<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CORPORATE STAFFING RESOURCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7363 56-2017705
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
ONE MICHIANA SQUARE
100 EAST WAYNE STREET
SOUTH BEND, IN 46601
(219) 233-8209
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
WILLIAM W. WILKINSON
CHIEF EXECUTIVE OFFICER
ONE MICHIANA SQUARE
100 EAST WAYNE STREET
SOUTH BEND, IN 46601
(219) 233-8209
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies of all communications,
including all communications sent to the agent for service, should be sent to:
<TABLE>
<S> <C>
CHRISTOPHER D. LUEKING, ESQUIRE LELAND E. HUTCHINSON, ESQUIRE
LATHAM & WATKINS WINSTON & STRAWN
SEARS TOWER, SUITE 5800 35 WEST WACKER DRIVE
CHICAGO, IL 60606 CHICAGO, IL 60601
(312) 876-7700 (312) 558-5600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, other than securities offered in connection with dividend or interest
reinvestment plans, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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>
=========================================================================================================================
TITLE OF SHARES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE AMOUNT OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value..... $86,250,000(1)(2) $25,443.75
=========================================================================================================================
</TABLE>
(1) Includes shares of Common Stock subject to an option granted to the
Underwriters solely to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee.
------------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED MAY 28, 1998
[ ] SHARES
CORPORATE STAFFING RESOURCES, INC.
[LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby, shares
are being sold by Corporate Staffing Resources, Inc. (the "Company") and
shares are being sold by certain stockholders of the Company ("the
Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The Company has applied for quotation of the
Common Stock on the Nasdaq National Market under the symbol "CSRI," subject to
official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
------------------------
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>
==================================================================================================================
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total (3)......................... $ $ $ $
==================================================================================================================
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to an additional
shares of Common Stock at the Price to the Public less the Underwriting
Discount solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to the Public will total
$ , the Underwriting Discount will total $ , the Proceeds
to Company will total $ and Proceeds to Selling Stockholders will
total $ . See "Principal and Selling Stockholders" and
"Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters named herein
subject to receipt and acceptance by them and their right to reject any order in
whole or in part. It is expected that delivery of the certificates representing
the shares will be made against payment therefor at the office of NationsBanc
Montgomery Securities LLC on or about , 1998.
------------------------
NationsBanc Montgomery Securities LLC
BT Alex. Brown
The Robinson-Humphrey Company
, 1998
<PAGE> 3
CORPORATE STAFFING RESOURCES, INC.
[TO BE INSERTED: MAP OF THE UNITED STATES SHOWING LOCATIONS
OF COMMERCIAL STAFFING AND PROFESSIONAL SERVICES BRANCHES]
THE BEST RESOURCE FOR YOUR STAFFING NEEDS.
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
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, INCLUDING
STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the pro forma and
historical financial statements and the related notes thereto appearing
elsewhere in this Prospectus. Prospective investors should carefully consider
the matters set forth under "Risk Factors" herein. Corporate Staffing Resources,
Inc. was previously named Mega Force Staffing Services, Inc. In March 1997, the
Company acquired The Hamilton-Ryker Company, LLC ("Hamilton-Ryker"), and in
December 1997, it acquired CSR, Inc. ("CSR, Inc.") and adopted its current name.
During 1998, Corporate Staffing Resources, Inc. has acquired four additional
staffing service companies. All references herein to the "Company" refer to
Corporate Staffing Resources, Inc. and, where appropriate, its subsidiaries and
their respective operations. Industry information used in this Prospectus was
obtained from industry publications that the Company believes to be reliable,
but such information has not been independently verified. Unless indicated
otherwise, all information contained in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
Corporate Staffing Resources, Inc. is a leading provider of diversified
staffing, professional and consulting services to businesses, professional and
service organizations, educational institutions and governmental agencies. The
Company offers these services through over 130 branches located in 16 states.
Since March 1997, the Company has acquired six additional staffing and
professional service companies with 88 branches. The Company believes that a
combination of internal growth and selective acquisitions will allow it to
capitalize most effectively on opportunities in the large and rapidly growing
staffing services industry. For the year ended December 31, 1997 and the three
months ended March 31, 1998, the Company's pro forma revenues and operating
income were $227.7 million and $61.3 million, and $10.8 million and $2.2
million, respectively.
The Company primarily provides two types of staffing services: (i)
commercial staffing services ("Commercial Staffing"), including
vendor-on-premises ("VOP"), clerical, administrative and light industrial
staffing services; and (ii) professional staffing services ("Professional
Services"), including a comprehensive range of information technology ("IT"),
accounting and finance staffing, placement and outplacement services. The
Company's Commercial Staffing branches primarily serve small to mid-size cities,
while its Professional Services branches primarily serve major metropolitan and
national markets. For the year ended December 31, 1997 and for the three months
ended March 31, 1998, Commercial Staffing generated approximately 82.0% and
80.3% of the Company's pro forma revenues and 71.7% and 69.1% of the Company's
pro forma gross profits, respectively. For the year ended December 31, 1997 and
for the three months ended March 31, 1998, Professional Services generated
approximately 18.0% and 19.7% of the Company's pro forma revenues and 28.3% and
30.9% of the Company's pro forma gross profits, respectively.
The Company has developed operating and growth strategies designed to
emphasize high margin Professional Services while maintaining strong operating
and financial controls. The key elements of the Company's operating strategy
are: (i) maintain an entrepreneurial environment; (ii) continue disciplined
financial management; (iii) integrate acquired companies quickly; (iv) maintain
or establish leadership in existing geographic markets; and (v) deliver high
value-added quality service. The key elements of the Company's growth strategy
include:
Increase Focus on Professional Services. The Company's strategy is to
increase the percentage of total revenues and gross profits contributed by
Professional Services by expanding its service offerings in the fields of IT
staffing and consulting and accounting and finance staffing. The Company also
intends to grow its pool of skilled professionals, hire additional sales
consultants, target mid-size and large companies, leverage client relationships,
open additional Professional Services branches and increase the pace of
acquisitions of Professional Services companies in larger metropolitan markets.
The Company believes that providing Professional Services to its clients offers
attractive opportunities for growth in sales and profits.
3
<PAGE> 5
Cross-Sell Service Offerings in Existing Markets and Expand Into New
Markets. The Company continually identifies additional growth opportunities with
existing and new clients as a result of the breadth of the Company's service
offerings. The Company currently offers a complete range of IT, accounting and
clerical staffing services in only a small number of its markets. As a result,
the Company believes substantial opportunities exist to cross-sell service
offerings, especially Professional Services, within its other markets. In
addition, the Company continually evaluates potential expansion of existing
services into new geographic areas.
Focus on Commercial Staffing in Small to Mid-Size Cities. The Company
provides Commercial Staffing primarily in small to mid-size cities with
populations ranging from 10,000 to 250,000 and seeks to be the leading provider
of Commercial Staffing in the markets in which it operates. The Company believes
that it can achieve attractive margins in these markets and that in many cases
it has a competitive marketing advantage over national providers because it has
developed a strong local presence and has tailored its operations to meet the
needs of local customers. Each of the Company's Commercial Staffing branches
operates under established local brand names. The Company intends to continue
building on the strong reputations of these local brand names in their markets
while leveraging the sophisticated support services and low cost structures of a
national provider.
Increase Vendor-On-Premises Relationships. As of March 31, 1998, the
Company had 20 VOP partnering relationships. Under these programs, the Company
assumes administrative responsibility for coordinating some or all Commercial
Staffing at a client's location or organization, including skills testing and
training. The VOP relationships provide clients with dedicated on-site account
management which can more effectively meet the client's changing staffing needs
with high quality, timely and consistent service. The Company has expanded
geographically by establishing new VOP sites to service existing clients and
intends to establish additional sites for both existing and new clients as
opportunities arise in the future.
Expand through Acquisitions. The Company intends to acquire and integrate
independent Professional Service and Commercial Staffing companies with strong
management, profitable operating results and recognized local and regional
presences. Since March 1997, the Company has acquired six companies with an
aggregate of 88 branches and 1997 revenues of $160.7 million. Primarily, the
Company intends to pursue strategic acquisitions in Professional Services that
offer complementary services and expand the percentage of revenues generated by
Professional Services and tuck-in acquisitions in Commercial Staffing that
increase its penetration of existing markets. The Company has established a team
of corporate officers responsible for identifying prospective acquisitions,
performing due diligence, negotiating contracts and subsequently integrating the
acquired companies.
The Company is a Delaware corporation which was organized on December 31,
1996. The Company's executive offices are located at One Michiana Square, 100
East Wayne Street, Suite 100, South Bend, IN 46601, and its telephone number is
(219) 233-8209.
STAFFING SERVICES INDUSTRY OVERVIEW
The staffing services industry has grown rapidly in recent years as
companies have utilized supplemental employees to control personnel costs and to
meet specialized or fluctuating personnel needs. According to Staffing Industry
Report, a widely available industry newsletter, the U.S. market for temporary
staffing services is estimated to have grown at a compound annual rate of
approximately 17.3% from approximately $29.3 billion in 1992 to approximately
$65.0 billion in 1997. Furthermore, according to Staffing Industry Report,
revenues from information technology and technical staffing are estimated to
have grown at a compound annual rate of 25.2% from approximately $5.1 billion in
1992 to approximately $15.7 billion in 1997. The Company believes the staffing
services industry is highly fragmented with over 6,000 staffing companies and
2,500 professional/IT companies. Although the industry is experiencing
increasing consolidation, in part because of client demand for comprehensive
supplemental staffing solutions, the Company believes that there are numerous
attractive acquisition targets.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. shares
Common Stock offered by the Selling Stockholders..... shares
Common Stock to be Outstanding after the
Offering(1)........................................ shares
Use of proceeds by the Company....................... To repay certain indebtedness and for
working capital and general corporate
purposes, including future acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol............... CSRI
</TABLE>
- ---------------
(1) Excludes approximately 1,500,000 shares of Common Stock reserved for
issuance under the Company's Option Plan (as defined herein) (of which: (i)
95,000 shares of Common Stock are issuable upon exercise of outstanding
options at a weighted average exercise price of $8.00 per share; and (ii)
250,000 shares of Common Stock will be issuable upon exercise of options to
be granted concurrently with the consummation of this Offering at a weighted
average exercise price of $ ). See "Management," "Capitalization"
and "Principal and Selling Stockholders."
5
<PAGE> 7
SUMMARY FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA(3)(4)
THREE MONTHS --------------------------------
YEAR ENDED ENDED YEAR ENDED THREE MONTHS
DECEMBER 31, MARCH 31, DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------- ------------ -----------------
1995 1996 1997 1997 1998 1997 1997 1998
------- ------- -------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:(2)
Revenues.................................... $67,350 $65,549 $114,564 $16,489 $53,060 $227,695 $48,541 $61,286
Cost of services............................ 57,173 54,724 93,557 13,672 42,787 178,464 38,240 48,234
------- ------- -------- ------- ------- -------- ------- -------
Gross profit................................ 10,177 10,825 21,007 2,817 10,273 49,231 10,301 13,052
Selling, general and administrative
expenses.................................. 9,655 9,494 13,861 2,235 8,235 35,469 8,015 10,198
Depreciation and amortization............... 295 284 836 83 505 2,586 639 685
Other operating expenses.................... -- -- 1,158 163 -- 409 59 --
------- ------- -------- ------- ------- -------- ------- -------
Operating income............................ 227 1,047 5,152 336 1,533 10,767 1,588 2,169
Interest expense............................ 275 266 1,570 127 644 425 106 106
Other (income) expense...................... (10) (115) (124) -- -- (161) 38 --
------- ------- -------- ------- ------- -------- ------- -------
Income (loss) before income taxes and
extraordinary item........................ (38) 896 3,706 209 889 10,503 1,444 2,063
Provisions for income taxes................. -- -- 1,904 377 400 4,726 650 928
------- ------- -------- ------- ------- -------- ------- -------
Income (loss) before extraordinary item..... (38) 896 1,802 (168) 489 5,777 794 1,135
Extraordinary item, net of tax benefit...... -- -- 1,672 -- -- -- -- --
------- ------- -------- ------- ------- -------- ------- -------
Net income (loss)........................... $ (38) $ 896 $ 130 $ (168) $ 489 $ 5,777 $ 794 $ 1,135
======= ======= ======== ======= ======= ======== ======= =======
Basic earnings (loss) per common share:
Income (loss) before extraordinary item............. $ .36 $ (.04) $ .05
Extraordinary item, net of tax benefit.............. (.33) -- --
-------- ------- ------- -------- -------
Net income (loss)................................. $ .03 $ (.04) $ .05
======== ======= ======= ======== =======
Average shares outstanding............................ 5,061 3,756 9,678
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item............. $ .32 $ (.04) $ .05
Extraordinary item, net of tax benefit.............. (.30) -- --
-------- ------- ------- -------- -------
Net income (loss)................................. $ .02 $ (.04) $ .05
======== ======= ======= ======== =======
Average shares outstanding............................ 5,580 4,318 9,693
<CAPTION>
<S> <C>
Basic earnings (loss) per common share:
Income (loss) before extraordinary item.............
Extraordinary item, net of tax benefit..............
-------
Net income (loss).................................
=======
Average shares outstanding............................
Diluted earnings (loss) per common share:
Income (loss) before extraordinary item.............
Extraordinary item, net of tax benefit..............
-------
Net income (loss).................................
=======
Average shares outstanding............................
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL PRO FORMA(3)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $12,996
Total assets................................................ 81,040
Total debt.................................................. 37,518
Shareholders' equity........................................ 28,934
</TABLE>
- ---------------
(1) The Company was organized on December 31, 1996. Therefore, the Statement of
Income Data represents the operations of The Mega Force Group, the Company's
predecessor, for the years ended December 31, 1995 and 1996.
(2) The Company's Completed Acquisitions (as hereinafter defined) have been
accounted for as purchases, and therefore, the operations of the acquired
companies are included in the Statement of Income Data from the respective
dates of acquisition. See the Financial Statements of Corporate Staffing
Resources, Inc. included herein.
(3) Pro forma information gives effect to the Completed Acquisitions and the
consummation of the Offering described herein. The pro forma adjustments for
the Completed Acquisitions include: (i) an adjustment to compensation
expense equal to the difference between actual compensation paid to certain
officers of the Company and the acquired companies and compensation expense
agreed to in connection with the recent amendment and restatement of certain
management employment contracts; (ii) an adjustment to income tax expense
based upon a consolidated effective tax rate of 45%, which reflects the
impact of nondeductible goodwill amortization; (iii) an adjustment to
amortization expense relating to intangible assets recorded in conjunction
with the Completed Acquisitions; and (iv) an adjustment to interest expense
to reflect incremental borrowings under the Company's borrowing facility
necessary to finance the Completed Acquisitions. Pro forma adjustments for
the Offering include: (i) a reduction of interest expense resulting from
repayment of outstanding borrowings under the credit agreement and repayment
of shareholder notes payable; and (ii) the elimination of certain management
and consulting fees pursuant to certain agreements which will be terminated
upon the consummation of the Offering. The pro forma results of operations
are not necessarily indicative of the results that would have occurred had
these transactions been completed as of such date or the results that may be
attained in the future.
(4) Gives effect to: (i) 9,678,114 shares outstanding prior to the Offering;
(ii) 95,000 shares issuable upon exercise of outstanding stock options in
accordance with SEC Staff Accounting Bulletin Topic 4D; and (iii)
shares issued in the Offering. See "Capitalization."
6
<PAGE> 8
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
risk factors set forth below, as well as the other information contained in this
Prospectus.
LIMITED COMBINED OPERATING HISTORY; INTEGRATION OF OPERATIONS
The Company acquired Hamilton-Ryker in March 1997, CSR, Inc. in December
1997 and the other acquired companies in transactions that occurred from January
1998 to May 1998. The members of the Company's senior management have worked
together and managed these entities as a combined business for only a short
time. There can be no assurance that management will be able to oversee the
Company and effectively implement the Company's operating or growth strategies
or effectively manage the combined operations. The Company's historical
financial results cover periods when the Company was not under common control or
management and, therefore, may not be indicative of the Company's future
financial or operating results. In addition, the Company's operating strategy
includes the integration of all acquired companies, which requires resources,
management time, training and the implementation of consistent management
practices. If the Company is not able successfully to complete the integration
of Hamilton-Ryker, CSR, Inc. and the other acquired companies, such failure
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISKS RELATED TO GROWTH STRATEGY
The Company has experienced significant growth, primarily through
acquisitions, internal growth and opening new branches. There can be no
assurance that the Company will be able to expand its market presence in its
current locations or successfully enter new markets through acquisitions or the
opening of new branches. The Company's ability to continue its growth and
profitability will depend on a number of factors, including the availability of
capital to fund acquisitions, existing and emerging competition, the ability to
maintain sufficient profit margins despite pricing pressures and the strength of
demand for temporary employees, consultants and professionals in the Company's
markets. The Company must also manage costs in a changing regulatory
environment, adapt its infrastructure and systems to accommodate growth and
recruit and train additional qualified personnel. There can be no assurance that
the Company's systems, procedures and controls will be adequate to support its
operation as the Company expands.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company intends to increase its revenues in part through the
acquisition of additional providers of Professional Services and Commercial
Staffing. There can be no assurance that the Company will be able to
successfully identify suitable acquisition candidates (particularly
professional/information technology ("IT") candidates), complete acquisitions at
an acceptable price or integrate acquired businesses into its operations. Even
if suitable acquisition candidates are identified, the Company may not be able
to compete successfully with other companies in its industry that have adopted a
strategy of growth through acquisition. Acquisitions also involve certain risks,
including risks associated with the availability of acquisition financing,
unanticipated problems, liabilities and contingencies, diversion of management
attention, unanticipated costs associated with effecting or attempting to effect
acquisitions and possible adverse effects on earnings resulting from increased
goodwill amortization, increased interest costs, the issuance of additional
securities and difficulties related to the integration of the acquired business.
Once integrated, acquired companies may not achieve acceptable levels of revenue
or profitability or otherwise perform as expected. The Company is unable to
predict whether or when any prospective acquisition candidate will become
available or the likelihood that any acquisition will be completed. The Company
intends to finance future acquisitions by using cash and Common Stock for all or
a portion of the consideration to be paid. In the event that the Common Stock
does not maintain a sufficient market value, or potential acquisition candidates
are unwilling to accept Common Stock as part of the consideration for their
businesses, the Company may be required to utilize its cash resources, if
available, in order to pursue additional acquisitions. Although the Company
currently maintains a $75 million credit facility, if the Company does not have
sufficient cash resources to pursue acquisitions, its growth could be
7
<PAGE> 9
limited unless it is able to obtain additional capital through debt or equity
financing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and
"Business -- Growth Strategy."
RISKS ASSOCIATED WITH OPENING NEW BRANCHES
The Company intends to grow by opening new branches and, in certain
circumstances, by expanding into new geographic areas. The Company anticipates
that new branches initially may produce significant operating losses and will
place demands on the Company's management and operational, administrative and
financial resources. In addition, the Company's future performance and
profitability will depend, in part, on its ability successfully to attract and
retain qualified personnel to manage the growth and operations of the new
branches. There can be no assurance that the Company's new branches will be
profitable. The opening of additional branches, individually or in the
aggregate, may have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Growth Strategy."
DEPENDENCE ON AVAILABILITY OF QUALIFIED TEMPORARY PERSONNEL
The Company depends on its ability to attract, train and retain personnel,
including technical and professional personnel, who possess the skills and
experience necessary to meet the staffing requirements of the Company's clients.
Competition for individuals with proven skills in certain areas, particularly in
IT, is intense. The Company places employees in several industries in which
unemployment is relatively low thereby increasing competition for employees
qualified for such placements. The Company must continually evaluate, train and
upgrade its supply of available personnel to satisfy clients' needs. 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. In addition, the Company's clients and other employers frequently hire
the Company's temporary staff for permanent positions, thereby increasing the
need to recruit and train qualified temporary personnel. The inability to
attract and retain qualified personnel could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business -- Human Resources -- Employees."
FLUCTUATIONS IN OPERATING RESULTS; FLUCTUATIONS IN QUARTERLY RESULTS AND
SEASONALITY
The Company's quarterly operating results have fluctuated in the past and
will fluctuate in the future based on many factors. These factors include, among
others, changes in the regulatory environment, gain or loss of a key client,
failure to adequately integrate acquired companies, fluctuations in the general
economy, increased competition, the opening of new branches, changes in
operating expenses, expenses related to acquisitions and the potential adverse
effect of acquisitions. It is possible that in the future, the Company's
operating results may be below the expectations of public market analysts and
investors. In such an event, the price of the Common Stock could be materially
adversely affected. In view of the Company's recent significant growth, both
internally and through acquisitions, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future performance. The Company's
quarterly operating results are affected primarily by the number of billing days
in the quarter and the seasonality of its clients' businesses. Demand for
services in Commercial Staffing has historically been lower from the year-end
holidays through February of the following year, and has shown gradual
improvement over the remainder of the year. Although less pronounced than in
Commercial Staffing, the demand for Professional Services is typically lower
during the first quarter.
RELIANCE ON KEY PERSONNEL
The Company is highly dependent on its current management, including its
Chief Executive Officer. The Company believes that its success will depend to a
significant extent upon the efforts and abilities of the key executives of the
Company. Furthermore, the Company will likely be dependent on the senior
management of companies that may be acquired in the future. If any of these
individuals does not continue in his/her position
8
<PAGE> 10
with the Company, or if the Company is unable to attract and retain other
skilled managers, the Company's business, operating results and financial
condition could be materially adversely affected. See "Management."
RELIANCE ON INFORMATION SYSTEMS
The Company's business depends upon its ability to store, retrieve, process
and manage significant databases, and periodically to expand and upgrade its
information processing capabilities. The Company's computer equipment and
software systems are maintained at two locations and are backed-up on a daily
basis. Interruption or loss of the Company's information processing capabilities
through loss of stored data, breakdown or malfunction of computer equipment and
software systems, telecommunications failure, conversion difficulties, or damage
to the Company's headquarters and systems caused by fire, hurricane, lightning,
electrical power outage, or other disruption could have a material adverse
effect on the Company's business, operating results and financial condition.
COMPETITION
The staffing industry is intensely competitive and fragmented and has
limited barriers to entry. The Company competes for employees and clients in
national, regional and local markets with full-service and specialized temporary
staffing services businesses. A significant number of the Company's competitors
have greater marketing, financial and other resources and more established
operations than the Company. Price competition in the staffing industry is
intense, particularly for the provision of commercial personnel, and pricing
pressures from competitors and clients are increasing. Many of the Company's
clients have relationships with more than one staffing service company. However,
in recent years, an increasing number of companies have consolidated their
staffing services purchases and entered into exclusive contracts with a single
temporary staffing company or a small number of temporary staffing companies. If
current or potential clients enter into exclusive contracts with competitors of
the Company, it will be difficult or impossible for the Company to obtain
business from such clients. The Company expects that the level of competition
will remain high in the future, which could limit the Company's ability to
maintain or increase its market share or maintain or increase gross margins,
either of which could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Staffing Services
Industry Overview" and "-- Competition."
EFFECT OF FLUCTUATIONS IN THE GENERAL ECONOMY
Demand for the Company's staffing 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. In addition, the Company may experience more
competitive pricing pressures during periods of economic downturn. Therefore,
any economic downturn could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY CLIENTS
Substantially all of the Company's contracts to perform services may be
canceled or modified by the Company's clients at will without penalty. The
Company's largest client accounted for approximately 3.0% of the Company's pro
forma revenues for the year ended December 31, 1997. For the year ended December
31, 1997, the Company's five largest clients accounted for approximately 9.9% of
the Company's pro forma revenues. The loss of, or a material reduction in
revenues from, one or more large clients could have a material adverse effect on
the Company's business, operating results and financial condition.
9
<PAGE> 11
INFORMATION TECHNOLOGY TRENDS
Growth in the use of flexible staffing in the IT area in recent years has
been driven largely by rapid technological advances. As the sophistication and
complexity of business information systems increase, and as the recent corporate
trend toward downsizing continues, businesses are increasingly turning to
specialized, outside technical personnel to support their IT operations. The
Company's success in the IT area depends in large part on its ability to keep
pace with existing technology, predict new technological advancements and
recruit and train qualified employees in response to these trends and in
accordance with clients' needs. See "Business -- Services -- Professional
Services."
RISK OF GOVERNMENT REGULATION AND LEGISLATIVE PROPOSALS
The Company's costs could increase if there are any material changes in
applicable governmental regulations. Recent federal and state legislative
proposals have included provisions extending health insurance benefits to
employees not presently receiving 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
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. Such legislation, if enacted, could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Regulation."
POTENTIAL LIABILITY; LEGAL PROCEEDINGS
Providers of staffing services place employees in the workplaces of other
businesses. An inherent risk of such activity includes possible claims of
professional malpractice, errors and omissions, misuse of client proprietary or
other confidential information, misappropriation of funds, discrimination and
harassment, employment of illegal aliens, theft of client property, other
criminal activity or torts and other claims. In addition, a small number of
customers of the Company have required the Company to enter into indemnity
agreements. Any substantial claim against the Company or an employee of the
Company may result in negative publicity, injunctive relief or the payment by
the Company of monetary damages or fines, or may have other material adverse
effects upon the Company. Moreover, the Company could be held responsible for
the actions at a workplace of persons not under the direct control of the
Company. To reduce its exposure, the Company maintains insurance covering
general liability, workers' compensation claims, errors and omissions and
employee theft, but there can be no assurance that such insurance coverage will
continue to be available at a reasonable cost for amounts adequate to cover any
such liability. In the ordinary course of its business, the Company is
periodically threatened with or named as a defendant in various lawsuits,
including discrimination, harassment and other similar claims, which could have
a material adverse effect on the Company's business, operating results and
financial condition.
UNEMPLOYMENT INSURANCE AND WORKERS' COMPENSATION COSTS
The Company is required to pay unemployment insurance premiums and workers'
compensation for its employees. The cost of unemployment insurance premiums may
increase as a result of, among other things, increased levels of unemployment,
the lengthening of periods for which unemployment benefits are available,
changes in the Company's experience rating or changes in applicable laws.
Although management believes its existing workers' compensation coverage amounts
are adequate, there can be no assurance that the Company's actual workers'
compensation claims will be within the coverage amounts. The Company may incur
costs related to worker's compensation claims at a higher rate than expected due
to such causes as greater than anticipated losses from known claims or an
increase in the number and severity of new claims. In addition, the Company's
workers' compensation insurance premiums may be subject to retroactive increases
based upon audits of the Company's employee classification practices and other
data provided to the insurance carrier. The Company has retained the services of
an independent third-party administrator and an independent
10
<PAGE> 12
actuary to assist the Company in establishing appropriate reserves for the
uninsured portion of workers compensation claims. Although management believes
its recorded reserve is adequate, there can be no assurance that the Company's
actual future workers' compensation obligations will not exceed the amount of
its workers' compensation reserve. See "Business -- Human Resources -- Risk
Management and Workers' Compensation Program."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
After completion of the Offering, the Company's executive officers,
directors and current stockholders will beneficially own approximately % of
the outstanding shares of Common Stock. These persons acting together would
likely be able to elect a sufficient number of directors to control the Board of
Directors of the Company and to approve or disapprove any matter submitted to a
vote of stockholders. See "Principal and Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. Of these shares, all of the shares sold in the
Offering will be freely transferable without restriction or limitation under the
Securities Act of 1933, as amended (the "Securities Act"), except any shares
purchased by "affiliates" of the Company, as such term is defined in Rule 144
under the Securities Act. The remaining shares constitute "restricted
securities" within the meaning of Rule 144 and the resale of such shares is
restricted for one year from the date they were acquired. The holders of such
shares have certain rights to have shares registered in the future under the
Securities Act pursuant to the terms of agreements between such holders and the
Company. The Company and its executive officers, directors and principal
shareholders have agreed not to offer or to sell any shares of Common Stock for
a period of 180 days following the date of this Prospectus without the prior
written consent of NationsBanc Montgomery Securities LLC, except that the
Company may issue shares of Common Stock in connection with acquisitions and
pursuant to the exercise of stock options described in this Prospectus. On the
date of this Prospectus, the Company had outstanding options to purchase 95,000
shares of Common Stock granted pursuant to the Stock Option Plan. Concurrently
with the completion of this Offering, the Company intends to grant options to
employees to acquire 250,000 shares of Common Stock. The Company intends to
register all of the 1,500,000 shares of Common Stock reserved for issuance
pursuant to the Company's Stock Option Plan under the Securities Act for public
resale. Sales of substantial amounts of shares of Common Stock in the public
market after this Offering or the perception that such sales could occur may
adversely affect the market price of the Common Stock. See "Shares Eligible for
Future Sale."
NO PRIOR TRADING MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop or
be sustained after this Offering or that the market price of the Common Stock
will not fall below the offering price. The initial public offering price was
determined through negotiations among the Company, the Selling Stockholders and
representatives of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this Offering. From
time to time, there may be significant volatility in the market price for the
Common Stock. Quarterly operating results of the Company or of other temporary
staffing and service companies, extreme price and volume fluctuations in the
stock market, changes in general conditions in the economy, analyst's earnings
estimates, the financial markets or the staffing industry, natural disasters or
other developments could cause the market price of the Common Stock to fluctuate
substantially. See "Risk Factors -- Fluctuations in Operating Results;
Fluctuations in Quarterly Results and Seasonality" "-- Effects of Fluctuations
in the General Economy" and "Dividend Policy."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS, DELAWARE LAW
Upon completion of this Offering, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Bylaws will, and Delaware
law does, contain provisions that could have the effect of
11
<PAGE> 13
delaying, deferring or preventing an unsolicited change in control of the
Company, which may adversely affect the market price of the Common Stock or the
ability of shareholders to participate in a transaction in which they might
otherwise receive a premium for their shares over the then-current market price.
