
in Sections 15 and 16 hereof, will be identical in all substantive respects
(which do not include the form of certificate upon which it is printed or the
presence or absence of a CUSIP number on any such certificate) to the Parent
Stock issued and outstanding as of the date hereof. The shares of Parent Stock
to be issued to the STOCKHOLDERS
-27-
<PAGE>
and the NEWBURY STOCKHOLDERS pursuant to this Agreement will not be registered
under the 1933 Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. PARENT has not entered or will enter into any
agreement with any of the Founding Companies or any of the STOCKHOLDERS of the
Founding Companies other than the Other Agreements and the agreements
contemplated by the Other Agreements, including the employment agreements
referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. PARENT has
not conducted any material business since the date of its inception, except in
connection with this Agreement, the Other Agreements and the IPO. PARENT does
not own and has not at any time owned any real property or any material personal
property and is not a party to any other agreement, except as listed on Schedule
6.13 and except that PARENT is a party to the Other Agreements and the
agreements contemplated thereby and to such agreements as will be filed as
Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form and copies of the Other Agreements are
available for review by COMPANY, NEWBURY, the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS. In arriving at the consideration to be paid to STOCKHOLDERS and
the NEWBURY STOCKHOLDERS specified in Annex II, PARENT utilized with the COMPANY
and NEWBURY substantially the same methodologies as PARENT utilized with each of
the Other Founding Companies.
6.14 TAXES. PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on any tax return) owed by PARENT, any member of
an affiliated or consolidated group which includes or included PARENT, or with
respect to any payment made or deemed made by PARENT herein has been paid. The
amounts shown as accruals for taxes on Parent Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
PARENT is not an investment company as defined in Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
-28-
<PAGE>
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS, and except as contemplated by this Agreement and the Other
Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
-29-
<PAGE>
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY, NEWBURY, the STOCKHOLDERS, and the NEWBURY
STOCKHOLDERS, together with this Agreement and the information furnished to the
COMPANY, NEWBURY, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY, NEWBURY, the STOCKHOLDERS or the NEWBURY STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY and NEWBURY will
afford to the officers and authorized representatives of PARENT access to all of
the COMPANY's and NEWBURY's sites, properties, books and records and will
furnish PARENT with such additional financial and operating data and other
information as to the business and properties of the COMPANY and NEWBURY as
PARENT may from time to time reasonably request. The COMPANY and NEWBURY will
cooperate with PARENT, its representatives, auditors and counsel in the
preparation of any documents or other material which may be reasonably required
in connection with any documents or materials required by this Agreement.
PARENT, NEWBURY, the STOCKHOLDERS, the NEWBURY STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its STOCKHOLDERS, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY and NEWBURY access to all of PARENT's sites, properties, books and
records and will furnish the COMPANY and NEWBURY with such additional financial
and operating data and other information as to the business and properties of
PARENT as the COMPANY and NEWBURY may from time to time reasonably request.
PARENT will cooperate with the COMPANY and NEWBURY, their representatives,
auditors and counsel in the preparation of any documents or other material which
may be required in connection with any documents or materials required by this
-30-
<PAGE>
Agreement. The COMPANY and NEWBURY will cause all information obtained in
connection with the negotiation and performance of this Agreement to be treated
as confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY and NEWBURY will,
except as set forth on Schedule 7.2:
(i) carry on their businesses in substantially the same manner as
they have heretofore and not introduce any material new method of
management, operation or accounting; and
(ii) maintain their properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted; and
(iii) perform in all material respects all of their obligations
under agreements relating to or affecting their assets, properties or
rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use their reasonable best efforts to maintain and preserve their
business organization intact, retain their present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY and NEWBURY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and maintain all debt and lease obligations at
levels no greater than the levels in effect on the Balance Sheet Date; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
-31-
<PAGE>
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY and NEWBURY will not, without prior written
consent of PARENT:
(i) make any change in their Certificates or Articles of
Incorporation or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to their securities of any kind other than
in connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) declare or pay any dividend, or make any distribution in
respect of their stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of their stock;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
-32-
<PAGE>
(ix) waive any material rights or claims of the COMPANY or NEWBURY,
provided that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY or NEWBURY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the NEWBURY STOCKHOLDERS, the
COMPANY, NEWBURY, or any agent, officer, director, trustee or any representative
of any of the foregoing will, during the period commencing on the date of this
Agreement and ending with the earlier to occur of the Funding and Consummation
Date or the termination of this Agreement in accordance with its terms, directly
or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or NEWBURY or a merger, acquisition,
consolidation, share exchange or business combination of or with the COMPANY or
NEWBURY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide PARENT on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS, the NEWBURY
STOCKHOLDERS, the COMPANY and NEWBURY shall terminate (i) any stockholders
agreements, voting agreements, voting trusts, options, warrants, (ii) any
employment agreements between the COMPANY or NEWBURY and any employee listed on
Schedule 9.12 hereto, and (iii) any existing agreement between the COMPANY or
NEWBURY, on the one hand, and any
-33-
<PAGE>
STOCKHOLDER or any NEWBURY STOCKHOLDER, on the other hand, other than those
expressly disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS, the NEWBURY
STOCKHOLDERS, NEWBURY and the COMPANY shall give prompt notice to PARENT of (i)
the occurrence or non-occurrence of any event the occurrence or non-occurrence
of which would be likely to cause any representation or warranty of the COMPANY,
the NEWBURY STOCKHOLDERS, NEWBURY or the STOCKHOLDERS contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing Date or
the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER, any NEWBURY STOCKHOLDER, NEWBURY or the COMPANY to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such person hereunder. PARENT shall give prompt notice to the COMPANY and
NEWBURY of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of PARENT contained herein to be untrue or inaccurate in any material respect at
or prior to the Closing Date or the Funding and Consummation Date and (ii) any
material failure of PARENT 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 7.7 shall not be deemed to (i) modify the
representations or warranties hereunder of any party, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY or NEWBURY that constitutes or reflects an
event or occurrence that would have a Material Adverse Effect may be made unless
PARENT and a majority of the Founding Companies other than the COMPANY and
NEWBURY consent to such amendment or supplement; and provided further, that no
amendment or supplement to a Schedule prepared by PARENT that constitutes or
reflects an event or occurrence that would have a Material Adverse Effect may be
made unless a majority of the Founding Companies consent to such amendment or
supplement. For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this
-34-
<PAGE>
Section 7.8. In the event that one of the Other Founding Companies seeks to
amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY and NEWBURY notice promptly after it has
knowledge thereof. If PARENT and a majority of the Founding Companies consent to
such amendment or supplement, which consent shall have been deemed given by
PARENT or any Founding Company if no response is received within 24 hours
following receipt of notice of such amendment or supplement (or sooner if
required by the circumstances under which such consent is requested), but the
COMPANY and NEWBURY do not give their consent, the COMPANY and NEWBURY may
terminate this Agreement pursuant to Section 12.1(iv). In the event that COMPANY
or NEWBURY seeks to amend or supplement a Schedule pursuant to this Section 7.8,
and PARENT and a majority of the Other Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i). In the event that PARENT seeks to amend
or supplement a Schedule pursuant to this Section 7.8 and a majority of the
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i). No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated pursuant to the provisions of this Section 7.8. No
amendment of or supplement to a Schedule shall be made later than 24 hours prior
to the anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY,
NEWBURY, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS shall furnish or cause to
be furnished to PARENT and the Underwriters all of the information concerning
the COMPANY, NEWBURY, the STOCKHOLDERS and the NEWBURY STOCKHOLDERS required for
inclusion in, and will cooperate with PARENT and the Underwriters in the
preparation of, the Registration Statement and the prospectus included therein
(including audited and unaudited financial statements, prepared in accordance
with generally accepted accounting principles, in form suitable for inclusion in
the Registration Statement). The COMPANY, NEWBURY, the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS agree promptly to advise PARENT if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the COMPANY, NEWBURY, the STOCKHOLDERS or the NEWBURY STOCKHOLDERS
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy. Insofar as the information
relates solely to the COMPANY, NEWBURY, the STOCKHOLDERS or the NEWBURY
STOCKHOLDERS, the COMPANY and NEWBURY, respectively, represent and warrant as to
such information with respect to themselves, and the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS represent and warrant, as to such information with respect
to the COMPANY and NEWBURY and himself or herself, that the Registration
Statement will not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
-35-
<PAGE>
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. PARENT will keep the COMPANY, NEWBURY and
the Other Founding Companies advised as to the status of the Registration
Statement, including receipt of SEC comments, PARENT'S response thereto, and the
anticipated date and time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS, the NEWBURY STOCKHOLDERS, the COMPANY and NEWBURY shall be deemed
a condition precedent in addition to the conditions precedent set forth in
Section 9 of this Agreement, and such compliance by PARENT shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement, and (iii) the parties agree to cooperate and use their best
efforts to cause all filings required under the Hart-Scott Act to be made.
-36-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS,
COMPANY, NEWBURY AND NEWBURY STOCKHOLDERS
The obligations of STOCKHOLDERS, NEWBURY STOCKHOLDERS, the COMPANY and
NEWBURY 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
following conditions. The obligations of the STOCKHOLDERS, NEWBURY STOCKHOLDERS,
COMPANY and NEWBURY with respect to the actions to be taken in the Funding and
Consummation Date are subject to the satisfaction or waiver on or prior to the
Funding and Consummation Date of the conditions set forth in Sections 8.1, 8.8,
8.9 and 8.12. As of the Closing Date or, with respect to the conditions set
forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and Consummation
Date, all conditions not satisfied or objected to shall be deemed to have been
waived, except that no such waiver shall be deemed to affect the survival of the
representations and warranties of PARENT contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT contained in Section 6 shall be true
and correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made on
and as of such dates; all of the terms, covenants and conditions of this
Agreement to be complied with and performed by PARENT on or before the Closing
Date and the Funding and Consummation Date shall have been duly complied with
and performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of PARENT shall have been
delivered to the COMPANY, NEWBURY, the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and NEWBURY and their
counsel. The STOCKHOLDERS, the NEWBURY STOCKHOLDERS, NEWBURY and the COMPANY
shall not have determined that the Registration Statement and the prospectus
forming a part thereof, including any amendments thereof or supplements thereto,
contain any untrue statement of a material fact, or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that the condition contained in this sentence
shall be deemed satisfied if the COMPANY, NEWBURY, STOCKHOLDERS or NEWBURY
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the
-37-
<PAGE>
IPO and no governmental agency or body shall have taken any other action or made
any request of the COMPANY and NEWBURY as a result of which the management of
the COMPANY and NEWBURY deems it inadvisable to proceed with the transactions
hereunder.
8.4 OPINION OF COUNSEL. The COMPANY and NEWBURY shall have received an
opinion from counsel for PARENT, dated the Funding and Consummation Date, in the
form annexed hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS is not less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Exchange and no governmental agency or body shall have taken any other action or
made any request of COMPANY or NEWBURY as a result of which COMPANY and NEWBURY
deems it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT shall have delivered to the COMPANY
and NEWBURY a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Secretary of State Delaware and Texas and
in each state in which PARENT is authorized to do business, showing that each of
PARENT is in good standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT which would constitute a Material Adverse
Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY and NEWBURY shall have received
a certificate or certificates, dated the Closing Date and signed by the
secretary of PARENT, certifying the truth and correctness of attached copies of
the PARENT's Certificate of Incorporation (including amendments thereto),
By-Laws (including amendments thereto), and resolutions of the Board of
Directors and, if required, the STOCKHOLDERS of PARENT approving PARENT's
entering into this Agreement and the consummation of the transactions
contemplated hereby.
-38-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS and NEWBURY STOCKHOLDERS shall have
been advised a tax advisor reasonably acceptable to the STOCKHOLDERS and NEWBURY
STOCKHOLDERS that the Exchange should qualify as a tax-free transfer of property
under Section 351 of the Code; provided that this shall not constitute a
condition precedent under this Section 8 or otherwise unless the STOCKHOLDERS
and NEWBURY STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Exchange to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 MERGERS. PARENT's acquisitions of the Other Founding Companies shall
occur on the Funding and Consummation Date pursuant to the Other Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligations of PARENT 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 following conditions. The obligations of PARENT with
respect to actions to be taken on the Funding and Consummation Date are subject
to the satisfaction or waiver on or prior to the Funding and Consummation Date
of the conditions set forth in Sections 9.1, 9.4 and 9.13. As of the Closing
Date or, with respect to the conditions set forth in Sections 9.1, 9.4 and 9.13,
as of the Funding and Consummation Date, all conditions not satisfied shall be
deemed to have been waived, except that no such waiver shall be deemed to affect
the survival of the representations and warranties of the COMPANY, NEWBURY,
STOCKHOLDERS and NEWBURY STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS, NEWBURY STOCKHOLDERS,
NEWBURY and the COMPANY contained in this Agreement shall be true and correct in
all material respects as of the Closing Date and the Funding and Consummation
Date with the same
-39-
<PAGE>
effect as though such representations and warranties had been made on and as of
such dates; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDERS, NEWBURY STOCKHOLDERS, NEWBURY
and the COMPANY on or before the Closing Date or the Funding and Consummation
Date, as the case may be, shall have been duly performed or complied with in all
material respects; and the STOCKHOLDERS and NEWBURY STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of PARENT as a result of which
the management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY and NEWBURY,
certifying the truth and correctness of attached copies of such COMPANY's and
NEWBURY's Certificates or Articles of Incorporation (including amendments
thereto), By-Laws (including amendments thereto), and resolutions of the Boards
of Directors and the STOCKHOLDERS and NEWBURY STOCKHOLDERS, respectively,
approving the COMPANY's and NEWBURY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY or NEWBURY which would constitute a
Material Adverse Effect, and neither the COMPANY nor NEWBURY shall 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 the COMPANY or NEWBURY to conduct its business.
9.5 STOCKHOLDERS' AND NEWBURY STOCKHOLDERS' RELEASE. The STOCKHOLDERS and
NEWBURY STOCKHOLDERS shall have delivered to PARENT, the COMPANY and NEWBURY an
instrument dated the Closing Date releasing the COMPANY and NEWBURY (including
all subsidiaries) from (i) any and all claims of the STOCKHOLDERS and NEWBURY
STOCKHOLDERS against the COMPANY, NEWBURY and PARENT and (ii) any and all
obligations of the COMPANY, NEWBURY and PARENT to the STOCKHOLDERS and the
NEWBURY STOCKHOLDERS, except for (x) items specifically identified on Schedules
5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the STOCKHOLDERS or
NEWBURY STOCKHOLDERS which are to survive after Closing, (y) any obligations
arising after the Funding and Consummation Date to a NEWBURY STOCKHOLDER
relating to his or her employment by the COMPANY and (z) obligations arising
under this Agreement or the transactions contemplated hereby.
-40-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY or NEWBURY (including all their subsidiaries) and the STOCKHOLDERS,
NEWBURY STOCKHOLDERS and their affiliates shall have been canceled effective
prior to or as of the Funding and Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from counsel
to the COMPANY, NEWBURY, the STOCKHOLDERS and NEWBURY STOCKHOLDERS, dated the
Closing Date, substantially in the form annexed as Annex VI, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Exchange and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY and NEWBURY shall have
delivered to PARENT a certificate, dated as of a date no earlier than ten days
prior to the Closing Date, duly issued by the appropriate governmental authority
in the COMPANY's and NEWBURY'S (and each subsidiary's) state of incorporation
and, unless waived by PARENT, in the state in which the COMPANY and NEWBURY (and
each subsidiary) is authorized to do business, showing the COMPANY and NEWBURY
are in good standing and authorized to do business and that all state franchise
and/or income Tax returns and Taxes for the COMPANY and NEWBURY (and each
subsidiary) for all periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-41-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS shall have delivered to PARENT a certificate to the effect that he
or she is not a foreign person pursuant to Section 1.1445-2(b) of the Treasury
regulations.
10. COVENANTS OF PARENT, STOCKHOLDERS AND NEWBURY
STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY and NEWBURY shall, if possible, file or cause to be
filed all separate Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. Notwithstanding
the foregoing, the STOCKHOLDERS and NEWBURY STOCKHOLDERS shall file or
cause to be filed all separate federal income Tax Returns of any Acquired
Party for all taxable periods that end on or before the Funding and
Consummation Date. The STOCKHOLDERS and NEWBURY STOCKHOLDERS shall pay or
cause to be paid all Tax liabilities (in excess of all amounts already
paid with respect thereto or properly accrued or reserved with respect
thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings
-42-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, NEWBURY, PARENT, NEWBURY STOCKHOLDERS and
the STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. Nothing herein shall in any way
limit the management rights of PARENT to assess the COMPANY'S workforce needs
and make appropriate adjustments as necessary or desirable within their
discretion subject to applicable laws and collective bargaining agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
amount of the COMPANY's net income after accruals for federal and state income
taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may borrow funds to the extent necessary to make
the payments contemplated by this Section 10.6 and to the extent necessary to
ensure that the COMPANY has cash on hand to adequately fund operations on the
Funding and Consummation Date. NEWBURY may pay to the NEWBURY STOCKHOLDERS as
dividends the amount of NEWBURY'S net income after accruals for federal and
state income taxes for the period after the Balance Sheet Date to the Funding
and Consummation Date. NEWBURY may not borrow to make such payments.
11. INDEMNIFICATION
The STOCKHOLDERS (other than NEWBURY), the NEWBURY STOCKHOLDERS and PARENT
each make the following covenants that are applicable to them, respectively:
-43-
<PAGE>
11.1 INDEMNIFICATION BY THE STOCKHOLDERS AND NEWBURY
STOCKHOLDERS. The STOCKHOLDERS (other than NEWBURY) and the NEWBURY
STOCKHOLDERS covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless PARENT, the COMPANY and NEWBURY at
all times, from and after the date of this Agreement until the applicable
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 PARENT, the COMPANY or NEWBURY as a result of or
arising from (i) any breach of the representations and warranties of the
STOCKHOLDERS, the NEWBURY STOCKHOLDERS, NEWBURY or the COMPANY set forth herein
or on the Schedules or certificates delivered in connection herewith, (ii) any
breach of any agreement on the part of the STOCKHOLDERS, the NEWBURY
STOCKHOLDERS, NEWBURY or the COMPANY under this Agreement, or (iii) any
liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to the
COMPANY, NEWBURY, the NEWBURY STOCKHOLDERS or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY, NEWBURY, the NEWBURY STOCKHOLDERS or the
STOCKHOLDERS (but in the case of the STOCKHOLDERS and the NEWBURY STOCKHOLDERS,
only if such statement was provided in writing) contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY, NEWBURY, the
NEWBURY STOCKHOLDERS or the STOCKHOLDERS required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
such indemnity shall not inure to the benefit of PARENT, NEWBURY, the COMPANY to
the extent that such untrue statement (or alleged untrue statement) was made in,
or omission (or alleged omission) occurred in, any preliminary prospectus and
the STOCKHOLDERS or NEWBURY STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDERS (other than
NEWBURY) and the NEWBURY 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 (other than
NEWBURY) or NEWBURY STOCKHOLDERS as a result of or arising from (i) any breach
by PARENT of its representations and warranties set forth herein or on the
Schedules or certificates attached hereto, (ii) any breach of any agreement on
the part of PARENT under this Agreement, or (iii) any liabilities which the
STOCKHOLDERS (other than NEWBURY) or the NEWBURY
-44-
<PAGE>
STOCKHOLDERS may incur due to PARENT's failure to be responsible for the
liabilities and obligations of the COMPANY (except to the extent that PARENT has
claims against the STOCKHOLDERS (other than NEWBURY) or the NEWBURY STOCKHOLDERS
by reason of such liabilities); (iv) any liability under the 1933 Act, the 1934
Act or other federal or state law or regulation, at common law or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to PARENT or any of the Other Founding Companies
contained in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PARENT or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-45-
<PAGE>
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 by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
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 insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, (i) nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement and (ii) the Newbury Agreements shall be
fully enforceable in all respects and all remedies at law or in equity shall be
available.
11.5 LIMITATIONS ON INDEMNIFICATION. PARENT and the other persons or
entities indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim
for indemnification hereunder against the STOCKHOLDERS (other than NEWBURY) or
the NEWBURY STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS (other than NEWBURY) and NEWBURY STOCKHOLDERS shall exceed 1.0% of
(i) the sum of the cash paid to STOCKHOLDERS (other than NEWBURY) and to the
NEWBURY STOCKHOLDERS plus (ii) the value of the Parent Stock delivered to
STOCKHOLDERS (other than NEWBURY) and to the NEWBURY STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS (other than
NEWBURY) and NEWBURY STOCKHOLDERS shall not assert
-46-
<PAGE>
any claim for indemnification hereunder against PARENT until such time as, and
solely to the extent that, the aggregate of all claims which all STOCKHOLDERS
and all NEWBURY STOCKHOLDERS may have against PARENT shall exceed the amount of
the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER or
NEWBURY STOCKHOLDER shall be liable under this Section 11 for an amount which
exceeds the amount of proceeds received by such STOCKHOLDER (other than NEWBURY)
or NEWBURY STOCKHOLDER in connection with the Exchange. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS (other than
NEWBURY) and NEWBURY STOCKHOLDERS, Parent Stock shall be valued at its initial
public offering price as set forth in the Registration Statement. It is hereby
understood and agreed that a STOCKHOLDER or NEWBURY STOCKHOLDER may satisfy an
indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
STOCKHOLDER or NEWBURY STOCKHOLDER in connection with the Exchange, valued as
described immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT, NEWBURY and
the COMPANY; or
(ii) by the COMPANY and NEWBURY (acting through their boards of directors)
if, by September 30, 1997, the PARENT shall not have filed the Registration
Statement with the SEC reflecting an estimated minimum price for Parent Stock of
at least $10.50 per share; or
(iii) by the COMPANY and NEWBURY (acting through their boards of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
-47-
<PAGE>
(iv) by the COMPANY and NEWBURY (acting through their boards of directors)
on the one hand, or by PARENT (acting through its board of directors), on the
other hand, if a material breach or default shall be made by any 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 Funding and Consummation Date; or
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The NEWBURY STOCKHOLDERS will not, for a
period of five (5) years following the Funding and Consummation Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Exchange (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof);
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
-48-
<PAGE>
(iv) call upon any prospective acquisition candidate, on any NEWBURY
STOCKHOLDER's behalf or on behalf of any competitor in the temporary staffing,
"PEO" or staff leasing, permanent placement or human resource consulting or
outsourcing business, which candidate, to the actual knowledge of such NEWBURY
STOCKHOLDER, was called upon by PARENT (including the subsidiaries thereof) or
for which, to the knowledge of such NEWBURY STOCKHOLDER, PARENT (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any NEWBURY STOCKHOLDER from acquiring as an investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each NEWBURY STOCKHOLDERS agree that the foregoing covenant may
be enforced by PARENT (including its subsidiaries) in the event of breach by any
such NEWBURY STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
NEWBURY STOCKHOLDERS in light of the activities and business of the COMPANY
(including the subsidiaries thereof) on the date of the execution of this
Agreement and the current plans of the COMPANY.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any NEWBURY
STOCKHOLDER against PARENT (including the
-49-
<PAGE>
subsidiaries thereof), whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by PARENT (or any subsidiary) of
such covenants. It is specifically agreed that the period of five (5) years
stated at the beginning of this Section 13, during which the agreements and
covenants of the NEWBURY STOCKHOLDERS made in this Section 13 shall be
effective, shall be computed by excluding from such computation any time during
which a NEWBURY STOCKHOLDER is in violation of any provision of this Section 13.
The covenants contained in Section 13 shall not be affected by any breach of any
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY, NEWBURY, the STOCKHOLDERS and the NEWBURY
STOCKHOLDERS hereby agree that this covenant is a material and substantial part
of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS AND NEWBURY STOCKHOLDERS. Each
STOCKHOLDER and NEWBURY STOCKHOLDER recognizes and acknowledges that he had in
the past, currently has, and in the future may possibly have, access to certain
confidential information of the COMPANY, NEWBURY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
NEWBURY's, the Other Founding Companies' and/or PARENT's businesses. Each
STOCKHOLDER and NEWBURY STOCKHOLDER agrees that he 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 PARENT, (b) following the Closing, such information may be
disclosed by a NEWBURY STOCKHOLDER as is required in the course of performing
his duties for PARENT (or any subsidiary) and (c) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.1, unless (i) such information becomes known to
the public generally through no fault of a STOCKHOLDER or NEWBURY STOCKHOLDER,
(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), a STOCKHOLDER or NEWBURY STOCKHOLDER shall give prior
written notice thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER or NEWBURY STOCKHOLDER of the provisions of this Section, PARENT
shall be entitled to an injunction restraining such STOCKHOLDER or NEWBURY
STOCKHOLDER from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting
-50-
<PAGE>
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT. PARENT recognizes and acknowledges that they had in the past
and currently have access to certain confidential information of the COMPANY,
such as operational policies, pricing and cost policies, and insurance costs
that are valuable, special and unique assets of the COMPANY's business. PARENT
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 authorized representatives of
the COMPANY, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of PARENT, (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), PARENT shall, if
possible, give prior written notice thereof to the COMPANY and the STOCKHOLDERS
and provide the COMPANY 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, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of PARENT as a publicly
held entity after the IPO. In the event of a breach or threatened breach by
PARENT of the provisions of this Section, the COMPANY and the STOCKHOLDERS shall
be entitled to an injunction restraining PARENT from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
-51-
<PAGE>
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or NEWBURY STOCKHOLDERS or
immediate family members, the trustees of which so agree), for a period of one
year from the Closing Date, except pursuant to Section 17 hereof, the
STOCKHOLDERS and NEWBURY STOCKHOLDERS shall not sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of Parent Stock received by the STOCKHOLDERS or NEWBURY STOCKHOLDERS in
the Exchange. The certificates evidencing the Parent Stock delivered to the
STOCKHOLDERS and NEWBURY STOCKHOLDERS pursuant to Section 3 of this Agreement
will bear a legend substantially in the form set forth below and containing such
other information as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS and NEWBURY STOCKHOLDERS
acknowledge that the shares of Parent Stock to be delivered to the STOCKHOLDERS
and NEWBURY STOCKHOLDERS pursuant to this Agreement have not been and will not
be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Parent Stock to be acquired by the
STOCKHOLDERS and NEWBURY STOCKHOLDERS pursuant to this Agreement is being
acquired solely for their own accounts, for investment purposes only, and with
no present intention of distributing, selling or otherwise disposing of it in
connection with a distribution. Each STOCKHOLDER and NEWBURY STOCKHOLDER
covenants, warrants and represents that none of the shares of Parent Stock
issued to such STOCKHOLDER or NEWBURY STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
-52-
<PAGE>
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER and NEWBURY
STOCKHOLDER is able to bear the economic risk of an investment in the Parent
Stock to be acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and risks of
the proposed investment in the Parent Stock. Each STOCKHOLDER and NEWBURY
STOCKHOLDER has had an adequate opportunity to ask questions and receive answers
from the officers of PARENT concerning any and all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PARENT, the
plans for the operations of the business of PARENT, the business, operations and
financial conditions of the Founding Companies other than the COMPANY, and any
plans for additional acquisitions and the like. Each STOCKHOLDER and NEWBURY
STOCKHOLDER has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS and NEWBURY STOCKHOLDERS
prompt written notice of its intent to do so. Upon the written request of any
STOCKHOLDER or NEWBURY STOCKHOLDER given within 30 days after receipt of such
notice, PARENT shall cause to be included in such registration all of the Parent
Stock issued to such STOCKHOLDER or NEWBURY STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER or
NEWBURY STOCKHOLDER requests, provided that PARENT shall have the right to
reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the opinion of tax counsel to PARENT or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as qualifying under Section 351 of the
Code. In addition, if PARENT is advised in writing in good faith by any managing
underwriter of an underwritten offering of the securities being offered pursuant
to any registration statement under this Section 17.1 that the number of shares
to be sold by persons other than PARENT is greater than the
-53-
<PAGE>
number of such shares which can be offered without adversely affecting the
offering, PARENT may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such person)
to a number deemed satisfactory by such managing underwriter, provided, that,
for the such offering made by PARENT after the IPO, such reduction shall be made
first by reducing the number of shares to be sold by persons other than PARENT,
the STOCKHOLDERS, the NEWBURY STOCKHOLDERS and the STOCKHOLDERS of the Other
Founding Companies (collectively, the STOCKHOLDERS, the NEWBURY STOCKHOLDERS and
the STOCKHOLDERS of the Other Founding Companies being referred to herein as the
"Founding STOCKHOLDERS"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding STOCKHOLDERS.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts which shall be payable by the respective selling
parties), shall be borne by PARENT. In connection with registrations under
Section 17.1, PARENT shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the Parent Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all Parent Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the Parent Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the Parent Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER or NEWBURY STOCKHOLDER at any
time when the resale provisions of Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act are available to such STOCKHOLDER or
NEWBURY STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, NEWBURY, STOCKHOLDERS, NEWBURY STOCKHOLDERS
and PARENT shall the deliver or cause to be delivered to the other on the
-54-
<PAGE>
Funding and Consummation 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. The COMPANY and NEWBURY
will cooperate and use its reasonable efforts to have the present officers,
directors and employees of the COMPANY and NEWBURY cooperate with PARENT on and
after the Funding and Consummation 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 Funding and
Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PARENT, NEWBURY and the COMPANY, and the heirs and legal representatives of the
STOCKHOLDERS and the NEWBURY STOCKHOLDERS. Any attempt to assign this Agreement
in a manner inconsistent with this Agreement shall be void and of no force or
effect.
18.3 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, the
NEWBURY STOCKHOLDERS, the COMPANY, NEWBURY and PARENT and supersede any prior
agreement and understanding relating to the subject matter of this Agreement.
Any disclosure made on any Schedule delivered pursuant hereto shall be deemed to
have been disclosed for purposes of any other Schedule required hereby, provided
that the COMPANY and NEWBURY shall make a good faith effort to cross reference
disclosure, as necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement,
-55-
<PAGE>
including the fees and expenses of Arthur Andersen, LLP, Bracewell & Patterson,
L.L.P., and any other person or entity retained by PARENT or by WJG, and the
costs of preparing the Registration Statement. The COMPANY and NEWBURY will pay
all of their respective fees, expenses and disbursements relating to this
Agreement and the Exchange, other than any fees, expenses and disbursements that
relate to the unique circumstances of a particular STOCKHOLDER or NEWBURY
STOCKHOLDER. Each STOCKHOLDER and NEWBURY STOCKHOLDER shall pay all sales, use,
transfer, real property transfer, recording, gains, stock transfer and other
similar taxes and fees ("Transfer Taxes") imposed in connection with the
Exchange, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER and NEWBURY STOCKHOLDER shall file all necessary documentation
and Returns with respect to such Transfer Taxes. In addition, each STOCKHOLDER
and NEWBURY STOCKHOLDER acknowledges that he or she, and not the COMPANY,
NEWBURY or PARENT will pay all Taxes due and payable by such STOCKHOLDER or
NEWBURY STOCKHOLDER upon receipt of the consideration payable to such
STOCKHOLDER or NEWBURY STOCKHOLDER pursuant to Section 1 hereof, and that he or
she will assume all Tax risks and liabilities of such STOCKHOLDER or NEWBURY
STOCKHOLDER in connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT, addressed at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS or the NEWBURY STOCKHOLDERS,
addressed to them at their addresses set forth on the Stockholder
Signature Page or the Newbury Stockholder Signature Page, with
copies to:
-56-
<PAGE>
Geoffrey T. Chalmers, Esq.
33 Broad Street
Suite 1100
Boston, Massachusetts 02109
(c) If to the COMPANY, addressed to it at:
396 Commonwealth Avenue
P.O. Box 740
Boston, Massachusetts 02117-740
with copies to:
Geoffrey T. Chalmers, Esq.
33 Broad Street
Suite 1100
Boston, Massachusetts 02109
(d) If to NEWBURY, addressed to it at:
396 Commonwealth Avenue
P.O. Box 740
Boston, Massachusetts 02117-740
with copies to:
Geoffrey T. Chalmers, Esq.
33 Broad Street
Suite 1100
Boston, Massachusetts 02109
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
-57-
<PAGE>
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, NEWBURY, the COMPANY, and the STOCKHOLDERS and
NEWBURY STOCKHOLDERS who collectively hold or who will hold at least 50% of the
Parent Stock issued or to be issued upon consummation of the Exchange. Any
amendment or waiver effected in accordance with this Section
-58-
<PAGE>
18.15 shall be binding upon the of the parties hereto, any other person
receiving Parent Stock in connection with the Exchange and the future holder of
such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By: Larry E. Darst
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"COMPANY"
ALTERNATIVE SOLUTIONS, INC.
By:
Name:
Title:
"NEWBURY"
NEWBURY EMPLOYMENT, INC.
By:
Name:
Title:
-59-
<PAGE>
COMPANY STOCKHOLDER SIGNATURE PAGE
Address:
Print Name: John Cogliano, Jr.
Address:
Print Name: John M. Cogliano
Address:
Print Name: Herbert J. Cogliano
JOHN COGLIANO JR. 1997 TRUST Address:
FOR HELEN COGLIANO
By:______________________________
Print Name:
Title: Trustee
NEWBURY EMPLOYMENT, INC.
By: Stephen M. Alter Address:
Print Name: Stephen M. Alter
Title: President
-60-
<PAGE>
NEWBURY STOCKHOLDER SIGNATURE PAGE
Address:
Print Name: Stephen M. Alter
Address:
Print Name: Arlene Mitnick
Address:
Print Name: Kevin D. Alter
Address:
Print Name: Jodi Inangelo
-61-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
ASAP ACQUISITION CORP.
A.S.A.P. SERVICES, INC.
AND THE STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS
OF THE SURVIVING CORPORATION.....................................5
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PARENT AND ACQUISITION CORP.............................6
1.5 EFFECT OF MERGER.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS.......................................................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS, ETC.......................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................13
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................14
5.14 PERSONAL PROPERTY...............................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......15
5.16 REAL PROPERTY...................................................16
5.17 INSURANCE.......................................................17
-i-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....17
5.19 EMPLOYEE PLANS..................................................18
5.20 COMPLIANCE WITH ERISA...........................................18
5.21 CONFORMITY WITH LAW; LITIGATION.................................19
5.22 TAXES...........................................................20
5.23 NO VIOLATIONS...................................................20
5.24 GOVERNMENT CONTRACTS............................................21
5.25 ABSENCE OF CHANGES..............................................21
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................23
5.27 VALIDITY OF OBLIGATIONS.........................................23
5.28 RELATIONS WITH GOVERNMENTS......................................23
5.29 DISCLOSURE......................................................23
5.30 PROHIBITED ACTIVITIES...........................................24
5.31 AUTHORITY; OWNERSHIP............................................25
5.32 PREEMPTIVE RIGHTS...............................................25
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK.........................25
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP...........................25
6.1 DUE ORGANIZATION................................................25
6.2 AUTHORIZATION...................................................26
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP....................26
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........26
6.5 SUBSIDIARIES....................................................26
6.6 FINANCIAL STATEMENTS............................................26
6.7 LIABILITIES AND OBLIGATIONS.....................................27
6.8 CONFORMITY WITH LAW; LITIGATION.................................27
6.9 NO VIOLATIONS...................................................27
6.10 VALIDITY OF OBLIGATIONS.........................................28
6.11 PARENT STOCK....................................................28
6.12 NO SIDE AGREEMENTS..............................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................28
6.14 TAXES...........................................................28
6.15 ABSENCE OF CHANGES. ...........................................29
6.16 ................................................................30
DISCLOSURE............................................................30
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................30
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................31
-ii-
<PAGE>
7.3 PROHIBITED ACTIVITIES...........................................32
7.4 NO SHOP.........................................................33
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS.................................34
7.8 AMENDMENT OF SCHEDULES..........................................34
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................36
7.11 FURTHER ASSURANCES..............................................36
7.12 AUTHORIZED CAPITAL..............................................36
7.13 COMPLIANCE WITH HART-SCOTT......................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY..................................................................36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......37
8.2 SATISFACTION....................................................37
8.3 NO LITIGATION...................................................37
8.4 OPINION OF COUNSEL..............................................37
8.5 REGISTRATION STATEMENT..........................................37
8.6 CONSENTS AND APPROVALS..........................................38
8.7 GOOD STANDING CERTIFICATES......................................38
8.8 NO MATERIAL ADVERSE EFFECT......................................38
8.9 CLOSING OF IPO..................................................38
8.10 SECRETARY'S CERTIFICATE.........................................38
8.11 EMPLOYMENT AGREEMENTS...........................................38
8.12 TAX MATTERS.....................................................38
8.13 PARALLEL TRANSFER RESTRICTIONS..................................39
8.14 OTHER MERGERS...................................................39
8.15 LISTING.........................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.......39
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......39
9.2 NO LITIGATION...................................................40
9.3 SECRETARY'S CERTIFICATE.........................................40
9.4 NO MATERIAL ADVERSE EFFECT......................................40
-iii-
<PAGE>
9.5 STOCKHOLDERS' RELEASE...........................................40
9.6 SATISFACTION....................................................40
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................40
9.8 OPINION OF COUNSEL..............................................40
9.9 CONSENTS AND APPROVALS..........................................41
9.10 GOOD STANDING CERTIFICATES......................................41
9.11 REGISTRATION STATEMENT..........................................41
9.12 EMPLOYMENT AGREEMENTS...........................................41
9.13 CLOSING OF IPO..................................................41
9.14 FIRPTA CERTIFICATE..............................................41
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING................41
10.1 REPAYMENT OF CERTAIN OBLIGATIONS................................41
10.2 PRESERVATION OF TAX TREATMENT...................................42
10.3 PREPARATION AND FILING OF TAX RETURNS...........................42
10.4 DIRECTORS.......................................................43
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS..........................43
10.6 DIVIDENDS.......................................................43
11. INDEMNIFICATION.......................................................43
11.1 INDEMNIFICATION BY THE STOCKHOLDERS.............................43
11.2 INDEMNIFICATION BY PARENT.......................................44
11.3 THIRD PERSON CLAIMS.............................................45
11.4 EXCLUSIVE REMEDY................................................46
11.5 LIMITATIONS ON INDEMNIFICATION..................................46
12. TERMINATION OF AGREEMENT..............................................47
12.1 TERMINATION.....................................................47
12.2 LIABILITIES IN EVENT OF TERMINATION.............................47
13. NONCOMPETITION........................................................47
13.1 PROHIBITED ACTIVITIES...........................................47
13.2 DAMAGES.........................................................49
13.3 REASONABLE RESTRAINT............................................49
13.4 SEVERABILITY; REFORMATION.......................................49
13.5 INDEPENDENT COVENANT............................................49
13.6 MATERIALITY.....................................................49
-iv-
<PAGE>
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................49
14.1 STOCKHOLDERS....................................................49
14.2 PARENT AND ACQUISITION CORP.....................................50
14.3 DAMAGES.........................................................51
14.4 SURVIVAL........................................................51
15. TRANSFER RESTRICTIONS.................................................51
15.1 TRANSFER RESTRICTIONS...........................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................52
16.1 COMPLIANCE WITH LAW.............................................52
16.2 ECONOMIC RISK; SOPHISTICATION...................................52
17. REGISTRATION RIGHTS...................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...................................52
17.2 REGISTRATION PROCEDURES.........................................53
17.3 UNDERWRITING AGREEMENT..........................................53
17.4 AVAILABILITY OF RULE 144........................................54
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................55
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................57
18.11 TIME............................................................57
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND
ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9
SCHEDULE 5.10 JOINT SCHEDULES:
SCHEDULE 5.11
SCHEDULE 5.12 SCHEDULE 9.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), ASAP ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), A.S.A.P. SERVICES,
INC., an Arkansas corporation (the "COMPANY"), and all of the COMPANY's
stockholders specified on the attached Stockholder Signature Page (the
"STOCKHOLDERS"), who agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP. and
the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the COMPANY and ACQUISITION CORP. and their respective stockholders that
ACQUISITION CORP. merge with and into the COMPANY pursuant to this
Agreement and the applicable provisions of the laws of the State of
Arkansas and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective stockholders in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement, and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the Consolidation Plan in
order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to the Merger in such form as may be required by applicable state laws
in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following Texas
corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants,
Inc. # Two, Exceptional Resource Services, Inc.,
Excelsior Personnel Consultants, Inc., Excellent
Personnel Consultants, Inc., Evins Personnel
Consultants of Abilene, Inc. and Elite Personnel
Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the COMPANY,
as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and ACQUISITION
CORP. will cause the Articles of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and the appropriate authorities
of the State of Arkansas and stamped receipt copies of each such filing to be
delivered to PARENT on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY then
in effect shall be the Articles or Certificate of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the State of Arkansas; and subsequent
to the Effective Time of the Merger, such By-laws shall be the By-laws of
such Surviving Corporation until they shall thereafter be duly amended
(and such By-Laws shall be amended, if necessary, to comply with this
Agreement and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective Time
and (y) the number of directors shall be reduced to take into account any
directors who choose to resign as of the Effective Time; the members of
the Board of Directors of the Surviving Corporation shall be entitled to
hold office until the next annual meeting of the SURVIVING CORP.'s
stockholders, subject to the provisions of the laws of the State of
Arkansas and of the Articles or Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of
such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of ACQUISITION CORP. consists of 1,000 shares of common stock, par value
$.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of the State of Arkansas (the "Corporation Statute") and the law of the
State of Delaware. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of ACQUISITION CORP. shall be
merged with and into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on Annex
II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of
the Merger and without any action on the part of PARENT, automatically be
converted into one (1) fully paid and non-assessable share of common stock
of the Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of such Surviving Corporation
immediately after the Effective Time of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the State of Arkansas in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any Company Stock. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY, including the names
of any entities or businesses acquired by the COMPANY (by stock purchase, asset
purchase, merger or otherwise) or owned by the COMPANY or from whom the COMPANY
previously acquired material assets. Except as disclosed on Schedule 5.7, the
COMPANY has not been a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANY (including COMPANY's subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
pro ceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, vari ances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates thereof;
or
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof;
or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii)any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors and the STOCKHOLDERS
of the COMPANY and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY
and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation of
any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and ACQUISITION CORP. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies other than the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES. PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its assets, properties or rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY will not, without prior written consent of
PARENT:
(i) make any change in its Certificate or Articles of Incorporation
or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart- Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to PARENT
and the COMPANY an instrument dated the Closing Date releasing the COMPANY
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANY
and PARENT to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDERS which are to survive after Closing, (y) any obligations arising
after the Funding and Consummation Date to a STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered to
PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445- 2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings
-43-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
full amount of their "accumulated adjustments account" (as defined in Section
1368(e) of the Code) as of the Balance Sheet Date, and may also pay to the
STOCKHOLDERS as dividends the full amount of the COMPANY's earnings taxable to
such STOCKHOLDERS for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may pay to the STOCKHOLDERS as dividends the full
amount of the COMPANY's retained earnings as of the Balance Sheet Date. The
COMPANY may borrow funds to the extent necessary to make the payments
contemplated by this Section 10.6 and to the extent necessary to ensure that the
COMPANY has cash on hand to adequately fund operations on the Funding and
Consummation
-44-
<PAGE>
Date; provided that any debt incurred to pay the dividend described in the
immediately preceding sentence shall be taken into account as debt in accordance
with Annex II.
11. INDEMNIFICATION
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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
-45-
<PAGE>
STOCKHOLDERS as a result of or arising from (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates attached hereto, (ii) any breach of any agreement
on the part of PARENT or ACQUISITION CORP. under this Agreement, or (iii) any
liabilities which the STOCKHOLDERS may incur due to PARENT's or ACQUISITION
CORP.'s failure to be responsible for the liabilities and obligations of the
COMPANY as provided in Section 1 hereof (except to the extent that PARENT or
ACQUISITION CORP. has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to PARENT, ACQUISITION CORP. or any of the Other Founding
Companies contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PARENT or ACQUISITION CORP. or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
After the
-46-
<PAGE>
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 by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and 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 insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
-47-
<PAGE>
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for indemnification hereunder against PARENT or ACQUISITION CORP.
until such time as, and solely to the extent that, the aggregate of all claims
which all STOCKHOLDERS may have against PARENT or ACQUISITION CORP. shall exceed
the amount of the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS, Parent Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors), if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if a material
-48-
<PAGE>
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 Funding and Consummation Date; or
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
-49-
<PAGE>
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual knowledge of such STOCKHOLDER, was
called upon by PARENT (including the subsidiaries thereof) or for which, to the
knowledge of such STOCKHOLDER, PARENT (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries
-50-
<PAGE>
thereof), whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by PARENT (or any subsidiary) of such
covenants. It is specifically agreed that the period of five (5) years stated at
the beginning of this Section 13, during which the agreements and covenants of
the STOCKHOLDERS made in this Section 13 shall be effective, shall be computed
by excluding from such computation any time during which any such STOCKHOLDER is
in violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance
-51-
51
<PAGE>
costs that are valuable, special and unique assets of the COMPANY's business.
PARENT and ACQUISITION CORP. agree 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
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of PARENT or ACQUISITION CORP.,
(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), PARENT and ACQUISITION CORP. shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY 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, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of PARENT as a publicly held entity
after the IPO. In the event of a breach or threatened breach by PARENT or
ACQUISITION CORP. of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining PARENT and
ACQUISITION CORP. from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall
-52-
<PAGE>
not sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Parent Stock received by the STOCKHOLDERS in
the Merger. The certificates evidencing the Parent Stock delivered to the
STOCKHOLDERS pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDERS pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. Each STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to such STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in
-53-
<PAGE>
financial and business matters that he is capable of evaluating the merits and
risks of the proposed investment in the Parent Stock. Each STOCKHOLDER has had
an adequate opportunity to ask questions and receive answers from the officers
of PARENT concerning any and all matters relating to the transactions described
herein including, without limitation, the background and experience of the
current and proposed officers and directors of PARENT, the plans for the
operations of the business of PARENT, the business, operations and financial
conditions of the Founding Companies other than the COMPANY, and any plans for
additional acquisitions and the like. Each STOCKHOLDER has asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
-54-
<PAGE>
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts which shall be payable by the respective selling
parties), shall be borne by PARENT. In connection with registrations under
Section 17.1, PARENT shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the Parent Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all Parent Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the Parent Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the Parent Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION CORP.
shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit
-55-
<PAGE>
of the parties hereto, the successors of PARENT, ACQUISITION CORP. and the
COMPANY, and the heirs and legal representatives of the STOCKHOLDERS. Any
attempt to assign this Agreement in a manner inconsistent with this Agreement
shall be void and of no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that
-56-
<PAGE>
he or she will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on the Stockholder Signature Page, with copies to:
Jeff Gearhart
Rose Law Firm
120 East Fourth Street
Little Rock, Arkansas 72201-2893
-57-
<PAGE>
(c) If to the COMPANY, addressed to it at:
A.S.A.P. SERVICES, INC.
P. O. Box 1083
Springdale, Arkansas 72765-1683
with copies to:
Jeff Gearhart
Rose Law Firm
120 East Fourth Street
Little Rock, Arkansas 72201-2893
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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
-58-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By: Larry E. Darst
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"ACQUISITION CORP."
ASAP ACQUISITION CORP.
By: Larry E. Darst
Name: Larry E. Darst
Title: President
-59-
<PAGE>
"COMPANY"
A.S.A.P. SERVICES, INC.
By:
Name:
Title:
-60-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
Address:
Print Name: Brenda Dougan
Address:
Print Name: L. Paul Dobbs
-61-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
CARDINAL ACQUISITION CORP.
CARDINAL SERVICES, INC.
and
the STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF
DIRECTORS OF THE SURVIVING CORPORATION...........................5
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF
THE COMPANY, PARENT AND ACQUISITION CORP.........................6
1.5 EFFECT OF MERGER.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS.......................................................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS, ETC.......................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................13
5.12 PERMITS AND INTANGIBLES.........................................13
5.13 ENVIRONMENTAL MATTERS...........................................14
5.14 PERSONAL PROPERTY...............................................14
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......15
5.16 REAL PROPERTY...................................................16
5.17 INSURANCE.......................................................17
-i-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....17
5.19 EMPLOYEE PLANS..................................................17
5.20 COMPLIANCE WITH ERISA...........................................18
5.21 CONFORMITY WITH LAW; LITIGATION.................................19
5.22 TAXES...........................................................20
5.23 NO VIOLATIONS...................................................20
5.24 GOVERNMENT CONTRACTS............................................21
5.25 ABSENCE OF CHANGES..............................................21
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................23
5.27 VALIDITY OF OBLIGATIONS.........................................23
5.28 RELATIONS WITH GOVERNMENTS......................................23
5.29 DISCLOSURE......................................................23
5.30 PROHIBITED ACTIVITIES...........................................24
5.31 AUTHORITY; OWNERSHIP............................................25
5.32 PREEMPTIVE RIGHTS...............................................25
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK.........................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................25
6.1 DUE ORGANIZATION................................................25
6.2 AUTHORIZATION...................................................26
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP....................26
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........26
6.5 SUBSIDIARIES....................................................26
6.6 FINANCIAL STATEMENTS............................................26
6.7 LIABILITIES AND OBLIGATIONS.....................................27
6.8 CONFORMITY WITH LAW; LITIGATION.................................27
6.9 NO VIOLATIONS...................................................27
6.10 VALIDITY OF OBLIGATIONS.........................................28
6.11 PARENT STOCK....................................................28
6.12 NO SIDE AGREEMENTS..............................................28
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................28
6.14 TAXES...........................................................28
6.15 ABSENCE OF CHANGES. ...........................................29
6.16 ................................................................30
DISCLOSURE. .........................................................30
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................30
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................31
-ii-
<PAGE>
7.3 PROHIBITED ACTIVITIES...........................................32
7.4 NO SHOP.........................................................33
7.5 NOTICE TO BARGAINING AGENTS.....................................33
7.6 AGREEMENTS......................................................33
7.7 NOTIFICATION OF CERTAIN MATTERS.................................34
7.8 AMENDMENT OF SCHEDULES..........................................34
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............35
7.10 FINAL FINANCIAL STATEMENTS......................................36
7.11 FURTHER ASSURANCES..............................................36
7.12 AUTHORIZED CAPITAL..............................................36
7.13 COMPLIANCE WITH HART-SCOTT......................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY..................................................................36
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......37
8.2 SATISFACTION....................................................37
8.3 NO LITIGATION...................................................37
8.4 OPINION OF COUNSEL..............................................37
8.5 REGISTRATION STATEMENT..........................................37
8.6 CONSENTS AND APPROVALS..........................................38
8.7 GOOD STANDING CERTIFICATES......................................38
8.8 NO MATERIAL ADVERSE EFFECT......................................38
8.9 CLOSING OF IPO..................................................38
8.10 SECRETARY'S CERTIFICATE.........................................38
8.11 EMPLOYMENT AGREEMENTS...........................................38
8.12 TAX MATTERS. ........................................................38
8.13 PARALLEL TRANSFER RESTRICTIONS........................................39
8.14 OTHER MERGERS.........................................................39
8.15 LISTING.........................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.......39
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......39
9.2 NO LITIGATION...................................................40
9.3 SECRETARY'S CERTIFICATE.........................................40
9.4 NO MATERIAL ADVERSE EFFECT......................................40
-iii-
<PAGE>
9.5 STOCKHOLDERS' RELEASE...........................................40
9.6 SATISFACTION....................................................40
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................40
9.8 OPINION OF COUNSEL..............................................40
9.9 CONSENTS AND APPROVALS..........................................41
9.10 GOOD STANDING CERTIFICATES......................................41
9.11 REGISTRATION STATEMENT..........................................41
9.12 EMPLOYMENT AGREEMENTS...........................................41
9.13 CLOSING OF IPO..................................................41
9.14 FIRPTA CERTIFICATE..............................................41
10.COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING...................41
10.1 REPAYMENT OF CERTAIN OBLIGATIONS................................41
10.2 PRESERVATION OF TAX TREATMENT...................................42
10.3 PREPARATION AND FILING OF TAX RETURNS...........................42
10.4 DIRECTORS.......................................................43
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS..........................43
10.6 DIVIDENDS.......................................................43
11.INDEMNIFICATION..........................................................43
11.1 INDEMNIFICATION BY THE STOCKHOLDERS.............................43
11.2 INDEMNIFICATION BY PARENT.......................................44
11.3 THIRD PERSON CLAIMS.............................................45
11.4 EXCLUSIVE REMEDY................................................46
11.5 LIMITATIONS ON INDEMNIFICATION..................................46
12.TERMINATION OF AGREEMENT.................................................47
12.1 TERMINATION.....................................................47
12.2 LIABILITIES IN EVENT OF TERMINATION.............................47
13.NONCOMPETITION...........................................................47
13.1 PROHIBITED ACTIVITIES...........................................47
13.2 DAMAGES.........................................................49
13.3 REASONABLE RESTRAINT............................................49
13.4 SEVERABILITY; REFORMATION.......................................49
13.5 INDEPENDENT COVENANT............................................49
13.6 MATERIALITY.....................................................49
-iv-
<PAGE>
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................49
14.1 STOCKHOLDERS....................................................49
14.2 PARENT AND ACQUISITION CORP.....................................50
14.3 DAMAGES.........................................................51
14.4 SURVIVAL........................................................51
15.TRANSFER RESTRICTIONS....................................................51
15.1 TRANSFER RESTRICTIONS...........................................51
16.FEDERAL SECURITIES ACT REPRESENTATIONS...................................52
16.1 COMPLIANCE WITH LAW.............................................52
16.2 ECONOMIC RISK; SOPHISTICATION...................................52
17.REGISTRATION RIGHTS......................................................52
17.1 PIGGYBACK REGISTRATION RIGHTS...................................52
17.2 REGISTRATION PROCEDURES.........................................53
17.3 UNDERWRITING AGREEMENT..........................................53
17.4 AVAILABILITY OF RULE 144........................................54
18.GENERAL..................................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................55
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................57
18.11 TIME............................................................57
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9
SCHEDULE 5.10 JOINT SCHEDULES:
SCHEDULE 5.11
SCHEDULE 5.12 SCHEDULE 9.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), CARDINAL ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), CARDINAL SERVICES,
INC., an Oregon corporation (the "COMPANY"), and all of the COMPANY's
stockholders specified on the attached Stockholder Signature Page (the
"STOCKHOLDERS"), who agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP. and
the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the COMPANY and ACQUISITION CORP. and their respective stockholders that
ACQUISITION CORP. merge with and into the COMPANY pursuant to this
Agreement and the applicable provisions of the laws of the State of Oregon
and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective stockholders in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement, and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the Consolidation Plan in
order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to the Merger in such form as may be required by applicable state laws
in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following Texas
corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants,
Inc. # Two, Exceptional Resource Services, Inc.,
Excelsior Personnel Consultants, Inc., Excellent
Personnel Consultants, Inc., Evins Personnel
Consultants of Abilene, Inc. and Elite Personnel
Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the COMPANY,
as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and ACQUISITION
CORP. will cause the Articles of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and the appropriate authorities
of the State of Oregon and stamped receipt copies of each such filing to be
delivered to PARENT on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY then
in effect shall be the Articles or Certificate of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the State of Oregon; and subsequent to
the Effective Time of the Merger, such By-laws shall be the By-laws of
such Surviving Corporation until they shall thereafter be duly amended
(and such By-Laws shall be amended, if necessary, to comply with this
Agreement and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective Time
and (y) the number of directors shall be reduced to take into account any
directors who choose to resign as of the Effective Time; the members of
the Board of Directors of the Surviving Corporation shall be entitled to
hold office until the next annual meeting of the SURVIVING CORP.'s
stockholders, subject to the provisions of the laws of the State of Oregon
and of the Articles or Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of
such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of ACQUISITION CORP. consists of 1,000 shares of common stock, par value
$.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of the State of Oregon (the "Corporation Statute") and the law of the State
of Delaware. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of the
COMPANY shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of ACQUISITION CORP. shall be merged with and
into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on Annex
II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of
the Merger and without any action on the part of PARENT, automatically be
converted into one (1) fully paid and non-assessable share of common stock
of the Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of such Surviving Corporation
immediately after the Effective Time of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the State of Oregon in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any Company Stock. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY, including the names
of any entities or businesses acquired by the COMPANY (by stock purchase, asset
purchase, merger or otherwise) or owned by the COMPANY or from whom the COMPANY
previously acquired material assets. Except as disclosed on Schedule 5.7, the
COMPANY has not been a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANY (including COMPANY's subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates thereof;
or
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof;
or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii) any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors and the STOCKHOLDERS
of the COMPANY and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY
and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation of
any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and ACQUISITION CORP. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies other than the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES.PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its assets, properties or rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3 and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY will not, without prior written consent of
PARENT:
(i) make any change in its Certificate or Articles of Incorporation
or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to PARENT
and the COMPANY an instrument dated the Closing Date releasing the COMPANY
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANY
and PARENT to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDERS which are to survive after Closing, (y) any obligations arising
after the Funding and Consummation Date to a STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered to
PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership
-43-
<PAGE>
and Tax basis of property, which such party may possess. Each party shall
make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so
provided. Subject to the preceding sentence, the party required to file
Returns pursuant to this Agreement shall bear all costs of filing such
Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
amount of the COMPANY's net income after accrual for federal and state income
taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may pay to the STOCKHOLDERS as dividends the full
amount of the COMPANY's retained earnings as of the Balance Sheet Date. The
COMPANY may pay to the STOCKHOLDERS as dividends the full amount of the
COMPANY's retained earnings as of the Balance Sheet Date. The COMPANY may borrow
funds to the extent necessary to make the payments contemplated by this Section
10.6 and to the extent necessary to ensure that the COMPANY has cash on hand to
adequately fund operations on the Funding and Consummation Date; provided that
any debt incurred to pay the dividend described in the immediately preceding
sentence shall be taken into account as debt in accordance with Annex II.