Such provisions also may have the effect of preventing changes in the management
of the Company. These provisions will provide that all stockholder action must
be taken at an annual or special meeting of the stockholders, that only the
Board of Directors may call special meetings of the stockholders and that the
Board of Directors be divided into three classes to serve for staggered
three-year terms. In addition, the Certificate will authorize the Board of
Directors to issue preferred stock in one or more series ("Preferred Stock")
without shareholder approval and on such terms as the Board of Directors may
determine. Although no shares of Preferred Stock will be outstanding upon the
closing of this Offering and the Company has no present plans to issue any
shares of Preferred Stock, the rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
Preferred Stock that may be issued in the future. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which could have the effect of delaying or preventing a change
of control of the Company. See "Description of Capital Stock -- Preferred
Stock," "-- Anti-Takeover Provisions of Charter and Bylaws," and "-- Statutory
Business Combinations Provision."
DILUTION; NO DIVIDENDS
Purchasers of Common Stock in this Offering will experience immediate and
substantial dilution in net tangible book value of $ per share of Common
Stock and present stockholders will experience an increase in net tangible book
value of $ per share of Common Stock. To the extent that currently
outstanding options to purchase Common Stock are exercised, there will be
further dilution. The Company does not intend to pay any dividends on its Common
Stock in the foreseeable future. See "Dilution" and "Dividend Policy."
12
<PAGE> 14
THE COMPANY
The Company was organized on December 31, 1996 under the name "Mega Force
Staffing Services, Inc." as the successor to The Mega Force Group, a group of
operating companies providing clerical and light industrial staffing services in
the southeastern United States, the first of which was founded in 1983. In March
1997, the Company acquired Hamilton-Ryker, a southeastern based clerical and
light industrial staffing company with 27 branches in four states. In December
1997, the Company acquired CSR, Inc., a midwest-based clerical, light industrial
and IT staffing company with 49 branches in ten states, subsequent to which the
Company changed its name to Corporate Staffing Resources, Inc. Since acquiring
CSR, Inc., the Company has acquired four businesses, NPS of Atlanta, Inc.,
Intranational Computer Consultants Inc., and CMS Management Services Company
(together with Hamilton-Ryker and CSR, Inc., the "Completed Acquisitions"), and
on May 15, 1998, Monday Temporary Services, Inc. ("Monday").
The table below sets forth certain information with respect to companies
acquired through the date of this Prospectus.
<TABLE>
<CAPTION>
1997
DATE REVENUES BRANCHES YEAR SERVICES
COMPANY ACQUIRED (IN MILLIONS) ACQUIRED HEADQUARTERS FOUNDED PROVIDED
- ---------------------------------------- --------- ------------- -------- ---------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Hamilton-Ryker Company, LLC......... Mar. 1997 $ 43.7 27 Martin, TN 1971 Clerical/Light
Industrial
CSR, Inc................................ Dec. 1997 71.3 49 South Bend, IN 1987 Clerical/Light
Industrial/IT
NPS of Atlanta, Inc.(1) ................ Feb. 1998 11.1 5 Atlanta, GA 1991 Clerical
Intranational Computer Consultants Mar. 1998 14.5 3 Petaluma, CA 1996
Inc. ................................. IT
CMS Management Services Company......... May 1998 13.9 3 South Bend, IN 1986 Accounting/IT
Monday Temporary Services, Inc. ........ May 1998 6.2 1 Kalamazoo, MI 1985 Clerical/Light
Industrial
------ --
$160.7 88
====== ==
</TABLE>
- ---------------
(1) Revenues are for the twelve months ended October 31, 1997.
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $ million ($ if
the Underwriters' over-allotment option is exercised in full), assuming an
initial offering price of $ per share and after deducting estimated
discounts and estimated expenses payable by the Company.
The Company intends to use the net proceeds of the Offering to repay
outstanding indebtedness under its Credit Agreement (as defined herein) and
certain notes payable to shareholders and for working capital and general
corporate purposes, including future acquisitions. At March 31, 1998, the
Company had $35.0 million of borrowings outstanding under the Credit Agreement.
The Credit Agreement currently bears interest at a base rate or London Interbank
Offered Rate ("LIBOR") plus an applicable margin and is scheduled to mature on
December 3, 2001. At March 31, 1998, the weighted average interest rate for
outstanding borrowings under the Credit Agreement was 8.75% and the interest
rate for the shareholder notes payable was 8.0%. Borrowings under the Credit
Agreement have been used to finance acquisitions and for general corporate
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Certain
Transactions."
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company does not anticipate paying any dividends on Common Stock in the
foreseeable future. In addition, the Credit Agreement prohibits the payment of
dividends. See "Description of Capital Stock."
14
<PAGE> 16
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at March 31, 1998; (ii) the pro forma capitalization of the Company at
March 31, 1998, giving effect to the acquisitions completed by the Company after
that date, the issuance of $5.0 million of subordinated promissory notes and the
sale of the shares of Common Stock offered by the Company hereby (at an
assumed public offering price of $
per share), after deduction of the estimated underwriting discounts and
commissions and offering expenses and the application of the net proceeds
therefrom as described in "Use of Proceeds." The information in the table below
is qualified in its entirety by, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
(IN THOUSANDS)
---------------------
ACTUAL PRO FORMA
-------- ----------
<S> <C> <C>
Current portion of long-term debt........................... $ 180
======= =======
Long-term debt, excluding current portion:
Bank indebtedness(1)...................................... $35,064
Subordinated promissory notes(2).......................... 2,274
------- -------
Total long-term debt.............................. 37,338
------- -------
Shareholders' equity:
Common stock, $.01 par value, 15,000,000 shares
authorized: 9,678,114 shares issued and outstanding,
actual and shares issued and outstanding, pro
forma(3)............................................... 97
Additional paid-in capital................................ 29,309
Accumulated deficit....................................... (472)
------- -------
Shareholders' equity.............................. 28,934
------- -------
Total capitalization........................................ $66,272
======= =======
</TABLE>
- ---------------
(1) Actual long-term bank indebtedness does not include borrowings of
approximately $10.5 million incurred after March 31, 1998.
(2) Actual subordinated promissory notes do not include the $5.0 million
incurred in connection with the acquisition of CMS Management Services
Company on May 1, 1998. See Note 2 of Notes to Unaudited Condensed
Consolidated Financial Statements of the Company.
(3) Excludes approximately 1,500,000 shares of Common Stock reserved for
issuance under the Company's Option Plan (as defined herein) (of which: (i)
95,000 shares of Common Stock are issuable upon exercise of outstanding
options at a weighted average exercise price of $8.00 per share; and (ii)
250,000 shares of Common Stock will be issuable upon exercise of options to
be granted concurrently with the consummation of this Offering at a weighted
average exercise price of $ ). See "Management," "Capitalization"
and "Principal and Selling Stockholders."
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company at March 31, 1998 was
approximately $ million, or $ per share of Common Stock. Pro
forma net tangible book value per share prior to Offering adjustments,
represents the Company's pro forma total tangible assets less its pro forma
total liabilities prior to Offering adjustments, divided by 9,678,114 shares of
Common Stock outstanding as of March 31, 1998. After giving effect to the sale
of the shares of Common Stock offered hereby (after deducting the
underwriting discount and estimated Offering expenses) and the use of the net
proceeds therefrom as described under "Use of Proceeds," the pro forma net
tangible book value of the Company at March 31, 1998 would have been
approximately $ million, or per share. This represents an
immediate increase in such pro forma net tangible book value of $ per
share to existing shareholders at March 31, 1998, consisting of $ per
share attributable to the Offering and an immediate net tangible book value
dilution of $ per share to investors purchasing shares in the Offering.
The following table illustrates pro forma dilution on a per share basis to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Pro forma net tangible book value as of March 31, 1998
prior to Offering adjustments.......................... $
Increase in pro forma net tangible book value attributable
to the Offering........................................
--------
Pro forma net tangible book value after the Offering......
---------
Dilution to new investors................................. $ ()
=========
</TABLE>
The following table summarizes, as of the date of this Prospectus, the
difference between existing stockholders and new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share, assuming an initial
public offering price of $ per share but before deducting the
underwriting discount and estimated Offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors.................... % %
--------- ----- ---------- -----
Total............................ 100.0% $ 100.0%
========= ===== ========== =====
</TABLE>
The foregoing tables assume no exercise of outstanding options. As of the date
of this Prospectus, there are 95,000 shares of Common Stock issuable upon the
exercise of stock options at a weighted average exercise price of $8.00 per
share. See "Management."
16
<PAGE> 18
SELECTED FINANCIAL DATA
The financial data set forth below as of and for the year ended December
31, 1997 were derived from audited financial statements of the Company. The
financial data as of and for the years ended December 31, 1995 and 1996 were
derived from the audited financial statements of The Mega Force Group, the
Company's predecessor. The financial data for the years ended December 31, 1993
and 1994 and as of and for the three months ended March 31, 1997 and 1998 were
derived from the unaudited financial statements of The Mega Force Group and the
Company, respectively, which include all adjustments (consisting only of normal
recurring adjustments) that, in the opinion of management, are necessary to
present fairly the information set forth therein.
The pro forma financial data as of and for the three months ended March 31,
1997 and 1998 and the year ended December 31, 1997, were derived from the pro
forma combined financial statements of the Company appearing elsewhere in this
Prospectus. Such pro forma combined financial statements give effect to the
Completed Acquisitions, the Offering and the application of the proceeds
therefrom, as if each of these events had occurred on January 1, 1997. The pro
forma financial information of the Company does not purport to represent what
the Company's results of operations or financial position actually would have
been had the Completed Acquisitions occurred on the dates specified, nor is it a
projection of the Company's results of operations or financial position for any
future period or date. The data presented below should be read in conjunction
with the Management's Discussion and Analysis of Financial Condition and Results
of Operations, the financial statements and pro forma combined financial
statements and the notes thereto included elsewhere herein.
17
<PAGE> 19
SELECTED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:(2)
Revenues:............................ $49,705 $59,408 $67,350 $65,549 $114,564 $16,489 $53,060
Cost of services..................... 42,882 51,515 57,173 54,724 93,557 13,672 42,787
------- ------- ------- ------- -------- ------- -------
Gross profit......................... 6,823 7,893 10,177 10,825 21,007 2,817 10,273
Selling, general and administrative
expenses............................ 4,382 6,718 9,655 9,494 13,861 2,235 8,235
Depreciation and amortization........ 214 283 295 284 836 83 505
Other operating expenses............. -- -- -- -- 1,158 163
------- ------- ------- ------- -------- ------- -------
Operating income (loss).............. 2,227 892 227 1,047 5,152 336 1,533
Interest expense..................... 67 158 275 266 1,570 127 644
Other (income) expense............... 45 2 (10) (115) (124) -- --
------- ------- ------- ------- -------- ------- -------
Income (loss) before taxes and
extraordinary item.................. 2,115 732 (38) 896 3,706 209 889
Provisions (benefit) for income
taxes............................... 57 69 -- -- 1,904 377 400
------- ------- ------- ------- -------- ------- -------
Income (loss) before extraordinary
item................................ 2,058 663 (38) 896 1,802 (168) 489
Extraordinary item, net of tax
benefit............................. -- -- -- -- 1,672 -- --
------- ------- ------- ------- -------- ------- -------
Net income (loss).................... $ 2,058 $ 663 $ (38) $ 896 $ 130 $ (168) $ 489
======= ======= ======= ======= ======== ======= =======
Basic earnings (loss) per common
share:
Income (loss) before extraordinary
item.............................. $ .36 $ (.04) $ .05
Extraordinary item, net of tax
benefit........................... (.33) -- --
-------- ------- -------
Net income (loss)................. $ .03 $ (.04) $ .05
======== ======= =======
Average shares outstanding........... 5,061 3,756 9,678
Diluted earnings (loss) per common
share:
Income (loss) before extraordinary
item.............................. $ .32 $ (.04) $ .05
Extraordinary item, net of tax
benefit........................... (.30) -- --
-------- ------- -------
Net income (loss)................. $ .02 $ (.04) $ .05
======== ======= =======
Average shares outstanding........... 5,580 4,318 9,693
<CAPTION>
PRO FORMA(3)(4)
--------------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------ -----------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:(2)
Revenues:............................ $227,695 $48,541 $61,286
Cost of services..................... 178,464 38,240 48,234
-------- ------- -------
Gross profit......................... 49,231 10,301 13,052
Selling, general and administrative
expenses............................ 35,469 8,015 10,198
Depreciation and amortization........ 2,586 639 685
Other operating expenses............. 409 59 --
-------- ------- -------
Operating income (loss).............. 10,767 1,588 2,169
Interest expense..................... 425 106 106
Other (income) expense............... (161) 38 --
-------- ------- -------
Income (loss) before taxes and
extraordinary item.................. 10,503 1,444 2,063
Provisions (benefit) for income
taxes............................... 4,726 650 928
-------- ------- -------
Income (loss) before extraordinary
item................................ 5,777 794 1,135
Extraordinary item, net of tax
benefit............................. -- -- --
-------- ------- -------
Net income (loss).................... $ 5,777 $ 794 $ 1,135
======== ======= =======
Basic earnings (loss) per common
share:
Income (loss) before extraordinary
item..............................
Extraordinary item, net of tax
benefit...........................
-------- ------- -------
Net income (loss).................
======== ======= =======
Average shares outstanding...........
Diluted earnings (loss) per common
share:
Income (loss) before extraordinary
item..............................
Extraordinary item, net of tax
benefit...........................
-------- ------- -------
Net income (loss).................
======== ======= =======
Average shares outstanding...........
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
ACTUAL PRO FORMA(3)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $12,996
Total assets.............................................. 81,040
Total debt................................................ 37,518
Shareholders' equity...................................... 28,934
</TABLE>
- ---------------
(1) The Company was organized on December 31, 1996. Therefore, the Statement of
Income Data represents the operations of The Mega Force Group, the Company's
predecessor, for the years ended December 31, 1993, 1994, 1995 and 1996.
(2) The Company's Completed Acquisitions (as hereinafter defined) have been
accounted for as purchases, and therefore, the operations of the acquired
companies are included in the Statement of Income Data from the respective
dates of acquisition. See the Financial Statements of Corporate Staffing
Resources, Inc. included herein.
(3) Pro forma information gives effect to the Completed Acquisitions and the
consummation of the Offering described herein. The pro forma adjustments for
the Completed Acquisitions include: (i) an adjustment to compensation
expense equal to the difference between actual compensation paid to certain
officers of the Company and the acquired companies and compensation expense
agreed to in connection with the recent amendment and restatement of certain
management employment contracts; (ii) an adjustment to income tax expense
based upon a consolidated effective tax rate of 45%, which reflects the
impact of nondeductible goodwill amortization; (iii) an adjustment to
amortization expense relating to intangible assets recorded in conjunction
with the Completed Acquisitions; and (iv) an adjustment to interest expense
to reflect incremental borrowings under the Company's borrowing facility
necessary to finance the Completed Acquisitions. Pro forma adjustments for
the Offering include: (i) a reduction of interest expense resulting from
repayment of outstanding borrowings under the credit agreement and repayment
of shareholder notes payable; and (ii) the elimination of certain management
and consulting fees pursuant to certain agreements which will be terminated
upon the consummation of the Offering. The pro forma results of operations
are not necessarily indicative of the results that would have occurred had
these transactions been completed as of such date or the results that may be
attained in the future.
(4) Gives effect to: (i) 9,678,114 shares outstanding prior to the Offering;
(ii) 95,000 shares issuable upon exercise of outstanding stock options in
accordance with SEC Staff Accounting Bulletin Topic 4D; and (iii)
shares issued in the Offering. See "Capitalization."
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. Actual events and results may differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including the matters set forth under the caption "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
Corporate Staffing Resources, Inc. is a leading provider of diversified
staffing, professional and consulting services to businesses, professional and
service organizations, educational institutions and governmental agencies. The
Company offers these services through over 130 branches located in 16 states.
Since March 1997, the Company has acquired six additional staffing and
professional service companies with 88 branches. The Company believes that a
combination of internal growth and selective acquisitions will allow it to
capitalize most effectively on opportunities in the large and rapidly growing
staffing services industry. For the year ended December 31, 1997 and the three
months ended March 31, 1998, the Company's pro forma revenues and operating
income were $227.7 million and $61.3 million, and $10.8 million and $2.2
million, respectively.
The Company primarily provides two types of staffing services: (i)
commercial staffing services ("Commercial Staffing"), including
vendor-on-premises, clerical, administrative and light industrial staffing
services; and (ii) professional staffing services ("Professional Services"),
including a comprehensive range of IT, accounting and finance staffing,
placement and outplacement services. The Company's Commercial Staffing branches
primarily serve small to mid-size cities, while its Professional Services
branches serve primarily major metropolitan and national markets.
The Company has grown significantly in the past 18 months through its
Completed Acquisitions, including the acquisition of CSR, Inc. on December 3,
1997. The businesses owned by CSR, Inc. (the "CSR businesses") were founded by
William W. Wilkinson with his son, William J. Wilkinson, in 1986 to provide
clerical and light industrial staffing services. The revenues of the CSR
businesses grew at a compound annual growth rate of over 29.6% during the two
year and eleven month period ended December 3, 1997, and the gross profits of
the CSR businesses grew at a compound annual growth rate of over 31.9% during
the same period. During this period, the CSR businesses' growth was attributable
to increased billable hours, higher hourly rates, the opening of new branches
and a shift in its business mix toward Professional Services. The disciplined
budgeting process and management practices implemented at the CSR businesses
serve as the management model for all branches of the Company.
The Company recognizes revenues based on hours worked by assigned
personnel. Generally, the Company bills its clients a prenegotiated fixed rate
per hour worked by its temporary employees. Temporary personnel placed by the
Company are generally Company employees; accordingly, the Company is responsible
for workers' compensation, unemployment compensation insurance, Medicare and
Social Security taxes and general payroll expenses. These expenses are included
within cost of services. Because the Company pays its temporary employees only
for the hours they actually work, wages for the Company's temporary personnel
are a variable cost that increases or decreases in proportion to revenues. Some
of the temporary employees placed by the Company may decide to accept an offer
of permanent employment from the client and thereby "convert" the temporary
position to a permanent position, and in this case, a fee is generally paid to
the Company. Such fees are included in revenues herein. Selling, general and
administrative expenses include payroll for management and administrative
employees, office occupancy costs, sales and marketing expenses and other
general and administrative costs.
The Completed Acquisitions have been accounted for under the purchase
method of accounting, with the results of operations of businesses acquired
being included in the Company's results of operations beginning on the date of
acquisition. As of the date hereof, the Company has recorded approximately $63.5
million as goodwill, representing the excess of the fair value of the
consideration paid over the fair value of the assets acquired. Approximately
23.0% of the goodwill is deductible for federal income tax purposes over 15
years. For
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financial reporting purposes, goodwill is amortized over 40 years. The pro forma
effect of this amortization expense is approximately $1.6 million annually.
The Company incurred a non-recurring extraordinary item, net of taxes, of
$1.7 million in the year ended December 31, 1997. This item represents a charge
resulting from the early extinguishment of debt by the Company in December 1997.
See Notes to Corporate Staffing Resources, Inc. Financial Statements.
RECENT DEVELOPMENTS
The Company acquired Monday Temporary Services, Inc. ("Monday") on May 15,
1998, for a purchase price of approximately $3.8 million. Monday, which provides
clerical and light industrial staffing services out of its office in Kalamazoo,
Michigan, had 1997 revenues of $6.2 million.
HISTORICAL AND PRO FORMA OPERATING DATA
The historical operating data of the Company for the year ended December
31, 1997 and three months ended March 31, 1997 and March 31, 1998 includes the
results of operations of the Completed Acquisitions in the Company's results of
operations beginning on the date each acquisition was completed. The historical
operating data of the Company as of and for the periods ended December 31, 1995
and 1996 represents the results of operations of the Company's predecessor, The
Mega Force Group.
Pro forma information gives effect to the Completed Acquisitions and the
Consummation of the Offering described herein. The pro forma adjustments for the
Completed Acquisitions include: (i) the Completed Acquisitions as if they were
consummated as of the beginning of each of those periods; (ii) an adjustment to
compensation expense for the difference between actual compensation paid to
certain officers of the Company and the acquired companies and compensation
expense agreed to in connection with the recent amendment and restatement of
certain management employment contracts; (iii) an adjustment to income tax
expense based upon a consolidated effective tax rate of 45%, which reflects the
impact of nondeductible goodwill amortization; (iv) an adjustment to
amortization expense relating to intangible assets recorded in conjunction with
the Completed Acquisitions; and (v) an adjustment to interest expense to reflect
incremental borrowings under the Company's borrowing facility necessary to
finance the Completed Acquisition. Pro forma adjustments for the Offering
include: (i) a reduction of interest expense resulting from repayment of
outstanding borrowings under the credit agreement and repayment of shareholder
notes payable; and (ii) the elimination of certain management and consulting
fees pursuant to certain agreements which will be terminated upon consummation
of the Offering. The pro forma results of operations are not necessarily
indicative of the results that would have occurred had these transactions been
completed as of such date or the results that may be attained in the future.
RESULTS OF OPERATIONS
The following table sets forth certain historical and pro forma operating
data as a percentage of revenues for the indicated periods:
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, MARCH 31, YEAR ENDED MARCH 31,
----------------------- -------------- DECEMBER 31, --------------
1995 1996 1997 1997 1998 1997 1997 1998
----- ----- ----- ----- ----- ------------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services.......................... 84.9 83.5 81.7 82.9 80.6 78.4 78.8 78.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.............................. 15.1 16.5 18.3 17.1 19.4 21.6 21.2 21.3
----- ----- ----- ----- ----- ----- ----- -----
Selling, general and administrative
expenses................................ 14.4 14.5 12.1 13.6 15.5 15.6 16.6 16.6
Depreciation and amortization............. 0.4 0.4 0.7 0.5 1.0 1.1 1.3 1.1
Other operating expenses.................. -- -- 1.0 1.0 -- .2 .1 --
----- ----- ----- ----- ----- ----- ----- -----
Operating income.......................... 0.3% 1.6% 4.5% 2.0% 2.9% 4.7% 3.2% 3.5%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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PRO FORMA THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH
31,1997
Revenues. Revenues increased 26.2% to $61.3 million for the three months
ended March 31, 1998 from $48.5 million for the three months ended March 31,
1997. The increase in revenues was a result of a 25.3% increase in revenues from
Commercial Staffing to $49.5 million for the three months ended March 31, 1998
from $39.5 million for the three months ended March 31, 1997, and a 31.1%
increase in revenues from Professional Services to $11.8 million for the three
months ended March 31, 1998 from $9.0 million for the three months ended March
31, 1997. Commercial Staffing revenues increased primarily as a result of
increased billings to existing clients, the addition of new clients and the
opening of 20 new branches. In addition, the Company established a new VOP
relationship, which provided $6.4 million of revenues for the three months ended
March 31, 1998. Professional Services revenues increased primarily as a result
of increased billings to existing clients, the addition of new clients,
increased billing rates, and the opening of six new branches.
Gross Profit. Gross profit increased 26.7% to $13.1 million for the three
months ended March 31, 1998 from $10.3 million for the three months ended March
31, 1997. Gross profit as a percentage of revenues remained relatively constant
at 21.3% for the three months ended March 31, 1998 compared to 21.2% for the
three months ended March 31, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 27.2% to $10.2 million for the three months
ended March 31, 1998 from $8.0 million for the three months ended March 31,
1997. This increase was primarily due to salaries and related benefits arising
from the hiring of additional management personnel necessary to identify,
complete and integrate acquisitions. Selling, general and administrative
expenses as a percentage of revenues remained constant at 16.6% for the three
months ended March 31, 1998 and the three months ended March 31, 1997.
Depreciation and Amortization. Depreciation and amortization expenses
increased 7.2% to $685,000 for the three months ended March 31, 1998 from
$639,000 for the three months ended March 31, 1997. Depreciation and
amortization expenses as a percentage of revenues decreased to 1.1% for the
three months ended March 31, 1998 from 1.3% for the three months ended March 31,
1997.
Other Operating Expenses. During the three months ended March 31, 1997, the
Company incurred other operating expenses of $59,000, related primarily to legal
and accounting fees incurred by one of the acquired companies in a failed
acquisition transaction.
Operating Income. As a result of the foregoing, operating income increased
36.6% to $2.2 million for the three months ended March 31, 1998 from $1.6
million for the three months ended March 31, 1997, and operating income as a
percentage of revenues increased to 3.5% for the three months ended March 31,
1998 from 3.2% for the three months ended March 31, 1997.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Revenues increased 221.8% to $53.1 million for the three months
ended March 31, 1998 from $16.5 million for the three months ended March 31,
1997. Revenues increased primarily due to the inclusion of the full three months
results of operations of CSR, Inc. and Hamilton-Ryker and partial period results
for other acquired companies for the three months ended March 31, 1998 and the
establishment of a new VOP relationship, which provided $6.4 million of revenues
for the three months ended March 31, 1998.
Gross Profit. Gross profit increased 264.7% to $10.3 million for the three
months ended March 31, 1998 from $2.8 million for the three months ended March
31, 1997. Gross profit as a percentage of revenues increased to 19.4% for the
three months ended March 31, 1998 from 17.1% for the three months ended March
31, 1997. This increase resulted from the inclusion of the full three months of
operations of CSR, Inc. and Hamilton-Ryker and partial period results for other
acquired companies. CSR, Inc., Hamilton-Ryker and the other acquired companies
had higher gross margins due to the higher proportion of Professional Services
in their revenue mixes.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 268.4% to $8.2 million for the three months
ended March 31, 1998 from $2.2 million for the three months ended March 31,
1997. Selling, general and administrative expenses as a percentage of revenues
increased to 15.5% for the three months ended March 31, 1998 from 13.6% for the
three months ended March 31, 1997. This increase was primarily due to salaries
and related benefits arising from hiring several management personnel to
identify, complete and integrate acquisitions.
Depreciation and Amortization. Depreciation and amortization expenses
increased 508.4% to $505,000 for the three months ended March 31, 1998 from
$83,000 for the three months ended March 31, 1997. Depreciation and amortization
expenses as a percentage of revenues increased to 1.0% for the three months
ended March 31, 1998 from 0.5% for the three months ended March 31, 1997. The
increase was due to a full three months of amortization of goodwill in 1998 in
connection with the acquisitions of Hamilton-Ryker and CSR, Inc.
Other Operating Expenses. During the three months ended March 31, 1997, the
Company incurred other operating expenses of $163,000 related to amounts paid to
a former member of management.
Operating Income. As a result of the foregoing, operating income increased
356.3% to $1.5 million for the three months ended March 31, 1998 from $336,000
for the three months ended March 31, 1997, and operating income as a percentage
of revenues increased to 2.9% for the three months ended March 31, 1998 from
2.0% for the three months ended March 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased 74.8% to $114.6 million for the year ended
December 31, 1997 from $65.5 million for the year ended December 31, 1996. This
increase was primarily due to the acquisition of Hamilton-Ryker, which had
revenues of $36.0 million from the date of its acquisition on March 12, 1997 to
year end, and the acquisition of CSR, Inc., which had revenues of $5.3 million
from the date of its acquisition on December 3, 1997 to year end. A significant
portion of this increase was due to the establishment of a new VOP relationship,
which provided $5.2 million of revenues for the year ended December 31, 1997.
During both 1997 and 1996, the Company's revenues were generated primarily by
Commercial Staffing, as the Company did not provide Professional Services prior
to the acquisition of CSR, Inc.
Gross Profit. Gross profit increased 94.0% to $21.0 million for the year
ended December 31, 1997 from $10.8 million for the year ended December 31, 1996.
Gross profit as a percentage of revenues increased to 18.3% for the year ended
December 31, 1997 from 16.5% for the year ended December 31, 1996. This increase
was due to lower costs associated with workers' compensation claims and the
acquisition of Hamilton-Ryker and CSR, Inc., which had higher gross margins than
the Company.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46.0% to $13.9 million for the year ended
December 31, 1997 from $9.5 million for the year ended December 31, 1996.
Selling, general and administrative expenses as a percentage of revenues
decreased to 12.1% for the year ended December 31, 1997 from 14.5% for the year
ended December 31, 1996. This decrease resulted from greater operating
efficiencies and economies of scale gained from a larger revenue base.
Depreciation and Amortization. Depreciation and amortization expenses
increased 194.4% to $836,000 for the year ended December 31, 1997 from $284,000
for the year ended December 31, 1996. Depreciation and amortization expenses as
a percentage of revenues increased to 0.7% for the year ended December 31, 1997
from 0.4% for the year ended December 31, 1996. The increase was due to the
amortization of goodwill in connection with the acquisitions of Hamilton-Ryker
and CSR, Inc. in 1997.
Other Operating Expenses. During the year ended December 31, 1997 the
Company incurred other operating expenses of $1.2 million which consisted
primarily of severance fees paid to two former executive employees of the
Company and amounts paid to a third former executive employee.
Operating Income. As a result of the foregoing, operating income increased
392.1% to $5.2 million for the year ended December 31, 1997 from $1.0 million
for the year ended December 31, 1996, and operating
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income as a percentage of revenues increased to 4.5% for the year ended December
31, 1997 from 1.6% for the year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Revenues decreased 2.7% to $65.5 million for the year ended
December 31, 1996 from $67.4 million for the year ended December 31, 1995. The
decrease in revenues was a result of the closing of a client's operating
facility in December 1995, at which the Company had a VOP site that generated
$3.8 million of revenues in 1995, and the non-renewal of a second VOP
relationship by the same client in April 1995, which generated $4.6 million of
revenues in 1995. These decreases were partially offset by an increase in
revenues of $6.6 million as a result of increased billings to existing clients
and the addition of new clients.
Gross Profit. Gross profit increased 6.4% to $10.8 million for the year
ended December 31, 1996 from $10.2 million for the year ended December 31, 1995.
Gross profit as a percentage of revenues increased to 16.5% for the year ended
December 31, 1996 from 15.1% for the year ended December 31, 1995. The increase
in gross profit as a percentage of revenues was due to replacing the lost VOP
revenues with higher margin revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 1.7% to $9.5 million for the year ended
December 31, 1996 from $9.7 million for the year ended December 31, 1995.
Selling, general and administrative expenses as a percentage of revenues
increased to 14.5% for the year ended December 31, 1996 from 14.3% for the year
ended December 31, 1995. This increase resulted from constant fixed costs
distributed over a smaller revenue base.
Depreciation and Amortization. Depreciation and amortization expenses
decreased 3.7% to $284,000 for the year ended December 31, 1996 from $295,000
for the year ended December 31, 1995. Depreciation and amortization expenses as
a percentage of revenues remained constant at 0.4% for the year ended December
31, 1996 and the year ended December 31, 1995.
Operating Income. As a result of the foregoing, operating income increased
361.2% to $1.0 million for the year ended December 31, 1996 from $227,000 for
the year ended December 31, 1995, and operating income as a percentage of
revenues increased to 1.6% for the year ended December 31, 1996 from 0.4% for
the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $746,000 and $529,000 in the
years ended December 31, 1995 and 1996 and $1.5 million and $4.3 million for the
three months ended March 31, 1997 and 1998, respectively. During the year ended
December 31, 1997, operations used $1.4 million in cash. The increase in cash
provided by operating activities for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997 was due to an increase in net
income and an increase in accrued payroll and related taxes resulting from the
timing of temporary staff payroll at March 31, 1998. The decrease in net cash
provided by operating activities in 1997 as compared to 1996 was primarily due
to (i) an increase in accounts receivable as a result of growth experienced by
the Company during 1997; (ii) an increase in income taxes receivable due to
timing of income tax payments made during the year; and (iii) amounts
contributed to the worker's compensation insurance loss fund in excess of
amounts accrued. The slight decrease in net cash provided by operating
activities in 1996 as compared to 1995 was primarily due to a decrease in
accrued payroll and related taxes due to the timing of such payments and amounts
contributed to the workers' compensation insurance loss fund in excess of
amounts accrued.
Net cash used in investing activities was $411,000, $138,000 and $4.1
million in the years ended December 31, 1995, 1996, 1997 and $3.3 million and
$14.0 million first three months of 1997 and 1998, respectively. Cash used in
investing activities for the periods presented was attributable to the
acquisitions and capital expenditures. During March 1997, the Company acquired
Hamilton-Ryker and Data Resources, Inc., which, net of cash received, resulted
in a use of cash of approximately $3 million during the three months
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ended March 31, 1997 and the year ended December 31, 1997. During the three
months ended March 31, 1998, the Company completed the acquisitions of two
staffing companies, resulting in a use of cash of approximately $12.0 million.
Net cash provided by financing activities was $3.0 million and $8.0 for the
three month period ended March 31, 1997 and 1998 respectively, and was primarily
attributable to borrowings for the acquisitions referred to above. Net cash used
in financing activities was $529,000 and $250,000 during the years ended
December 31, 1995 and 1996, respectively. Financing activities provided $7.2
million for the year ended December 31, 1997. Financing activities during the
years ended December 31, 1995 and 1996 consisted primarily of borrowings and
payments on the Company's line of credit, borrowings and payments on shareholder
notes payable and shareholder distributions. During the year ended December 31,
1997 the Company paid the outstanding borrowings on its line of credit in full
with proceeds from the revolving credit agreement. Payments and borrowings on
the revolving credit agreement were made throughout the year based upon the
Company's cash needs.
The Company anticipates that it will require significant amounts of cash to
finance acquisitions after the Offering. The Company expects to fulfill these
requirements for cash primarily through bank borrowings, cash from operations,
and from the sale of debt or equity securities of the Company. The Company has
entered into a credit agreement (the "Credit Agreement") with ING (U.S.) Capital
Corporation, Creditanstalt Corporate Finance, Inc. and Societe Generale (the
"Lenders") to provide a $75 million revolving credit facility, $45.0 million of
which is outstanding. The Company expects that, immediately upon completion of
the Offering and repayment of currently outstanding amounts with the proceeds of
the Offering, the entire facility will be available. Loans under the Credit
Agreement bear interest at rates based, at the Company's option, on either LIBOR
or a base rate plus, in each case, an applicable margin. The applicable margin
is contingent upon the ratio of the Company's senior funded debt to its EBITDA
and will vary from 2.50% to 3.25% per annum in the case of LIBOR loans and .50%
to 1.25% per annum in the case of base rate loans. In addition, the Company is
required to pay to the Lenders a monthly fee of .50% per annum with respect to
the unused portion of the credit facility. The Credit Agreement also permits up
to $10 million of the amount available for borrowings to be used for the
issuance of letters of credit. A per annum fee based on the applicable margin
for LIBOR loans is payable with respect to the face amount of letters of credit
outstanding during the applicable month. See Note 6 of Notes to Financial
Statements of Corporate Staffing Resources, Inc.
Borrowings under the Credit Agreement are secured by substantially all of
the assets of the Company and its subsidiaries, by a pledge of the stock of the
subsidiaries and by drop-down notes made by each subsidiary in favor of the
Company and pledged by the Company to the Lenders. In addition, subsidiaries of
the Company have guaranteed the Company's obligations under the Credit
Agreement. The Credit Agreement contains covenants requiring the maintenance of
certain financial ratios and specified net worth and limiting the incurrence of
additional indebtedness, the sale of substantial assets, consolidations or
mergers by the Company and the payment of dividends. The Credit Agreement will
terminate, and all borrowings will be required to be repaid on December 3, 2001.
The Company believes that its cash flows together with available borrowings
under the Credit Agreement will be sufficient for its capital expenditure
requirements, including capital expenditures expected to be incurred to acquire
and implement a system designed to standardize financial reporting and
accounting controls.
The net proceeds from the Offering, after deducting underwriting discounts
and offering expenses, are expected to total approximately $ million. The
Company intends to use the net proceeds of this Offering as follows: (i)
approximately $ million to repay the outstanding indebtedness under the
Credit Facility; and (ii) the balance of the net proceeds, expected to be
approximately $ million, for working capital and general corporate purposes,
including acquisitions and opening new offices.
While there can be no assurance, the Company believes that the proceeds of
this Offering, funds currently available on hand, funds to be provided by
operations and funds available under the Credit Agreement will be sufficient to
meet the Company's anticipated needs for working capital until the end of 1998.
The Company's estimate of the time that the proceeds of this Offering, funds
currently on hand, funds
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provided by operations and funds available under the Credit Facility will be
sufficient to meet the Company's working capital needs is a forward-looking
statement that is subject to risks and uncertainties. Actual results and working
capital needs could differ materially from those estimated due to a number of
factors, including the use of such proceeds to fund acquisitions. In addition,
acquisitions may require additional debt and equity financing.
SEASONALITY
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services in Commercial Staffing has historically been
lower during the year-end holidays through February of the following year,
showing gradual improvement over the remainder of the year. Although less
pronounced than in Commercial Staffing, the demand for Professional Services is
typically lower during the first quarter until customers' operating budgets are
finalized. The Company believes that the effects of seasonality will be less
severe in the future as revenues contributed by Professional Services continue
to increase as a percentage of the Company's consolidated revenues.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for the reporting and
disclosure of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 131 changes the manner in which public
companies report segment information in annual reports and requires companies to
report selected segment information in interim financial reports. The Company
will be required to report financial and descriptive information about the
Company's operating segments. Both these statements are effective for fiscal
years beginning after December 15, 1997, with reclassification of the financial
statements for earlier periods required for comparative purposes. The Company
plans to adopt these statements, for its year ending December 31, 1998. SFAS No.
130 is not expected to have a significant impact on the Company's historical
financial statements, as comprehensive income will equal reported net income.
The Company is evaluating the impact of SFAS No. 131.
YEAR 2000 COMPLIANCE
The Company believes that its computer software and systems are year 2000
compliant and that any costs that may be incurred to modify existing software
will not be material.
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BUSINESS
GENERAL
Corporate Staffing Resources, Inc. is a leading provider of diversified
staffing, professional and consulting services to businesses, professional and
service organizations, educational institutions and governmental agencies. The
Company offers these services through over 130 branches located in 16 states.
Since 1997, the Company has acquired six additional staffing and professional
service companies with 88 branches. The Company believes that a combination of
internal growth and selective acquisitions will allow it to capitalize most
effectively on opportunities in the large and rapidly growing staffing services
industry. For the year ended December 31, 1997 and the three months ended March
31, 1998, the Company's pro forma revenues and operating income were $227.7
million and $61.3 million, and $10.8 million and $2.2 million, respectively.
The Company primarily provides two types of staffing services: (i)
Commercial Staffing, including VOP, clerical, administrative and light
industrial staffing services; and (ii) Professional Services, including a
comprehensive range of IT, accounting and finance staffing, placement and
outplacement services. The Company's Commercial Staffing branches serve
primarily small to mid-size cities, while its Professional Services branches
serve primarily major metropolitan and national markets. For the year ended
December 31, 1997 and for the three months ended March 31, 1998, Commercial
Staffing generated approximately 82.0% and 80.3% of the Company's pro forma
revenues and 71.7% and 69.1% of the Company's pro forma gross profits,
respectively. For the year ended December 31, 1997 and for the three months
ended March 31, 1998, Professional Services generated approximately 18.0% and
19.7% of the Company's pro forma revenues and 28.3% and 30.9% of the Company's
pro forma gross profits, respectively.
STAFFING SERVICES INDUSTRY OVERVIEW
The staffing services industry has grown rapidly in recent years as
companies have utilized supplemental employees to control personnel costs and to
meet specialized or fluctuating personnel needs. According to Staffing Industry
Report, the U.S. market for temporary staffing services is estimated to have
grown at a compound annual rate of approximately 17.3% from approximately $29.3
billion in 1992 to approximately $65.0 billion in 1997. Within the U.S. staffing
services industry, the market for office support grew at a compound annual rate
of approximately 13.1% from approximately $8.5 billion in 1992 to approximately
$15.7 billion in 1997, and the market for industrial staffing services grew at a
compound annual rate of approximately 17.3% from approximately $6.0 billion in
1992 to approximately $13.3 billion in 1997. Furthermore, according to Staffing
Industry Report, revenues from information technology and technical staffing are
estimated to have grown at a compound annual rate of 25.2% from approximately
$5.1 billion in 1992 to approximately $15.7 billion in 1997. The Company
believes the staffing industry is highly fragmented with over 6,000 staffing
companies and 2,500 professional/IT companies. Although the industry is
experiencing increasing consolidation, in part because of client demand for
comprehensive supplemental staffing solutions, the Company believes that there
are numerous attractive acquisition targets.
GROWTH STRATEGY
The Company has implemented a strategy intended to continue its growth in
existing and new markets, the key elements of which are to: (i) increase the
Company's focus on Professional Services; (ii) cross-sell service offerings in
existing markets and expand into new markets; (iii) focus on commercial staffing
in small to mid-size cities; (iv) increase vendor-on-premises relationships; and
(v) expand through acquisitions.
Increase Focus on Professional Services. The Company's strategy is to
increase the percentage of total revenues and gross profits contributed by
Professional Services by expanding its service offerings in the fields of IT
staffing and consulting and accounting and finance staffing. The Company also
intends to grow its pool of skilled professionals, hire additional sales
consultants, target mid-size and large companies, and leverage client
relationships. The Company believes that providing Professional Services to its
clients offers attractive opportunities for growth in sales and profits.
Professional Services, primarily IT services, comprised 19.7% of
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the Company's pro forma revenues and generated 30.9% of the Company's pro forma
gross profit in the three months ended March 31, 1998. The Company currently
employs 43 recruiters and 46 sales consultants in Professional Services, a 53.4%
increase over the previous year. Based on client demand for Professional
Services on a national basis, the Company intends to open additional
Professional Services branches and to increase the pace of acquisitions of
Professional Services companies in larger metropolitan markets.
Cross-Sell Service Offerings in Existing Markets and Expand Into New
Markets. The Company continually identifies additional growth opportunities with
existing and new clients as a result of the breadth of the Company's service
offerings. The Company currently offers a complete range of IT, accounting and
clerical staffing services in only a small number of its markets. As a result,
the Company believes substantial opportunities exist to cross-sell service
offerings, especially Professional Services, within these markets. In addition,
the Company continually evaluates potential expansion of existing services into
new geographic areas. To facilitate the offering of new services in existing and
new markets, the Company plans to transfer or recruit experienced personnel for
positions in new locations as such locations are opened. The Company also seeks
to leverage its relationships with existing clients to facilitate entry into new
markets.
Focus on Commercial Staffing in Small to Mid-Size Cities. The Company
provides Commercial Staffing primarily in small to mid-size cities with
populations ranging from 10,000 to 250,000 and seeks to be the leading provider
of Commercial Staffing in the markets in which it operates. The Company believes
that its existing and potential clients in these markets select service
providers largely based on local brand awareness, specialized expertise and
quality of service. Each of the Company's Commercial Staffing branches operates
under established local brand names. The Company intends to continue building on
the strong reputations of these local brand names in their markets while
leveraging the sophisticated support services and low cost structures of a
national provider. The Company believes that it can achieve attractive margins
in these markets and that in many cases it has a competitive marketing advantage
over national providers because it has developed a strong local presence and has
tailored its operations to meet local client needs.
Increase Vendor-On-Premises Relationships. As of March 31, 1998, the
Company had 20 VOP partnering relationships. VOP relationships represented $39.6
million and $14.1 million of the Company's pro forma revenues for the year ended
December 31, 1997 and the three months ended March 31, 1998, respectively. Under
these programs, the Company assumes administrative responsibility for
coordinating some or all Commercial Staffing at a client's location or
organization, including skills testing and training. The VOP relationships
provide clients with dedicated on-site account management which can more
effectively meet the client's changing staffing needs with high quality, timely
and consistent service. While these partnering relationships tend to have lower
gross margins than traditional temporary staffing services, their higher volumes
and relatively long-term relationships result in a more stable source of
revenue. The Company has expanded geographically by establishing new VOP sites
to service existing clients and intends to establish additional sites for both
existing and new clients as opportunities arise in the future.
Expand through Acquisitions. The Company intends to acquire and integrate
independent Professional Service and Commercial Staffing companies with strong
management, profitable operating results and recognized local and regional
presences. Since March 1997, the Company has acquired six companies with an
aggregate of 88 branches and 1997 revenues of $160.7 million. Primarily, the
Company intends to pursue strategic acquisitions in Professional Services that
offer complementary services and expand the percentage of revenues generated by
Professional Services and tuck-in acquisitions in Commercial Staffing that
increase its penetration of existing markets. The Company has established a team
of corporate officers responsible for identifying prospective acquisitions,
performing due diligence, negotiating contracts and subsequently integrating the
acquired companies. The Company typically retains management of acquired
companies and offers management of acquired companies contingent compensation
based on improvement in financial performance of the acquired operating company.
The Company intends to include Common Stock as part of the consideration in
future acquisitions in order to incentivize management of acquired companies and
align their interests with those of the Company.
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OPERATING STRATEGY
The key elements of the Company's operating strategy include: (i) maintain
an entrepreneurial environment; (ii) continue disciplined financial management;
(iii) integrate acquired companies quickly; (iv) maintain or establish
leadership in existing geographic markets; and (v) deliver high value-added
quality service.
Maintain an Entrepreneurial Environment. The Company's management structure
promotes an entrepreneurial environment that rewards performance at all levels
of the Company. The Company has decentralized decisions regarding staff
selection, pricing, business mix and advertising, resulting in significant local
autonomy at the branch level. This permits each branch to be extremely flexible
and responsive to the specific needs of its clients. The Company has an
incentive compensation system for its managers which it believes: (i) allows the
Company to capitalize on its managers' knowledge of local business conditions
and markets; (ii) encourages local branch managers to develop long-term
relationships with key decision makers at both existing and potential clients;
and (iii) makes the Company more attractive to potential employees and
acquisition candidates.
Continue Disciplined Financial Management. The Company's corporate
management has developed certain financial, risk management and administrative
control procedures which are applied to each branch. These control procedures
include the preparation of annual business plans and budgets and the submission
of detailed monthly financial reports. This information is reviewed by the
Company's executive officers together with branch managers at the end of each
fiscal quarter. In addition, the Company produces weekly financial performance
reports with respect to each of its branches that are supplied to branch
managers as well as operating company management. This information allows
management proactively to manage the Company down to the branch level and
continuously to seek new opportunities to improve operations. The Company
performs periodic operational audits of each of the Company's branches in order
to effectively manage and control worker's compensation costs. The Company
believes its system of disciplined financial management is readily adaptable and
scalable as the Company continues to grow.
Integrate Acquired Companies Quickly. As soon as practicable after an
acquisition is completed, management begins integrating newly acquired
companies. The Company has a dedicated team of professionals who implement a
formal process of budgeting and quarterly performance reviews as well as its
disciplined financial management system at all newly acquired companies. The
integration process involves installing back-office management information
systems and standardizing each acquired company's accounting and financial
procedures with those of the Company. Acquired companies are brought under the
Company's uniform risk management program, and key personnel of acquired
companies often become a part of management of the Company. Marketing, sales,
field operations and personnel programs of the acquired companies are reviewed
and, where appropriate, conformed to the Company's practices.
Maintain or Establish Leadership in Existing Geographic Markets. The
Company believes that there are substantial growth opportunities within its
existing geographic markets. On a pro forma basis, the Company has opened 40
branches since January 1, 1996, and the Company anticipates opening additional
new branches in its existing geographic markets. A new branch typically takes up
to six months to reach operating profitability and the Company believes that new
branches typically achieve a relatively well-developed client base within two
years after opening. The Company believes that as its relatively new branches
mature through sustained sales and marketing efforts, the Company generally
should realize increased revenues and profitability from such branches. To
further penetrate existing geographic markets, the Company spins-off new
branches from existing branches, which provides the Company greater coverage in
these geographic markets at marginal cost. These branch clusters provide
economies of scale by leveraging common costs such as recruiting, advertising
and management over a larger revenue base as well as providing better service to
clients and opportunities to temporary employees in these markets.
Deliver High Value-Added Quality Service. The Company emphasizes
recruiting, training and retaining experienced sales consultants and providing
highly qualified temporary employees. The Company trains its sales consultants
to operate as partners with their clients in evaluating and meeting the client's
staffing requirements. The Company seeks to enhance client relationships and to
provide highly qualified temporary
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employees by generating referrals from existing temporary employees, utilizing
in-depth interviews conducted by Company personnel experienced in the temporary
employees' field, performing skill evaluations, contacting clients within hours
of the beginning of a project to receive a preliminary determination of
satisfaction and obtaining client satisfaction reports upon the completion of
projects. The Company seeks to understand and proactively assess clients' needs,
to respond promptly to clients' requests and to continually monitor job
performance and client satisfaction. The Company believes that its commitment to
providing quality service has enabled it to establish and maintain long-term
relationships with clients. To assure its branch managers are equally committed
to providing quality service, the Company reviews and evaluates them based,
among other factors, on client retention.
SERVICES
The Company provides Commercial Staffing and Professional Services.
Commercial Staffing generated approximately $186.8 million, or 82.0%, of 1997
pro forma revenues, and $34.0 million, or 71.7%, of 1997 pro forma gross profit.
Professional Services generated approximately $40.9 million, or 18.0%, of pro
forma revenues in the year ended December 31, 1997, and $15.2 million, or 28.3%,
of pro forma gross profits in the year ended December 31, 1997. The Company
expects the proportion of revenues and gross profits generated by Professional
Services relative to Commercial Staffing to increase in the future.
Commercial Staffing. The Company offers Commercial Staffing, ranging from
workforce management to clerical, administrative and light industrial staffing,
through 102 branches located primarily in the Midwest and the Southeast in small
to mid-size cities with populations from 10,000 to 250,000. The Company's
Commercial Staffing business consists of providing a wide variety of clerical,
administrative, assembly and light industrial skills. In addition to providing
personnel to perform general office tasks such as reception, copying and filing,
the Company provides high-end niche clerical personnel who are proficient in
word processing, graphics, spreadsheets or database management. In the light
industrial area, the Company primarily provides skilled and semi-skilled
personnel to perform tasks such as precision assembly, packaging, shipping and
receiving, warehousing and equipment operation.
Within Commercial Staffing, the Company offers Vendor-on-Premises services,
whereby a client delegates management of its staffing needs to the Company,
allowing the client to focus on its core business activities. VOP has evolved to
include managing a client's entire staffing needs in some cases. Revenues from
VOP clients have grown to 21.2% of Commercial Staffing pro forma revenue for
fiscal 1997. In connection with its VOP services, the Company will continue to
expand into new geographic areas for both existing and new clients. Once in
place, clients are reluctant to terminate VOP arrangements, having become
dependent on the Company's knowledge and management systems.
Professional Services. The Company offers an expanding array of
Professional Services, including IT, accounting and finance staffing, placement
and outplacement services, through 29 branches located primarily in major
metropolitan markets. In the IT area, the Company provides a broad spectrum of
staff augmentation services, ranging from hardware systems support, desktop
management and PC support, help desk support, and data center operations to
software development and customization, programming and network configuration.
The Company's IT services generally provide large numbers of personnel for
shorter assignments. The Company also provides accounting and finance personnel
at all levels, including bookkeepers, degreed accountants, certified public
accountants, auditors and controllers.
The Company's strategy is to increase the percentage of total revenues and
gross profits contributed by Professional Services by expanding its service
offerings in the fields of IT staffing and consulting and accounting and finance
staffing. The Company also intends to grow its pool of skilled professionals,
hire additional sales consultants, target mid-size and large companies, leverage
whenever possible on existing client relationships, open additional Professional
Services branches and increase the pace of acquisitions of Professional Services
in major metropolitan markets. The Company believes that providing Professional
Services to its clients offers the attractive opportunities for growth in sales
and profits.
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CLIENT RELATIONSHIPS
The Company has a broad client base. The Company's largest client accounted
for approximately 3.0% of the Company's 1997 pro forma revenues. The Company's
five largest clients together accounted for 9.9% of the Company's 1997 pro forma
revenues. In Commercial Staffing, the Company offers services to a broad range
of clients, from small businesses to Fortune 500 corporations. In Professional
Services, the Company typically targets Fortune 1000 corporations with
sophisticated MIS needs.
HUMAN RESOURCES
Employees. As of March 31, 1998, the Company had approximately 490
full-time employees. On a pro forma basis, the Company employed over 12,000
temporary employees in a typical week in 1997. None of the Company's employees,
including its temporary employees, is represented by a collective bargaining
agreement. The Company believes its employee relations to be strong. Hourly
wages for the Company's temporary employees are determined according to market
conditions. The Company pays mandated costs of employment, including the
employer's share of social security taxes, federal and state unemployment taxes,
unemployment compensation insurance, general payroll expenses and workers'
compensation insurance. The Company offers access to various insurance programs
and other benefits, such as vacations, holidays and 401(k) programs to qualified
temporary employees and professionals.
Recruiting. The Company believes that successful recruiting is critical to
the growth of its business. One of the Company's most successful recruiting
tools is referrals by its temporary employees. The Company finds that referrals
from existing employees provide a large number of high quality new temporary
employees. In Commercial Staffing, the Company employs full-time regional
recruiters who visit schools, clubs and professional associations and present
career development programs at job fairs and to various organizations. In
addition, the Company advertises in major newspapers, on radio, in the Yellow
Pages and through other print media. In Professional Services, the Company
employs 43 full-time recruiters and compensates its temporary employees for the
recruitment and retention of qualified professionals. In addition, the Company
seeks to offer its employees interesting and challenging assignments which
enhance their professional skills and career development. The Company also
obtains many IT applicants through its world wide web sites. The Company is in
the process of expanding its primary web site to allow for the listing of
certain jobs and processing applications on-line.
Assessment, Training and Quality Control. The Company uses a comprehensive
system to assess, select and train its temporary employees in order to assure
the quality of its services. Applicants are given a range of tests, applicable
to the position(s) they seek. Clerical and office-support applicants receive
comprehensive tests in computer skills, word processing, typing, data entry,
accounting and other business applications. These tests cover the latest
software and evaluate each individual's skills and experience. Computerized
tutorials are generally available for temporary employees who seek to upgrade
their typing, data entry, office automation or word processing skills. The
Company completes reference checks for its Professional Services employees and
carefully monitors client satisfaction with the performance of temporary
professionals.
Risk Management and Workers' Compensation Program. The Company believes
that higher operating margins can be achieved through careful risk management
and monitoring of workers' compensation claims and unemployment compensation
claims. The Company's risk management team therefore takes a proactive approach
to safety, risk control, and cost containment. The team works diligently to
train the Company's field staff to better screen and test candidates for
employment and to orient the Company's temporary employees to a more
safety-conscious environment. The field staff performs periodic safety
inspections of new and existing clients in order to evaluate their safety
environments. The field staff has the authority to decline service if a work
environment is perceived to be unsafe or potentially hazardous. The Company's
policies prohibit staffing of high-risk activities such as working on
unprotected elevated platforms, handling of hazardous materials, or construction
activities. The Company's goal is to work alongside the client to achieve a safe
work environment through effective training and commitment to safety. In
particular, the Company's risk management team analyzes all claims in order to
produce the most effective cost containment methods. The integrity of the
program is monitored through an internal audit process that reports directly to
executive management. An
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independent actuary provides advice on overall workers' compensation costs and
periodically performs an actuarial valuation regarding the adequacy of the
Company's reserve for workers' compensation claims. The Company implements its
risk management program at newly acquired companies from the date of acquisition
of such companies. The Company maintains workers' compensation insurance for
claims in excess of a retention level of $250,000 per occurrence. Premium costs
historically have trended downward due to the Company's successful management of
workers' compensation claims.
OPERATIONS
Sales and Marketing. The Company's services are marketed through its
network of over 130 branches whose managers and placement coordinators make
regular personal sales visits to clients and prospective clients. The Company
emphasizes long-term personal relationships with clients which are developed
through regular assessment of client requirements and constant monitoring of
temporary staff performance. New clients are obtained through sales calls,
consultation meetings with target companies, client referrals, telemarketing and
advertising in a variety of local and regional media, including radio, Yellow
Pages, newspapers, magazines and trade publications and through the Company's
world wide web sites. In addition, the Company sponsors job fairs and other
community events and the Company's officers and senior management participate in
national and regional trade associations, local chambers of commerce and other
civic associations. The Company coordinates the sales, marketing and recruiting
functions to identify prospective opportunities to deliver high value-added
quality services.
The Company believes that both its clients and its temporary employee
candidates select service providers principally on the basis of local brand
awareness, specialized expertise and quality of service. The Company provides
Commercial Staffing under several established local brand names, most of which
have been continuously in use for more than 10 years. The Company is considering
establishing distinct national brands in its Professional Services operations
that target specific staffing disciplines in order to provide clients and
candidates with an easily identifiable source of specific staffing expertise.
Branch Offices. The Company offers its services through over 130 branch
offices in California, Georgia, Indiana, Kentucky, Louisiana, Maryland,
Michigan, Mississippi, Missouri, New Jersey, North Carolina, Ohio, South
Carolina, Tennessee, Texas and Virginia. The Company's Commercial Staffing
branches are primarily located in small to mid-size cities with populations of
10,000 to 250,000, and the Company's Professional Services branches are
primarily located in major urban markets. Branch managers operate their branches
with a combination of a significant degree of autonomy and specific areas of
accountability to the Company and are eligible for compensation based on
operating performance in excess of budgeted amounts at their branches. The
compensation system is designed to motivate the managers and staff to maximize
the growth and profitability of their branches while securing long-term client
relationships. Branch managers report directly to area managers, regional vice
presidents or division presidents, all of whom receive bonuses based upon the
profitability of their regions or operating divisions against budgeted
performance targets. Operating within the guidelines set by the Company, the
branch managers are responsible for pursuing new business opportunities and
focusing on sales and marketing, account development and retention and employee
recruitment, development and retention.
Management Information Systems. The Company licenses front office software
for Commercial Staffing from several providers. The Company's IT services
branches use the Staffsoft system, which permits access to a shared database of
resumes and job orders at the branch level, allowing the branch office to fill
client orders, communicate with clients regarding invoices and perform candidate
screening for the most suitable job opportunity. The Company has licensed the
MAS90 system for its accounting and administrative functions and is in the
process of installing it in certain branches. The Company's systems allow the
remote printing of paychecks at many of its branches. The Company believes that
its systems can be readily expanded to meet increased demands without
significant additional expenditures. The Company reviews its systems
periodically and upgrades and implements new systems based on a cost-benefit
analysis.
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COMPETITION
The staffing industry is intensely competitive and fragmented and has
limited barriers to entry. The Company competes for employees and clients in
national, regional and local markets with full-service and specialized temporary
staffing service businesses. A significant number of the Company's competitors
have greater marketing, financial and other resources and more established
operations than the Company. Price competition in the staffing industry is
intense, particularly for the provision of commercial personnel, and pricing
pressures from competitors and customers are increasing. Many of the Company's
clients have relationships with more than one staffing service company. However,
in recent years, an increasing number of companies have consolidated their
staffing services purchases and entered into exclusive contracts with a single
temporary staffing company or small number of temporary staffing companies. If
current or potential clients enter into exclusive contracts with competitors of
the Company, it will be difficult or impossible for the Company to obtain
business from such clients. The Company expects that the level of competition
will remain high in the future, which could limit the Company's ability to
maintain or increase its market share or maintain or increase gross margins,
either of which could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company competes for
acquisition candidates with other staffing services companies, and there can be
no assurance that the Company will be able to successfully identify suitable
acquisition candidates or complete acquisitions. See "Risk Factors
- -- Competition" and "Risks Associated with Acquisitions."
FACILITIES
The Company's corporate headquarters are currently located at One Michiana
Square, 100 East Wayne Street, Suite 100, South Bend, IN 46601. The Company has
entered into a lease to rent new corporate headquarters space commencing in
December 1998. The Company believes that the newly leased space will be adequate
for its needs.
The Company leases space for all of its branches and does not own any real
property. The Company believes that its facilities are adequate for its needs
and does not anticipate inordinate difficulty in replacing such facilities or
opening additional facilities, if needed. A number of the Company's branch
offices are leased from related parties. The Company believes that the lease
terms are at least as favorable as could be obtained from any unrelated third
party. See "Certain Transactions."