-44-
<PAGE>
11. INDEMNIFICATION
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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 (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates attached hereto, (ii) any breach of any agreement
on the part of PARENT or ACQUISITION CORP. under this Agreement, or (iii) any
liabilities which the STOCKHOLDERS may incur due to
-45-
<PAGE>
PARENT's or ACQUISITION CORP.'s failure to be responsible for the liabilities
and obligations of the COMPANY as provided in Section 1 hereof (except to the
extent that PARENT or ACQUISITION CORP. has claims against the STOCKHOLDERS by
reason of such liabilities); (iv) any liability under the 1933 Act, the 1934 Act
or other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to PARENT, ACQUISITION CORP. or any of the Other Founding
Companies contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PARENT or ACQUISITION CORP. or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-46-
<PAGE>
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 by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
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 insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for indemnification hereunder against PARENT or ACQUISITION CORP.
until such time as, and solely to the extent that, the aggregate of all claims
which all STOCKHOLDERS may have against PARENT or ACQUISITION CORP. shall exceed
the amount of the Indemnification Threshold.
-47-
<PAGE>
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS, Parent Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), 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 Funding and Consummation Date;
or
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
-48-
<PAGE>
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual knowledge of such STOCKHOLDER, was
called upon by PARENT (including the subsidiaries thereof) or for which, to the
knowledge of such STOCKHOLDER, PARENT (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
-49-
<PAGE>
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
PARENT (or any subsidiary) of such covenants. It is specifically agreed that the
period of five (5) years stated at the beginning of this Section 13, during
which the agreements and covenants of the STOCKHOLDERS made in this Section 13
shall be effective, shall be computed by excluding from such computation any
time during which any such STOCKHOLDER is in violation of any provision of this
Section 13. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
-50-
<PAGE>
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance costs that are valuable, special and
unique assets of the COMPANY's business. PARENT and ACQUISITION CORP. agree
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 authorized representatives of
the COMPANY, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such information becomes known to the public
generally through no fault of PARENT or ACQUISITION CORP., (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),
PARENT and
-51-
<PAGE>
ACQUISITION CORP. shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY 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, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of PARENT as a publicly held entity after the IPO. In the event of a
breach or threatened breach by PARENT or ACQUISITION CORP. of the provisions of
this Section, the COMPANY and the STOCKHOLDERS shall be entitled to an
injunction restraining PARENT and ACQUISITION CORP. from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any shares of Parent Stock received by the STOCKHOLDERS in the Merger. The
certificates evidencing the Parent Stock delivered to the STOCKHOLDERS pursuant
to Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as PARENT may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
-52-
<PAGE>
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDERS pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. Each STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to such STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in the
Parent Stock. Each STOCKHOLDER has had an adequate opportunity to ask questions
and receive answers from the officers of PARENT concerning any and all matters
relating to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
PARENT, the plans for the operations of the business of PARENT, the business,
operations and financial conditions of the Founding Companies other than the
COMPANY, and any plans for additional acquisitions and the like. Each
STOCKHOLDER has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to his satisfaction.
17. REGISTRATION RIGHTS
-53-
<PAGE>
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts which shall be payable by the respective selling
parties), shall be borne by PARENT. In connection with registrations under
Section 17.1, PARENT shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the Parent Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all Parent Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the Parent Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the Parent Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
-54-
<PAGE>
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION CORP.
shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PARENT, ACQUISITION CORP. and the COMPANY, and the heirs and legal
representatives of the STOCKHOLDERS. Any attempt to assign this Agreement in a
manner inconsistent with this Agreement shall be void and of no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
-55-
<PAGE>
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that he or she will assume all Tax risks and liabilities of such
STOCKHOLDER in connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
-56-
<PAGE>
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on the Stockholder Signature Page, with copies to:
Quincy Tom Freeman and Gail Freeman
110 Ackerman
Coos Bay, Oregon 97420
(c) If to the COMPANY, addressed to it at:
Cardinal Services, Inc.
110 Ackerman
Coos Bay, Oregon 97420
with copies to:
Jeff Gearhart
Rose Law Firm
120 East Fourth Street
Little Rock, Arkansas 72201-2893
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
-57-
<PAGE>
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any
-58-
<PAGE>
amendment or waiver effected in accordance with this Section 18.15 shall be
binding upon the of the parties hereto, any other person receiving Parent Stock
in connection with the Merger and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By: ___________________________
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"ACQUISITION CORP."
CARDINAL ACQUISITION CORP.
By:
Name: Larry E. Darst
Title: President
"COMPANY"
CARDINAL SERVICES, INC.
By:
Name: Michael Allen Freeman
Title: President
-59-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
___________________________________ Address:______________________
Print Name: Quincy Tarver Freeman ______________________________
______________________________
___________________________________ Address:______________________
Print Name: Diane Gail Freeman ______________________________
______________________________
-60-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
EEI ACQUISITION CORP.
EMPLOYMENT ENTERPRISES, INC.
and
the STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors of
the Surviving Corporation........................................5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, PARENT and ACQUISITION CORP.............................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS.......................................................9
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; Etc.........................................11
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements, Etc.......................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................14
5.14 Personal Property...............................................15
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................16
5.17 Insurance.......................................................17
-i-
<PAGE>
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
5.22 Taxes...........................................................20
5.23 No Violations...................................................21
5.24 Government Contracts............................................21
5.25 Absence of Changes..............................................22
5.26 Deposit Accounts; Powers of Attorney............................23
5.27 Validity of Obligations.........................................24
5.28 Relations with Governments......................................24
5.29 Disclosure......................................................24
5.30 Prohibited Activities...........................................25
5.31 Authority; Ownership............................................25
5.32 Preemptive Rights...............................................25
5.33 No Intention to Dispose of Parent Stock.........................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................26
6.1 Due Organization................................................26
6.2 Authorization...................................................26
6.3 Capital Stock of PARENT and ACQUISITION CORP....................26
6.4 Transactions in Capital Stock, Organization Accounting..........27
6.5 Subsidiaries....................................................27
6.6 Financial Statements............................................27
6.7 Liabilities and Obligations.....................................27
6.8 Conformity with Law; Litigation.................................27
6.9 No Violations...................................................28
6.10 Validity of Obligations.........................................28
6.11 Parent Stock....................................................28
6.12 No Side Agreements..............................................29
6.13 Business; Real Property; Material Agreements....................29
6.14 Taxes...........................................................29
6.15 Absence of Changes. ...........................................30
6.16 Disclosure. ...................................................31
7. COVENANTS PRIOR TO CLOSING...............................................31
7.1 Access and Cooperation; Due Diligence...........................31
7.2 Conduct of Business Pending Closing.............................32
7.3 Prohibited Activities...........................................33
-ii-
<PAGE>
7.4 No Shop.........................................................34
7.5 Notice to Bargaining Agents.....................................34
7.6 Agreements......................................................34
7.7 Notification of Certain Matters.................................35
7.8 Amendment of Schedules..........................................35
7.9 Cooperation in Preparation of Registration Statement............36
7.10 Final Financial Statements......................................36
7.11 Further Assurances..............................................37
7.12 Authorized Capital..............................................37
7.13 Compliance with Hart-Scott......................................37
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY...........................................................37
8.1 Representations and Warranties; Performance of Obligations......38
8.2 Satisfaction....................................................38
8.3 No Litigation...................................................38
8.4 Opinion of Counsel..............................................38
8.5 Registration Statement..........................................38
8.6 Consents and Approvals..........................................39
8.7 Good Standing Certificates......................................39
8.8 No Material Adverse Effect......................................39
8.9 Closing of IPO..................................................39
8.10 Secretary's Certificate.........................................39
8.11 Employment Agreements...........................................39
8.12 Tax Matters. ..................................................39
8.13 Parallel Transfer Restrictions..................................40
8.14 Other Mergers...................................................40
8.15 Listing.........................................................40
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
ACQUISITION CORP......................................................40
9.1 Representations and Warranties; Performance of Obligations......40
9.2 No Litigation...................................................41
9.3 Secretary's Certificate.........................................41
9.4 No Material Adverse Effect......................................41
9.5 STOCKHOLDERS' Release...........................................41
9.6 Satisfaction....................................................41
9.7 Termination of Related Party Agreements.........................41
9.8 Opinion of Counsel..............................................42
-iii-
<PAGE>
9.9 Consents and Approvals..........................................42
9.10 Good Standing Certificates......................................42
9.11 Registration Statement..........................................42
9.12 Employment Agreements...........................................42
9.13 Closing of IPO..................................................42
9.14 FIRPTA Certificate..............................................42
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING................42
10.1 Repayment of Certain Obligations................................42
10.2 Preservation of Tax Treatment...................................43
10.3 Preparation and Filing of Tax Returns...........................43
10.4 Directors.......................................................44
10.5 Preservation of Employee Benefit Plans..........................44
10.6 Dividends.......................................................44
11. INDEMNIFICATION.......................................................44
11.1 Indemnification by the STOCKHOLDERS.............................44
11.2 Indemnification by PARENT.......................................45
11.3 Third Person Claims.............................................46
11.4 Exclusive Remedy................................................47
11.5 Limitations on Indemnification..................................47
12. TERMINATION OF AGREEMENT..............................................48
12.1 Termination.....................................................48
12.2 Liabilities in Event of Termination.............................48
13. NONCOMPETITION........................................................49
13.1 Prohibited Activities...........................................49
13.2 Damages.........................................................50
13.3 Reasonable Restraint............................................50
13.4 Severability; Reformation.......................................50
13.5 Independent Covenant............................................50
13.6 Materiality.....................................................51
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................51
14.1 STOCKHOLDERS....................................................51
14.2 PARENT and ACQUISITION CORP.....................................51
14.3 Damages.........................................................52
14.4 Survival........................................................52
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS.................................................52
15.1 Transfer Restrictions...........................................52
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................53
16.1 Compliance with Law.............................................53
16.2 Economic Risk; Sophistication...................................53
17. REGISTRATION RIGHTS...................................................54
17.1 Piggyback Registration Rights...................................54
17.2 Registration Procedures.........................................54
17.3 Underwriting Agreement..........................................55
17.4 Availability of Rule 144........................................55
18. GENERAL...............................................................55
18.1 Cooperation.....................................................55
18.2 Successors and Assigns..........................................55
18.3 Entire Agreement................................................55
18.4 Counterparts....................................................56
18.5 Brokers and Agents..............................................56
18.6 Expenses........................................................56
18.7 Notices.........................................................56
18.8 Governing Law...................................................58
18.9 Survival of Representations and Warranties......................58
18.10 Exercise of Rights and Remedies.................................58
18.11 Time............................................................58
18.12 Reformation and Severability....................................58
18.13 Remedies Cumulative.............................................59
18.14 Captions........................................................59
18.15 Amendments and Waivers..........................................59
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND
ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
WITTRL\61498\007001
HOUSTON\748609.5
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9
SCHEDULE 5.10 JOINT SCHEDULES:
SCHEDULE 5.11
SCHEDULE 5.12 SCHEDULE 9.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), EEI ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), EMPLOYMENT ENTERPRISES,
INC., a Virginia corporation (the "COMPANY"), and all of the COMPANY's
stockholders specified on the attached Stockholder Signature Page (the
"STOCKHOLDERS"), who agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP. and
the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the COMPANY and ACQUISITION CORP. and their respective stockholders that
ACQUISITION CORP. merge with and into the COMPANY pursuant to this
Agreement and the applicable provisions of the laws of the Commonwealth of
Virginia and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective stockholders in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement, and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the Consolidation Plan in
order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to the Merger in such form as may be required by applicable state laws
in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following Texas
corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants, Inc. #
Two, Exceptional Resource Services, Inc., Excelsior Personnel
Consultants, Inc., Excellent Personnel Consultants, Inc.,
Evins Personnel Consultants of Abilene, Inc. and Elite
Personnel Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the COMPANY,
as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and ACQUISITION
CORP. will cause the Articles of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and the appropriate authorities
of the Commonwealth of Virginia tate of Arkansas and stamped receipt copies of
each such filing to be delivered to PARENT on or before the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY then
in effect shall be the Articles or Certificate of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the Commonwealth of Virginia; and
subsequent to the Effective Time of the Merger, such By-laws shall be the
By-laws of such Surviving Corporation until they shall thereafter be duly
amended (and such By-Laws shall be amended, if necessary, to comply with
this Agreement and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective Time
and (y) the number of directors shall be reduced to take into account any
directors who choose to resign as of the Effective Time; the members of
the Board of Directors of the Surviving Corporation shall be entitled to
hold office until the next annual meeting of the SURVIVING CORP.'s
stockholders, subject to the provisions of the laws of the Commonwealth of
Virginia and of the Articles or Certificate of Incorporation and By-laws
of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of
such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of ACQUISITION CORP. consists of 1,000 shares of common stock, par value
$.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of theCommonwealth of Virginia (the "Corporation Statute") and the law of
the State of Delaware. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of ACQUISITION CORP. shall be
merged with and into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on Annex
II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of
the Merger and without any action on the part of PARENT, automatically be
converted into one (1) fully paid and non-assessable share of common stock
of the Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of such Surviving Corporation
immediately after the Effective Time of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the Commonwealth of Virginia in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any Company Stock. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY, including the names
of any entities or businesses acquired by the COMPANY (by stock purchase, asset
purchase, merger or otherwise) or owned by the COMPANY or from whom the COMPANY
previously acquired material assets. Except as disclosed on Schedule 5.7, the
COMPANY has not been a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANY (including COMPANY's subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
pro ceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, vari ances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates thereof;
or
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof;
or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii)any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors and the STOCKHOLDERS
of the COMPANY and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY
and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation of
any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and ACQUISITION CORP. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies other than the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES. PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its assets, properties or rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY will not, without prior written consent of
PARENT:
(i) make any change in its Certificate or Articles of Incorporation
or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to PARENT
and the COMPANY an instrument dated the Closing Date releasing the COMPANY
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANY
and PARENT to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDERS which are to survive after Closing, (y) any obligations arising
after the Funding and Consummation Date to a STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered to
PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445- 2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings
-43-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
amount of the COMPANY's net income after accruals for federal and state income
taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. It is also understood that the COMPANY will pay to the
STOCKHOLDERS all deferred compensation and all loans from STOCKHOLDERS, as
reflected on the COMPANY'S balance sheets, and such amounts will be treated as
debt in accordance with Annex II. The COMPANY may borrow funds to the extent
necessary to make the payments contemplated by this Section 10.6 and to the
extent necessary to ensure that the COMPANY has cash on hand to adequately fund
operations on the Funding and Consummation Date.
-44-
<PAGE>
11. INDEMNIFICATION
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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 (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates
-45-
<PAGE>
attached hereto, (ii) any breach of any agreement on the part of PARENT or
ACQUISITION CORP. under this Agreement, or (iii) any liabilities which the
STOCKHOLDERS may incur due to PARENT's or ACQUISITION CORP.'s failure to be
responsible for the liabilities and obligations of the COMPANY as provided in
Section 1 hereof (except to the extent that PARENT or ACQUISITION CORP. has
claims against the STOCKHOLDERS by reason of such liabilities); (iv) any
liability under the 1933 Act, the 1934 Act or other federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to PARENT,
ACQUISITION CORP. or any of the Other Founding Companies contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to PARENT or ACQUISITION CORP. or any of the Other Founding Companies
required to be stated therein or necessary to make the statements therein not
misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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,
-46-
<PAGE>
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 by said Third Person. Upon agreement as to such
settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
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 insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for
-47-
<PAGE>
indemnification hereunder against PARENT or ACQUISITION CORP. until such time
as, and solely to the extent that, the aggregate of all claims which all
STOCKHOLDERS may have against PARENT or ACQUISITION CORP. shall exceed the
amount of the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS, Parent Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), 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
-48-
<PAGE>
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 Funding
and Consummation Date; or
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
-49-
<PAGE>
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual knowledge of such STOCKHOLDER, was
called upon by PARENT (including the subsidiaries thereof) or for which, to the
knowledge of such STOCKHOLDER, PARENT (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries
-50-
<PAGE>
thereof), whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by PARENT (or any subsidiary) of such
covenants. It is specifically agreed that the period of five (5) years stated at
the beginning of this Section 13, during which the agreements and covenants of
the STOCKHOLDERS made in this Section 13 shall be effective, shall be computed
by excluding from such computation any time during which any such STOCKHOLDER is
in violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance
-51-
<PAGE>
costs that are valuable, special and unique assets of the COMPANY's business.
PARENT and ACQUISITION CORP. agree 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
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of PARENT or ACQUISITION CORP.,
(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), PARENT and ACQUISITION CORP. shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY 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, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of PARENT as a publicly held entity
after the IPO. In the event of a breach or threatened breach by PARENT or
ACQUISITION CORP. of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining PARENT and
ACQUISITION CORP. from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall
-52-
<PAGE>
not sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Parent Stock received by the STOCKHOLDERS in
the Merger. The certificates evidencing the Parent Stock delivered to the
STOCKHOLDERS pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDERS pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. Each STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to such STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in
-53-
<PAGE>
financial and business matters that he is capable of evaluating the merits and
risks of the proposed investment in the Parent Stock. Each STOCKHOLDER has had
an adequate opportunity to ask questions and receive answers from the officers
of PARENT concerning any and all matters relating to the transactions described
herein including, without limitation, the background and experience of the
current and proposed officers and directors of PARENT, the plans for the
operations of the business of PARENT, the business, operations and financial
conditions of the Founding Companies other than the COMPANY, and any plans for
additional acquisitions and the like. Each STOCKHOLDER has asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
-54-
<PAGE>
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts which shall be payable by the respective selling
parties), shall be borne by PARENT. In connection with registrations under
Section 17.1, PARENT shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the Parent Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all Parent Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the Parent Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the Parent Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION CORP.
shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit
-55-
<PAGE>
of the parties hereto, the successors of PARENT, ACQUISITION CORP. and the
COMPANY, and the heirs and legal representatives of the STOCKHOLDERS. Any
attempt to assign this Agreement in a manner inconsistent with this Agreement
shall be void and of no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that
-56-
<PAGE>
he or she will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on the Stockholder Signature Page, with copies to:
Thomas C. Brown, Jr.
McGuire Woods Battle & Boothe
8280 Greensboro Drive, Suite 900
Tysons Corner
McLean, Virginia 22102-3892
-57-
<PAGE>
(c) If to the COMPANY, addressed to it at:
Employment Enterprises, Inc.
10328 Battleview Parkway
Manassas, Virginia 20109
with copies to:
Thomas C. Brown, Jr.
McGuire Woods Battle & Boothe
8280 Greensboro Drive, Suite 900
Tysons Corner
McLean, Virginia 22102-3892
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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
-58-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By:________________________________________
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"ACQUISITION CORP."
EEI ACQUISITION CORP.
By:________________________________________
Name: Larry E. Darst
Title: President
-59-
<PAGE>
"COMPANY"
EMPLOYMENT ENTERPRISES, INC.
By:________________________________________
Name:
Title:
-60-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
____________________________________ Address:___________________________
Lovey Hammel ___________________________________
___________________________________
____________________________________ Address:___________________________
Jana Yeates ___________________________________
___________________________________
-61-
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
EPG SUB 1 ACQUISITION CORP.
EPG SUB 2 ACQUISITION CORP.
EPG SUB 3 ACQUISITION CORP.
EPG SUB 4 ACQUISITION CORP.
EPG SUB 5 ACQUISITION CORP.
EPG SUB 6 ACQUISITION CORP.
EPG SUB 7 ACQUISITION CORP.
EPG SUB 8 ACQUISITION CORP.
EVINS PERSONNEL CONSULTANTS, INC.
EVINS PERSONNEL CONSULTANTS, INC. #ONE
EVINS PERSONNEL CONSULTANTS, INC. #TWO
EXCEPTIONAL RESOURCE SERVICES, INC.
EXCELSIOR PERSONNEL CONSULTANTS, INC.
EXCELLENT PERSONNEL CONSULTANTS, INC.
EVINS PERSONNEL CONSULTANTS OF ABILENE, INC.
ELITE PERSONNEL CONSULTANTS, INC.
and
the STOCKHOLDER
- --------------------------------------------------------------------------------
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors
of the Surviving Corporation....................................5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, PARENT and ACQUISITION CORP.............................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS.......................................................9
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the COMPANY....................................10
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; Etc.........................................11
5.8 Spin-off by the COMPANY.........................................11
5.9 Financial Statements, Etc.......................................11
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................14
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......15
5.16 Real Property...................................................16
5.17 Insurance.......................................................17
-i-
<PAGE>
5.18 Compensation; Employment Agreements; Organized Labor Matters....17
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................18
5.21 Conformity with Law; Litigation.................................19
5.22 Taxes...........................................................20
5.23 No Violations...................................................20
5.24 Government Contracts............................................21
5.25 Absence of Changes..............................................21
5.26 Deposit Accounts; Powers of Attorney............................23
5.27 Validity of Obligations.........................................23
5.28 Relations with Governments......................................23
5.29 Disclosure......................................................23
5.30 Prohibited Activities...........................................24
5.31 Authority; Ownership............................................25
5.32 Preemptive Rights...............................................25
5.33 No Intention to Dispose of Parent Stock.........................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................25
6.1 Due Organization................................................25
6.2 Authorization...................................................26
6.3 Capital Stock of PARENT and ACQUISITION CORP....................26
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................27
6.8 Conformity with Law; Litigation.................................27
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................28
6.11 Parent Stock....................................................28
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes. ...........................................29
6.16 Disclosure. ...................................................30
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................32
-ii-
<PAGE>
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................34
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................35
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with Hart-Scott......................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY...........................................................36
8.1 Representations and Warranties; Performance of Obligations......36
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................37
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Effect......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters. ..................................................38
8.13 Parallel Transfer Restrictions..................................38
8.14 Other Mergers...................................................39
8.15 Listing.........................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
ACQUISITION CORP......................................................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................39
9.3 Secretary's Certificate.........................................39
9.4 No Material Adverse Effect......................................40
9.5 STOCKHOLDERS' Release...........................................40
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
-iii-
<PAGE>
9.9 Consents and Approvals..........................................40
9.10 Good Standing Certificates......................................41
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10.COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING...................41
10.1 Repayment of Certain Obligations................................41
10.2 Preservation of Tax Treatment...................................41
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................42
10.5 Preservation of Employee Benefit Plans..........................42
10.6 Dividends.......................................................43
11.INDEMNIFICATION..........................................................43
11.1 Indemnification by the STOCKHOLDERS.............................43
11.2 Indemnification by PARENT.......................................44
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................46
11.5 Limitations on Indemnification..................................46
12.TERMINATION OF AGREEMENT.................................................46
12.1 Termination.....................................................47
12.2 Liabilities in Event of Termination.............................47
13.NONCOMPETITION...........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................49
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................49
14.1 STOCKHOLDERS....................................................49
14.2 PARENT and ACQUISITION CORP.....................................50
14.3 Damages.........................................................51
14.4 Survival........................................................51
-iv-
<PAGE>
15.TRANSFER RESTRICTIONS....................................................51
15.1 Transfer Restrictions...........................................51
16.FEDERAL SECURITIES ACT REPRESENTATIONS...................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................52
17.REGISTRATION RIGHTS......................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Registration Procedures.........................................53
17.3 Underwriting Agreement..........................................53
17.4 Availability of Rule 144........................................53
18.GENERAL..................................................................54
18.1 Cooperation.....................................................54
18.2 Successors and Assigns..........................................54
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................56
18.13 Remedies Cumulative.............................................57
18.14 Captions........................................................57
18.15 Amendments and Waivers..........................................57
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDER
ANNEX III
STOCKHOLDER AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDER AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDER
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9 JOINT SCHEDLES:
SCHEDULE 5.10
SCHEDULE 5.11 SCHEDULE 9.12
SCHEDULE 5.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware
corporation ("PARENT"), EPG SUB 1 ACQUISITION CORP., EPG SUB 2 ACQUISITION
CORP., EPG SUB 3 ACQUISITION CORP., EPG SUB 4 ACQUISITION CORP., EPG SUB 5
ACQUISITION CORP., EPG SUB 6 ACQUISITION CORP., EPG SUB 7 ACQUISITION CORP., EPG
SUB 8 ACQUISITION CORP., each a Delaware corporation and a direct, wholly-owned
subsidiary of PARENT (each an "ACQUISITION CORP." and collectively, the
"ACQUISITION CORPS."), EVINS PERSONNEL CONSULTANTS, INC., EVINS PERSONNEL
CONSULTANTS, INC. # ONE, EVINS PERSONNEL CONSULTANTS, INC. # TWO, EXCEPTIONAL
RESOURCE SERVICES, INC., EXCELSIOR PERSONNEL CONSULTANTS, INC., EXCELLENT
PERSONNEL CONSULTANTS, INC., EVINS PERSONNEL CONSULTANTS OF ABILENE, INC., and
ELITE PERSONNEL CONSULTANTS, INC., all Texas corporations (individually, a
"Company" and collectively, the "COMPANIES"), and all of the COMPANIES' sole
stockholder specified on the attached Stockholder Signature Page (the
"STOCKHOLDER"), who agree as follows:
WHEREAS, the STOCKHOLDER is the sole stockholder of all of the
COMPANIES; and
WHEREAS, each ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT on September , 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of each ACQUISITION
CORP. and each of the COMPANIES (which together are hereinafter
collectively referred to as "Constituent Corporations") deem it advisable
and in the best interests of each of the COMPANIES and each of the
ACQUISITION CORPS. and their respective stockholders that each ACQUISITION
CORP. merge with and into a COMPANY pursuant to this Agreement and the
applicable provisions of the laws of the State of Texas and the State of
Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their
-1-
<PAGE>
respective stockholders in order to acquire additional temporary staffing,
"PEO" or staff leasing, permanent placement, and human resource consulting
service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDER and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share exchanges that are
intended to qualify as tax-free transfers of property under Section 351 of
the Internal Revenue Code of 1986, as amended ("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
of the COMPANIES has approved this Agreement as part of the Consolidation
Plan in order for the PARENT to acquire the COMPANIES; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means each COMPANY, any subsidiary of a COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to a Merger in such form as may be required by applicable state laws in
order to implement a Merger in accordance with this Agreement.
"ACQUISITION CORP." or "ACQUISITION CORPS." have the meanings set forth in
the first paragraph of this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of each ACQUISITION CORP.
-2-
<PAGE>
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" or "COMPANIES" have the meanings set forth in the first
paragraph of this Agreement, and, unless the context expressly requires
otherwise, shall include all subsidiaries of each COMPANY.
"Company Stock" means the common capital stock of each COMPANY.
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of a Merger" shall mean the time as of which a Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following
Texas corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants,
Inc. # Two, Exceptional Resource Services, Inc.,
Excelsior Personnel Consultants, Inc., Excellent
Personnel Consultants, Inc., Evins Personnel
Consultants of Abilene, Inc., and Elite Personnel
Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
-3-
<PAGE>
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Mergers" means a merger of the following ACQUISITION CORPS. with and into
the following related COMPANIES, as contemplated in this Agreement.
ACQUISITION CORPS. RELATED COMPANIES
------------------ -----------------
EPG Sub 1 Acquisition Corp. Evins Personnel Consultants, Inc.
EPG Sub 2 Acquisition Corp. Evins Personnel Consultants, Inc. # One
EPG Sub 3 Acquisition Corp. Evins Personnel Consultants, Inc. # Two
EPG Sub 4 Acquisition Corp. Exceptional Resource Services, Inc.
EPG Sub 5 Acquisition Corp. Excelsior Personnel Consultants, Inc.
EPG Sub 6 Acquisition Corp. Excellent Personnel Consultants, Inc.
EPG Sub 7 Acquisition Corp. Evins Personnel Consultants of
Abilene, Inc.
EPG Sub 8 Acquisition Corp. Elite Personnel Consultants, Inc.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANIES.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
-4-
<PAGE>
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means each COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which a COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means each COMPANY as the surviving party in the
Merger.
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGERS
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. Each COMPANY and the
related ACQUISITION CORP. will cause the Articles of Merger to be signed,
verified and filed with the Secretary of State of the State of Delaware and the
appropriate authorities of the State of Texas and stamped receipt copies of each
such filing to be delivered to PARENT on or before the Funding and Consummation
Date.
-5-
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGERS. At the Effective Time of the Merger, an
ACQUISITION CORP. shall be merged with and into a COMPANY, the separate
existence of the ACQUISITION CORP. shall cease, and a COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation" or "Surviving Corporations."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATIONS. At the Effective Time of each Merger:
(i) the Articles or Certificate of Incorporation of each COMPANY
then in effect shall be the Articles or Certificate of Incorporation of
each Surviving Corporation until changed as provided by law;
(ii) the By-laws of each ACQUISITION CORP. then in effect shall
become the By-laws of the Surviving Corporation, with such changes, if
any, as may be consistent with the laws of the State of Texas; and
subsequent to the Effective Time of the Merger, such By-laws shall be the
By-laws of such Surviving Corporation until they shall thereafter be duly
amended (and such By-Laws shall be amended, if necessary, to comply with
this Agreement and applicable state law);
(iii) the Board of Directors of each Surviving Corporation shall
consist of the persons who are on the Board of Directors of the related
COMPANY immediately prior to the Effective Time of the Merger, provided
that (x) Larry E. Darst shall be elected as an additional director of each
Surviving Corporation as of the Effective Time and (y) the number of
directors shall be reduced to take into account any directors who choose
to resign as of the Effective Time; the members of the Board of Directors
of each Surviving Corporation shall be entitled to hold office until the
next annual meeting of the SURVIVING CORP.'s stockholders, subject to the
provisions of the laws of the State of Texas and of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of each COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the related Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the related Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the related Surviving Corporation,
each of such officers to serve, subject to the provisions of the Articles
or Certificate of Incorporation and By-laws of the related Surviving
Corporation, until their respective successors are duly elected and
qualified.
-6-
<PAGE>
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANIES, PARENT AND ACQUISITION CORPS. The respective designations and numbers
of outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of each ACQUISITION CORP. consists of 1,000 shares of common stock, par
value $.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGERS. At the Effective Time of the Mergers, the effect of
each Merger shall be as provided in the applicable provisions of the corporation
law of the State of Texas (the "Corporation Statute") and the law of the State
of Delaware. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of each
COMPANY shall continue unaffected and unimpaired by its Merger and the corporate
franchises, existence and rights of each ACQUISITION CORP. shall be merged with
and into the related COMPANY, and each COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of each Merger, the
separate existence of each ACQUISITION CORP. shall cease and, in accordance with
the terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public, as well as of a
private, nature, and all property, real, personal and mixed, and all debts due
on whatever account, including subscriptions to shares, and all taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to each COMPANY and the
related ACQUISITION CORP. shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of each COMPANY and the related ACQUISITION CORP.; and
the title to any real estate, or interest therein, whether by deed or otherwise,
under the laws of the state of incorporation vested in each COMPANY and the
related ACQUISITION CORP., shall not revert or be in any way impaired by reason
of the Merger. Except as otherwise provided herein, the Surviving Corporation
shall thenceforth be responsible and liable for all the liabilities and
-7-
<PAGE>
obligations of each COMPANY and the related ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against each COMPANY or the
related ACQUISITION CORP. may be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted in their place. Neither
the rights of creditors nor any liens upon the property of a COMPANY or an
ACQUISITION CORP. shall be impaired by a Merger, and all debts, liabilities and
duties of each COMPANY and the related ACQUISITION CORP. shall attach to the
Surviving Corporation, and may be enforced against the related Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the related Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Mergers into shares
of (x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Mergers:
(i) all of the shares of Company Stock of all of the COMPANIES
issued and outstanding immediately prior to the Effective Time of the
Mergers shall, by virtue of the Mergers and without any action on the part
of the holder thereof, automatically be deemed to represent (1) the right
to receive the number of shares of Parent Stock set forth on Annex II with
respect to such holder and (2) the right to receive the amount of cash set
forth on Annex II with respect to such holder;
(ii) all shares of Company Stock that are held by any COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Mergers, shall, by virtue
of the Mergers and without any action on the part of PARENT, automatically
be converted into one (1) fully paid and non-assessable share of common
stock of the Surviving Corporation which shall constitute all of the
issued and outstanding shares of common stock of such Surviving
Corporation immediately after the Effective Time of the Mergers.
All Parent Stock received by the STOCKHOLDER pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as
-8-
<PAGE>
all the other shares of outstanding Parent Stock by reason of the provisions of
the Certificate of Incorporation of PARENT or as otherwise provided by the
Delaware General Corporation Law. All voting rights of such Parent Stock
received by the STOCKHOLDER shall be fully exercisable by the STOCKHOLDER and
the STOCKHOLDER shall not be deprived nor restricted in exercising those rights.
At the Effective Time of the Mergers, PARENT shall have no class of capital
stock issued and outstanding other than Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Mergers and on the Funding and
Consummation Date the STOCKHOLDER, who is the holder of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDER.
3.2 The STOCKHOLDER shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDER, or accompanied by blank stock powers, with signatures guaranteed by
a national or state chartered bank or other financial institution, and with all
necessary transfer tax and other revenue stamps, acquired at the STOCKHOLDER'S
expense, affixed and canceled. The STOCKHOLDER agrees promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Mergers (including, if permitted by applicable
state law, the filing with the appropriate state authorities of the various
Articles of Merger which shall become effective at the Effective Time of the
Mergers) and (ii) effect the conversion and delivery of shares referred to in
Sections 2 and 3 hereof; provided, that such actions shall not include the
actual completion of the Mergers or the conversion and delivery of the shares
and certified check(s) or the initiation of wire transfers referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date. In the event that there is no Funding and Consummation Date
and this Agreement terminates, PARENT covenants and agrees to do all things
required by Delaware law and all things which counsel for the COMPANY advise
PARENT are required by applicable laws of the State of Texas in order to rescind
the mergers contemplated by the filing of the various Articles of Merger as
described in this Section. The taking of the actions described in clauses (i)
and (ii) above (the "Closing") shall take place on the closing date (the
"Closing Date") at the offices of Bracewell
-9-
<PAGE>
& Patterson, L.L.P., South Tower Pennzoil Place, 711 Louisiana, Suite 2900,
Houston, Texas 77002. On the Funding and Consummation Date, (x) the various
Articles of Merger shall be or shall have been filed with the appropriate state
authorities so that they shall be effective as early as practicable on the
Funding and Consummation Date and the Mergers shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the delivery of a certified check or checks or the
initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDER shall be entitled to receive
pursuant to the Mergers and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDER
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDER.
The COMPANIES and the STOCKHOLDER jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of 12 months (the last day of such period being
the "Expiration Date"), except that (i) the warranties and representations set
forth in Section 5.22 hereof shall survive until such time as the limitations
period has run for all Tax periods ended on or prior to the Funding and
Consummation Date, which shall be deemed to be the Expiration Date for Section
5.22 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.1(iii) hereof has been made on a timely basis,
and solely to the extent that in connection with the IPO, PARENT actually incurs
liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes. For purposes of this
Section 5, each COMPANY includes any and all of its subsidiaries unless the
context expressly requires otherwise.
5.1 DUE ORGANIZATION. Each COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and has the corporate
-10-
<PAGE>
power and authority to carry on its business as it is now being conducted. Each
COMPANY is duly qualified to do business and is in good standing in the
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, except (i) as set forth on
Schedule 5.1 or (ii) where the failure to be so authorized or qualified would
not have a material adverse effect on the business, operations, affairs,
prospects, properties, assets or condition (financial or otherwise), of all of
the COMPANIES and their subsidiaries taken as a whole (as used herein with
respect to all of the COMPANIES, or with respect to any other person, a
"Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction in which
each COMPANY is incorporated and contains a list of all jurisdictions in which
each COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of each COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of each COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of a COMPANY or the STOCKHOLDER which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of each COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of such COMPANY, and of its officers and directors on behalf of such
COMPANY.
5.2 AUTHORIZATION. The representatives of each COMPANY executing this
Agreement have the authority to enter into and bind such COMPANY to the terms of
this Agreement. Each COMPANY has the corporate power and authority to enter into
this Agreement and a Merger. All requisite approval of the shareholders of each
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
5.3 CAPITAL STOCK OF THE COMPANIES. The authorized capital stock of each
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of each COMPANY are owned by the STOCKHOLDER in the
amounts set forth in Annex III (or are owned by a Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of each COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDER, and such shares were offered,
issued, sold and delivered in compliance with all applicable state and Federal
laws concerning the issuance and distribution of securities. Further, none of
such shares were issued in violation of any preemptive rights of any past or
present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, no COMPANY has acquired any Company Stock. Except as set
forth on
-11-
<PAGE>
Schedule 5.4, (i) no option, warrant, call, conversion right or commitment of
any kind exists which obligates any COMPANY to issue any of its capital stock,
and (ii) no COMPANY has any 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 5.4 also includes complete and accurate copies of all stock option or
stock purchase plans, including a list of all outstanding options, warrants or
other rights to acquire shares of each COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, no COMPANY has any
subsidiaries. Except as set forth in Schedule 5.6, no COMPANY presently owns, 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, limited liability company, association or business entity nor is
any COMPANY, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of each COMPANY, including the
names of any entities or businesses acquired by each COMPANY (by stock purchase,
asset purchase, merger or otherwise) or owned by each COMPANY or from whom each
COMPANY previously acquired material assets. Except as disclosed on Schedule
5.7, no COMPANY has been a subsidiary or division of another corporation or a
part of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANIES. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of any COMPANY or
any other person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
any COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of Evins Personnel Consultants, Inc. and
Affiliates (which include all of the COMPANIES) (the "Company Financial
Statements"): the COMPANIES' combined audited and unaudited Balance Sheets as of
December 31, 1996 and June 30, 1997, and combined Statements of Income,
Shareholders' Equity and Cash Flows for all periods then ended. The date of June
30, 1997 is hereinafter referred to as the "Balance Sheet Date." Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis
-12-
<PAGE>
throughout the periods indicated (except as noted therein or on Schedule 5.9).
Except as set forth on Schedule 5.9, such combined Balance Sheets as of December
31, 1996 and June 30, 1997 present fairly the combined financial position of the
COMPANIES as of the dates indicated thereon, and such combined Statements of
Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the combined COMPANIES's reserves for workers'
compensation and health care costs reflected on the combined Balance Sheet as of
the Balance Sheet Date are adequate and appropriate and have been accrued in
accordance with generally accepted accounting principles. No COMPANY has
received any report (including, without limitation, a report from any actuary,
insurance company or accountant) which suggests that any of the reserves
reflected on any of the Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANIES have delivered to PARENT
an accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet
Date of (i) all liabilities of the COMPANIES which are not reflected on the
balance sheet of the COMPANIES at the Balance Sheet Date or otherwise reflected
in the Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANIES (including all liabilities in excess of $10,000
which are not reflected in the balance sheet as of the Balance Sheet Date) and
(iii) all loan agreements, indemnity or guaranty agreements, bonds, mortgages,
liens, pledges or other security agreements. Except as set forth on Schedule
5.10, since the Balance Sheet Date the COMPANIES have not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. Each COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to such COMPANY's knowledge, threatened
litigation, or other liabilities which are not fixed or otherwise accrued or
reserved, a good faith and reasonable estimate of the maximum amount which may
be payable. For any such contingent liability or liability for which the amount
is not fixed or is contested, such COMPANY has provided to PARENT the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit or
proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
-13-
<PAGE>
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANIES have delivered to PARENT
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANIES, as of August 31, 1997, 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 STOCKHOLDER. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANIES to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANIES and their employees (for the
benefit of a COMPANY) hold all licenses, registrations, franchises, permits and
other governmental authorizations the absence of any of which could have a
Material Adverse Effect on the COMPANIES. Each COMPANY and its employees (for
the benefit of a COMPANY) are licensed or registered as professional employer
organizations and/or as control persons thereof, as appropriate, in each
jurisdiction in which their activities require such licensing or registration,
except where failure to be so licensed or registered could not have a Material
Adverse Effect on the COMPANIES. The COMPANIES have delivered to PARENT an
accurate list and summary description (which is set forth on Schedule 5.12) of
all such licenses, registrations, franchises, permits and other governmental
authorizations, including permits, titles (including motor vehicle titles and
current registrations), fuel permits, licenses, registrations, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the COMPANIES or any of their employees (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 5.13). To the
knowledge of the COMPANIES, the licenses, registrations, franchises, permits and
other
-14-
<PAGE>
governmental authorizations listed on Schedules 5.12 and 5.13 are valid, and no
COMPANY has received any notice that any governmental authority intends to
cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANIES have conducted and are conducting
their business in compliance with the requirements, standards, criteria and
conditions set forth in the licenses, registrations, franchises, permits and
other governmental authorizations listed on Schedules 5.12 and 5.13 and are not
in violation of any of the foregoing except where such non-compliance or
violation would not have a Material Adverse Effect on the COMPANIES. Except as
specifically provided in Schedule 5.12, the transactions contemplated by this
Agreement will not result in a material default under or a material breach or
violation of, or materially adversely affect the rights and benefits afforded to
the COMPANIES by, any such licenses, registrations, franchises, permits or
government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANIES have complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANIES have
obtained and adhered to all necessary permits and other approvals necessary to
treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and have reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by the COMPANIES where Hazardous Wastes or Hazardous Substances have
been treated, stored, disposed of or otherwise handled; (iii) there have been no
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANIES except as permitted by
Environmental Laws; (iv) the COMPANIES know of no on-site or off-site location
to which any COMPANY has transported or disposed of Hazardous Wastes and
Hazardous Substances or arranged for the transportation of Hazardous Wastes and
Hazardous Substances, which site is the subject of any Federal, state, local or
foreign enforcement action or any other investigation which could lead to any
claim against any COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANIES have no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
-15-
<PAGE>
5.14 PERSONAL PROPERTY.
(a) The COMPANIES have delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the
COMPANIES, (y) all other personal property owned by the COMPANIES with a value
in excess of $10,000 (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date and (z) all leases and agreements in respect of personal
property, including, in the case of the of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by STOCKHOLDER, relatives of
STOCKHOLDER, or affiliates of any COMPANY. Except as set forth on Schedule 5.14,
(i) all personal property used by any COMPANY in its business is either owned by
such COMPANY or leased by such COMPANY pursuant to a lease included on Schedule
5.14, (ii) all of the personal property listed on Schedule 5.14 is in good
working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANIES owns license or possess the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights they currently use, without any conflict or, to the
knowledge of any COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANIES prior to the Closing will
be owned or available for use by the related Surviving Corporation on the same
terms and conditions immediately following the Closing. Except as described in
Schedule 5.14, the COMPANIES have taken all such actions as are reasonably
necessary to maintain and protect such of their intellectual property as is
material to the operations and results of the COMPANIES' business. Schedule 5.14
lists all of the material intellectual property rights used by the COMPANIES as
well as any material intellectual property rights owned by third parties and
used by the COMPANIES pursuant to licenses, sublicenses, agreements or
permissions; all of the foregoing licenses, sublicenses, agreements and
permissions are valid, binding and in full force and effect and no default has
occurred and no notice of default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANIES has delivered to PARENT an accurate list (which is set forth on
Schedule 5.15) of all significant customers, or persons or entities that are
sources of a significant number of customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANIES'
combined annual revenues as of the Balance Sheet Date. Except to the extent set
forth on Schedule 5.15, none of the
-16-
<PAGE>
COMPANIES' significant customers (or persons or entities that are sources of a
significant number of customers) have canceled or substantially reduced or, to
the knowledge of any COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by a
COMPANY.
The COMPANIES have listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANIES are a party or by
which it or any of their properties are bound (including, but not limited to,
contracts with significant customers, joint venture or partnership agreements,
contracts with any labor organizations, strategic alliances and options to
purchase land), other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a)
in existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in the case has delivered true, complete and correct copies of
such agreements to PARENT. The COMPANIES have complied with all material
commitments and obligations pertaining to it, and are not in default under any
contracts or agreements listed on Schedule 5.15 and no notice of default under
any such contract or agreement has been received. The COMPANIES have also
indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations, the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $50,000 by the COMPANIES.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANIES (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANIES in the conduct of their business. The COMPANIES have good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
-17-
<PAGE>
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANIES with respect to real property owned by the COMPANIES.
The COMPANIES have also delivered to the Parent an accurate list of real
property leased by the COMPANIES (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANIES (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDER or business or personal
affiliates of the COMPANIES or STOCKHOLDER. Except as set forth on Schedule
5.16, all of such leases included on Schedule 5.16 are in full force and effect
and constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their terms.
5.17 INSURANCE. The COMPANIES have delivered to PARENT, as set forth on
and attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date
of all insurance policies carried by the COMPANIES, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANIES are required to carry pursuant to all of their
contracts and other agreements and pursuant to all applicable laws. All of such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Funding and Consummation Date. Since January
1, 1993, no insurance carried by any COMPANY has been canceled by an insurer
and, to the knowledge of the COMPANIES, no COMPANY has been denied coverage. No
insurance carried by any COMPANY has ever been underwritten or reinsured with
any insurance company in which any COMPANY, the STOCKHOLDER or any affiliate of
any COMPANY or any STOCKHOLDER has any financial or ownership interest.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANIES has delivered to PARENT an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the
COMPANIES, 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) the date hereof. The
COMPANIES have provided to PARENT true, complete and correct copies of any
employment agreements for persons listed on Schedule 5.18. Except as set forth
on Schedule 5.18, since June 30, 1997 there have been no increases in the
compensation 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.
-18-
<PAGE>
Except as set forth on Schedule 5.18, (i) the COMPANIES are not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANIES are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of any COMPANY, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
any COMPANY's knowledge, threatened labor dispute involving any COMPANY and any
group of its employees nor has any COMPANY experienced any labor interruptions
over the past three years. Each COMPANY believes its relationship with employees
to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDER has delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANIES (including COMPANIES' subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, no COMPANY (including any COMPANY subsidiary) sponsors, maintains
or contributes to any plan program, fund or arrangement that constitutes an
"employee pension benefit plan," nor has any COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. No COMPANY nor
any subsidiary has sponsored, maintained or contributed to any employee pension
benefit plan other than the plans set forth on Schedule 5.19, nor is any COMPANY
or any subsidiary required to contribute to any retirement plan pursuant to the
provisions of any collective bargaining agreement establishing the terms and
conditions or employment of any of COMPANY's or any subsidiary's employees.
No COMPANY nor any subsidiary is now, or can as a result of its past
activities become, liable to the Pension Benefit Guaranty Corporation ("PBGC")
or to any multiemployer employee pension benefit plan under the provisions of
Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
-19-
<PAGE>
All accrued contribution obligations of each COMPANY or any subsidiary
with respect to any plan listed on Schedule 5.19 have either been fulfilled in
their entirety or are fully reflected on the combined balance sheet of the
COMPANIES as of the Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. The
STOCKHOLDER, any such plan listed in Schedule 5.19, or any COMPANY (including
any COMPANY subsidiary) has not engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and no
COMPANY (including any COMPANY subsidiary) has incurred any liability for excise
tax or penalty due to the Internal Revenue Service nor any liability to the
PBGC. In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) no COMPANY (including any COMPANY subsidiary) has incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which any COMPANY (including
any COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than any COMPANY that is, or
-20-
<PAGE>
at any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes such COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANIES nor, to the knowledge of any
COMPANY, any client of any COMPANY is in violation of, or has violated, any law
or regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANIES; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of any COMPANY, threatened, against or affecting any COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. No COMPANY has,
and, to the knowledge of each COMPANY, none of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANIES.
5.22 TAXES. Except as set forth on schedule 5.22, all of the COMPANIES
(including any COMPANY subsidiary) has timely filed all requisite federal, state
and other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 5.22, to the
knowledge of any COMPANY, there are no examinations in progress or claims
against any of them for federal, state and other taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for taxes, whether pending or threatened, has
been received. Except as set forth on Schedule 5.22, all Taxes, including
interest and penalties (whether or not shown on any Tax return) owed by any
COMPANY, any COMPANY's subsidiaries, any member of an affiliated or consolidated
group which includes or included any COMPANY or any COMPANY's subsidiaries, or
with respect to any payment made or deemed made by any COMPANY or any COMPANY's
subsidiaries, have been paid. The amounts shown as accruals for Taxes on the
Company Financial Statements are sufficient for the payment of all Taxes of the
kinds indicated (including penalties and interest) for all fiscal periods.
Copies of (i) any Tax examinations, (ii) extensions of statutory limitations and
(iii) the federal and local income Tax returns and franchise Tax returns of each
COMPANY (including any COMPANY subsidiaries) for their last three (3) fiscal
years, or such shorter period of time as any of them shall have existed, are
attached hereto as Schedule 5.22. Each COMPANY has a taxable year ended December
31 and has not made an election to retain a fiscal year other than December 31
under
-21-
<PAGE>
Section 444 of the Code. No COMPANY's methods of accounting have changed in the
past five years. No COMPANY is an investment company as defined in Section
351(e)(1) of the Code.
5.23 NO VIOLATIONS. No COMPANY is in violation of any Charter Document. No
COMPANY nor, to the knowledge of any COMPANY, any other party thereto is in
default under any lease, instrument, agreement, license, or permit set forth on
Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other material agreement to
which it is a party or by which its properties are bound (the "Material
Documents") in any manner that could result in a Material Adverse Effect; and,
except as set forth in Schedule 5.23, (a) the rights and benefits of the
COMPANIES under the Material Documents will not be materially adversely affected
by the transactions contemplated hereby and (b) the execution of this Agreement
and the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency 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 right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by any COMPANY, the PARENT or ACQUISITION CORP.
of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts any COMPANY from freely providing
services to any other customer or potential customer of any COMPANY, the PARENT,
ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, no
COMPANY is now a party to any governmental contracts subject to price
redetermination or renegotiation.
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the combined financial condition,
assets, liabilities (contingent or otherwise), income or business of the
COMPANIES; or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANIES; or
(iii) any change in the authorized capital of the COMPANIES or their
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
-22-
<PAGE>
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANIES; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANIES to any of
their officers, directors, stockholders, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANIES; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of any COMPANY to any person,
including, without limitation, the STOCKHOLDER or any affiliate thereof;
or
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to any COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDER or any affiliate thereof; or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of any COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of any COMPANY's business; or
(xi) any waiver of any material rights or claims of any COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which any COMPANY is a party;
or
(xiii) any transaction by any COMPANY outside the ordinary course of
its businesses; or
-23-
<PAGE>
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by any COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANIES' combined Balance Sheet on the Balance Sheet
Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANIES have delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which each COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from each COMPANY and a
description of the terms of such power.
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANIES and the performance of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors and the
STOCKHOLDER of the COMPANIES and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of the COMPANIES and the STOCKHOLDER.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANIES have not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other
-24-
<PAGE>
documents and information made available to PARENT and its representatives in
writing pursuant hereto or thereto, present fairly the business and operations
of the COMPANIES for the time periods with respect to which such information was
requested. The COMPANIES' 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
any COMPANY is a party, or to which its properties are subject, or by any other
fact or circumstance regarding any COMPANY (which fact or circumstance was, or
should reasonably, after due inquiry, have been known to any COMPANY) that is
not disclosed pursuant hereto or thereto. If, prior to the 25th day after the
date of the final prospectus of PARENT utilized in connection with the IPO, the
COMPANIES or the STOCKHOLDER become aware of any fact or circumstance which
would change (or, if after the Funding and Consummation Date, would have
changed) a representation or warranty of the COMPANIES or STOCKHOLDER in this
Agreement or would affect any document delivered pursuant hereto in any material
respect, the COMPANIES and the STOCKHOLDER shall immediately give notice of such
fact or circumstance to PARENT. However, subject to the provisions of Section
7.8, such notification shall not relieve either the COMPANIES or the STOCKHOLDER
of their obligations under this Agreement, and, subject to the provisions of
Section 7.8, at the sole option of PARENT, the truth and accuracy of any and all
warranties and representations of the COMPANIES, or on behalf of the COMPANIES
and of STOCKHOLDER at the date of this Agreement and on the Closing Date and on
the Funding and Consummation Date, shall be a precondition to the consummation
of this transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANIES
and the STOCKHOLDER acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any of its officers, directors, agents or representatives nor any
Underwriter shall have any liability to the COMPANIES, the STOCKHOLDER or any
other person affiliated or associated with the COMPANIES for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or within a particular range of prices or to occur at all; and (iii) that
the decision of STOCKHOLDER to enter into this Agreement, or to vote in favor of
or consent to the proposed Merger, has been or will be made independent of, and
without reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANIES and the STOCKHOLDER retain their right to insist
that the IPO Stock Price be no lower than the minimum price specified in Annex
II.
-25-
<PAGE>
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANIES have not, between the Balance Sheet Date and the date hereof, taken
any of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The STOCKHOLDER represents and warrants that the representations and
warranties set forth below are true as of the date of this Agreement and,
subject to Section 7.8, shall be true on the Closing Date and on the Funding and
Consummation Date, and that the representations and warranties set forth in
Sections 5.31 and 5.32 shall survive until the first anniversary of the Funding
and Consummation Date, which shall be the Expiration Date for purposes of
Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. The STOCKHOLDER has the full legal right, power
and authority to enter into this Agreement. The STOCKHOLDER owns beneficially
and of record all of the shares of the Company Stock identified on Annex III as
being owned by the STOCKHOLDER, and, except as set forth on Schedule 5.31, such
Company Stock is owned free and clear of all liens, encumbrances and claims of
every kind.
5.32 PREEMPTIVE RIGHTS. The STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that the STOCKHOLDER has or may have had other than rights of the STOCKHOLDER to
acquire Parent Stock pursuant to (i) this Agreement or (ii) any written option
granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and each ACQUISITION CORP. jointly and severally represent
and warrant that all of the following representations and warranties in this
Section 6 are true at the date of this Agreement and, subject to Section 7.8
hereof, shall be true on the Closing Date and the Funding and Consummation Date,
and that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection
-26-
<PAGE>
with the IPO, PARENT actually incurs liability under the 1933 Act, the 1934 Act,
or any other federal or state securities laws, the representations and
warranties set forth herein shall survive until the expiration of any applicable
limitations period, which shall be deemed to be the Expiration Date for such
purposes.
6.1 DUE ORGANIZATION. PARENT and each ACQUISITION CORP. are corporations
duly organized, validly existing and in good standing under the laws of the
State of Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and each ACQUISITION CORP.
(the "Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and each ACQUISITION
CORP. executing this Agreement have the authority to enter into and bind PARENT
and each ACQUISITION CORP. to the terms of this Agreement. PARENT and each
ACQUISITION CORP. have the corporate power and authority to enter into this
Agreement and the Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORPS. The authorized capital
stock of PARENT and each ACQUISITION CORP. is as set forth in Sections 1.4(ii)
and (iii), respectively. All of the issued and outstanding shares of the capital
stock of each ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and each ACQUISITION CORP. have been duly authorized and validly issued,
are fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or any ACQUISITION CORP.
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or any ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor any ACQUISITION
-27-
<PAGE>
CORP. has any 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 6.4 also
includes complete and accurate copies of all stock option or stock purchase
plans, including a list, accurate as of the date hereof, of all outstanding
options, warrants or other rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. No ACQUISITION CORP. has any subsidiaries. PARENT has no
subsidiaries except for the ACQUISITION CORPS. and the other companies
identified as "ACQUISITION CORP." in the of the Other Agreements. Except as set
forth in the preceding sentence, neither PARENT nor any ACQUISITION CORP.
presently owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity, and neither PARENT
nor any ACQUISITION CORP., directly or indirectly, is a participant in any joint
venture, partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February,
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and the ACQUISITION CORPS. have no material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement and the
Other Agreements and except for fees incurred in connection with the
transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor any ACQUISITION CORP. is in violation of any
law or regulation or any order of any court or Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them which would have a
Material Adverse Effect; and except to the extent set forth in Schedule 6.8,
there are no material claims, actions, suits or proceedings, pending or, to the
knowledge of PARENT or any ACQUISITION CORP., threatened, against or affecting
PARENT or any ACQUISITION CORP., at law or in equity, or before or by any
federal, state, municipal or other governmental department,
-28-
<PAGE>
commission, board, bureau, agency or instrumentality having jurisdiction over
either of them and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received. PARENT and each ACQUISITION CORP. have
conducted and are conducting their businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which might have a Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor any ACQUISITION CORP. is in
violation of any Parent Charter Document. None of PARENT, any ACQUISITION CORP.,
or, to the knowledge of PARENT and any ACQUISITION CORP., any other party
thereto, is in default under any lease, instrument, agreement, license, or
permit to which PARENT or any ACQUISITION CORP. is a party, or by which PARENT
or any ACQUISITION CORP., or any of their properties, are bound (collectively,
the "Parent Documents"); and (a) the rights and benefits of PARENT and any
ACQUISITION CORP. under the Parent Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the
Parent Documents or the Parent Charter Documents. Except as set forth on
Schedule 6.9, none of the Parent Documents requires notice to, or the consent or
approval of, any governmental agency 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 right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and the ACQUISITION CORPS. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and the ACQUISITION CORPS. and this Agreement has been duly
and validly authorized by all necessary corporate action and is a legal, valid
and binding obligation of PARENT and the ACQUISITION CORPS.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDER
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
-29-
<PAGE>
6.12 NO SIDE AGREEMENTS. Neither PARENT nor any ACQUISITION CORP. has
entered or will enter into any agreement with any of the Founding Companies or
any of the stockholders of the Founding Companies other than the Other
Agreements and the agreements contemplated by the Other Agreements, including
the employment agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February, 1997 and has conducted limited operations since that time. Neither
PARENT nor any ACQUISITION CORP. has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Neither PARENT nor any ACQUISITION CORP. owns or has at
any time owned any real property or any material personal property or is a party
to any other agreement, except as listed on Schedule 6.13 and except that PARENT
is a party to the Other Agreements and the agreements contemplated thereby and
to such agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information in
the Annexes and Schedules, this Agreement and the Other Agreements are in
substantially the same form; and copies of the Other Agreements are available
for review by COMPANY and the STOCKHOLDER. In arriving at the consideration to
be paid to STOCKHOLDER specified in Annex II, PARENT utilized with the COMPANIES
substantially the same methodologies as PARENT utilized with each of the Other
Founding Companies.
6.14 TAXES.PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on any tax return) owed by PARENT, any member of
an affiliated or consolidated group which includes or included PARENT, or with
respect to any payment made or deemed made by PARENT herein has been paid. The
amounts shown as accruals for taxes on Parent Financial Statements are
sufficient for the payment of all Taxes of the kinds indicated (including
penalties and interest) for all fiscal periods ended on or before that date.
PARENT is not an investment company as defined in Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
-30-
<PAGE>
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDER, and except as
contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
-31-
<PAGE>
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANIES and the STOCKHOLDER, together with this Agreement and
the information furnished to the COMPANIES and the STOCKHOLDER in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANIES or the STOCKHOLDER.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANIES will afford to
the officers and authorized representatives of PARENT access to all of the
COMPANIES' sites, properties, books and records and will furnish PARENT with
such additional financial and operating data and other information as to the
business and properties of the COMPANIES as PARENT may from time to time
reasonably request. The COMPANIES will cooperate with PARENT, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be reasonably required in connection with any documents
or materials required by this Agreement. PARENT, ACQUISITION CORPS., the
STOCKHOLDER and the COMPANIES will treat all information obtained in connection
with the negotiation and performance of this Agreement as confidential in
accordance with the provisions of Section 14 hereof. In addition, PARENT will
cause each of the Other Founding Companies to enter into a provision similar to
this Section 7.1 requiring each Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company.
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANIES access to all of PARENT's and the ACQUISITION CORPS.' sites,
properties, books and records and will furnish the COMPANIES with such
additional financial and operating data and other information as to the business
and properties of PARENT and the ACQUISITION CORPS. as the COMPANIES may from
time to time reasonably request. PARENT and the ACQUISITION CORPS. will
cooperate with the COMPANIES, its representatives, auditors and counsel in the
preparation of any documents or other material which may be required in
connection with any documents or materials required by this Agreement. The
COMPANIES will cause all information obtained in connection
-32-
<PAGE>
with the negotiation and performance of this Agreement to be treated as
confidential in accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANIES will, except as
set forth on Schedule 7.2:
(i) carry on their businesses in substantially the same manner as
they have heretofore and not introduce any material new method of
management, operation or accounting; and
(ii) maintain their properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted; and
(iii) perform in all material respects all of their obligations
under agreements relating to or affecting its assets, properties or
rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve their
business organization intact, retain its present key employees and
maintain their relationships with suppliers, customers and others having
business relations with any COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and maintain all debt and lease obligations at
levels no greater than the levels in effect on the Balance Sheet Date; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
-33-
<PAGE>
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANIES will not, without prior written consent of
PARENT:
(i) make any change in their Articles of Incorporation or By-laws;
or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to their securities of any kind other than
in connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) declare or pay any dividend, or make any distribution in
respect of their stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANIES,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
-34-
<PAGE>
(ix) waive any material rights or claims of any COMPANY, provided
that a COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of any COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDER, any COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to, any acquisition or purchase of all or a
material amount of the assets of, or any equity interest in, any COMPANY
or a merger, acquisition, consolidation, share exchange or business
combination of or with any COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, each COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide PARENT on Schedule 7.5 with proof that any required notice has been
sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDER and the
COMPANIES shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between any
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between any COMPANY and the STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
-35-
<PAGE>
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDER and the COMPANIES
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of any COMPANY or the STOCKHOLDER contained herein to
be untrue or inaccurate in any material respect at or prior to the Closing Date
or the Funding and Consummation Date and (ii) any material failure of the
STOCKHOLDER or any COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORPS. shall give prompt notice to the COMPANIES of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or any
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or any ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by any COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANIES consent to
such amendment or supplement; and provided further, that no amendment or
supplement to a Schedule prepared by PARENT or any ACQUISITION CORP. that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse
-36-
<PAGE>
Effect on such Other Founding Company, PARENT shall give the COMPANIES notice
promptly after it has knowledge thereof. If PARENT and a majority of the
Founding Companies consent to such amendment or supplement, which consent shall
have been deemed given by PARENT or any Founding Company if no response is
received within 24 hours following receipt of notice of such amendment or
supplement (or sooner if required by the circumstances under which such consent
is requested), but the COMPANIES do not give their consent, the COMPANIES may
terminate this Agreement pursuant to Section 12.1(iv). In the event that any
COMPANY seeks to amend or supplement a Schedule pursuant to this Section 7.8,
and PARENT and a majority of the Other Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i). In the event that PARENT or any
ACQUISITION CORP. seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i). No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANIES
and STOCKHOLDER shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANIES and the STOCKHOLDER
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANIES and the STOCKHOLDER
agree promptly to advise PARENT if at any time during the period in which a
prospectus relating to the offering is required to be delivered under the 1933
Act, any information contained in the prospectus concerning the COMPANIES or the
STOCKHOLDER becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANIES or the STOCKHOLDER, the COMPANIES
represent and warrant as to such information with respect to themselves, and the
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANIES and herself, that the Registration Statement will not include an
untrue statement of a material fact or omit to state a 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. PARENT will keep the
COMPANIES and the Other Founding Companies advised as to the status of the
Registration Statement, including receipt of SEC comments, PARENT'S response
thereto, and the anticipated date and time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANIES shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited
-37-
<PAGE>
combined balance sheets of the COMPANIES as of the end of all fiscal quarters
following the Balance Sheet Date, and the unaudited combined statement of
income, cash flows and retained earnings of the COMPANIES for all fiscal
quarters ended after the Balance Sheet Date, disclosing no material adverse
change in the combined financial condition of the COMPANIES or the combined
results of their operations or cash flows from the financial statements as of
the Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the combined results of operations or cash flows of the COMPANIES for the
periods indicated therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDER and the COMPANIES shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORPS. shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDER AND COMPANIES
The obligations of STOCKHOLDER and the COMPANIES 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 following conditions. The obligations of
the STOCKHOLDER and the COMPANIES with respect to the actions to be taken on the
Funding and Consummation Date are subject to the
-38-
<PAGE>
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date
or, with respect to the conditions set forth in Sections 8.l, 8.8 and 8.12, as
of the Funding and Consummation Date, all conditions not satisfied or objected
to shall be deemed to have been waived, except that no such waiver shall be
deemed to affect the survival of the representations and warranties of PARENT
and the ACQUISITION CORPS. contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORPS. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORPS. on or before the Closing Date and the Funding and
Consummation Date shall have been duly complied with and performed in all
material respects; and certificates to the foregoing effect dated the Closing
Date and the Funding and Consummation Date, respectively, and signed by the
President or any Vice President of PARENT shall have been delivered to the
COMPANIES and the STOCKHOLDER.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANIES and their counsel. The
STOCKHOLDER and the COMPANIES shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANIES
or STOCKHOLDER shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANIES as a result of which
the management of the COMPANIES deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANIES shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
-39-
<PAGE>
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDER is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANIES as a result of which COMPANIES deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORPS. shall have
delivered to the COMPANIES a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORPS. are authorized
to do business, showing that PARENT and ACQUISITION CORPS. are in good standing
and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORPS. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANIES shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of the ACQUISITION CORPS., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORPS.' Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORPS. approving PARENT's and ACQUISITION
CORPS.' entering into this Agreement and the consummation of the transactions
contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
-40-
<PAGE>
8.12 TAX MATTERS. The STOCKHOLDER shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDER that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDER has complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORPS. 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 following conditions. The obligations of
PARENT and ACQUISITION CORPS. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANIES and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDER and the COMPANIES contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding and Consummation Date with the same effect as
though such representations and warranties had been made on and as of such
dates; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by the STOCKHOLDER and the COMPANIES on or before the
-41-
<PAGE>
Closing Date or the Funding and Consummation Date, as the case may be, shall
have been duly performed or complied with in all material respects; and the
STOCKHOLDER shall have delivered to PARENT certificates dated the Closing Date
and the Funding and Consummation Date and signed by her to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary(ies) of the COMPANIES,
certifying the truth and correctness of attached copies of each such COMPANY's
Certificate or Articles of Incorporation (including amendments thereto), By-Laws
(including amendments thereto), and resolutions of the Board of Directors and
the STOCKHOLDER approving each such COMPANY's entering into this Agreement and
the consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANIES which would constitute a Material Adverse
Effect, and the COMPANIES 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 the
COMPANIES to conduct their business.
9.5 STOCKHOLDER'S RELEASE. The STOCKHOLDER shall have delivered to PARENT
and the COMPANIES an instrument dated the Closing Date releasing the COMPANIES
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDER
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANIES
and PARENT to the STOCKHOLDER, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDER which are to survive Closing, (y) any obligations arising after the
Funding and Consummation Date to the STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
-42-
<PAGE>
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANIES (including all subsidiaries) and the STOCKHOLDER and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANIES and the STOCKHOLDER, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANIES shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in each
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which each COMPANY (and each subsidiary) is authorized
to do business, showing each such COMPANY is in good standing and authorized to
do business and that all state franchise and/or income Tax returns and Taxes for
each COMPANY (and each subsidiary) for all periods prior to the Closing have
been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The appropriate COMPANY and each of the
persons listed on Schedule 9.12 shall have entered into an employment agreement
substantially in the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. STOCKHOLDER shall have delivered to PARENT a
certificate to the effect that she is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
-43-
<PAGE>
10. COVENANTS OF PARENT AND THE STOCKHOLDER AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANIES' funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANIES shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDER shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDER
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings or other determinations by Taxing
Authorities and relevant records concerning the ownership and Tax basis of
property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis at its cost
to provide explanation of any documents or information so provided.
Subject to the preceding sentence,
-44-
<PAGE>
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANIES, ACQUISITION CORPS., PARENT and the
STOCKHOLDER shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at any COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of each COMPANY will be the employees of the related
Surviving Corporation (provided that this provision is for purposes of
clarifying that the Merger, in and of itself, will not have any impact on the
employment status of any employee and provided, further, that this provision
shall not in any way limit the management rights of the related Surviving
Corporation or PARENT to assess workforce needs and make appropriate adjustments
as necessary or desirable within their discretion subject to applicable laws and
collective bargaining agreements).
10.6 DIVIDENDS. The COMPANIES may pay to the STOCKHOLDER as dividends the
amount of the COMPANIES' combined net income after accruals federal and state
income taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANIES may borrow funds to the extent necessary to
make the payments contemplated by this Section 10.6 and to the extent necessary
to ensure that the COMPANIES have cash on hand to adequately fund operations on
the Funding and Consummation Date.
11. INDEMNIFICATION
The STOCKHOLDER, PARENT and ACQUISITION CORPS. each make the following
covenants that are applicable to them, respectively:
-45-
<PAGE>
11.1 INDEMNIFICATION BY THE STOCKHOLDER. The STOCKHOLDER covenants and
agrees that she will indemnify, defend, protect and hold harmless PARENT,
ACQUISITION CORPS., the COMPANIES and the Surviving Corporations at all times,
from and after the date of this Agreement until the applicable 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 PARENT, ACQUISITION CORPS., the COMPANIES or the Surviving
Corporations as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDER or the COMPANIES set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDER or the COMPANIES
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANIES or the STOCKHOLDER, and provided to
PARENT or its counsel by the COMPANIES or the STOCKHOLDER (but in the case of
the STOCKHOLDER, only if such statement was provided in writing) contained in
the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANIES or the STOCKHOLDER required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORPS., the COMPANIES or
the Surviving Corporations to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDER provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the STOCKHOLDER 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
STOCKHOLDER as a result of or arising from (i) any breach by PARENT or
ACQUISITION CORPS. of their representations and warranties set forth herein or
on the Schedules or certificates attached hereto, (ii) any breach of any
agreement on the part of PARENT or ACQUISITION CORPS. under this Agreement, or
(iii) any liabilities which the STOCKHOLDER may incur due to PARENT's or any
ACQUISITION CORP.'s failure to be responsible for the liabilities and
obligations of the COMPANIES as provided in Section 1 hereof (except to the
extent that PARENT or any ACQUISITION CORP. has claims against the STOCKHOLDER
by reason of such liabilities); (iv) any liability under the 1933 Act, the 1934
Act or other federal or state law or
-46-
<PAGE>
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to PARENT, any
ACQUISITION CORP. or any of the Other Founding Companies contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to PARENT or any ACQUISITION CORP. or any of the Other Founding
Companies required to be stated therein or necessary to make the statements
therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-47-
<PAGE>
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 by said Third Person. Upon
agreement as to such settlement between said Third Person and the Indemnifying
Party, the Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
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 insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORPS.,
the Surviving Corporations nor any other persons or entities indemnified
pursuant to Section 11.1 or 11.2 shall assert any claim for indemnification
hereunder against the STOCKHOLDER until such time as, and solely to the extent
that, the aggregate of all claims which all such persons may have against the
STOCKHOLDER shall exceed 1.0% of (i) the sum of the cash paid to the STOCKHOLDER
plus (ii) the value of the Parent Stock delivered to the STOCKHOLDER (calculated
as provided below) (the "Indemnification Threshold"). The STOCKHOLDER shall not
assert any claim for indemnification hereunder against PARENT or ACQUISITION
CORPS. until such time as, and solely to the extent that, the aggregate of all
claims which STOCKHOLDER may have against PARENT or ACQUISITION CORPS. shall
exceed the amount of the Indemnification Threshold.
-48-
<PAGE>
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement the STOCKHOLDER shall not
be liable under this Section 11 for an amount which exceeds the amount of
proceeds received by the STOCKHOLDER in connection with the Merger. For purposes
of calculating the value of the Parent Stock received by the STOCKHOLDER, Parent
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that the STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by the STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANIES; or
(ii) by the COMPANIES (acting through their board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDER or the COMPANIES (acting through their board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDER or COMPANIES (acting through their boards of
directors), on the one hand, or by PARENT (acting through their board of
directors), 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 Funding and Consummation Date;
or
(v) pursuant to Section 7.8 hereof; or
-49-
<PAGE>
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDER will not, for a period of five
(5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or leasing, permanent placement or human resource
consulting or outsourcing business in competition with PARENT or any of the
subsidiaries thereof, within 100 miles of where any COMPANY or any of their
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or any COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
(iv) call upon any prospective acquisition candidate, on the STOCKHOLDER'S
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual knowledge of the STOCKHOLDER, was
called upon by PARENT (including the subsidiaries
-50-
<PAGE>
thereof) or for which, to the knowledge of the STOCKHOLDER, PARENT (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
any COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that such COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, the STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by the
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDER in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the STOCKHOLDER
against PARENT (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
PARENT (or any subsidiary) of such covenants. It is specifically agreed that the
period of five (5) years stated at the beginning of this Section 13, during
which the agreements and covenants of the STOCKHOLDER made in this Section 13
shall be effective, shall be computed by
-51-
<PAGE>
excluding from such computation any time during which the STOCKHOLDER is in
violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDER hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDER. The STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANIES, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANIES',
the Other Founding Companies' and/or PARENT's businesses. The STOCKHOLDER agrees
that he 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 PARENT, (b) following the Closing,
such information may be disclosed by the STOCKHOLDER as is required in the
course of performing his duties for PARENT or the Surviving Corporation and (c)
to counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of the
STOCKHOLDER, (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 STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining the STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORPS. PARENT and ACQUISITION CORPS.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANIES, such as operational policies,
pricing and cost policies, and insurance costs that are valuable, special and
unique assets of the COMPANIES' business. PARENT and ACQUISITION CORPS. agree
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
-52-
<PAGE>
(a) to authorized representatives of the COMPANIES, (b) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to the Other Founding
Companies and their representatives pursuant to Section 7.1(a), unless (i) such
information becomes known to the public generally through no fault of PARENT or
any ACQUISITION CORP., (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), PARENT and ACQUISITION CORPS.
shall, if possible, give prior written notice thereof to the COMPANIES and the
STOCKHOLDER and provide the COMPANIES and the STOCKHOLDER 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, and (d) to the public to the extent necessary or
advisable in connection with the filing of the Registration Statement and the
IPO and the securities laws applicable thereto and to the operation of PARENT as
a publicly held entity after the IPO. In the event of a breach or threatened
breach by PARENT or any ACQUISITION CORP. of the provisions of this Section, the
COMPANIES and the STOCKHOLDER shall be entitled to an injunction restraining
PARENT and any ACQUISITION CORP. from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting the
COMPANIES and the STOCKHOLDER from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDER or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDER shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any shares of Parent Stock received by the STOCKHOLDER in the Merger. The
certificates evidencing the Parent Stock delivered to the STOCKHOLDER pursuant
to Section 3 of this Agreement will
-53-
<PAGE>
bear a legend substantially in the form set forth below and containing such
other information as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDER acknowledges that the shares of
Parent Stock to be delivered to the STOCKHOLDER pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDER pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to the STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in the
Parent Stock. The STOCKHOLDER has had an adequate opportunity to ask questions
and receive answers from the officers of PARENT concerning any and all matters
relating to the
-54-
<PAGE>
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of PARENT, the
plans for the operations of the business of PARENT, the business, operations and
financial conditions of the Founding Companies other than the COMPANIES, and any
plans for additional acquisitions and the like. The STOCKHOLDER has asked any
and all questions in the nature described in the preceding sentence and all
questions have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDER prompt written notice of its
intent to do so. Upon the written request of the STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to the STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDER and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDER and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting
-55-
<PAGE>
fees, but excluding underwriting commissions and discounts which shall be
payable by the respective selling parties), shall be borne by PARENT. In
connection with registrations under Section 17.1, PARENT shall (i) use its best
efforts to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the Parent Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 90 days (or such shorter period during which holders shall have sold
all Parent Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the Parent Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the Parent Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by the STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to the STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANIES, STOCKHOLDER, PARENT and ACQUISITION
CORPS. shall the deliver or cause to be delivered to the other on the Funding
and Consummation 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. The COMPANIES will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANIES cooperate with PARENT on and after the Funding and Consummation
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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PARENT, ACQUISITION CORPS. and the COMPANIES,
-56-
<PAGE>
and the heirs and legal representatives of the STOCKHOLDER. Any attempt to
assign this Agreement in a manner inconsistent with this Agreement shall be void
and of no force or effect.
18.3 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 STOCKHOLDER, the
COMPANIES, ACQUISITION CORPS. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANIES shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of the
STOCKHOLDER. The STOCKHOLDER shall pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees
("Transfer Taxes") imposed in connection with the Merger, other than Transfer
Taxes, if any, imposed by the State of Delaware. The STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, the STOCKHOLDER acknowledges that she, and not the COMPANIES, PARENT
or the Surviving Corporations, will pay all Taxes due upon receipt of the
consideration payable pursuant to Section 2 hereof, and that he or she will
assume all Tax risks and liabilities of the STOCKHOLDER in connection with the
transactions contemplated hereby.
-57-
<PAGE>
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT or any ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDER, addressed to the address set forth on
the Stockholder Signature Page, with copies to:
James K. Presnal
Presnal & Associates, P.C.
2848 FM 2776
Bryan, Texas 77808-8900
(c) If to any COMPANY, addressed to it at:
Evins Personnel Services
2013 West Anderson Lane
Austin, Texas 78757
-58-
<PAGE>
with copies to:
James K. Presnal
Presnal & Associates, P.C.
2848 FM 2776
Bryan, Texas 77808-8900
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
-59-
<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORPS., the COMPANIES and the STOCKHOLDER
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 1 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 2 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
-60-
<PAGE>
"ACQUISITION CORP."
EPG SUB 3 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 4 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 5 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 6 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
EPG SUB 7 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
-61-
<PAGE>
"ACQUISITION CORP."
EPG SUB 8 ACQUISITION CORP.
By: _________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
-62-
<PAGE>
"COMPANY" consists of the following
corporations:
EVINS PERSONNEL CONSULTANTS, INC.
By: _________________________
Name:_________________________
Title:________________________
EVINS PERSONNEL CONSULTANTS, INC. # ONE
By: _________________________
Name:_________________________
Title:________________________
EVINS PERSONNEL CONSULTANTS, INC. # TWO
By: _________________________
Name:_________________________
Title:________________________
EXCEPTIONAL RESOURCE SERVICES, INC.
By: _________________________
Name:_________________________
Title:________________________
EXCELSIOR PERSONNEL CONSULTANTS, INC.
By: _________________________
Name:_________________________
Title:________________________
-63-
<PAGE>
EXCELLENT PERSONNEL CONSULTANTS, INC.
By: _________________________
Name:_________________________
Title:________________________
EVINS PERSONNEL CONSULTANTS OF
ABILENE, INC.
By: _________________________
Name:_________________________
Title:________________________
ELITE PERSONNEL CONSULTANTS, INC.
By: _________________________
Name:_________________________
Title:________________________
-64-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
(Mary Evins is the sole stockholder of each corporation included
within the definition of "Companies")
_______________________ Address: 2013 West Anderson Lane
Mary Evins Austin, Texas 78757
-65-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
GTS ACQUISITION CORP.
GLOBAL TECHNICAL SERVICES, INC.
and
the STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors
of the Surviving Corporation.....................................5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, PARENT and ACQUISITION CORP.............................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS.......................................................9
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the COMPANY....................................10
5.4 Transactions in Capital Stock; Organization Accounting..........10
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; Etc.........................................11
5.8 Spin-off by the COMPANY.........................................11
5.9 Financial Statements, Etc.......................................11
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................14
5.14 Personal Property...............................................14
5.15 Significant Customers; Material Contracts and Commitments.......15
5.16 Real Property...................................................16
5.17 Insurance.......................................................17
-i-
<PAGE>
5.18 Compensation; Employment Agreements; Organized Labor Matters....17
5.19 Employee Plans..................................................17
5.20 Compliance with ERISA...........................................18
5.21 Conformity with Law; Litigation.................................19
5.22 Taxes...........................................................20
5.23 No Violations...................................................20
5.24 Government Contracts............................................21
5.25 Absence of Changes..............................................21
5.26 Deposit Accounts; Powers of Attorney............................23
5.27 Validity of Obligations.........................................23
5.28 Relations with Governments......................................23
5.29 Disclosure......................................................23
5.30 Prohibited Activities...........................................24
5.31 Authority; Ownership............................................25
5.32 Preemptive Rights...............................................25
5.33 No Intention to Dispose of Parent Stock.........................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................25
6.1 Due Organization................................................25
6.2 Authorization...................................................26
6.3 Capital Stock of PARENT and ACQUISITION CORP....................26
6.4 Transactions in Capital Stock, Organization Accounting..........26
6.5 Subsidiaries....................................................26
6.6 Financial Statements............................................26
6.7 Liabilities and Obligations.....................................27
6.8 Conformity with Law; Litigation.................................27
6.9 No Violations...................................................27
6.10 Validity of Obligations.........................................28
6.11 Parent Stock....................................................28
6.12 No Side Agreements..............................................28
6.13 Business; Real Property; Material Agreements....................28
6.14 Taxes...........................................................28
6.15 Absence of Changes. ...........................................29
6.16 Disclosure. ...................................................30
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 Access and Cooperation; Due Diligence...........................30
7.2 Conduct of Business Pending Closing.............................31
7.3 Prohibited Activities...........................................32
-ii-
<PAGE>
7.4 No Shop.........................................................33
7.5 Notice to Bargaining Agents.....................................33
7.6 Agreements......................................................33
7.7 Notification of Certain Matters.................................34
7.8 Amendment of Schedules..........................................34
7.9 Cooperation in Preparation of Registration Statement............35
7.10 Final Financial Statements......................................36
7.11 Further Assurances..............................................36
7.12 Authorized Capital..............................................36
7.13 Compliance with Hart-Scott......................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY...............................................................36
8.1 Representations and Warranties; Performance of Obligations......37
8.2 Satisfaction....................................................37
8.3 No Litigation...................................................37
8.4 Opinion of Counsel..............................................37
8.5 Registration Statement..........................................37
8.6 Consents and Approvals..........................................38
8.7 Good Standing Certificates......................................38
8.8 No Material Adverse Effect......................................38
8.9 Closing of IPO..................................................38
8.10 Secretary's Certificate.........................................38
8.11 Employment Agreements...........................................38
8.12 Tax Matters. ..................................................38
8.13 Parallel Transfer Restrictions..................................39
8.14 Other Mergers...................................................39
8.15 Listing.........................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
ACQUISITION CORP......................................................39
9.1 Representations and Warranties; Performance of Obligations......39
9.2 No Litigation...................................................40
9.3 Secretary's Certificate.........................................40
9.4 No Material Adverse Effect......................................40
9.5 STOCKHOLDERS' Release...........................................40
9.6 Satisfaction....................................................40
9.7 Termination of Related Party Agreements.........................40
9.8 Opinion of Counsel..............................................40
-iii-
<PAGE>
9.9 Consents and Approvals..........................................41
9.10 Good Standing Certificates......................................41
9.11 Registration Statement..........................................41
9.12 Employment Agreements...........................................41
9.13 Closing of IPO..................................................41
9.14 FIRPTA Certificate..............................................41
10.COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING...................41
10.1 Repayment of Certain Obligations................................41
10.2 Preservation of Tax Treatment...................................42
10.3 Preparation and Filing of Tax Returns...........................42
10.4 Directors.......................................................43
10.5 Preservation of Employee Benefit Plans..........................43
10.6 Dividends.......................................................43
11.INDEMNIFICATION..........................................................43
11.1 Indemnification by the STOCKHOLDERS.............................43
11.2 Indemnification by PARENT.......................................44
11.3 Third Person Claims.............................................44
11.4 Exclusive Remedy................................................46
11.5 Limitations on Indemnification..................................46
12.TERMINATION OF AGREEMENT.................................................46
12.1 Termination.....................................................47
12.2 Liabilities in Event of Termination.............................47
13.NONCOMPETITION...........................................................47
13.1 Prohibited Activities...........................................47
13.2 Damages.........................................................48
13.3 Reasonable Restraint............................................49
13.4 Severability; Reformation.......................................49
13.5 Independent Covenant............................................49
13.6 Materiality.....................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................49
14.1 STOCKHOLDERS....................................................49
14.2 PARENT and ACQUISITION CORP.....................................50
14.3 Damages.........................................................51
14.4 Survival........................................................51
-iv-
<PAGE>
15.TRANSFER RESTRICTIONS....................................................51
15.1 Transfer Restrictions...........................................51
16.FEDERAL SECURITIES ACT REPRESENTATIONS...................................51
16.1 Compliance with Law.............................................51
16.2 Economic Risk; Sophistication...................................52
17.REGISTRATION RIGHTS......................................................52
17.1 Piggyback Registration Rights...................................52
17.2 Registration Procedures.........................................53
17.3 Underwriting Agreement..........................................53
17.4 Availability of Rule 144........................................53
18.GENERAL..................................................................54
18.1 Cooperation.....................................................54
18.2 Successors and Assigns..........................................54
18.3 Entire Agreement................................................54
18.4 Counterparts....................................................54
18.5 Brokers and Agents..............................................54
18.6 Expenses........................................................54
18.7 Notices.........................................................55
18.8 Governing Law...................................................56
18.9 Survival of Representations and Warranties......................56
18.10 Exercise of Rights and Remedies.................................56
18.11 Time............................................................56
18.12 Reformation and Severability....................................57
18.13 Remedies Cumulative.............................................57
18.14 Captions........................................................57
18.15 Amendments and Waivers..........................................57
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND
ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.6 SCHEDULE 6.9
SCHEDULE 5.7 SCHEDULE 6.13
SCHEDULE 5.8 SCHEDULE 6.14
SCHEDULE 5.9
SCHEDULE 5.10
SCHEDULE 5.11 JOINT SCHEDULES:
SCHEDULE 5.12
SCHEDULE 5.13 SCHEDULE 9.12
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), GTS ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), GLOBAL TECHNICAL
SERVICES, INC., a Texas corporation (the "COMPANY"), and all of the COMPANY's
stockholders specified on the attached Stockholder Signature Page (the
"STOCKHOLDERS"), who agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP. and
the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the COMPANY and ACQUISITION CORP. and their respective stockholders that
ACQUISITION CORP. merge with and into the COMPANY pursuant to this
Agreement and the applicable provisions of the laws of the State of Texas
and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective stockholders in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement, and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the Consolidation Plan in
order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to the Merger in such form as may be required by applicable state laws
in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following Texas
corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants, Inc. #
Two, Exceptional Resource Services, Inc., Excelsior Personnel
Consultants, Inc., Excellent Personnel Consultants, Inc.,
Evins Personnel Consultants of Abilene, Inc. and Elite
Personnel Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the COMPANY,
as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and ACQUISITION
CORP. will cause the Articles of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and the appropriate authorities
of the State of Texas and stamped receipt copies of each such filing to be
delivered to PARENT on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY then
in effect shall be the Articles or Certificate of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the State of Texas; and subsequent to
the Effective Time of the Merger, such Bylaws shall be the By-laws of such
Surviving Corporation until they shall thereafter be duly amended (and
such By-Laws shall be amended, if necessary, to comply with this Agreement
and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective Time
and (y) the number of directors shall be reduced to take into account any
directors who choose to resign as of the Effective Time; the members of
the Board of Directors of the Surviving Corporation shall be entitled to
hold office until the next annual meeting of the SURVIVING CORP.'s
stockholders, subject to the provisions of the laws of the State of Texas
and of the Articles or Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of
such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of ACQUISITION CORP. consists of 1,000 shares of common stock, par value
$.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of the State of Texas (the "Corporation Statute") and the law of the State
of Delaware. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of the
COMPANY shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of ACQUISITION CORP. shall be merged with and
into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on Annex
II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of
the Merger and without any action on the part of PARENT, automatically be
converted into one (1) fully paid and non-assessable share of common stock
of the Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of such Surviving Corporation
immediately after the Effective Time of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the State of Texas in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any Company Stock. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY, including the names
of any entities or businesses acquired by the COMPANY (by stock purchase, asset
purchase, merger or otherwise) or owned by the COMPANY or from whom the COMPANY
previously acquired material assets. Except as disclosed on Schedule 5.7, the
COMPANY has not been a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANY (including COMPANY's subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
pro ceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, vari ances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates thereof;
or
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof;
or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii)any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors and the STOCKHOLDERS
of the COMPANY and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY
and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30, 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation of
any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and ACQUISITION CORP. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies other than the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES.PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its assets, properties or rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY will not, without prior written consent of
PARENT:
(i) make any change in its Certificate or Articles of Incorporation
or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to PARENT
and the COMPANY an instrument dated the Closing Date releasing the COMPANY
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANY
and PARENT to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDERS which are to survive after Closing, (y) any obligations arising
after the Funding and Consummation Date to a STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered to
PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445- 2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings
-43-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
amount of the COMPANY's net income after accruals for federal and state income
taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may pay to the STOCKHOLDERS as dividends the full
amount of the COMPANY's retained earnings as of the Balance Sheet Date. The
COMPANY may borrow funds to the extent necessary to make the payments
contemplated by this Section 10.6 and to the extent necessary to ensure that the
COMPANY has cash on hand to adequately fund operations on the Funding and
Consummation Date; provided that any debt incurred to pay the dividend described
in the immediately preceding sentence shall be taken into account as debt in
accordance with Annex II.
-44-
<PAGE>
11. INDEMNIFICATION
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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 (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates attached hereto, (ii) any breach of any agreement
on the part of PARENT or ACQUISITION CORP.
-45-
<PAGE>
under this Agreement, or (iii) any liabilities which the STOCKHOLDERS may incur
due to PARENT's or ACQUISITION CORP.'s failure to be responsible for the
liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that PARENT or ACQUISITION CORP. has claims against the
STOCKHOLDERS by reason of such liabilities); (iv) any liability under the 1933
Act, the 1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to PARENT, ACQUISITION CORP. or any of the
Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to PARENT
or ACQUISITION CORP. or any of the Other Founding Companies required to be
stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-46-
<PAGE>
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 by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and 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 insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for indemnification hereunder against PARENT or ACQUISITION CORP.
until such time as, and solely
-47-
<PAGE>
to the extent that, the aggregate of all claims which all STOCKHOLDERS may have
against PARENT or ACQUISITION CORP. shall exceed the amount of the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS, Parent Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), 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 Funding and Consummation Date;
or
-48-
<PAGE>
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual
-49-
<PAGE>
knowledge of such STOCKHOLDER, was called upon by PARENT (including the
subsidiaries thereof) or for which, to the knowledge of such STOCKHOLDER, PARENT
(or any subsidiary thereof) made an acquisition analysis, for the purpose of
acquiring such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
PARENT (or any subsidiary) of such covenants. It is specifically agreed that the
period of five (5) years stated at the beginning of this Section 13, during
which the agreements and
-50-
<PAGE>
covenants of the STOCKHOLDERS made in this Section 13 shall be effective, shall
be computed by excluding from such computation any time during which any such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance costs that are valuable, special and
unique assets of the COMPANY's business. PARENT and ACQUISITION CORP. agree
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,
-51-
<PAGE>
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of the COMPANY, (b) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.2, (c) to the Other
Founding Companies and their representatives pursuant to Section 7.1(a), unless
(i) such information becomes known to the public generally through no fault of
PARENT or ACQUISITION CORP., (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), PARENT and ACQUISITION
CORP. shall, if possible, give prior written notice thereof to the COMPANY and
the STOCKHOLDERS and provide the COMPANY 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, and (d) to the public to the extent
necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of PARENT as a publicly held entity after the IPO. In the event of a
breach or threatened breach by PARENT or ACQUISITION CORP. of the provisions of
this Section, the COMPANY and the STOCKHOLDERS shall be entitled to an
injunction restraining PARENT and ACQUISITION CORP. from disclosing, in whole or
in part, such confidential information. Nothing herein shall be construed as
prohibiting the COMPANY and the STOCKHOLDERS from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any shares of Parent Stock received by the STOCKHOLDERS in the Merger. The
certificates evidencing the Parent Stock delivered to the STOCKHOLDERS pursuant
to Section 3 of this
-52-
<PAGE>
Agreement will bear a legend substantially in the form set forth below and
containing such other information as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDERS pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. Each STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to such STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in the
Parent Stock. Each STOCKHOLDER has had an adequate opportunity to ask questions
and receive answers from the officers of PARENT concerning any and all matters
relating
-53-
<PAGE>
to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
PARENT, the plans for the operations of the business of PARENT, the business,
operations and financial conditions of the Founding Companies other than the
COMPANY, and any plans for additional acquisitions and the like. Each
STOCKHOLDER has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting
-54-
<PAGE>
fees, but excluding underwriting commissions and discounts which shall be
payable by the respective selling parties), shall be borne by PARENT. In
connection with registrations under Section 17.1, PARENT shall (i) use its best
efforts to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the Parent Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 90 days (or such shorter period during which holders shall have sold
all Parent Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the Parent Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the Parent Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION CORP.
shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PARENT, ACQUISITION CORP. and the COMPANY, and
-55-
<PAGE>
the heirs and legal representatives of the STOCKHOLDERS. Any attempt to assign
this Agreement in a manner inconsistent with this Agreement shall be void and of
no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that
-56-
<PAGE>
he or she will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on the Stockholder Signature Page, with copies to:
Charles E. Miliken
Declar, Jones, McMackin, McLane, Hall & Bates, P.C.
301 Commerce Street, Suite 2400
Fort Worth, Texas 76102
-57-
<PAGE>
(c) If to the COMPANY, addressed to it at:
Global Technical Services, Inc.
3934 Sandshell Street
P. O. Box 161127
Fort Worth, Texas 76161-1127
with copies to:
Charles E. Miliken
Declar, Jones, McMackin, McLane, Hall & Bates, P.C.
301 Commerce Street, Suite 2400
Fort Worth, Texas 76102
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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
-58-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By:____________________________________
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"ACQUISITION CORP."
GTS ACQUISITION CORP.
By:____________________________________
Name: Larry E. Darst
Title: President
-59-
<PAGE>
"COMPANY"
GLOBAL TECHNICAL SERVICES, INC.
By:____________________________________
Name:
Title:
-60-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
THE GLOBAL GROUP, INC. Address:________________________
________________________________
By:____________________________________ ________________________________
Print Name:
_______________________________________ Address:________________________
Print Name: Paul Milligan ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: Sherry Wood ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: Glynn Wood ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: Nell Dahl ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: Bill White ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: George Bright ________________________________
________________________________
_______________________________________ Address:________________________
Print Name: Kirk Humphries ________________________________
________________________________
-61-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
HPSI ACQUISITION CORP.
HP SERVICES, INC.
AND
THE STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS....................................................1
1. THE MERGER................................................................5
1.1 Delivery and Filing of Articles of Merger........................5
1.2 Effective Time of the Merger.....................................5
1.3 Certificate of Incorporation, By-laws and Board of Directors
of the Surviving Corporation.....................................5
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, PARENT and ACQUISITION CORP.Texas.......................6
1.5 Effect of Merger.................................................6
2. CONVERSION OF STOCK.......................................................7
2.1 Manner of Conversion.............................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS..........................................................9
5.1 Due Organization................................................10
5.2 Authorization...................................................10
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................11
5.6 Subsidiaries....................................................11
5.7 Predecessor Status; Etc.........................................11
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements, Etc.......................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................13
5.12 Permits and Intangibles.........................................13
5.13 Environmental Matters...........................................14
5.14 Personal Property...............................................15
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................16
5.17 Insurance.......................................................17
-i-
<PAGE>
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
5.22 Taxes...........................................................20
5.23 No Violations...................................................21
5.24 Government Contracts............................................21
5.25 Absence of Changes..............................................22
5.26 Deposit Accounts; Powers of Attorney............................23
5.27 Validity of Obligations.........................................24
5.28 Relations with Governments......................................24
5.29 Disclosure......................................................24
5.30 Prohibited Activities...........................................25
5.31 Authority; Ownership............................................25
5.32 Preemptive Rights...............................................25
5.33 No Intention to Dispose of Parent Stock.........................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................26
6.1 Due Organization................................................26
6.2 Authorization...................................................26
6.3 Capital Stock of PARENT and ACQUISITION CORP....................26
6.4 Transactions in Capital Stock, Organization Accounting..........27
6.5 Subsidiaries....................................................27
6.6 Financial Statements............................................27
6.7 Liabilities and Obligations.....................................27
6.8 Conformity with Law; Litigation.................................27
6.9 No Violations...................................................28
6.10 Validity of Obligations.........................................28
6.11 Parent Stock....................................................28
6.12 No Side Agreements..............................................29
6.13 Business; Real Property; Material Agreements....................29
6.14 Taxes...........................................................29
6.15 Absence of Changes. ...........................................30
6.16 Disclosure. ...................................................31
7. COVENANTS PRIOR TO CLOSING...............................................31
7.1 Access and Cooperation; Due Diligence...........................31
7.2 Conduct of Business Pending Closing.............................32
7.3 Prohibited Activities...........................................33
-ii-
<PAGE>
7.4 No Shop.........................................................34
7.5 Notice to Bargaining Agents.....................................34
7.6 Agreements......................................................34
7.7 Notification of Certain Matters.................................35
7.8 Amendment of Schedules..........................................35
7.9 Cooperation in Preparation of Registration Statement............36
7.10 Final Financial Statements......................................36
7.11 Further Assurances..............................................37
7.12 Authorized Capital..............................................37
7.13 Compliance with Hart-Scott......................................37
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY..................................................................37
8.1 Representations and Warranties; Performance of Obligations......38
8.2 Satisfaction....................................................38
8.3 No Litigation...................................................38
8.4 Opinion of Counsel..............................................38
8.5 Registration Statement..........................................38
8.6 Consents and Approvals..........................................39
8.7 Good Standing Certificates......................................39
8.8 No Material Adverse Effect......................................39
8.9 Closing of IPO..................................................39
8.10 Secretary's Certificate.........................................39
8.11 Employment Agreements...........................................39
8.12 Tax Matters. ........................................................39
8.13 Parallel Transfer Restrictions.Texas..................................40
8.14 Other Mergers.........................................................40
8.15 Listing...............................................................40
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION
CORP.....................................................................40
9.1 Representations and Warranties; Performance of Obligations......40
9.2 No Litigation...................................................41
9.3 Secretary's Certificate.........................................41
9.4 No Material Adverse Effect......................................41
-iii-
<PAGE>
9.5 STOCKHOLDERS' Release...........................................41
9.6 Satisfaction....................................................41
9.7 Termination of Related Party Agreements.........................41
9.8 Opinion of Counsel..............................................42
9.9 Consents and Approvals..........................................42
9.10 Good Standing Certificates......................................42
9.11 Registration Statement..........................................42
9.12 Employment Agreements...........................................42
9.13 Closing of IPO..................................................42
9.14 FIRPTA Certificate..............................................42
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING................42
10.1 Repayment of Certain Obligations................................42
10.2 Preservation of Tax Treatment...................................43
10.3 Preparation and Filing of Tax Returns...........................43
10.4 Directors.......................................................44
10.5 Preservation of Employee Benefit Plans..........................44
10.6 Dividends.......................................................44
11. INDEMNIFICATION.......................................................44
11.1 Indemnification by the STOCKHOLDERS.............................44
11.2 Indemnification by PARENT.......................................45
11.3 Third Person Claims.............................................46
11.4 Exclusive Remedy................................................47
11.5 Limitations on Indemnification..................................47
12. TERMINATION OF AGREEMENT..............................................48
12.1 Termination.....................................................48
12.2 Liabilities in Event of Termination.............................48
13. NONCOMPETITION........................................................49
13.1 Prohibited Activities...........................................49
13.2 Damages.........................................................50
13.3 Reasonable Restraint............................................50
13.4 Severability; Reformation.......................................50
13.5 Independent Covenant............................................50
13.6 Materiality.....................................................51
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION..............................51
-iv-
<PAGE>
14.1 STOCKHOLDERS....................................................51
14.2 PARENT and ACQUISITION CORP.Texas...............................51
14.3 Damages.........................................................52
14.4 Survival........................................................52
15. TRANSFER RESTRICTIONS.................................................52
15.1 Transfer Restrictions...........................................52
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................53
16.1 Compliance with Law.............................................53
16.2 Economic Risk; Sophistication...................................53
17. REGISTRATION RIGHTS...................................................54
17.1 Piggyback Registration Rights...................................54
17.2 Registration Procedures.........................................54
17.3 Underwriting Agreement..........................................55
17.4 Availability of Rule 144........................................55
18. GENERAL...............................................................55
18.1 Cooperation.....................................................55
18.2 Successors and Assigns..........................................55
18.3 Entire Agreement................................................55
18.4 Counterparts....................................................56
18.5 Brokers and Agents..............................................56
18.6 Expenses........................................................56
18.7 Notices.........................................................56
18.8 Governing Law...................................................58
18.9 Survival of Representations and Warranties......................58
18.10 Exercise of Rights and Remedies.................................58
18.11 Time............................................................58
18.12 Reformation and Severability....................................58
18.13 Remedies Cumulative.............................................59
18.14 Captions........................................................59
18.15 Amendments and Waivers..........................................59
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND
ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9
SCHEDULE 5.10 JOINT SCHEDULES:
SCHEDULE 5.11
SCHEDULE 5.12 SCHEDULE 9.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), HPSI ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), HP SERVICES, INC., a
Texas corporation (the "COMPANY"), and all of the COMPANY's stockholders
specified on the attached Stockholder Signature Page (the "STOCKHOLDERS"), who
agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP. and
the COMPANY (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the COMPANY and ACQUISITION CORP. and their respective stockholders that
ACQUISITION CORP. merge with and into the COMPANY pursuant to this
Agreement and the applicable provisions of the laws of the State of Texas
and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan," with each of the other Founding
Companies (as defined herein) and their respective stockholders in order
to acquire additional temporary staffing, "PEO" or staff leasing,
permanent placement, and human resource consulting service companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO constitute
the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan pursuant
to which the Company and each of the other Founding Companies will be
acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
COMPANY has approved this Agreement as part of the Consolidation Plan in
order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and any
member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger with
respect to the Merger in such form as may be required by applicable state laws
in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third recital
of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and Newbury
Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following Texas
corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants, Inc. #
Two, Exceptional Resource Services, Inc., Excelsior Personnel
Consultants, Inc., Excellent Personnel Consultants, Inc.,
Evins Personnel Consultants of Abilene, Inc. and Elite
Personnel Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the COMPANY,
as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of Parent Stock to be issued in
the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and ACQUISITION
CORP. will cause the Articles of Merger to be signed, verified and filed with
the Secretary of State of the State of Delaware and the appropriate authorities
of the State of Texas and stamped receipt copies of each such filing to be
delivered to PARENT on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY then
in effect shall be the Articles or Certificate of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the State of Texas; and subsequent to
the Effective Time of the Merger, such By-laws shall be the By-laws of
such Surviving Corporation until they shall thereafter be duly amended
(and such By-Laws shall be amended, if necessary, to comply with this
Agreement and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective Time
and (y) the number of directors shall be reduced to take into account any
directors who choose to resign as of the Effective Time; the members of
the Board of Directors of the Surviving Corporation shall be entitled to
hold office until the next annual meeting of the SURVIVING CORP.'s
stockholders, subject to the provisions of the laws of the State of Texas
and of the Articles or Certificate of Incorporation and By-laws of the
Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities, and effective upon the
Effective Time of the Merger Larry E. Darst shall be appointed as a Vice
President of the Surviving Corporation and Gary J. Petry shall be
appointed as an Assistant Secretary of the Surviving Corporation, each of
such officers to serve, subject to the provisions of the Articles or
Certificate of Incorporation and By-laws of the Surviving Corporation,
until their respective successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 5.3 hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number of
issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of ACQUISITION CORP. consists of 1,000 shares of common stock, par value
$.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of the State of Texas (the "Corporation Statute") and the law of the State
of Delaware. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of the
COMPANY shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of ACQUISITION CORP. shall be merged with and
into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on Annex
II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent Stock
or other consideration shall be delivered or paid in exchange therefor;
and
(iii) each share of Acquisition Corp. Stock issued and outstanding
immediately prior to the Effective Time of the Merger, shall, by virtue of
the Merger and without any action on the part of PARENT, automatically be
converted into one (1) fully paid and non-assessable share of common stock
of the Surviving Corporation which shall constitute all of the issued and
outstanding shares of common stock of such Surviving Corporation
immediately after the Effective Time of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the State of Texas in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has the corporate power and authority to carry on its business as it is now
being conducted. The COMPANY is duly qualified to do business and is in good
standing in the jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary,
except (i) as set forth on Schedule 5.1 or (ii) where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any Company Stock. Except as
set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the COMPANY to issue any of its
capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all stock
option or stock purchase plans, including a list of all outstanding options,
warrants or other rights to acquire shares of the COMPANY's capital stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has no
subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of all
names of all predecessor companies and names of the COMPANY, including the names
of any entities or businesses acquired by the COMPANY (by stock purchase, asset
purchase, merger or otherwise) or owned by the COMPANY or from whom the COMPANY
previously acquired material assets. Except as disclosed on Schedule 5.7, the
COMPANY has not been a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding; and
(ii) the name of the court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the maximum
amount, if any, which is likely to become payable with respect to the such
liability, or (y) a specific description of any related reserve that may
have been reflected in the Balance Sheet as of the Balance Sheet Date,
with respect to such liability. If no estimate is provided or no specific
reserve is reflected in the Balance Sheet as of the Balance Sheet Date,
the estimate shall for purposes of this Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance with all Federal, state, local
and foreign statutes (civil and criminal), laws, ordinances, regulations, rules,
notices, permits, judgments, orders and decrees applicable to any of them or any
of their properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law) including petroleum and petroleum products; (ii) the COMPANY has obtained
and adhered to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and have reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all material
patents, patents pending, trademarks, servicemarks, trade names, service names,
slogans, registered copyrights, trade secrets, computer software and other
intellectual property rights it currently uses, without any conflict or, to the
knowledge of the COMPANY, alleged conflict with the rights of others or in
violation of any license or other agreement with respect thereto. Each item of
intellectual property owned or used by the COMPANY prior to the Closing will be
owned or available for use by the Surviving Corporation on the same terms and
conditions immediately following the Closing. Except as described in Schedule
5.14, the COMPANY has taken all such actions as are reasonably necessary to
maintain and protect such of its intellectual property as is material to the
operations and results of the COMPANY's business. Schedule 5.14 lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its assets or properties is bound by or subject
to) any arrangement with any labor union, (ii) no employees of the COMPANY are
represented by any labor union or covered by any collective bargaining
agreement, (iii) to the knowledge of the COMPANY, no campaign to establish such
representation is in progress and (iv) there is no pending or, to the COMPANY's
knowledge, threatened labor dispute involving the COMPANY and any group of its
employees nor has the COMPANY experienced any labor interruptions over the past
three years. The COMPANY believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an accurate
schedule (Schedule 5.19) showing all employee benefit and employee welfare plans
of the COMPANY (including COMPANY's subsidiaries), including all employment
agreements and other agreements or arrangements containing "golden parachute" or
other similar provisions, and deferred compensation agreements, together with
true, complete and correct copies of such plans, agreements and any trusts
related thereto, and classifications of employees covered thereby as of the
Balance Sheet Date. Except for the employee benefit plans, if any, described on
Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not sponsor,
maintain or contribute to any plan program, fund or arrangement that constitutes
an "employee pension benefit plan," nor has COMPANY or any subsidiary any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. Neither COMPANY
nor any subsidiary has sponsored, maintained or contributed to any employee
pension benefit plan other than the plans set forth on Schedule 5.19, nor is
COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the provisions
of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY (including
a COMPANY subsidiary) could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any
multiemployer 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 plan now or heretofore maintained or contributed to by any entity
other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock or
any direct or indirect redemption, purchase or other acquisition of any of
the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of its
officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates thereof;
or
(viii)any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY, including without limitation any
indebtedness or obligation of any STOCKHOLDERS or any affiliate thereof;
or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY; or
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party;
or
(xiii)any transaction by the COMPANY outside the ordinary course of
its businesses; or
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit arrangement
so as to result in an aggregate amount of debt outstanding greater than as
set forth in the COMPANY's Balance Sheet on the Balance Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors and the STOCKHOLDERS
of the COMPANY and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of the
COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file the
Registration Statement and to have it declared effective; however, the COMPANY
and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent Stock
that such STOCKHOLDER has or may have had other than rights of any STOCKHOLDER
to acquire Parent Stock pursuant to (i) this Agreement or (ii) any written
option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not under
any binding commitment or contract to sell, exchange or otherwise dispose of
shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30 , 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation of
any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by PARENT and ACQUISITION CORP. and the performance of the transactions
contemplated herein have been duly and validly authorized by the Boards of
Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to be
delivered to the STOCKHOLDERS pursuant to this Agreement will constitute valid
and legally issued shares of PARENT, fully paid and nonassessable, and with the
exception of restrictions upon resale set forth in Sections 15 and 16 hereof,
will be identical in all substantive respects (which do not include the form of
certificate upon which it is printed or the presence or absence of a CUSIP
number on any such certificate) to the Parent Stock issued and outstanding as of
the date hereof. The shares of Parent Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has entered
or will enter into any agreement with any of the Founding Companies or any of
the stockholders of the Founding Companies other than the Other Agreements and
the agreements contemplated by the Other Agreements, including the employment
agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized in
February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES. PARENT has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 6.14, there are no
examinations in progress or claims against PARENT for federal, state and other
Taxes (including penalties and interest) for any period or periods prior to and
including the Balance Sheet Date and no notice of any claim for taxes, whether
pending or threatened, has been received. All Tax, including interest and
penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness or
other obligation owing PARENT;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any such
assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract agreement,
license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT other
than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its assets, properties or rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments, except as permitted in Section
10.6, or as disclosed on Schedule 5.10, or without the prior knowledge and
written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and except
as expressly permitted by Section 10.6, between the date hereof and the Funding
and Consummation Date, the COMPANY will not, without prior written consent of
PARENT:
(i) make any change in its Certificate or Articles of Incorporation
or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule
5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or involves
an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt, mortgage,
pledge or other lien or encumbrance upon any assets or properties whether
now owned or hereafter acquired, except (1) debt in an aggregate amount
not to exceed the amount of debt outstanding on the Balance Sheet Date,
(2) with respect to purchase money liens incurred in connection with the
acquisition of equipment with an aggregate cost not in excess of $50,000
necessary or desirable for the conduct of the businesses of the COMPANY,
(3) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes
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 (3) being referred to herein as "Statutory Liens"), or (4) liens
set forth on Schedule 5.10 and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the start-up
of any new business; or
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent, officer,
director, trustee or any representative of any of the foregoing will, during the
period commencing on the date of this Agreement and ending with the earlier to
occur of the Funding and Consummation Date or the termination of this Agreement
in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or its
authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the transaction
contemplated herein shall have been obtained and made and no action or
proceeding shall have been instituted or threatened to restrain or prohibit the
Merger and no governmental agency or body shall have taken any other action or
made any request of COMPANY as a result of which COMPANY deems it inadvisable to
proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding Companies
shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to PARENT
and the COMPANY an instrument dated the Closing Date releasing the COMPANY
(including all subsidiaries) from (i) any and all claims of the STOCKHOLDERS
against the COMPANY and PARENT and (ii) any and all obligations of the COMPANY
and PARENT to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations to the
STOCKHOLDERS which are to survive after Closing, (y) any obligations arising
after the Funding and Consummation Date to a STOCKHOLDER relating to his or her
employment by the COMPANY and (z) obligations arising under this Agreement or
the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from Counsel
to the COMPANY and the STOCKHOLDERS, dated the Closing Date, substantially in
the form annexed as Annex VI, and the Underwriters shall have received a copy of
the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed on
Schedule 9.12 shall have entered into an employment agreement substantially in
the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered to
PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end on
or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The STOCKHOLDERS
shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved
with respect thereto on the Company Financial Statements) shown by such
Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns of,
or that include, any Acquired Party for all taxable periods ending after
the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to the of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any
Return, amended Return or claim for refund, determining a liability for
Taxes or a right to refund of Taxes or in conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns,
together with relevant accompanying schedules and relevant work papers,
relevant documents relating to rulings
-43-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the transaction
as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
full amount of their "accumulated adjustments account" (as defined in Section
1368(e) of the Code) as of the Balance Sheet Date, and may also pay to the
STOCKHOLDERS as dividends the full amount of the COMPANY's earnings taxable to
such STOCKHOLDERS for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may borrow funds to the extent necessary to make
the payments contemplated by this Section 10.6 and to the extent necessary to
ensure that the COMPANY has cash on hand to adequately fund operations on the
Funding and Consummation Date.
-44-
<PAGE>
11. INDEMNIFICATION
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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 (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates attached hereto, (ii) any breach of any agreement
on the part of PARENT or ACQUISITION CORP.