REGULATION
Generally, the Company's operations are not subject to state or local
licensing requirements or other regulations specifically governing the provision
of commercial and professional 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.
The laws of various states require the Company to maintain workers'
compensation and unemployment insurance coverage for its temporary employees.
The Company maintains state mandated workers' compensation and unemployment
insurance coverage. 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. In addition, 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 staffing
employees. See "Risk Factors -- Unemployment Insurance and Workers' Compensation
Costs" and "-- Risk of Government Regulation and Legislative Proposals."
INTELLECTUAL PROPERTY
The Company maintains a number of trademarks, tradenames, service marks and
other intangible rights. The Company believes that it has all rights to
trademarks and trade names necessary for the conduct of its
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business and, except as set forth below, is not currently aware of any
infringing uses or other conditions that would materially and adversely affect
its use of proprietary rights.
The Company is engaged in an unresolved trademark dispute with Mega Force
Ltd. of Leawood, Kansas ("MFLtd"). The Company became aware of MFLtd after
encountering an internet site for MFLtd early in 1997. MFLtd is apparently in
the business of supplying contract computer personnel, such as programmers and
system analysts. It is unclear whether these are temporary workers or simply
"contract to hire" workers. MFLtd's service appears to be nationwide. On April
18, 1997, counsel forwarded to MFLtd a cease and desist letter that included a
reference to Company's federally registered trademark for the name "Mega Force"
for use in "temporary employment services." Counsel received a reply from
MFLtd's counsel. The matter remains unresolved at this time.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is periodically
threatened with or named as a defendant in various lawsuits, including
discrimination, harassment and other similar claims. The Company maintains
insurance in such amounts and with such coverage and deductibles as management
believes are reasonable. The Company is not a party to any material legal
proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth information regarding the executive
officers, directors and other significant employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William W. Wilkinson................... 65 Chairman of the Board and Chief
Executive Officer
Jerry F. Stone......................... 47 President of Mega Force Staffing
Companies, Inc. and Director
T. Wayne McCreight..................... 52 President of The Hamilton-Ryker
Company, Inc. and Director
William J. Wilkinson................... 35 President of CSR, Inc. and Director
Thomas E. Murphy....................... 36 Executive Vice President and Chief
Financial Officer
D. Crawford Gallimore.................. 49 Chief Administrative Officer and
Director
Conor T. Mullett....................... 31 Director
John P. Shoemaker...................... 33 Director
H. Ronald Stone........................ 51 Director
John Geer.............................. 52 Director
Robert W. MacDonald.................... 51 Director
</TABLE>
Following the consummation of this Offering, pursuant to the Company's
Charter and Bylaws, the Board of Directors will be classified into three
classes. Upon expiration of the initial term of each class of directors,
directors comprising such class will be elected to a three-year term at the next
succeeding annual meeting of stockholders. Each director shall hold office until
his successor is duly elected and qualified, or until his death, resignation or
removal.
EXECUTIVE OFFICERS AND DIRECTORS
William W. Wilkinson. Mr. Wilkinson has served as Chief Executive Officer
of the Company since December 1997. In 1987, Mr. Wilkinson co-founded Corporate
Staffing Resources, Inc., an Indiana corporation ("CSR-Ind.") which was
subsequently acquired by CSR, Inc. and served as its Chief Executive Officer
until CSR, Inc. was acquired by the Company. Previously Mr. Wilkinson spent 28
years with Central Soya Company, Inc., an international agribusiness and food
processing company. Mr. Wilkinson's last position with Central Soya was
Executive Vice President and President of the Agra Business Group. Mr. Wilkinson
has a B.S.B.A. from the University of Chattanooga. Mr. Wilkinson is the father
of William J. Wilkinson.
Jerry F. Stone. Mr. Stone currently serves as a Director and as the
President of the Company's subsidiary, Mega Force Staffing Companies, Inc. Mr.
Stone joined the Company's predecessor, The Mega Force Group, in 1990 and became
its President in 1994. Prior to joining The Mega Force Group, Mr. Stone managed
an extensive farming operation for 17 years. Mr. Stone has a B.A. in Business
from Methodist College in Fayetteville, North Carolina. Mr. Stone is the brother
of H. Ronald Stone.
T. Wayne McCreight. Mr. McCreight serves as a Director of the Company and
the President of the Company's subsidiary, The Hamilton-Ryker Company, Inc. He
founded and served as Chief Executive Officer of Hamilton-Ryker and its
predecessors until its acquisition by the Company in March 1997. Mr. McCreight
has a B.S. from the University of Tennessee at Martin.
William J. Wilkinson. Mr. Wilkinson has served as a Director of the Company
and the President of the Company's subsidiary, CSR, Inc., since December 1997.
In 1997, Mr. Wilkinson co-founded CSR-Ind. and served as its President and Chief
Operating Officer from January 1992 until it was acquired by the Company. Mr.
Wilkinson has a B.S.B.A. from Indiana University. Mr. Wilkinson is the son of
William W. Wilkinson.
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<PAGE> 36
Thomas E. Murphy. Mr. Murphy has served as Executive Vice President and
Chief Financial Officer since December 1997. Prior to joining the Company, Mr.
Murphy was a partner at the office of Crowe, Chizek and Company, LLP in Elkhart,
Indiana and served as a Senior Manager at Ernst & Young, LLP, Chicago, Illinois.
Mr. Murphy is a certified public accountant and has a B.B.A. in accounting from
the University of Notre Dame.
D. Crawford Gallimore. Mr. Gallimore has served as a Director and as the
Chief Administrative Officer of the Company since December 1997. Mr. Gallimore
previously served as Treasurer/Chief Financial Officer for Hamilton-Ryker and
its predecessors until its acquisition by the Company. Mr. Gallimore has a
B.B.A. from the University of Tennessee at Martin.
John Geer. Mr. Geer has served as a Director of the Company since February
1997. He is a Managing Director of Mellon Ventures, Inc., having joined Mellon
in February 1997. Previously, Mr. Geer was Senior Vice President at Security
Pacific Capital Corp., a bank-owned venture capital firm. Mr. Geer also served
as Portfolio Manager of Bank America Capital's equity portfolio, managing
investments which included leveraged buyouts, leveraged recapitalizations, and
start-up and early stage venture capital financings. Mr. Geer has served on more
than twenty boards of directors of emerging growth, middle market companies. Mr.
Geer has a B.A. from Union College and a J.D., cum laude, from the Boston
University School of Law.
Robert W. MacDonald. Mr. MacDonald has served as a Director of the Company
since December 1997. Mr. MacDonald is a Managing Director of William E. Simon &
Sons and is President of the firm's Private Equity Group based in Los Angeles.
Mr. MacDonald joined William E. Simon & Sons in 1992. He currently serves on the
boards of directors of People's Bank of California and several private
companies. Mr. MacDonald has a B.A. in finance from Fairfield University.
Conor T. Mullett. Mr. Mullett has served as a Director of the Company since
December 1997. He is a Senior Vice President of William E. Simon & Sons, Private
Equity Group, having joined the firm in 1994. Mr. Mullett serves on the boards
of directors of several portfolio companies, including GeoLogistics Corporation
and several private companies. Mr. Mullett has his B.A. in economics from the
College of William & Mary and an M.B.A. from the Columbia Business School.
John P. Shoemaker. Mr. Shoemaker has served as a Director of the Company
since December 1997. He is a Managing Director of Mellon Ventures, Inc., having
joined the firm in November, 1996. Previously, Mr. Shoemaker was Vice President
of Corporate Development for RAF Industries, Inc., a Philadelphia based private
investment company, and an associate in the business and finance group of the
law firm of Reed Smith Shaw & McClay. Mr. Shoemaker has a B.A. from the
University of Pennsylvania and a J.D. from Boston College Law School.
H. Ronald Stone. Mr. Stone has served as a director of the Company since
its founding in December 1996. Mr. Stone founded the Company and its
predecessor, The Mega Force Group. He served as chief executive officer of the
Company's predecessor and the Company from 1982 until the 1997 merger of the
Company with CSR, Inc. Mr. Stone attended Chowan and Guilford Colleges. Mr.
Stone is the brother of Jerry F. Stone.
OTHER KEY EMPLOYEES
Jacqueline M. Camacho Barton. Ms. Barton serves as Senior Vice President of
the Company, having joined CSR-Ind. in 1990. Ms. Barton is responsible for the
implementation and management of the Company's IT services. Ms. Barton attended
Napa College and University of California with an emphasis in Business Science.
Kurt Krauthamer. Mr. Krauthamer founded and served as Chief Executive
Officer of Intranational Computer Consultants, Inc. ("ICC") in 1986. Prior to
his service with ICC, Mr. Krauthamer served as an information technology
consultant. Mr. Krauthamer has a B.A. from Sonoma State University and an M.B.A.
from San Francisco State University.
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Joseph A. Noto. Mr. Noto, CPA, is President of CMS Management Services
Company and has served in such capacity since 1992. Mr. Noto has a B.S.B.A. from
Geneva College.
William G. Stotzer. Mr. Stotzer has served as Vice President of Corporate
Development at the Company since January 1998. Mr. Stotzer is responsible for
mergers and acquisitions, and long-range strategic planning. Before joining the
Company, Mr. Stotzer was Vice President of Business Development at Holy Cross
Health System, South Bend, Indiana. Previously, he was also a Senior Manager
with Arthur Anderson, LLP, Chicago, Illinois. Mr. Stotzer is a certified public
accountant and has a B.B.A. in accounting from the University of Notre Dame.
DIRECTOR COMPENSATION
Prior to the consummation of this Offering, directors of the Company did
not receive compensation for their services as directors or for attending board
meetings but were reimbursed for reasonable expenses incurred in attending
directors' meetings. Upon completion of the Offering, non-employee directors of
the Company will receive options to purchase shares of Common Stock at
the initial public offering price. In addition, each non-employee director will
receive an annual fee of $ , a fee of $ for each meeting of
the Board attended and $ for each meeting of a Board committee
attended. Each director also will be reimbursed for travel expenses incurred for
each non-telephonic meeting of the Board or any committee thereof attended.
BOARD COMMITTEES
The Board of Directors has established Executive, Compensation, and Audit
Committees to devote attention to specific subjects and to assist the Board in
the discharge of its duties. The Executive Committee's principal function is to
act on matters on behalf of the Board of Directors during the intervals between
Board meetings. currently serve as members of the Executive Committee.
The Compensation Committee's principal function is to establish the compensation
for the executive officers of the Company and to establish and administer the
Company's compensation programs. currently serve as members of the
Compensation Committee. The Audit Committee's principal functions include making
recommendations to the Board regarding the annual selection of independent
public accountants, reviewing the proposed scope of each annual audit and
reviewing the recommendations of the independent public accountants as a result
of their audits of the Company's financial statements. currently serve
as members of the Audit Committee. The Board of Directors may from time to time
establish other committees to facilitate the management of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the directors serving on the Compensation Committee is an employee
of the Company, and neither the Chief Executive Officer nor any other executive
officer will serve on the Compensation Committee. No director or executive
officer of the Company is a director or executive officer of any other
corporation that has a director or executive officer who is also a director of
the Company.
36
<PAGE> 38
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth information with
respect to the annual and long-term compensation earned in 1997 by the principal
executive officers of the Company.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL NUMBER OF ALL OTHER
COMPENSATION SHARES COMPENSATION
---------------- UNDERLYING ------------
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS ($)
- --------------------------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C>
William W. Wilkinson
Chairman of the Board and Chief Executive
Officer(1)..................................... $ 17,308 -- -- --
H. Ronald Stone
Former Chief Executive Officer (2)............. 348,118 -- -- --
Jerry F. Stone
President, Mega Force Staffing Companies, Inc.
(3)............................................ 249,460 -- -- --
T. Wayne McCreight
President, The Hamilton-Ryker Company, Inc.
(4)............................................ 121,154 -- -- --
William J. Wilkinson
President, CSR, Inc. (1)....................... 17,308 -- -- --
Thomas E. Murphy
Executive Vice President and Chief Financial
Officer (1).................................... 14,423 -- -- --
D. Crawford Gallimore
Chief Administrative Officer (4)............... 121,154 -- -- --
</TABLE>
- ---------------
(1) Represents salary from December 3, 1997 to December 31, 1997, subsequent to
the acquisition of CSR, Inc. by the Company. The annual base salary of
William W. Wilkinson is $200,000 and that of William J. Wilkinson and Thomas
E. Murphy is $150,000.
(2) Represents salary during H. Ronald Stone's service as Chief Executive
Officer of the Company from January 1, 1997 to December 2, 1997.
(3) Jerry F. Stone has entered into an employment agreement with the Company
setting his base salary at $150,000.
(4) Represents salary from March 12, 1997 to December 31, 1997, subsequent to
the acquisition of Hamilton-Ryker by the Company. The annual base salary of
T. Wayne McCreight and D. Crawford Gallimore is $150,000.
EMPLOYMENT AGREEMENTS WITH SENIOR MANAGEMENT
William W. Wilkinson, Jerry F. Stone, T. Wayne McCreight, William J.
Wilkinson, Thomas E. Murphy, D. Crawford Gallimore. The Company has entered into
employment agreements (the "Senior Executive Agreements") with Messrs. William
W. Wilkinson (Chief Executive Officer), Stone (President of Mega Force Staffing
Companies, Inc.), McCreight (President of Hamilton-Ryker), William J. Wilkinson
(President of CSR, Inc.), Murphy (Chief Financial Officer) and Gallimore (Chief
Administrative Officer), (each, individually a "Senior Executive," and
collectively, the "Senior Executives"), that are based on the same form of
agreement and that contain substantially similar terms. The Senior Executive
Agreement of Mr. Murphy expires on December 31, 2000, and each of the other
Senior Executive Agreements expires on December 31, 2002, unless earlier
terminated in accordance with the provisions set forth therein. The respective
Senior Executive Agreements provide that: (i) William W. Wilkinson shall receive
an annual base salary of $200,000 and each other Senior Executive shall receive
an annual base salary of $150,000; and (ii) each Senior Executive Officer shall
participate in the Company's Incentive Compensation Plan for Senior Officers,
pursuant to which such Senior Executive is eligible to receive a
performance-based annual incentive bonus in an amount ranging from 0% to 100% of
his base salary.
37
<PAGE> 39
The Company's Incentive Compensation Plan for Senior Officers provides (i)
that 50% of the incentive compensation of Mr. McCreight, Mr. Stone and William
J. Wilkinson is based on the financial performance of the subsidiary
(Hamilton-Ryker and Mega Force, respectively) measured against the budget for
such performance, 25% on the Company's financial performance measured against
the budget, and 25% on achievement of individual objectives established by Mr.
McCreight, Mr. Stone, and William J. Wilkinson respectively, together with the
CEO of the Company and (ii) that 60% of William W. Wilkinson's, Mr. Murphy's and
Mr. Gallimore's incentive compensation is based on the Company's financial
performance measured against the budget for such performance, and 40% is based
on achievement of individual objectives established by the CEO of the Company or
by the Board.
Each of the Senior Executive Agreements provides that the amount of the
respective Senior Executive's base salary may be increased during his period of
employment with the Company at the sole discretion of the Board. In addition,
each of the Senior Executive Agreements provides for certain specified benefits,
for reimbursement of reasonable and necessary business expenses and for use of a
company car for business purposes.
The Company may terminate any Senior Executive's employment at any time for
cause (as described in the Senior Executive Agreements), upon death of the
Senior Executive, or if such Senior Executive becomes disabled for 120 days or
more, with no further compensation due. The Senior Executive Agreements further
provide that if the Company terminates the employment of the respective Senior
Executive for reason other than cause, death or disability, the Company shall:
(i) continue to pay the Senior Executive's base salary and continue to provide
him with health benefits for two years after such termination; and (ii) pay the
Senior Executive any portion of his incentive compensation earned through the
date of such termination. The Senior Executive Agreements also provide that each
respective Senior Executive may resign his position and terminate his employment
by giving the Company a 30 day notice of resignation with no further
compensation due after the date of termination.
Each of the Senior Executive Agreements contains certain non-compete and
confidentiality provisions that extend for a period of two years after the
respective Senior Executive's termination of employment with the Company or its
affiliates, which period is automatically extended for another two years if the
confidentiality clause or the non-compete clause is violated by the Senior
Executive.
Option Grants. The Company granted an option to purchase 30,000 shares of
common stock to Mr. Murphy at a price of $8.00 per share on January 29, 1998.
The Company has not granted options to any other officers of directors.
EMPLOYEE BENEFIT PLANS
Non-Qualified Option Plan. Effective , 1998 the Company will
adopt the Corporate Staffing Resources, Inc. Non-Qualified Stock Option Plan
(the "Option Plan") for key employees of the Company and its subsidiaries or its
parent ("Key Employees"). The Option Plan is intended to advance the best
interests of the Company by allowing the Key Employees to acquire an ownership
interest in the Company, thereby motivating Key Employees to contribute to the
success of the Company and to remain in the employ of the Company and its
subsidiaries through grants (the "Grants") of non-qualified stock options (the
"Options") to purchase shares of the Company's Common Stock.
Under the Option Plan, not more than 1,500,000 shares of Common Stock are
authorized for issuance upon exercise of the Options (subject to adjustment in
the event of certain changes in the capitalization of the Company). The Options
are not "incentive stock options" within the meaning of Section 422 of the Code.
As of January 29, 1998, Options to purchase 95,000 shares of Common Stock were
outstanding under the Option Plan and concurrent with the consummation of the
Offering, options for an additional 250,000 shares will be granted.
The Board administers the Option Plan upon consultation with the Chairman
and CEO of the Company. Subject to the terms of the Option Plan, the Board will
have the authority to determine which employees are Key Employees, to select the
Key Employees, if any, to whom Grants are to be made, to determine the
38
<PAGE> 40
number of shares to be subject thereto and the terms and conditions thereof, and
to make all other determinations and to take all other actions necessary or
advisable for the administration of the Option Plan. The Board is also
authorized to adopt, amend and rescind rules relating to the administration of
the Option Plan and to delegate its duty thereunder to a committee or other
persons as the Board deems appropriate.
The terms and conditions of each Option granted under the Option Plan will
be set forth in a separate agreement between the Company and the option holder
("Option Agreement"), consistent with the terms of the Option Plan. The Board,
in its sole discretion, shall determine the per share exercise price of shares
of Common Stock subject to an Option, and each Option shall become exercisable
at such times and in such installments as the Board shall provide in each Option
Agreement. No Option may be exercised after the expiration of ten years from the
date such Option was granted.
In the event of a merger or consolidation of the Company with or into
another corporation, the acquisition by another corporation of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, the liquidation or dissolution of the Company, or
certain initial public offerings of the Company's Common Stock, the Board, at
its sole discretion, may determine that any Option shall be exercisable as to
all shares covered thereby. The Board does not currently intend to accelerate
the exercise of any Options in connection with the Offering.
Under current federal income tax laws, in general, recipients of the Grants
are taxable under Section 83 of the Code upon their receipt of Common Stock or
cash with respect to such Grants and, subject to Section 162(m) of the Code, the
Company will be entitled to an income tax deduction with respect to the amounts
taxable to such recipients.
401(k) Savings Plan. The Company maintains a 401(k) Profit Sharing Plan, a
defined contribution pension plan with a cash or deferred arrangement as
described in section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan is
intended to qualify under section 401(a) of the Code, so that contributions, and
income earned thereon, are not taxable to employees until withdrawn. All regular
full-time Company employees over the age of 18 are eligible to participate in
the 401(k) Plan. The 401(k) Plan provides that each participant may make
elective pre-tax salary deferrals up to 15% of his or her annual compensation,
subject to statutory limits. The Trustee of the 401(k) Plan invests each
employee's account at the direction of the employee, who may choose among
several investment alternatives, which do not include shares of the Company's
Common Stock.
CERTAIN TRANSACTIONS
In connection with the formation of The Hamilton-Ryker Company, LLC
("HRC-LLC"), on January 1, 1996, the equity of Hamryk Services, Inc., a
predecessor company, was recapitalized into a $1,373,169 note payable to each of
Wayne T. McCreight ("McCreight") and D. Crawford Gallimore ("Gallimore"). During
1997, $811,252 was repaid on each of McCreight's and Gallimore's note. The
balance of each note of $561,917 is recorded as notes payable to shareholders.
During 1996, Mega Force Staffing Services, Inc. ("MFSS") made cash
distributions of $3,860,000 and $772,000 to H. Ronald Stone ("Ronald Stone") and
Jerry F. Stone ("Jerry Stone"), respectively. Of theses amounts, $1,256,000 and
$251,000, respectively, was reinvested as additional paid in capital. In
addition, Ronald Stone and Jerry Stone loaned the Company $1,667,000 and
$333,000, respectively, which was reflected as notes payable to shareholders.
These notes were repaid in full in 1997.
On March 12, 1997, MFSS and HRC-LLC effected a business combination.
Simultaneously, HRC-LLC was merged into The Hamilton-Ryker Company, Inc., a
newly formed North Carolina Corporation ("HRC-Inc."). The business combination
resulted in HRC-Inc. and MFSS becoming wholly-owned subsidiaries of The Mega
Force Staffing Companies, Inc. ("MF-Inc."), a newly formed Delaware corporation.
On March 12, 1997 McCreight and Gallimore contributed their membership interests
in HRC-LLC to MF-Inc. and each received cash of $1,751,000, a note payable for
$500,000 and 796,750 shares of MF-Inc. common stock. As a result of this
transaction, McCreight and Gallimore each owned approximately 11% of the common
equity of MF-Inc. The MFSS shareholders, Ronald Stone and Jerry Stone, received
1,772,880
39
<PAGE> 41
and 829,306 shares, respectively, of MF-Inc. common stock, 48.68% and 22.88%
respectively, of MF-Inc. common stock as of the date of the merger.
In 1997, a note payable of $450,000 by HRC-LLC to a third party was assumed
equally by McCreight and Gallimore. A total of $150,000 of such note was repaid
to McCreight and Gallimore during 1997. In addition, in 1997, McCreight and
Gallimore each received a cash distribution of $625,000 from HRC-LLC.
On May 14, 1997, CSR, Inc., and its wholly-owned subsidiary, CSR
Acquisition Corp., an Indiana corporation ("CSRA"), acquired all of the issued
and outstanding stock of Corporate Staffing Resources, Inc., an Indiana
corporation ("CSR-Ind"). As part of the acquisition, William W. Wilkinson and
William J. Wilkinson, contributed all of the membership interests of Corporate
Staffing Resources, LLC, an Indiana limited liability company ("CSR-LLC"),
directly owned by them and shares of capital stock of CSR-Ind with a combined
aggregate value of $2,200,000 to CSR, Inc. in exchange for 22,000 shares of 14%
Series A Cumulative Redeemable Preferred Stock of CSR, Inc. ("CSR, Inc.
Preferred Stock") and 22,000 shares of common stock of CSR, Inc. ("CSR, Inc.
Common Stock"). Concurrent with such contribution, William E. Simon & Sons, LLC,
through certain affiliates, contributed $8,320,000 in cash to CSR, Inc. and as a
result of such contribution, received 83,200 shares of CSR, Inc. Preferred Stock
and 83,200 shares of CSR, Inc. Common Stock. William E. Simon & Sons, LLC,
together with its affiliates, is sometimes referred to herein as "Simon." Each
of William W. Wilkinson and William J. Wilkinson also received $8,808,500 in
cash. The acquisition agreement also provided for a contingent payment of CSR,
Inc. equity be paid to the Wilkinsons if CSR-Ind received certain insurance
payments by specified dates (which obligation was satisfied in December 1997 by
a cash payment to the Wilkinsons of $ and issuance of shares of
CSR, Inc. Common Stock and shares of CSR, Inc. Preferred Stock).
Pursuant to the acquisition, CSR, Inc. also agreed to award to William W.
Wilkinson up to 11,688 shares of restricted CSR, Inc. Common Stock and to
William J. Wilkinson up to 11,687 shares of restricted CSR, Inc. Common Stock,
which restricted CSR, Inc. Common Stock, in each case, was subject to certain
time vesting requirements. Concurrently with the acquisition, Simon and CSR-LLC
entered into an executive management agreement (the "May Management Agreement")
pursuant to which, in consideration of certain services being provided by Simon
thereunder, CSR-LLC would pay Simon an annual fee (the "Management Fee") equal
to $250,000. Immediately after giving effect to the acquisition of CSR-Ind, CSRA
merged with and into CSR-Ind, with CSR-Ind being the surviving corporation and
becoming a wholly-owned subsidiary of CSR, Inc.
On June 6, 1997, Mellon Ventures, L.P. ("Mellon") acquired 30,000 shares of
CSR, Inc. Preferred Stock and 30,000 shares of CSR, Inc. Common Stock from CSR,
Inc. for an aggregate purchase price of $3,000,000 and Simon acquired 9,075
shares of CSR, Inc. Common Stock for an aggregate purchase price of $9,075.
Concurrent with such purchase, Mellon purchased 26,600 shares of CSR, Inc.
Preferred Stock and 26,600 shares of CSR, Inc. Common Stock from Simon for an
aggregate purchase price of $2,670,476. On June 6, 1997, the May Management
Agreement was amended and restated to provide that an annual Management Fee of
$250,000 be paid to Simon and $125,000 to Mellon.
Effective December 3, 1997 CSR, Inc., merged with and into The Mega Force
Staffing Companies, Inc., a Delaware corporation ("MFSC") (the "Acquisition").
MFSC continued as the surviving corporation and the separate existence of CSR,
Inc. ceased. In addition, the name of the surviving corporation, MFSC, was
changed to Corporate Staffing Resources, Inc. (the "Surviving Corporation"). As
part of the Acquisition: (i) each share of MFSC Non-Voting Common Stock issued
and outstanding prior to the Acquisition was converted into 0.3994 fully paid
and nonassessable shares of MFSC Voting Common Stock; (ii) each share of CSR,
Inc. Common Stock issued and outstanding immediately prior to the Acquisition
was converted into 5.9871 fully paid and nonassessable shares of MFSC Voting
Common Stock; (iii) each share of CSR, Inc. Preferred Stock issued and
outstanding prior to the Acquisition was converted into 7.8975 shares fully paid
and nonassessable shares of MFSC Voting Common Stock; and (iv) the 258,944
warrants which were, at the time of the Acquisition, exercisable into one share
of either MFSC Voting Common Stock or MFSC Non-Voting Common Stock, were
automatically converted into 258,944 warrants exercisable into .699718858 shares
of MFSC Voting Common Stock at an exercise price of $0.1 per warrant, and such
warrants were exercised immediately upon the effective date of the Acquisition.
No fractional shares of MFSC Voting Common Stock were issued as part of the
Acquisition. In lieu thereof, each shareholder otherwise entitled to
40
<PAGE> 42
fractional shares received cash equal to the product of the fraction of an MFSC
share to which the shareholder was otherwise entitled multiplied by $10.
Immediately following the consummation of the Acquisition, the stockholders of
CSR, Inc. prior to the Acquisition including William W. Wilkinson, William J.
Wilkinson, Mellon and Simon, owned, in the aggregate, 45.72% of the outstanding
capital stock of the Surviving Corporation and the stockholders of MFSC prior to
the Acquisition, including McCreight, Gallimore, Ronald Stone and Jerry Stone
owned in the aggregate, 54.28% of outstanding capital stock of the Surviving
Corporation. All holders of common and preferred stock and MFSC Non Voting
Common Stock was cancelled and retired pursuant to the terms of the Acquisition.
The Company entered into an Executive Management Agreement as of December
3, 1997, with Simon and Mellon, each of which owns in excess of 5% of the
Company's outstanding common stock and has appointed members of the Company's
Board of Directors pursuant to a Stockholders' Agreement. See "Principal and
Selling Stockholders." This agreement replaced the May Management Agreement, as
amended. Pursuant to the Executive Management Agreement, Simon and Mellon
provide executive management services, including consultation, advice and direct
management assistance with respect to operations, strategic planning, financing
and other aspects of the business of the Company. In consideration for the
services provided, the Company pays $250,000 per year to Simon and $125,000 per
year to Mellon and reimburses reasonable expenses incurred in the provision of
such services. The Executive Management Agreement will terminate upon
consummation of the Offering, provided that the Company pay Simon and Mellon the
unpaid portion of the annual fees payable in 1998.
The Company entered into a Consulting Services Agreement as of December 3,
1997, with Ronald Stone, a director of the Company and the holder, directly or
indirectly, of in excess of 5% of the Company's outstanding Common Stock.
Pursuant to the Consulting Services Agreement, Stone provides the Company
professional advisory and consulting services by facilitating potential
strategic acquisitions, promoting the Company's business in the southeast
portion of the United States, especially in the Florida market, and serving as a
goodwill ambassador for the Company as reasonably requested by the Company's
Board of Directors. In consideration for the services provided by Ronald Stone,
the Company has agreed to pay Stone fees of $200,000 in calendar 1998, provide
health insurance to Ronald Stone and his dependents and reimburse Stone for his
reasonable expenses. The Consulting Services Agreement will terminate on the
earlier of the consummation of this Offering or December 31, 2000.
The Company leases office space for certain of its branches from Stone
Development Company, a company owned by Ronald Stone and Jerry Stone a director
of the Company, the President of Mega Force and the holder, directly or
indirectly, of in excess of 5% of the Company's outstanding Common Stock and
Ronald Stone. The leases commenced December 1, 1996 and will terminate on
November 30, 2001. The aggregate annual lease payments are $225,525. The Company
believes that the lease terms are at least as favorable as could be obtained
from an unrelated third party.
The Company also leases office space for certain of its branches from the
HR Company Limited Partnership, a limited partnership in which Gallimore and
McCreight are limited partners. Gallimore is the Chief Administrative Officer of
the Company, a director of the Company and the holder, directly or indirectly,
of in excess of 5% of the Company's outstanding Common Stock. McCreight is the
President of Hamilton-Ryker, a director of the Company and the holder, directly
or indirectly, of in excess of 5% of the Company's outstanding Common Stock. The
leases commenced [ ] and terminate on [ ]. The aggregate
annual lease payments and associated expenses are approximately $53,880. The
Company believes that the lease terms are at least as favorable as could be
obtained from an unrelated third party.
Ronald Stone issued a note in the amount of $402,000 to Mega Force on
December 3, 1997. The note is in substitution and replacement of accounts
receivable on the books and records of Mega Force, which sums were advanced to
Ronald Stone in 1996. The note bears interest at the December 1997 minimum
midterm applicable federal rate, as defined in Section 1274(d) of the Internal
Revenue Code, compounded semiannually and is payable semiannually. The note is
due and payable on December 31, 2000. Mega Force has the right to declare the
remainder of the indebtedness evidenced by the note due and payable upon the
effectiveness of the Offering. Mega Force does not intend to exercise this
option.
41
<PAGE> 43
Jerry Stone issued a note in the amount of $158,100 to Mega Force on
December 3, 1997. The note is in substitution and replacement of accounts
receivable on the books and records of Mega Force, which sums were advanced to
Jerry Stone in 1996, and together with the note issued by Ronald Stone to Mega
Force, had a balance of $422,277 in 1996. The note bears interest at the
December 1997 minimum midterm applicable federal rate, as defined in Section
1274(d) of the Internal Revenue Code, compounded semiannually and is payable
semiannually. The note is due and payable on December 31, 2000. Mega Force has
the right to declare the remainder of the indebtedness evidenced by the note due
and payable upon the effectiveness of the Offering. Mega Force does not intend
to exercise this option.
On March 12, 1997, Mega Force, a subsidiary of the Company, issued notes in
the amount of $561,916.37 to each of Gallimore and McCreight. The notes, which
are due April 12, 2002, are amendments and replacement of a promissory note in
the amount of $1,316,772.51 which was issued by The Hamilton-Ryker Company,
L.L.C. to Myron Services, Inc., dated December 30, 1995 and later purchased by
Gallimore and McCreight. The notes are unsecured, and the principal amounts bear
interest at a rate of 8% based on a 360-day year on the actual number of days
the principal is outstanding during each interest period. Upon consummation of
the Offering, these notes will be accelerated and paid in full.
On March 12, 1997, Mega Force issued notes in the amount of $500,000 to
each of Gallimore and McCreight. The notes are unsecured, and the principal
amounts bear interest at a rate of 8% based on a 360-day year on the actual
number of days the principal is outstanding during each interest period. Upon
consummation of the Offering, these notes will be accelerated and paid in full.
On December 3, 1997, the Company purchased 193,132 shares and 128,756
shares of Common Stock of the Company from Ronald Stone and Jerry Stone for
$965,660 and $643,780, respectively. These shares were retired by the Company
during 1997. Also on December 3, 1997, the Company paid shareholder
distributions of $654,340 and $436,220 to Ronald Stone and Jerry Stone,
respectively.
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<PAGE> 44
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of January 29, 1998 with
respect to the beneficial ownership of the Common Stock (including shares
issuable upon the exercise of outstanding options that are exercisable as of
that date or within 60 days thereafter) by: (i) each person who owns
beneficially more than 5% of the Common Stock; (ii) each of the principal
executives and directors of the Company; and (iii) the Company's directors and
executive officers as a group. Unless otherwise indicated, each named person
exercises sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY OWNED SOLD IN BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERING AFTER OFFERING
-------------------- --------- --------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT NUMBER NUMBER PERCENT
- --------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
H. Ronald Stone (2).................... 2,423,586 25.1%
Jerry F. Stone (3)..................... 1,075,074 11.1
Wayne McCreight (4).................... 557,700 5.8
Crawford Gallimore (5)................. 557,700 5.8
William W. Wilkinson................... 464,570 4.8
William J. Wilkinson................... 464,568 4.8
Thomas E. Murphy....................... 27,540 .3
John Geer (6).......................... 1,571,734 16.2
Robert W. MacDonald (7)(8)............. 1,680,436 17.4
Conor T. Mullett (7)(8)................ 1,680,436 17.4
John P. Shoemaker (6).................. 1,571,734 16.2
W.E. Simon & Sons, L.L.C. (8).......... 1,680,436 17.4
Mellon Ventures, L.P. ................. 1,571,734 16.2
All directors and executive officers as
a group (11 persons)................. 8,822,908 91.3%
</TABLE>
- ---------------
(1) The address of each stockholder listed in the table is c/o Corporate
Staffing Resources, Inc., One Michiana Square, 100 East Wayne Street, Suite
100, South Bend, Indiana 46601.
(2) Includes 2,304,840 shares registered in the name of H. Ronald Stone, 39,582
in the name of the Carmen Nicole Stone Trust, 39,582 in the name of the
Sarah Katherine Stone Trust and 39,582 shares in the name of the Ginger S.
McDonald Trust. H. Ronald Stone serves as a trustee of each of the trusts
and has sole voting and sole dispositive power over these shares.
(3) Includes 995,910 shares registered in the name of Jerry F. Stone, 39,582 in
the name of the Heath Sheperd Stone Trust and 39,852 shares in the name of
the Sarah Ashley Stone Trust. Jerry F. Stone serves as a trustee of each of
the trusts and has sole voting and sole dispositive power over these shares.
(4) The shares attributable to T. Wayne McCreight are held by the T. Wayne
McCreight Family Limited Partnership. T. Wayne McCreight serves as general
partner of the partnership and has sole voting and sole dispositive power
over these shares.
(5) The shares attributable to D. Crawford Gallimore are held by the D. Crawford
Gallimore Family Limited Partnership. D. Crawford Gallimore serves as
general partner of the partnership and has sole voting and sole dispositive
power over these shares.
(6) Represents shares over which Mr. Geer and Mr. Shoemaker have voting and
dispositive power in connection with their employment by Mellon Ventures,
L.P. Mr. Geer and Mr. Shoemaker have disclaimed any economic or beneficial
ownership interest in the above shares.
(7) Represents shares over which Mr. MacDonald and Mr. Mullett have voting and
dispositive power in connection with their employment by W.E. Simon & Sons,
L.L.C. Mr. MacDonald and Mr. Mullett have disclaimed any economic interest
or beneficial ownership in the above shares.
(8) Includes 1,571,734 shares registered in the name of Temporary Simon L.L.C.
and 108,702 shares registered in the name of IPP 97 Private Equity.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
At the time the Offering is consummated, the Company's Charter will
authorize the Company to issue up to: (i) 50,000,000 shares of Common Stock,
$0.01 par value per share; and (ii) 5,000,000 shares of Preferred Stock, $0.01
par value per share. As of the date of this Prospectus, there were
shares of Common Stock outstanding, held of record by 25 persons. In addition,
on January 29, 1998, there were outstanding options to acquire up to an
additional 95,000 shares of Common Stock, and concurrent with the consummation
of this offering, options for an additional 250,000 shares will be granted.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to the stockholders for a vote. There are no cumulative voting
rights in the election of directors. The shares of Common Stock are entitled to
receive such dividends as may be declared and paid by the Board of Directors out
of funds legally available therefor and to share, ratably, in the net assets, if
any, of the Company upon liquidation. The stockholders have no preemptive rights
to purchase any shares of the Company's capital stock. All outstanding shares of
Common Stock are, and the shares of Common Stock offered hereby will be, when
issued and paid for, duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
From the time the Offering is consummated, the Board of Directors, without
further action by the holders of the Common Stock, will be authorized to
classify any shares of its authorized but unissued Preferred Stock as preferred
stock in one or more series, from time to time. With respect to each series, the
Board of Directors shall determine the number of shares which shall constitute
such series; the rate of dividend, if any, payable on shares of such series;
whether the shares of such series shall be cumulative, non-cumulative or
partially cumulative as to dividends, and the dates from which any cumulative
dividends are to accumulate; whether the shares of such series may be redeemed,
and, if so, the price or prices at which and the terms and conditions on which
shares of such series may be redeemed; the amount payable upon shares of such
series in the event of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; the sinking fund provisions, if any,
for the redemption of shares of such series; the voting rights, if any, of the
shares of such series; the terms and conditions, if any, on which shares of such
series may be converted into shares of capital stock of the Company of any other
class or series; whether the shares of such series are to be preferred over
shares of capital stock of the Company of any other class or series as to
dividends, or upon the voluntary or involuntary dissolution, liquidation, or
winding up of the affairs of the Company, or otherwise; and any other
characteristics, preferences, limitations, rights, privileges, immunities or
terms not inconsistent with the provisions of the Charter.
The availability of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of discouraging takeover proposals, and the issuance of
preferred stock could have the effect of delaying or preventing a change in
control of the Company not approved by the Board of Directors.
ANTI-TAKEOVER PROVISIONS OF CHARTER AND BYLAWS
Upon the consummation of the Offering, the Company's Charter will provide
for a Board of Directors of three classes, with the initial classes having one,
two and three year terms, respectively, and thereafter staggered three year
terms. Under the Bylaws, the number of directors will be fixed at nine. The
Company's Charter will also prohibit actions by the Company's stockholders by
written consent.
Following the consummation of the Offering, the foregoing provisions of the
Charter may be amended or repealed by the stockholders only upon the affirmative
vote of at least 66 2/3% of the shares of capital stock entitled to vote
thereon, could have the effect of discouraging takeover proposals and delaying
or preventing a change in control of the Company not approved by the Board of
Directors.
44
<PAGE> 46
STATUTORY BUSINESS COMBINATIONS PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person becomes an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved at an annual or special
meeting by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock, excluding shares owned by
the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation and who was the owner of 15% 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.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, through
action of its stockholders, to exempt itself from coverage, provided that such
bylaw or certificate of incorporation amendment shall not become effective until
12 months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors and executive officers of the Company are not liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty,
except liability in connection with a breach of duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, dividend payments or stock repurchases illegal under Delaware
law or any transaction in which a director has derived an improper personal
benefit.
As permitted by Delaware law, the Company will enter into an
indemnification agreement with its directors, pursuant to which the Company will
agree to pay certain expenses, including attorney's fees, judgments, fines and
amounts paid in settlement incurred by such directors in connection with certain
actions, suits or proceedings. These agreements will require directors to repay
the amount of any expenses advanced if it shall be determined that the directors
shall not have been entitled to indemnification. Further, the Company maintains
liability insurance for the benefit of its directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
45
<PAGE> 47
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
shares of Common Stock. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price for the Company's Common Stock. The shares of Common
Stock sold in this Offering will be freely tradable without restriction or
limitation under the Securities Act, except for shares purchased by "affiliates"
(as defined under the Securities Act), which will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act. All of the
remaining shares of Common Stock outstanding are "restricted securities" as that
term is defined by Rule 144. Of these shares, will be eligible for
sale in the public market immediately following the date of this Offering
pursuant to Rule 144. In addition, the Company intends, as soon as practicable
after the completion of this Offering, to register approximately
shares of Common Stock reserved for issuance to its employees, directors,
consultants and advisors under the Company's Plan. Options to purchase an
aggregate of 345,000 shares of Common Stock will be outstanding under the Plan
upon the consummation of this Offering.
All directors, executive officers, principal stockholders and certain other
officers of the Company, who hold in the aggregate shares of Common
Stock (excluding options), have each agreed not to sell or otherwise dispose of
any shares for a period of 180 days after the date of this Prospectus, without
the prior written consent of NationsBanc Montgomery Securities LLC. However,
NationsBanc Montgomery Securities LLC may, in its sole discretion and at any
time without notice, release for public sale all or any portion of these shares
subject to such lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell restricted shares if at least
one year has passed since the later of the time such shares were acquired from
the Company or any affiliate of the Company. Rule 144 provides, however, that
within any three-month period such person may only sell up to the greater of:
(i) 1% of the then outstanding shares of Common Stock (approximately
shares immediately following this offering); or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks immediately preceding
the date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain manner-of-sale provisions and notice
requirements and to the availability of current public information about the
Company. All shares held by persons who are deemed to be affiliates of the
Company are subject to the volume limitations and other requirements of Rule 144
regardless of how long the shares have been owned or how they were acquired.
Restricted shares held by non-affiliates of the Company for more than two years
may be sold without limitation under Rule 144.
Prior to the offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that future sales
of Common Stock or the availability of shares of Common Stock for future sale
will have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock following this offering, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock and could impair the Company's ability to raise
capital through an offering of its equity securities.
The Company has entered into a Registration Rights Agreement with the
current holders of the Common Stock. Pursuant to the Registration Rights
Agreement, following this Offering, each of H. Ronald Stone, Mellon Ventures,
L.P. and William E. Simon and Sons L.L.C. has the right to make two demands upon
the Company to file a registration statement under the Securities Act covering
the registration of such holder's shares (a "Demand Registration"). The Company
is not obligated to effect more than three Demand Registrations within any
twelve month period and no holder may make more than one demand during any
twelve month period. In addition, the Company may defer the requested
registration for up to ninety days after the receipt of a demand for
registration. Other current holders of the Common Stock have the right to
participate in Demand Registrations and all holders of the Common Stock have the
right to participate in certain other registrations of the Common Stock by the
Company. The rights to request a Demand Registration shall expire thirty months
following the effectiveness of this Offering. Each current stockholder has
agreed not to sell or otherwise dispose of any shares for a period of 180 days
after the effectiveness of this Offering and for ninety days after any
registration effected subsequent to this Offering. The Registration Rights
Agreement terminates on the tenth anniversary of the closing of this Offering.
46
<PAGE> 48
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BT Alex. Brown Incorporated and The
Robinson-Humphrey Company, LLC (the "Representatives"), have severally agreed,
subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement") by and among the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite its name, at the initial public offering price less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriting
Agreement provides that the obligations of the Underwriters are subject to
certain conditions precedent and that the Underwriters are committed to purchase
all of the shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
BT Alex. Brown Incorporated.................................
The Robinson-Humphrey Company, LLC..........................
----------
Total.............................................
==========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the initial public offering, the
public offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of additional shares of Common Stock to cover over-allotments, if any,
at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company, [its subsidiaries and
certain stockholders] will indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company's officers and directors [and substantially all of the
stockholders of the Company prior to the Offering] have agreed that during the
Lock-up Period they will not, without the prior written consent of NationsBanc
Montgomery Securities LLC, directly or indirectly sell, offer, contract or grant
any option to sell, pledge, transfer, establish an open put equivalent position
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock or securities exchangeable or exercisable for or
convertible into shares of Common Stock. The Company also has agreed not to
issue, offer, sell, grant options to purchase or otherwise dispose of any of the
Company's equity securities during the Lock-up Period without the prior written
consent of NationsBanc Montgomery Securities LLC, except for securities issued
by the Company in connection with acquisitions and for grants and exercises of
stock options, subject in each case to any remaining portion of the Lock-up
Period applying to shares issued or transferred. In evaluating any request for a
waiver of the Lock-up Period, NationsBanc Montgomery Securities LLC will
consider, in accordance with its customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request, and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Shares Eligible for Future Sale."
47
<PAGE> 49
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"), pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the Offering than they are committed to purchase
from the Company and, in such case, may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or dealer participating in the Offering), for the
account of the other Underwriters, the selling concession with respect to Common
Stock that is distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in such negotiations were the
results of operations of the Company in recent periods, the prospects for the
Company and the industry in which the Company competes, an assessment of the
Company's management, its financial condition, the prospects for future earnings
of the Company, the present state of the Company's development, the general
condition of the economy and the securities markets at the time of the Offering
and the market prices of and demand for publicly traded common stock of
comparable companies in recent periods.
LEGAL MATTERS
The legality of the issuance of the Common Stock offered hereby and certain
other matters will be passed upon for the Company by Latham & Watkins, Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriters by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The financial statements and schedule of Corporate Staffing Resources, Inc.
at December 31, 1996 and 1997 and for the years ended December 31, 1995, 1996
and 1997 and the financial statements of The Hamilton-Ryker Company, LLC at
December 31, 1995 and 1996 and for the years ended December 31, 1995 and 1996
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of said firm as experts in accounting and auditing.
The financial statements of CSR, Inc. and its Subsidiaries and Predecessor
at December 31, 1995, 1996, May 14, 1997 and December 3, 1997 and for the
periods ended December 31, 1995, 1996, May 14, 1997 and December 3, 1997
appearing in this Prospectus and Registration Statement have been audited by
Crowe, Chizek and Company LLP, independent auditors, as set forth in their
reports thereon, appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of said firm as experts in accounting and
auditing.
48
<PAGE> 50
The financial statements of CMS Management Services Company at December 31,
1997 and for the year ended December 31, 1997 appearing in this Prospectus and
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
auditors, as set forth in their report thereon, appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
The financial statements of Intranational Computer Consultants, Inc. at
December 31, 1997 and for the year ended December 31, 1997 appearing in this
Prospectus and Registration Statement have been audited by Moss-Adams LLP,
independent auditors, as set forth in their report thereon, appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.
The financial statements of NPS of Atlanta, Inc. and Affiliate at October
31, 1997 and for the year ended October 31, 1997 appearing in this Prospectus
and Registration Statement have been audited by Brooks, Holmes, Williams & Cook
LLC, independent auditors, as set forth in their report thereon, appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form S-1 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the shares of Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Securities
and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part of
the Registration Statement may be obtained from the Commission upon payment of a
prescribed fee. This information is also available from the Commission's
Internet web site at http://www.sec.gov.
As a result of the Offering, the Company will be subject to the information
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, it will continue to furnish the reports and
other information required thereby to the Securities and Exchange Commission.
The Company will furnish to its stockholders annual reports containing financial
statements audited by its independent auditors and will make available copies of
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial information.
49
<PAGE> 51
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998 Introduction...................... F-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1998................................... F-4
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... F-5
Unaudited Pro Forma Condensed Consolidated Statements of
Income Introduction.................................... F-6
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the three months ended March 31, 1998....... F-7
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the three months ended March 31, 1997....... F-8
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the year ended December 31, 1997............ F-9
Notes to Unaudited Pro Forma Consolidated Statements of
Income................................................. F-10
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of March
31, 1998............................................... F-11
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 1997 and March 31,
1998................................................... F-12
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and March 31,
1998................................................... F-13
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-14
AUDITED HISTORICAL FINANCIAL STATEMENTS (THE MEGA FORCE
STAFFING COMPANIES AS THE PREDECESSOR TO CORPORATE
STAFFING RESOURCES, INC.)
Report of Independent Auditors............................ F-18
Balance Sheets as of December 31, 1996 and 1997........... F-19
Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................... F-20
Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997....................... F-21
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-22
Notes to Financial Statements............................. F-23
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
Report of Independent Auditors............................ F-32
Consolidated Balance Sheets as of December 31, 1996, May
14, 1997 and December 3, 1997.......................... F-33
Consolidated Statements of Income for the periods ended
December 31, 1995, 1996, May 14, 1997 and December 3,
1997................................................... F-34
Consolidated Statements of Shareholders' Equity for the
periods ended December 31, 1995, 1996, May 14, 1997 and
December 3, 1997....................................... F-35
Consolidated Statements of Cash Flows for the periods
ended December 31, 1995, 1996, May 14, 1997 and
December 3, 1997....................................... F-36
Notes to Consolidated Financial Statements................ F-37
THE HAMILTON-RYKER COMPANY, LLC
Report of Independent Auditors............................ F-42
Balance Sheets as of December 31, 1995 and 1996........... F-43
Statements of Income for the years ended December 31, 1995
and 1996............................................... F-44
Statements of Shareholders' Equity/Members' Capital for
the years ended December 31, 1995 and 1996............. F-45
Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................... F-46
Notes to Financial Statements............................. F-47
</TABLE>
F-1
<PAGE> 52
<TABLE>
<S> <C>
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Combined Balance Sheet as of March 31, 1998.......................................... F-51
Unaudited Condensed Combined Statements of Income for the three months ended March 31, 1997 and March 31,
1998.................................................................................................. F-52
Unaudited Condensed Combined Statements of Cash Flows for the three months ended March 31, 1997 and March
31, 1998.............................................................................................. F-53
Notes to Unaudited Condensed Combined Financial Statements............................................... F-54
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors........................................................................... F-55
Combined Balance Sheet as of December 31, 1997........................................................... F-56
Combined Statement of Income for the year ended December 31, 1997........................................ F-57
Combined Statement of Retained Earnings and Members' Equity for the year ended December 31, 1997......... F-58
Combined Statement of Cash Flows for the year ended December 31, 1997.................................... F-59
Notes to Financial Statements............................................................................ F-60
INTRANATIONAL COMPUTER CONSULTANTS, INC.
Independent Auditor's Report............................................................................. F-65
Balance Sheet as of December 31, 1997.................................................................... F-66
Statement of Income and Retained Earnings for the year ended December 31, 1997........................... F-67
Statement of Cash Flows for the year ended December 31, 1997............................................. F-68
Notes to Financial Statements............................................................................ F-69
NPS OF ATLANTA, INC. AND AFFILIATE
Report of Independent Certified Public Accountants....................................................... F-72
Combined Balance Sheet as of October 31, 1997............................................................ F-73
Combined Statement of Operations for the year ended October 31, 1997..................................... F-74
Combined Statement of Stockholders' Equity for the year ended October 31, 1997........................... F-75
Combined Statement of Cash Flows for the year ended October 31, 1997..................................... F-76
Notes to Combined Financial Statements for the year ended October 31, 1997............................... F-77
</TABLE>
F-2
<PAGE> 53
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
The following unaudited pro forma condensed consolidated balance sheet
reflects the acquisition by the Company of CMS Management Services Company
("CMS") and the consummation of the initial public offering and the application
of the net proceeds as detailed elsewhere in this Prospectus, as if each had
occurred on March 31, 1998. The pro forma information gives effect to the
acquisition and the pro forma adjustments set forth in the accompanying notes to
pro forma condensed consolidated balance sheet. This pro forma condensed
consolidated balance sheet should be read in conjunction with the pro forma
condensed consolidated statements of income of the Company and the historical
financial statements and notes thereto of the Company and CMS included elsewhere
in this Prospectus. For purposes of this unaudited pro forma condensed
consolidated balance sheet, the Completed Acquisitions include Hamilton-Ryker
Company, LLC; CSR, Inc.; NPS of Atlanta, Inc.; Intranational Computer
Consultants, Inc. and CMS.
This unaudited pro forma condensed consolidated balance sheet is not
necessarily indicative of what the actual consolidated financial position of the
Company would have been at March 31, 1998, nor does it purport to represent the
future consolidated financial position of the Company.
F-3
<PAGE> 54
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OFFERING
COMPANY(1) CMS(2) ADJUSTMENTS SUBTOTAL ADJUSTMENTS(6) PRO FORMA
---------- ------ ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 281 $ 750 $ -- $ 1,031 $ $
Accounts receivable.................. 22,572 1,733 -- 24,305
Other current assets................. 4,745 64 -- 4,809
------- ------ ------- ------- ---- -------
Total current assets......... 27,598 2,547 -- 30,145
Property and equipment, net.......... 2,696 327 -- 3,023
Goodwill and other intangibles,
net............................... 50,186 150 13,645(3) 63,981
Other assets......................... 560 -- -- 560
------- ------ ------- ------- ---- -------
Total assets................. $81,040 $3,024 $13,645 $97,709 $ $
======= ====== ======= ======= ==== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................... $ 1,984 $ 216 $ -- $ 2,200 $ $
Accrued liabilities.................. 5,180 341 -- 5,521
Accrued payroll and related taxes.... 7,258 612 -- 7,870
Current portion of long-term debt.... 180 431 1,569(4) 2,180
------- ------ ------- ------- ---- -------
Total current liabilities.... 14,602 1,600 1,569 17,771
Long-term debt, less current portion... 35,064 -- 13,500(4) 48,564
Notes payable to shareholders, less
current portion...................... 2,274 -- -- 2,274
Other liabilities...................... 166 -- -- 166
------- ------ ------- ------- ---- -------
Total liabilities............ 52,106 1,600 15,069 68,775
Shareholders' equity...................
Common stock......................... 97 2 (2)(5) 97
Additional paid-in capital........... 29,309 159 (159)(5) 29,309
Retained earnings (accumulated
deficit).......................... (472) 1,263 (1,263)(5) (472)
------- ------ ------- ------- ---- -------
Total shareholders' equity... 28,934 1,424 (1,424) 28,934
------- ------ ------- ------- ---- -------
Total liabilities and
shareholders' equity....... $81,040 $3,024 $13,645 $97,709 $ $
======= ====== ======= ======= ==== =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 55
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Represents the historical consolidated balance sheet of the Company, as of
March 31, 1998, which reflects the Completed Acquisitions closed prior to
that date.
(2) Represents the historical combined balance sheet of CMS as of March 31,
1998.
(3) Represents the adjustments to the historical carrying value of CMS to
reflect goodwill resulting from the acquisition. The goodwill adjustment
does not reflect the contingent earnout which will result in additional
purchase price if the acquired company meets certain financial targets. The
Company anticipates the contingent earnout will be approximately $3.0
million.
(4) Represents additional borrowings under the Company's revolving credit
agreement and notes payable issued to the former CMS shareholders to finance
the acquisition, net of repayment of outstanding borrowings of CMS.
(5) Represents the elimination of shareholders' equity of CMS.
(6) Represents the adjustment to reflect the issuance and sale of
shares of common stock by the Company at the public offering price of
$ per share, and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds" elsewhere in this Prospectus.
F-5
<PAGE> 56
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
The following unaudited pro forma condensed consolidated statements of
income reflect the acquisitions of The Hamilton-Ryker Company, LLC; CSR, Inc.;
NPS of Atlanta, Inc.; Intranational Computer Consultants, Inc. and CMS
Management Services Company (collectively, the "Completed Acquisitions") by the
Company and the consummation of the initial public offering and the application
of the net proceeds as detailed elsewhere in this Prospectus as if each had
occurred on the first day of each of the periods shown. Such pro forma
information is based upon the historical results of the Company and the
Completed Acquisitions for the three months ended March 31, 1997 and 1998 and
the year ended December 31, 1997, giving effect to the acquisitions and pro
forma adjustments set forth in the accompanying notes to pro forma condensed
consolidated statements of income. These pro forma condensed consolidated
statements of income should be read in conjunction with the historical financial
statements and notes thereto of the Company and certain of the Completed
Acquisitions included elsewhere in this Prospectus.
These unaudited pro forma condensed consolidated statements of income are
not necessarily indicative of what the actual consolidated results of operations
of the Company would have been assuming the acquisitions had been completed as
set forth above, nor does it purport to represent the consolidated results of
operations of the Company for future periods.
F-6
<PAGE> 57
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
COMPLETED OFFERING
COMPANY (1) ACQUISITIONS (2) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
----------- ---------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $53,060 $8,226 $ -- $61,286 $ -- $61,286
Cost of services................ 42,787 5,447 -- 48,234 -- 48,234
------- ------ ------- ------- ----- -------
Gross profit.................... 10,273 2,779 -- 13,052 -- 13,052
Operating expenses:
Selling, general and
administrative............. 8,235 2,312 (212)(3) 10,335 (137)(8) 10,198
Depreciation and
amortization............... 505 51 129(4) 685 -- 685
------- ------ ------- ------- ----- -------
Operating income.............. 1,533 416 83 2,032 137 2,169
Other expense:
Interest expense.............. 644 23 433(5) 1,100 (994)(9) 106
------- ------ ------- ------- ----- -------
Income before income taxes...... 889 393 (350) 932 1,131 2,063
Provision for income taxes...... 400 109 (90)(10) 419 509(10) 928
------- ------ ------- ------- ----- -------
Net income...................... $ 489 $ 284 $ (260) $ 513 $ 622 $ 1,135
======= ====== ======= ======= ===== =======
Net income per share:
Basic......................... $ .05 $ .05
Diluted....................... $ .05 $ .05
Weighted average number of
shares of common stock
outstanding:
Basic......................... 9,678 9,678
Diluted....................... 9,693 9,693
</TABLE>
See accompanying notes.
F-7
<PAGE> 58
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
COMPLETED OFFERING
COMPANY(1) ACQUISITIONS(2) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- --------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $16,489 $32,052 $ -- $48,541 $ -- $48,541
Cost of services................... 13,672 24,568 -- 38,240 -- 38,240
------- ------- ----- ------- ----- -------
Gross profit....................... 2,817 7,484 -- 10,301 -- 10,301
Operating expenses:
Selling, general and
administrative................ 2,235 6,015 (235)(3) 8,015 -- 8,015
Depreciation and amortization.... 83 135 421(4) 639 -- 639
Other operating expenses......... 163 59 (113)(3) 109 (50)(8) 59
------- ------- ----- ------- ----- -------
Operating income................. 336 1,275 (73) 1,538 50 1,588
Other expense:
Interest expense................. 127 158 550(5) 835 (729)(9) 106
Other expense.................... -- 38 -- 38 -- 38
------- ------- ----- ------- ----- -------
Income before income taxes......... 209 1,079 (623) 665 779 1,444
Provision for income taxes......... 377 306 (384)(10) 299 351(10) 650
------- ------- ----- ------- ----- -------
Net income (loss).................. $ (168) $ 773 $(239) $ 366 $ 428 $ 794
======= ======= ===== ======= ===== =======
Net income per share:
Basic............................ $ (.04) $ .04
Diluted.......................... $ (.04) $ .04
Weighted average number of shares
of common stock outstanding:
Basic............................ 3,756 5,922(7) 9,678
Diluted.......................... 4,318 5,360(7) 9,678
</TABLE>
See accompanying notes.