-45-
<PAGE>
under this Agreement, or (iii) any liabilities which the STOCKHOLDERS may incur
due to PARENT's or ACQUISITION CORP.'s failure to be responsible for the
liabilities and obligations of the COMPANY as provided in Section 1 hereof
(except to the extent that PARENT or ACQUISITION CORP. has claims against the
STOCKHOLDERS by reason of such liabilities); (iv) any liability under the 1933
Act, the 1934 Act or other federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to PARENT, ACQUISITION CORP. or any of the
Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to PARENT
or ACQUISITION CORP. or any of the Other Founding Companies required to be
stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-46-
<PAGE>
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 by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment. 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 defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and 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 insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for indemnification hereunder against PARENT or ACQUISITION CORP.
until such time as, and solely
-47-
<PAGE>
to the extent that, the aggregate of all claims which all STOCKHOLDERS may have
against PARENT or ACQUISITION CORP. shall exceed the amount of the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such STOCKHOLDER in connection with the Merger. For purposes of
calculating the value of the Parent Stock received by STOCKHOLDERS, Parent Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby understood and agreed that a STOCKHOLDER
may satisfy an indemnification obligation through payment of a combination of
stock and cash in proportion equal to the proportion of stock and cash received
by such STOCKHOLDER in connection with the Merger, valued as described
immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY, (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), 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
-48-
<PAGE>
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 Funding
and Consummation Date; or
(v) pursuant to Section 7.8 hereof; or
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Funding and Consummation Date, a client
or customer of PARENT (including the subsidiaries thereof), or the COMPANY or of
any of the Other Founding Companies within the Territory for the purpose of
soliciting or selling products or services in competition with PARENT within the
Territory;
-49-
<PAGE>
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
behalf or on behalf of any competitor in the temporary staffing, "PEO" or staff
leasing, permanent placement or human resource consulting or outsourcing
business, which candidate, to the actual knowledge of such STOCKHOLDER, was
called upon by PARENT (including the subsidiaries thereof) or for which, to the
knowledge of such STOCKHOLDER, PARENT (or any subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries
-50-
<PAGE>
thereof), whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by PARENT (or any subsidiary) of such
covenants. It is specifically agreed that the period of five (5) years stated at
the beginning of this Section 13, during which the agreements and covenants of
the STOCKHOLDERS made in this Section 13 shall be effective, shall be computed
by excluding from such computation any time during which any such STOCKHOLDER is
in violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance
-51-
<PAGE>
costs that are valuable, special and unique assets of the COMPANY's business.
PARENT and ACQUISITION CORP. agree 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
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of PARENT or ACQUISITION CORP.,
(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), PARENT and ACQUISITION CORP. shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY 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, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of PARENT as a publicly held entity
after the IPO. In the event of a breach or threatened breach by PARENT or
ACQUISITION CORP. of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining PARENT and
ACQUISITION CORP. from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the Closing or the termination of this Agreement, for a period of five
(5) years from the Closing Date or the date of termination, as the case may be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall
-52-
<PAGE>
not sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any shares of Parent Stock received by the STOCKHOLDERS in
the Merger. The certificates evidencing the Parent Stock delivered to the
STOCKHOLDERS pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares of
Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement have
not been and will not be registered under the 1933 Act and therefore may not be
resold without compliance with the 1933 Act. The Parent Stock to be acquired by
the STOCKHOLDERS pursuant to this Agreement is being acquired solely for their
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. Each STOCKHOLDER covenants, warrants and represents that none of
the shares of Parent Stock issued to such STOCKHOLDER will be offered, sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of except
after full compliance with all of the applicable provisions of the 1933 Act and
the rules and regulations of the SEC. All the Parent Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in
-53-
<PAGE>
financial and business matters that he is capable of evaluating the merits and
risks of the proposed investment in the Parent Stock. Each STOCKHOLDER has had
an adequate opportunity to ask questions and receive answers from the officers
of PARENT concerning any and all matters relating to the transactions described
herein including, without limitation, the background and experience of the
current and proposed officers and directors of PARENT, the plans for the
operations of the business of PARENT, the business, operations and financial
conditions of the Founding Companies other than the COMPANY, and any plans for
additional acquisitions and the like. Each STOCKHOLDER has asked any and all
questions in the nature described in the preceding sentence and all questions
have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
-54-
<PAGE>
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with the
registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting fees, but excluding underwriting
commissions and discounts which shall be payable by the respective selling
parties), shall be borne by PARENT. In connection with registrations under
Section 17.1, PARENT shall (i) use its best efforts to prepare and file with the
SEC as soon as reasonably practicable, a registration statement with respect to
the Parent Stock and use its best efforts to cause such registration to promptly
become and remain effective for a period of at least 90 days (or such shorter
period during which holders shall have sold all Parent Stock which they
requested to be registered); (ii) use its best efforts to register and qualify
the Parent Stock covered by such registration statement under applicable state
securities laws as the holders shall reasonably request for the distribution for
the Parent Stock; and (iii) take such other actions as are reasonable and
necessary to comply with the requirements of the 1933 Act and the regulations
thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration pursuant
to Section 17.1 covering an underwritten registered offering, PARENT and each
participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of PARENT's size and investment stature, including
indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION CORP.
shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit
-55-
<PAGE>
of the parties hereto, the successors of PARENT, ACQUISITION CORP. and the
COMPANY, and the heirs and legal representatives of the STOCKHOLDERS. Any
attempt to assign this Agreement in a manner inconsistent with this Agreement
shall be void and of no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that
-56-
<PAGE>
he or she will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on the Stockholder Signature Page, with copies to:
Arty Howard
Meyer, Knight & Williams, L.L.P.
8100 Washington, Suite 1000
Houston, Texas 77007
-57-
<PAGE>
(c) If to the COMPANY, addressed to it at:
HP Services, Inc.
1900 Bypass 35 North
P. O. Box 1412
Alvin, Texas 77512
with copies to:
Arty Howard
Meyer, Knight & Williams, L.L.P.
8100 Washington, Suite 1000
Houston, Texas 77007
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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
-58-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By:____________________________________
Name: Larry E. Darst
Title: President and Chief Executive
Officer
"ACQUISITION CORP."
HPSI ACQUISITION CORP.
By:____________________________________
Name: Larry E. Darst
Title: President
-59-
<PAGE>
"COMPANY"
HP SERVICES, INC.
By:____________________________________
Name:
Title:
-60-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
___________________________________ Address: 1900 Bypass 35 North
Print Name: Mike Hartman P.O. Box 1412
Alvin, Texas 77512
___________________________________
Print Name: Gary Pitts Address: 1900 Bypass 35 North
P.O. Box 1412
Alvin, Texas 77512
-61-
AGREEMENT AND PLAN
dated as of the 11th day of September, 1997
by and among
NATIONWIDE STAFFING, INC.
TPLUS ACQUISITION CORP.
TECHNOLOGY PLUS, INC.
and
the STOCKHOLDERS
<PAGE>
Page
INTRODUCTION AND RECITALS.....................................................1
1. THE MERGER................................................................5
1.1 Delivery and Filing of Articles of Merger......................5
1.2 Effective Time of the Merger...................................5
1.3 Certificate of Incorporation, By-laws and Board of
Directors of the Surviving Corporation.........................5
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, PARENT and ACQUISITION CORP....................6
1.5 Effect of Merger...............................................6
2. CONVERSION OF STOCK.......................................................7
2.1 Manner of Conversion...........................................7
3. DELIVERY OF MERGER CONSIDERATION..........................................8
4. CLOSING...................................................................8
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS......................................................9
5.1 Due Organization..............................................10
5.2 Authorization.................................................10
5.3 Capital Stock of the COMPANY..................................10
5.4 Transactions in Capital Stock; Organization Accounting........11
5.5 No Bonus Shares...............................................11
5.6 Subsidiaries..................................................11
5.7 Predecessor Status; Etc.......................................11
5.8 Spin-off by the COMPANY.......................................11
5.9 Financial Statements, Etc.....................................11
5.10 Liabilities and Obligations...................................12
5.11 Accounts and Notes Receivable.................................13
5.12 Permits and Intangibles.......................................13
5.13 Environmental Matters.........................................14
5.14 Personal Property.............................................14
5.15 Significant Customers; Material Contracts and Commitments.....15
5.16 Real Property.................................................16
5.17 Insurance.....................................................17
-i-
<PAGE>
5.18 Compensation; Employment Agreements; Organized Labor Matters..17
5.19 Employee Plans................................................18
5.20 Compliance with ERISA.........................................18
5.21 Conformity with Law; Litigation...............................19
5.22 Taxes.........................................................20
5.23 No Violations.................................................20
5.24 Government Contracts..........................................21
5.25 Absence of Changes............................................21
5.26 Deposit Accounts; Powers of Attorney..........................23
5.27 Validity of Obligations.......................................23
5.28 Relations with Governments....................................23
5.29 Disclosure....................................................23
5.30 Prohibited Activities.........................................24
5.31 Authority; Ownership..........................................25
5.32 Preemptive Rights.............................................25
5.33 No Intention to Dispose of Parent Stock.......................25
6. REPRESENTATIONS OF PARENT and ACQUISITION CORP...........................25
6.1 Due Organization..............................................25
6.2 Authorization.................................................26
6.3 Capital Stock of PARENT and ACQUISITION CORP..................26
6.4 Transactions in Capital Stock, Organization Accounting........26
6.5 Subsidiaries..................................................26
6.6 Financial Statements..........................................26
6.7 Liabilities and Obligations...................................27
6.8 Conformity with Law; Litigation...............................27
6.9 No Violations.................................................27
6.10 Validity of Obligations.......................................28
6.11 Parent Stock..................................................28
6.12 No Side Agreements............................................28
6.13 Business; Real Property; Material Agreements..................28
6.14 Taxes.........................................................28
6.15 Absence of Changes. .........................................29
6.16 Disclosure. .................................................30
7. COVENANTS PRIOR TO CLOSING...............................................30
7.1 Access and Cooperation; Due Diligence.........................30
7.2 Conduct of Business Pending Closing...........................31
7.3 Prohibited Activities.........................................32
-ii-
<PAGE>
7.4 No Shop.......................................................33
7.5 Notice to Bargaining Agents...................................33
7.6 Agreements....................................................33
7.7 Notification of Certain Matters...............................34
7.8 Amendment of Schedules........................................34
7.9 Cooperation in Preparation of Registration Statement..........35
7.10 Final Financial Statements....................................36
7.11 Further Assurances............................................36
7.12 Authorized Capital............................................36
7.13 Compliance with Hart-Scott....................................36
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS
AND COMPANY..........................................................36
8.1 Representations and Warranties; Performance of Obligations....37
8.2 Satisfaction..................................................37
8.3 No Litigation.................................................37
8.4 Opinion of Counsel............................................37
8.5 Registration Statement........................................37
8.6 Consents and Approvals........................................38
8.7 Good Standing Certificates....................................38
8.8 No Material Adverse Effect....................................38
8.9 Closing of IPO................................................38
8.10 Secretary's Certificate.......................................38
8.11 Employment Agreements.........................................38
8.12 Tax Matters. ................................................38
8.13 Parallel Transfer Restrictions................................39
8.14 Other Mergers.................................................39
8.15 Listing.......................................................39
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
ACQUISITION CORP.....................................................39
9.1 Representations and Warranties; Performance of Obligations....39
9.2 No Litigation.................................................40
9.3 Secretary's Certificate.......................................40
9.4 No Material Adverse Effect....................................40
9.5 STOCKHOLDERS' Release.........................................40
9.6 Satisfaction..................................................40
9.7 Termination of Related Party Agreements.......................40
9.8 Opinion of Counsel............................................40
-iii-
<PAGE>
9.9 Consents and Approvals........................................41
9.10 Good Standing Certificates....................................41
9.11 Registration Statement........................................41
9.12 Employment Agreements.........................................41
9.13 Closing of IPO................................................41
9.14 FIRPTA Certificate............................................41
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING...............41
10.1 Repayment of Certain Obligations..............................41
10.2 Preservation of Tax Treatment.................................42
10.3 Preparation and Filing of Tax Returns.........................42
10.4 Directors.....................................................43
10.5 Preservation of Employee Benefit Plans........................43
10.6 Dividends.....................................................43
11. INDEMNIFICATION......................................................43
11.1 Indemnification by the STOCKHOLDERS...........................43
11.2 Indemnification by PARENT.....................................44
11.3 Third Person Claims...........................................44
11.4 Exclusive Remedy..............................................46
11.5 Limitations on Indemnification................................46
12. TERMINATION OF AGREEMENT.............................................46
12.1 Termination...................................................47
12.2 Liabilities in Event of Termination...........................47
13. NONCOMPETITION.......................................................47
13.1 Prohibited Activities.........................................47
13.2 Damages.......................................................48
13.3 Reasonable Restraint..........................................49
13.4 Severability; Reformation.....................................49
13.5 Independent Covenant..........................................49
13.6 Materiality...................................................49
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION...............................49
14.1 STOCKHOLDERS..................................................49
14.2 PARENT and ACQUISITION CORP...................................50
14.3 Damages.......................................................51
14.4 Survival......................................................51
-iv-
<PAGE>
15. TRANSFER RESTRICTIONS................................................51
15.1 Transfer Restrictions.........................................51
16. FEDERAL SECURITIES ACT REPRESENTATIONS...............................51
16.1 Compliance with Law...........................................51
16.2 Economic Risk; Sophistication.................................52
17. REGISTRATION RIGHTS..................................................52
17.1 Piggyback Registration Rights.................................52
17.2 Registration Procedures.......................................53
17.3 Underwriting Agreement........................................53
17.4 Availability of Rule 144......................................53
18. GENERAL..............................................................54
18.1 Cooperation...................................................54
18.2 Successors and Assigns........................................54
18.3 Entire Agreement..............................................54
18.4 Counterparts..................................................54
18.5 Brokers and Agents............................................54
18.6 Expenses......................................................54
18.7 Notices.......................................................55
18.8 Governing Law.................................................56
18.9 Survival of Representations and Warranties....................56
18.10 Exercise of Rights and Remedies...............................56
18.11 Time..........................................................56
18.12 Reformation and Severability..................................57
18.13 Remedies Cumulative...........................................57
18.14 Captions......................................................57
18.15 Amendments and Waivers........................................57
-v-
<PAGE>
ANNEXES
ANNEX I
FORM OF CERTIFICATE OF INCORPORATION AND BY-LAWS OF PARENT AND
ACQUISITION CORP.
ANNEX II
CONSIDERATION TO BE PAID TO STOCKHOLDERS
ANNEX III
STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX IV
STOCKHOLDERS AND STOCK OWNERSHIP OF PARENT
ANNEX V
FORM OF OPINION OF COUNSEL TO PARENT
ANNEX VI
FORM OF OPINION OF COUNSEL TO COMPANY
AND STOCKHOLDERS
ANNEX VII
FORM OF EMPLOYMENT AGREEMENT
-vi-
<PAGE>
SCHEDULES
COMPANY SCHEDULES: PARENT SCHEDULES:
SCHEDULE 5.1 SCHEDULE 6.4
SCHEDULE 5.3 SCHEDULE 6.6
SCHEDULE 5.4 SCHEDULE 6.7
SCHEDULE 5.5 SCHEDULE 6.8
SCHEDULE 5.5 SCHEDULE 6.9
SCHEDULE 5.6 SCHEDULE 6.13
SCHEDULE 5.7 SCHEDULE 6.14
SCHEDULE 5.8
SCHEDULE 5.9
SCHEDULE 5.10 JOINT SCHEDULES:
SCHEDULE 5.11
SCHEDULE 5.12 SCHEDULE 9.12
SCHEDULE 5.13
SCHEDULE 5.14
SCHEDULE 5.15
SCHEDULE 5.16
SCHEDULE 5.17
SCHEDULE 5.18
SCHEDULE 5.19
SCHEDULE 5.21
SCHEDULE 5.22
SCHEDULE 5.23
SCHEDULE 5.24
SCHEDULE 5.25
SCHEDULE 5.26
SCHEDULE 5.29
SCHEDULE 5.30
SCHEDULE 5.31
SCHEDULE 7.2
SCHEDULE 7.3
SCHEDULE 7.6/9.7
-vii-
<PAGE>
AGREEMENT AND PLAN
THIS AGREEMENT AND PLAN (the "Agreement") is made as of the 11th day of
September, 1997, by and among NATIONWIDE STAFFING, INC., a Delaware corporation
("PARENT"), TPLUS ACQUISITION CORP., a Delaware corporation and a direct,
wholly-owned subsidiary of PARENT ("ACQUISITION CORP."), TECHNOLOGY PLUS, INC.,
a Kansas corporation (the "COMPANY"), and all of the COMPANY's stockholders
specified on the attached Stockholder Signature Page (the "STOCKHOLDERS"), who
agree as follows:
WHEREAS, the STOCKHOLDERS are all of the stockholders of the
COMPANY; and
WHEREAS, ACQUISITION CORP. is a corporation duly organized and
existing under the laws of the State of Delaware and was organized by
PARENT in September 1997 solely for the purpose of completing the
transactions set forth herein; and
WHEREAS, the respective Boards of Directors of ACQUISITION CORP.
and the COMPANY (which together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best
interests of the COMPANY and ACQUISITION CORP. and their respective
stockholders that ACQUISITION CORP. merge with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Kansas and the State of Delaware; and
WHEREAS, PARENT is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each
of which is entitled "Agreement and Plan," with each of the other
Founding Companies (as defined herein) and their respective stockholders
in order to acquire additional temporary staffing, "PEO" or staff
leasing, permanent placement, and human resource consulting service
companies; and
WHEREAS, this Agreement, the Other Agreements and the IPO
constitute the "Consolidation Plan;" and
WHEREAS, the STOCKHOLDERS and the Boards of Directors and the
stockholders of PARENT, each of the Other Founding Companies and each of
the subsidiaries of PARENT that are parties to the Other Agreements have
approved and adopted the Consolidation Plan as an integrated plan
pursuant to which the Company and each of the other Founding Companies
will be acquired by the PARENT in separate mergers or share
-1-
<PAGE>
exchanges that are intended to qualify as tax-free transfers of property
under Section 351 of the Internal Revenue Code of 1986, as amended
("Code"); and
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of
the COMPANY has approved this Agreement as part of the Consolidation
Plan in order for the PARENT to acquire the COMPANY; and
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any Schedule attached hereto and not
otherwise defined elsewhere herein shall have the following meanings:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the COMPANY, any subsidiary of the COMPANY and
any member of a Relevant Group.
"Articles of Merger" shall mean the Articles or Certificate of Merger
with respect to the Merger in such form as may be required by applicable state
laws in order to implement the Merger in accordance with this Agreement.
"ACQUISITION CORP." has the meaning set forth in the first paragraph of
this Agreement.
"Acquisition Corp. Stock" means the common stock, par value $.01 per
share, of ACQUISITION CORP.
"Balance Sheet Date" means June 30, 1997.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement, and, unless the context expressly requires otherwise, shall include
all subsidiaries of the COMPANY.
"Company Stock" means the common capital stock of the COMPANY.
-2-
<PAGE>
"Constituent Corporations" has the meaning set forth in the third
recital of this Agreement.
"Corporation Statute" has the meaning set forth in Section 1.5.
"Effective Time of the Merger" shall mean the time as of which the
Merger becomes effective, which shall occur on the Funding and Consummation
Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5(A).
"Founding Companies" means:
Alternative Solutions, Inc., a Massachusetts corporation and
Newbury Employment, Inc., a Massachusetts corporation
A.S.A.P. Services, Inc., an Arkansas corporation
Cardinal Services, Inc., an Oregon corporation
Employment Enterprises, Inc., a Virginia corporation
Evins Personnel Group which consists of the following
Texas corporations:
Evins Personnel Consultants, Inc., Evins Personnel
Consultants, Inc. # One, Evins Personnel Consultants,
Inc. # Two, Exceptional Resource Services, Inc.,
Excelsior Personnel Consultants, Inc., Excellent
Personnel Consultants, Inc., Evins Personnel
Consultants of Abilene, Inc. and Elite Personnel
Consultants, Inc.
Global Technical Services, Inc., a Texas corporation
HP Services, Inc., a Texas corporation
Technology Plus, Inc., a Kansas corporation
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of Parent Stock pursuant to the
Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
-3-
<PAGE>
"Merger" means the merger of ACQUISITION CORP. with and into the
COMPANY, as contemplated in this Agreement.
"Other Agreements" has the meaning set forth in the fourth recital of
this Agreement.
"Other Founding Companies" means all of the Founding Companies other
than the COMPANY.
"PARENT" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 6.1.
"Parent Stock" means the common stock, par value $.01 per share, of
PARENT.
"Pricing" means the date of determination by PARENT and the Underwriters
of the public offering price of the shares of Parent Stock in the IPO; the
parties to this Agreement contemplate that the Pricing shall take place on the
Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on
Form S-1 to be filed with the SEC covering the shares of Parent Stock to be
issued in the IPO.
"Relevant Group" means the COMPANY and any affiliated, combined,
consolidated, unitary or similar group of which the COMPANY is or was a member.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"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.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the COMPANY as the surviving party in the
Merger.
-4-
<PAGE>
"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, withholding, payroll, employment, excise, property, deed, stamp,
alternative or add on minimum, environmental or other taxes, assessments,
duties, fees, levies or other governmental charges of any nature whatever,
whether disputed or not, together with any interest, penalties, additions to tax
or additional amounts with respect thereto.
"Underwriters" means the prospective underwriters identified in the
Registration Statement.
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The COMPANY and
ACQUISITION CORP. will cause the Articles of Merger to be signed, verified and
filed with the Secretary of State of the State of Delaware and the appropriate
authorities of the State of Kansas and stamped receipt copies of each such
filing to be delivered to PARENT on or before the Funding and Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
ACQUISITION CORP. shall be merged with and into the COMPANY, the separate
existence of ACQUISITION CORP. shall cease, and the COMPANY shall be the
surviving party in the Merger and is sometimes hereinafter referred to as the
"Surviving Corporation."
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF THE
SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Articles or Certificate of Incorporation of the COMPANY
then in effect shall be the Articles or Certificate of Incorporation of
the Surviving Corporation until changed as provided by law;
(ii) the By-laws of ACQUISITION CORP. then in effect shall become
the By-laws of the Surviving Corporation, with such changes, if any, as
may be consistent with the laws of the State of Kansas; and subsequent
to the Effective Time of the Merger, such By-laws shall be the By-laws
of such Surviving Corporation until they shall thereafter be duly
amended (and such By-Laws shall be amended, if necessary, to comply with
this Agreement and applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the COMPANY
immediately prior to the Effective Time of the Merger, provided that (x)
Larry E. Darst shall be elected as an
-5-
<PAGE>
additional director of the Surviving Corporation as of the Effective
Time and (y) the number of directors shall be reduced to take into
account any directors who choose to resign as of the Effective Time; the
members of the Board of Directors of the Surviving Corporation shall be
entitled to hold office until the next annual meeting of the SURVIVING
CORP.'s stockholders, subject to the provisions of the laws of the State
of Kansas and of the Articles or Certificate of Incorporation and
By-laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the
Effective Time of the Merger shall continue as the officers of the
Surviving Corporation in the same capacity or capacities, and effective
upon the Effective Time of the Merger Larry E. Darst shall be appointed
as a Vice President of the Surviving Corporation and Gary J. Petry shall
be appointed as an Assistant Secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Articles or Certificate of Incorporation and By-laws of the Surviving
Corporation, until their respective successors are duly elected and
qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, PARENT AND ACQUISITION CORP. The respective designations and numbers of
outstanding shares of each class of outstanding capital stock of the COMPANY,
PARENT and ACQUISITION CORP. as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and
outstanding capital stock of the COMPANY is as set forth on Schedule 5.3
hereto;
(ii) immediately prior to the Funding and Consummation Date, the
authorized capital stock of PARENT will consist of 60,000,000 shares of
capital stock, of which 55,000,000 shares are common stock, the number
of issued and outstanding shares of which will be set forth in the
Registration Statement, and 5,000,000 shares of preferred stock, $.01
par value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital
stock of ACQUISITION CORP. consists of 1,000 shares of common stock, par
value $.01 per share, of which one hundred (100) shares are issued and
outstanding and owned by PARENT.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the corporation
law of the State of Kansas (the "Corporation Statute") and the law of the State
of Delaware. Except as herein specifically set forth, the identity, existence,
purposes, powers, objects, franchises, privileges, rights and immunities of the
COMPANY shall continue unaffected and unimpaired by the Merger and the corporate
franchises, existence and rights of ACQUISITION CORP. shall be merged with and
into the
-6-
<PAGE>
COMPANY, and the COMPANY, as the Surviving Corporation, shall be fully vested
therewith. At the Effective Time of the Merger, the separate existence of
ACQUISITION CORP. shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public, as well as of a private, nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and ACQUISITION CORP. shall be
taken and deemed to be transferred to, and vested in, the Surviving Corporation
without further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and
ACQUISITION CORP.; and the title to any real estate, or interest therein,
whether by deed or otherwise, under the laws of the state of incorporation
vested in the COMPANY and ACQUISITION CORP., shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and ACQUISITION CORP. and any claim
existing, or action or proceeding pending, by or against the COMPANY or
ACQUISITION CORP. may be prosecuted as if the Merger had not taken place, or the
Surviving Corporation may be substituted in their place. Neither the rights of
creditors nor any liens upon the property of the COMPANY or ACQUISITION CORP.
shall be impaired by the Merger, and all debts, liabilities and duties of the
COMPANY and ACQUISITION CORP. shall attach to the Surviving Corporation, and may
be enforced against the Surviving Corporation to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the Surviving
Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding Company Stock and (ii) Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger into shares of
(x) Parent Stock and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of Company Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of the holder thereof,
automatically be deemed to represent (1) the right to receive the number
of shares of Parent Stock set forth on Annex II with respect to such
holder and (2) the right to receive the amount of cash set forth on
Annex II with respect to such holder;
-7-
<PAGE>
(ii) all shares of Company Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of Parent
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of Acquisition Corp. Stock issued and
outstanding immediately prior to the Effective Time of the Merger,
shall, by virtue of the Merger and without any action on the part of
PARENT, automatically be converted into one (1) fully paid and
non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common
stock of such Surviving Corporation immediately after the Effective Time
of the Merger.
All Parent Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding
Parent Stock by reason of the provisions of the Certificate of Incorporation of
PARENT or as otherwise provided by the Delaware General Corporation Law. All
voting rights of such Parent Stock received by the STOCKHOLDERS shall be fully
exercisable by the STOCKHOLDERS and the STOCKHOLDERS shall not be deprived nor
restricted in exercising those rights. At the Effective Time of the Merger,
PARENT shall have no class of capital stock issued and outstanding other than
Parent Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 At the Effective Time of the Merger and on the Funding and
Consummation Date the STOCKHOLDERS, who are all the holders of all outstanding
certificates representing shares of Company Stock, shall, upon surrender of such
certificates, receive the number of shares of Parent Stock and the amount of
cash determined in accordance with Annex II, said cash to be payable by
certified check or wire transfer, at the option of the STOCKHOLDERS.
3.2 The STOCKHOLDERS shall deliver to PARENT at the Closing the
certificates representing Company Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by blank stock powers, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary transfer tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. The STOCKHOLDERS agree promptly to
cure any deficiencies with respect to the endorsement of the stock certificates
or other documents of conveyance with respect to such Company Stock or with
respect to the stock powers accompanying any Company Stock.
-8-
<PAGE>
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including, if permitted by applicable state
law, the filing with the appropriate state authorities of the Articles of Merger
which shall become effective at the Effective Time of the Merger) and (ii)
effect the conversion and delivery of shares referred to in Sections 2 and 3
hereof; provided, that such actions shall not include the actual completion of
the Merger or the conversion and delivery of the shares and certified check(s)
or the initiation of wire transfers referred to in Section 3 hereof, each of
which actions shall only be taken upon the Funding and Consummation Date. In the
event that there is no Funding and Consummation Date and this Agreement
terminates, PARENT covenants and agrees to do all things required by Delaware
law and all things which counsel for the COMPANY advise PARENT are required by
applicable laws of the State of Kansas in order to rescind the merger
contemplated by the filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date, (x) the Articles of Merger shall be or shall have been filed with the
appropriate state authorities so that they shall be effective as early as
practicable on the Funding and Consummation Date and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the delivery of a certified check or checks
or the initiation of a wire transfer or transfers in an amount equal to the cash
portion of the consideration which the STOCKHOLDERS shall be entitled to receive
pursuant to the Merger and (z) the closing with respect to the IPO shall occur
and be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Funding
and Consummation Date." Except as otherwise provided in Section 12, during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such agreement. This
Agreement shall in any event terminate if the Funding and Consummation Date has
not occurred within 15 business days of the Closing Date. Time is of the
essence.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND STOCKHOLDERS
(A) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
The COMPANY and the STOCKHOLDERS jointly and severally represent and
warrant that all of the following representations and warranties in this Section
5(A) are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and on the Funding
-9-
<PAGE>
and Consummation Date, and that such representations and warranties shall
survive the Funding and Consummation Date for a period of 12 months (the last
day of such period being the "Expiration Date"), except that (i) the warranties
and representations set forth in Section 5.22 hereof shall survive until such
time as the limitations period has run for all Tax periods ended on or prior to
the Funding and Consummation Date, which shall be deemed to be the Expiration
Date for Section 5.22 and (ii) solely for purposes of determining whether a
claim for indemnification under Section 11.1(iii) hereof has been made on a
timely basis, and solely to the extent that in connection with the IPO, PARENT
actually incurs liability under the 1933 Act, the 1934 Act, or any other federal
or state securities laws, the representations and warranties set forth herein
shall survive until the expiration of any applicable limitations period, which
shall be deemed to be the Expiration Date for such purposes. For purposes of
this Section 5, the term COMPANY includes any and all of its subsidiaries unless
the context expressly requires otherwise.
5.1 DUE ORGANIZATION. The COMPANY is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, and has the corporate power and authority to carry on its
business as it is now being conducted. The COMPANY is duly qualified to do
business and is in good standing in the jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise), of the COMPANY and its subsidiaries taken as a whole
(as used herein with respect to the COMPANY, or with respect to any other
person, a "Material Adverse Effect"). Schedule 5.1 sets forth each jurisdiction
in which the COMPANY is incorporated and contains a list of all jurisdictions in
which the COMPANY is authorized or qualified to do business. True, complete and
correct copies of the Certificate or Articles of Incorporation and By-laws, as
amended, of the COMPANY (the "Charter Documents") are all attached hereto as
Schedule 5.1. The stock records of the COMPANY, as heretofore made available to
PARENT, are correct and complete in all material respects. There are no minutes
in the possession of the COMPANY or the STOCKHOLDERS which have not been made
available to PARENT, and all of such minutes are correct and complete in all
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY, and of its officers and directors on behalf of the COMPANY.
5.2 AUTHORIZATION. The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement. The COMPANY has the corporate power and authority to enter into
this Agreement and the Merger. All requisite approval of the shareholders of the
COMPANY has been given and is confirmed by the signatures on the Stockholder
Signature Page.
-10-
<PAGE>
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
COMPANY is as set forth on Schedule 5.3. All of the issued and outstanding
shares of the capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex III (or are owned by the Company in the case of any
subsidiary) and further, except as set forth on Schedule 5.3, are owned 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 the capital stock of the COMPANY have been duly authorized
and validly issued, are fully paid and nonassessable, are owned of record and
beneficially by the STOCKHOLDERS, and such shares were offered, issued, sold and
delivered in compliance with all applicable state and Federal laws concerning
the issuance and distribution of securities. Further, none of such shares were
issued in violation of any preemptive rights of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK; ORGANIZATION ACCOUNTING. Except as
set forth on Schedule 5.4, the COMPANY has not acquired any Company Stock.
Except as set forth on Schedule 5.4, (i) no option, warrant, call, conversion
right or commitment of any kind exists which obligates the COMPANY to issue any
of its capital stock, and (ii) the COMPANY 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 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's capital
stock.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the COMPANY has
no subsidiaries. Except as set forth in Schedule 5.6, the COMPANY 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, limited liability company, association or business
entity nor is the COMPANY, directly or indirectly, a participant in any joint
venture, partnership or other non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth in Schedule 5.7 is a listing of
all names of all predecessor companies and names of the COMPANY, including the
names of any entities or businesses acquired by the COMPANY (by stock purchase,
asset purchase, merger or otherwise) or owned by the COMPANY or from whom the
COMPANY previously acquired material assets. Except as disclosed on Schedule
5.7, the COMPANY has not been a subsidiary or division of another corporation or
a part of an acquisition which was later rescinded.
-11-
<PAGE>
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY.
5.9 FINANCIAL STATEMENTS, ETC.
(a) FINANCIAL STATEMENTS. Attached hereto as Schedule 5.9 are copies of
the following financial statements of the COMPANY (the "Company Financial
Statements"): the COMPANY's audited and unaudited Balance Sheets as of December
31, 1996 and June 30, 1997, and Statements of Income, Shareholders' Equity and
Cash Flows for the periods therein ended. The date of June 30, 1997 is
hereinafter referred to as the "Balance Sheet Date." Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein or on Schedule 5.9). Except as set forth on Schedule 5.9, such Balance
Sheets as of December 31, 1996 and June 30, 1997 present fairly the financial
position of the COMPANY as of the dates indicated thereon, and such Statements
of Income, Shareholders' Equity and Cash Flows present fairly the results of
operations and cash flows for the periods indicated thereon.
(b) RESERVES FOR WORKERS' COMPENSATION AND HEALTH CARE. Except as set
forth on Schedule 5.9, the COMPANY's reserves for workers' compensation and
health care costs reflected on the Balance Sheet as of the Balance Sheet Date
are adequate and appropriate and have been accrued in accordance with generally
accepted accounting principles. The COMPANY has not received any report
(including, without limitation, a report from any actuary, insurance company or
accountant) which suggests that any of the reserves reflected on any of the
Balance Sheets may be inadequate.
5.10 LIABILITIES AND OBLIGATIONS. The COMPANY has delivered to PARENT an
accurate list (which is set forth on Schedule 5.10) as of the Balance Sheet Date
of (i) all liabilities of the COMPANY which are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
Company Financial Statements at the Balance Sheet Date, (ii) any material
liabilities of the COMPANY (including all liabilities in excess of $10,000 which
are not reflected in the balance sheet as of the Balance Sheet Date) and (iii)
all loan agreements, indemnity or guaranty agreements, bonds, mortgages, liens,
pledges or other security agreements. Except as set forth on Schedule 5.10,
since the Balance Sheet Date the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than nonmaterial
liabilities incurred in the ordinary course of business. The COMPANY has also
delivered to PARENT on Schedule 5.10, in the case of those contingent
liabilities related to pending or, to the COMPANY's knowledge, threatened
litigation,
-12-
<PAGE>
or other liabilities which are not fixed or otherwise accrued or reserved, a
good faith and reasonable estimate of the maximum amount which may be payable.
For any such contingent liability or liability for which the amount is not fixed
or is contested, the COMPANY has provided to PARENT the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the
claim, suit or proceeding; and
(ii) the name of the court or agency before which such claim,
suit or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted; and
(iv) either (x) a good faith and reasonable estimate of the
maximum amount, if any, which is likely to become payable with respect
to the such liability, or (y) a specific description of any related
reserve that may have been reflected in the Balance Sheet as of the
Balance Sheet Date, with respect to such liability. If no estimate is
provided or no specific reserve is reflected in the Balance Sheet as of
the Balance Sheet Date, the estimate shall for purposes of this
Agreement be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. The COMPANY has delivered to PARENT
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of July 31, 1997, 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. The
COMPANY shall also provide PARENT (x) an accurate list of all receivables
obtained subsequent to August 31, 1997 and (y) an aging of all accounts and
notes receivable showing amounts due in 30 day aging categories, and such list
and such aging report (the "A/R Aging Reports") shall be current as of August
31, 1997. Except to the extent reflected on Schedule 5.11 or as disclosed by the
COMPANY to PARENT in a writing accompanying the A/R Aging Reports, such
accounts, notes and other receivables are collectible in the amounts shown on
Schedule 5.11, and shall be collectible in the amounts shown on the A/R Aging
Reports, net of reserves reflected in the Balance Sheet as of the Balance Sheet
Date and as of the date of the A/R Aging Reports, respectively.
5.12 PERMITS AND INTANGIBLES. The COMPANY and its employees (for the
benefit of the COMPANY) hold all licenses, registrations, franchises, permits
and other governmental
-13-
<PAGE>
authorizations the absence of any of which could have a Material Adverse Effect
on the COMPANY. The COMPANY and its employees (for the benefit of the COMPANY)
are licensed or registered as professional employer organizations and/or as
control persons thereof, as appropriate, in each jurisdiction in which their
activities require such licensing or registration, except where failure to be so
licensed or registered could not have a Material Adverse Effect on the COMPANY.
The COMPANY has delivered to PARENT an accurate list and summary description
(which is set forth on Schedule 5.12) of all such licenses, registrations,
franchises, permits and other governmental authorizations, including permits,
titles (including motor vehicle titles and current registrations), fuel permits,
licenses, registrations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the COMPANY or any
of its employees (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of all environmental permits and other environmental approvals is set forth on
Schedule 5.13). To the knowledge of the COMPANY, the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 are valid, and the COMPANY 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. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, registrations,
franchises, permits and other governmental authorizations listed on Schedules
5.12 and 5.13 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 the
COMPANY. Except as specifically provided in Schedule 5.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to the COMPANY by, any such licenses, registrations,
franchises, permits or government authorizations.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, (i)
the COMPANY has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, notices, permits, judgments, orders and decrees applicable to any of them
or any of their properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law) including petroleum and petroleum products; (ii) the COMPANY
has obtained and adhered to all necessary permits and other approvals necessary
to treat, transport, store, dispose of and otherwise handle Hazardous Wastes and
Hazardous Substances, a list of all of which permits and approvals is set forth
on Schedule 5.13, and have reported to the appropriate authorities, to the
extent required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
-14-
<PAGE>
releases or threats of releases (as defined in Environmental Laws) at, from, in
or on any property owned or operated by the COMPANY except as permitted by
Environmental Laws; (iv) the COMPANY knows of no on-site or off-site location to
which the COMPANY has transported or disposed of Hazardous Wastes and Hazardous
Substances or arranged for the transportation of Hazardous Wastes and Hazardous
Substances, which site is the subject of any Federal, state, local or foreign
enforcement action or any other investigation which could lead to any claim
against the COMPANY, PARENT or ACQUISITION CORP. for any clean-up cost, remedial
work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; and (v) the
COMPANY has no contingent liability in connection with any release of any
Hazardous Waste or Hazardous Substance into the environment.
5.14 PERSONAL PROPERTY.
(a) The COMPANY has delivered to PARENT an accurate list (which is set
forth on Schedule 5.14) of (x) all personal property included (or that will be
included) in "property and equipment, net" on the balance sheet of the COMPANY,
(y) all other personal property owned by the COMPANY with a value in excess of
$10,000 (i) as of the Balance Sheet Date or (ii) acquired since the Balance
Sheet Date and (z) all leases and agreements in respect of personal property,
including, in the case of the of (x), (y) and (z), (1) true, complete and
correct copies of all such leases and (2) an indication as to which assets are
currently owned, or were formerly owned, by STOCKHOLDERS, relatives of
STOCKHOLDERS, or affiliates of the COMPANY. Except as set forth on Schedule
5.14, (i) all personal property used by the COMPANY in its business is either
owned by the COMPANY or leased by the COMPANY pursuant to a lease included on
Schedule 5.14, (ii) all of the personal property listed on Schedule 5.14 is in
good working order and condition, ordinary wear and tear excepted and (iii) all
leases and agreements included on Schedule 5.14 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
(b) The COMPANY owns, licenses or possesses the right to use all
material patents, patents pending, trademarks, servicemarks, trade names,
service names, slogans, registered copyrights, trade secrets, computer software
and other intellectual property rights it currently uses, without any conflict
or, to the knowledge of the COMPANY, alleged conflict with the rights of others
or in violation of any license or other agreement with respect thereto. Each
item of intellectual property owned or used by the COMPANY prior to the Closing
will be owned or available for use by the Surviving Corporation on the same
terms and conditions immediately following the Closing. Except as described in
Schedule 5.14, the COMPANY has taken all such actions as are reasonably
necessary to maintain and protect such of its intellectual property as is
material to the operations and results of the COMPANY's business. Schedule 5.14
lists all of the
-15-
<PAGE>
material intellectual property rights used by the COMPANY as well as any
material intellectual property rights owned by third parties and used by the
COMPANY pursuant to licenses, sublicenses, agreements or permissions; all of the
foregoing licenses, sublicenses, agreements and permissions are valid, binding
and in full force and effect and no default has occurred and no notice of
default has been received with respect thereto.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.15) of all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 5.15, means a customer (or
person or entity) representing 5% or more of the COMPANY's annual revenues as of
the Balance Sheet Date. Except to the extent set forth on Schedule 5.15, none of
the COMPANY's significant customers (or persons or entities that are sources of
a significant number of customers) have canceled or substantially reduced or, to
the knowledge of the COMPANY, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than agreements listed on Schedule 5.10, 5.14 or 5.16, (a) in existence as
of the Balance Sheet Date and (b) entered into since the Balance Sheet Date, and
in the case has delivered true, complete and correct copies of such agreements
to PARENT. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15 and no notice of default under any such
contract or agreement has been received. The COMPANY has also indicated on
Schedule 5.15 a summary description of all plans or projects involving the
opening of new operations, expansion of existing operations, the acquisition of
any personal property, business or assets requiring, in any event, the payment
of more than $50,000 by the COMPANY.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the COMPANY (i) as of the Balance Sheet Date and (ii)
acquired since the Balance Sheet Date, and all other real property, if any, used
by the COMPANY in the conduct of its business. The COMPANY has good and
insurable title to the real property owned by it, including those reflected on
Schedule 5.14, subject to no mortgage, pledge, lien, conditional sales
agreement, encumbrance or charge, except for:
-16-
<PAGE>
(i) liens reflected on Schedules 5.10 or 5.15 as securing
specified liabilities (with respect to which no material default
exists);
(ii) liens for current taxes not yet 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 Clerks in which the
properties, assets and leasehold estates are located which do not
materially and adversely affect the current use of the property.
Schedule 5.16 contains, without limitation, true, complete and correct copies of
all title reports and title insurance policies currently in possession of the
COMPANY with respect to real property owned by the COMPANY.
The COMPANY has also delivered to the Parent an accurate list of real
property leased by the COMPANY (which list is set forth on Schedule 5.16),
together with true, complete and correct copies of all leases and agreements in
respect of such real property leased by the COMPANY (which copies are attached
to Schedule 5.16), and an indication as to which such properties, if any, are
currently owned, or were formerly owned, by STOCKHOLDERS or business or personal
affiliates of the COMPANY or STOCKHOLDERS. Except as set forth on Schedule 5.16,
all of such leases included on Schedule 5.16 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their terms.
5.17 INSURANCE. The COMPANY has delivered to PARENT, as set forth on and
attached to Schedule 5.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by the COMPANY, (ii) an accurate list of all
insurance loss runs or workers compensation claims received for the past three
(3) policy years, and (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that the COMPANY is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws. All of such insurance
policies are currently in full force and effect and shall remain in full force
and effect through the Funding and Consummation Date. Since January 1, 1993, no
insurance carried by the COMPANY has been canceled by an insurer and, to the
knowledge of the COMPANY, the COMPANY has not been denied coverage. No insurance
carried by the Company has ever been underwritten or reinsured with any
insurance company in which the COMPANY, any STOCKHOLDER or any affiliate of the
COMPANY or any STOCKHOLDER has any financial or ownership interest.
-17-
<PAGE>
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
COMPANY has delivered to PARENT an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the COMPANY, 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) the date hereof. The COMPANY has provided to PARENT
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Except as set forth on Schedule 5.18, since June 30,
1997 there have been no increases in the compensation 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.
Except as set forth on Schedule 5.18, (i) the COMPANY is not
bound by or subject to (and none of its assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the COMPANY, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 EMPLOYEE PLANS. The STOCKHOLDERS have delivered to PARENT an
accurate schedule (Schedule 5.19) showing all employee benefit and employee
welfare plans of the COMPANY (including COMPANY's subsidiaries), including all
employment agreements and other agreements or arrangements containing "golden
parachute" or other similar provisions, and deferred compensation agreements,
together with true, complete and correct copies of such plans, agreements and
any trusts related thereto, and classifications of employees covered thereby as
of the Balance Sheet Date. Except for the employee benefit plans, if any,
described on Schedule 5.19, COMPANY (including a COMPANY subsidiary) does not
sponsor, maintain or contribute to any plan program, fund or arrangement that
constitutes an "employee pension benefit plan," nor has COMPANY or any
subsidiary any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA.
Neither COMPANY nor any subsidiary has sponsored, maintained or contributed to
any employee pension benefit plan other than the plans set forth on Schedule
5.19, nor is COMPANY or any subsidiary required to contribute to any retirement
-18-
<PAGE>
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions or employment of any of COMPANY's or any
subsidiary's employees.
Neither the COMPANY nor any subsidiary is now, or can as a result of its
past activities become, liable to the Pension Benefit Guaranty Corporation
("PBGC") or to any multiemployer employee pension benefit plan under the
provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 5.19 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.
All accrued contribution obligations of COMPANY or any subsidiary with
respect to any plan listed on Schedule 5.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the COMPANY as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All such plans listed on Schedule 5.19 that
are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code
are, and have been so qualified and have been determined by the Internal Revenue
Service to be so qualified, and copies of such determination letters are
included as part of Schedule 5.19. Except as disclosed on Schedule 5.20, all
reports and other documents required to be filed with any governmental agency 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 are included as part of Schedule 5.19. None of
STOCKHOLDERS, any such plan listed in Schedule 5.19, or COMPANY (including a
COMPANY subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No such Plan
listed in Schedule 5.19 has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA; and COMPANY
(including a COMPANY subsidiary) has not incurred any liability for excise tax
or penalty due to the Internal Revenue Service nor any liability to the PBGC.
In addition,
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval
by the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 subject to the
provisions of Title IV of ERISA has been terminated;
-19-
<PAGE>
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 5.19;
(iv) COMPANY (including a COMPANY subsidiary) has not incurred
liability under Section 4062 of ERISA; and
(v) no circumstances exist pursuant to which the COMPANY
(including a COMPANY subsidiary) could have any direct or indirect
liability whatsoever (including, but not limited to, any liability to
any multiemployer 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 plan now or heretofore maintained or contributed to by
any entity other than the COMPANY 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 the COMPANY.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, neither the COMPANY nor, to the knowledge of the COMPANY,
any client of the COMPANY is in violation of, or has violated, any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect
on the COMPANY; and except to the extent set forth on Schedule 5.10 or 5.13,
there are no material claims, actions, suits or proceedings, commenced or, to
the knowledge of the COMPANY, threatened, against or affecting the COMPANY, at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received. The COMPANY has,
and, to the knowledge of the COMPANY, each of its clients has, conducted and is
conducting its business in substantial compliance with the requirements,
standards, criteria and conditions set forth in applicable Federal, state and
local statutes, ordinances, permits, licenses, orders, approvals, variances,
rules and regulations, including all such permits, licenses, orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, and is not in
violation of any of the foregoing which might have a Material Adverse Effect on
the COMPANY.
5.22 TAXES. Except as set forth on schedule 5.22, the COMPANY (including
each COMPANY subsidiary) has timely filed all requisite federal, state and other
Tax returns or extension requests for all fiscal periods ended on or before the
Balance Sheet Date; and except as set forth on Schedule 5.22, to the knowledge
of the COMPANY, there are no examinations in progress or claims against any of
them for federal, state and other taxes (including penalties and interest) for
any period or periods prior to and including the Balance Sheet Date and no
notice of any claim for taxes,
-20-
<PAGE>
whether pending or threatened, has been received. Except as set forth on
Schedule 5.22, all Taxes, including interest and penalties (whether or not shown
on any Tax return) owed by the COMPANY, any of the COMPANY's subsidiaries, any
member of an affiliated or consolidated group which includes or included the
COMPANY or any of the COMPANY's subsidiaries, or with respect to any payment
made or deemed made by the COMPANY or any of the COMPANY's subsidiaries, have
been paid. The amounts shown as accruals for Taxes on the Company Financial
Statements are sufficient for the payment of all Taxes of the kinds indicated
(including penalties and interest) for all fiscal periods. Copies of (i) any Tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income Tax returns and franchise Tax returns of COMPANY (including the
COMPANY subsidiaries) for their last three (3) fiscal years, or such shorter
period of time as any of them shall have existed, are attached hereto as
Schedule 5.22. The COMPANY has a taxable year ended December 31 and has not made
an election to retain a fiscal year other than December 31 under Section 444 of
the Code. The COMPANY's methods of accounting have not changed in the past five
years. The COMPANY is not an investment company as defined in Section 351(e)(1)
of the Code.
5.23 NO VIOLATIONS. The COMPANY is not in violation of any Charter
Document. Neither the COMPANY nor, to the knowledge of the COMPANY, any other
party thereto is in default under any lease, instrument, agreement, license, or
permit set forth on Schedule 5.12, 5.13, 5.14, 5.15 or 5.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents") in any manner that could result in a Material Adverse
Effect; and, except as set forth in Schedule 5.23, (a) the rights and benefits
of the COMPANY under the Material Documents will not be materially adversely
affected by the transactions contemplated hereby and (b) the execution of this
Agreement and the performance of the obligations hereunder and the consummation
of the transactions contemplated hereby will not result in any material
violation or breach or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency 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 right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, the PARENT
or ACQUISITION CORP. of the name of any other party to such Material Document,
and none of the Material Documents prohibits or restricts the COMPANY from
freely providing services to any other customer or potential customer of the
COMPANY, the PARENT, ACQUISITION CORP. or any Other Founding Company.
5.24 GOVERNMENT CONTRACTS. Except as set forth on Schedule 5.24, the
COMPANY is not now a party to any governmental contracts subject to price
redetermination or renegotiation.
-21-
<PAGE>
5.25 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of the
COMPANY; or
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY; or
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
or
(iv) except as contemplated in Section 10.6, any declaration or
payment of any dividend or distribution in respect of the capital stock
or any direct or indirect redemption, purchase or other acquisition of
any of the capital stock of the COMPANY; or
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the COMPANY to any of
its officers, directors, STOCKHOLDERS, employees, consultants or agents,
except for ordinary and customary bonuses and salary increases for
employees in accordance with past practice; or
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY; or
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of COMPANY to any person,
including, without limitation, the STOCKHOLDERS or any affiliates
thereof; or
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the COMPANY, including without limitation
any indebtedness or obligation of any STOCKHOLDERS or any affiliate
thereof; or
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets,
property or rights of the COMPANY or requiring consent of any party to
the transfer and assignment of any such assets, property or rights; or
-22-
<PAGE>
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets
outside of the ordinary course of the COMPANY's business; or
(xi) any waiver of any material rights or claims of the COMPANY;
or
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which the COMPANY
is a party; or
(xiii) any transaction by the COMPANY outside the ordinary course
of its businesses; or
(xiv) any cancellation or termination of a material contract with
a customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by the COMPANY;
or
(xvi) except as contemplated in Section 10.6, any incurrence,
drawing, borrowing or deferral of or under any debt or credit
arrangement so as to result in an aggregate amount of debt outstanding
greater than as set forth in the COMPANY's Balance Sheet on the Balance
Sheet Date.
5.26 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The COMPANY has delivered to
the PARENT an accurate schedule (which is set forth on Schedule 5.26) as of the
date of this Agreement of:
(i) the name of the financial institution in which the COMPANY
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of the person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of the person, corporation, firm or other
entity holding a general or special power of attorney from the COMPANY and a
description of the terms of such power.
-23-
<PAGE>
5.27 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the COMPANY and the performance of the transactions contemplated
herein have been duly and validly authorized by the Board of Directors and the
STOCKHOLDERS of the COMPANY and this Agreement has been duly and validly
authorized by all necessary corporate action and is a legal, valid and binding
obligation of the COMPANY and the STOCKHOLDERS.
5.28 RELATIONS WITH GOVERNMENTS. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office.
5.29 DISCLOSURE. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires attached
hereto as Schedule 5.29 and all other documents and information made available
to PARENT and its representatives in writing pursuant hereto or thereto, present
fairly the business and operations of the COMPANY for the time periods with
respect to which such information was requested. The COMPANY'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 the COMPANY is a party, or to which its
properties are subject, or by any other fact or circumstance regarding the
COMPANY (which fact or circumstance was, or should reasonably, after due
inquiry, have been known to the COMPANY) that is not disclosed pursuant hereto
or thereto. If, prior to the 25th day after the date of the final prospectus of
PARENT utilized in connection with the IPO, the COMPANY or the STOCKHOLDERS
become aware of any fact or circumstance which would change (or, if after the
Funding and Consummation Date, would have changed) a representation or warranty
of COMPANY or STOCKHOLDERS in this Agreement or would affect any document
delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
PARENT. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their obligations
under this Agreement, and, subject to the provisions of Section 7.8, at the sole
option of PARENT, the truth and accuracy of any and all warranties and
representations of the COMPANY, or on behalf of the COMPANY and of STOCKHOLDERS
at the date of this Agreement and on the Closing Date and on the Funding and
Consummation Date, shall be a precondition to the consummation of this
transaction.
(b) PARENT shall use reasonable commercial efforts to file
the Registration Statement and to have it declared effective; however, the
COMPANY and the STOCKHOLDERS acknowledge and agree (i) that there exists no firm
commitment, binding agreement, or promise or other assurance of any kind,
whether express or implied, oral or written, that a Registration Statement will
become effective or that the IPO pursuant thereto will occur at a particular
price or within a particular range of prices or occur at all; (ii) that neither
PARENT or any
-24-
<PAGE>
of its officers, directors, agents or representatives nor any Underwriter shall
have any liability to the COMPANY, the STOCKHOLDERS or any other person
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to PARENT or the prospective IPO; provided,
however, that the COMPANY and the STOCKHOLDERS retain their right to insist that
the IPO Stock Price be no lower than the minimum price specified in Annex II.
5.30 PROHIBITED ACTIVITIES. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement and, subject to Section 7.8, shall be true on the Closing Date and on
the Funding and Consummation Date, and that the representations and warranties
set forth in Sections 5.31 and 5.32 shall survive until the first anniversary of
the Funding and Consummation Date, which shall be the Expiration Date for
purposes of Sections 5.31 and 5.32.
5.31 AUTHORITY; OWNERSHIP. Such STOCKHOLDER has the full legal right,
power and authority to enter into this Agreement. Such STOCKHOLDER owns
beneficially and of record all of the shares of the Company Stock identified on
Annex III as being owned by such STOCKHOLDER, and, except as set forth on
Schedule 5.31, such Company Stock is owned free and clear of all liens,
encumbrances and claims of every kind.
5.32 PREEMPTIVE RIGHTS. Such STOCKHOLDER does not have, or hereby
waives, any preemptive or other right to acquire shares of Company Stock or
Parent Stock that such STOCKHOLDER has or may have had other than rights of any
STOCKHOLDER to acquire Parent Stock pursuant to (i) this Agreement or (ii) any
written option granted by PARENT.
5.33 NO INTENTION TO DISPOSE OF PARENT STOCK. The STOCKHOLDER is not
under any binding commitment or contract to sell, exchange or otherwise dispose
of shares of Parent Stock received as described in Section 3.1.
-25-
<PAGE>
6. REPRESENTATIONS OF PARENT AND ACQUISITION CORP.
PARENT and ACQUISITION CORP. jointly and severally represent and
warrant that all of the following representations and warranties in this Section
6 are true at the date of this Agreement and, subject to Section 7.8 hereof,
shall be true on the Closing Date and the Funding and Consummation Date, and
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months (the last day of such period
being the "Expiration Date"), except that (i) the warranties and representations
set forth in Section 6.14 hereof shall survive until such time as the
limitations period has run for all Tax periods ended on or prior to the Funding
and Consummation Date, which shall be deemed to be the Expiration Date for
Section 6.14 and (ii) solely for purposes of determining whether a claim for
indemnification under Section 11.2(iv) hereof has been made on a timely basis,
and solely to the extent that, in connection with the IPO, PARENT actually
incurs liability under the 1933 Act, the 1934 Act, or any other federal or state
securities laws, the representations and warranties set forth herein shall
survive until the expiration of any applicable limitations period, which shall
be deemed to be the Expiration Date for such purposes.
6.1 DUE ORGANIZATION. PARENT and ACQUISITION CORP. are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their business in the places and in the manner as now conducted except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws, each as amended, of PARENT and ACQUISITION CORP. (the
"Parent Charter Documents") are all attached hereto as Annex I.
6.2 AUTHORIZATION. The representatives of PARENT and ACQUISITION CORP.
executing this Agreement have the authority to enter into and bind PARENT and
ACQUISITION CORP. to the terms of this Agreement. PARENT and ACQUISITION CORP.
have the corporate power and authority to enter into this Agreement and the
Merger.
6.3 CAPITAL STOCK OF PARENT AND ACQUISITION CORP. The authorized capital
stock of PARENT and ACQUISITION CORP. is as set forth in Sections 1.4(ii) and
(iii), respectively. All of the issued and outstanding shares of the capital
stock of ACQUISITION CORP. are owned by PARENT and all of the issued and
outstanding shares of the capital stock of PARENT are owned as set forth on
Annex IV. All of the issued and outstanding shares of the capital stock of
PARENT and ACQUISITION CORP. have been duly authorized and validly issued, are
fully paid and nonassessable. Further, none of such shares were issued in
violation of the preemptive rights of any past or present stockholder of PARENT
or ACQUISITION CORP.
-26-
<PAGE>
On the Funding and Consummation Date, PARENT shall have outstanding only
one class of common stock (Parent Common Stock) and the shares of Parent Common
Stock owned by the Founding Companies and the purchasers of stock in the IPO
will not possess less than 80% of the total voting power of Parent Common Stock
entitled to vote. For this purpose, the outstanding Parent Common Stock shall
include, without limitation, the shares to be held by the stockholders of all
Founding Companies and by purchasers in the IPO.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for
the Other Agreements and except as set forth on Schedule 6.4, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
PARENT or ACQUISITION CORP. to issue any of their authorized but unissued
capital stock; and (ii) neither PARENT nor ACQUISITION CORP. has any 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 6.4 also includes complete and
accurate copies of all stock option or stock purchase plans, including a list,
accurate as of the date hereof, of all outstanding options, warrants or other
rights to acquire shares of the stock of PARENT.
6.5 SUBSIDIARIES. ACQUISITION CORP. has no subsidiaries. PARENT has no
subsidiaries except for ACQUISITION CORP. and the other companies identified as
"ACQUISITION CORP." in the of the Other Agreements. Except as set forth in the
preceding sentence, neither PARENT nor ACQUISITION CORP. presently owns, of
record or beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity, and neither PARENT nor ACQUISITION
CORP., directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. Attached hereto as Schedule 6.6 are copies of
the following financial statements (the "Parent Financial Statements") of
PARENT, which reflect the results of its operations from inception in February
1997: PARENT's audited Balance Sheet as of June 30, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
June 30, 1997. Such Parent Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6). Except as set forth on Schedule 6.6, such Balance Sheet as of June 30,
1997 presents fairly the financial position of PARENT as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations and cash from for the period indicated.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth on Schedule 6.7,
PARENT and ACQUISITION CORP. have no material liabilities, contingent or
otherwise, except as set forth in
-27-
<PAGE>
or contemplated by this Agreement and the Other Agreements and except for fees
incurred in connection with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 6.8, neither PARENT nor ACQUISITION CORP. is in violation of any law or
regulation or any order of any court or Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over either of them which would have a Material Adverse
Effect; and except to the extent set forth in Schedule 6.8, there are no
material claims, actions, suits or proceedings, pending or, to the knowledge of
PARENT or ACQUISITION CORP., threatened, against or affecting PARENT or
ACQUISITION CORP., at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. PARENT and ACQUISITION CORP. have conducted and are conducting their
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.9 NO VIOLATIONS. Neither PARENT nor ACQUISITION CORP. is in violation
of any Parent Charter Document. None of PARENT, ACQUISITION CORP., or, to the
knowledge of PARENT and ACQUISITION CORP., any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which
PARENT or ACQUISITION CORP. is a party, or by which PARENT or ACQUISITION CORP.,
or any of their properties, are bound (collectively, the "Parent Documents");
and (a) the rights and benefits of PARENT and ACQUISITION CORP. under the Parent
Documents will not be adversely affected by the transactions contemplated hereby
and (b) the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a default under, any of
the terms or provisions of the Parent Documents or the Parent Charter Documents.
Except as set forth on Schedule 6.9, none of the Parent Documents requires
notice to, or the consent or approval of, any governmental agency 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 right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by PARENT and ACQUISITION CORP. and the performance of the
transactions contemplated herein have been duly and validly authorized by the
Boards of Directors of PARENT and ACQUISITION CORP.
-28-
<PAGE>
and this Agreement has been duly and validly authorized by all necessary
corporate action and is a legal, valid and binding obligation of PARENT and
ACQUISITION CORP.
6.11 PARENT STOCK. At the time of issuance thereof, the Parent Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of PARENT, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Sections 15 and 16
hereof, will be identical in all substantive respects (which do not include the
form of certificate upon which it is printed or the presence or absence of a
CUSIP number on any such certificate) to the Parent Stock issued and outstanding
as of the date hereof. The shares of Parent Stock to be issued to the
STOCKHOLDERS pursuant to this Agreement will not be registered under the 1933
Act, except as provided in Section 17 hereof.
6.12 NO SIDE AGREEMENTS. Neither PARENT nor ACQUISITION CORP. has
entered or will enter into any agreement with any of the Founding Companies or
any of the stockholders of the Founding Companies other than the Other
Agreements and the agreements contemplated by the Other Agreements, including
the employment agreements referred to therein.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. PARENT was organized
in February 1997 and has conducted limited operations since that time. Neither
PARENT nor ACQUISITION CORP. has conducted any material business since the date
of its inception, except in connection with this Agreement, the Other Agreements
and the IPO. Neither PARENT nor ACQUISITION CORP. owns or has at any time owned
any real property or any material personal property or is a party to any other
agreement, except as listed on Schedule 6.13 and except that PARENT is a party
to the Other Agreements and the agreements contemplated thereby and to such
agreements as will be filed as Exhibits to the Registration Statement.
Except (i) as described in Schedule 6.13 and (ii) for the information
included in the Annexes and Schedules this Agreement and the Other Agreements
are in substantially the same form; and copies of the Other Agreements are
available for review by COMPANY and the STOCKHOLDERS. In arriving at the
consideration to be paid to STOCKHOLDERS specified in Annex II, PARENT utilized
with the COMPANY substantially the same methodologies as PARENT utilized with
each of the Other Founding Companies.
6.14 TAXES. PARENT has timely filed all requisite federal, state and
other Tax returns or extension requests for all fiscal periods ended on or
before the Balance Sheet Date; and except as set forth on Schedule 6.14, there
are no examinations in progress or claims against PARENT for federal, state and
other Taxes (including penalties and interest) for any period or periods prior
to and including the Balance Sheet Date and no notice of any claim for taxes,
whether pending or threatened, has been received. All Tax, including interest
and penalties (whether or not shown on
-29-
<PAGE>
any tax return) owed by PARENT, any member of an affiliated or consolidated
group which includes or included PARENT, or with respect to any payment made or
deemed made by PARENT herein has been paid. The amounts shown as accruals for
taxes on Parent Financial Statements are sufficient for the payment of all Taxes
of the kinds indicated (including penalties and interest) for all fiscal periods
ended on or before that date. PARENT is not an investment company as defined in
Section 351(e)(1) of the Code.
PARENT will not make an election to treat the transaction as a
purchase of assets under Section 338 of the Code.
6.15 ABSENCE OF CHANGES. Since June 30, 1997, except as set forth in the
drafts of the Registration Statement delivered to the STOCKHOLDERS, and except
as contemplated by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of
PARENT;
(ii) any damage destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
PARENT;
(iii) any change in the authorized capital of PARENT or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of PARENT;
(v) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of PARENT;
(vi) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of PARENT to any person;
(vii) any cancellation or agreement to cancel, any indebtedness
or other obligation owing PARENT;
(viii) any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the
assets, property or rights of PARENT or
-30-
<PAGE>
requiring consent of any party to the transfer and assignment of any
such assets, property or rights;
(ix) any waiver of any material rights or claims of PARENT;
(x) any amendment or termination of any material contract
agreement, license, permit or other right to which PARENT is a party;
(xi) any transaction by PARENT outside the ordinary course of its
business; or
(xii) any other distribution of property or assets by PARENT
other than in the ordinary course of business.
6.16 DISCLOSURE. The most recent draft of the Registration Statement
delivered to the COMPANY and the STOCKHOLDERS, together with this Agreement and
the information furnished to the COMPANY and the STOCKHOLDERS in connection
herewith, does not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing does not apply to statements contained in or omitted from any
of such documents made or omitted in reliance upon information furnished by the
COMPANY or the STOCKHOLDERS.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will afford to the
officers and authorized representatives of PARENT access to all of the COMPANY's
sites, properties, books and records and will furnish PARENT with such
additional financial and operating data and other information as to the business
and properties of the COMPANY as PARENT may from time to time reasonably
request. The COMPANY will cooperate with PARENT, its representatives, auditors
and counsel in the preparation of any documents or other material which may be
reasonably required in connection with any documents or materials required by
this Agreement. PARENT, ACQUISITION CORP., the STOCKHOLDERS and the COMPANY will
treat all information obtained in connection with the negotiation and
performance of this Agreement as confidential in accordance with the provisions
of Section 14 hereof. In addition, PARENT will cause each of the Other Founding
Companies to enter into a provision similar to this Section 7.1 requiring each
Other Founding Company, its stockholders, directors, officers, representatives,
employees and agents to keep confidential any information obtained by such Other
Founding Company.
-31-
<PAGE>
(b) Between the date of this Agreement and the Funding and Consummation
Date, PARENT will afford to the officers and authorized representatives of the
COMPANY access to all of PARENT's and ACQUISITION CORP.'s sites, properties,
books and records and will furnish the COMPANY with such additional financial
and operating data and other information as to the business and properties of
PARENT and ACQUISITION CORP. as the COMPANY may from time to time reasonably
request. PARENT and ACQUISITION CORP. will cooperate with the COMPANY, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The COMPANY will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the COMPANY will, except as set
forth on Schedule 7.2:
(i) carry on its businesses in substantially the same manner as
it has heretofore and not introduce any material new method of
management, operation or accounting; and
(ii) 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; and
(iii) perform in all material respects all of its obligations
under agreements relating to or affecting its assets, properties or
rights; and
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage; and
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its present key employees and
maintain its relationships with suppliers, customers and others having
business relations with the COMPANY; and
(vi) maintain compliance with all material permits, laws, rules
and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities; and
(vii) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, except as permitted in
Section 10.6, or as disclosed on Schedule 5.10, or without the prior
knowledge and written consent of PARENT; and
-32-
<PAGE>
maintain all debt and lease obligations at levels no greater than the
levels in effect on the Balance Sheet Date; and
(viii) maintain or reduce present salaries and commission levels
for all officers, directors, employees and agents except for ordinary
and customary bonus and salary increases for employees in accordance
with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, and
except as expressly permitted by Section 10.6, between the date hereof and the
Funding and Consummation Date, the COMPANY will not, without prior written
consent of PARENT:
(i) make any change in its Certificate or Articles of
Incorporation or By-laws; or
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than
in connection with the exercise of options or warrants listed in
Schedule 5.4; or
(iii) 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;
or
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in
the normal course of business (consistent with past practice) or
involves an amount not in excess of $50,000; or
(v) create, assume or permit to exist any borrowing, debt,
mortgage, pledge or other lien or encumbrance upon any assets or
properties whether now owned or hereafter acquired, except (1) debt in
an aggregate amount not to exceed the amount of debt outstanding on the
Balance Sheet Date, (2) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not
in excess of $50,000 necessary or desirable for the conduct of the
businesses of the COMPANY, (3) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which contested taxes 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 (3) being referred to
herein as "Statutory Liens"), or (4) liens set forth on Schedule 5.10
and/or 5.15 hereto; or
-33-
<PAGE>
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business; or
(vii) negotiate for the acquisition of any business or the
start-up of any new business; or
(viii) merge or consolidate or agree to merge or consolidate with
or into any other corporation; or
(ix) waive any material rights or claims of the COMPANY, provided
that the COMPANY 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 in Schedule 5.11 unless specifically listed thereon; or
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right of the COMPANY; or
(xi) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder.
7.4 NO SHOP. None of the STOCKHOLDERS, the COMPANY, or any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers
from any person for, or
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than PARENT or
its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, acquisition, consolidation, share
exchange or business combination of or with the COMPANY.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the COMPANY
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under
-34-
<PAGE>
applicable collective bargaining agreements, and shall provide PARENT on
Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. Prior to the Closing Date, the STOCKHOLDERS and the
COMPANY shall terminate (i) any stockholders agreements, voting agreements,
voting trusts, options, warrants, (ii) any employment agreements between the
COMPANY and any employee listed on Schedule 9.12 hereto, and (iii) any existing
agreement between the COMPANY and any STOCKHOLDER other than those expressly
disclosed on Schedule 7.6/9.7 as not being terminated.
7.7 NOTIFICATION OF CERTAIN MATTERS. The STOCKHOLDERS and the COMPANY
shall give prompt notice to PARENT of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
Date or the Funding and Consummation Date and (ii) any material failure of any
STOCKHOLDER or the COMPANY to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by such person hereunder. PARENT and
the ACQUISITION CORP. shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of PARENT or such
ACQUISITION CORP. contained herein to be untrue or inaccurate in any material
respect at or prior to the Closing Date or the Funding and Consummation Date and
(ii) any material failure of PARENT or such ACQUISITION CORP. 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 7.7 shall not
be deemed to (i) modify the representations or warranties hereunder of any
party, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to any party receiving such notice.
7.8 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 24 hours prior to the
anticipated effectiveness of the Registration Statement, 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 5.10, 5.11, 5.14 and 5.15 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. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the COMPANY that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless PARENT
and a majority of the Founding Companies other than the COMPANY consent to such
amendment or supplement; and provided
-35-
<PAGE>
further, that no amendment or supplement to a Schedule prepared by PARENT or
ACQUISITION CORP. that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless a majority of the Founding
Companies consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 8.1 and 9.1 have been fulfilled, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 7.8. In the event that one of the Other Founding Companies seeks
to amend or supplement a Schedule pursuant to Section 7.8 of one of the Other
Agreements, and such amendment or supplement constitutes or reflects an event or
occurrence that would have a Material Adverse Effect on such Other Founding
Company, PARENT shall give the COMPANY notice promptly after it has knowledge
thereof. If PARENT and a majority of the Founding Companies consent to such
amendment or supplement, which consent shall have been deemed given by PARENT or
any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the COMPANY does not
give its consent, the COMPANY may terminate this Agreement pursuant to Section
12.1(iv). In the event that COMPANY seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and PARENT and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i). In the
event that PARENT or any ACQUISITION CORP. seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i). No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The COMPANY
and STOCKHOLDERS shall furnish or cause to be furnished to PARENT and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
required for inclusion in, and will cooperate with PARENT and the Underwriters
in the preparation of, the Registration Statement and the prospectus included
therein (including audited and unaudited financial statements, prepared in
accordance with generally accepted accounting principles, in form suitable for
inclusion in the Registration Statement). The COMPANY and the STOCKHOLDERS agree
promptly to advise PARENT if at any time during the period in which a prospectus
relating to the offering is required to be delivered under the 1933 Act, any
information contained in the prospectus concerning the COMPANY or the
STOCKHOLDERS becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such
-36-
<PAGE>
information with respect to the COMPANY and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a 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. PARENT will keep the COMPANY and the Other Founding
Companies advised as to the status of the Registration Statement, including
receipt of SEC comments, PARENT'S response thereto, and the anticipated date and
time of its effectiveness.
7.10 FINAL FINANCIAL STATEMENTS. The COMPANY shall provide prior to the
Funding and Consummation Date, and PARENT shall have had sufficient time to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of all fiscal quarters following the Balance Sheet Date, and the unaudited
consolidated statement of income, cash flows and retained earnings of the
COMPANY for all fiscal quarters ended after the Balance Sheet Date, disclosing
no material adverse change in the financial condition of the COMPANY or the
results of its operations or cash flows from the financial statements as of the
Balance Sheet Date. Such financial statements must be prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as noted therein). Except as noted in
such financial statements, all of such financial statements will present fairly
the results of operations or cash flows of the COMPANY for the periods indicated
therein.
7.11 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.
7.12 AUTHORIZED CAPITAL. PARENT shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the Parent Stock.
7.13 COMPLIANCE WITH HART-SCOTT. All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "Hart-Scott Act") may be required in
connection with the transactions contemplated herein. If it is determined by the
parties to this Agreement that filings under the Hart-Scott Act are required,
then: (i) each of the parties hereto agrees to cooperate and use its best
efforts to comply with the Hart-Scott Act, (ii) such compliance by the
STOCKHOLDERS and the COMPANY shall be deemed a condition precedent in addition
to the conditions precedent set forth in Section 9 of this Agreement, and such
compliance by PARENT and ACQUISITION CORP. shall be deemed a condition precedent
in addition to the conditions precedent set forth in Section 8 of this
Agreement, and (iii) the parties agree to cooperate and use their best efforts
to cause all filings required under the Hart-Scott Act to be made.
-37-
<PAGE>
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of STOCKHOLDERS and the COMPANY 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 following conditions. The obligations of
the STOCKHOLDERS and the COMPANY with respect to the actions to be taken on the
Funding and Consummation Date are subject to the satisfaction or waiver on or
prior to the Funding and Consummation Date of the conditions set forth in
Sections 8.1, 8.8, 8.9 and 8.12. As of the Closing Date or, with respect to the
conditions set forth in Sections 8.1, 8.8, 8.9 and 8.12, as of the Funding and
Consummation Date, all conditions not satisfied or objected to shall be deemed
to have been waived, except that no such waiver shall be deemed to affect the
survival of the representations and warranties of PARENT and ACQUISITION CORP.
contained in Section 6 hereof:
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of PARENT and ACQUISITION CORP. contained in
Section 6 shall be true and correct in all material respects as of the Closing
Date and the Funding and Consummation Date as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with and performed by PARENT and
ACQUISITION CORP. on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of PARENT shall have been delivered to the COMPANY and the
STOCKHOLDERS.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be satisfactory to the COMPANY and its counsel. The
STOCKHOLDERS and the COMPANY shall not have determined that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, contain any untrue statement of a material fact,
or omit to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that the
condition contained in this sentence shall be deemed satisfied if the COMPANY or
STOCKHOLDERS shall have failed to inform PARENT in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the
-38-
<PAGE>
COMPANY as a result of which the management of the COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The COMPANY shall have received an opinion from
counsel for PARENT, dated the Funding and Consummation Date, in the form annexed
hereto as Annex V.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the Underwriters shall have agreed to acquire
on a firm commitment basis, subject to the conditions set forth in the
underwriting agreement, on terms such that the aggregate value of the cash and
the number of shares of Parent Stock to be received by the STOCKHOLDERS is not
less than the Minimum Value set forth on Annex II.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of COMPANY as a result of which COMPANY deems it inadvisable
to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. PARENT and ACQUISITION CORP. shall have
delivered to the COMPANY a certificate, dated as of a date no later than ten
days prior to the Closing Date, duly issued by the Secretary of State Delaware
and Texas and in each state in which PARENT or ACQUISITION CORP. is authorized
to do business, showing that each of PARENT and ACQUISITION CORP. is in good
standing and authorized to do business.
8.8 NO MATERIAL ADVERSE EFFECT No event or circumstance shall have
occurred with respect to PARENT or ACQUISITION CORP. which would constitute a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The COMPANY shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of PARENT and of ACQUISITION CORP., certifying the truth and correctness of
attached copies of the PARENT's and ACQUISITION CORP.'s Certificate or Articles
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the Boards of Directors and, if required, the
stockholders of PARENT and ACQUISITION CORP. approving PARENT's and ACQUISITION
CORP.'s entering into this Agreement and the consummation of the transactions
contemplated hereby.
-39-
<PAGE>
8.11 EMPLOYMENT AGREEMENTS. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
substantially in the form of Annex VIII hereto.
8.12 TAX MATTERS. The STOCKHOLDERS shall have been advised a tax advisor
reasonably acceptable to the STOCKHOLDERS that the Merger should qualify as a
tax-free transfer of property under Section 351 of the Code; provided that this
shall not constitute a condition precedent under this Section 8 or otherwise
unless the STOCKHOLDERS have complied with every reasonable request designed or
intended to enable the Merger to so qualify.
8.13 PARALLEL TRANSFER RESTRICTIONS. WJG Capital, L.L.C. ("WJG") and the
PARENT's other stockholders and option and warrant holders shall have agreed in
writing to restrict the transfers of their shares of Parent Stock on
substantially the same terms as specified in Section 15.1; provided, that
nothing shall restrict WJG from distributing shares of Parent Stock to the
members of WJG so long as such members are subject to the referenced
restrictions on transfer.
8.14 OTHER MERGERS. PARENT's acquisitions of the Other Founding
Companies shall occur on the Funding and Consummation Date pursuant to the Other
Agreements.
8.15 LISTING. PARENT shall have caused the Parent Stock to be listed on
the New York Stock Exchange or traded or quoted on the NASDAQ National Market
System, subject to official notice of issuance.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND ACQUISITION CORP.
The obligations of PARENT and ACQUISITION CORP. 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 following conditions. The obligations of
PARENT and ACQUISITION CORP. with respect to actions to be taken on the Funding
and Consummation Date are subject to the satisfaction or waiver on or prior to
the Funding and Consummation Date of the conditions set forth in Sections 9.1,
9.4 and 9.13. As of the Closing Date or, with respect to the conditions set
forth in Sections 9.1, 9.4 and 9.13, as of the Funding and Consummation Date,
all conditions not satisfied shall be deemed to have been waived, except that no
such waiver shall be deemed to affect the survival of the representations and
warranties of the COMPANY and STOCKHOLDERS contained in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the STOCKHOLDERS and the COMPANY contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date and the Funding
-40-
<PAGE>
and Consummation Date with the same effect as though such representations and
warranties had been made on and as of such dates; all of the terms, covenants
and conditions of this Agreement to be complied with or performed by the
STOCKHOLDERS and the COMPANY on or before the Closing Date or the Funding and
Consummation Date, as the case may be, shall have been duly performed or
complied with in all material respects; and the STOCKHOLDERS shall have
delivered to PARENT certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of PARENT as a result of which the
management of PARENT deems it inadvisable to proceed with the transactions
hereunder.
9.3 SECRETARY'S CERTIFICATE. PARENT shall have received a certificate,
dated the Closing Date and signed by the secretary of the COMPANY, certifying
the truth and correctness of attached copies of such COMPANY's Certificate or
Articles of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the Board of Directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the COMPANY which would constitute a Material Adverse
Effect, and the COMPANY 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 such COMPANY
to conduct its business.
9.5 STOCKHOLDERS' RELEASE. The STOCKHOLDERS shall have delivered to
PARENT and the COMPANY an instrument dated the Closing Date releasing the
COMPANY (including all subsidiaries) from (i) any and all claims of the
STOCKHOLDERS against the COMPANY and PARENT and (ii) any and all obligations of
the COMPANY and PARENT to the STOCKHOLDERS, except for (x) items specifically
identified on Schedules 5.10, 5.15 or 7.6/9.7 as being claims of or obligations
to the STOCKHOLDERS which are to survive after Closing, (y) any obligations
arising after the Funding and Consummation Date to a STOCKHOLDER relating to his
or her employment by the COMPANY and (z) obligations arising under this
Agreement or the transactions contemplated hereby.
-41-
<PAGE>
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to PARENT.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as otherwise
specifically set forth on Schedule 7.6/9.7, all existing agreements between
COMPANY (including all subsidiaries) and the STOCKHOLDERS and their affiliates
shall have been canceled effective prior to or as of the Funding and
Consummation Date.
9.8 OPINION OF COUNSEL. PARENT shall have received an opinion from
Counsel to the COMPANY and the STOCKHOLDERS, dated the Closing Date,
substantially in the form annexed as Annex VI, and the Underwriters shall have
received a copy of the same opinion addressed to them.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained;
and no action or proceeding shall have been instituted or threatened to restrain
or prohibit the Merger and no governmental agency or body shall have taken any
other action or made any request of PARENT as a result of which PARENT deems it
inadvisable to proceed with the transactions hereunder.
9.10 GOOD STANDING CERTIFICATES. The COMPANY shall have delivered to
PARENT a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's (and each subsidiary) state of incorporation and, unless waived by
PARENT, in the state in which the COMPANY (and each subsidiary) is authorized to
do business, showing the COMPANY is in good standing and authorized to do
business and that all state franchise and/or income Tax returns and Taxes for
the COMPANY (and each subsidiary) for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The COMPANY and each of the persons listed
on Schedule 9.12 shall have entered into an employment agreement substantially
in the form of Annex VII hereto.
9.13 CLOSING OF IPO. The closing of the sale of the Parent Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
-42-
<PAGE>
9.14 FIRPTA CERTIFICATE. Each of the STOCKHOLDERS shall have delivered
to PARENT a certificate to the effect that he or she is not a foreign person
pursuant to Section 1.1445- 2(b) of the Treasury regulations.
10. COVENANTS OF PARENT AND THE STOCKHOLDERS AFTER CLOSING
10.1 REPAYMENT OF CERTAIN OBLIGATIONS. On the Funding and Consummation
Date, PARENT shall pay off or cause to be paid off all of the COMPANY's funded
indebtedness which either (i) has been disclosed pursuant to Schedule 5.10 of
this Agreement and is issued and outstanding consistent with this Agreement or
(ii) is incurred in accordance with Section 10.6. After the Funding and
Consummation Date, PARENT shall provide the COMPANY with the working capital
required for operations.
10.2 PRESERVATION OF TAX TREATMENT. Except as contemplated by this
Agreement or the Registration Statement, after the Funding and Consummation
Date, PARENT shall not and shall not permit any of its subsidiaries to undertake
any act that would jeopardize the tax status of the Consolidation Plan as
qualifying under Section 351 of the Code.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The COMPANY shall, if possible, file or cause to be filed all
separate Returns of any Acquired Party for all taxable periods that end
on or before the Funding and Consummation Date. Notwithstanding the
foregoing, the STOCKHOLDERS shall file or cause to be filed all separate
federal income Tax Returns of any Acquired Party for all taxable periods
that end on or before the Funding and Consummation Date. The
STOCKHOLDERS shall pay or cause to be paid all Tax liabilities (in
excess of all amounts already paid with respect thereto or properly
accrued or reserved with respect thereto on the Company Financial
Statements) shown by such Returns to be due.
(ii) PARENT shall file or cause to be filed all separate Returns
of, or that include, any Acquired Party for all taxable periods ending
after the Funding and Consummation Date.
(iii) Each party hereto shall, and shall cause its subsidiaries
and affiliates to, provide to the of the other parties hereto such
cooperation and information as any of them reasonably may request in
filing any Return, amended Return or claim for refund, determining a
liability for Taxes or a right to refund of Taxes or in conducting any
audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of all relevant portions of
relevant Returns, together with relevant accompanying schedules and
relevant work papers, relevant documents relating to rulings
-43-
<PAGE>
or other determinations by Taxing Authorities and relevant records
concerning the ownership and Tax basis of property, which such party may
possess. Each party shall make its employees reasonably available on a
mutually convenient basis at its cost to provide explanation of any
documents or information so provided. Subject to the preceding sentence,
the party required to file Returns pursuant to this Agreement shall bear
all costs of filing such Returns.
(iv) Each of the COMPANY, ACQUISITION CORP., PARENT and the
STOCKHOLDERS shall comply with the Tax reporting requirements of the
Treasury Regulations promulgated under the Code, and treat the
transaction as a tax-free contribution under Section 351 of the Code.
10.4 DIRECTORS. The persons named in the Registration Statement shall be
appointed as directors and elected as officers of PARENT, as and to the extent
set forth in the Registration Statement, promptly following the Funding and
Consummation Date.
10.5 PRESERVATION OF EMPLOYEE BENEFIT PLANS. Following the Funding and
Consummation Date, PARENT shall not terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as PARENT is
able to replace such plan with a plan that is applicable to PARENT and all of
its then existing subsidiaries, provided that PARENT shall have no obligation to
provide replacement plans that have the same terms and provisions as the
existing plans, provided, further, that any new health insurance plan shall
provide for coverage for preexisting conditions. On the Funding and Consummation
Date, the employees of the COMPANY will be the employees of the Surviving
Corporation (provided that this provision is for purposes of clarifying that the
Merger, in and of itself, will not have any impact on the employment status of
any employee and provided, further, that this provision shall not in any way
limit the management rights of the Surviving Corporation or PARENT to assess
workforce needs and make appropriate adjustments as necessary or desirable
within their discretion subject to applicable laws and collective bargaining
agreements).
10.6 DIVIDENDS. The COMPANY may pay to the STOCKHOLDERS as dividends the
amount of the COMPANY's net income after accruals for federal and state income
taxes for the period after the Balance Sheet Date to the Funding and
Consummation Date. The COMPANY may borrow funds to the extent necessary to make
the payments contemplated by this Section 10.6 and to the extent necessary to
ensure that the COMPANY has cash on hand to adequately fund operations on the
Funding and Consummation Date.
11. INDEMNIFICATION
-44-
<PAGE>
The STOCKHOLDERS, PARENT and ACQUISITION CORP. each make the following
covenants that are applicable to them, respectively:
11.1 INDEMNIFICATION BY THE STOCKHOLDERS. The STOCKHOLDERS covenant and
agree that they, jointly and severally, will indemnify, defend, protect and hold
harmless PARENT, ACQUISITION CORP., the COMPANY and the Surviving Corporation at
all times, from and after the date of this Agreement until the applicable
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 PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the STOCKHOLDERS or the COMPANY set forth
herein or on the Schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the STOCKHOLDERS or the COMPANY
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the COMPANY or the STOCKHOLDERS, and provided to
PARENT or its counsel by the COMPANY or the STOCKHOLDERS (but in the case of the
STOCKHOLDERS, only if such statement was provided in writing) contained in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that such indemnity
shall not inure to the benefit of PARENT, ACQUISITION CORP., the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to PARENT's counsel and to PARENT for inclusion in the final
prospectus, and such information was not so included or properly delivered.
11.2 INDEMNIFICATION BY PARENT. PARENT covenants and agrees that it will
indemnify, defend, protect and hold harmless the 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 (i) any breach by PARENT or
ACQUISITION CORP. of their representations and warranties set forth herein or on
the Schedules or certificates attached hereto, (ii) any breach of any agreement
on the part of PARENT or ACQUISITION CORP. under this Agreement, or (iii) any
liabilities which the STOCKHOLDERS may incur due to PARENT's or ACQUISITION
CORP.'s failure to be responsible for the liabilities and obligations
-45-
<PAGE>
of the COMPANY as provided in Section 1 hereof (except to the extent that PARENT
or ACQUISITION CORP. has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to PARENT, ACQUISITION CORP. or any of the Other Founding
Companies contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to PARENT or ACQUISITION CORP. or any of
the Other Founding Companies required to be stated therein or necessary to make
the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by 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 11.1 or 11.2 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. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the Indemnified Party
of its intention to do so, and the Indemnified Party shall cooperate 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 use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing an Indemnified Party, then the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. An Indemnified
Party shall also have the right, at its sole expense, to have counsel of its
choice participate in (but never to control) the defense of any such claim.
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
-46-
<PAGE>
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 by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment.
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 defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
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 insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section
11 shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that, nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 LIMITATIONS ON INDEMNIFICATION. None of PARENT, ACQUISITION CORP.,
the Surviving Corporation nor any other persons or entities indemnified pursuant
to Section 11.1 or 11.2 shall assert any claim for indemnification hereunder
against the STOCKHOLDERS until such time as, and solely to the extent that, the
aggregate of all claims which all such persons may have against all such
STOCKHOLDERS shall exceed 1.0% of (i) the sum of the cash paid to STOCKHOLDERS
plus (ii) the value of the Parent Stock delivered to STOCKHOLDERS (calculated as
provided below) (the "Indemnification Threshold"). STOCKHOLDERS shall not assert
any claim for indemnification hereunder against PARENT or ACQUISITION CORP.
until such time as, and solely to the extent that, the aggregate of all claims
which all STOCKHOLDERS may have against PARENT or ACQUISITION CORP. shall exceed
the amount of the Indemnification Threshold.
-47-
<PAGE>
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no STOCKHOLDER shall
be liable under this Section 11 for an amount which exceeds the amount of
proceeds received by such STOCKHOLDER in connection with the Merger. For
purposes of calculating the value of the Parent Stock received by STOCKHOLDERS,
Parent Stock shall be valued at its initial public offering price as set forth
in the Registration Statement. It is hereby understood and agreed that a
STOCKHOLDER may satisfy an indemnification obligation through payment of a
combination of stock and cash in proportion equal to the proportion of stock and
cash received by such STOCKHOLDER in connection with the Merger, valued as
described immediately above.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of PARENT and the
COMPANY; or
(ii) by the Company (acting through its board of directors, if, by
September 30, 1997, the PARENT shall not have filed the Registration Statement
with the SEC reflecting an estimated minimum price for Parent Stock of at least
$10.50 per share; or
(iii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1997, 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 Funding and Consummation Date; or
(iv) by the STOCKHOLDERS or COMPANY (acting through its board of
directors), on the one hand, or by PARENT (acting through its board of
directors), 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 Funding and Consummation Date;
or
(v) pursuant to Section 7.8 hereof; or
-48-
<PAGE>
(vi) pursuant to Section 4 hereof.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, 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 expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. The STOCKHOLDERS will not, for a period of
five (5) years following the Funding and Consummation Date, for any reason
whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
temporary staffing, "PEO" or staff leasing, permanent placement or human
resource consulting or outsourcing business in competition with PARENT or any of
the subsidiaries thereof, within 100 miles of where the COMPANY or any of its
subsidiaries conducted business prior to the effectiveness of the Merger (the
"Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of PARENT (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of PARENT (including the
subsidiaries thereof), provided that the STOCKHOLDER shall be permitted to call
upon and hire any member of his immediate family;
(iii) call upon any person or entity which is, at that time, or which
has been, within one (1) year prior to the Funding and Consummation Date, a
client or customer of PARENT (including the subsidiaries thereof), or the
COMPANY or of any of the Other Founding Companies within the Territory for the
purpose of soliciting or selling products or services in competition with PARENT
within the Territory;
(iv) call upon any prospective acquisition candidate, on any
STOCKHOLDER's behalf or on behalf of any competitor in the temporary staffing,
"PEO" or staff leasing, permanent placement or human resource consulting or
outsourcing business, which candidate, to the actual knowledge of such
STOCKHOLDER, was called upon by PARENT (including the subsidiaries
-49-
<PAGE>
thereof) or for which, to the knowledge of such STOCKHOLDER, PARENT (or any
subsidiary thereof) made an acquisition analysis, for the purpose of acquiring
such entity; or
(v) disclose clients or customers, whether in existence or proposed, of
the COMPANY to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever except to the extent that the COMPANY has in the
past disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or in the over-the-counter market.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
PARENT (including its subsidiaries) as a result of a breach of the foregoing
covenant, and because of the immediate and irreparable damage that could be
caused to PARENT (including its subsidiaries) for which it would have no other
adequate remedy, each STOCKHOLDER agrees that the foregoing covenant may be
enforced by PARENT (including its subsidiaries) in the event of breach by such
STOCKHOLDER, by injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of PARENT (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of PARENT.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against PARENT (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
PARENT (or any subsidiary) of such covenants. It is specifically agreed that the
period of five (5) years stated at the beginning of this Section 13, during
which the agreements and covenants of the STOCKHOLDERS made in this Section 13
shall be effective, shall be computed
-50-
<PAGE>
by excluding from such computation any time during which any such STOCKHOLDER is
in violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 MATERIALITY. The COMPANY and the STOCKHOLDERS hereby agree that
this covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. Each STOCKHOLDER recognizes and acknowledges that he
had in the past, currently has, and in the future may possibly have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or PARENT, such as operational policies, pricing and cost policies, and
insurance costs that are valuable, special and unique assets of the COMPANY's,
the Other Founding Companies' and/or PARENT's businesses. Each STOCKHOLDER
agrees that he 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 PARENT, (b) following
the Closing, such information may be disclosed by a STOCKHOLDER as is required
in the course of performing his duties for PARENT or the Surviving Corporation
and (c) to counsel and other advisers, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 14.1, unless
(i) such information becomes known to the public generally through no fault of a
STOCKHOLDER, (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), a STOCKHOLDER shall give prior written notice
thereof to PARENT and provide PARENT 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 the any
STOCKHOLDER of the provisions of this Section, PARENT shall be entitled to an
injunction restraining such STOCKHOLDER from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
PARENT from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
14.2 PARENT AND ACQUISITION CORP. PARENT and ACQUISITION CORP.
recognize and acknowledge that they had in the past and currently have access to
certain confidential information of the COMPANY, such as operational policies,
pricing and cost policies, and insurance costs that are valuable, special and
unique assets of the COMPANY's business. PARENT and ACQUISITION CORP. agree
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
-51-
<PAGE>
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of PARENT or ACQUISITION CORP.,
(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), PARENT and ACQUISITION CORP. shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY 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, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of PARENT as a publicly held entity
after the IPO. In the event of a breach or threatened breach by PARENT or
ACQUISITION CORP. of the provisions of this Section, the COMPANY and the
STOCKHOLDERS shall be entitled to an injunction restraining PARENT and
ACQUISITION CORP. from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as
a result of the breach of the foregoing covenants in Section 14.1 and 14.2, 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.
14.4 SURVIVAL. The obligations of the parties under this Article 14
shall survive the Closing or the termination of this Agreement, for a period of
five (5) years from the Closing Date or the date of termination, as the case may
be.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Except for transfers to immediate family
members who agree to be bound by the restrictions set forth in this Section 15.1
(or trusts for the benefit of the STOCKHOLDERS or immediate family members, the
trustees of which so agree), for a period of one year from the Closing Date,
except pursuant to Section 17 hereof, the STOCKHOLDERS shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any shares of Parent Stock received by the STOCKHOLDERS in the Merger. The
certificates evidencing the Parent Stock delivered to the STOCKHOLDERS pursuant
to Section 3 of this
-52-
<PAGE>
Agreement will bear a legend substantially in the form set forth below and
containing such other information as PARENT may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE].
UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The STOCKHOLDERS acknowledge that the shares
of Parent Stock to be delivered to the STOCKHOLDERS pursuant to this Agreement
have not been and will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The Parent Stock to be
acquired by the STOCKHOLDERS pursuant to this Agreement is being acquired solely
for their own accounts, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution. Each STOCKHOLDER covenants, warrants and represents that
none of the shares of Parent Stock issued to such STOCKHOLDER will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except after full compliance with all of the applicable provisions of the 1933
Act and the rules and regulations of the SEC. All the Parent Stock shall bear
the following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE 1933 ACT AND APPLICABLE
SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. Each STOCKHOLDER is able to bear the
economic risk of an investment in the Parent Stock to be acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and has
such knowledge and experience in financial and business matters that he is
capable of evaluating the merits and risks of the proposed investment in the
Parent Stock. Each STOCKHOLDER has had an adequate opportunity to ask questions
and receive answers from the officers of PARENT concerning any and all matters
relating
-53-
<PAGE>
to the transactions described herein including, without limitation, the
background and experience of the current and proposed officers and directors of
PARENT, the plans for the operations of the business of PARENT, the business,
operations and financial conditions of the Founding Companies other than the
COMPANY, and any plans for additional acquisitions and the like. Each
STOCKHOLDER has asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to his satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Closing,
whenever PARENT proposes to register any Parent Stock for its own or others
account under the 1933 Act for a public offering, other than (i) any shelf
registration of shares to be used as consideration for acquisitions of
additional businesses by PARENT and (ii) registrations relating to employee
benefit plans, PARENT shall give the STOCKHOLDERS prompt written notice of its
intent to do so. Upon the written request of any STOCKHOLDER given within 30
days after receipt of such notice, PARENT shall cause to be included in such
registration all of the Parent Stock issued to such STOCKHOLDER pursuant to this
Agreement (including any stock issued as (or issuable upon the conversion or
exchange of any convertible security, warrant, right or other security which is
issued by PARENT as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of such Parent Stock) which the STOCKHOLDER
requests, provided that PARENT shall have the right to reduce the number of
shares included in such registration to the extent that inclusion of such shares
could, in the opinion of tax counsel to PARENT or its independent auditors,
jeopardize the status of the transactions contemplated hereby and by the
Registration Statement as qualifying under Section 351 of the Code. In addition,
if PARENT is advised in writing in good faith by any managing underwriter of an
underwritten offering of the securities being offered pursuant to any
registration statement under this Section 17.1 that the number of shares to be
sold by persons other than PARENT is greater than the number of such shares
which can be offered without adversely affecting the offering, PARENT may reduce
pro rata the number of shares offered for the accounts of such persons (based
upon the number of shares held by such person) to a number deemed satisfactory
by such managing underwriter, provided, that, for the such offering made by
PARENT after the IPO, such reduction shall be made first by reducing the number
of shares to be sold by persons other than PARENT, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the Other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing the number of shares to be sold by the Founding Stockholders.
17.2 REGISTRATION PROCEDURES. All expenses incurred in connection with
the registrations under this Article 17 (including all registration, filing,
qualification, legal, printer and accounting
-54-
<PAGE>
fees, but excluding underwriting commissions and discounts which shall be
payable by the respective selling parties), shall be borne by PARENT. In
connection with registrations under Section 17.1, PARENT shall (i) use its best
efforts to prepare and file with the SEC as soon as reasonably practicable, a
registration statement with respect to the Parent Stock and use its best efforts
to cause such registration to promptly become and remain effective for a period
of at least 90 days (or such shorter period during which holders shall have sold
all Parent Stock which they requested to be registered); (ii) use its best
efforts to register and qualify the Parent Stock covered by such registration
statement under applicable state securities laws as the holders shall reasonably
request for the distribution for the Parent Stock; and (iii) take such other
actions as are reasonable and necessary to comply with the requirements of the
1933 Act and the regulations thereunder.
17.3 UNDERWRITING AGREEMENT. In connection with the registration
pursuant to Section 17.1 covering an underwritten registered offering, PARENT
and each participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
managing underwriters and companies of PARENT's size and investment stature,
including indemnification.
17.4 AVAILABILITY OF RULE 144. PARENT shall not be obligated to register
shares of Parent Stock held by any STOCKHOLDER at any time when the resale
provisions of Rule 144(k) (or any similar or successor provision) promulgated
under the 1933 Act are available to such STOCKHOLDER.
18. GENERAL
18.1 COOPERATION. The COMPANY, STOCKHOLDERS, PARENT and ACQUISITION
CORP. shall the deliver or cause to be delivered to the other on the Funding and
Consummation 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. The COMPANY will cooperate and use
its reasonable efforts to have the present officers, directors and employees of
the COMPANY cooperate with PARENT on and after the Funding and Consummation 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 Funding and Consummation Date.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of PARENT, ACQUISITION CORP. and the COMPANY, and
-55-
<PAGE>
the heirs and legal representatives of the STOCKHOLDERS. Any attempt to assign
this Agreement in a manner inconsistent with this Agreement shall be void and of
no force or effect.
18.3 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, the
COMPANY, ACQUISITION CORP. and PARENT and supersede any prior agreement and
understanding relating to the subject matter of this Agreement. Any disclosure
made on any Schedule delivered pursuant hereto shall be deemed to have been
disclosed for purposes of any other Schedule required hereby, provided that the
COMPANY shall make a good faith effort to cross reference disclosure, as
necessary or advisable, between related Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each
party represents and warrants that it employed no broker, agent or finder in
connection with this transaction and agrees to indemnify the other parties
hereto against all loss, cost, damages or expense arising out of claims for fees
or commission of any broker, agent or finder employed or alleged to have been
employed by such indemnifying party.
18.6 EXPENSES. Whether or not the transactions herein contemplated shall
be consummated, PARENT will pay the fees, expenses and disbursements of PARENT
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by PARENT under this Agreement, including the fees
and expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any
other person or entity retained by PARENT or by WJG, and the costs of preparing
the Registration Statement. The COMPANY will pay all of the fees, expenses and
disbursements relating to this Agreement and the Merger, other than any fees,
expenses and disbursements that relate to the unique circumstances of a
particular STOCKHOLDER or STOCKHOLDERS. Each STOCKHOLDER shall pay all sales,
use, transfer, real property transfer, recording, gains, stock transfer and
other similar taxes and fees ("Transfer Taxes") imposed in connection with the
Merger, other than Transfer Taxes, if any, imposed by the State of Delaware.
Each STOCKHOLDER shall file all necessary documentation and Returns with respect
to such Transfer Taxes. In addition, each STOCKHOLDER acknowledges that he or
she, and not the COMPANY, PARENT or the Surviving Corporation, will pay all
Taxes due upon receipt of the consideration payable pursuant to Section 2
hereof, and that
-56-
<PAGE>
he or she will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by depositing the same in United
States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party.
(a) If to PARENT or ACQUISITION CORP., addressed to them at:
Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attn: Larry E. Darst, Chief Executive Officer
with copies to:
Rick L Wittenbraker
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the STOCKHOLDERS, addressed to them at their addresses
set forth on the Stockholder Signature Page, with copies to:
Michael L. McCann
Spencer Fane Britt and Browne LLP
1000 Walnut Street, Suite 1400
Kansas City, Missouri 64106
-57-
<PAGE>
(c) If to the COMPANY, addressed to it at:
Technology Plus, Inc.
4201 N.E. Lakewood Way, Suite 200
Lee's Summit, Missouri 64064
Attention: Richard L. Bronson
with copies to:
Michael L. McCann
Spencer Fane Britt and Browne LLP
1000 Walnut Street, Suite 1400
Kansas City, Missouri 64106
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard or reference to any
conflict-of-law principles that would refer to the law of any other state or
jurisdiction.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the applicable Expiration
Date.
18.10 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.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 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
-58-
<PAGE>
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.
18.13 REMEDIES CUMULATIVE. Except as expressly specified herein to the
contrary, no right, remedy or election given by any term of this Agreement shall
be deemed exclusive but such shall be cumulative with all other rights, remedies
and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement, and shall not
be used to construe or interpret any provision hereof.
18.15 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 PARENT, ACQUISITION CORP., the COMPANY and the STOCKHOLDERS
who hold or who will hold at least 50% of the Parent Stock issued or to be
issued upon consummation of the Merger. Any amendment or waiver effected in
accordance with this Section 18.15 shall be binding upon the of the parties
hereto, any other person receiving Parent Stock in connection with the Merger
and the future holder of such Parent Stock.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
"PARENT"
NATIONWIDE STAFFING, INC.
By: __________________________
Name: Larry E. Darst
Title: President and Chief Executive Officer
"ACQUISITION CORP."
TPLUS ACQUISITION CORP.
By: __________________________
Name: Larry E. Darst
Title: President
-59-
<PAGE>
"COMPANY"
TECHNOLOGY PLUS, INC.
By: __________________________
Name:
Title:
-60-
<PAGE>
STOCKHOLDER SIGNATURE PAGE
_______________________________ Address: _______________________________
Print Name: Richard L. Bronson ________________________________________
________________________________________
_______________________________ Address: 1314 Alford Avenue, Suite 102
Print Name: Bobby Wayne Watson Birmingham, Alabama 35226
-61-
ANNEX I
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NATIONWIDE STAFFING, INC.
The undersigned, Larry E. Darst, President, and George C. Woods, Secretary
of Nationwide Staffing, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), do hereby certify as follows:
FIRST: The name of the Corporation is
Nationwide Staffing, Inc.
SECOND: The Certificate of Incorporation of the Corporation was filed in
the Office of the Secretary of State of the State of Delaware on December 23,
1996.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation, and in lieu of a meeting of the stockholders,
written consent to this Amended and Restated Certificate of Incorporation having
been given by the holders of a majority of the outstanding stock of the
Corporation in accordance with Section 228 of the General Corporation Law of the
state of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation is being
filed pursuant to Sections 242 and 245 of the Delaware General Corporation Law
in order to restate the Certificate of Incorporation of the Corporation as
amended to date, and also to amend further the Certificate of Incorporation to
(i) increase the authorized capital stock of the Corporation, (ii) authorize the
issuance of preferred stock and restricted voting common stock and (iii) to
provide for the classification of the Board of Directors of the Corporation.
FIFTH: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
<PAGE>
ARTICLE ONE
The name of the corporation is:
Nationwide Staffing, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is Sixty Million (60,000,000) shares, of which
Five Million (5,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock") and Fifty Million
(50,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01) per share (the "Common Stock"), and Five Million (5,000,000) shares,
designated as Restricted Voting Common Stock, shall have a par value of One Cent
($.01) per share (the "Restricted Voting Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights and liquidation preferences
-2-
<PAGE>
of the shares constituting any class or series of the Preferred Stock, without
any further action or vote by the stockholders.
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name of the books of the Corporation.
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when
-3-
<PAGE>
declared by the Board of Directors out of the funds of the Corporation legally
available therefor, such dividends (payable in cash, stock or otherwise) as the
Board of Directors may from time to time determine, payable to stockholders of
record on such dates, not exceeding 60 days preceding the dividend payment
dates, as shall be fixed for such purpose by the Board of Directors in advance
of payment of each particular dividend. All dividends on Restricted Voting
Common Stock shall be paid PARI PASSU with dividends on Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to thirty-five one hundredths
(35/100) of one vote for each share of Restricted Voting Common Stock standing
in such holder's name of the books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share for share basis (a) in the event of a disposition
of such share of Restricted Voting Common Stock by the holder thereof (other
than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder (as defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Corporation, (c) in the event any
person offers to acquire 15% or more of the outstanding shares of Common Stock
of the Corporation, (d) in the event the holder of Restricted Voting Common
Stock elects to convert it into Common Stock at any time after the second
anniversary of the consummation of the Corporation's initial public offering of
its Common Stock (the "Public Offering"), (e) on the third anniversary of the
date of the consummation of the Corporation's Public Offering, or (f) in the
event a majority of the aggregate number of votes which may be cast by the
holders of outstanding
-4-
<PAGE>
shares of Common Stock and Restricted Voting Common Stock entitled to vote
approve such conversion.
After December 1, 1998, the Corporation may elect to convert any
outstanding shares of Restricted Voting Common Stock into shares of Common Stock
in the event 80% or more of the outstanding shares of Restricted Voting Common
Stock have been converted into shares of Common Stock.
ARTICLE FIVE
1. BOARD OF DIRECTORS.
Following the consummation of the Corporation's Public Offering, the
Directors shall be classified with respect to the time for which they shall
severally hold office into three classes as nearly equal in number as possible.
The Class I directors shall be elected to hold office for an initial term
expiring at the 1998 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 1999 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2000 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote of the stockholders at any
time except for cause. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
2. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office
-5-
<PAGE>
by a vote of the stockholders may be filled by a vote of the stockholders at the
same meeting at which such removal occurs. The directors chosen to fill
vacancies shall hold office for a term expiring at the end of the next annual
meeting of stockholders at which the term of the class to which they have been
elected expires. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director. If the vacancy on
the Board of Directors results from the death, retirement, resignation,
disqualification or removal from office of the director elected by the holders
of the Restricted Voting Common Stock, only the holders of the Restricted Voting
Common Stock shall be entitled to fill such vacancy.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
3. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter and repeal the
Bylaws of the Corporation.
4. AMENDMENT AND REPEAL OF ARTICLE FIVE.
Notwithstanding any provision of this Certificate of Incorporation and of
the Bylaws, and notwithstanding the fact that a lesser percentage may be
specified by Delaware law, unless such action has been approved by a majority
vote of the full Board of Directors, the affirmative vote of 66 2/3 percent of
the votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent with this ARTICLE FIVE. In
the event such action has been previously approved by a majority vote of the
full Board of Directors, the affirmative vote of a majority of the outstanding
stock entitled to vote thereon shall be sufficient to amend or repeal any
provision of this ARTICLE FIVE or adopt any provision inconsistent with this
ARTICLE FIVE.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
Subsequent to the Corporation's Public Offering, any action required to be
taken by the stockholders must be effected at a duly called annual or special
meeting of stockholders and may not be effected without such a meeting by any
consent in writing by such holders.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not
-6-
<PAGE>
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation and have
attested such execution and do verify and affirm, under penalty of perjury, that
this Amended and Restated Certificate of Incorporation is the act and deed of
the Corporation and that the facts stated herein are true as of this
day of September, 1997.
NATIONWIDE STAFFING, INC.
By:_________________________________
Name: Larry E. Darst
Title:President
Attest:
__________________________
Name: George C. Woods
Title: Secretary
-7-
<PAGE>
BY-LAWS
OF
NATIONWIDE STAFFING, INC.
ARTICLE 1.
STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of' electing Directors and for the transaction of such other
business as may be properly brought before the meeting, which date shall be
within thirteen (13) months subsequent to the last annual meeting of
stockholders.
SECTION 2. SPECIAL MEETINGS. Unless otherwise provided in the Certificate
of Incorporation of the Corporation, special meetings of the stockholders for
any purpose or purposes may be called at any time by the Chief Executive
Officer, by a majority of the Board of Directors, or by a majority of the
executive committee (if any), at such time and at such place as may be stated in
the notice of the meeting. Business transacted at such meeting shall be confined
to the purpose(s) stated in the notice of such meeting.
SECTION 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) ANNUAL MEETINGS OF STOCKHOLDERS.
(i) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
Stockholders may be made at an annual meeting of Stockholders
(A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any
Stockholder who was a Stockholder of record at the time of
giving of notice provided for in this Section, who is entitled
to vote at the meeting and who complies with the notice
procedures set forth in this Section.
(ii) For nominations or other business to be properly brought
before an annual meeting by a Stockholder pursuant to section
3(a)(i) of this ARTICLE I, the Stockholder must have given
timely notice thereof in writing to the Secretary of the
Corporation and such other business must otherwise be a
-8-
<PAGE>
proper matter for Stockholder action. To be timely, a
Stockholder's notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day
prior to the first (1st) anniversary of the preceding year's
annual meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is more than thirty (30) days
before or more than sixty (60) days after such anniversary
date, notice by the Stockholder to be timely must be so
delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or the tenth (10th)
day following the day on which public announcement of the date
of such meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment of an annual
meeting commence a new time period for the giving of a
Stockholders's notice as described above. Such Stockholder's
notice shall set forth:
(A) as to each person whom the Stockholder proposes to
nominate for election or reelection as a Director all
information relating to such person that is required to
be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and Rule 14a-11 thereunder (including
such person's written consent to being named in the
proxy statement as a nominee and to serving as a
Director if elected);
(B) as to any other business that the Stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought before
the meeting, the reasons for conducting such business at
the meeting and any material interest in such business
of such Stockholder and the beneficial owner, if any, on
whose behalf the proposal is made; and
(C) as to the Stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination
or proposal is made (1) the name and address of such
Stockholder, as they appear on the Corporations's books,
and of such beneficial owner and (2) the class and
number of shares of the Corporation which are owned
-9-
<PAGE>
beneficially and of record by such Stockholder and such
beneficial owner.
(iii) Notwithstanding anything in the second sentence of
Section 3(a)(ii) of this ARTICLE I to the contrary, in the
event that the number of Directors to be elected to the Board
of Directors is increased and there is no public announcement
by the Corporation naming all of the nominees for Director or
specifying the size of the increased Board of Directors at
least seventy (70) days prior to the first (1st) anniversary
of the preceding year's annual meeting, a Stockholder's notice
required by this Section shall also be considered timely, but
only with respect to nominees for any new positions created by
such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later
than the close of business on the tenth (10th) day following
the day on which such public announcement is first made by the
Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of Stockholders as shall have been
brought before the meeting pursuant to the Corporation's notice of
meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of Stockholders at which
Directors are to be elected pursuant to the Corporation's notice of
meeting (a) by or at the direction of the Board of Directors or (b)
provided that the Board of Directors has determined that Directors
shall be elected at such meeting, by any Stockholder who is a
Stockholder of record at the time of giving of notice provided for
in this Section 3, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 3.
In the event the Corporation calls a special meeting of Stockholders
for the purpose of electing one or more Directors to the Board of
Directors, any such Stockholder may nominate a person or persons (as
the case may be), for election to such positions(s) as specified in
the Corporation's notice of meeting, if the Stockholder's notice
required by Section 3(a)(ii) of this ARTICLE I shall be delivered to
the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the ninetieth (90th) day
prior to such special meeting and not later than the close of
business on the later of the sixtieth (60th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the
giving of a Stockholder's notice as described above.
-10-
<PAGE>
(c) GENERAL.
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to
serve as Directors and only such business shall be conducted
at a meeting of Stockholders as shall have been brought before
the meeting in accordance with the procedures set forth in
this Section 3. Except as otherwise provided by applicable
law, the Chairman of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to
be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in
this Section 3 and, if any proposed nomination or business is
not in compliance with this Section 3, to declare that such
defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 3, "public announcement"
shall mean disclosure in a press release reported by the Dow
Jones News Service, Associate Press or comparable national
news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
3, a Stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this
Section 3. Nothing in this Section 3 shall be deemed to affect
any rights (A) of Stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act; or (B) of the holders of
any series of Common Stock or Preferred Stock or any
outstanding voting indebtedness to elect Directors under
specified circumstances.