F-8
<PAGE> 59
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
COMPLETED OFFERING
COMPANY(1) ACQUISITIONS(2) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- --------------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $114,564 $113,131 $ -- $227,695 $ -- $227,695
Cost of services................... 93,557 84,907 -- 178,464 -- 178,464
-------- -------- ------- -------- ------- --------
Gross profit....................... 21,007 28,224 -- 49,231 -- 49,231
Operating expenses
Selling, general and
administrative................ 13,861 24,257 (2,649)(3) 35,469 -- 35,469
Depreciation and amortization.... 836 657 1,093(4) 2,586 -- 2,586
Other operating expenses......... 1,158 261 (642)(3) 777 (368)(8) 409
-------- -------- ------- -------- ------- --------
Operating income................. 5,152 3,049 2,198 10,399 368 10,767
Other (income) expense:
Interest expense................. 1,570 821 2,447(5) 4,838 (4,413)(9) 425
Other income..................... (124) (37) -- (161) -- (161)
-------- -------- ------- -------- ------- --------
Income before income taxes and
extraordinary item............... 3,706 2,265 (249) 5,722 4,781 10,503
Provision for income taxes......... 1,904 666 5(10) 2,575 2,151(10) 4,726
-------- -------- ------- -------- ------- --------
Income before extraordinary item... 1,802 1,599 (254) 3,147 2,630 5,777
Extraordinary item, net of tax
benefit.......................... (1,672) -- 1,672(6) -- -- --
-------- -------- ------- -------- ------- --------
Net income......................... $ 130 $ 1,599 $ 1,418 $ 3,147 $ 2,630 $ 5,777
======== ======== ======= ======== ======= ========
Net income per share:
Basic............................ $ .03 $ .33
Diluted.......................... $ .02 $ .33
Weighted average number of shares
of common stock outstanding:
Basic............................ 5,061 4,617(7) 9,678
Diluted.......................... 5,580 4,098(7) 9,678
</TABLE>
See accompanying notes.
F-9
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(1) Represents the historical Consolidated Statement of Income of the Company
for the period shown, which includes the operations of the Completed
Acquisitions from their respective dates of acquisition through the end of
each period.
(2) Represents the combined historical results of operations of the Completed
Acquisitions from the first day of each period through their respective
dates of acquisition.
(3) Represents reductions to selling, general and administrative expenses and
other operating expenses for expenses of the Company and the Completed
Acquisitions that would not have been incurred had the acquisitions been
completed at the beginning of the period, primarily compensation paid to
stockholders in excess of compensation that would have been payable under
their terms of employment agreements entered into connection with the
Completed Acquisitions and severance paid to an executive terminated in
conjunction with an acquisition.
(4) Represents an increase to amortization expense resulting from goodwill
recorded as a result of the Completed Acquisitions. The excess of cost over
the fair value of the net assets acquired (goodwill) is being amortized
over 40 years. The terms of the purchase agreements for certain of the
Completed Acquisitions require the Company to pay additional amounts to the
sellers if the acquired companies meet certain financial targets. The
Company estimates that the total increase in the purchase price from these
requirements will not exceed approximately $10.5 million, which would
result in additional amortization expense of $262,500 per year.
(5) Represents additional interest expense to reflect incremental borrowings
under the Company's borrowing facility necessary to finance the Completed
Acquisitions, less the reduction in interest expense resulting from
repayment of the borrowings of certain of the acquired companies. Interest
expense is computed using the Company's weighted average interest rate of
9.2% for the year ended December 31,1997 and the three months ended March
31, 1997 and 8.5% for the three months ended March 31, 1998.
(6) Represents the elimination of the extraordinary item resulting from the
Company's termination of its previous borrowing arrangements in connection
with the refinancing that occurred in December 1997.
(7) Reflects the issuance of additional shares of common stock in connection
with certain of the Completed Acquisitions.
(8) Represents the elimination of certain expenses related to management fees
and consulting fees subject to certain agreements which will be terminated
upon consummation of the Offering.
(9) Represents the reduction in interest expense resulting from the Company
repaying outstanding borrowings under its credit agreement and shareholder
notes with proceeds from the Offering.
(10) Reflects the federal and state income tax effects of the above adjustments,
excluding the portion of the goodwill related to the Completed Acquisitions
which is nondeductible for federal and state tax purposes.
(11) Reflects the issuance of shares of the Company's common stock in
connection with the public offering described in this Prospectus.
F-10
<PAGE> 61
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 281
Accounts receivable, less allowance....................... 22,572
Other current assets...................................... 4,745
-------
Total current assets.............................. 27,598
Property and equipment, net................................. 2,696
Goodwill and other intangibles, net......................... 50,186
Other assets................................................ 560
-------
Total assets...................................... $81,040
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,984
Accrued liabilities....................................... 5,180
Accrued payroll and related taxes......................... 7,258
Current portion of long-term debt......................... 180
-------
Total current liabilities......................... 14,602
Long-term debt, less current portion........................ 35,064
Notes payable to shareholders, less current portion......... 2,274
Other liabilities........................................... 166
-------
Total liabilities................................. 52,106
Shareholders' equity:
Common stock ($0.01 par value; 15,000,000 shares
authorized; 9,678,114 shares issued and outstanding)... 97
Additional paid-in capital................................ 29,309
Accumulated deficit....................................... (472)
-------
Total shareholders' equity........................ 28,934
-------
Total liabilities and shareholders' equity........ $81,040
=======
</TABLE>
See accompanying notes.
F-11
<PAGE> 62
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Revenues.................................................... $16,489 $53,060
Cost of services............................................ 13,672 42,787
------- -------
Gross profit................................................ 2,817 10,273
Operating expenses:
Selling, general and administrative expenses.............. 2,235 8,235
Depreciation and amortization............................. 83 505
Other operating expenses.................................. 163 --
------- -------
Operating income............................................ 336 1,533
Other expense:
Interest expense.......................................... 127 644
------- -------
Income before provision for income taxes.................... 209 889
Provision for income taxes.................................. 377 400
------- -------
Net income (loss)........................................... $ (168) $ 489
======= =======
Net income (loss) per share:
Basic..................................................... $ (.04) $ .05
Diluted................................................... $ (.04) $ .05
Weighted average number of shares of common stock
outstanding:
Basic..................................................... 3,756 9,678
Diluted................................................... 4,318 9,693
</TABLE>
See accompanying notes.
F-12
<PAGE> 63
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1998
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities................. $ 1,490 $ 4,298
------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash received........................ (3,255) (13,738)
Purchases of property and equipment....................... (42) (302)
------- --------
Net cash used in investing activities..................... (3,297) (14,040)
------- --------
FINANCING ACTIVITIES
Proceeds from borrowings under revolving credit
agreement.............................................. 10,650 17,430
Net change in borrowings under line of credit............. (3,422) --
Repayment of shareholder notes payable.................... (1,976) --
Repayment of revolving credit agreement................... (2,226) (9,403)
------- --------
Net cash provided by financing activities................. 3,026 8,027
------- --------
Net increase (decrease) in cash and cash equivalents...... 1,219 (1,715)
Cash and cash equivalents at beginning of period............ 237 1,996
------- --------
Cash and cash equivalents at end of period.................. $ 1,456 $ 281
======= ========
</TABLE>
See accompanying notes.
F-13
<PAGE> 64
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Corporate Staffing Resources, Inc. and its wholly owned
subsidiaries (individually and collectively referred to as the "Company"). The
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. These
financial statements should be read in conjunction with the Company's audited
financial statements for the year ended December 31, 1997, included elsewhere in
this Prospectus.
2. ACQUISITIONS
During the three months ended March 31, 1998, the Company acquired two
staffing companies for a combined purchase price of approximately $12 million.
In addition, in connection with these acquisitions the Company entered into
earnout agreements which could result in additional purchase price of
approximately $7.5 million over the next three years based upon the achievement
of certain operating results, as defined. The acquisitions were accounted for
using the purchase method, and the operating results of the companies acquired
have been included in the Company's 1998 consolidated financial statements from
the dates of acquisition. The excess of the combined purchase price over the
cost of acquired net assets ("goodwill") of $10.8 million is being amortized on
a straight-line basis over 40 years.
Subsequent to March 31, 1998, the Company completed the acquisition of an
additional staffing company. The initial purchase price of this acquisition was
approximately $15.5 million ($10.5 million cash and $5 million in subordinated
notes), which could be increased by a contingent earnout not expected to exceed
approximately $3 million over 3 years based upon the achievement of certain
operating results, as defined. The acquisition will be accounted for using the
purchase method and the operating results will be included in the Company's 1998
consolidated financial statements from the date of acquisition. The goodwill of
approximately $13.6 million will be amortized on a straight-line basis over 40
years.
As more fully disclosed in Note 2 to the Company's audited financial
statements for the year ended December 31, 1997, included elsewhere in this
Prospectus, in March 1997, the Company acquired The Hamilton-Ryker Company, LLC
and in December 1997, the Company acquired CSR, Inc. Certain costs associated
with these acquisitions were paid during the three months ended March 31, 1998.
F-14
<PAGE> 65
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
The following table presents, on an unaudited pro forma basis, a condensed
consolidated balance sheet as of March 31, 1998, giving effect to the
acquisition occurring subsequent to March 31, 1998, as if it had occurred on
that date. All other acquisitions discussed above are reflected in the Company's
March 31, 1998 historical unaudited condensed consolidated balance sheet.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $30,145
Property and equipment...................................... 3,023
Other assets................................................ 64,541
-------
Total assets...................................... 97,709
=======
Current liabilities......................................... 17,771
Long-term debt.............................................. 50,838
Other liabilities........................................... 166
Shareholders' equity........................................ 28,934
-------
Total liabilities and shareholders' equity........ $97,709
=======
</TABLE>
The following unaudited pro forma results for the three months ended March
31, 1997 and 1998 were developed assuming all acquisitions discussed above had
been completed at the beginning of each of the periods described below. For both
periods, the unaudited pro forma results are after giving effect to certain
adjustments, including interest expense, amortization of intangibles, add back
of excess compensation paid to shareholders of certain companies and assuming
all entities had been C Corporations for the entirety of the three month
periods.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1997 1998
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues.............................................. $48,541 $61,286
Net income.................................................. 366 513
Net income per share (Basic and diluted).................... $ .04 $ .05
</TABLE>
The unaudited pro forma data shown above is not necessarily indicative of
the consolidated results that would have occurred had the acquisitions taken
place at the beginning of each period shown.
On May 15, 1998, the Company completed the acquisition of an additional
staffing company for approximately $3.8 million cash. The acquired company had
revenues of approximately $6.2 million during the year ended December 31, 1997.
The pro forma information shown above does not reflect this acquisition as
results would not differ materially from those shown.
3. INCOME TAXES
The Company was formed on January 1, 1997 as the successor to a group of
ten operating corporations which were controlled and managed by two related
shareholders and which operated under Subchapter S of the Internal Revenue Code.
Upon formation, the Company elected to be taxable as a C Corporation and
accordingly adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Upon electing to be
taxable as a C Corporation and adopting SFAS No. 109,
F-15
<PAGE> 66
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
the Company established a net deferred tax liability of $284,000 representing
the tax effect of cumulative temporary differences as of January 1, 1997.
4. STOCK OPTIONS
On January 29, 1998, the Company adopted the Corporate Staffing Resources,
Inc. Non-Qualified Stock Option Plan (the "Option Plan") for key employees of
the Company and its subsidiaries. Under the Option Plan, not more than 1,500,000
shares of common stock are authorized for issuance upon exercise of the options.
Options granted under the Option Plan expire after ten years and the exercise
price and vesting period are set by the Company's Board of Directors at the date
of grant. On January 29, 1998, the Company's Board of Directors granted options
to purchase 95,000 shares at the then estimated fair value of $8.00 per share.
The options become exercisable ratably over a three year period. There were no
exercises or forfeitures during the three months ended March 31, 1998. At March
31, 1998 there were 95,000 options outstanding with a weighted-average remaining
contractual life of 9.83 years of which none were exercisable.
The Company is accounting for the options according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The disclosure only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" have been adopted and accordingly the appropriate
disclosures will be made in the December 31, 1998 financial statements of the
Company.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company accounted
for its employee stock options under the fair value method of SFAS No. 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for the three
months ended March 31, 1998: risk-free interest rate of 6%, no expected
dividends, a volatility factor of .5 and a weighted average expected life of the
options of 3 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma net income........................................ $ 483
Pro forma earnings per share
Basic..................................................... $0.05
Diluted................................................... $0.05
</TABLE>
5. EARNINGS PER SHARE
The Company computes earnings per share under SFAS No. 128, "Earnings Per
Share" which requires the Company to present basic and diluted earnings per
share.
F-16
<PAGE> 67
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding plus the dilutive effect of stock
options. During the three months ended March 31, 1998, the dilutive effect of
stock options increased the weighted average number of shares of common stock
considered to be outstanding by 15,000 shares. During the three months ended
March 31, 1997, 561,564 shares of common stock issued under warrants are
considered to have been issued on January 1, 1997.
6. PENDING ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes standards
for the reporting and disclosure of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 131 changes the
manner in which public companies report segment information in annual reports
and requires companies to report selected segment information in interim
financial reports. The Company will be required to report financial and
descriptive information about its operating segments. Both these statements are
effective for fiscal years beginning after December 15, 1997, with
reclassification of the financial statements for earlier periods required for
comparative purposes. The Company plans to adopt these statements, to the extent
they are applicable, for its year ending December 31, 1998. SFAS No. 130 is not
expected to have a significant impact on the Company's historical financial
statements, as comprehensive income will equal reported net income. The Company
is evaluating the impact of SFAS No. 131.
F-17
<PAGE> 68
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Corporate Staffing Resources, Inc.
We have audited the accompanying consolidated balance sheets of Corporate
Staffing Resources, Inc. (the "Company") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the index.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Corporate Staffing Resources, Inc. at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Raleigh, North Carolina
March 24, 1998, except for Note 6 and Note 14
as to which the date is May 15, 1998
F-18
<PAGE> 69
CORPORATE STAFFING RESOURCES, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 237,424 $ 1,996,097
Accounts receivable, less allowance of $122,000 and
$220,000............................................... 5,306,808 18,423,644
Income taxes receivable................................... -- 937,182
Prepaid expenses and other................................ 201,364 399,756
Insurance loss fund....................................... 860,236 2,112,689
Deferred income taxes..................................... -- 1,120,000
----------- -----------
Total current assets.............................. 6,605,832 24,989,368
Property and equipment, net................................. 570,044 2,177,790
Notes receivable from shareholders.......................... 422,277 560,100
Goodwill, less accumulated amortization of $70,350 and
$434,128.................................................. 64,129 37,917,827
Other....................................................... 219,891 620,449
----------- -----------
Total assets...................................... $ 7,882,173 $66,265,534
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 322,352 $ 783,469
Accrued liabilities....................................... 17,292 725,283
Accrued payroll and related taxes......................... 855,985 4,599,520
Accrued workers' compensation............................. 695,000 2,054,785
Borrowings under line of credit........................... 3,421,741 --
Current portion of long-term debt......................... 48,670 31,362
Current portion of notes payable to shareholders.......... 2,000,000 150,000
----------- -----------
Total current liabilities......................... 7,361,040 8,344,419
Long-term debt, less current portion........................ 77,559 27,036,364
Notes payable to shareholders, less current portion......... -- 2,273,833
Deferred income taxes....................................... 166,000
----------- -----------
Total liabilities................................. 7,438,599 37,820,616
Commitments and contingencies (Notes 10 and 13)
Shareholders' equity:
Common stock, $0.01 par value 18,080,000 outstanding in
1996 prior to recapitalization; 15,000,000 shares
authorized; 9,678,114 shares issued and outstanding in
1997................................................... 180,800 96,781
Additional paid-in capital................................ 1,983,414 29,308,911
Accumulated deficit....................................... (1,343,312) (960,774)
----------- -----------
820,902 28,444,918
Less cost of common stock in treasury, 5,100 shares......... (377,328) --
----------- -----------
Total shareholders' equity........................ 443,574 28,444,918
----------- -----------
Total liabilities and shareholders' equity........ $ 7,882,173 $66,265,534
=========== ===========
</TABLE>
See accompanying notes.
F-19
<PAGE> 70
CORPORATE STAFFING RESOURCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Revenues............................................. $67,349,468 $65,549,163 $114,563,720
Cost of services..................................... 57,172,506 54,724,294 93,556,652
----------- ----------- ------------
Gross profit......................................... 10,176,962 10,824,869 21,007,068
Operating expenses:
Selling, general and administrative expenses....... 9,654,528 9,493,812 13,860,235
Depreciation and amortization...................... 294,943 284,000 835,875
Other operating expenses........................... -- -- 1,158,301
----------- ----------- ------------
Operating income..................................... 227,491 1,047,057 5,152,657
Other (income) expense:
Interest expense................................... 275,664 266,001 1,570,532
Other income....................................... (10,432) (114,941) (123,845)
----------- ----------- ------------
Income (loss) before provision for income taxes and
extraordinary item................................. (37,741) 895,997 3,705,970
Provision for income taxes........................... -- -- 1,904,000
----------- ----------- ------------
Income (loss) before extraordinary item.............. (37,741) 895,997 1,801,970
Extraordinary loss on early extinguishment of debt,
net of related tax benefit of $1,070,000........... -- -- 1,672,184
----------- ----------- ------------
Net income (loss).................................... $ (37,741) $ 895,997 $ 129,786
=========== =========== ============
Basic earnings per common share:
Income before extraordinary item................... $ .36
Extraordinary item................................. (.33)
------------
Net income......................................... $ .03
============
Diluted earnings per common share:
Income before extraordinary item................... $ .32
Extraordinary item................................. (.30)
------------
Net income......................................... $ .02
============
Pro forma income data (unaudited):
Net income (loss) as reported...................... $ (37,741) $ 895,997
Pro forma provision for income taxes............... -- 354,000
----------- -----------
Pro forma net income (loss)........................ $ (37,741) $ 541,997
=========== ===========
</TABLE>
See accompanying notes.
F-20
<PAGE> 71
CORPORATE STAFFING RESOURCES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
----------------------- PAID IN (ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT) STOCK TOTAL
----------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994... 18,080,000 $ 180,800 $ 476,414 $ 2,631,397 $ (377,328) $ 2,911,283
Net loss for 1995............ -- -- -- (37,741) -- (37,741)
Shareholder distributions.... -- -- -- (200,965) -- (200,965)
----------- --------- ----------- ----------- ----------- -----------
Balance at December 31, 1995... 18,080,000 180,800 476,414 2,392,691 (377,328) 2,672,577
Net income for 1996.......... -- -- -- 895,997 -- 895,997
Contribution of capital...... -- -- 1,507,000 -- -- 1,507,000
Shareholder distributions.... -- -- -- (4,632,000) -- (4,632,000)
----------- --------- ----------- ----------- ----------- -----------
Balance at December 31, 1996... 18,080,000 180,800 1,983,414 (1,343,312) (377,328) 443,574
Recapitalization............. (14,654,964) (146,550) (1,196,762) 1,343,312 -- --
Issuance of 6,018,502 shares
of common stock........... 6,018,502 60,186 28,438,824 -- -- 28,499,010
Issuance of stock warrants... -- -- 2,068,963 -- -- 2,068,963
Exercises of stock
warrants.................. 561,564 5,615 (2,030) -- -- 3,585
Purchase of common stock for
treasury.................. -- -- -- -- (1,609,440) (1,609,440)
Retirement of treasury
stock..................... (326,988) (3,270) (1,983,498) -- 1,986,768 --
Shareholder distributions.... -- -- -- (1,090,560) -- (1,090,560)
Net income for 1997.......... -- -- -- 129,786 -- 129,786
----------- --------- ----------- ----------- ----------- -----------
Balance at December 31, 1997... 9,678,114 $ 96,781 $29,308,911 $ (960,774) $ -- $28,444,918
=========== ========= =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-21
<PAGE> 72
CORPORATE STAFFING RESOURCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
--------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (37,741) $ 895,997 $ 129,786
Adjustments to reconcile net income (loss) before
extraordinary item to net cash provided by (used in)
operating activities:
Extraordinary loss on extinguishment of debt.............. -- -- 1,672,184
Depreciation.............................................. 221,554 262,895 447,450
Amortization.............................................. 73,389 21,105 388,425
Gain/loss on disposal of assets........................... -- (27,627) 9,950
Deferred taxes............................................ -- -- (778,618)
Changes in operating assets and liabilities:
Accounts receivable.................................... (145,651) (174,333) (1,998,030)
Recoverable income taxes............................... -- -- (937,182)
Prepaid expenses and other............................. 211,796 303,915 500,378
Insurance loss fund.................................... -- (860,236) (1,252,453)
Accounts payable....................................... 67,257 (102,523) (249,469)
Accrued liabilities.................................... 6,260 4,712 (362,882)
Accrued payroll and related taxes...................... 348,869 (489,498) 380,284
Accrued workers' compensation.......................... -- 695,000 676,593
--------- ----------- ------------
Net cash provided by (used in) operating activities......... 745,733 529,407 (1,373,584)
INVESTING ACTIVITIES
Acquisitions, net of cash received.......................... -- -- (2,934,377)
Purchases of property and equipment......................... (411,125) (223,842) (1,182,917)
Proceeds from sale of property and equipment................ -- 85,887 41,221
--------- ----------- ------------
Net cash used in investing activities....................... (411,125) (137,955) (4,076,073)
FINANCING ACTIVITIES
Notes receivables from shareholders......................... -- (422,277) (137,823)
Net borrowings (repayments) on line of credit............... (429,480) 1,554,221 (3,421,741)
Proceeds from revolving credit agreement.................... -- -- 42,586,248
Proceeds from long-term debt................................ 172,387 92,301 75,328
Proceeds of shareholder advances............................ 146,723 1,753,278 --
Repayments of revolving credit agreement.................... -- -- (25,320,592)
Repayment of long-term debt................................. (201,269) (102,772) (100,586)
Repayment of shareholder notes payable...................... (16,588) -- (3,772,504)
Purchase of common stock for treasury....................... -- -- (1,609,440)
Shareholder distributions................................... (200,965) (4,632,000) (1,090,560)
Contributions of capital.................................... -- 1,507,000 --
--------- ----------- ------------
Net cash (used in) provided by financing activities......... (529,192) (250,249) 7,208,330
--------- ----------- ------------
Net (decrease) increase in cash and cash equivalents........ (194,584) 141,203 1,758,673
Cash and cash equivalents at beginning of year.............. 290,805 96,221 237,424
--------- ----------- ------------
Cash and cash equivalents at end of year.................... $ 96,221 $ 237,424 $ 1,996,097
========= =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 272,200 $ 298,659 $ 1,401,745
========= =========== ============
Cash paid during the year for income taxes.................. $ -- $ -- $ 1,955,362
========= =========== ============
</TABLE>
See accompanying notes.
F-22
<PAGE> 73
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
Corporate Staffing Resources, Inc. (the "Company"), formerly known as Mega
Force Staffing Companies, Inc., operates in one business segment as a provider
of diversified staffing, professional and consulting services to businesses,
professional and services organizations and governmental agencies. The Company
offers these services throughout the United States.
Mega Force Staffing Companies, Inc. is the successor to The Mega Force
Group, a group of ten operating corporations which were controlled and managed
by two related shareholders. The accompanying financial statements for 1995 and
1996 are not those of a separate legal entity, but represent the combined
operations of the ten operating corporations. Effective January 1, 1997, all of
these corporations were merged into Mega Force Staffing Companies, Inc., with
ownership being retained by the same two related shareholders.
On December 3, 1997, Mega Force Staffing Companies, Inc. acquired CSR, Inc.
and changed its name to Corporate Staffing Resources, Inc. Effective with this
merger, the Company formed two of its three wholly owned subsidiaries, Mega
Force Staffing Services, Inc. and CSR, Inc. The Company's third wholly owned
subsidiary, The Hamilton-Ryker Company, Inc., was acquired on March 12, 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its three
wholly owned subsidiaries. All 1997 significant intercompany accounts and
transactions have been eliminated in consolidation. In addition, all significant
intercompany accounts and transactions have been eliminated in the 1995 and 1996
combined financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets ranging from
three to seven years.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Office furniture and equipment............................. $1,209,052 $ 3,000,678
Leasehold improvements..................................... 308,593 576,013
---------- -----------
1,517,645 3,576,691
Accumulated depreciation................................... (947,601) (1,398,901)
---------- -----------
$ 570,044 $ 2,177,790
========== ===========
</TABLE>
Goodwill
The Company has classified as goodwill the cost in excess of fair value of
the net assets acquired in purchase transactions. Goodwill is being amortized on
a straight-line basis over forty years. Amortization
F-23
<PAGE> 74
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
charged to operations amounted to $73,389, $21,105 and $388,425 in 1995, 1996
and 1997, respectively, of which $12,331, $21,105 and $304,753 was attributable
to goodwill amortization.
Revenue Recognition
Revenues are recognized as income in the period the related services are
provided.
Income Taxes
During 1995 and 1996, the operating companies of the Mega Force Group were
primarily entities subject to the provisions of Subchapter S of the Internal
Revenue Code and, consequently, were not subject to federal income tax; rather
the shareholders were liable for individual income taxes on their respective
share of taxable income. Accordingly, the statements of income for the years
ended December 31, 1995 and 1996 do not include a provision for federal and
state income taxes. A pro forma provision for federal and state income taxes is
presented as if the Company were taxed as a C corporation for the entirety of
all periods presented.
Effective January 1, 1997, the Company began operating under the provisions
of Subchapter C of the Internal Revenue Code. As such, the Company accounts for
income taxes using the liability method as prescribed by SFAS No. 109,
"Accounting for Income Taxes". The liability method recognizes deferred tax
assets and liabilities based on differences between the financial reporting and
tax bases of assets and liabilities.
Advertising Expense
The cost of advertising is expensed when incurred. The Company incurred
advertising expense of $270,326, $240,810 and $367,782 in 1995, 1996 and 1997,
respectively.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company provides an allowance for doubtful accounts based on management's
evaluation of outstanding accounts receivable.
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments
approximates the carrying amounts. Because of the short-term maturity of cash
and cash equivalents and accounts receivable, their carrying amounts approximate
fair value.
The carrying value of notes payable to shareholders approximates fair value
based upon the Company's current effective borrowing rate.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Impairment of Long-Lived Assets
The Company regularly evaluates whether events and circumstances have
occurred which may indicate that the carrying amount of intangible or other
long-lived assets warrant revision or may not be recoverable. When factors
indicate that an asset or assets should be evaluated for possible impairment, an
evaluation would be performed pursuant to the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." If an evaluation is required, the estimated future
F-24
<PAGE> 75
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required. Management considers the intangible and
other long-lived assets to be fully recoverable as of December 31, 1997.
Cash Flows and Noncash Activities
For purposes of the consolidated statements of cash flow, cash and cash
equivalents include cash, cash investments and any highly liquid investments
purchased with an original maturity of three months or less. The Company's
acquisitions of subsidiaries and associated financing transactions included
certain noncash activities (See Note 3).
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for the reporting and disclosure of comprehensive income and its components in a
full set of general purpose financial statements. SFAS No. 131 changes the
manner in which public companies report segment information in annual reports
and requires companies to report selected segment information in interim
financial reports. The Company will be required to report financial and
descriptive information about its operating segments. Both these statements are
effective for fiscal years beginning after December 15, 1997, with
reclassification of the financial statements for earlier periods required for
comparative purposes. The Company plans to adopt these statements, to the extent
they are applicable, for its year ending December 31, 1998. SFAS No. 130 is not
expected to have a significant impact on the Company's historical financial
statements, as comprehensive income will equal reported net income. The Company
is evaluating the impact of SFAS No. 131.
Stock-Based Compensation
The Company has adopted the disclosure only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," and, accordingly, accounts for its
stock option plan under the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." Through December 31, 1997,
the Company had not granted any stock options.
3. ACQUISITIONS
Business Combinations
On March 12, 1997, the Company acquired all of the membership interests of
The Hamilton-Ryker Company, LLC, a company located in Tennessee which provides
temporary personnel services. Total consideration was approximately $10,876,000,
consisting of: (i) $3,502,000 in cash; (ii) $1,000,000 in certain notes payable
to sellers; and (iii) 1,593,500 shares of common stock of the Company.
On March 17, 1997, the Company acquired certain assets and assumed certain
liabilities of Data Resources, Inc., a company located in North Carolina which
provides temporary personnel services. Total consideration consisted of
approximately $600,000 in cash.
On December 3, 1997, the Company acquired the stock of CSR, Inc., a company
located in Indiana which provides temporary personnel services for total
consideration of approximately $22,125,000 consisting of 4,425,002 shares of
common stock.
All of the above business combinations have been accounted for as purchases
and the results of operations have been included in the accompanying financial
statements since the respective dates of the acquisitions. Costs in excess of
the fair value of the net assets acquired ("goodwill") is being amortized using
F-25
<PAGE> 76
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the straight-line method over forty years. Unaudited pro forma financial
information for the years ended December 31, 1996 and 1997 is presented in Note
14.
4. OTHER OPERATING EXPENSES
During the year ended December 31, 1997, the Company incurred operating
expenses aggregating $1,158,301 which consisted primarily of severance paid to
two former executives of the Company and amounts paid to a third former
executive. These expenses are presented as other operating expenses in the
statements of operations.
5. LINE OF CREDIT
During 1996 the Company maintained a $5,500,000 line of credit with a bank,
bearing interest at the bank's prime rate (8.25% at December 31, 1996) plus
1/2%. Collateral was provided by a security agreement covering all personal
property, including accounts receivable, property and equipment and personal
guarantees of the shareholders. Borrowings under this line of credit were
$3,421,741 at December 31, 1996. Borrowings under this line of credit were
repaid in full on March 12, 1997.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
-------- -----------
<S> <C> <C>
Borrowings under revolving credit agreement................. $ -- $26,966,755
Other....................................................... 126,229 100,971
-------- -----------
Total....................................................... 126,229 27,067,726
Less current portion........................................ (48,670) (31,362)
-------- -----------
Long-term portion........................................... $ 77,559 $27,036,364
======== ===========
</TABLE>
Aggregate maturities of long-term debt for the years subsequent to December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 31,362
1999............................................ 22,586
2000............................................ 16,039
2001............................................ 26,983,125
2002 and thereafter............................. 14,614
-----------
$27,067,726
===========
</TABLE>
On March 12, 1997, the Company entered into a revolving credit facility
with a new lender permitting advances of up to $25,000,000. The revolving credit
facility bore interest at prime (8.5% at December 31, 1997) plus 1 1/2% for the
Base Rate Loans, and LIBOR (5.9% at December 31, 1997) plus 3 1/2% for the
Eurodollar loans, and was collateralized by primarily all accounts receivable
and equipment of the Company. In connection with the credit facility, the
Company issued a warrant to the lender to purchase 517,888 shares of the
Company's common stock for $0.005 per share. Upon issuance, the Company recorded
the estimated value of this warrant of $2,068,963 as additional paid in capital
and related debt discount. The debt discount was amortized to interest expense
over the life of the loan using the straight-line method. In connection with the
Company's acquisition of CSR, Inc. on December 3, 1997, the number of shares
subject to the warrant was reduced to 363,176.