Notwithstanding any other provisions of the Certificate of Incorporation
of the Corporation, and notwithstanding that a lesser percentage may be
permitted from time to time by applicable law, no provision of this Section 3 of
ARTICLE I may be altered, amended or repealed in any respect, nor may any
provision inconsistent therewith be adopted, unless such alteration, amendment,
repeal or adoption is approved by the affirmative vote of the holders of at
least 80 percent of the combined voting power of the then outstanding shares of
the Corporation's stock entitled to vote generally at elections of Directors
voting together as a single class, and at least 80 percent of each class, series
-11-
<PAGE>
and issuance of combined voting power of the then outstanding shares of the
Corporation's stock entitled to vote generally at elections of Directors voting
separately as a class, series and issuance.
SECTION 4. QUORUM. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these Bylaws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these Bylaws.
SECTION 5. ADJOURNED MEETINGS. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. ORGANIZATION. Each annual and special meeting of Stockholders
held in person shall be presided over by a chairman, who shall have the
exclusive authority to, among other things, determine (a) whether business and
nominations have been properly brought before such meetings, and (b) the order
in which business and nominations properly brought before such meeting shall be
considered. The chairman of each annual and special meeting shall be the
Chairman of the Board of Directors, or such person as shall be appointed by the
resolution approved by the majority of the Board of Directors.
-12-
<PAGE>
The Secretary of the Corporation shall act as Secretary of all meetings of
the stockholders; but in the absence of the Secretary, the Chairman may appoint
any person to act as Secretary of the meeting. It shall be the duty of the
Secretary to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten (10) days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
SECTION 7. VOTING. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. INSPECTORS. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
-13-
<PAGE>
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation of the Corporation, prior to a firm commitment
underwritten public offering of the Corporation's Common Stock in which gross
proceeds equal or exceed $25 million before deducting underwriters' discounts
and other expenses of the offering (the "Offering"), any action permitted or
required by law, the Certificate of Incorporation of the Corporation or these
Bylaws to be taken at a meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the state of incorporation, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent, and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this Section to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
the state of incorporation, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested.
Prompt notice of the taking of corporation action without a meeting by
less than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Subsequent to the Offering, any action required or permitted to be taken
by the Stockholders must be effected at a duly called annual or special meeting
of Stockholders and may not be effected without such a meeting by any consent in
writing by such holders.
-14-
<PAGE>
ARTICLE 2.
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies or as otherwise
provided in the Certificate of Incorporation, be elected at the annual meeting
of stockholders, and shall hold office until their respective successors are
elected and qualified or until their earlier resignation or removal.
SECTION 2. REMOVAL, VACANCIES AND ADDITIONAL DIRECTORS. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by the holders of that class of stock voting separately
as a class. Except as otherwise provided in the Certificate of Incorporation,
vacancies caused by any such removal and not filled by the stockholders at the
meeting at which such removal shall have been made, or any vacancy caused by the
death or resignation of any Director or for any other reason, and any newly
created directorship resulting from any increase in the authorized number of
Directors, may be filled by the affirmative vote of a majority of the Directors
then in office, although less than a quorum, and any Director so elected to fill
any such vacancy or newly created directorship shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
When one or more Directors shall resign effective at a future date, a
majority of the Directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
Director so chosen shall hold office as herein provided in connection with the
filling of other vacancies.
SECTION 3. PLACE OF MEETING. The Board of Directors may hold its meetings
in such place or places in the State of Delaware or outside the State of
Delaware as the Board from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places as the Board from time to time by
resolution shall determine. No notice shall be required for any regular meeting
of the Board of Directors; but a copy of every resolution
-15-
<PAGE>
fixing or changing the time or place of regular meetings shall be mailed to
every Director at least five (5) days before the first meeting held in pursuance
thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
Notice of the day, hour and place of holding of each special meeting shall
be given by mailing the same at least two (2) days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these Bylaws.
SECTION 6. QUORUM. Subject to the provisions of Section 2 of this Article
II, a majority of the members of the Board of Directors in office (but, unless
the Board shall consist solely of one Director, in no case less than one-third
of the total number of Directors nor less than two Directors) shall constitute a
quorum for the transaction of business and the vote of the majority of the
Directors present at any meeting of the Board of Directors at which a quorum is
present shall be the act of the Board of Directors. If at any meeting of the
Board there is less than a quorum present, a majority of those present may
adjourn the meeting from time to time.
SECTION 7. ORGANIZATION. The Chairman of the Board, or in his absence, the
Vice Chairman of the Board, or in his absence, the President shall preside at
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, the Vice Chairman of the Board and the President, a Chairman shall be
elected from the Directors present. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. COMMITTEE. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the
-16-
<PAGE>
extent provided by resolution passed by a majority of the whole Board, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and the affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending these Bylaws; and unless such resolution, these Bylaws,
or the Certificate of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
SECTION 9. CONFERENCE TELEPHONE MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 10. CONSENT OF DIRECTORS OR COMMITTEE IN LIEU OF MEETING. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereto, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE 3.
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman
of the Board, a Vice Chairman of the Board, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 8 of this Article III. The Chairman of the Board, the Vice Chairman of
the Board, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any number of offices may be held by the same person.
-17-
<PAGE>
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
SECTION 2. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman of
the Board shall be the chief executive officer of the Corporation and, subject
to the control of the Board of Directors, shall have general charge and control
of all its business and affairs and shall have all powers and shall perform all
duties incident to the office of Chairman of the Board. He shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors and
shall have such other powers and perform such other duties as may from time to
time be assigned to him by these Bylaws or by the Board of Directors.
SECTION 3. POWERS AND DUTIES OF THE VICE CHAIRMAN OF THE BOARD. The Vice
Chairman of the Board, in the absence of the Chairman of the Board, shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors and the Chairman of the Board, shall have general charge and
control of all its business and affairs and shall have all powers and shall
perform all duties incident to the office of Vice Chairman of the Board. In the
absence of the Chairman of the Board, he shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors and shall have such
other powers and perform such other duties as may from time to time be assigned
to him by these Bylaws or by the Board of Directors or the Chairman of the
Board.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be the
chief operating officer of the Corporation and, subject to the control of the
Board of Directors, the Chairman of the Board and the Vice Chairman of the
Board, shall have general charge and control of all its operations and shall
have all powers and shall perform all duties incident to the office of
President. In the absence of the Chairman of the Board and the Vice Chairman of
the Board, he shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors and shall have such other
-18-
<PAGE>
powers and perform such other duties as may from time to time be assigned to him
by these Bylaws or by the Board of Directors, the Chairman of the Board or the
Vice Chairman of the Board.
SECTION 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. Each Vice President
shall have all powers and shall perform all duties incident to the office of
Vice President and shall have such other powers and perform such other duties as
may from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose; he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; and he shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board or the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositaries as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall have all powers and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these Bylaws or
by the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board or the President.
-19-
<PAGE>
SECTION 8. ADDITIONAL OFFICERS. The Board of Directors may from time to
time elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors, the Chairman of the Board, the Vice Chairman of
the Board or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties assigned to the Secretary.
SECTION 9. GIVING OF BOND BY OFFICERS. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
SECTION 10. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors, the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President shall have full power and authority on behalf of
the Corporation to attend and to act and to vote, or in the name of the
Corporation to execute proxies to vote, at any meeting of stockholders of any
corporation in which the Corporation may hold stock, and at any such meeting
shall possess and may exercise, in person or by proxy, any and all rights,
powers and privileges incident to the ownership of such stock. The Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons.
SECTION 11. COMPENSATION OF OFFICERS. The officers of the Corporation
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE 4.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. NATURE OF INDEMNITY. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was or has
agreed to become a Director or officer of the Corporation, or is or was serving
or has agreed to serve at the request of the Corporation as a Director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, and may indemnify any person who was or is a party or is
-20-
<PAGE>
threatened to be made a party to such an action, suit or proceeding by reason of
the fact that he is or was or has agreed to become an employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. SUCCESSFUL DEFENSE. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
of this Article IV or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 3. DETERMINATION THAT INDEMNIFICATION IS PROPER. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties
-21-
<PAGE>
to such action, suit or proceeding, or (2) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, or (3) by the stockholders.
SECTION 4. ADVANCE PAYMENT OF EXPENSES. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
SECTION 5. SURVIVAL; PRESERVATION OF OTHER RIGHTS. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
SECTION 6. SEVERABILITY. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative,
-22-
<PAGE>
including an action by or in the right of the Corporation, to the fullest extent
permitted by any applicable portion of this Article IV that shall not have been
invalidated and to the fullest extent permitted by applicable law.
SECTION 7. SUBROGATION. In the event of payment of indemnification to a
person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of receiving indemnification from the
Corporation, shall execute all documents and do all things that the Corporation
may deem necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
SECTION 8. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 1 of this Article IV to the extent such
person has otherwise received payment (under any insurance policy, bylaw or
otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE 5.
STOCK-SEAL-FISCAL YEAR
SECTION 1. CERTIFICATES FOR SHARES OF STOCK. The certificates for shares
of stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed.
In case any officer or officers who shall have signed any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates had not ceased to be such
officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
-23-
<PAGE>
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. LOST, STOLEN OR DESTROYED CERTIFICATES. Whenever a person
owning a certificate for shares of stock of the Corporation alleges that it has
been lost, stolen or destroyed, he shall file in the office of the Corporation
an affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
SECTION 3. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 2 of this Article IV.
SECTION 4. REGULATIONS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii) in the case of corporate action to be taken by
consent in writing without a meeting prior to, or more than ten (10) days after,
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, or (iii) more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the
-24-
<PAGE>
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held; the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is delivered to
the Corporation; and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. CORPORATE SEAL. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors, the Chairman of
the Board, the Vice Chairman of the Board or the President.
SECTION 8. FISCAL YEAR. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE 6.
MISCELLANEOUS PROVISIONS
SECTION 1. CHECKS, NOTES, ETC. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
-25-
<PAGE>
SECTION 2. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized so to do, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. CONTRACTS. Except as otherwise provided in these Bylaws or by
law or as otherwise directed by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the President or any Vice President shall
be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the President or any Vice President designated by the Board of Directors, the
Chairman of the Board, the Vice Chairman of the Board or the President may
authorize any other officer, employee or agent to execute and deliver, in the
name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board or any such
officer may be general or confined to specific instances.
SECTION 4. WAIVERS OF NOTICE. Whenever any notice whatever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
SECTION 5. OFFICES OUTSIDE OF DELAWARE. Except as otherwise required by
the laws of the State of Delaware, the Corporation may have an office or offices
and keep its books, documents and papers outside of the State of Delaware at
such place or places as from time to time may be determined by the Board of
Directors, the Chairman of the Board or the Vice Chairman of the Board.
ARTICLE 7.
AMENDMENTS
The Board of Directors shall have the power to adopt, amend and repeal
from time to time Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
Bylaws as adopted or amended by the Board of Directors; provided, however, that
unless a different percentage is called for in a particular provision hereof,
any
-26-
<PAGE>
amendment or repeal of the Bylaws of the Corporation by the stockholders shall
be by a vote of the holders of at least 66 2/3 percent of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal.
-27-
EXHIBIT TO COME
STOCK RESTRICTION AND
REGISTRATION RIGHTS AGREEMENT
This Agreement ("Agreement") is among Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), WJG Capital, L.L.C., a Texas limited
liability company ("WJG"), Larry E. Darst ("Darst") and Gary J. Petry ("Petry"),
who agree as follows:
1. INTRODUCTION
WJG, Darst and Petry (the "Sponsor Holders") are stockholders of
Nationwide, having acquired "restricted" shares of Nationwide's Common Stock in
private placements.
Nationwide is acquiring eight business organizations (the "Acquisitions")
which will serve as the founding companies (the "Founders") to create a
comprehensive staffing service provider.
As part of the documentation for the Acquisitions, the stockholders of the
Founders (the "Founder Stockholders") have agreed to certain contractual
restrictions on transfer of the shares of; and (b) registration rights
regarding, the Nationwide Common Stock that they will receive or have received.
2. RESTRICTIONS ON TRANSFER
The Sponsor Holders have agreed to be bound by the same contractual
restrictions as the Founders. Accordingly, the Sponsor Holders agree as follows:
Except for (i) transfers to immediate family members, (ii) transfers by
WJG to the members of WJG in accordance with their interests in WJG, which
family members or WJG members agree to be bound by the restrictions set forth
herein (or trusts for the benefit of Sponsor Holders or immediate family
members, the trustees of which so agree) or (iii) transfers between and among
Sponsor Holders or permitted transferees of Sponsor Holders, for a period of one
year from the date of closing of the Acquisitions (the "Closing"), except
pursuant to Section 3 hereof, the Sponsor Holders shall not sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint, or otherwise dispose
of any shares of Nationwide Common Stock owned by the Sponsor Holders, whether
now owned or hereafter acquired. The certificates evidencing the Nationwide
Common Stock owned by the Sponsor Holders will bear a legend substantially in
the form set forth below and containing such other information as Nationwide may
deem necessary or appropriate:
-1-
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO SEPTEMBER 11, 1998. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE
SPECIFIED ABOVE.
3. REGISTRATION RIGHTS
3.1 Whenever Nationwide proposes to register any Nationwide Common Stock
for its own or others account under the Securities Act of 1933, as amended (the
"1933 Act") for a public offering, other than (i) any shelf registration of
shares to be used as consideration for acquisitions of additional businesses by
Nationwide and (ii) registrations relating to employee benefit plans, Nationwide
shall give the Sponsor Holders prompt written notice of its intent to do so.
Upon the written request of any Sponsor Holder given within 30 days after
receipt of such notice, (a) Nationwide shall cause to be included in such
registration all Nationwide Common Stock owned by such Sponsor Holder (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by
Nationwide as) a dividend or other distribution with respect to, or in exchange
for, or in replacement of such Nationwide Common Stock) which the Sponsor Holder
requests. In addition, if Nationwide is advised in writing in good faith by any
managing underwriter(s) of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 3 that the
number of shares to be sold by persons other than Nationwide is greater than the
number of such shares which can be offered without adversely affecting the
offering, Nationwide may reduce pro rata the number of shares offered for the
accounts of such persons (based upon the number of shares held by such person)
to a number deemed satisfactory by such managing underwriter(s), provided, that
any such reduction shall be made first by reducing the number of shares to be
sold by the Sponsor Holders, and then by reducing the number of any shares to be
sold by Founder Stockholders.
3.2 All expenses incurred in connection with the registrations under this
Section 3 (including all registration, filing, qualification, legal, printer and
accounting fees, but excluding underwriting commissions and discounts which
shall be payable by the respective selling parties), shall be borne by
Nationwide. In connection with registrations under Section 3.1, Nationwide shall
(i) use its best efforts to prepare and file with the Securities and Exchange
Commission ("SEC") as soon as reasonably practicable, a registration statement
with respect to the Nationwide Common Stock and use its best efforts to cause
such registration to promptly become and remain effective for a period of at
least 90 days (or such shorter period during which holders shall have sold all
Nationwide Common Stock which they requested to be registered); (ii) use its
best efforts to register and qualify the Nationwide Common Stock covered by such
-2-
<PAGE>
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution for the Nationwide Common Stock;
and (iii) take such other actions as are reasonable and necessary to comply with
the requirements of the 1933 Act, and the regulations thereunder.
3.3 In connection with the registration pursuant to Section 3.1 covering
an underwritten registered offering, Nationwide and each participating holder
agree to enter into a written agreement with the managing underwriter(s) in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriter(s) and companies of
Nationwide's size and investment stature, including indemnification.
3.4 Nationwide shall not be obligated to register shares of Nationwide
Common Stock held by any Sponsor Holder at any time when the resale provisions
of Rule 144(k) (or any similar or successor provision) promulgated under the
1933 Act are available to such Sponsor Holder.
4. MISCELLANEOUS
4.1 This Agreement and the rights of the parties hereunder may not be
assigned (except by operation of law) and shall be binding upon and shall inure
to the benefit of the parties hereto and the successors of Nationwide and the
Sponsor Holders.
4.2 This Agreement constitutes the entire agreement and understanding
among Nationwide and the Sponsor Holders with respect to the subject matter
hereof and supersedes any prior agreement and understanding relating to the
subject matter of this Agreement.
4.3 This Agreement may be executed simultaneously in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
4.4 All notices of communication required or permitted hereunder shall be
in writing and may be given by depositing the same in United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to Nationwide, addressed to it at the address set forth on the
signature page;
(b) If to a Sponsor Holder, addressed to such Sponsor Holder at its or
his address set forth on the signature page
or to such other address as any party hereto shall specify pursuant to this
Section 4.4.
-3-
<PAGE>
4.5 This Agreement shall be construed in accordance with the laws of the
State of Delaware, without regard or reference to any conflict-of-law principles
that would refer to the law of any other state or jurisdiction.
AGREED AS OF SEPTEMBER 11, 1997 ADDRESS FOR NOTICE:
NATIONWIDE STAFFING, INC. 600 Travis, Suite 6200
Houston, Texas 77002
Attention: Chief Executive Officer
BY: ________________________________
Name: Larry E. Darst
Title: Chief Executive Officer
WJG CAPITAL, L.L.C. 600 Travis, Suite 6200
Houston, Texas 77002
Attention: Manager
BY: ________________________________
Name: Warren L. Williams
Title: Manager
BY: ________________________________
Name: George C. Woods
Title: Manager
____________________________________ 6022 Village Glen Drive #4228
Larry E. Darst Dallas, Texas 75206
____________________________________ 3410 Pebble Bay Drive
Gary J. Petry Katy, Texas 77450
-4-
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
Warrant No. N-1
======================================
WARRANT
TO
PURCHASE SHARES OF COMMON STOCK
OF
NATIONWIDE STAFFING, INC.
======================================
This Warrant effective as of February 12, 1997 (this "Warrant") certifies
that, for good and valuable consideration, Nationwide Staffing, Inc., a Delaware
corporation (the "Company"), grants to the Norton Family Trust and, together
with any transferee of this Warrant or Warrant Shares (as defined below) (the
"Warrantholder" or "Warrantholders"), subject to the terms and conditions set
forth herein, the right to subscribe for and purchase from the Company 45,000
shares (the "Warrant Shares") of the Company's common stock ("Common Stock"),
during the period from and after 9:00 a.m., Houston, Texas time on the first
anniversary of the date that the Company consummates the initial public offering
of its securities (the "IPO") pursuant to the Securities Act of 1933, as amended
(the "Initial Exercise Date") and to and including 5:00 p.m. Houston, Texas time
on the date that is four years after the Initial Exercise Date (the "Expiration
Date") at a purchase price (the "Exercise Price") equal to the lesser of (i)
$8.00 per share; or (ii) 60% of the initial per share public offering price of
common stock sold to the public in the IPO. The Warrant Shares shall be
identical (in terms of rights and features) to the shares of Common Stock issued
by the Company in the IPO and shall be equivalent to 45,000 shares of Common
Stock issued in the IPO. The Exercise Price and the number of Warrant Shares are
subject to adjustment from time to time after the consummation date of the IPO
(the "IPO Date"), as provided in Section 5. The Exercise Price may be paid (i)
in cash, by certified or official bank check
<PAGE>
payable to the order of the Company; or (ii) by the exercise of the Warrants for
"Net Warrant Shares." The number of Net Warrant Shares will be determined as
described by the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS"
is the number of Warrant Shares issuable upon exercise of the Warrant or portion
of the Warrant in question. "EP" shall mean the Exercise Price. "MP" is the
Market Price of the Common Stock on the last trading day preceding the date of
the request to exercise the Warrant. "Market Price" on any day shall mean the
average of the closing prices on such day of the Common Stock on all domestic
exchanges on which the Common Stock is then listed, or, if there shall have been
no sales on any such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or, if the
Common Stock shall not be so listed, the average of the representative bid and
asked prices quoted in the NASDAQ National Market System as of 3:30 P.M., New
York time, on such day, or if the Common Stock shall not be quoted in the NASDAQ
National Market System, the average of the high and low bid and asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
1. DURATION AND EXERCISE OF WARRANT, LIMITATION ON EXERCISE; PAYMENT OF
TAXES.
1.1 DURATION AND EXERCISE OF WARRANT. The rights represented by this
Warrant may be exercised by the Warrantholder of record, in whole, or from time
to time in part (but covering at least the greater of 1,000 shares or the
remaining unexercised portion of this Warrant), by surrender of this Warrant,
accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly
executed by the Warrantholder of record and specifying the number of Warrant
Shares to be purchased, to the Company at the office of the Company located at
1100 Louisiana, Suite 3535, Houston, Texas 77002 (or such other office or agency
as it may designate by notice to the Warrantholder at the address of such
Warrantholder appearing on the books of the Company) during normal business
hours on any day (a "Business Day") other than a Saturday, Sunday or a day on
which the Company is otherwise closed for business (a "Nonbusiness Day") on or
after 9:00 a.m., Houston, Texas time on the Initial Exercise Date but not later
than 5:00 p.m. on the Expiration Date (or 5:00 p.m. on the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), delivery of payment
to the Company of the Exercise Price for the number of Warrant Shares specified
in the Exercise Form, payable in cash or certified bank check, and such
documentation as to the identity and authority of the Warrantholder as the
Company may reasonably request. Such Warrant Shares shall be deemed by the
Company to be issued to the Warrantholder that is the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall
2
<PAGE>
have been surrendered and payment made for the Warrant Shares as aforesaid.
Certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable, and in any event
within 5 business days, thereafter. The stock certifi of the Warrantholder or,
if permitted by subsection 1.4 and in accordance with the provisions thereof,
such other name as shall be designated in the Exercise Form. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of the certificates for the Warrant Shares, deliver to the
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant. No adjustments or payments shall be made on or in respect of
Warrant Shares issuable on the exercise of this Warrant for any cash dividends
paid or payable to holders of record of Common Stock prior to the date as of
which the Warrantholder shall be deemed to be the record holder of such Warrant
Shares.
1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised prior
to 5:00 p.m. on the Expiration Date (or the next succeeding Business Day, if the
Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued
pursuant to Section 1.1, shall cease to be exercisable and shall become void and
all rights of the Warrantholder hereunder shall cease. This Warrant shall not be
exercisable and no Warrant Shares shall be issued hereunder, prior to 9:00 a.m.
Houston, Texas time on the Initial Exercise Date.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the
Warrantholder shall be required to pay any and all taxes which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.4 TRANSFER: RESTRICTION ON TRANSFER AND LEGEND.
(a) Subject to the provisions of Section 1.4(b) below, this
Warrant shall be transferable, in whole or in part, at any time after the
IPO Date, without the consent of the Company, by notice from
Warrantholder. The Company shall keep at its principal office a register
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company will not at any time, except upon the dissolution,
liquidation or winding up of the Company, close such register so as to
prevent or delay the exercise or transfer of this Warrant.
3
<PAGE>
(b) Neither this Warrant nor any of the Warrant Shares, nor
any interest or participation in either, may be in any manner transferred
or disposed of, in whole or in part, except in compliance with applicable
United States federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any
time in exchange or substitution for any Warrant bearing such a legend shall
bear a legend similar in effect to the foregoing paragraph unless, in the
opinion of counsel for the Company, the Warrant need no longer be subject to the
restriction contained herein. The provisions of this subsection 1.4 shall be
binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with, the
provisions of this Warrant shall thereafter cease to be deemed to be "Warrant
Shares" for purposes hereof.
1.5 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon surrender at
the principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. Upon any such division, and, if
permitted by subsection 1.4 and in accordance with the provisions thereof, the
Warrants may be transferred of record to a name other than that of the
Warrantholder of record; PROVIDED, HOWEVER, that the Warrantholder shall be
required to pay any and all transfer taxes with respect thereto.
1.6 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants as follows:
(a) EXISTENCE. The Company is a corporation duly organized and
validly existing under the laws of the State of Delaware and is authorized
to do business and is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except where the
failure to so qualify, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company.
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant, to grant, issue
and deliver this Warrant and to authorize and reserve for issuance and,
upon payment from time to time of the Exercise Price, to issue and deliver
the shares of Common Stock issuable upon exercise of the Warrant. This
Warrant has been duly executed and delivered by the Company.
4
<PAGE>
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the rights of
purchase represented by this Warrant, and such shares, when issued upon
receipt of payment therefor in accordance with the terms of this Warrant,
will be legally and validly issued, fully paid and nonassessable and will
be free of any preemptive rights of stockholders.
(d) NO VIOLATION. Neither the execution or delivery of this
Warrant nor the consummation of the transactions herein contemplated does
or will result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or
assets of the Company is subject, nor will such action result in any
violation of any provision of the Certificate of Incorporation or Bylaws
of the Company or any statute or any order, rule or regulation or any
court or governmental agency or body having jurisdiction over the Company
or any of its properties.
(e) VALID AND BINDING OBLIGATION. This Warrant, when duly
executed and delivered, will constitute legal, valid and binding
obligation of the Company, enforceable in accordance with its terms,
subject to any applicable bankruptcy, insolvency or other laws of general
application affecting creditors' rights and judicial decisions
interpreting any of the foregoing.
2. RESERVATION AND LISTING OF SHARES. All Warrant Shares which are issued
upon the exercise of the rights represented by this Warrant shall, upon issuance
and payment of the Exercise Price, be validly issued, fully paid and
nonassessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issue thereof other than taxes in respect
of any transfer occurring contemporaneously with such issue. During the period
within which this Warrant may be exercised, the Company shall at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of this
Warrant, and shall at its expense procure such listing thereof (subject to
official notice of issuance) as then may be required on all stock exchanges on
which the Common Stock is then listed. The Company shall, from time to time,
take all such action as may be required to assure that the par value per share
of the Warrant Shares is at all times equal to or less than the then effective
Exercise Price.
5
<PAGE>
3. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT. If permitted by subsection
1.4 or 1.5 and in accordance with the provisions thereof, upon surrender of this
Warrant to the Company with a duly executed instrument of assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be canceled. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
The term "Warrant" as used herein includes any Warrants issued in substitution
or exchange of this Warrant.
4. OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1, 1.4 and 1.5 or in Section 3.
5. CERTAIN ADJUSTMENTS. The Exercise Price at which Warrant Shares may be
purchased hereunder, and the number of Warrant Shares to be purchased upon
exercise hereof, are subject to change or adjustment after the IPO Date as
follows:
5.1 GENERAL. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) In case the Company shall after the IPO Date (i) pay a
dividend in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or
(iv) issue by reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
surviving corporation), the number of Warrant Shares purchasable upon
exercise of this Warrant shall be adjusted so that the Warrantholder shall
be entitled to receive the kind and number of Warrant Shares or other
securities of the Company that the Warrantholder would have owned or have
been entitled to receive after the happening of any of the events
described above, had this Warrant been exercised immediately prior to the
happening of
6
<PAGE>
such event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any,
for such event.
(b) In case the Company shall after the IPO Date:
(i) issue rights, options or warrants generally to
holders of its outstanding Common Stock, without any charge to
such holders, entitling them at the time of such issuance to
subscribe for or purchase, pursuant to such an issuance,
shares of Common Stock at a price per share which is lower at
the record date for the determination of stockholders entitled
to receive such rights, options or warrants than the
then-current Market Price per share of Common Stock, or
(ii) distribute generally to holders of its shares of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in paragraph (a) of this subsection
5.1) or rights, options or warrants, or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock,
appropriate adjustments shall be made to the number of Warrant Shares
purchasable upon the exercise of the Warrant and/or the Exercise Price in
order to preserve the relative rights and interests of the Warrantholders,
such adjustments to be made by the good faith determination of the Board
of Directors of the Company.
5.2 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then current
Exercise Price to any amount consistent with applicable law, deemed appropriate
by the Board of Directors of the Company.
5.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail first class, postage prepaid, to all Warrantholders,
notice of such adjustment.
5.4 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
7
<PAGE>
5.5 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
In case of any consolidation of the Company with or merger of the Company into
another person or in case of any sale, transfer or lease to another corporation
of all or substantially all of the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with the
Warrantholders an agreement that the Warrantholders shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property that the holder thereof would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action; PROVIDED, HOWEVER that no adjustment in
respect of cash dividends, interest or other income on or from such shares or
other securities and property shall be made during the term of this Warrant or
upon the exercise of this Warrant. Such agreement shall provide for adjustment,
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 5. The provisions of this subsection 5.5 shall apply
similarly to successive consolidations, mergers, sales, transfers or leases.
6. REGISTRATION RIGHTS.
6.1 PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees
that (i) upon its filing of a registration statement on Form S-8 registering
shares of Common Stock underlying certain of the Company's options and warrants
(which the Company shall file within one year after the issuance of this
Warrant), and (ii) in the event the Company proposes to file a registration
statement under the Securities Act of 1933, as amended (the "Act"), subsequent
to the IPO and prior to the Expiration Date, with respect to the offering of
Common Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or other similar registration statement not available to
register securities so requested to be included), the Company shall in each case
give written notice of such proposed filing to (i) if this Warrant has been
exercised, the holders of the Warrant Shares and (ii) if this Warrant has not
been exercised, the Warrantholders, in each case at least 30 days before the
earlier of the anticipated or the actual effective date of the registration
statement and at least ten days before the initial filing of such registration
statement, and such notice shall offer to such Warrantholders the opportunity to
include in such registration statement such number of Warrant Shares as they may
request. Warrantholders desiring inclusion of Warrant Shares in such
registration statement shall so inform the Company by written notice, given
within 10 days of the giving of such notice by the Company in accordance with
the provisions of Section 8.6 hereof. The Company shall permit, or shall cause
the managing underwriter of a proposed offering to
8
<PAGE>
permit, the holders of Warrant Shares requested to be included in the
registration to include such securities in the proposed offering on the same
terms and conditions as applicable to any similar securities of the Company, if
any, included therein for the account of any person other than the Company and
the holders of Warrants and/or Warrant Shares. The Company shall continuously
maintain in effect any registration statement with respect to which the Warrant
Shares have been requested to be included (and so included) for a period of not
less than (i) 180 days after the effectiveness of such registration statement or
(ii) the consummation of the distribution by the Warrantholders of the Warrant
Shares ("Piggy-back Termination Date"); PROVIDED, HOWEVER, that if at the
Piggy-back Termination Date the Warrant Shares are covered by a registration
statement which is, or is required to remain, in effect beyond the Piggy-back
Termination Date, the Company shall maintain in effect the registration
statement as it relates to the Warrant Shares for so long as such registration
statement remains or is required to remain in effect for any of such other
securities. All expenses of such registration shall be borne by the Company,
except that underwriting commissions and expenses attributable to the Warrant
Shares and fees and distributions of counsel (if any) to the Warrantholders
requesting that the Warrant Shares be offered will be borne by such
Warrantholders.
6.2 OTHER MATTERS. In connection with the registration of Warrant
Shares in accordance with Section 6.1 above, the Company agrees to:
(a) Use its best efforts to register or qualify the Warrant
Shares for offer or sale under state securities or Blue Sky laws of
such jurisdictions in which the holders of such Warrants and/or
Warrant Shares shall reasonably designate; provided, that in no
event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process or
taxation in any jurisdiction where it is not now so subject, and use
its best efforts to do any and all other acts and things which may
be necessary or advisable to enable the Warrantholders to consummate
the sale, transfer or other disposition of such securities in any
jurisdiction.
(b) Enter into indemnity and contribution agreements, each in
customary form, with each underwriter, if any, and each holder of
Warrant Shares included in such registration statement; and, if
requested, enter into an underwriting agreement containing customary
representations, warranties, covenants, allocation of expenses, and
customary closing
9
<PAGE>
conditions including, but not limited to, opinions of counsel,
accountants' cold comfort letters and petroleum engineers' reports
with any underwriter who participates in the offering of Warrant
Shares; and
(c) Pay all expenses in connection with the registration of
the Warrants and/or Warrant Shares under the Act and compliance with
the provisions of clause (a) above.
In connection with the registration of Warrant Shares in accordance
with Section 6.1 above, the Warrantholders agree to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses (not otherwise inconsistent with this
Warrant), and customary closing conditions, with any underwriter who
participates in the offering of Warrant Shares.
6.3 OTHER REGISTRATIONS. During the time all or any portion of this
Warrant remains unexercised, the Company shall not register, or grant any rights
(including, without limitation, piggyback rights) to any person or entity to
register, any shares of capital stock or other securities of the Company, other
than shares to be issued by the Company on its own behalf, unless the Company
grants additional rights that at are least as favorable as the rights being
granted to any such person or entity to the Warrantholders, with respect to the
Warrant Shares.
7. NO IMPAIRMENT. The Company shall not by any action, including, without
limitation, amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Warrantholders against impairment. Without limiting the generality
of the foregoing, the Company will (a) not change the par value of any shares of
Common Stock receivable upon the exercise of this Warrant to an amount greater
than the amount payable therefor upon such exercise, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to person-n its obligations under this Warrant,
and (d) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock.
10
<PAGE>
Upon the request of a Warrantholder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to such Warrantholder, the continued validity of this
Warrant and the Company's obligations hereunder.
11
<PAGE>
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Warrant constitutes the
entire agreement between the Company and the Warrantholders with
respect to this Warrant and the Warrant Shares.
8.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholders and holders
of Warrant Shares and their respective heirs, legal representatives, successors
and assigns. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company, the Warrantholders and
holders of Warrant Shares, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant or the Warrant Shares.
8.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholders. The Company, any Warrantholder or holders of Warrant Shares may,
by an instrument in writing, waive compliance by the other party with any term
or provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any term
or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
8.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
8.5 FURTHER ASSURANCES. Each of the Company, the Warrantholders and
holders of Warrant Shares shall do and perform all such further acts and things
and execute and deliver all such other certificates, instruments and/or powers
of attorney as may be necessary or appropriate as any party hereto may, at any
time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
8.6 NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
United States certified or registered first class mail, postage prepaid, to the
parties hereto at the following addresses or at such other address as any party
hereto shall hereafter specify by notice to the other party hereto:
12
<PAGE>
(a) if to the Company, addressed to:
Nationwide Staffing, Inc.
1100 Louisiana
Suite 3535
Houston, Texas 77002
Attention: President
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of the
Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on
the date of personal delivery thereof or on the third Business Day after
the mailing thereof.
8.7 SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
8.8 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the then-current Market Price.
8.9 RIGHTS OF THE HOLDER. No Warrantholder shall, solely by virtue
of this Warrant, be entitled to any rights of a stockholder of the Company,
either at law or in equity.
8.10 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and performed in Delaware.
8.11 EXPENSES. The Company shall pay all reasonable legal and other
reasonable out-of-pocket expenses of the Warrantholders and their counsel in
connection with the exercise and sale of the Warrant Shares as contemplated by
this Warrant.
8.12 RIGHT TO INFORMATION. The Company will provide to a
Warrantholder and to all holders of Warrant Shares, on a timely basis, copies of
all documents and reports filed with the
13
<PAGE>
Securities and Exchange Commission (the "Commission") and publicly available
annual and quarterly financial statements, as may be requested in writing by the
Warrantholder or as otherwise agreed in another agreement between the Company
and the Warrantholder.
8.13 MERGER OR CONSOLIDATION OF THE COMPANY. So long as this Warrant
remains in effect, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(i) shall be the Company or (ii) if not the Company, shall expressly assume, by
supplemental agreement executed and delivered to the Warrantholders, the
performance and observance of each and every covenant and condition of this
Warrant to be performed and observed by the Company under this Warrant.
8.14 RULE 144. With a view to making available to Warrantholders the
benefits of certain rules of the Commission that may permit the sale of shares
of Common Stock to the public without registration, the Company hereby covenants
and agrees to use its reasonable business efforts after the Initial Exercise
Date to file in a timely manner all reports and other documents required to be
filed by it under the Act and the Securities Exchange Act of 1934, as amended,
and the rules and regulations adopted by the Commission thereunder necessary to
permit sales under Rule 144 under the Act, and the Company will take such
further action which does not have material cost to the Company to the extent
requireon under the Act within the limitation of the exemptions provided by (a)
Rule 144 under the Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
written request of a Warrantholder, the Company will deliver to such
Warrantholder a written statement as to whether it has complied with such
requirements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
Nationwide Staffing, Inc.
By: _________________________________
Warren L. Williams, President
14
<PAGE>
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, record holder of this Warrant, hereby irrevocably elects
to exercise the right, represented by this Warrant, to purchase ______________
of the Warrant Shares and herewith tenders payment for such Warrant Shares to
the order of Nationwide Staffing, Inc. in the amount of $__________ in
accordance with the terms of this Warrant. The undersigned requests that a
certificate for such Warrant Shares be registered in the name of ___________ and
that such certificate be delivered to _________________ whose address is
_________________________________________.
Date: ______________________ Signature: _________________________________
_________________________________
(Name Printed)
15
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR ANY
INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR DISPOSED OF
EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS HEREIN SET FORTH.
Warrant No. N-2
WARRANT
TO
PURCHASE SHARES OF COMMON STOCK
OF
NATIONWIDE STAFFING, INC.
This Warrant effective as of February 12, 1997 (this "Warrant") certifies
that, for good and valuable consideration, Nationwide Staffing, Inc., a Delaware
corporation (the "Company"), grants to Sabrina A. McTopy and, together with any
transferee of this Warrant or Warrant Shares (as defined below) (the
"Warrantholder" or "Warrantholders"), subject to the terms and conditions set
forth herein, the right to subscribe for and purchase from the Company 5,000
shares (the "Warrant Shares") of the Company's common stock ("Common Stock"),
during the period from and after 9:00 a.m., Houston, Texas time on the first
anniversary of the date that the Company consummates the initial public offering
of its securities (the "IPO") pursuant to the Securities Act of 1933, as amended
(the "Initial Exercise Date") and to and including 5:00 p.m. Houston, Texas time
on the date that is four years after the Initial Exercise Date (the "Expiration
Date") at a purchase price (the "Exercise Price") equal to the lesser of (i)
$8.00 per share; or (ii) 60% of the initial per share public offering price of
common stock sold to the public in the IPO. The Warrant Shares shall be
identical (in terms of rights and features) to the shares of Common Stock issued
by the Company in the IPO and shall be equivalent to 5,000 shares of Common
Stock issued in the IPO. The Exercise Price and the number of Warrant Shares are
subject to adjustment from time to time after the consummation date of the IPO
(the "IPO Date"), as provided in Section 5. The Exercise Price may be paid (i)
in cash, by certified or official bank check
<PAGE>
payable to the order of the Company; or (ii) by the exercise of the Warrants for
"Net Warrant Shares." The number of Net Warrant Shares will be determined as
described by the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS"
is the number of Warrant Shares issuable upon exercise of the Warrant or portion
of the Warrant in question. "EP" shall mean the Exercise Price. "MP" is the
Market Price of the Common Stock on the last trading day preceding the date of
the request to exercise the Warrant. "Market Price" on any day shall mean the
average of the closing prices on such day of the Common Stock on all domestic
exchanges on which the Common Stock is then listed, or, if there shall have been
no sales on any such exchange on such day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of such day, or, if the
Common Stock shall not be so listed, the average of the representative bid and
asked prices quoted in the NASDAQ National Market System as of 3:30 P.M., New
York time, on such day, or if the Common Stock shall not be quoted in the NASDAQ
National Market System, the average of the high and low bid and asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization.
1. DURATION AND EXERCISE OF WARRANT, LIMITATION ON EXERCISE; PAYMENT OF
TAXES.
1.1 DURATION AND EXERCISE OF WARRANT. The rights represented by this
Warrant may be exercised by the Warrantholder of record, in whole, or from time
to time in part (but covering at least the greater of 1,000 shares or the
remaining unexercised portion of this Warrant), by surrender of this Warrant,
accompanied by the Exercise Form annexed hereto (the "Exercise Form") duly
executed by the Warrantholder of record and specifying the number of Warrant
Shares to be purchased, to the Company at the office of the Company located at
1100 Louisiana, Suite 3535, Houston, Texas 77002 (or such other office or agency
as it may designate by notice to the Warrantholder at the address of such
Warrantholder appearing on the books of the Company) during normal business
hours on any day (a "Business Day") other than a Saturday, Sunday or a day on
which the Company is otherwise closed for business (a "Nonbusiness Day") on or
after 9:00 a.m., Houston, Texas time on the Initial Exercise Date but not later
than 5:00 p.m. on the Expiration Date (or 5:00 p.m. on the next succeeding
Business Day, if the Expiration Date is a Nonbusiness Day), delivery of payment
to the Company of the Exercise Price for the number of Warrant Shares specified
in the Exercise Form, payable in cash or certified bank check, and such
documentation as to the identity and authority of the Warrantholder as the
Company may reasonably request. Such Warrant Shares shall be deemed by the
Company to be issued to the Warrantholder that is the record holder of such
Warrant Shares as of the close of business on the date on which this Warrant
shall
2
<PAGE>
have been surrendered and payment made for the Warrant Shares as aforesaid.
Certificates for the Warrant Shares specified in the Exercise Form shall be
delivered to the Warrantholder as promptly as practicable, and in any event
within 5 business days, thereafter. The stock certifi of the Warrantholder or,
if permitted by subsection 1.4 and in accordance with the provisions thereof,
such other name as shall be designated in the Exercise Form. If this Warrant
shall have been exercised only in part, the Company shall, at the time of
delivery of the certificates for the Warrant Shares, deliver to the
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant. No adjustments or payments shall be made on or in respect of
Warrant Shares issuable on the exercise of this Warrant for any cash dividends
paid or payable to holders of record of Common Stock prior to the date as of
which the Warrantholder shall be deemed to be the record holder of such Warrant
Shares.
1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised prior
to 5:00 p.m. on the Expiration Date (or the next succeeding Business Day, if the
Expiration Date is a Nonbusiness Day), this Warrant, or any new Warrant issued
pursuant to Section 1.1, shall cease to be exercisable and shall become void and
all rights of the Warrantholder hereunder shall cease. This Warrant shall not be
exercisable and no Warrant Shares shall be issued hereunder, prior to 9:00 a.m.
Houston, Texas time on the Initial Exercise Date.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock transfer
or other issuance tax in respect thereto; PROVIDED, HOWEVER, that the
Warrantholder shall be required to pay any and all taxes which may be payable in
respect of any transfer involved in the issuance and delivery of any
certificates for Warrant Shares in a name other than that of the then
Warrantholder as reflected upon the books of the Company.
1.4 TRANSFER: RESTRICTION ON TRANSFER AND LEGEND.
(a) Subject to the provisions of Section 1.4(b) below, this
Warrant shall be transferable, in whole or in part, at any time after the
IPO Date, without the consent of the Company, by notice from
Warrantholder. The Company shall keep at its principal office a register
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration, transfer and exchange of this
Warrant. The Company will not at any time, except upon the dissolution,
liquidation or winding up of the Company, close such register so as to
prevent or delay the exercise or transfer of this Warrant.
3
<PAGE>
(b) Neither this Warrant nor any of the Warrant Shares, nor
any interest or participation in either, may be in any manner transferred
or disposed of, in whole or in part, except in compliance with applicable
United States federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any
time in exchange or substitution for any Warrant bearing such a legend shall
bear a legend similar in effect to the foregoing paragraph unless, in the
opinion of counsel for the Company, the Warrant need no longer be subject to the
restriction contained herein. The provisions of this subsection 1.4 shall be
binding upon all subsequent holders of this Warrant, if any. Warrant Shares
transferred to the public as expressly permitted by, and in accordance with, the
provisions of this Warrant shall thereafter cease to be deemed to be "Warrant
Shares" for purposes hereof.
1.5 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon surrender at
the principal office of the Company on any Business Day, without charge to any
Warrantholder, except as provided below. Upon any such division, and, if
permitted by subsection 1.4 and in accordance with the provisions thereof, the
Warrants may be transferred of record to a name other than that of the
Warrantholder of record; PROVIDED, HOWEVER, that the Warrantholder shall be
required to pay any and all transfer taxes with respect thereto.
1.6 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants as follows:
(a) EXISTENCE. The Company is a corporation duly organized and
validly existing under the laws of the State of Delaware and is authorized
to do business and is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which the
nature of its business requires it to be so qualified, except where the
failure to so qualify, individually or in the aggregate, could not
reasonably be expected to have a material adverse effect on the Company.
(b) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary, to execute, deliver and perform this Warrant, to grant, issue
and deliver this Warrant and to authorize and reserve for issuance and,
upon payment from time to time of the Exercise Price, to issue and deliver
the shares of Common Stock issuable upon exercise of the Warrant. This
Warrant has been duly executed and delivered by the Company.
4
<PAGE>
(c) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the rights of
purchase represented by this Warrant, and such shares, when issued upon
receipt of payment therefor in accordance with the terms of this Warrant,
will be legally and validly issued, fully paid and nonassessable and will
be free of any preemptive rights of stockholders.
(d) NO VIOLATION. Neither the execution or delivery of this
Warrant nor the consummation of the transactions herein contemplated does
or will result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a
party or by which the Company is bound or to which any of the property or
assets of the Company is subject, nor will such action result in any
violation of any provision of the Certificate of Incorporation or Bylaws
of the Company or any statute or any order, rule or regulation or any
court or governmental agency or body having jurisdiction over the Company
or any of its properties.
(e) VALID AND BINDING OBLIGATION. This Warrant, when duly
executed and delivered, will constitute legal, valid and binding
obligation of the Company, enforceable in accordance with its terms,
subject to any applicable bankruptcy, insolvency or other laws of general
application affecting creditors' rights and judicial decisions
interpreting any of the foregoing.
2. RESERVATION AND LISTING OF SHARES. All Warrant Shares which are issued
upon the exercise of the rights represented by this Warrant shall, upon issuance
and payment of the Exercise Price, be validly issued, fully paid and
nonassessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issue thereof other than taxes in respect
of any transfer occurring contemporaneously with such issue. During the period
within which this Warrant may be exercised, the Company shall at all times have
authorized and reserved, and keep available free from preemptive rights, a
sufficient number of shares of Common Stock to provide for the exercise of this
Warrant, and shall at its expense procure such listing thereof (subject to
official notice of issuance) as then may be required on all stock exchanges on
which the Common Stock is then listed. The Company shall, from time to time,
take all such action as may be required to assure that the par value per share
of the Warrant Shares is at all times equal to or less than the then effective
Exercise Price.
5
<PAGE>
3. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT. If permitted by subsection
1.4 or 1.5 and in accordance with the provisions thereof, upon surrender of this
Warrant to the Company with a duly executed instrument of assignment and funds
sufficient to pay any transfer tax, the Company shall, without charge, execute
and deliver a new Warrant of like tenor in the name of the assignee named in
such instrument of assignment and this Warrant shall promptly be canceled. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
The term "Warrant" as used herein includes any Warrants issued in substitution
or exchange of this Warrant.
4. OWNERSHIP OF WARRANT. The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary, until presentation of this Warrant for registration of transfer
as provided in subsections 1.1, 1.4 and 1.5 or in Section 3.
5. CERTAIN ADJUSTMENTS. The Exercise Price at which Warrant Shares may be
purchased hereunder, and the number of Warrant Shares to be purchased upon
exercise hereof, are subject to change or adjustment after the IPO Date as
follows:
5.1 GENERAL. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:
(a) In case the Company shall after the IPO Date (i) pay a
dividend in shares of Common Stock or make a distribution in shares of
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares of Common Stock or
(iv) issue by reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is the
surviving corporation), the number of Warrant Shares purchasable upon
exercise of this Warrant shall be adjusted so that the Warrantholder shall
be entitled to receive the kind and number of Warrant Shares or other
securities of the Company that the Warrantholder would have owned or have
been entitled to receive after the happening of any of the events
described above, had this Warrant been exercised immediately prior to the
happening of
6
<PAGE>
such event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately after
the effective date of such event retroactive to the record date, if any,
for such event.
(b) In case the Company shall after the IPO Date:
(i) issue rights, options or warrants generally to
holders of its outstanding Common Stock, without any charge to
such holders, entitling them at the time of such issuance to
subscribe for or purchase, pursuant to such an issuance,
shares of Common Stock at a price per share which is lower at
the record date for the determination of stockholders entitled
to receive such rights, options or warrants than the
then-current Market Price per share of Common Stock, or
(ii) distribute generally to holders of its shares of
Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in paragraph (a) of this subsection
5.1) or rights, options or warrants, or convertible or
exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock,
appropriate adjustments shall be made to the number of Warrant Shares
purchasable upon the exercise of the Warrant and/or the Exercise Price in
order to preserve the relative rights and interests of the Warrantholders,
such adjustments to be made by the good faith determination of the Board
of Directors of the Company.
5.2 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then current
Exercise Price to any amount consistent with applicable law, deemed appropriate
by the Board of Directors of the Company.
5.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail first class, postage prepaid, to all Warrantholders,
notice of such adjustment.
5.4 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon the
exercise of this Warrant.
7
<PAGE>
5.5 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
In case of any consolidation of the Company with or merger of the Company into
another person or in case of any sale, transfer or lease to another corporation
of all or substantially all of the assets of the Company, the Company or such
successor or purchaser, as the case may be, shall execute with the
Warrantholders an agreement that the Warrantholders shall have the right
thereafter upon payment of the Exercise Price in effect immediately prior to
such action to purchase upon exercise of each Warrant the kind and amount of
shares and other securities and property that the holder thereof would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action; PROVIDED, HOWEVER that no adjustment in
respect of cash dividends, interest or other income on or from such shares or
other securities and property shall be made during the term of this Warrant or
upon the exercise of this Warrant. Such agreement shall provide for adjustment,
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 5. The provisions of this subsection 5.5 shall apply
similarly to successive consolidations, mergers, sales, transfers or leases.
6. REGISTRATION RIGHTS.
6.1 PIGGYBACK REGISTRATION RIGHTS. The Company covenants and agrees
that (i) upon its filing of a registration statement on Form S-8 registering
shares of Common Stock underlying certain of the Company's options and warrants
(which the Company shall file within one year after the issuance of this
Warrant), and (ii) in the event the Company proposes to file a registration
statement under the Securities Act of 1933, as amended (the "Act"), subsequent
to the IPO and prior to the Expiration Date, with respect to the offering of
Common Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or other similar registration statement not available to
register securities so requested to be included), the Company shall in each case
give written notice of such proposed filing to (i) if this Warrant has been
exercised, the holders of the Warrant Shares and (ii) if this Warrant has not
been exercised, the Warrantholders, in each case at least 30 days before the
earlier of the anticipated or the actual effective date of the registration
statement and at least ten days before the initial filing of such registration
statement, and such notice shall offer to such Warrantholders the opportunity to
include in such registration statement such number of Warrant Shares as they may
request. Warrantholders desiring inclusion of Warrant Shares in such
registration statement shall so inform the Company by written notice, given
within 10 days of the giving of such notice by the Company in accordance with
the provisions of Section 8.6 hereof. The Company shall permit, or shall cause
the managing underwriter of a proposed offering to
8
<PAGE>
permit, the holders of Warrant Shares requested to be included in the
registration to include such securities in the proposed offering on the same
terms and conditions as applicable to any similar securities of the Company, if
any, included therein for the account of any person other than the Company and
the holders of Warrants and/or Warrant Shares. The Company shall continuously
maintain in effect any registration statement with respect to which the Warrant
Shares have been requested to be included (and so included) for a period of not
less than (i) 180 days after the effectiveness of such registration statement or
(ii) the consummation of the distribution by the Warrantholders of the Warrant
Shares ("Piggy-back Termination Date"); PROVIDED, HOWEVER, that if at the
Piggy-back Termination Date the Warrant Shares are covered by a registration
statement which is, or is required to remain, in effect beyond the Piggy-back
Termination Date, the Company shall maintain in effect the registration
statement as it relates to the Warrant Shares for so long as such registration
statement remains or is required to remain in effect for any of such other
securities. All expenses of such registration shall be borne by the Company,
except that underwriting commissions and expenses attributable to the Warrant
Shares and fees and distributions of counsel (if any) to the Warrantholders
requesting that the Warrant Shares be offered will be borne by such
Warrantholders.
6.2 OTHER MATTERS. In connection with the registration
of Warrant Shares in accordance with Section 6.1 above, the Company
agrees to:
(a) Use its best efforts to register or qualify the Warrant
Shares for offer or sale under state securities or Blue Sky laws of
such jurisdictions in which the holders of such Warrants and/or
Warrant Shares shall reasonably designate; provided, that in no
event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process or
taxation in any jurisdiction where it is not now so subject, and use
its best efforts to do any and all other acts and things which may
be necessary or advisable to enable the Warrantholders to consummate
the sale, transfer or other disposition of such securities in any
jurisdiction.
(b) Enter into indemnity and contribution agreements, each in
customary form, with each underwriter, if any, and each holder of
Warrant Shares included in such registration statement; and, if
requested, enter into an underwriting agreement containing customary
representations, warranties, covenants, allocation of expenses, and
customary closing
9
<PAGE>
conditions including, but not limited to, opinions of counsel,
accountants' cold comfort letters and petroleum engineers' reports
with any underwriter who participates in the offering of Warrant
Shares; and
(c) Pay all expenses in connection with the registration of
the Warrants and/or Warrant Shares under the Act and compliance with
the provisions of clause (a) above.
In connection with the registration of Warrant Shares in accordance
with Section 6.1 above, the Warrantholders agree to enter into an
underwriting agreement containing customary representations, warranties,
covenants, allocation of expenses (not otherwise inconsistent with this
Warrant), and customary closing conditions, with any underwriter who
participates in the offering of Warrant Shares.
6.3 OTHER REGISTRATIONS. During the time all or any portion of this
Warrant remains unexercised, the Company shall not register, or grant any rights
(including, without limitation, piggyback rights) to any person or entity to
register, any shares of capital stock or other securities of the Company, other
than shares to be issued by the Company on its own behalf, unless the Company
grants additional rights that at are least as favorable as the rights being
granted to any such person or entity to the Warrantholders, with respect to the
Warrant Shares.
7. NO IMPAIRMENT. The Company shall not by any action, including, without
limitation, amending its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Warrantholders against impairment. Without limiting the generality
of the foregoing, the Company will (a) not change the par value of any shares of
Common Stock receivable upon the exercise of this Warrant to an amount greater
than the amount payable therefor upon such exercise, (b) take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant, (c) obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to person-n its obligations under this Warrant,
and (d) not undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the effect of
making this Warrant exercisable for less than one share of Common Stock.
10
<PAGE>
Upon the request of a Warrantholder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to such Warrantholder, the continued validity of this
Warrant and the Company's obligations hereunder.
11
<PAGE>
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Warrant constitutes the
entire agreement between the Company and the Warrantholders with
respect to this Warrant and the Warrant Shares.
8.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholders and holders
of Warrant Shares and their respective heirs, legal representatives, successors
and assigns. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company, the Warrantholders and
holders of Warrant Shares, or their respective heirs, legal representatives,
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant or the Warrant Shares.
8.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholders. The Company, any Warrantholder or holders of Warrant Shares may,
by an instrument in writing, waive compliance by the other party with any term
or provision of this Warrant on the part of such other party hereto to be
performed or complied with. The waiver by any such party of a breach of any term
or provision of this Warrant shall not be construed as a waiver of any
subsequent breach.
8.4 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
8.5 FURTHER ASSURANCES. Each of the Company, the Warrantholders and
holders of Warrant Shares shall do and perform all such further acts and things
and execute and deliver all such other certificates, instruments and/or powers
of attorney as may be necessary or appropriate as any party hereto may, at any
time and from time to time, reasonably request in connection with the
performance of any of the provisions of this Warrant.
8.6 NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
United States certified or registered first class mail, postage prepaid, to the
parties hereto at the following addresses or at such other address as any party
hereto shall hereafter specify by notice to the other party hereto:
12
<PAGE>
(a) if to the Company, addressed to:
Nationwide Staffing, Inc.
1100 Louisiana
Suite 3535
Houston, Texas 77002
Attention: President
(b) if to any Warrantholder or holder of Warrant Shares,
addressed to the address of such person appearing on the books of the
Company.
Except as otherwise provided herein, all such demands, requests,
notices and other communications shall be deemed to have been received on
the date of personal delivery thereof or on the third Business Day after
the mailing thereof.
8.7 SEPARABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable any other term or provision of this Warrant
or affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
8.8 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such fraction
multiplied by the then-current Market Price.
8.9 RIGHTS OF THE HOLDER. No Warrantholder shall, solely by virtue
of this Warrant, be entitled to any rights of a stockholder of the Company,
either at law or in equity.
8.10 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State applicable
to contracts made and performed in Delaware.
8.11 EXPENSES. The Company shall pay all reasonable legal and other
reasonable out-of-pocket expenses of the Warrantholders and their counsel in
connection with the exercise and sale of the Warrant Shares as contemplated by
this Warrant.
8.12 RIGHT TO INFORMATION. The Company will provide to a
Warrantholder and to all holders of Warrant Shares, on a timely basis, copies of
all documents and reports filed with the
13
<PAGE>
Securities and Exchange Commission (the "Commission") and publicly available
annual and quarterly financial statements, as may be requested in writing by the
Warrantholder or as otherwise agreed in another agreement between the Company
and the Warrantholder.
8.13 MERGER OR CONSOLIDATION OF THE COMPANY. So long as this Warrant
remains in effect, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(i) shall be the Company or (ii) if not the Company, shall expressly assume, by
supplemental agreement executed and delivered to the Warrantholders, the
performance and observance of each and every covenant and condition of this
Warrant to be performed and observed by the Company under this Warrant.