F-26
<PAGE> 77
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On December 3, 1997, the Company entered into a new loan agreement to
refinance the existing agreement. As a result of this early extinguishment, the
Company recorded in the accompanying financial statements, net of related income
tax benefit, an extraordinary loss of $1,672,184 which consists of the
difference between the principal amount and the net carrying amount of the
extinguished debt. The net carrying amount on December 3, 1997 reflected the
unpaid amount of the debt along with the unamortized amount of the related debt
discount and deferred debt issuance costs. All of the warrants issued in
connection with the extinguished debt were exercised by the lender in 1997.
Also in connection with the March 1997 credit facility, the Company issued
a warrant to purchase 198,388 shares of the Company's stock at $0.005 per share.
This warrant was exercisable by the lender in the event the Company's borrowings
under the credit facility exceeded $20,000,000 at any point in time. In the
event the credit facility never reached that level, the warrants became
exercisable by two of the Company's shareholders. As a result of the
extinguishment of the debt discussed above, the warrants became exercisable by
the two stockholders and were exercised on December 3, 1997.
On December 3, 1997, the Company entered into a new revolving credit
agreement with two banks providing loans or letters of credit of up to $50
million through December 3, 2001. Borrowings under the credit agreement are
collateralized by all of the Company's accounts receivable, equipment and
intangibles as well as a pledge of the Company's stock. The agreement provides
for advances under a Base Rate loan or a Eurodollar loan plus an applicable
margin as defined in the loan agreement depending on the pricing option selected
by the Company.
On May 14, 1998, the Company entered into an agreement with the banks to
increase availability under the agreement from $50 million to $75 million.
Additionally, a commitment fee of 0.5% per annum is payable on any unused
portion of the credit facility. The revolving credit agreement contains
restrictive covenants relating to leverage ratios, requirements for limitations
on future acquisitions and declaration of dividends.
The Company has entered into a standby letter of credit agreement in the
amount of $1,363,000 relating to workers' compensation self-insurance
requirements.
7. WORKERS' COMPENSATION INSURANCE
Through December 31, 1997, the Company maintained separate workers'
compensation programs for each of its subsidiaries. The Hamilton-Ryker Company,
which was acquired on March 12, 1997, was fully-insured by a commercial
insurance carrier for all workers' compensation claims for the period March 12,
1997, through December 31,1997. CSR, Inc. which was acquired on December 3,
1997, maintained an insurance plan whereby CSR, Inc. retained the first $250,000
of exposure per occurrence with an annual aggregate loss exposure of
approximately $1.6 million.
Mega Force Staffing Services, Inc. (and the Mega Force Group prior to
January 1, 1997) maintained an insurance program whereby they retained the first
$250,000 of exposure per occurrence with an annual aggregate exposure of
approximately $2.3 million. Mega Force Staffing Services, Inc. was required to
make periodic deposits to a loss fund (which accrues interest at a rate of 5%)
from which their workers' compensation claims will be paid by a third party
administrator. At December 31, 1996, and 1997, the loss fund had a balance of
$860,236 and $2,112,689, respectively, available to fund future claims, which is
included as a current asset under the caption insurance loss fund in the
accompanying balance sheets.
The Company has recorded a reserve for losses and loss adjustment expenses
related to the programs of CSR, Inc. and Mega Force Staffing Services, Inc. of
$695,000 and $2,054,785 at December 31, 1996 and 1997 respectively, which
includes an actuarially determined reserve for incurred but unreported losses.
These estimates are subject to the effects of trends in loss severity and
frequency, and could vary significantly from
F-27
<PAGE> 78
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the amounts reported at December 31, 1996 and 1997. Although considerable
variability is inherent in such estimates, management believes that the workers'
compensation insurance reserve is adequate. However, there can be no assurance
that the Company's actual future obligations will not exceed the amount of the
reserve.
8. SHAREHOLDERS' EQUITY
Recapitalization
Effective January 1, 1997, the ten existing operating companies comprising
The Mega Force Group were merged together forming Mega Force Staffing Companies,
Inc. The ownership both prior to and after the merger was retained by the two
related shareholders.
Earnings per Share
The Company computes earnings per share under SFAS No. 128, "Earnings Per
Share" which requires the Company to present basic and diluted earnings per
share.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding plus the dilutive effect of common
stock equivalents. The only common stock equivalents outstanding during the year
ended December 31, 1997 were the warrants discussed in Note 6. For purposes of
diluted earnings per share, the shares issued under the warrants of 561,564 are
considered to have been issued on January 1, 1997. The number of shares used in
the computation of basic and diluted earnings per share for the year ended
December 31, 1997 for the year ended December 31, 1997 were 5,061,306 and
5,579,791, respectively.
9. 401(K) SAVINGS PLANS
The Company established defined contribution plans under Section 401(k) of
the Internal Revenue Code covering certain employees who meet specified
criteria. The Company matches 50% of employee contributions up to 4% of the
respective employee's annual salary. Employer contributions were $31,600,
$28,125 and $75,561 in 1995, 1996 and 1997, respectively.
10. LEASES
The Company leases office space under various noncancelable and
month-to-month operating leases with related and unrelated parties. Future
minimum lease payments for noncancelable operating leases with initial terms of
one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998............................................. $1,552,948
1999............................................. 955,135
2000............................................. 559,721
2001............................................. 275,177
2002............................................. 35,230
----------
Total future minimum lease payments.............. $3,378,211
==========
</TABLE>
Rent expense totaled approximately $642,000, $633,000 and $1,065,000 in
1995, 1996 and 1997, respectively. Of these amounts, approximately $135,000,
$211,000 and $218,000 in 1995, 1996 and 1997, respectively, represented rent
paid to a shareholder.
11. INCOME TAXES
The Company was formed on January 1, 1997 as the successor to a group of
ten operating corporations which were controlled and managed by two related
shareholders and which operated under Subchapter S of
F-28
<PAGE> 79
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Internal Revenue Code. Upon formation, the Company elected to be taxed as a
C Corporation and accordingly adopted the provisions of SFAS No. 109,
"Accounting for Income Taxes." Upon electing to be taxed as a C Corporation and
adopting SFAS No. 109, the Company established a net deferred tax liability of
$284,000 representing the tax effect of cumulative temporary differences as of
January 1, 1997.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities consisted of the following at
December 31, 1997:
<TABLE>
<S> <C>
Deferred tax liabilities:
Transaction costs and other............................... $ 65,000
Goodwill.................................................. 96,000
Depreciation.............................................. 5,000
----------
Total deferred tax liabilities.............................. $ 166,000
==========
Deferred tax assets:
Allowance for bad debts................................... $ 93,000
Accrued vacation.......................................... 20,000
Other current liabilities................................. 229,000
Accrued workers' compensation............................. 778,000
----------
Total current deferred tax assets........................... $1,120,000
==========
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 828,000
State..................................................... 122,000
----------
Total current............................................... 950,000
----------
Deferred:
Federal................................................... 835,000
State..................................................... 119,000
----------
Total deferred.............................................. 954,000
----------
Total income tax expense.................................... $1,904,000
==========
</TABLE>
Following is a reconciliation of the 1997 provision for income taxes
computed at the federal statutory rate (34%) to the reported provision for
income taxes:
<TABLE>
<CAPTION>
AMOUNT %
----------- ----
<S> <C> <C>
Income taxes on income before extraordinary item at federal
statutory rate............................................ $ 1,260,000 34.0
State taxes, net of federal benefit......................... 180,000 4.9
Nondeductible goodwill...................................... 170,000 4.6
Other, net.................................................. 10,000 0.3
Conversion from S Corporation to C Corporation at January 1,
1997...................................................... 284,000 7.6
----------- ----
Provision for income taxes.................................. $ 1,904,000 51.4
=========== ====
</TABLE>
F-29
<PAGE> 80
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12. OTHER RELATED PARTY TRANSACTIONS
The Company has notes payable to shareholders of $2,423,833 at December 31,
1997, which bear interest at 8.0%. Of these notes, annual payments of $150,000
are due during 1998 and 1999. The remaining notes outstanding, which are payable
on demand, are classified as long-term as the shareholders do not have the
ability or intent to call the notes during the subsequent year as these notes
are subordinate to borrowings on the Company's new revolving credit facility.
Notes payable to shareholders totaling $2,000,000 at December 31, 1996 were
repaid in full during 1997.
Interest expense on notes to related parties totaled approximately $1,400
and $183,000 during 1996 and 1997, respectively.
At December 31, 1996 and 1997, notes receivable from shareholders, which
bear interest at 7.0%, totaled $422,277 and $560,100, respectively, and are due
on December 31, 2002.
On December 3, 1997, the Company purchased 321,888 shares of common stock
from two stockholders for consideration of $1,609,440 in cash. These shares,
along with 5,100 shares of treasury stock existing at December 31 1996, were
retired by the Company during 1997. Also on December 3, 1997 a cash distribution
of $1,090,560 was made to the same two stockholders.
13. CONTINGENCIES
The Company is engaged in certain legal and administrative proceedings
incidental to its normal business activities. While it is not possible to
determine the ultimate outcome of those actions at this time, in the opinion of
management and counsel, it is unlikely that the outcome of such litigation and
other proceedings, will have a material adverse effect on the results of the
Company's operations or on its financial position or cash flows.
14. SUBSEQUENT EVENTS
On February 25, 1998, the Company's Board of Directors approved, by written
consent, the increase of authorized shares of common stock to 15,000,000, all of
which was common stock with a par value of $0.01. In addition, by the same
consent, the Board of Directors approved a 2-for-1 stock split of each
outstanding share of common stock.
The authorization of the common stock and the effects of the stock split
have been reflected retroactively in the accompanying consolidated financial
statements as if they had been consummated at the beginning of the earliest
period presented.
The Board of Directors also authorized and the stockholders of the Company
approved and adopted a stock option plan. A total of 1,500,000 shares of common
stock are authorized and reserved for issuance under this plan. Options granted
under the plan may be either in the form of incentive stock options or
nonqualified stock options.
On January 29, 1998, the Company's Board of Directors granted nonqualified
stock options to purchase an aggregate of 95,000 shares of common stock at an
exercise price of $8.00 per share. The options have a term of 10 years and vest
over 3 years.
Subsequent to December 31, 1997, the Company acquired three staffing
companies for a combined purchase price of approximately $27.5 million. In
addition, in connection with these acquisitions, the Company entered into
earnout agreements which could result in additional purchase price of
approximately $10.5 million over the next three years based upon the achievement
of certain operating results by the acquired operations, as defined. The
acquisitions will be accounted for using the purchase method, and the operating
F-30
<PAGE> 81
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
results of the companies acquired will be included in the Company's 1998
consolidated financial statements from the dates of acquisition. The excess of
the combined purchase price over the cost of acquired net assets ("goodwill") of
$25.2 million will be amortized on a straight-line basis over 40 years.
The following unaudited pro forma results for the years ended December 31,
1996 and 1997 were developed assuming all acquisitions discussed above, as well
as those discussed in Note 3, had been completed at the beginning of each of the
periods described below. For both periods, the unaudited pro forma results are
after giving effect to certain adjustments, including interest expense,
amortization of intangibles, add back of excess compensation paid to
shareholders of certain companies and assuming all entities had been C
Corporations for the entirety of the three month periods.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $184,414 $227,695
Income before extraordinary item............................ 2,098 3,147
Net income.................................................. 2,098 1,475
Income per share -- basic and diluted
Before extraordinary item................................. .22 .33
Net income................................................ .22 .15
Weighted average shares outstanding......................... 9,678 9,678
</TABLE>
The unaudited pro forma data shown above is not necessarily indicative of
the consolidated results that would have occurred had the acquisitions taken
place at the beginning of each period shown.
On May 15, 1998, the Company completed the acquisition of an additional
staffing company for approximately $3.8 million cash. The acquired company had
revenues of approximately $6.2 million during the year ended December 31, 1997.
The pro forma information shown above does not reflect this acquisition as
results would not differ materially from those shown.
F-31
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CSR, Inc. and Subsidiaries
South Bend, Indiana
We have audited the accompanying consolidated balance sheets of CSR, Inc.
and Subsidiaries as of December 3, 1997 and May 14, 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for the
period from May 15, 1997 through December 3, 1997, and the consolidated balance
sheet of the Predecessor as of December 31, 1996 and the statements of income,
shareholders' equity and cash flows of the Predecessor for the period from
January 1, 1997 through May 14, 1997 and for the years ended December 31, 1996
and 1995. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CSR, Inc.
and Subsidiaries as of December 3, 1997 and May 14, 1997 and the results of its
operations and its cash flows from May 15, 1997 through December 3, 1997, and
the financial position of the Predecessor as of December 31, 1996 and the
Predecessor's results of operations and cash flows for the period from January
1, 1997 through May 14, 1997 and for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
CROWE, CHIZEK AND COMPANY LLP
Elkhart, Indiana
March 24, 1998
F-32
<PAGE> 83
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------ -------------------------
DECEMBER 31, MAY 14, DECEMBER 3,
1996 1997 1997
------------ ----------- -----------
<S> <C> <C> <C>
Current assets
Cash................................................ $ 453,622 $ 46,109 $ 98,112
Accounts receivable, less allowance for doubtful
accounts of $20,480 and $40,480 at May 14 and
December 3, 1997................................. 5,359,684 6,464,181 7,246,291
Prepaid workers' compensation....................... 472,203 -- --
Advances to affiliate............................... 84,639 -- --
Deferred income taxes............................... 65,000 143,000 175,382
Other current assets................................ 101,740 262,299 76,495
---------- ----------- -----------
Total current assets........................ 6,536,888 6,915,589 7,596,280
Furniture, fixtures and equipment, net................ 213,745 208,290 255,705
Other assets
Deferred financing fees, net of accumulated
amortization of $52,143 at December 3, 1997...... -- 577,586 525,443
Goodwill, net of accumulated amortization of
$202,189 at December 3, 1997..................... -- 14,765,492 14,730,464
Other assets........................................ 94,571 42,483 42,483
Advances............................................ -- -- 585,578
---------- ----------- -----------
$6,845,204 $22,509,440 $23,735,953
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Checks written in excess of bank balance............ $ -- $ 471,453 $ 245,374
Current maturities of long-term debt................ -- 500,000 833,334
Accounts payable.................................... 161,089 104,545 655,422
Accrued compensation and payroll taxes.............. 1,702,553 1,681,993 2,433,347
Accrued workers' compensation....................... 126,369 436,258 610,301
Income taxes payable................................ 354,000 452,768 341,206
Other current liabilities........................... 35,906 51,135 273,759
---------- ----------- -----------
Total current liabilities................... 2,379,917 3,698,152 5,392,743
Long-term debt........................................ 2,178,740 11,561,159 7,345,581
Minority interest..................................... 84 -- --
Commitments and contingencies......................... -- -- --
Shareholders' equity
Common stock........................................ 1,500 1,100 1,831
Preferred stock 14% cumulative, $.01 par value,
1,000,000 shares authorized with 110,000 and
141,380 outstanding (redemption and liquidation
value of $10,890,000 and $13,998,600) at May 14,
1997 and December 3, 1997, respectively.......... -- 1,100 1,414
Additional paid-in capital.......................... 59,620 7,247,929 10,294,359
Retained earnings................................... 2,225,343 -- 700,025
---------- ----------- -----------
2,286,463 7,250,129 10,997,629
---------- ----------- -----------
$6,845,204 $22,509,440 $23,735,953
========== =========== ===========
</TABLE>
See accompanying notes.
F-33
<PAGE> 84
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------------------------------- -----------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, TO MAY 15, TO
------------------------- MAY 14, DECEMBER 3,
1995 1996 1997 1997
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Revenues................................. $42,437,683 $53,086,701 $23,658,130 $42,298,604
Direct cost of services................ 34,091,513 42,610,911 19,003,300 33,503,951
----------- ----------- ----------- -----------
Gross profit............................. 8,346,170 10,475,790 4,654,830 8,794,653
Expenses (other income)
Selling, general and administrative
expenses............................ 7,228,229 8,409,328 3,928,067 6,928,849
Interest expense....................... 236,121 227,951 62,946 589,455
Other.................................. (27,619) -- -- --
----------- ----------- ----------- -----------
7,436,731 8,637,279 3,991,013 7,518,304
----------- ----------- ----------- -----------
Income before income taxes............... 909,439 1,838,511 663,817 1,276,349
Provision for income taxes............... 316,860 705,836 222,984 576,324
----------- ----------- ----------- -----------
Net income............................... $ 592,579 $ 1,132,675 $ 440,833 $ 700,025
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE> 85
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
------ --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at December 31, 1994........ $1,500 $ -- $ 59,620 $ 742,007 $ 803,127
Net income........................ -- -- -- 592,579 592,579
Distributions ($1,612 per
share)......................... -- -- -- (241,918) (241,918)
------ ------ ----------- ---------- -----------
Balance at December 31, 1995........ 1,500 -- 59,620 1,092,668 1,153,788
Net income........................ -- -- -- 1,132,675 1,132,675
------ ------ ----------- ---------- -----------
Balance at December 31, 1996........ 1,500 -- 59,620 2,225,343 2,286,463
Net income........................ -- -- -- 440,833 440,833
Distributions ($105 per share).... -- -- -- (15,821) (15,821)
Redemption of common stock at
subsidiary level............... -- -- -- (183,152) (183,152)
------ ------ ----------- ---------- -----------
Balance at May 14, 1997............. $1,500 $ -- $ 59,620 $2,467,203 $ 2,528,323
====== ====== =========== ========== ===========
THE COMPANY
Initial capitalization of the
Company........................ $1,100 $1,100 $ 7,247,929 $ -- $ 7,250,129
Issuance of stock.............. 731 314 3,046,430 -- 3,047,475
Net income..................... -- -- -- 700,025 700,025
------ ------ ----------- ---------- -----------
Balance at December 3, 1997......... $1,831 $1,414 $10,294,359 $ 700,025 $10,997,629
====== ====== =========== ========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 86
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
----------------------------------------- ---------------
PERIOD FROM PERIOD FROM
YEAR ENDED DECEMBER 31, JANUARY 1, 1997 MAY 15, 1997 TO
----------------------- TO MAY 14, DECEMBER 3,
1995 1996 1997 1997
--------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 592,579 $ 1,132,675 $ 440,833 $ 700,025
Adjustments to reconcile net income to net cash
from operating activities
Provision for losses on accounts receivable... 64,374 48,115 52,299 --
Depreciation.................................. 128,279 112,036 27,103 66,579
Amortization.................................. -- -- -- 254,566
Deferred income taxes......................... (37,000) (28,000) -- (32,382)
Loss on sale of fixed assets.................. 3,610 596 -- --
Changes in assets and liabilities
Accounts receivable........................ (501,657) (1,271,842) (1,176,796) (782,110)
Other current assets....................... (164,586) (330,049) 311,644 185,804
Other assets............................... (68,465) 42,544 51,788 --
Accounts payable........................... (9,364) (33,847) (56,544) 550,877
Other current liabilities.................. 158,702 826,531 9,321 1,036,459
--------- ----------- ----------- ------------
Net cash from operating activities.............. 166,472 498,759 (340,352) 1,979,818
CASH FLOWS FROM INVESTING ACTIVITIES
Fees related to acquisition..................... -- -- -- (1,066,331)
Payment for acquisition of predecessor
business -- net of cash acquired.............. -- -- -- (17,570,891)
Capital expenditures............................ (103,378) (30,272) (21,648) (113,994)
Proceeds from repayment of advances
(advances).................................... -- (84,639) 84,639 (585,578)
Proceeds from notes receivable from shareholder
.............................................. 217,836 81,780 -- --
Other........................................... -- 283 -- (30,343)
--------- ----------- ----------- ------------
Net cash from investing activities.............. 114,458 (32,848) 62,991 (19,367,137)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on revolving line of
credit agreements............................. (222,277) 408,010 (402,632) --
Checks written in excess of bank balance........ 222,499 (222,499) 471,453 (226,079)
Payments on notes payable to shareholders....... (88,642) (197,800) -- --
Redemption of common stock at subsidiary level
.............................................. -- -- (183,152) --
Distributions paid.............................. (241,918) -- (15,821) --
Borrowings on long-term debt.................... -- -- -- 10,277,756
Debt issuance costs............................. -- -- -- (97,586)
Principal payments on long-term debt............ -- -- -- (3,882,244)
Proceeds from issuance of stock................. -- -- -- 11,367,475
--------- ----------- ----------- ------------
Net cash from financing activities.............. (330,338) (12,289) (130,152) 17,439,322
--------- ----------- ----------- ------------
Net change in cash.............................. (49,408) 453,622 (407,513) 52,003
Cash at beginning of period..................... 49,408 -- 453,622 46,109
--------- ----------- ----------- ------------
Cash at end of period........................... $ -- $ 453,622 $ 46,109 $ 98,112
========= =========== =========== ============
</TABLE>
See accompanying notes.
F-36
<PAGE> 87
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CSR, Inc.
(the "Company") and its wholly owned subsidiaries Corporate Staffing Resources,
Inc., Corporate Staffing Resources, LLC and Corporate Staffing Resources, Inc.
of St. Louis. The financial statements of December 31, 1995 and 1996 and the
statements of income and cash flows for the period from January 1, 1997 through
May 14, 1997 represent the results of the predecessor. The balance sheet at May
14, 1997 and the financial statements of December 3, 1997 represent the results
of the successor Company.
The Company is a regional employee staffing organization with emphasis in
skilled light industrial, clerical and outplacement on a regional basis and
information technology staffing on a national basis.
On May 14, 1997, CSR, Inc., a newly formed corporation, acquired 100% of
the stock of Corporate Staffing Resources, Inc. The former shareholders of
Corporate Staffing Resources, Inc., own 20% of the common stock of CSR, Inc.
This transaction was accounted for as a purchase. The equity of CSR, Inc.
includes 20% of the carryover basis in net assets of Corporate Staffing
Resources, Inc. Subsequent to the transaction Corporate Staffing Resources, Inc.
changed its name to Corporate Staffing Resources of Indiana, Inc.
The total purchase price amounted to approximately $20,381,000 of which
$17,617,000 was paid in cash to shareholders. The purchase price exceeded the
fair value of the net assets acquired by approximately $14,900,000. The
consolidated balance sheet as of May 14, 1997 presents the financial position of
CSR, Inc. and Subsidiaries immediately subsequent to the purchase.
During 1995, Corporate Staffing Resources of St. Louis, Inc. was
contributed by its shareholders to Corporate Staffing Resources, LLC. Also
during 1995, Corporate Staffing Resources of Sturgis, Inc. and Corporate
Staffing Resources of Tennessee, Inc., formerly affiliated companies, were
merged into the Company. These transactions were accounted for at historical
cost as a pooling of interests and, accordingly, all consolidated financial
statements reflect the transactions as effective as of the beginning of the
year. The distributions for 1995 of $241,918 were all paid by the merged
companies prior to the actual merger date.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions: The financial statements have been prepared in
conformity with generally accepted accounting principles which requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The accrual for workers' compensation expenditures and the estimate
of amortization on the goodwill require the use of significant estimates. The
Company believes the techniques and assumptions used in establishing these
amounts are appropriate.
Revenue Recognition: Service revenues are recognized as income at the time
staffing services are provided. An allowance for uncollectible accounts is
provided for the amount not probable of collection.
Furniture, Fixtures and Equipment: Furniture, fixtures and office equipment
is recorded at cost. Depreciation is computed using accelerated methods over the
estimated useful lives of the assets.
Intangible Assets: Intangible assets consist of the excess of the purchase
price over the estimated fair value of the net assets (goodwill) acquired from
Corporate Staffing Resources, Inc. and loan issuance costs. The goodwill is
being amortized on a straight-line basis over 40 years. Goodwill is periodically
assessed for impairment based on undiscounted projected cash flows. The loan
issuance costs are being amortized on a straight-line basis over the life of the
related loans.
F-37
<PAGE> 88
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Workers' Compensation: A liability is recorded for workers' compensation
claims when amounts to be paid can be reasonably estimated.
Income Taxes: Income taxes are provided based on the liability method of
accounting pursuant to ("SFAS") No. 109 which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities.
Deferred income tax assets consist primarily of the tax effects of accrued
expenses.
Advertising Expense: The cost of advertising is expensed when incurred. The
Company incurred advertising expense of $419,524 for the year ended December 31,
1995, $531,327 for the year ended December 31, 1996, $288,498 for the period
ended May 14, 1997 and $540,294 for the period ended December 3, 1997.
Reclassifications: Certain items in the financial statements from prior
years have been reclassified to conform with current presentation.
NOTE 3 -- FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 14, DECEMBER 3,
1996 1997 1997
------------ -------- -----------
<S> <C> <C> <C>
Furniture and fixtures............................ $866,485 $164,168 $244,096
Transportation equipment.......................... 1,193 -- --
Leasehold improvements............................ 34,410 44,122 78,188
-------- -------- --------
902,088 208,290 322,284
Accumulated depreciation.......................... 688,343 -- 66,579
-------- -------- --------
$213,745 $208,290 $255,705
======== ======== ========
</TABLE>
NOTE 4 -- DEBT
Debt at May 14, 1997 and December 3, 1997 consists of the following:
<TABLE>
<CAPTION>
MAY 14, DECEMBER 3,
1997 1997
----------- -----------
<S> <C> <C>
Variable rate (9.75%) revolving credit facility up to the
lesser of $6,000,000 or a percentage of the Company's
accounts receivable, due March 2002....................... $ 1,061,159 $ 395,582
Variable rate (9.75%) note payable due in varying quarterly
installments plus interest through March 2003............. 5,500,000 5,333,333
Variable rate (10.5%) note payable due in quarterly
installments of $25,000 plus interest through March 2003
when the remaining principal balance is due............... 2,500,000 2,450,000
Variable rate (10.5%) note payable, interest only due
through May 2002 followed by varying quarterly
installments plus interest through March 2004. Subsequent
to May 14, 1997 this note was paid in full (Note 8)....... 3,000,000 --
----------- ----------
12,061,159 8,178,915
Less current maturities..................................... 500,000 833,334
----------- ----------
$11,561,159 $7,345,581
=========== ==========
</TABLE>
F-38
<PAGE> 89
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The interest rates for all of the above debt are based on periodic
elections made by the Company and are at a rate related to the prime rate or
LIBOR and are subject to change depending upon the Company's attainment of
certain financial ratios.
All of the above debt is secured by substantially all the assets of the
Company and life insurance policies on certain officers. In conjunction with the
merger (Note 13), another financial institution refinanced all of the Company
debt which is reflected in the above classification of long-term debt.
As of December 3, 1997 the Company had an outstanding letter of credit of
$663,000.
Prior to May 15, 1997, the Company maintained a revolving credit facility
with a bank which enabled it to borrow up to the lesser of $5,000,000 or a
percentage of the Company's accounts receivable. Interest was payable at the
bank's prime rate plus .5% depending upon the Company's attainment of certain
financial ratios. The line was secured by accounts receivable and furniture,
fixtures and equipment and matured May 31, 1998.
Debt is due over the next five years as follows:
<TABLE>
<CAPTION>
DECEMBER 3, 1997
----------------
<S> <C>
1998........................................ $ 833,334
1999........................................ 1,150,000
2000........................................ 1,300,000
2001........................................ 1,600,000
2002........................................ 1,900,000
</TABLE>
NOTE 5 -- INCOME TAXES
Deferred income taxes in the accompanying balance sheet consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MAY 14, DECEMBER 3,
1996 1997 1997
------------ -------- -----------
<S> <C> <C> <C>
Deferred tax assets............................... $65,000 $143,000 $176,382
Deferred tax liabilities.......................... -- -- --
</TABLE>
There is no provision for a valuation allowance on the deferred tax assets.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MAY 14, DECEMBER 3,
1995 1996 1997 1997
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Current income taxes
Federal income tax.................. $293,922 $605,739 $177,084 $496,606
State income tax.................... 59,938 128,097 45,900 112,100
-------- -------- -------- --------
353,860 733,836 222,984 608,706
Deferred income taxes................. (37,000) (28,000) -- (32,382)
-------- -------- -------- --------
$316,860 $705,836 $222,984 $576,324
======== ======== ======== ========
</TABLE>
F-39
<PAGE> 90
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the expected tax from applying
statutory rates to pre-tax amounts as follows.
<TABLE>
<S> <C> <C> <C> <C>
Income tax at 34% statutory rate...... $309,209 $625,094 $225,698 $433,959
Effect of:
State income taxes, net of federal
tax effect....................... 39,559 84,544 30,294 73,986
Income taxed as S-Corporation....... (22,736) -- -- --
Goodwill amortization............... -- -- -- 68,744
Other............................... (9,172) (3,802) (33,008) (365)
-------- -------- -------- --------
$316,860 $705,836 $222,984 $576,324
======== ======== ======== ========
</TABLE>
NOTE 6 -- INCENTIVE STOCK PLAN
During 1997 the Company implemented an incentive stock plan for certain
management employees. Shares of common stock were purchased at $1 per share
which was considered fair market value. The shares are subject to a stock
restriction agreement. As of December 3, 1997 all committed shares were
purchased.
NOTE 7 -- RETIREMENT PLAN
During 1996, the Company implemented a defined contribution plan covering
substantially all of its employees. Eligible employees may contribute a
percentage of their compensation to this plan, and their contributions are
matched by the Company on a discretionary basis. Total costs under this plan was
approximately $17,800 for the year ended December 31, 1996, $12,122 for the
period ended May 14, 1997, and $11,403 for the period ended December 3, 1997.