8.14 RULE 144. With a view to making available to Warrantholders the
benefits of certain rules of the Commission that may permit the sale of shares
of Common Stock to the public without registration, the Company hereby covenants
and agrees to use its reasonable business efforts after the Initial Exercise
Date to file in a timely manner all reports and other documents required to be
filed by it under the Act and the Securities Exchange Act of 1934, as amended,
and the rules and regulations adopted by the Commission thereunder necessary to
permit sales under Rule 144 under the Act, and the Company will take such
further action which does not have material cost to the Company to the extent
requireon under the Act within the limitation of the exemptions provided by (a)
Rule 144 under the Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the Commission. Upon the
written request of a Warrantholder, the Company will deliver to such
Warrantholder a written statement as to whether it has complied with such
requirements.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
Nationwide Staffing, Inc.
By: _______________________________
Warren L. Williams, President
14
<PAGE>
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase
________________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of Nationwide Staffing, Inc. in the amount of
$___________ in accordance with the terms of this Warrant. The undersigned
requests that a certificate for such Warrant Shares be registered in the name of
__________________ and that such certificate be delivered to _______________
whose address is _____________________________________________.
Date: ______________________ Signature: ___________________________________
(Name Printed)
15
NATIONWIDE STAFFING, INC.
1997 STOCK AWARDS PLAN
I. PURPOSE
The purpose of the NATIONWIDE STAFFING, INC. 1997 STOCK AWARDS PLAN (the
"PLAN") is to provide a means through which NATIONWIDE STAFFING, INC., a
Delaware corporation (the "COMPANY"), and its subsidiaries, may attract able
persons to enter the employ of the Company or to provide services to the Company
and to provide a means whereby those persons upon whom the responsibilities of
the successful administration and management of the Company rest, and whose
present and potential contributions to the welfare of the Company are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and their desire to remain in its
employ or in its service. A further purpose of the Plan is to provide such
employees or service providers with additional incentive and reward
opportunities designed to enhance the profitable growth of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options, options
which do not constitute Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock Awards, Performance Awards, Phantom Stock Awards, or any
combination of the foregoing, as is best suited to the circumstances of the
particular individual as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "AFFILIATES" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively.
(b) "AWARD" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company
<PAGE>
is to be dissolved and liquidated, (iv) any person or entity, including a
"group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains
ownership or control (including, without limitation, power to vote) of more than
50% of the outstanding shares of the Company's voting stock (based upon voting
power), or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.
(e) "CHANGE OF CONTROL VALUE" shall mean (i) the per share price offered
to stockholders of the Company in any such merger, consolidation,
reorganization, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Change of Control takes place, or (iii) if such Change of
Control occurs other than pursuant to a tender or exchange offer, the Fair
Market Value per share of the shares into which Awards are exercisable, as
determined by the Committee, whichever is applicable. In the event that the
consideration offered to stockholders of the Company consists of anything other
than cash, the Committee shall determine the fair cash equivalent of the portion
of the consideration offered which is other than cash.
(f) "CODE" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.
(g) "COMMITTEE" means the Compensation Committee of the Board which shall
be, upon the Company becoming a "publicly held corporation" (as defined in
section 162(m) of the Code), (i) constituted so as to permit the Plan to comply
with Rule 16b-3 and (ii) constituted solely of "outside directors," within the
meaning of section 162(m) of the Code and applicable interpretive authority
thereunder.
(h) "COMPANY" means Nationwide Staffing, Inc. and any of its Affiliates.
(i) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) An "EMPLOYEE" means any person (including an officer or a Director) in
an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(k) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
-2-
<PAGE>
(l) "FAIR MARKET VALUE" means, as of any specified date, the mean of the
high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the Stock
is listed on a national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported on that date,
on the last preceding date on which such prices of the Stock are so reported. If
the Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the reported high and low or closing
bid and asked prices of Stock on the most recent date on which Stock was
publicly traded. In the event Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate.
(m) "HOLDER" means an employee who has been granted an Award.
(n) "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of section 422(b) of the Code.
(o) "NONQUALIFIED STOCK OPTION" means an option granted under Paragraph
VII of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.
(p) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.
(q) "OPTION AGREEMENT" means a written agreement between the Company and a
Holder with respect to an Option.
(r) "PERFORMANCE AWARD" means an Award granted under Paragraph X of the
Plan.
(s) "PERFORMANCE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(t) "PHANTOM STOCK AWARD" means an Award granted under Paragraph XI of the
Plan.
(u) "PHANTOM STOCK AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.
(v) "PLAN" means the Nationwide Staffing, Inc. 1997 Stock Awards Plan, as
amended from time to time.
-3-
<PAGE>
(w) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(x) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph IX of
the Plan.
(y) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "SPREAD" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(aa) "STOCK" means the common stock, $0.01 par value of the Company.
(bb) "STOCK APPRECIATION RIGHT" means an Award granted under Paragraph
VIII of the Plan.
(cc) "STOCK APPRECIATION RIGHTS AGREEMENT" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the stockholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) COMMITTEE. The Plan shall be administered by the Committee.
(b) POWERS. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees or
individuals providing service to the Company shall receive an Award, the time or
times when such Award shall be made, whether an Incentive Stock Option,
Nonqualified Option or Stock Appreciation Right shall be granted, the number of
shares of Stock which may be issued under each Option, Stock Appreciation Right
or Restricted Stock Award, and the value of each Performance Award and Phantom
Stock Award. In making such determinations the Committee may take into account
the nature of the services rendered
-4-
<PAGE>
by the respective individuals, their present and potential contributions to the
Company's success and such other factors as the Committee in its discretion
shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed the greater of 850,000 shares or 10% of
the aggregate number of shares of Stock outstanding. Shares of Stock shall be
deemed to have been issued under the Plan only to the extent actually issued and
delivered pursuant to an Award. To the extent that an Award lapses or the rights
of its Holder terminate or the Award is paid in cash, any shares of Stock
subject to such Award shall again be available for the grant of an Award. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Stock subject to such Award shall again be available for the grant of an Award.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of a Nonqualified Stock Option.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees of or individuals providing services to the Company or any of its
Affiliates. Awards may not be granted
-5-
<PAGE>
to any Director who is not an employee. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option or a Nonqualified Stock
Option, a Stock Appreciation Right, a Restricted Stock Award, a Performance
Award, a Phantom Stock Award or any combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. No more than 850,000
shares of stock may be subject to Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option shall
be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. No individual may be granted in any calendar year
an Option under the Plan which allows such person to purchase more than 200,000
shares of Stock. An Option Agreement may provide for the payment of the option
price, in whole or in part, by the delivery of a number of shares of Stock (plus
cash if necessary) having a Fair Market Value equal to such option price. Each
Option Agreement shall provide that the Option may not be exercised earlier than
six months from the date of grant and shall specify the effect of termination of
employment or service on the exercisability of the Option. Moreover, an Option
-6-
<PAGE>
Agreement may provide for a "cashless exercise" of the Option by establishing
procedures whereby the Holder, by a properly-executed written notice, directs
(i) an immediate market sale or margin loan respecting all or a part of the
shares of Stock to which he is entitled upon exercise pursuant to an extension
of credit by the Company to the Holder of the option price, (ii) the delivery of
the shares of Stock from the Company directly to a brokerage firm and (iii) the
delivery of the option price from the sale or margin loan proceeds from the
brokerage firm directly to the Company. Such Option Agreement may also include,
without limitation, provisions relating to (i) vesting of Options, subject to
the provisions hereof accelerating such vesting on a Change of Control, (ii) tax
matters (including provisions (y) permitting the delivery of additional shares
of Stock or the withholding of shares of Stock from those acquired upon exercise
to satisfy federal or state income tax withholding requirements and (z) dealing
with any other applicable employee wage withholding requirements), and (iii) any
other matters not inconsistent with the terms and provisions of this Plan that
the Committee shall in its sole discretion determine. The terms and conditions
of the respective Option Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph XII. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees or service providers to the
Company as a result of a merger or consolidation of the employing corporation
with the Company or any subsidiary, or the acquisition by the Company or a
subsidiary of the assets of the employing corporation, or the acquisition by the
Company or a subsidiary of stock of the employing corporation with the result
that such employing corporation becomes a subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) STOCK APPRECIATION RIGHTS. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock
-7-
<PAGE>
Appreciation Right. Stock Appreciation Rights may be granted in connection with
the grant of an Option, in which case the Option Agreement will provide that
exercise of Stock Appreciation Rights will result in the surrender of the right
to purchase the shares under the Option as to which the Stock Appreciation
Rights were exercised. Alternatively, Stock Appreciation Rights may be granted
independently of Options in which case each Award of Stock Appreciation Rights
shall be evidenced by a Stock Appreciation Rights Agreement which shall contain
such terms and conditions as may be approved by the Committee. No individual may
be granted in any calendar year more than 200,000 Stock Appreciation Rights. The
Spread with respect to a Stock Appreciation Right may be payable either in cash,
shares of Stock with a Fair Market Value equal to the Spread or in a combination
of cash and shares of Stock. With respect to Stock Appreciation Rights that are
subject to Section 16 of the 1934 Act, however, the Committee shall, except as
provided in Paragraph XII(c), retain sole discretion (i) to determine the form
in which payment of the Stock Appreciation Right will be made (I.E., cash,
securities or any combination thereof) or (ii) to approve an election by a
Holder to receive cash in full or partial settlement of Stock Appreciation
Rights. Each Stock Appreciation Rights Agreement shall provide that the Stock
Appreciation Rights may not be exercised earlier than six months from the date
of grant and shall specify the effect of termination of employment on the
exercisability of the Stock Appreciation Rights.
(b) OTHER TERMS AND CONDITIONS. At the time of such Award, the Committee,
may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment (by retirement, disability,
death or otherwise) or termination of service of a Holder prior to the
expiration of such Stock Appreciation Rights. Such additional terms, conditions
or restrictions shall be set forth in the Stock Appreciation Rights Agreement
made in conjunction with the Award. Such Stock Appreciation Rights Agreements
may also include, without limitation, provisions relating to (i) vesting of
Awards, subject to the provisions hereof accelerating vesting on a Change of
Control,(ii) tax matters (includinG provisions covering applicable wage
withholding requirements), and (iii) any other matters not inconsistent with the
terms and provisions of this Plan, that the Committee shall in its sole
discretion determine. The terms and conditions of the respective Appreciation
Rights Agreements need not be identical.
(c) EXERCISE PRICE. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XII.
-8-
<PAGE>
(d) EXERCISE PERIOD. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.
(e) LIMITATIONS ON EXERCISE OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"FORFEITURE RESTRICTIONS"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on stockholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations, (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.
(b) OTHER TERMS AND CONDITIONS. No individual may be awarded more than
200,000 shares of Stock that are subject to a Restricted Stock Award in any
calendar year. Stock awarded pursuant to a Restricted Stock Award shall be
represented by a stock certificate registered in the name of the Holder of such
Restricted Stock Award. The Holder shall have the right to receive dividends
with respect to Stock subject to a Restricted Stock Award, to vote Stock subject
thereto and to enjoy all other stockholder rights, except that (i) the Holder
shall not be entitled to delivery of the stock certificate until the Forfeiture
Restrictions shall have expired, (ii) the Company shall retain custody of the
Stock until the Forfeiture Restrictions shall have expired, (iii) the Holder may
not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the
Stock until the Forfeiture Restrictions shall have expired, and (iv) a breach of
the terms and conditions established by the Committee pursuant to the Restricted
Stock Agreement, shall cause a forfeiture of the Restricted Stock Award. At the
time of such Award, the Committee may, in its sole discretion, prescribe
additional terms, conditions or restrictions relating to Restricted Stock
Awards, including, but not limited to, rules pertaining to the termination of
employment (by retirement, disability, death or otherwise) or termination of
service of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement
-9-
<PAGE>
made in conjunction with the Award. Such Restricted Stock Agreement may also
include, without limitation, provisions relating to (i) subject to the
provisions hereof accelerating vesting on a Change of Control, vesting of
Awards, (ii) tax matters (including provisions (y) covering any applicable
employee wage withholding requirements and (z) prohibiting an election by the
Holder under section 83(b) of the Code), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Restricted Stock Agreements need not be identical.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the amount
and form of any payment for Stock received pursuant to a Restricted Stock Award,
provided that in the absence of such a determination, a Holder shall not be
required to make any payment for Stock received pursuant to a Restricted Stock
Award, except to the extent otherwise required by law.
(d) AGREEMENTS. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.
X. PERFORMANCE AWARDS
(a) PERFORMANCE PERIOD. The Committee shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) PERFORMANCE AWARDS. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award, provided that no
individual may be granted a Performance Award in any calendar year where the
value of such award exceeds the Fair Market Value of 200,000 shares of Stock.
(c) PERFORMANCE MEASURES. A Performance Award shall be awarded to an
individual contingent upon future performance of the individual, the Company or
any subsidiary, division or department thereof by or in which is he employed
during the performance period. The Committee shall establish the performance
measures applicable to such performance prior to the beginning of the
performance period but subject to such later revisions as the Committee shall
deem appropriate to reflect significant, unforeseen events or changes. The
performance measures established by the Committee may be based on (i) the price
of a share of Stock, (ii) the Company's earnings per share, (iii) the Company's
revenue, (iv) the revenue of a business unit of the Company designated by the
Committee, (v) the return on stockholder's equity achieved by the Company, (vi)
the Company or business unit's pre-tax cashflow from operations, or (vii) a
combination of such factors.
-10-
<PAGE>
(d) AWARDS CRITERIA. In determining the value of Performance Awards, the
Committee shall take into account an employee's or service provider's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.
(e) PAYMENT. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or in installments as prescribed by the Committee. Any payment to be
made in Stock shall be based on the Fair Market Value of the Stock on the
payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(f) TERMINATION OF EMPLOYMENT OR SERVICE. A Performance Award shall
terminate if the Holder does not remain continuously in the employ of or in the
service of the Company at all times during the applicable performance period,
except as may be determined by the Committee or as may otherwise be provided in
the Award at the time granted.
(g) AGREEMENTS. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition such matters are
set forth in Paragraph IX(b) as the Committee may determine to be appropriate.
The terms and provisions of the respective agreements need not be identical.
XI. PHANTOM STOCK AWARDS
(a) PHANTOM STOCK AWARDS. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award.
(b) AWARD PERIOD. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
-11-
<PAGE>
(c) AWARDS CRITERIA. In determining the value of Phantom Stock Awards, the
Committee shall take into account an employee's or service provider's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate.
(d) PAYMENT. Following the end of the vesting period for a Phantom Stock
Award, the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Phantom Stock Award, based
on the then vested value of the Award. Payment of a Phantom Stock Award may be
made in cash, Stock or a combination thereof as determine by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee in its sole discretion. Any payment to be made in Stock shall be based
on the Fair Market Value of the Stock on the payment date. Cash dividend
equivalents may be paid during or after the vesting period with respect to a
Phantom Stock Award, as determined by the Committee. If a payment of cash is to
be made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(e) TERMINATION OF EMPLOYMENT OR SERVICE. A Phantom Stock Award shall
terminate if the Holder does not remain continuously in the employ of or in the
service of the Company at all times during the applicable vesting period, except
as may be otherwise determined by the Committee or as set forth in the Award at
the time of grant.
(f) AGREEMENTS. At the time any Award is made under this Paragraph XI, the
Company and the Holder shall enter into a Phantom Stock Award Agreement setting
forth each of the matters contemplated hereby and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
-12-
<PAGE>
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (i) determine a limited period of
time on or before a specified date (before or after such Change of Control)
after which specified date all unexercised Options and all rights of Holders
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Holder an amount of cash per
share equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for such
shares, (3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (4) provide that thereafter upon any exercise of
an Option theretofore granted the Holder shall be entitled to purchase under
-13-
<PAGE>
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such Award
is subject to the reporting requirements of Section 16(a) of the 1934 Act. The
provisions contained in this paragraph shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
-14-
<PAGE>
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the stockholders,
amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of individuals eligible to receive Awards or
materially increase the benefits accruing to individuals under the Plan;
(d) to extend the maximum period during which Awards may be granted under
the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the payment of any Award.
-15-
<PAGE>
(b) NO EMPLOYMENT RIGHTS CONFERRED. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment at
any time.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to issue
any Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No Holder,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a "qualified
domestic relations order" as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the Holder's lifetime only by such Holder or the
Holder's guardian or legal representative.
(f) RULE 16B-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
(g) SECTION 162(M). If the plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the
-16-
<PAGE>
Plan to comply with Section 162(m) as so intended, such provision shall be
construed or deemed amended to conform to the requirements or provisions of
Section 162(m); provided that no such construction or amendment shall have an
adverse effect on the economic value to a Holder of any Award previously granted
hereunder.
(h) GOVERNING LAW. This Plan shall be construed in accordance with the
laws of the State of Delaware.
-17-
NATIONWIDE STAFFING, INC.
1997 NONQUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
SECTION 1. PURPOSE. The purpose of this Nationwide Staffing, Inc. 1997
Nonqualified Stock Option Plan ("Plan") is to attract and retain the services of
experienced and knowledgeable non-employee directors for Nationwide Staffing,
Inc., a Delaware corporation (the "Company") and provide such non-employee
directors an opportunity for ownership of common stock, $.01 par value ("Common
Stock"), of the Company. Options to be granted under this Plan will be
nonqualified options which are not intended to qualify as Incentive Stock
Options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended
("Code").
SECTION 2. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board of Directors of the Company ("Board"). Subject to the terms of the
Plan, the Board shall have the power to interpret the provisions and supervise
the administration of the Plan. All decisions made by the Board pursuant to the
provisions of the Plan shall be made by a majority of its members at a duly held
regular or special meeting or by written consent in lieu of any such meeting. A
majority of the directors in office shall constitute a quorum and all decisions
made by the Board pursuant to the provisions of the Plan shall be made by a
majority of the directors present at any duly held regular or special meeting at
which a quorum is present (unless the concurrence of a greater proportion is
required by law or by the articles or bylaws of the Company) or by the written
consent of a majority of the directors in lieu of any such meeting. All expenses
and liabilities incurred by the Board in the administration of this Plan shall
be borne by the Company. The Board may employ attorneys, consultants,
accountants or other persons to assist the Board in the carrying out of its
duties hereunder.
SECTION 3. STOCK RESERVED. Subject to adjustment as provided in Section
6(g) hereof, the aggregate number of shares of Common Stock that may be optioned
under this Plan is 100,000. The shares subject to this Plan shall consist of
authorized but unissued shares of Common Stock or previously issued shares of
Common Stock reacquired and held by the Company, and such number of shares shall
be and is hereby reserved for sale for such purpose. Any of such shares which
may remain unsold and which are not subject to outstanding options at the
termination of this Plan shall cease to be reserved for the purpose of this
Plan, but until termination of this Plan or the termination of the last of the
options granted under this Plan, whichever last occurs, the Company shall at all
times reserve a sufficient number of shares to meet the requirements of this
Plan. Should any option expire or be canceled prior to its exercise in full, the
shares theretofore subject to such option may again be made subject to an option
under this Plan.
SECTION 4. GRANT OF OPTIONS. Each director of the Company who is not
otherwise an employee of the Company or any of the Company's subsidiaries (as
defined in Section 424(f) of the Internal Revenue Code of 1986) (hereinafter
referred to as an "Eligible Director", which term shall include any transferee
permitted pursuant to paragraph 5(d) below) shall be granted one option to
<PAGE>
acquire 10,000 shares of Common Stock ("Initial Option"), in the case of an
Eligible Director serving on the Board on the date of adoption of the Plan by
the Board, on such date of adoption and in all other cases on the date of such
director's first election to the Board. An additional option to acquire 5,000
shares of Common Stock ("Subsequent Option") shall thereafter automatically be
granted to each Eligible Director on the date of each Annual Meeting of
Shareholders at which he or she is reelected to serve an additional term as a
Director of the Company after such meeting. The term "Date of Grant" means (i)
in the case of an Initial Option granted to an Eligible Director serving on the
Board on the date of the adoption of the Plan by the Board, on such date of
adoption and in all other cases on the date on which the Eligible Director is
first elected to the Board; and (ii) in the case of a Subsequent Option, the
date of each Annual Meeting at which an Eligible Director who has theretofore
received an Initial Option is reelected to serve an additional term as a
Director of the Company provided that no Eligible Director shall receive a
Subsequent Option within three months of receiving an Initial Option.
SECTION 5. TERMS AND CONDITIONS. Each option granted under this Plan shall
be evidenced by an agreement, in a form approved by the Board, which shall be
subject to the following express terms and conditions and to such other terms
and conditions as the Board may deem appropriate.
(a) OPTION PERIOD. Each option granted under this Plan shall provide that
it shall terminate and be of no force or effect with respect to any shares not
previously purchased under such option by an Eligible Director upon the first to
occur of (i) the expiration of ten years from the Date of Grant of the option or
(ii) the expiration of ninety days after the termination of the Eligible
Director's service as a Director of the Company for any reason.
(b) EXERCISE PRICE. The exercise price of each share of Common Stock
subject to an Initial Option or Subsequent Option shall be the fair market value
of a share of Common Stock on the Date of Grant of the Initial Option or
Subsequent Option. For all purposes under this Plan, the fair market value of a
share of Common Stock means, as of any specified date, (i) if the Common Stock
is listed on a national stock exchange, the mean of the high and low sales
prices of the Common Stock, reported on the stock exchange composite tape on
that date, or if no prices are reported on that date, on the last preceding date
on which such prices of Common Stock are so reported; or, (ii) in the event the
Common Stock is not traded on a national stock exchange, the fair market value
of a share of Common Stock determined by the Board in such reasonable manner as
it deems appropriate.
(c) PROCEDURE FOR EXERCISE. Options shall be exercised by the delivery by
the Eligible Director of written notice to the Secretary of the Company setting
forth the number of shares of Common Stock with respect to which the option is
being exercised. The notice shall be accom panied by, at the election of the
Eligible Director, (i) cash, cashier's check, bank draft, or postal or express
money order payable to the order of the Company, (ii) certificates representing
shares of Common Stock theretofore owned by the Eligible Director duly endorsed
for transfer to the Company, (iii) an election by the Eligible Director to have
the Company withhold the number of shares of Common Stock the fair market value
of which is equal to the aggregate exercise price of the shares of Common Stock
issuable upon exercise of the option, or (iv) any combination of the preceding,
equal in value to the full amount of the exercise price. Notice may also be
delivered by telecopy provided that the exercise price of such shares is
received by the Company via wire transfer on the same day the telecopy
transmission is received by the Company. The notice shall specify the address to
which the certificates for such shares are to be mailed. An option to purchase
shares of Common Stock in accordance with this Plan shall be deemed to have been
exercised immediately prior to the close of business on the date (i) written
notice of such exercise and (ii) payment in full of the exercise price for the
number of share for which options are being exercised, are both received by the
Company and the Eligible Director shall be treated for all purposes as the
record holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to the Eligible Director certificates for the
number of shares with respect to which such option has been so exercised, issued
in the Eligible Director's name or such other name as Eligible Director directs;
provided, however, that such delivery shall be deemed effected for all purposes
when a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the Eligible Director at
the address specified pursuant to this paragraph 5(c).
(d) TRANSFERABILITY. An option granted pursuant to this Plan shall not be
assignable or otherwise transferable by an Eligible Director otherwise than by
an Eligible Director's will or by the laws of descent and distribution. During
the lifetime of an Eligible Director, an option shall be exercisable only by
such Eligible Director or the Eligible Director's legal representative. Any heir
or legatee of the Eligible Director shall take rights granted herein and in the
option agreement subject to the terms and conditions hereof and thereof. No such
transfer of any option to heirs or legatees of the Eligible Director shall be
effective to bind the Company unless the Company shall have been furnished with
written notice thereof and a copy of such evidence as the Board may deem
necessary to establish the validity of the transfer and the acceptance by the
transferee or transferees of the terms and conditions hereof.
(e) NO RIGHTS AS SHAREHOLDER. No Eligible Director shall have any rights
as a shareholder with respect to shares covered by an option until the option is
exercised by written notice and accompanied by payment as provided in paragraph
5(c) above.
-2-
<PAGE>
(f) EXTRAORDINARY CORPORATE TRANSACTIONS. The existence of outstanding
options shall not affect in any way the right or power of the Company or its
shareholders to make or authorize any or all adjustments, July 31,
1997recapitalizations, reorganizations, exchanges, or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issuance of Common Stock or other securities or subscription
rights thereto, or any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company recapitalizes or
otherwise changes its capital structure, or merges, consolidates, sells all of
its assets or dissolves (each of the foregoing a "Fundamental Change"), then
thereafter upon any exercise of an option theretofore granted the Eligible
Director, the Eligible Director shall be entitled to purchase under such option,
in lieu of the number of shares of Common Stock as to which option shall then be
exercisable, the number and class of shares of stock and securities to which the
Eligible Director would have been entitled pursuant to the terms of the
Fundamental Change if, immediately prior to such Fundamental Change, the
Eligible Director had been the holder of record of the number of shares of
Common Stock as to which such option is then exercisable.
(g) CHANGES IN CAPITAL STRUCTURE. If the outstanding shares of Common
Stock or other securities of the Company, or both, for which the option is then
exercisable shall at any time be changed or exchanged by declaration of a stock
dividend, stock split, combination of shares or recapitalization, the number and
kind of shares of Common Stock or other securities which are subject to this
Plan or subject to any options theretofore granted, and the exercise prices,
shall be appropriately and equitably adjusted so as to maintain the
proportionate number of shares or other securities without changing the
aggregate exercise price.
SECTION 6. AMENDMENTS OR TERMINATION. The Board may amend, alter or
discontinue this Plan; PROVIDED, HOWEVER, no amendment, alteration or
termination shall be made which would impair the rights of any Eligible
Director, without the Eligible Director's consent, under any option theretofore
granted.
SECTION 7. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. This Plan, the
grant and exercise of options thereunder, and the obligation of the Company to
sell and deliver shares under such options, shall be subject to all applicable
federal and state laws, rules and regulations and to such approvals by any
governmental or regulatory agency as may be required. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock prior
to the com pletion of any registration or qualification of such shares under any
federal or state law or issuance
-3-
<PAGE>
of any ruling or regulation of any government body which the Company shall, in
its sole discretion, determine to be necessary or advisable.
SECTION 8. PURCHASE FOR INVESTMENT. Unless the options and shares of
Common Stock covered by this Plan have been registered under the Securities Act
of 1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option under this Plan may be required by
the Company to give a representation in writing that such person is acquiring
such shares for his or her own account for investment and not with a view to, or
for sale in connection with, the distribution of any part thereof.
SECTION 9. TAXES.
(a) The Company may make such provisions as it may deem appropriate for
the withholding of any taxes which it determines is required in connection with
any options granted under this Plan.
(b) Any Eligible Director may pay all or any portion of the taxes required
to be withheld by the Company or paid by the Eligible Director in connection
with the exercise of an option by electing to have the Company withhold shares
of Common Stock, or by delivering previously owned shares of Common Stock,
having a fair market value, determined in accordance with paragraph 5(b), equal
to the amount required to be withheld or paid. An Eligible Director must make
the foregoing election on or before the date that the amount of tax to be
withheld is determined. All such elections are irrevocable and subject to
disapproval by the Board.
SECTION 10. LIABILITY OF COMPANY FOR NON-ISSUANCE OF SHARES AND TAX
CONSEQUENCES. The Company shall not be liable to an Eligible Director or other
persons as to:
(a) The non-issuance or sale of shares as to which the Company has been
unable to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and
(b) Any tax consequence expected, but not realized, by any Eligible
Director or other person due to the exercise of any option granted hereunder.
SECTION 11. EFFECTIVENESS AND EXPIRATION OF PLAN. This Plan shall be
effective on the date of adoption by the Board. This Plan shall expire ten years
after the date the Board adopts this Plan and thereafter no option shall be
granted pursuant to this Plan.
-4-
<PAGE>
SECTION 12. NON-EXCLUSIVITY OF THIS PLAN. The adoption by the Board shall
not be construed as creating any limitations on the power of the Board to adopt
such other incentive arrangements as it may deem desirable, including without
limitation, the granting of restricted stock or stock options otherwise than
under this Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
SECTION 13. GOVERNING LAW. This Plan and any agreements hereunder shall be
interpreted and construed in accordance with the laws of the State of Delaware
and applicable federal law.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by the Board, Nationwide Staffing, Inc. has caused this document to be
duly executed in its name and behalf by its proper officer thereunto duly
authorized as of the date of the adoption of the Plan by the Board, being
September 8, 1997.
NATIONWIDE STAFFING, INC.
By: /s/ LARRY DARST
-5-
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Larry E.
Darst (the "Executive") and Nationwide Staffing, Inc., a Delaware corporation
(the "Company"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the Chief Executive Officer of the
Company. The Executive will perform the duties attendant to his executive
position with the Company under the direction of the Company's Board of
Directors (the "Board"). The Executive agrees to (a) devote his full time and
best efforts to the performance of his duties to the Company, (b) devote his
best efforts to promote the success of the Company's business, and (c) cooperate
fully with the Board in the advancement of the best interests of the Company.
The Executive shall faithfully adhere to, execute and fulfill all policies
established by the Company from time to time. If the Executive is elected as a
director of the Company or as a director or officer of any of its affiliates,
the Executive will fulfill his duties as such director or officer without
additional compensation.
3. COMPENSATION. In consideration for the services of the Executive
hereunder, unless terminated sooner pursuant to the terms hereof, commencing on
the (i) date hereof and continuing until the date of the consummation of the
Company's underwritten initial public offering of the Company's Common Stock
(the "IPO"), the Company will pay the Executive $10,000 per month; and (ii) date
of the IPO and continuing for the remaining term hereof, the Company will pay
the Executive an annual salary of $175,000 (the "Salary"), which will be payable
in equal periodic installments according to the Company's customary payroll
practices but no less frequently than monthly. In addition, prior to the IPO,
the Company shall have adopted a bonus plan which provides that the Executive
shall be eligible to receive an annual cash bonus in an amount up to 100% of the
Salary in the event that the Company and the Executive achieve certain
performance objectives. The specific performance objectives of the bonus plan
shall be established each year by resolution of the Board.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive the following:
(i) group hospitalization, major medical, long-term disability,
vacation, life insurance coverages and pension, profit sharing, bonus and
other employee benefit plans on substantially the same terms and
conditions these benefits are made available to the Company's other
executive officers so long as the Executive's physical condition does not
make it commercially unreasonable for the Company to provide such
benefit(s); and
<PAGE>
(ii) options to purchase shares of the Company's Common Stock on
terms to be agreed upon between the Executive and the Board (or the
appropriate committee thereof), which terms shall be consistent with the
terms of any stock option plans adopted by the Company and the terms of
Section 5 hereof.
4. TERM AND TERMINATION. The term of the Executive's employment pursuant
to this Agreement shall commence on the date hereof and shall continue until the
third anniversary of the IPO (the "Initial Term") and shall continue thereafter
on a year-to-year basis on the same terms and conditions contained herein unless
either party gives to the other written notice of termination no fewer than 30
days prior to the expiration of any such term that the party does not wish to
extend this Agreement. However, the Executive's employment pursuant to this
Agreement shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive immediately upon notice
from either party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause";
(vi) at the Executive's option, upon notice by the Executive to the
Company within 60 days following a Constructive Termination; or
(vii) immediately in the event (a) the IPO is not consummated on or
before January 31, 1998 (the "Failure of the IPO"); or (b) a majority of
the duly authorized representatives of the companies to be acquired by the
Company at the time of the IPO inform the Board that they do not desire
that the Executive serve as the Company's Chief Executive Officer (the
"Acquired Companies' Decision").
DEFINITION OF DISABILITY. For purposes of Section 4(ii), the Executive
will be deemed to have a "disability" if, for physical or mental reasons, the
Executive is unable to perform the Executive's duties under this Agreement for
120 consecutive days, or 180 days during any twelve month period, as determined
herein. The disability of the Executive will be determined by a medical doctor
selected by written agreement of the Company and the Executive upon the request
of either party by notice to the other. If the Company and the Executive cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical
<PAGE>
doctor who will determine whether the Executive has a disability. The
determination of the medical doctor selected under this Section 4 will be
binding on both parties. The Executive must submit to a reasonable number of
examinations by the medical doctor making the determination of disability under
this Section 4, and the Executive hereby authorizes the disclosure and release
to the Company of such determination and all supporting medical records. If the
Executive is not legally competent, the Executive's legal guardian or duly
authorized attorney-in-fact will act in the Executive's stead under this Section
4, for the purposes of selecting a medical doctor, submitting the Executive to
the examinations, and providing the authorization of disclosure, required under
this Section 4.
DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(v), the
Executive's termination "for cause" shall be defined to mean: (a) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a reasonably satisfactory
manner (other than any such failure resulting from incapacity due to physical or
mental reasons); (b) the appropriation (or attempted appropriation) of a
material business opportunity of the Company, including attempting to secure or
securing a personal benefit in connection with any transaction entered into on
behalf of the Company; or (c) the Executive's fraud or dishonesty with respect
to the business or affairs of the Company or if the Executive is convicted of,
indicted for (or its procedural equivalent) or pleads nolo contendere or guilty
to, any felony criminal offense or any civil offense involving fraud or moral
turpitude, the equivalent thereof, or any crime with respect to which
imprisonment is a possible punishment.
DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section 4 (vi),
the term "Constructive Termination" shall be defined to mean (i) a material
reduction in the Executive's duties and responsibilities without the Executive's
consent; or (ii) a reduction in or the failure by the Company to pay when due
any portion of the Salary.
COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs. The payment of a bonus, if any, will be determined by
reference to the terms of the applicable bonus plan.
COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's employment is
terminated by either party as a result of the Executive's disability, the
Company will pay the Executive the portion of the Salary that is due at the end
of the calendar month during which such termination is effective and for the
lesser of (a) six consecutive months thereafter, or (b) the period until
disability insurance benefits, if any, commence under any disability insurance
coverage furnished by the Company to the Executive. The payment of a bonus, if
any, will be determined by reference to the terms of the applicable bonus plan.
COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If the
<PAGE>
Company terminates the Executive's employment "for cause" or if the Executive
resigns his employment with the Company, the Executive will be entitled to
receive the portion of the Salary that is due through the date such termination
is effective. No bonus will be payable, notwithstanding any terms of the bonus
plan to the contrary.
COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE TERMINATION.
In the event the Executive's employment with the Company is terminated by the
Company "without cause" or by the Executive within 60 days following a
Constructive Termination, the Company will pay the Executive, as the Executive's
sole remedy in connection with such termination, a severance payment in an
amount equal to $350,000 (the "Severance Payment"). The Severance Payment shall
be payable to the Executive in equal monthly payments over a period of 24 months
following the date of termination. The Company will also pay the Executive the
portion of the Salary that is accrued but unpaid from the last payment date to
the date of termination.
COMPENSATION IF FAILURE OF THE IPO OR THE ACQUIRED COMPANIES' DECISION. If
this Agreement is terminated due to the Failure of the IPO or the Acquired
Companies' Decision, thereafter the Executive will not be entitled to any more
Salary, any bonus or any of the other benefits hereunder.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary, the Executive will not receive, as part of his
termination pay pursuant to Section 4, any payment or other compensation for any
vacation, holiday, sick leave, or other leave unused on the date of termination.
6. EFFECT OF TERMINATION ON OPTIONS. Any options to purchase the Company's
Common Stock held by the Executive will automatically expire if the Executive's
employment with the Company is terminated "for cause" or if the Executive
voluntarily leaves the employment of the Company. If the Executive's employment
with the Company ends for any reason other than termination for cause, voluntary
departure or due to death, the Executive's options will remain exercisable and
will vest and expire in accordance with the terms of the applicable option
agreements. If the Executive dies while employed by the Company, his options
shall become fully exercisable on the date of his death and shall expire twelve
months thereafter.
7. EFFECT OF TERMINATION OF PURCHASED COMMON STOCK. The Executive has
purchased 100 shares of the Company's Common Stock (the "Shares") for $3.00 per
share. Before the Executive's acquisition of the Shares, there were outstanding
1,000 shares of the Company's Common Stock, all of which are owned by WJG
Capital, L.L.C. It is the intention of the Company and the Executive that on the
date the Securities and Exchange Commission declares effective the Company's
registration statement in connection with the IPO (the "Effective Date"), the
Executive will own 2% of the Company's outstanding Common Stock (after taking
into account the shares to be issued
<PAGE>
in the IPO and to the shareholders of companies to be acquired concurrently with
the IPO). Accordingly, on the Effective Date, either (a) the Executive will
convey to the Company without consideration; or (b) the Company will convey to
the Executive without consideration, that number of shares of Company Common
Stock that will result in the Executive owning 2% of the Company's outstanding
Common Stock.
Notwithstanding the foregoing, in the event that the Executive is not the
Chief Executive Officer of the Company at the Effective Date because: (i) of the
Employee's disability (as defined in Section 4); (ii) the Executive's death;
(iii) the Executive is terminated by the Company "without cause;" or (iv) the
Executive's employment is terminated due to the Acquired Companies' Decision,
the Executive (or his estate, heirs, or administrators) will convey to the
Company that number of shares that would leave him a number of shares equal to
0.50% of the Company's outstanding Common Stock on the Effective Date; provided,
however, in the event the Executive is terminated due to the Acquired Companies'
Decision, the Executive shall be left with a portion of the Shares that are
worth at least $500,000 on the date of the IPO, based on the price such Shares
are sold by the Company to the underwriter(s). In the event that the Executive
is not the Chief Executive Officer of the Company at the Effective Date because:
(i) the Executive resigned from his employment hereunder; or (ii) the
Executive's employment was terminated "for cause," the Executive will convey to
the Company all of the Shares in consideration of $300.
Prior to the Effective Date, the Executive shall not transfer, pledge or
otherwise dispose of any Shares without (i) the prior written consent of the
Company, (ii) compliance with applicable securities laws and the exemption
pursuant to which the Executive acquired such Shares, and (iii) compliance with
any existing Stockholders Agreement. In the event that the Executive desires to
transfer, pledge or otherwise dispose of any Shares, the Executive shall
immediately notify the Company in writing. Then, the Company shall have the
right, but not the obligation for a period of 30 days following receipt of such
notice, to purchase the Shares which the Company desires to transfer at a
redemption price of $3.00 per share. The Company shall have the right to assign
to any party or parties its right to purchase Shares from the Executive. The
Executive may not transfer any of the Shares under any circumstances except in
compliance with this Section 7.
For purposes hereof, the percent of the Company's outstanding Common Stock
referred to herein will be computed as if the currently outstanding warrants
giving the holders thereof the right to acquire an aggregate of 50,000 shares of
the Company's Common Stock had been exercised.
8. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, the Acquired Companies and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make accessible to any person (other than with
the prior written consent of the Board) any information or plans of the Company
or any Acquired Business. However, confidential information or plans shall
exclude
<PAGE>
information or plans which: (a) at the time of disclosure already is in the
public domain or which, after disclosure, is published or otherwise becomes part
of the public domain through no fault of the Executive; (b) the Executive can
show was in his possession at the time of the Company's disclosure to the
Executive and was not acquired, directly or indirectly, from the Company or from
a third party under an obligation of confidence; or (c) the Executive can show
was received by the Executive after the time of the Company's disclosure from a
third party who did not require the Executive to hold it in confidence.
9. NONCOMPETITION. For two years after termination of the Executive's
employment hereunder, the Executive will not (i) engage directly or indirectly,
alone or as a shareholder, partner, officer, director, employee or consultant of
any other business organization, in any business activities which (a) relate to
the ownership or operation of a business owned or proposed to be owned by
Company (the "Designated Business"), and (b) were either conducted by the
Company prior to the Executive's termination or proposed to be conducted by the
Company at the time of such termination, (ii) divert to any competitor of the
Company in the Designated Business any customer of the Company, or (iii) solicit
or encourage any officer, employee, or consultant of the Company to leave its
employ for employment by or with any competitor of the Company in the Designated
Business.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in the Designated Business. The Executive will continue to be bound
by the provisions of this Section 9 until their expiration and will not be
entitled to any compensation from the Company with respect thereto. If at any
time the provisions of this Section 9 are determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 9 will be considered divisible and will become
and be immediately amended to only such area, duration and scope of activity as
will be determined to be reasonable and enforceable by the court or other body
having jurisdiction over the matter; and the Executive agrees that this Section
9 as so amended will be valid and binding as though any invalid or unenforceable
provision had not been included herein.
10. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive
for all reasonable out-of-pocket costs and expenses incurred by him in
connection with his employment hereunder (the "Reimbursable Expenses"). Such
Reimbursable Expenses shall include the Executive's out-of-pocket costs and
expenses for travel, hotel rooms, long-distance telephone calls, delivery
charges, parking fees and copying charges. On or about the last day of each
month, the Executive will submit an invoice to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the invoice.
<PAGE>
11. ARBITRATION. Any dispute between the Company and the Executive arising
out of or related to this Agreement or breach thereof shall be settled by
binding arbitration in accordance with the rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators who
shall sit in Houston, Texas. Any award made by such arbitrators shall be binding
and conclusive for all purpose thereof, may include injunctive relief, as well
as orders for specific performance and may be entered as a final judgment in any
court of competent jurisdiction. No arbitration arising out of or relating to
this Agreement shall include, by consolidation or joinder or in any other
manner, parties other than the Company or the Executive and other persons
substantially involved in common question of fact or law whose presence is
required if complete relief is to be afforded in arbitration. The cost and
expenses of such arbitration shall be borne in accordance with the determination
of the arbitrators and may include reasonable attorneys' fees. Each party hereby
further agrees that service of process may be made upon it by registered or
certified mail or personal service at the address provided for herein.
12. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, computer programs, notes, drawings, models and other materials (whether
or not secret or confidential) that he receives, prepares or otherwise acquires
during his employment with the Company, and which pertain to the business or
affairs of the Company or any Acquired Company, are the property of the Company.
The Executive will deliver to the Company all original and all copies of such
materials in his possession or under his control whenever the Company requests.
In the event of his termination of employment with the Company for whatever
reason, the Executive shall produce to the Company for its inspection all such
materials then in his possession or under his control.
13. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 8, 9 or 12, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof.
14. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
15. MISCELLANEOUS.
15.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
supersedes all letters, memoranda and term sheets previously prepared in
connection with the negotiations surrounding the execution of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third party
any rights, remedies, obligations or liabilities under or by
<PAGE>
reason of this Agreement, except as expressly provided in this Agreement.
15.2. NOTICES. Any notices permitted or required to be given under the
terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
The Executive: Larry E. Darst
6022 Village Glen Drive #4228
Dallas, Texas 75206
Telephone No.: (214) 265-6934
Facsimile No.: (214) 363-0296
The Company: Nationwide Staffing, Inc.
1100 Louisiana, Suite 3535
Houston, Texas 77002
Attention: Board of Directors
Telephone No.: (713) 651-2833
Facsimile No.: (713) 651-2817
The address of any party may be changed by notice given in the manner provided
in this Section 15.2.
15.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
15.4 WITHHOLDING. All payments required to be made by the Company under
this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
15.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout the
term of the Executive's employment hereunder, the Executive shall use his best
efforts to preserve the business and organization of the Company, to keep
available to the Company the services of its employees and to preserve the
business relations of the Company with suppliers, customers and others. The
Executive shall not commit any act which would injure the Company. In addition,
the Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.
15.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted
<PAGE>
by law, and such declaration shall not affect the validity of any other
provision of this Agreement.
15.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges that
he has been advised to retain separate legal counsel to represent his interests
under this Agreement and he has done so. Neither Carl L. Norton nor any attorney
affiliated with Norton, Jacobs, Kuhn & McTopy, L.L.P. represented the Executive
in connection herewith.
15.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
15.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one instrument.
Executed to be effective as of the 1st day of April, 1997.
THE EXECUTIVE:
______________________________
Larry E. Darst
THE COMPANY:
NATIONWIDE STAFFING, INC.
______________________________
By: Warren L. Williams, President
<PAGE>
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is between Nationwide
Staffing, Inc., a Delaware corporation (the "Company"), and Larry E. Darst (the
"Executive"), who agree as follows:
1. The Company and the Executive are parties to that certain Employment
Agreement dated as of April 1, 1997 (the "Employment Agreement").
2. The Company and the Executive desire to amend the Employment Agreement
as follows:
(a) The first two paragraphs of Section 7 are amended to read in
their entirety as follows:
"7. STOCK OF EXECUTIVE.
As of April 11, 1997, the Company issued to Executive 100 shares of
Company Common Stock for $3.00 per share. As expressly contemplated in the
Employment Agreement, and for the same $3.00, the Company is issuing to
Executive an additional 60 shares, for a total of 160 shares. Such 160
shares are herein referred to as the "Shares."
The Shares shall not be subject to any repurchase or reduction
obligation of the Executive or right of the Company.
(b) The first sentence of the third paragraph of Section 7 shall
continue in effect. The balance of the third paragraph of Section 7 is
eliminated and of no further force or effect.
(c) The fourth paragraph of Section 7 is eliminated and of no
further force or effect.
<PAGE>
3. In all other respects, the terms of the Employment Agreement, as
amended above, remain in full force and effect, and are confirmed by the Company
and the Executive.
Agreed as of the 8th day of September, 1997.
"Company"
NATIONWIDE STAFFING, INC.
By: ____________________
Name: _________________
Title: ________________
"Executive"
By: ____________________
Larry E. Darst
-2-
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Dean G.
Walberg (the "Executive") and Nationwide Staffing, Inc., a Delaware corporation
(the "Company"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the Senior Vice President/Staff
Leasing of the Company. The Executive will perform the duties attendant to his
executive position with the Company under the direction of the Company's Chief
Executive Officer. The Executive agrees to (a) devote his full time and best
efforts to the performance of his duties to the Company, (b) devote his best
efforts to promote the success of the Company's business, and (c) cooperate
fully with the Chief Executive Officer and the Board of Directors of the Company
("Board") in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive
hereunder, unless terminated sooner pursuant to the terms hereof, commencing on
the (i) date hereof and continuing until the date of the earlier of the
consummation or abandonment of the Company's underwritten initial public
offering of the Company's Common Stock (the "IPO"), the Executive will be
compensated by the Company at the rate of $7,500 per month; and (ii) date of the
consummation of the IPO and continuing for the remaining term hereof, the
Company will pay the Executive an annual salary of $150,000 (the "Salary"),
which will be payable in equal periodic installments according to the Company's
customary payroll practices but no less frequently than monthly. In addition,
the Executive shall be eligible to receive an annual cash bonus in an amount up
to 100% of the Salary in the event that the Company achieves certain annual
financial performance targets. The specific performance objectives of the bonus
plan shall be established each year by resolution of the Board.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive the following:
(i) group hospitalization, major medical, long-term disability,
vacation, life insurance coverages and pension, profit sharing, bonus and
other employee benefit plans on
<PAGE>
substantially the same terms and conditions as these benefits are made
available to the Company's other executive officers.
(ii) an option to purchase 50,000 shares of the Company's Common
Stock at a price per share equal to the price per share that the Company's
Common Stock is sold in the IPO and on other terms to be agreed upon
between the Executive and the Board (or the appropriate committee
thereof), which terms shall be consistent with the terms of any stock
option plans adopted by the Company and the terms of Section 6 hereof.
(iii) an option to purchase 50,000 shares of the Company's Common
Stock at a price per share equal to the price per share that the Company's
Common Stock is sold in the IPO less $3 per share and on other terms to be
agreed upon between the Executive and the Board (or the appropriate
committee thereof), which terms shall be consistent with the terms of any
stock option plans adopted by the Company and terms of Section 6 hereof.
With respect to the options described in Section 4(ii), the Executive may
exercise the options after the date on which the Securities and Exchange
Commission ("SEC") declares effective the Company's registration statement on
Form S-8 (the "S-8"), as follows: (a) beginning the first anniversary of the
date of this Agreement, the Executive shall have the right to acquire 16,666
shares of the Company Common Stock subject to the options; (b) beginning the
second anniversary of the date of this Agreement, the Executive shall have the
right to acquire 16,667 shares of the Company Common Stock subject to the
options; and (c) beginning the third anniversary of the date of this Agreement,
the Executive shall have the right to acquire the remaining 16,667 shares of the
Company Common Stock subject to the options.
With respect to the options described in Section 4(iii) hereof, the
Executive may exercise the options at any time after (i) consummation of the IPO
and (ii) the date on which the SEC declares effective the Company's S-8.
If not exercised sooner, the options described in Section 4(ii) and the
options described in Section 4(iii) shall all expire on the fifth anniversary of
the date of this Agreement or earlier in accordance with Section 6.
4. TERM AND TERMINATION. The term of the Executive's employment pursuant
to this Agreement shall commence on the date hereof and shall continue until the
third anniversary of the consummation of the IPO (the "Initial Term") and shall
continue after the Initial Term on a year-to-year basis on the same terms and
conditions contained herein unless either party gives to the other written
notice of termination no fewer than 30 days prior to the expiration of any such
term that the party does not wish to extend this Agreement. However, the term of
Executive's employment pursuant to this Agreement shall also terminate earlier
in any one of the following ways:
-2-
<PAGE>
(i) upon the death of the Executive;
(ii) upon the disability of the Executive immediately upon notice
from either party to the other;
(iii) upon 30 days prior notice of resignation by the Executive to
the Company;
(iv) upon 30 days prior notice by the Company to the Executive of
termination "without cause";
(v) upon notice by the Company to the Executive of termination "for
cause";
(vi) at the Executive's option, upon notice by the Executive to the
Company within 60 days following a Constructive Termination; or
(vii) immediately in the event (a) the IPO is not consummated on or
before March 15, 1998 (the "Failure of the IPO") or (b) the IPO is
abandoned by the Board.
DEFINITION OF DISABILITY. For purposes of Section 4(ii), the Executive
will be deemed to have a "disability" if, for physical or mental reasons, the
Executive is unable to perform the Executive's duties under this Agreement for
120 consecutive days, or 180 days during any twelve month period, as determined
herein. The disability of the Executive will be determined by a medical doctor
selected by written agreement of the Company and the Executive upon the request
of either party by notice to the other. If the Company and the Executive cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Executive has a disability. The determination of the
medical doctor selected under this Section 4 will be binding on both parties.
The Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section 4, and the
Executive hereby authorizes the disclosure and release to the Company of such
determination and all supporting medical records. If the Executive is not
legally competent or is otherwise unable to act, the Executive's legal guardian
or duly authorized attorney-in-fact will act in the Executive's stead under this
Section 4, for the purposes of selecting a medical doctor, submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 4.
DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(v), the
Executive's termination "for cause" shall be defined to mean: (a) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a reasonably satisfactory
manner (other than any such failure resulting from incapacity or disability due
to physical or mental reasons); (b) without specific disclosure by the Executive
to the Board and
-3-
<PAGE>
the Board's prior written approval, the appropriation (or attempted
appropriation) of a material business opportunity of the Company, including
attempting to secure or securing a personal benefit in connection with any
transaction entered into on behalf of the Company; or (c) the Executive's fraud
or dishonesty with respect to the business or affairs of the Company or if the
Executive is convicted of, indicted for (or its procedural equivalent) or pleads
nolo contendere or guilty to, any felony criminal offense or any civil offense
involving fraud or moral turpitude, the equivalent thereof, or any crime with
respect to which imprisonment is a possible punishment.
DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section 4(vi), the
term "Constructive Termination" shall be defined to mean (i) a material
reduction in the Executive's duties and responsibilities without the Executive's
consent; or (ii) a reduction in or the failure by the Company to pay when due
any portion of the Salary.
COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs. The payment of a bonus, if any, will be determined by
reference to the terms of the applicable bonus plan.
COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's employment is
terminated by either party as a result of the Executive's disability, the
Company will pay the Executive the portion of the Salary that is due at the end
of the calendar month during which such termination is effective and for the
lesser of (a) six consecutive months thereafter, or (b) the period until
disability insurance benefits, if any, commence under the disability insurance
coverage, if any, furnished by the Company to the Executive. The payment of a
bonus, if any, will be determined by reference to the terms of the applicable
bonus plan.
COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If the
Company terminates the Executive's employment "for cause" or if the Executive
resigns his employment with the Company, the Executive will be entitled to
receive the portion of the Salary that is due through the date such termination
is effective. No bonus will be payable, notwithstanding any terms of any bonus
plan to the contrary.
COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE TERMINATION.
In the event the Executive's employment with the Company is terminated by the
Company "without cause" or by the Executive within 60 days following a
Constructive Termination, the Company will pay the Executive, as the Executive's
sole remedy in connection with such termination, a severance payment in an
amount equal to $300,000 (the "Severance Payment"). The Severance Payment shall
be payable to the Executive in equal monthly payments over a period of 24 months
following the date of termination. The Company will also pay the Executive the
portion of the Salary that is accrued but unpaid from the last payment date to
the date of termination.
-4-
<PAGE>
COMPENSATION IF FAILURE OR ABANDONMENT OF THE IPO. If this Agreement is
terminated due to the Failure of the IPO due to the Board's abandonment of the
IPO, thereafter the Executive will not be entitled to receive from the Company
any more Salary, any bonus or any of the other benefits hereunder.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON OPTIONS. Any options to purchase the Company's
Common Stock held by the Executive will automatically and immediately expire if
the Executive's employment with the Company is terminated "for cause" or if the
Executive voluntarily leaves the employment of the Company. If the Executive's
employment with the Company ends for any reason other than termination for
cause, voluntary departure or death, then any options will remain exercisable
and will vest and expire in accordance with the terms of the applicable option
agreements. If the Executive dies while employed by the Company, then any
options shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, the Acquired Companies and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make accessible to any person (other than with
the prior written consent of the Board) any information or plans of the Company
or any subsidiary. However, confidential information or plans shall exclude
information or plans which: (a) at the time of disclosure already is in the
public domain or which, after disclosure, is published or otherwise becomes part
of the public domain through no fault of the Executive; (b) the Executive can
show was in his possession at the time of the Company's disclosure to the
Executive and was not acquired, directly or indirectly, from the Company or from
a third party under an obligation of confidence; or (c) the Executive can show
was received by the Executive after the time of the Company's disclosure from a
third party who did not require the Executive to hold it in confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, sales representative, employee or consultant in, of or to any
temporary employment, "PEO" or staff leasing, permanent placement or human
resource outsourcing or consulting services or other
-5-
<PAGE>
business activities which are competitive with any business owned or operated or
being actively considered to be owned or operated by Company or any subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"); (ii) divert to any competitor of the Company or any
subsidiary in a Designated Business any customer of the Company or any
subsidiary; (iii) solicit or encourage any officer, employee, or consultant of
the Company or any subsidiary to leave its employ for employment by or with any
competitor of the Company or any subsidiary in a Designated Business; or (iv)
call upon any prospective acquisition candidate, on the Executive's own behalf
or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company or any subsidiary or with respect
to which the Company or any subsidiary made an acquisition analysis, for the
purposes of acquiring such entity.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in the Designated Business. The Executive will continue to be bound
by the provisions of this Section 8 until their expiration and will not be
entitled to any compensation from the Company with respect thereto. If at any
time the provisions of this Section 8 are determined to be invalid or
unenforceable, by reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 8 will be considered divisible and will become
and be immediately amended to only such area, duration and scope of activity as
will be determined to be reasonable and enforceable by the court or other body
having jurisdiction over the matter; and the Executive agrees that this Section
8 as so amended will be valid and binding as though any invalid or unenforceable
provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, long-distance telephone calls, delivery charges, parking
fees and copying charges. On or about the last day of each month, the Executive
will submit a report to the Company describing in reasonable detail the
Reimbursable Expenses to be reimbursed. All such invoices shall include adequate
supporting documentation, including receipts where appropriate. All such
invoices will be reimbursed by the Company within 30 days of the Company's
receipt of the report.
10. ARBITRATION. Any dispute between the Company and the Executive arising
out of or related to this Agreement or breach thereof shall be settled by
binding arbitration in accordance with the rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators who
shall sit in Houston, Texas. Any award made by such arbitrators shall be binding
and conclusive for all purposes, may include injunctive relief, as well as
orders for specific performance, and may be entered as a final judgment in any
court of competent jurisdiction. No
-6-
<PAGE>
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the Company,
or the Executive and other persons substantially involved in common question of
fact or law whose presence is required if complete relief is to be afforded in
arbitration. The cost and expenses of such arbitration shall be borne in
accordance with the determination of the arbitrators and may include reasonable
attorneys' fees. Each party hereby further agrees that service of process may be
made upon it by registered or certified mail or personal service at the address
provided for herein.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company or any subsidiary, are the property of the
Company or the subsidiary. The Executive will promptly deliver to the Company
all originals and all copies of such materials in his possession or under his
control without request by the Company upon termination of the Executive's
employment. In the event of his termination of employment with the Company for
whatever reason, the Executive shall produce to the Company for its inspection
all such materials then in his possession or under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof. This
Agreement supersedes all letters, memoranda and term sheets previously prepared
in connection with the negotiations surrounding the execution of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third party
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
-7-
<PAGE>
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
The Executive: Mr. Dean G. Walberg
12218 Glenview Drive
Montgomery, Texas 77356
Telephone No.: (409) 448-1006
Facsimile No.: (409) 582-6881
The Company: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
Telephone No.: (713) 223-7750
Facsimile No.: (713) 223-7747
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCE
MENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS
PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company, to keep
available to the Company the services of its employees and to preserve the
business relations of the Company with suppliers, customers and others. The
Executive shall not commit any act which would injure the Company. In addition,
the Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.
-8-
<PAGE>
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed as of 8th day of August, 1997.
THE EXECUTIVE:
_________________________
Dean G. Walberg
THE COMPANY:
NATIONWIDE STAFFING, INC.
By:____________________
Name: Larry E. Darst
Title: President
-9-
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Gary J.
Petry (the "Executive") and Nationwide Staffing, Inc., a Delaware corporation
(the "Company"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as Senior Vice President--Chief
Financial Officer of the Company. The Executive will perform the duties
attendant to his executive position with the Company under the Company's Chief
Executive Officer. The Executive agrees to (a) devote his full time and best
efforts to the performance of his duties to the Company, (b) devote his best
efforts to promote the success of the Company's business, and (c) cooperate
fully with the Chief Executive Officer and the Board of Directors of the Company
("Board") in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive
hereunder, unless terminated sooner pursuant to the terms hereof, commencing on
the (i) date hereof and continuing until the date of the earlier of the
consummation or abandonment of the Company's underwritten initial public
offering of the Company's Common Stock (the "IPO"), the Executive will be
compensated by the Company at the rate of $6,000 per month, payable at the time
of the consummation of the IPO (collectively, the "Deferred Amounts"); and (ii)
date of the consummation of the IPO and continuing for the remaining term
hereof, the Company will pay the Executive an annual salary of $150,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's customary payroll practices but no less frequently than monthly. In
addition, the Executive shall be eligible to receive an annual cash bonus in an
amount up to 100% of the Salary in the event that the Company achieves certain
annual financial performance targets. The specific performance objectives of the
bonus plan shall be established each year by resolution of the Board.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive the following:
<PAGE>
(i) group hospitalization, major medical, long-term disability,
vacation, life insurance coverages and pension, profit sharing, bonus and
other employee benefit plans on substantially the same terms and
conditions as these benefits are made available to the Company's other
executive officers; and
(ii) options to purchase 50,000 (being a post-split number after the
stock split for the IPO) shares of the Company's Common Stock at a price
per share equal to the price per share the Company's Common Stock is sold
in the IPO and on other terms to be agreed upon between the Executive and
the Board (or the appropriate committee thereof), which terms shall be
consistent with the terms of any stock option plans adopted by the Company
and the terms of Section 6 hereof. These options shall not become
exercisable until the Company's Registration Statement on Form S-8 with
the Securities and Exchange Commission ("SEC") of the shares reserved for
options has been declared effective.
4. TERM AND TERMINATION. The term of the Executive's employment pursuant
to this Agreement shall commence on the date hereof and shall continue until the
third anniversary of the consummation of the IPO (the "Initial Term") and shall
continue after the Initial Term on a year-to-year basis on the same terms and
conditions contained herein unless either party gives to the other written
notice of termination no fewer than 30 days prior to the expiration of any such
term that the party does not wish to extend this Agreement. However, the term of
the Executive's employment pursuant to this Agreement shall also terminate
earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive immediately upon notice
from either party to the other;
(iii) upon 30 days prior notice of resignation by the Executive to
the Company;
(iv) upon 30 days prior notice by the Company to the Executive of
termination "without cause";
(v) upon notice by the Company to the Executive of termination "for
cause";
(vi) at the Executive's option, upon notice by the Executive to the
Company within 60 days following a Constructive Termination; or
(vii) immediately in the event (a) the IPO is not consummated on or
before March 15, 1998 (the "Failure of the IPO") the IPO is abandoned by
the Board.
-2-
<PAGE>
DEFINITION OF DISABILITY. For purposes of Section 4(ii), the Executive
will be deemed to have a "disability" if, for physical or mental reasons, the
Executive is unable to perform the Executive's duties under this Agreement for
120 consecutive days, or 180 days during any twelve month period, as determined
herein. The disability of the Executive will be determined by a medical doctor
selected by written agreement of the Company and the Executive upon the request
of either party by notice to the other. If the Company and the Executive cannot
agree on the selection of a medical doctor, each of them will select a medical
doctor and the two medical doctors will select a third medical doctor who will
determine whether the Executive has a disability. The determination of the
medical doctor selected under this Section 4 will be binding on both parties.
The Executive must submit to a reasonable number of examinations by the medical
doctor making the determination of disability under this Section 4, and the
Executive hereby authorizes the disclosure and release to the Company of such
determination and all supporting medical records. If the Executive is not
legally competent or is otherwise unable to act, the Executive's legal guardian
or duly authorized attorney-in-fact will act in the Executive's stead under this
Section 4, for the purposes of selecting a medical doctor, submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 4.
DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(v), the
Executive's termination "for cause" shall be defined to mean: (a) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a reasonably satisfactory
manner (other than any such failure resulting from incapacity or disability due
to physical or mental reasons); (b) the appropriation (or attempted
appropriation) of a material business opportunity of the Company, including
attempting to secure or securing a personal benefit in connection with any
transaction entered into on behalf of the Company; or (c) the Executive's fraud
or dishonesty with respect to the business or affairs of the Company or if the
Executive is convicted of, indicted for (or its procedural equivalent) or pleads
nolo contendere or guilty to, any felony criminal offense or any civil offense
involving fraud or moral turpitude, the equivalent thereof, or any crime with
respect to which imprisonment is a possible punishment.
DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section 4(vi), the
term "Constructive Termination" shall be defined to mean (i) a material
reduction in the Executive's duties and responsibilities without the Executive's
consent; or (ii) a reduction in or the failure by the Company to pay when due
any portion of the Salary.
COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs plus any Deferred Amounts. The payment of a bonus, if
any, will be determined by reference to the terms of the applicable bonus plan.
-3-
<PAGE>
COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's employment is
terminated by either party as a result of the Executive's disability, the
Company will pay the Executive the portion of the Salary that is due at the end
of the calendar month during which such termination is effective plus any
Deferred Amounts, and for the lesser of (a) six consecutive months thereafter,
or (b) the period until disability insurance benefits, if any, commence under
the disability insurance coverage, if any, furnished by the Company to the
Executive. The payment of a bonus, if any, will be determined by reference to
the terms of the applicable bonus plan.
COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If the
Company terminates the Executive's employment "for cause" or if the Executive
resigns his employment with the Company, the Executive will be entitled to
receive the portion of the Salary that is due through the date such termination
is effective plus any Deferred Amounts. No bonus will be payable,
notwithstanding any terms of any bonus plan to the contrary.
COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE TERMINATION.
In the event the Executive's employment with the Company is terminated by the
Company "without cause" or by the Executive within 60 days following a
Constructive Termination, the Company will pay the Executive, as the Executive's
sole remedy in connection with such termination, a severance payment in an
amount equal to $300,000 (the "Severance Payment"). The Severance Payment shall
be payable to the Executive in equal monthly payments over a period of 24 months
following the date of termination. The Company will also pay the Executive the
portion of the Salary that is accrued but unpaid from the last payment date to
the date of termination.
COMPENSATION IF FAILURE OR ABANDONMENT OF THE IPO. If this Agreement is
terminated due to the Failure of the IPO or the Board's abandonment of the IPO,
thereafter the Executive will not be entitled to receive from the Company any
more Salary, any bonus or any of the other benefits hereunder.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON OPTIONS. Any options to purchase the Company's
Common Stock held by the Executive will automatically and immediately expire if
the Executive's employment with the Company is terminated "for cause" or if the
Executive voluntarily leaves the employment of the Company. If the Executive's
employment with the Company ends for any reason other than termination for
cause, voluntary departure or death, then any options will remain
-4-
<PAGE>
exercisable and will vest and expire in accordance with the terms of the
applicable option agreements. If the Executive dies while employed by the
Company, then any options shall become fully exercisable on the date of his
death and shall expire twelve months thereafter.
7. EFFECT OF TERMINATION ON PURCHASED COMMON STOCK. The Executive has
purchased 40 (being a pre-split number prior to the stock split for the IPO)
shares of the Company's Common Stock (the "Shares") for $6.00 per share. It is
the intention of the Company and the Executive that, on the date the SEC
declares effective the Company's registration statement in connection with the
IPO (the "Effective Date"), these shares will be equal to at least 0.50% of the
Company's outstanding shares of Common Stock (after taking into account the
shares to be issued to the public in the IPO, to the shareholders of the
Acquired Companies, and assuming the issuance of shares to the holders of
outstanding warrants to acquire 50,000 shares).
Prior to the Effective Date, the Executive shall not transfer, pledge or
otherwise dispose of any Shares without (i) the prior written consent of the
Company; and (ii) compliance with applicable securities laws and the exemption
pursuant to which the Executive acquired such Shares.
8. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, the Acquired Companies and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make accessible to any person (other than with
the prior written consent of the Board) any information or plans of the Company
or any subsidiary. However, confidential information or plans shall exclude
information or plans which: (a) at the time of disclosure already is in the
public domain or which, after disclosure, is published or otherwise becomes part
of the public domain through no fault of the Executive; (b) the Executive can
show was in his possession at the time of the Company's disclosure to the
Executive and was not acquired, directly or indirectly, from the Company or from
a third party under an obligation of confidence; or (c) the Executive can show
was received by the Executive after the time of the Company's disclosure from a
third party who did not require the Executive to hold it in confidence.
9. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, partner, officer,
director, sales representative, employee or consultant of any business
organization that is engaged in providing temporary employment, "PEO" or staff
leasing, permanent placement services or human resource outsourcing or
consulting services or other business activities which are competitive with any
business owned or operated or being actively considered to be owned or operated
by Company or any subsidiary prior to the Executive's termination or at the time
of such termination (a "Designated Business"); (ii) divert to any competitor of
the Company or any subsidiary in a
-5-
<PAGE>
Designated Business any customer of the Company or a subsidiary; (iii) solicit
or encourage any officer, employee, or consultant of the Company or any
subsidiary to leave its employ for employment by or with any competitor of the
Company or any subsidiary in a Designated Business; or (iv) call upon any
prospective acquisition candidate, on the Executive's own behalf or on behalf of
any competitor, which candidate was, to the Executive's knowledge, either called
upon by the Company or any subsidiary or with respect to which the Company or
any subsidiary made an acquisition analysis for the purposes of acquiring such
entity.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will continue to be bound by
the provisions of this Section 9 until their expiration and will not be entitled
to any compensation from the Company with respect thereto. If at any time the
provisions of this Section 9 are determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or scope of activity,
this Section 9 will be considered divisible and will become and be immediately
amended to only such area, duration and scope of activity as will be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Executive agrees that this Section 9 as so amended will
be valid and binding as though any invalid or unenforceable provision had not
been included herein.
10. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive
for all reasonable out-of-pocket costs and expenses incurred by him in
connection with his employment hereunder (the "Reimbursable Expenses"). Such
Reimbursable Expenses shall include the Executive's out-of-pocket costs and
expenses for travel, hotel rooms, long-distance telephone calls, delivery
charges, parking fees and copying charges. On or about the last day of each
month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
11. ARBITRATION. Any dispute between the Company and the Executive arising
out of or related to this Agreement or breach thereof shall be settled by
binding arbitration in accordance with the rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators who
shall sit in Houston, Texas. Any award made by such arbitrators shall be binding
and conclusive for all purposes, may include injunctive relief, as well as
orders for specific performance, and may be entered as a final judgment in any
court of competent jurisdiction. No arbitration arising out of or relating to
this Agreement shall include, by consolidation or joinder or in any other
manner, parties other than the Company, or the Executive and other persons
substantially involved in common question of fact or law whose presence is
required if complete relief is to be afforded in arbitration. The cost and
expenses of such arbitration shall be borne in
-6-
<PAGE>
accordance with the determination of the arbitrators and may include reasonable
attorneys' fees. Each party hereby further agrees that service of process may be
made upon it by registered or certified mail or personal service at the address
provided for herein.
12. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company or any subsidiary, are the property of the
Company or the subsidiary. The Executive will promptly deliver to the Company
all originals and all copies of such materials in his possession or under his
control without request by the Company upon termination of the Executive's
employment. In the event of his termination of employment with the Company for
whatever reason, the Executive shall produce to the Company for its inspection
all such materials then in his possession or under his control.
13. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 8, 9 or 12, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
14. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
15. MISCELLANEOUS.
15.1 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof. This
Agreement supersedes all letters, memoranda and term sheets previously prepared
in connection with the negotiations surrounding the execution of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third party
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
15.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent
-7-
<PAGE>
via fax (with receipt confirmed) or overnight courier. Any notice given in any
other manner shall be effective only if and when received.
The Executive: Mr. Gary J. Petry
3410 Pebble Bay Drive
Katy, Texas 77450
Telephone No.: (281) 395-9393
The Company: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
Telephone No.: (713) 223-7750
Facsimile No.: (713) 223-7747
The address of any party may be changed by notice given in the manner provided
in this Section 15.2.
15.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
15.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
15.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company, to keep
available to the Company the services of its employees and to preserve the
business relations of the Company with suppliers, customers and others. The
Executive shall not commit any act which would injure the Company. In addition,
the Executive shall observe and fulfill proper standards of fiduciary
responsibility attendant upon his service and office.
15.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
-8-
<PAGE>
15.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
15.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
15.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed as of 5th day of September, 1997.
THE EXECUTIVE:
_________________________
Gary J. Petry
THE COMPANY:
NATIONWIDE STAFFING, INC.
By:______________________
Name: Larry E. Darst
Title: President
-9-
<PAGE>
JOINDER AND GUARANTY
WJG Capital, L.L.C. is executing this Agreement for the sole purpose of
guaranteeing to Executive that all of the Deferred Amounts that are not paid by
the Company will be paid by WJG Capital, L.L.C., whether or not the IPO is
consummated.
WJG CAPITAL, L.L.C.
By:___________________________
Warren L. Williams,
President and Manager
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(ASAP)
This Employment Agreement (the "Agreement") is by and between Brenda
Dougan (the "Executive") and A.S.A.P. Services, Inc., an Arkansas corporation
(the "Company") and a wholly-owned subsidiary of Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to her executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote her full business time and best efforts to
the performance of her duties to the Company, (ii) devote her best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill her duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $70,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform her duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
her failure to perform her obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, she is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which her death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns her employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of her termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of her death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that she will have access
to confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that she will not, during or subsequent to her
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by her in connection
with her employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that she receives, prepares or otherwise
acquires during her employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in her possession or under her
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of her termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in her possession or
under her control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Brenda Dougan
P. O. Box 1683
Springdale, Arkansas 72765-1683
Attention: Corporate Secretary
Telephone No.: (501) 750-2727
Facsimile No.: (501) 750-2748
The Company: A.S.A.P. Services, Inc.
P. O. Box 1683
Springdale, Arkansas 72765-1683
Attention: Corporate Secretary
Telephone No.: (501) 750-2727
Facsimile No.: (501) 750-2748
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARKANSAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use her
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon her service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that she has been advised to retain separate legal counsel to represent her
interests under this Agreement and she has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:__________________________
BRENDA DOUGAN
(Name Printed)
THE COMPANY:
A.S.A.P. Services, Inc.
By:__________________________
__________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:___________________________
___________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(ALTERNATIVE SOLUTIONS)
This Employment Agreement (the "Agreement") is by and between Steve Alter
(the "Executive") and Alternative Solutions, Inc., a Massachusetts corporation
(the "Company") and a wholly-owned subsidiary of Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the Chairman of the Board of the
Company. The Executive will perform the duties attendant to his executive
position with the Company under the direction of the Company's Board of
Directors (the "Board"). The Executive agrees to (i) devote his full business
time and best efforts to the performance of his duties to the Company, (ii)
devote his best efforts to promote the success of the Company's business, and
(iii) cooperate fully with the Board in the advancement of the best interests of
the Company. The Executive shall faithfully adhere to, execute and fulfill all
policies established by the Company from time to time. If the Executive is
elected as a director of the Company or as a director or officer of any of its
affiliates, the Executive will fulfill his duties as such director or officer
without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $75,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform his duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, he is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns his employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in his possession or under his
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of his termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in his possession or
under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Steve Alter
396 Commonwealth Avenue
P. O. Box 740
Boston, Massachusetts 02117
Attention: President
Telephone No.: (617) 262-4900
Facsimile No.: (617) 262-4765
The Company: Alternative Solutions, Inc.
396 Commonwealth Avenue
P. O. Box 740
Boston, Massachusetts 02117
Attention: President
Telephone No.: (617) 262-4900
Facsimile No.: (617) 262-4765
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MASSACHUSETTS
WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:______________________________________
STEVE ALTER
(Name Printed)
THE COMPANY:
Alternative Solutions, Inc.
By:________________________________________
________________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:________________________________________
________________________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(CARDINAL)
This Employment Agreement (the "Agreement") is by and between Quincy
Tarver Freeman (the "Executive") and Cardinal Services, Inc., an Oregon
corporation (the "Company") and a wholly-owned subsidiary of Nationwide
Staffing, Inc., a Delaware corporation ("Nationwide"), which parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to his executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote his full business time and best efforts to
the performance of his duties to the Company, (ii) devote his best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $60,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform his duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, he is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns his employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in his possession or under his
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of his termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in his possession or
under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Quincy Tarver Freeman
110 Ackerman
Coos Bay, Oregon
Attention: Corporate Secretary
Telephone No.: (541) 888-9799
Facsimile No.: (541) 888-5715
The Company: Cardinal Services, Inc.
110 Ackerman
Coos Bay, Oregon
Attention: Corporate Secretary
Telephone No.: (541) 888-9799
Facsimile No.: (541) 888-5715
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF OREGON WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:_______________________________
QUINCY TARVER FREEMAN
(Name Printed)
THE COMPANY:
Cardinal Services, Inc.
By:_______________________________
_______________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:_______________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(EMPLOYMENT ENTERPRISES)
This Employment Agreement (the "Agreement") is by and between Lovey Hammel
(the "Executive") and Employment Enterprises, Inc., a Virginia corporation (the
"Company") and a wholly-owned subsidiary of Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to her executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote her full business time and best efforts to
the performance of her duties to the Company, (ii) devote her best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill her duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $70,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform her duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
her failure to perform her obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, she is required to relocate out
of the metropolitan area of her present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which her death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns her employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of her termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of her death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that she will have access
to confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that she will not, during or subsequent to her
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by her in connection
with her employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that she receives, prepares or otherwise
acquires during her employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in her possession or under her
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of her termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in her possession or
under her control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Lovey Hammel
10328 Battleview Parkway
Manassas, Virginia
Attention: Chairman of the Board
Telephone No.: (703) 361-2220
Facsimile No.: (703) 368-0795
The Company: Employment Enterprises, Inc.
10328 Battleview Parkway
Manassas, Virginia
Attention: Chairman of the Board
Telephone No.: (703) 361-2220
Facsimile No.: (703) 368-0795
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF VIRGINIA
WITHOUT GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use her
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon her service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that she has been advised to retain separate legal counsel to represent her
interests under this Agreement and she has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:____________________________________
LOVEY HAMMEL
(Name Printed)
THE COMPANY:
Employment Enterprises, Inc.
By:____________________________________
____________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:_______________________________________
_______________________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(Evins)
This Employment Agreement (the "Agreement") is by and between Mary Evins
(the "Executive") and Evins Personnel Consultants, Inc., a Texas corporation
(the "Company") and a wholly-owned subsidiary of Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the Chairman of the Board of the
Company. The Executive will perform the duties attendant to her executive
position with the Company under the direction of the Company's Board of
Directors (the "Board"). The Executive agrees to (i) devote her full business
time and best efforts to the performance of her duties to the Company, (ii)
devote her best efforts to promote the success of the Company's business, and
(iii) cooperate fully with the Board in the advancement of the best interests of
the Company. The Executive shall faithfully adhere to, execute and fulfill all
policies established by the Company from time to time. If the Executive is
elected as a director of the Company or as a director or officer of any of its
affiliates, the Executive will fulfill her duties as such director or officer
without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $120,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform her duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
her failure to perform her obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, she is required to relocate out
of the metropolitan area of her present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which her death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns her employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of her termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of her death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that she will have access
to confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that she will not, during or subsequent to her
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by her in connection
with her employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that she receives, prepares or otherwise
acquires during her employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in her possession or under her
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of her termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in her possession or
under her control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Mary Evins
2013 W. Anderson Lane
Austin, Texas 78757
Attention: Corporate Secretary
Telephone No.: (512) 454-9561
Facsimile No.: (512) 483-9191
The Company: Evins Personnel Consultants, Inc.
2013 W. Anderson Lane
Austin, Texas 78757
Attention: Corporate Secretary
Telephone No.: (512) 454-9561
Facsimile No.: (512) 483-9191
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use her
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon her service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that she has been advised to retain separate legal counsel to represent her
interests under this Agreement and she has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:________________________________________
MARY EVINS
(Name Printed)
THE COMPANY:
Evins Personnel Consultants, Inc.
By:________________________________________
________________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:________________________________________
________________________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(GTS)
This Employment Agreement (the "Agreement") is by and between Paul
Milligan (the "Executive") and Global Technical Services, Inc., a Texas
corporation (the "Company") and a wholly-owned subsidiary of Nationwide
Staffing, Inc., a Delaware corporation ("Nationwide"), which parties agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby accepts employment by the Company, upon the terms and
subject to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to his executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote his full business time and best efforts to
the performance of his duties to the Company, (ii) devote his best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $157,040 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform his duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number of examinations by the medical doctor making the
determination under this Section 4, and the
-2-
<PAGE>
Executive hereby authorizes the confidential disclosure and release to the
Company (and, if required by the Company's insurance carriers, to such carriers)
of such determination and all supporting medical records. If the Executive is
not legally competent or is otherwise unable to act, the Executive's legal
guardian or duly authorized attorney-in-fact will act in the Executive's stead
under this Section 4, for the purposes of selecting a medical doctor, submitting
the Executive to the examinations, and providing the authorization of
disclosure, required under this Section 4. The date on which the medical doctor
notifies the Company and the Executive that the Executive is unable to perform
Executive's duties under this Agreement shall be the starting date from which
such 120- days or 180-days, as the case may be, shall be measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, he is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such termination is effective
and for the lesser of (i) six consecutive months thereafter, or (ii) the period
-3-
<PAGE>
until disability insurance benefits, if any, commence under the disability
insurance coverage, if any, furnished by the Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns his employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, Nationwide and Nationwide's
present and future
-4-
<PAGE>
direct and indirect subsidiaries (collectively the "Nationwide Subsidiaries" and
individually a "Nationwide Subsidiary") and their businesses. The Executive
agrees that he will not, during or subsequent to his employment, divulge,
furnish, or make available to any person (other than with the prior written
consent of the Board) any confidential information or plans of the Company,
Nationwide or any of the Nationwide Subsidiaries. However, confidential
information or plans shall exclude information or plans which: (i) at the time
of disclosure already is in the public domain or which, after disclosure, is
published or otherwise becomes part of the public domain through no fault of the
Executive; or (ii) the Executive can show was not held or acquired, directly or
indirectly, from the Company, Nationwide or any of the Nationwide Subsidiaries,
or from a third party under an obligation of confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will continue to be bound by
the provisions of this Section 8 until their expiration and will not be entitled
to any compensation from the Company with respect thereto. If at any time the
provisions of this
-5-
<PAGE>
Section 8 are determined to be invalid or unenforceable, by reason of being
vague or unreasonable as to area, duration or scope of activity, this Section 8
will be considered divisible and will become and be immediately amended to only
such area, duration and scope of activity as will be determined to be reasonable
and enforceable by the arbitration panel, court or other body having
jurisdiction over the matter; and the Executive agrees that this Section 8 as so
amended will be valid and binding as though any invalid or unenforceable
provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all originals and all copies of such materials
in his possession or under his control without request by the Company,
Nationwide, or any Nationwide Subsidiary upon termination of the Executive's
-6-
<PAGE>
employment. In the event of his termination of employment with the Company for
whatever reason, the Executive shall produce to the Company for its inspection
all such materials then in his possession or under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Paul Milligan
3934 Sandshell Street
P.O. Box 161127
Fort Worth, Texas 76161-1127
Attention: Corporate Secretary
Telephone No.: (817) 498-5308
Facsimile No.: (817) 847-6673
The Company: Global Technical Services, Inc.
3934 Sandshell Street
P.O. Box 161127
Fort Worth, Texas 76161-1127
Attention: Corporate Secretary
Telephone No.: (817) 498-5308
Facsimile No.: (817) 847-6673
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the Executive shall observe and fulfill
proper standards of fiduciary responsibility attendant upon his service and
office.
-8-
<PAGE>
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:______________________________________
PAUL MILLIGAN
(Name Printed)
THE COMPANY:
Global Technical Services, Inc.
By:______________________________________
______________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:______________________________________
______________________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(HP SERVICES)
This Employment Agreement (the "Agreement") is by and between Gary Pitts
(the "Executive") and HP Services, Inc., a Texas corporation (the "Company") and
a wholly-owned subsidiary of Nationwide Staffing, Inc., a Delaware corporation
("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and
the Executive hereby accepts employment by the Company, upon the terms and
subject to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to his executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote his full business time and best efforts to
the performance of his duties to the Company, (ii) devote his best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $90,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination
"for cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform his duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, he is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns his employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in his possession or under his
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of his termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in his possession or
under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Gary Pitts
1900 Bypass 35 North
P. O. Box 1412
Alvin, Texas 77512
Attention: Corporate Secretary
Telephone No.: (281) 331-0669
Facsimile No.: (281) 331-7549
The Company: HP Services, Inc.
1900 Bypass 35 North
P. O. Box 1412
Alvin, Texas 77512
Attention: Corporate Secretary
Telephone No.: (281) 331-0669
Facsimile No.: (281) 331-7549
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By: __________________________________
GARY PITTS
(Name Printed)
THE COMPANY:
HP Services, Inc.
By: __________________________________
__________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By: __________________________________
__________________________________
(Name Printed), (Title)
-10-
FOUNDING COMPANY EXECUTIVE
EMPLOYMENT AGREEMENT
(TECHNOLOGY PLUS)
This Employment Agreement (the "Agreement") is by and between Richard
Bronson (the "Executive") and Technology Plus, Inc., a Kansas corporation (the
"Company") and a wholly-owned subsidiary of Nationwide Staffing, Inc., a
Delaware corporation ("Nationwide"), which parties agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive and the
Executive hereby accepts employment by the Company, upon the terms and subject
to the conditions hereinafter set forth.
2. DUTIES. The Executive shall serve as the President of the Company. The
Executive will perform the duties attendant to his executive position with the
Company under the direction of the Company's Board of Directors (the "Board").
The Executive agrees to (i) devote his full business time and best efforts to
the performance of his duties to the Company, (ii) devote his best efforts to
promote the success of the Company's business, and (iii) cooperate fully with
the Board in the advancement of the best interests of the Company. The Executive
shall faithfully adhere to, execute and fulfill all policies established by the
Company from time to time. If the Executive is elected as a director of the
Company or as a director or officer of any of its affiliates, the Executive will
fulfill his duties as such director or officer without additional compensation.
3. COMPENSATION. In consideration for the services of the Executive as an
executive officer of the Company, unless terminated sooner pursuant to the terms
hereof, the Company will pay the Executive an annual salary of $109,000 (the
"Salary"), which will be payable in equal periodic installments according to the
Company's historical payroll practices.
Furthermore, during the term of the Executive's employment, the Company
shall provide to the Executive group hospitalization, major medical, long-term
disability, vacation, life insurance coverages and pension, profit sharing, and
other employee benefit plans on substantially the same terms and conditions
these benefits are made available to the Company's other executive officers so
long as the Executive's physical or mental condition does not make it
commercially unreasonable for the Company to provide such benefit(s)
(collectively, the "Benefits").
If and to the extent that any of the insurance programs included within
the Benefits can be assumed by Executive upon termination of Executive's
employment with the Company, without expense or detriment to the Company or
Nationwide, then Executive shall be permitted to assume any of such insurance
programs, at the Executive's sole expense.
<PAGE>
4. (A) TERM AND TERMINATION. The term of the Executive's employment
pursuant to this Agreement shall commence on the date of the consummation of
Nationwide's initial public offering of its common stock (the "IPO") and shall
continue until the third anniversary of the IPO (the "Initial Term"), and shall
continue thereafter on a year-to-year basis on the same terms and conditions
contained herein unless either party gives to the other written notice of
termination no fewer than 30 days prior to the expiration of the Initial Term or
any renewal term that the party does not wish to extend this Agreement. However,
the Executive's employment as an executive officer pursuant to this Agreement
shall also terminate earlier in any one of the following ways:
(i) upon the death of the Executive;
(ii) upon the disability of the Executive as established by the
expiration of the time periods specified in Section 4 (b) below, then
termination may occur at any time thereafter, upon notice from either
party to the other;
(iii) upon three months prior notice of resignation by the Executive
to the Company;
(iv) if such termination is approved by at least 80% of the members
of the Board of Directors of Nationwide ("Nationwide Board") (not counting
the Executive if the Executive is a member of the Nationwide Board) (an
"80% Vote"), upon notice by the Company to the Executive of termination
"without cause";
(v) upon notice by the Company to the Executive of termination "for
cause"; or
(vi) at the Executive's option, upon notice by the Executive to the
Company within 90 days following a Constructive Termination.
(B) DEFINITION OF DISABILITY. For purposes of Section 4(a)(ii), the
Executive will be deemed to have a "disability" if, for physical or mental
reasons, the Executive is unable to perform the Executive's duties under this
Agreement for 120 consecutive days or 180 days during any twelve month period.
Whether the Executive is unable to perform his duties will be determined by a
medical doctor selected by written agreement of the Company and the Executive
upon the request of either party by notice to the other. If the Company and the
Executive cannot agree on the selection of a medical doctor, each of them will
select a medical doctor and the two medical doctors will select a third medical
doctor who will determine whether the Executive is unable to perform Executive's
duties under this Agreement. The determination of the medical doctor selected
under this Section 4 will be binding on both parties. The Executive must submit
to a reasonable number
-2-
<PAGE>
of examinations by the medical doctor making the determination under this
Section 4, and the Executive hereby authorizes the confidential disclosure and
release to the Company (and, if required by the Company's insurance carriers, to
such carriers) of such determination and all supporting medical records. If the
Executive is not legally competent or is otherwise unable to act, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead under this Section 4, for the purposes of selecting a medical
doctor, submitting the Executive to the examinations, and providing the
authorization of disclosure, required under this Section 4. The date on which
the medical doctor notifies the Company and the Executive that the Executive is
unable to perform Executive's duties under this Agreement shall be the starting
date from which such 120- days or 180-days, as the case may be, shall be
measured.
(C) DEFINITION OF TERMINATION FOR CAUSE. For purposes of Section 4(a)(v),
the Executive's termination "for cause" shall be defined to mean: (i) the
Executive's material breach of this Agreement, including, without limitation,
his failure to perform his obligations hereunder in a manner reasonably
satisfactory, provided that termination under this clause (i) must be approved
by an 80% Vote of the Nationwide Board (other than any such failure resulting
from incapacity or disability due to physical or mental reasons); (ii) the
appropriation (or attempted appropriation) of a material business opportunity of
the Company, including attempting to secure or securing a personal benefit in
connection with any transaction entered into on behalf of the Company; or (iii)
the Executive's fraud or dishonesty with respect to the business or affairs of
the Company or if the Executive is convicted of, indicted for (or its procedural
equivalent) or pleads nolo contendere or guilty to, any felony (or the
equivalent thereof) criminal offense or any civil offense involving fraud or
moral turpitude. If the Company determines that "cause" exists, prior to giving
notice of termination, the Company will so advise the Executive and provide
information supporting such determination.
(D) DEFINITION OF CONSTRUCTIVE TERMINATION. For purposes of Section
4(a)(vi), the term "Constructive Termination" shall be defined to mean: (i) a
material reduction in the Executive's duties and responsibilities without the
Executive's consent; (ii) a reduction in or the failure by the Company to pay
when due any portion of the Salary, (iii) the Company's material breach of this
Agreement, or (iv) without Executive's approval, he is required to relocate out
of the metropolitan area of his present residence.
(E) COMPENSATION IF TERMINATED BY DEATH. If Executive's employment is
terminated because of the Executive's death, the Executive will be entitled to
receive the portion of the Salary that is due at the end of the calendar month
in which his death occurs.
(F) COMPENSATION IF TERMINATED BY DISABILITY. If the Executive's
employment is terminated by either party as a result of the Executive's
disability, the Company will pay the Executive the portion of the Salary that is
due at the end of the calendar month during which such
-3-
<PAGE>
termination is effective and for the lesser of (i) six consecutive months
thereafter, or (ii) the period until disability insurance benefits, if any,
commence under the disability insurance coverage, if any, furnished by the
Company to the Executive.
(G) COMPENSATION IF TERMINATED BY EXECUTIVE'S RESIGNATION OR FOR CAUSE. If
the Company terminates the Executive's employment "for cause" or if the
Executive resigns his employment with the Company (other than in accordance with
Section 4(a)(vi) following a Constructive Termination), the Executive will be
entitled to receive the portion of the Salary that is due through the date such
termination is effective.
(H) COMPENSATION IF TERMINATED WITHOUT CAUSE OR BY CONSTRUCTIVE
TERMINATION. In the event the Executive's employment with the Company is
terminated by the Company "without cause" or by the Executive within 90 days
following a Constructive Termination, the Company will pay the Executive, as the
Executive's sole remedy in connection with such termination, a severance payment
in an amount equal to two times the annual Salary (the "Severance Payment"). The
Severance Payment shall be payable to the Executive in equal monthly payments
over a period of 24 months following the date of termination. The Company will
also pay the Executive the portion of the Salary that is accrued but unpaid from
the last payment date to the date of termination. In addition, the Company shall
make, at is sole cost and expense and without any offsets in the amounts owed to
the Executive, the insurance premium payments contemplated by COBRA for a period
of 18 months after such termination.
5. ACCRUED BENEFITS. The Executive's accrual of, or participation in plans
providing for, Benefits will cease at the effective date of the termination of
the Executive's employment and the Executive will be entitled to accrued
Benefits pursuant to such plans only as provided in such plans. Notwithstanding
anything herein to the contrary or in any plan, the Executive will not receive,
as part of his termination pay pursuant to Section 4, any payment or other
compensation for any vacation, holiday, sick leave, or other leave unused on the
date of termination.
6. EFFECT OF TERMINATION ON ANY OPTIONS. Any options to purchase
Nationwide stock held by the Executive will automatically and immediately expire
if the Executive's employment with the Company is terminated "for cause" or if
the Executive voluntarily leaves the employment of the Company. If the
Executive's employment with the Company ends for any reason other than
termination for cause, voluntary departure or due to death, then any options to
purchase Nationwide stock will remain exercisable and will vest and expire in
accordance with the terms of the applicable option agreements. If the Executive
dies while employed by the Company, then any options to purchase Nationwide
stock shall become fully exercisable on the date of his death and shall expire
twelve months thereafter.
-4-
<PAGE>
7. CONFIDENTIALITY. The Executive acknowledges that he will have access to
confidential information regarding the Company, Nationwide and Nationwide's
present and future direct and indirect subsidiaries (collectively the
"Nationwide Subsidiaries" and individually a "Nationwide Subsidiary") and their
businesses. The Executive agrees that he will not, during or subsequent to his
employment, divulge, furnish, or make available to any person (other than with
the prior written consent of the Board) any confidential information or plans of
the Company, Nationwide or any of the Nationwide Subsidiaries. However,
confidential information or plans shall exclude information or plans which: (i)
at the time of disclosure already is in the public domain or which, after
disclosure, is published or otherwise becomes part of the public domain through
no fault of the Executive; or (ii) the Executive can show was not held or
acquired, directly or indirectly, from the Company, Nationwide or any of the
Nationwide Subsidiaries, or from a third party under an obligation of
confidence.
8. NONCOMPETITION. During the period of the Executive's employment by or
with the Company and for two years after termination of the Executive's
employment hereunder, so long as the Company is not in breach of its obligations
under this Agreement, the Executive will not, for any reason whatsoever (i)
engage directly or indirectly, alone or as a shareholder, owner, partner,
officer, director, employee, sales representative, or consultant in, of or to
any temporary employment, "PEO" or staff leasing, permanent placement, or human
resource outsourcing or consulting business or other business activities which
are competitive with any business owned or operated or being actively considered
to be owned or operated by the Company, Nationwide or any Nationwide Subsidiary
prior to the Executive's termination or at the time of such termination (a
"Designated Business"), (ii) divert to any competitor of the Company, Nationwide
or any Nationwide Subsidiary in a Designated Business any customer of the
Company, Nationwide or any Nationwide Subsidiary, (iii) solicit or encourage any
officer, employee, or consultant of the Company, Nationwide or any Nationwide
Subsidiary to leave its employ for employment by or with any competitor of the
Company, Nationwide or any Nationwide Subsidiary in a Designated Business, or
(iv) call upon any prospective acquisition candidate, on the Executive's own
behalf or on behalf of any competitor, which candidate was, to the Executive's
knowledge, either called upon by the Company, Nationwide or any Nationwide
Subsidiary or which the Company, Nationwide or any Nationwide Subsidiary made an
acquisition analysis for the purposes of acquiring such entity ("Acquisition
Candidate"). If the Company, Nationwide or a Nationwide Subsidiary makes an
acquisition analysis of an entity as an Acquisition Candidate, but does not call
upon such Acquisition Candidate, then such entity shall cease to be an
Acquisition Candidate upon the expiration of 12 months after completion of the
acquisition analysis; provided that nothing herein shall limit the covenants and
agreements set forth above.
The parties hereto acknowledge that the Executive's noncompetition
obligations hereunder will not preclude the Executive from owning less than 1%
of the common stock of any publicly traded corporation conducting business
activities in a Designated Business. The Executive will
-5-
<PAGE>
continue to be bound by the provisions of this Section 8 until their expiration
and will not be entitled to any compensation from the Company with respect
thereto. If at any time the provisions of this Section 8 are determined to be
invalid or unenforceable, by reason of being vague or unreasonable as to area,
duration or scope of activity, this Section 8 will be considered divisible and
will become and be immediately amended to only such area, duration and scope of
activity as will be determined to be reasonable and enforceable by the
arbitration panel, court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 8 as so amended will be valid and binding
as though any invalid or unenforceable provision had not been included herein.
9. REIMBURSEMENT OF EXPENSES. The Company will reimburse the Executive for
all reasonable out-of-pocket costs and expenses incurred by him in connection
with his employment hereunder (the "Reimbursable Expenses"). Such Reimbursable
Expenses shall include the Executive's out-of-pocket costs and expenses for
travel, hotel rooms, business entertainment, long-distance telephone calls,
delivery charges, parking fees and copying charges. On or about the last day of
each month, the Executive will submit a report to the Company describing in
reasonable detail the Reimbursable Expenses to be reimbursed. All such invoices
shall include adequate supporting documentation, including receipts where
appropriate. All such invoices will be reimbursed by the Company within 30 days
of the Company's receipt of the report.
10. ARBITRATION. Except as otherwise permitted in Section 12, any dispute
between the Company and the Executive arising out of or related to this
Agreement or breach thereof shall be settled by binding arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators.
Any award made by such arbitrators shall be binding and conclusive for all
purposes, may include injunctive relief, as well as orders for specific
performance, and may be entered as a final judgment in any court of competent
jurisdiction. No arbitration arising out of or relating to this Agreement shall
include, by consolidation or joinder or in any other manner, parties other than
the Company, the Executive and other persons substantially involved in common
question of fact or law whose presence is required if complete relief is to be
afforded in arbitration. The cost and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators and may include
reasonable attorneys' fees. Each party hereby further agrees that service of
process may be made upon it by registered or certified mail or personal service
at the address provided for herein. The arbitrators will not have the power to
alter or amend the terms of this Agreement.
11. RETURN OF DOCUMENTS. The Executive agrees that all documents, plans,
records, financial statements, manuals, lists, computer programs, computer
disks, equipment, computers, notes, drawings, models and other materials
(whether or not secret or confidential) that he receives, prepares or otherwise
acquires during his employment with the Company, and which pertain to the
business or affairs of the Company, Nationwide or any of the Nationwide
Subsidiaries, are the property of the appropriate company. The Executive will
promptly deliver to the Company all
-6-
<PAGE>
originals and all copies of such materials in his possession or under his
control without request by the Company, Nationwide, or any Nationwide Subsidiary
upon termination of the Executive's employment. In the event of his termination
of employment with the Company for whatever reason, the Executive shall produce
to the Company for its inspection all such materials then in his possession or
under his control.
12. EQUITABLE RELIEF. In the event of a breach by the Executive of any of
the provisions of Sections 7, 8 or 11, the Company shall, in addition to any
other rights and remedies existing in its favor, be entitled to receive from any
court of law or equity of competent jurisdiction order(s) for specific
performance and injunctive or other relief in order to enforce or prevent any
violations of the provisions thereof.
13. SURVIVAL. The rights and obligations of the parties hereto shall
survive the term of the Executive's employment under this Agreement to the
extent that any performance is required under this Agreement after the
expiration of the Executive's employment.
14. MISCELLANEOUS.
14.1 ENTIRE AGREEMENT. This Agreement and the Agreement and Plan
dated as of September __, 1997 (the "Merger Agreement") among Nationwide, the
Company and the Company's stockholders (including Executive) constitute the
entire agreement between the parties with respect to the subject matter hereof.
This Agreement and the Merger Agreement supersede all letters, memoranda and
term sheets previously prepared in connection with the negotiations surrounding
the execution of this Agreement and the Merger Agreement. The provisions of
Section 8 of this Agreement are cumulative with and in addition to the
provisions of Section 13 of the Merger Agreement. All provisions of this
Agreement and of the Merger Agreement shall be given full effect. No provision
of the Merger Agreement shall be deemed to have been superseded by this
Agreement and no provision of this Agreement shall be deemed to have been
superseded by the Merger Agreement. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any third party any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except for Nationwide and the
Nationwide Subsidiaries and otherwise except as expressly provided in this
Agreement.
14.2 NOTICES. Any notices permitted or required to be given under
the terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
-7-
<PAGE>
The Executive: Richard Bronson
c/o Spencer Fane Britt and Browne LLP
1000 Walnut Street, Suite 1400
Kansas City, Missouri 64106
Attention: Michael L. McCan
Telephone No.: (816) 474-8100
Facsimile No.: (816) 474-3216
The Company: Technology Plus, Inc.
c/o Spencer Fane Britt and Browne LLP
1000 Walnut Street, Suite 1400
Kansas City, Missouri 64106
Attention: Michael L. McCan
Telephone No.: (816) 474-8100
Facsimile No.: (816) 474-3216
With a copy to: Nationwide Staffing, Inc.
600 Travis, Suite 6200
Houston, Texas 77002
Attention: President
The address of any party may be changed by notice given in the manner provided
in this Section 14.2.
14.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF KANSAS WITHOUT
GIVING EFFECT TO CHOICE OF LAW OR CONFLICTS OF LAWS PRINCIPLES.
14.4 WITHHOLDING. All payments required to be made by the Company
under this Agreement to the Executive will be subject to the withholding of such
amounts, if any, relating to federal, state and local taxes as may be required
by law.
14.5 PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. Throughout
the term of the Executive's employment hereunder, the Executive shall use his
best efforts to preserve the business and organization of the Company,
Nationwide and the Nationwide Subsidiaries, to keep available to the Company,
Nationwide and the Nationwide Subsidiaries the services of their employees and
to preserve the business relations of the Company, Nationwide and the Nationwide
Subsidiaries with suppliers, customers and others. The Executive shall not
commit any act which would injure the Company, Nationwide or any of the
Nationwide Subsidiaries. In addition, the
-8-
<PAGE>
Executive shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his service and office.
14.6 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
14.7 REPRESENTATION BY SEPARATE COUNSEL. The Executive acknowledges
that he has been advised to retain separate legal counsel to represent his
interests under this Agreement and he has done so.
14.8 AMENDMENTS AND WAIVERS. This Agreement may be amended only by a
written instrument designated as an "amendment" to this Agreement and signed by
the parties hereto, and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument signed by the person specifically
waiving such observance.
14.9 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which shall be deemed one instrument.
Executed this the __th day of September, 1997.
THE EXECUTIVE:
By:________________________________________
RICHARD BRONSON
(Name Printed)
THE COMPANY:
Technology Plus, Inc.
By:________________________________________
________________________________________
(Name Printed) (Title)
-9-
<PAGE>
JOINDER BY NATIONWIDE
Nationwide joins in this Agreement solely for the purpose of guaranteeing to
Executive that the Salary, Benefits and Severance Payment, if any, will be paid
and provided in accordance with the terms thereof.
NATIONWIDE:
Nationwide Staffing, Inc.
By:________________________________________
________________________________________
(Name Printed), (Title)
-10-
NATIONWIDE STAFFING, INC.
INTRODUCTION AGREEMENT
This Introduction Agreement (the "Agreement") is by and among Nationwide
Staffing, Inc. ("Nationwide"), Warren L. Williams, W. Sherman Adcock ("Adcock")
and Jerry L. Hyde ("Hyde") (Williams, Adcock and Hyde being hereinafter referred
to collectively as the "Introducers"), which parties agree as follows:
INTRODUCTION. Upon the consummation of an underwritten initial public
offering of Nationwide's securities (the "IPO"), Nationwide will be in the
business of providing comprehensive staffing solutions to businesses,
professional and service organizations and governmental agencies. As part of its
business strategy, Nationwide intends to expand through the acquisition of
temporary staffing, permanent placement, human resource consulting and staff
leasing companies (individually, the "Staffing Company" and collectively, the
"Staffing Companies"). Nationwide desires to have the Introducers identify
Staffing Companies in order to determine whether the Staffing Companies may be
interested in discussing the possibility of being acquired by Nationwide and, if
so, on what terms. Any such Staffing Company identified by the Introducers and
subsequently acquired by Nationwide with the assistance of the Introducers shall
be referred to as an "Acquisition." Nationwide shall have the first right of
refusal to consider an acquisition or other arrangement with any Staffing
Company identified by Introducers.
The Introducers are independent contractors and are not agents, employees,
or representatives of Nationwide. The Introducers have no power or authority to
bind or commit Nationwide in any way, including, without limitation, with
respect to any Acquisition. Nationwide shall have complete discretion as to each
Acquisition and the acquisition consideration and terms thereof.
2. INTRODUCERS' FEE. Beginning immediately after the consummation of the
IPO and continuing until the second anniversary thereof (the "Termination Date")
in consideration for the services to be rendered by the Introducers, if
Nationwide consummates any Acquisition for cash or by means of a merger or any
other business combination, the Introducers shall be jointly entitled to a cash
fee equal to the following (the "Fee"):
5% of the total Gross Aggregate Consideration up to $1,000,000;
plus 4% of the total Gross Aggregate Consideration from $1,000,000,00 to
$2,000,000;
plus 3% of the total Gross Aggregate Consideration from $2,000,000 to
$3,000,000;
plus 2% of the total Gross Aggregate Consideration from $3,000,000 to
$4,000,000;
1
<PAGE>
plus 1% of the total Gross Aggregate Consideration in excess of
$4,000,000.
The Fee shall be payable in cash at the time an Acquisition is consummated but
it shall be reduced by the aggregate amount of Monthly Advances (as hereinafter
defined) that have not been repaid or earned by the Introducers. For purposes
hereof, "Gross Aggregate Consideration" means everything paid or payable by
Nationwide to the other party in an Acquisition, including but not limited to
cash, assets, securities, promissory notes, earnouts, interest bearing long-term
liabilities that are expressly assumed by Nationwide as a primary obligation of
Nationwide, covenants not to compete, consulting agreements, bonuses and any
other economic benefits, rights or property, including payments contingent on
future events or considerations. The Fee shall be payable at the time the
Acquisition is consummated. If the Acquisition is not consummated, the
Introducers shall not be entitled to any consideration for their services
relating to the Acquisition.
3. INTRODUCERS' MONTHLY ADVANCE. Beginning immediately after the
consummation of the IPO and continuing until the Termination Date, the
Introducers shall be paid jointly an aggregate of $30,000 per month on the first
day of each month (the "Monthly Advance") as an advance against any Fees that
may be earned pursuant hereto. However, if on the Termination Date the
Introducers have received more in Monthly Advances than Fees, the excess of the
aggregate Monthly Fees that have not been repaid or earned over the Fees must be
returned to Nationwide within 30 days, and will be a joint and several
obligation of the Introducers. Notwithstanding anything herein to the contrary,
the aggregate sum of the Monthly Advances at any time outstanding shall not
exceed $90,000.
4. TIME TO BE SPENT. It is acknowledged that the Introducers are and will
be engaged in other business activities and they will continue such activities
during the term of this Agreement and they shall not be restricted by Nationwide
from engaging in other business activities. However, the Introducers agree that
during the term of this Agreement services will be provided to Nationwide that
will be at least equal to approximately the time spent by one person working
full-time and such time will be spent from a combination of the efforts of the
Introducers.
5. CONFIDENTIALITY. The Introducers, jointly and severally, agree that
they will not at any time during and for two years after the Termination Date
use for their own benefit, copy, reveal, disclose, divulge or make known or
available in any manner to any person, firm, corporation or other entity
(whether or not the Introducers receive any benefit therefrom), any information
and documentation whatsoever which has been disclosed or made
2
<PAGE>
available by Nationwide or the Staffing Companies to the Introducers.
6. INJUNCTIVE RELIEF. The Introducers acknowledge that compliance with
this Agreement is necessary to protect the interests of Nationwide and that a
breach of this Agreement will give rise to irreparable and continuing injury to
Nationwide which is not adequately compensable in monetary damages or at law.
Accordingly, the Introducers, jointly and severally, agree that Nationwide, its
successors and/or assigns may obtain injunctive and other equitable relief
against the breach or threatened breach of the foregoing provisions, in addition
to any other legal remedies which may be available. If Nationwide or its
successors in interest shall make application to a court of competent
jurisdiction for injunctive relief to enforce this Agreement, the Introducers
waive, to the greatest extent permissible, any requirement that Nationwide post
bond or other security as a precondition to an injunction, whether temporary or
permanent.
7. RETURN OF DOCUMENTS. If Nationwide notifies the Introducers that it has
decided not to proceed with negotiations regarding an Acquisition, Nationwide
shall deliver to the Introducers all records, notes, data, memoranda, including
all copies and/or extracts therefrom, that are in its possession or under
control relating to such Acquisition.
8. ARBITRATION. Any dispute between Nationwide and the Introducers arising
out of or related to this Agreement or breach thereof, shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. The arbitration shall be conducted by three neutral arbitrators who
sit in Houston, Texas. Any award made by such arbitrators shall be binding and
conclusive for all purpose thereof, may include injunctive relief, as well as
orders for specific performance and may be entered as a final judgment in any
court of competent jurisdiction. No arbitration arising out of or relating to
this Agreement shall include, by consolidation or joinder or in any other
manner, parties other than Nationwide or the Introducers and other persons
substantially involved in common question of fact or law whose presence is
required if complete relief is to be afforded in arbitration. The cost and
expenses of such arbitration shall be borne in accordance with the determination
of the arbitrators and may include reasonable attorneys' fees. Each party hereby
further agrees that service of process may be made upon it by registered or
certified mail or personal service at the address provided for herein.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
supersedes all letters, memoranda
3
<PAGE>
and term sheets previously prepared in connection with the negotiations
surrounding the execution of this Agreement. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
9.2 NOTICES. Any notices permitted or required to be given under the
terms of this Agreement shall be in writing and shall be deemed given if
delivered to the party to be notified at the address specified below, by first
class mail, overnight courier or fax with hard copy being sent by first class
mail or overnight courier. Such notice shall be deemed received 24 hours after
it is sent via fax (with receipt confirmed) or overnight courier. Any notice
given in any other manner shall be effective only if and when received.
The Introducers: Warren L. Williams
5811 Olympia Fields
Houston, Texas 77069
Telephone No.: (281) 893-3277
W. Sherman Adcock
12007 West Morgan Drive
Houston, Texas 77065
Telephone No.: (281) 469-2764
Jerry L. Hyde
1425 Nantucket, Unit F
Houston, Texas 77057
Telephone No.: (713) 783-1138
The Company: Nationwide Staffing, Inc.
600 Travis
Suite 6200
Houston, Texas 77002
Attention: Chief Executive Officer
Telephone No.: (713) 223-7750
Facsimile No.: (713) 223-7747
The address of any party may be changed by notice given in the manner provided
in this Section 9.2.
9.3 GOVERNING LAW. THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO CHOICE OF LAWS OR CONFLICTS OF LAWS PRINCIPLES.
4
<PAGE>
9.4 SEVERABILITY. If a provision of this Agreement is declared
unenforceable by a court of last resort, such provision shall be enforced to the
greatest extent permitted by law, and such declaration shall not affect the
validity of any other provision of this Agreement.
9.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein shall survive the execution and delivery of this
Agreement.
9.6 AMENDMENTS AND WAIVERS. This Agreement may be amended by a written
instrument designated as an "amendment" to this Agreement and signed by the
parties hereto. The observance of any term of this Agreement may be waived
(either generally or in a particular instance either retroactively or
prospectively) by a written instrument signed by the person waiving such
observance.
9.7 MULTIPLE COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
be deemed one instrument.
9.8 AGREEMENT AMONG INTRODUCERS. Without limiting the Introducers' joint
and several obligations to Nationwide, as among themselves, the Introducers
agree that they shall share and be paid Fees and Monthly Advances in the
following proportions:
Williams -- 33-1/3%;
Adcock -- 33-1/3%; and Hyde -- 33-1/3%.
The parties have executed this Agreement on the 10th day of September
1997.
NATIONWIDE:
Nationwide Staffing, Inc.
By:/s/ LARRY E. DARST
Larry E. Darst,
Chief Executive Officer
5
<PAGE>
INTRODUCERS:
/s/ WARREN L. WILLIAMS
Warren L. Williams
W. Sherman Adcock
/s/ JERRY L. HYDE
Jerry L. Hyde
EXHIBIT 21.1
List of Subsidiaries
1. ASI Acquisition Corp.;
2. ASAP Acquisition Corp.;
3. Cardinal Acquisition Corp.;
4. EEI Acquisition Corp.;
5. EPG Sub 1 Acquisition Corp.;
6. EPG Sub 2 Acquisition Corp.;
7. EPG Sub 3 Acquisition Corp.;
8. EPG Sub 4 Acquisition Corp.;
9. EPG Sub 5 Acquisition Corp.;
10. EPG Sub 6 Acquisition Corp.;
11. EPG Sub 7 Acquisition Corp.;
12. EPG Sub 8 Acquisition Corp.;
13. GTS Acquisition Corp.;
14. HPSI Acquisition Corp.; and
15. TPLUS Acquisition Corp.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement by Nationwide Staffing, Inc. to register 3,800,000 shares
of common stock.
ARTHUR ANDERSEN LLP
September 11, 1997
EXHIBIT 23.3
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 10, 1997
By: /s/ STEPHEN M. ALTER
Stephen M. Alter
EXHIBIT 23.4
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 11, 1997
By: /s/ BRENDA S. DOUGAN
Brenda S. Dougan
EXHIBIT 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 6, 1997
By: /s/ MARY E. EVINS
Mary E. Evins
EXHIBIT 23.6
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 6, 1997
By: /s/ LOVEY L. HAMMEL
Lovey L. Hammel
EXHIBIT 23.7
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 4, 1997
By: /s/ PAUL L. MILLIGAN
Paul L. Milligan
EXHIBIT 23.8
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 5, 1997
By: /s/ GARY D. PITTS
Gary D. Pitts
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 11, 1997
By: /s/ RICHARD L. BRONSON
Richard L. Bronson
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 6, 1997
By: /s/ QUINCY T. FREEMAN
Quincy T. Freeman
EXHIBIT 23.11
CONSENT TO BE NAMED AS A DIRECTOR
OF
NATIONWIDE STAFFING, INC.
The undersigned hereby consents to be named as a director of Nationwide
Staffing, Inc. (the "Company") in the Registration Statement on Form S-1 to be
filed by the Company with the Securities and Exchange Commission.
Dated: September 10, 1997 By: /s/ THOMAS N. AMONETT
Thomas N. Amonett
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 66,745
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 66,745
<PP&E> 4,868
<DEPRECIATION> 0
<TOTAL-ASSETS> 394,431
<CURRENT-LIABILITIES> 483,875
<BONDS> 0
0
0
<COMMON> 11,881
<OTHER-SE> (101,325)
<TOTAL-LIABILITY-AND-EQUITY> 394,431
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 90,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (90,794)
<INCOME-TAX> 0
<INCOME-CONTINUING> (90,794)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (90,794)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