NOTE 8 -- WARRANTS, PREFERRED AND COMMON STOCK
Pursuant to the acquisition, the Company issued $.01 par common stock
warrants to the debt holder that entitled them to purchase 4,235 shares of
common stock for a nominal amount. Subsequently, in June 1997, a note for
$3,000,000 was paid in full reducing the amount of warrants eligible to 1,810
shares. All warrants had been exercised at December 3, 1997. The value of the
warrants was considered nominal based on the belief of management and
representations by the holders.
In addition, the Company entered into an agreement that entitles a
shareholder to purchase 9,075 shares of common stock for $1 per share. These
shares were purchased during the period ended December 3, 1997.
The preferred stock is redeemable at the Company's option with debt holders
approval at $99 per share. The preferred stock also has a liquidation preference
at $99 per share. As a result of the merger (Note 13) the preferred shareholders
converted all their shares and accumulated dividends of approximately $1,050,000
into common stock.
Common stock consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MAY 14, DECEMBER 3,
1995 1996 1997 1997
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
Shares issued and outstanding........ 150 150 110,000 183,050
Par value............................ None None $ .01 $ .01
Shares authorized.................... 10,000,000 10,000,000 1,000,000 1,000,000
</TABLE>
F-40
<PAGE> 91
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LEASE COMMITMENTS
The Company has entered into various lease agreements for the use of its
facilities. The leases expire at various times through fiscal year 2000 with
total monthly payments of approximately $76,000, plus insurance and property
taxes for the facilities. Total lease expense under these agreements for the
periods ended December 31, 1995, December 31, 1996, May 14, 1997 and December 3,
1997 were approximately $428,000, $475,000, $258,000 and $359,000, respectively.
Minimum rental provisions over the terms of the leases are approximately as
follows:
<TABLE>
<CAPTION>
DECEMBER 3, 1997
----------------
<S> <C>
1998........................................ $ 666,000
1999........................................ 248,000
2000........................................ 92,000
----------
$1,006,000
==========
</TABLE>
NOTE 10 -- CONTINGENCIES
In addition to workers' compensation claims, the Company is a defendant in
certain legal actions or claims arising from normal business activities
primarily related to employment matters. Legal counsel is unable to determine
the likelihood of loss or the amount, if any, to be incurred by the Company in
settlement of these claims. Accordingly, the probability of loss is
undeterminable, and no provision has been recorded. It is reasonably possible
that this estimate may change.
NOTE 11 -- RELATED PARTY TRANSACTIONS
Effective May 14, 1997 the Company entered into an agreement with a
shareholder that requires an annual base fee of $250,000 plus expenses in
exchange for consulting services through May 2002. The expense for these
services was $139,454 for the period ended December 3, 1997.
NOTE 12 -- SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MAY 14, DECEMBER 3,
1995 1996 1997 1997
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Cash paid during the period for
Interest............................ $236,016 $226,607 $ 78,371 $542,401
Income taxes........................ 347,860 492,836 366,869 726,744
</TABLE>
Effective May 14, 1997, the Company issued 4,800 shares of common and
preferred stock in satisfaction of a loan financing fee of $480,000.
Also, as part of the acquisition of May 14, 1997, $1,783,403 of debt was
refinanced.
During 1995, two affiliates were merged into the Company. As a result,
additional paid in capital, net of common stock redeemed, was contributed to the
Company totaling approximately $24,000. Also, a note payable-shareholder of
approximately $26,000 was contributed to the Company as additional paid in
capital.
NOTE 13 -- SUBSEQUENT EVENTS
Effective December 3, 1997 the Company merged with another staffing company
Mega Force Staffing Companies, Inc. (Mega Force). Costs expended by the Company
in connection with the merger that are the responsibility of Mega Force are
recorded as an asset at December 3, 1997, and are to be reimbursed.
F-41
<PAGE> 92
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Members
The Hamilton-Ryker Company, LLC
We have audited the accompanying balance sheets of The Hamilton-Ryker
Company, LLC ("the Company") as of December 31, 1995 and 1996, and the related
statements of income and members' capital and cash flows for the years 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 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 The Hamilton-Ryker Company,
LLC at December 31, 1995 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
May 8, 1998
F-42
<PAGE> 93
THE HAMILTON-RYKER COMPANY, LLC
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 842,444 $1,593,307
Accounts receivable, less allowance for doubtful accounts
of $390,000 and $12,598 at December 31, 1995 and
1996................................................... 2,400,253 3,457,781
Deferred tax asset........................................ 150,000 --
Prepaid expenses and other................................ 17,319 73,202
---------- ----------
Total current assets.............................. 3,410,016 5,124,290
Property and equipment, net................................. 215,221 556,385
Intangible assets, net of accumulated amortization of
$5,188.................................................... -- 1,239,957
Receivable from shareholder................................. 217,945 --
Other assets................................................ -- 4,430
---------- ----------
Total assets...................................... $3,843,182 $6,925,062
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY/MEMBERS' CAPITAL
Current liabilities:
Customer deposits......................................... $ 5,020 $ 182,999
Accrued payroll........................................... 274,146 544,434
Accrued payroll taxes and benefits........................ 266,670 241,364
Income taxes payable...................................... 145,611 --
Borrowings under line of credit........................... -- 850,000
Current maturities of long-term debt...................... -- 150,000
Other current liabilities................................. 253,358 86,153
---------- ----------
Total current liabilities......................... 944,805 2,054,950
Long-term debt, less current maturities..................... -- 3,046,337
Deferred income taxes....................................... 352,000 --
Shareholders' equity/members' capital
Common stock........................................... 2,000 --
Retained earnings/members' capital.......................... 2,544,377 1,823,775
---------- ----------
Total liabilities and shareholders'
equity/members' capital......................... $3,843,182 $6,925,062
========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE> 94
THE HAMILTON-RYKER COMPANY, LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues.................................................... $30,328,764 $32,187,952
Cost of services.......................................... 25,529,508 26,507,177
----------- -----------
Gross profit................................................ 4,799,256 5,680,775
Other (income) expense:
Selling, general and administrative expenses.............. 4,189,927 3,960,202
Depreciation and amortization............................. 56,665 143,095
Interest expense.......................................... 10,565 266,670
Other..................................................... (351,238) (455,900)
----------- -----------
Income before income taxes.................................. 893,337 1,766,708
Income tax expense
Current................................................... 165,000 --
Deferred.................................................. 202,000 --
----------- -----------
367,000 --
----------- -----------
Net income.................................................. $ 526,337 $ 1,766,708
=========== ===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 95
THE HAMILTON-RYKER COMPANY, LLC
STATEMENTS OF SHAREHOLDERS' EQUITY/MEMBERS' CAPITAL
<TABLE>
<CAPTION>
COMMON RETAINED EARNINGS/
STOCK MEMBERS' CAPITAL TOTAL
------- ------------------ -----------
<S> <C> <C> <C>
Balance at December 31, 1994........................ $ 2,000 $ 2,018,040 $ 2,020,040
Net income for 1995............................... -- 526,337 526,337
------- ----------- -----------
Balance at December 31, 1995........................ 2,000 2,544,377 2,546,377
Recapitalization.................................. (2,000) (2,487,310) (2,489,310)
Net income for 1996............................... -- 1,766,708 1,766,708
------- ----------- -----------
Balance at December 31,1996......................... $ -- $ 1,823,775 $ 1,823,775
======= =========== ===========
</TABLE>
See accompanying notes.
F-45
<PAGE> 96
THE HAMILTON-RYKER COMPANY, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996
---------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 526,337 $ 1,766,708
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 56,665 143,095
Deferred taxes............................................ 202,000 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (222,293) (1,273,510)
Prepaid expenses and other............................. 36,608 (67,813)
Other assets........................................... -- 2,452
Customer deposits...................................... (270,596) 94,434
Accrued payroll taxes and benefits..................... 429,042 31,997
Other current liabilities.............................. (366,414) 590,294
Income tax payable..................................... 145,611 --
Payable to affiliate................................... (553,118) --
---------- -----------
Net cash provided by (used in) operating activities......... (16,158) 1,287,657
INVESTING ACTIVITIES
Purchase of assets of CM Management, Inc.................... -- (850,000)
Purchases of property and equipment......................... (102,139) (474,794)
Additions to intangible assets.............................. -- (62,000)
---------- -----------
Net cash used in investing activities....................... (102,139) (1,386,794)
FINANCING ACTIVITIES
Increase in borrowings under line of credit................. -- 850,000
Increase in receivable from shareholder..................... (82,505)
---------- -----------
Net cash provided by (used in) financing activities......... (82,505) 850,000
---------- -----------
Net increase (decrease) in cash and cash equivalents........ (200,802) 750,863
Cash and cash equivalents at beginning of year.............. 1,043,246 842,444
---------- -----------
Cash and cash equivalents at end of year.................... $ 842,444 $ 1,593,307
========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 7,712 $ 229,592
========== ===========
Cash paid during the year for income taxes.................. $ 22,800 $ --
========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
In 1996, the Company issued a $450,000 note payable as
partial consideration for the purchase of assets of CM
Management, Inc.
</TABLE>
See accompanying notes.
F-46
<PAGE> 97
THE HAMILTON-RYKER COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Hamilton-Ryker Company, LLC (the "Company") is a human resource
staffing company. The Company operates primarily in Tennessee, Kentucky,
Mississippi and Missouri serving predominantly the clerical and light industrial
markets. The Company was formed for the purpose of continuing the operations of
Myron Services, Inc., Temp Team, Inc. and Hamryk Services, Inc., all of which
were involved in the staffing services industry. In connection with the
formation of the Company, a portion of the shareholders' equity of the
predecessor companies was recapitalized into a $2,746,337 note payable to the
members. In March 1997, the Company ceased operating as a limited liability
company when the members exchanged 100% of their interests for ownership in Mega
Force Staffing Companies Inc. (Note 7).
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company provides an allowance for doubtful accounts equal to estimated losses
expected to be incurred in the collection of accounts receivable.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed by
accelerated methods over the estimated useful lives of the assets, ranging from
3 to 7 years. Depreciation expense was $56,665 and $137,907 in 1995 and 1996,
respectively.
Advertising Expense
The cost of advertising is expensed when incurred. The Company incurred
advertising expense of $129,309 and $115,355 in 1995 and 1996, respectively.
Intangible Assets
Intangible assets consists primarily of goodwill and capitalized
professional fees related to a business acquisition. Goodwill is amortized on a
straight-line basis over forty years. Amortization expense was $0 and $5,188 in
1995 and 1996, respectively.
Related Party Transactions
The Company routinely transacts business with various individuals that are
members of the Company. In 1995 and 1996, the Company paid $858,000 and
$394,000, respectively, of management fees to a related party.
Receivable from shareholder of $217,945 at December 31, 1995 represents an
unsecured, non-interest bearing obligation and has no fixed repayment schedule.
Income Taxes
During 1995, the Company operated under the provisions of Subchapter C of
the Internal Revenue Code. As such, the Company accounted for income taxes using
the liability method as prescribed by SFAS No. 109
F-47
<PAGE> 98
THE HAMILTON-RYKER COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
"Accounting for Income Taxes." The liability method recognizes deferred tax
assets and liabilities based on differences between the financial reporting and
tax bases of assets and liabilities.
Effective January 1, 1997, the Company began operating under the provisions
of Subchapter S of the Internal Revenue Code, and consequently, was not subject
to federal income tax; rather the shareholders were liable for individual income
taxes on their respective share of taxable income.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments
approximates the carrying amounts. Because of the short-term maturity of cash
and cash equivalents and accounts receivable, their carrying amounts approximate
fair value.
The fair value of notes payable is based upon the Company's effective
current borrowing rate for debt with similar terms and remaining maturities.
2. ACQUISITION
On October 30, 1996, the Company acquired the assets of CM Management
Services, a human resource staffing company for $1,300,000. The Company
accounted for the acquisition under the purchase method of accounting and
recorded $1,183,145 of related goodwill. The results of operations for the year
ended December 31, 1996 included the results of operations from the purchased
business from the date of acquisition. The business combination agreement
provides for contingent cash consideration to be paid on an annual basis over
the next three years if certain earnings levels are achieved.
3. LINE-OF-CREDIT
The Company maintains a $1,350,000 line of credit facility with a bank due
on demand or February 1997. The agreement is a closed end credit facility in
which the Company can borrow up to the maximum amount once. The facility bears
interest at the prime rate plus 0.75% (9% at December 31, 1996). The facility is
collateralized by substantially all of the Company's assets and is personally
guaranteed by members of the Company. Borrowings under the facility were
$850,000 at December 31, 1996.
Additionally, the Company maintains a $850,000 line of credit facility with
a bank, due on demand or February 1997. The facility bears interest at the prime
rate plus 0.75% (9% at December 31, 1996). The facility is collateralized by
substantially all of the Company's assets and is personally guaranteed by the
members of the Company. There were no borrowings under the facility at December
31, 1996.
F-48
<PAGE> 99
THE HAMILTON-RYKER COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Note payable to a third party, payable in annual principal
installments of $150,000 through 1999, interest payable
monthly at 8%.......................................... $ -- $ 450,000
Notes payable to related parties, interest payable monthly
at 9%, due December 2001.................................. -- 2,746,337
---- ----------
Total....................................................... -- 3,196,337
Less current portion........................................ -- 150,000
---- ----------
Long-term portion........................................... $ -- $3,046,337
==== ==========
</TABLE>
Aggregate maturities of long-term debt for the years subsequent to December
31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................. $ 150,000
1998............................................. 150,000
1999............................................. 150,000
2000............................................. --
2001............................................. 2,746,337
----------
$3,196,337
==========
</TABLE>
In 1995 and 1996, the Company incurred approximately $0 and $247,000,
respectively, in interest expense due to related parties.
5. LEASES
The Company leases office space under various noncancelable and
month-to-month operating leases with related and unrelated parties. Future
minimum lease payments for noncancelable operating leases with initial terms of
one year or more consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1997.............................................. $333,313
1998.............................................. 285,127
1999.............................................. 228,680
2000.............................................. 65,867
2001.............................................. 10,695
--------
Total minimum lease payments...................... $923,682
========
</TABLE>
Rent expense totaled approximately $139,000 and $187,000 in 1995 and 1996,
respectively. Approximately $34,300 and $31,000 of this amount represents rent
paid to a related party in 1995 and 1996.
6. 401(k) SAVINGS PLAN
The Company maintains a defined contribution plan under Section 401(k) of
the Internal Revenue Code covering certain employees who meet specified
criteria. The Company matches 50% of employee contributions up to 5% of the
respective employee's annual salary. Employer contributions were approximately
$23,000 in 1996.
F-49
<PAGE> 100
THE HAMILTON-RYKER COMPANY, LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities at December 31, 1995 consisted
of the following:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for bad debts................................... $150,000
--------
Total current deferred tax assets........................... $150,000
========
Deferred tax liabilities:
Employee benefits......................................... $352,000
--------
Total deferred tax liabilities.............................. $352,000
========
</TABLE>
A reconciliation of the provision for income tax expense computed by
applying the statutory federal income tax rate to pre-tax earnings at December
31, 1995 is as follows:
<TABLE>
<S> <C>
Computed federal income tax at statutory rate............... $304,000
State taxes, net of federal benefit......................... 54,000
Non-deductible expenses..................................... 9,000
--------
Income tax expense.......................................... $367,000
========
</TABLE>
8. SUBSEQUENT EVENTS
In March 1997, the Company merged with Mega Force Staffing Companies, Inc.,
a human resource staffing company and became a wholly owned subsidiary of Mega
Force Staffing Companies, Inc.
F-50
<PAGE> 101
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 1998
ASSETS
<TABLE>
<S> <C>
Current assets
Cash...................................................... $ 749,650
Accounts receivable....................................... 1,733,001
Prepaid expenses and other................................ 63,526
----------
Total current assets.............................. 2,546,177
Property and equipment, net................................. 327,428
Other assets................................................ 150,256
----------
$3,023,861
==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Note payable, bank........................................ $ 350,000
Current maturities of long-term debt...................... 80,740
Accounts payable.......................................... 215,959
Accrued expense........................................... 612,214
Deferred income taxes..................................... 230,000
----------
Total current liabilities......................... 1,488,913
Deferred compensation....................................... 111,085
----------
1,599,998
Owners' equity:
Common stock.............................................. 2,200
Additional paid-in capital................................ 158,674
Retained earnings and members' equity..................... 1,262,989
----------
Total owners' equity.............................. 1,423,863
----------
Total liabilities and owners' equity.............. $3,023,861
==========
</TABLE>
See accompanying notes.
F-51
<PAGE> 102
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Service revenues............................................ $3,104,720 $4,255,873
Cost of services.......................................... 1,645,705 2,343,069
---------- ----------
Gross profit................................................ 1,459,015 1,912,804
Operating expenses:
Selling, general, and administrative expenses............. 1,214,158 1,402,868
Depreciation.............................................. 34,305 37,416
---------- ----------
Operating income............................................ 210,552 472,520
---------- ----------
Other (income) expense:
Interest expense.......................................... 10,043 18,086
Other, net................................................ (26,452) (4,757)
---------- ----------
(16,409) 13,329
---------- ----------
Income before provision for income taxes.................... 226,961 459,191
Provision for income taxes.................................. -- --
---------- ----------
Net income.................................................. $ 226,961 $ 459,191
========== ==========
</TABLE>
See accompanying notes.
F-52
<PAGE> 103
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 226,961 $ 459,191
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 34,305 37,416
Change in assets and liabilities:
Accounts receivable.................................... 232,161 24,138
Prepaid expenses....................................... 15,648 7,948
Accounts payable....................................... (78,611) 58,599
Accrued expenses....................................... 92,112 166,847
Income taxes payable................................... (17,000) --
--------- ---------
Net cash provided by operating activities................... 505,576 754,139
--------- ---------
INVESTING ACTIVITIES
Capital expenditures........................................ (27,029) (34,579)
(Collections) advances of notes receivable.................. (83,464) 99,011
--------- ---------
Net cash provided by (used in) investing activities......... (110,493) 64,432
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings.................................... 200,000 --
Payments on debt and borrowings............................. (30,768) (419,733)
Contribution from stockholders.............................. 91,817 --
Distribution to stockholders................................ (233,353) --
--------- ---------
Net cash provided by (used in) financing activities......... 27,696 (419,733)
--------- ---------
Increase in cash............................................ 422,779 398,838
Cash at beginning of year................................... 104,848 350,812
--------- ---------
Cash at end of year......................................... $ 527,627 $ 749,650
========= =========
</TABLE>
See accompanying notes.
F-53
<PAGE> 104
CMS MANAGEMENT SERVICES COMPANY
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 1998
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business:
CMS Management Services Company is a name describing a group of separate
entities related through common ownership.
CMS Management Services Company is a regional staffing firm specializing in
financial and information technology, people and projects, and outplacement
services. These services are offered to customers primarily in the Midwestern
United States. Billings are due upon receipt.
The combined financial statements include the accounts of CMS Management
Services Co., TemPro Resources, Inc. CMS/TemPro of Indianapolis, Inc., CMS
Services, Inc. and CMS/TemPro of Nashville, LLC, a limited liability company.
All significant intercompany accounts and transactions have been eliminated in
combination.
Basis of Presentation:
The unaudited condensed combined financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (considering of normal recurring accruals)
considered necessary for a fair presentation have been included. These financial
statements should be read in conjunction with CMS Management Services Company
audited financial statements for the year ended December 31, 1997, included
elsewhere in this Prospectus.
2. SUBSEQUENT EVENT
On May 1,1998, Corporate Staffing Resources, Inc. acquired substantially
all of the assets and liabilities of CMS Management Services Co., TemPro
Resources, Inc., CMS Services, Inc. and CMS/TemPro of Nashville, LLC, and
acquired 100% of the stock of CMS/TemPro of Indianapolis, Inc.
F-54
<PAGE> 105
REPORT OF INDEPENDENT AUDITORS
To The Board Of Directors And Members
CMS Management Services Company
South Bend, Indiana
We have audited the accompanying combined balance sheet of CMS Management
Services Company as of December 31, 1997, and the related combined statements of
income, retained earnings and members' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Companies'
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 CMS Management
Services Company as of December 31, 1997, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
McGLADREY & PULLEN, LLP
South Bend, Indiana
February 20, 1998, except for Note 4, as
to which the date is April 27, 1998 and
Note 10, to which the date is May 1, 1998
F-55
<PAGE> 106
CMS MANAGEMENT SERVICES COMPANY
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets
Cash...................................................... $ 350,812
Accounts receivable....................................... 1,793,178
Notes receivable, stockholder............................. 99,011
Prepaid expenses and other................................ 35,435
----------
Total current assets.............................. 2,278,436
Furniture and equipment, net of accumulated depreciation of
$548,470.................................................. 330,265
Other assets................................................ 150,256
----------
$2,758,957
==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Note payable, bank........................................ $ 645,000
Current maturities of long-term debt...................... 188,671
Accounts payable.......................................... 157,360
Accrued expenses.......................................... 445,367
Deferred income taxes..................................... 230,000
----------
Total current liabilities......................... 1,666,398
Long-Term debt, less current maturities..................... 16,802
Deferred compensation....................................... 111,085
----------
Total liabilities................................. 1,794,285
Owners' equity:
Common stock.............................................. 2,200
Additional paid-in capital................................ 158,674
Retained earnings and members' equity..................... 803,798
----------
Total owners' equity.............................. 964,672
----------
Total liabilities and owners' equity.............. $2,758,957
==========
</TABLE>
See accompanying notes.
F-56
<PAGE> 107
CMS MANAGEMENT SERVICES COMPANY
COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Service revenues............................................ $13,884,795
Cost of services.......................................... 7,261,319
-----------
Gross profit................................................ 6,623,476
Operating expenses:
Selling, general, and administrative expenses............. 6,364,440
Depreciation.............................................. 153,682
-----------
Operating income............................................ 105,354
-----------
Other (income) expense:
Interest expense.......................................... 44,114
Other, net................................................ (68,342)
-----------
(24,228)
-----------
Income before provision for income taxes.................... 129,582
Benefit from income taxes................................... 61,000
-----------
Net income.................................................. $ 190,582
===========
</TABLE>
See accompanying notes.
F-57
<PAGE> 108
CMS MANAGEMENT SERVICES COMPANY
COMBINED STATEMENT OF RETAINED EARNINGS AND MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Balance at beginning of year................................ $ 754,752
Members' capital contributions............................ 91,817
Net income................................................ 190,582
Dividends................................................. (233,353)
---------
Balance at end of year...................................... $ 803,798
=========
</TABLE>
See accompanying notes.
F-58
<PAGE> 109
CMS MANAGEMENT SERVICES COMPANY
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 190,582
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 153,682
Loss on sale of property and equipment.................... 13,828
Deferred income taxes..................................... (61,000)
Deferred compensation..................................... 44,800
Change in assets and liabilities:
Accounts receivable.................................... (231,267)
Prepaid expenses....................................... 42,559
Accounts payable....................................... (55,756)
Accrued expenses....................................... 38,499
Income taxes payable................................... (17,000)
---------
Net cash provided by operating activities................... 118,927
---------
INVESTING ACTIVITIES
Capital expenditures........................................ (97,994)
Increase in deposits........................................ (5,000)
Advances of notes receivable................................ (99,011)
Increase in cash value of life insurance.................... (64,701)
---------
Net cash (used in) investing activities..................... (266,706)
---------
FINANCING ACTIVITIES
Issuance of common stock.................................... 1,000
Proceeds from borrowings.................................... 640,000
Payments on debt and borrowings............................. (105,721)
Proceeds from Members' Capital contributions................ 91,817
Dividends................................................... (233,353)
---------
Net cash provided by financing activities................... 393,743
---------
Increase in cash............................................ 245,964
Cash at beginning of year................................... 104,848
---------
Cash at end of year......................................... $ 350,812
=========
</TABLE>
See accompanying notes.
F-59
<PAGE> 110
CMS MANAGEMENT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS, USE OF ESTIMATES, AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business:
CMS Management Services Company is a name describing a group of separate
entities related through common ownership.
CMS Management Services Company is a regional staffing firm specializing in
financial and information technology, people and projects, and outplacement
services. These services are offered to customers primarily in the Midwestern
United States. Billings are due upon receipt.
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 of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant Accounting Policies
Principles of Combination
The combined financial statements include the accounts of CMS Management
Services Co., TemPro Resources, Inc., CMS/TemPro of Indianapolis, Inc., CMS
Services, Inc., and CMS/TemPro of Nashville, LLC., a limited liability company.
All significant intercompany accounts and transactions have been eliminated in
combination.
Cash
The Companies have cash on deposit in financial institutions which, at
times, may exceed the limits of insurance coverage provided by the Federal
Deposit Insurance Corporation.
Depreciation
Depreciation of furniture and equipment is computed principally by the
straight-line method over the estimated useful lives of the assets ranging from
3 to 7 years.
Revenue recognition
Revenue is recognized as services are performed.
2. RECEIVABLES
Receivables in the accompanying balance sheet at December 31, 1997 consist
of the following:
<TABLE>
<S> <C>
Trade............................................ $1,755,301
Employees........................................ 37,877
----------
$1,793,178
==========
</TABLE>
F-60
<PAGE> 111
CMS MANAGEMENT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. OTHER ASSETS
Other assets at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
Cash value of life insurance...................... $100,095
Deposits.......................................... 9,161
Deferred tax assets............................... 41,000
--------
$150,256
========
</TABLE>
4. PLEDGED ASSETS, LINES OF CREDIT, AND LONG-TERM DEBT
The terms of a loan agreement with a bank permit CMS Management Services
Co. and TemPro Resources, Inc. to borrow a maximum of $650,000, of which
$645,000 was outstanding at December 31, 1997. Borrowings under the agreement
are limited to prescribed levels of trade receivables, bear interest at prime
(8.5% at December 31, 1997) plus .75%, are collateralized by substantially all
assets of those Companies, are personally guaranteed by their stockholders, and
are due on demand. This agreement expires in March 1998 (a).
The terms of a loan agreement with a bank permit CMS/TemPro of
Indianapolis, Inc. to borrow a maximum of $500,000, none of which was
outstanding at December 31, 1997. Borrowings under the agreement are limited to
prescribed levels of trade receivables, bear interest at prime (8.5% at December
31, 1997), are collateralized by substantially all assets of that Company, are
personally guaranteed by its stockholders up to certain amounts, and are due on
demand. This agreement expires in April 1998 (a).
Long-term debt as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
Note payable, bank, due in monthly installments of $7,633
including interest at prime (8.5% at December 31, 1997)
plus 1%, collateralized by substantially all assets of CMS
Management Services Co. and TemPro Resources, Inc.,
personally guaranteed by the stockholders of those
companies, final payment due March 31, 1999(a)............ $101,382
Notes payable, stockholders, subordinated to bank debt, due
in semi-monthly installments of $1,299 including interest
at 7.024% to 7.269%, unsecured, final payments made in
1998...................................................... 104,091
--------
205,473
Less current maturities..................................... 188,671
--------
$ 16,802
========
</TABLE>
- ---------------
(a) These agreements contain restrictive covenants that, among other things,
restrict the level of capital expenditures, and require the maintenance of
defined levels of tangible net worth and certain other financial ratios. CMS
Management Services Co. and TemPro Resources, Inc. have obtained a waiver
for the covenants with which they were not in compliance at December 31,
1997.
F-61
<PAGE> 112
CMS MANAGEMENT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. COMMON STOCK
Common stock at December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
SHARES
ISSUED AND
OUTSTANDING
PAR SHARES ---------------
VALUE AUTHORIZED NUMBER AMOUNT
----- ---------- ------ ------
<S> <C> <C> <C> <C>
CMS Management Services Co........................ None 1,200 1,200 $ 100
TemPro Resources, Inc............................. None 1,200 1,200 100
CMS/TemPro of Indianapolis, Inc................... None 1,000 66 1,000
CMS Services, Inc................................. None 1,000 100 1,000
------
$2,200
======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Profit Sharing Plans
The Companies maintain a contributory profit-sharing plan with 401(k)
provisions for the benefit of all eligible fulltime employees. The Companies
match 25% of the first 6% of employee contributions. Contributions were
approximately $44,000 for the year ended December 31, 1997.
Deferred Compensation Obligations
Effective January 1, 1994, the Companies entered into deferred compensation
agreements with certain key employees which provide benefits payable over a
ten-year period commencing at retirement as defined in the agreement. Under
certain circumstances, including death, total disability or a change in
ownership control of the Companies, the payment of the benefit would be
accelerated. The accumulated benefit of the agreements as of December 31, 1997
was $176,000, of which $21,000 was vested. The net present value of the
accumulated benefit as of December 31, 1997 was not material to the combined
financial statements and no liability has been recorded. The Companies have
purchased life insurance policies to fund a portion of this obligation.
Effective December 14, 1995, CMS/TemPro of Indianapolis, Inc. entered into
a deferred compensation agreement with a key executive which provides benefits
payable either in a lump sum amount or over a fifteen-year period commencing at
retirement as defined in the agreement. Under certain circumstances, including
death, total disability, or a change in ownership control of the Company,
payment of the benefit would be accelerated. The accumulated and vested benefit
of the agreement as of December 31, 1997 was approximately $111,000. The Company
has purchased life insurance policies to fund a portion of this obligation.
Incentive Pay
The Companies have an incentive plan pursuant to which certain members of
management and key employees receive discretionary and formula driven incentive
pay principally based upon the achievement by the Companies of annual
performance goals.
7. INCOME TAXES
CMS Management Services Co., TemPro Resources, Inc. and CMS Services, Inc.,
with the consent of their stockholders, have elected to have their income taxed
under Section 1362 of the Internal Revenue Code and a similar section of the
state tax laws which provide that, in lieu of corporation income taxes, the
stockholders account for their proportionate shares of the Companies' items of
income, deduction, losses, and credits. Also, CMS/TemPro of Nashville, LLC is a
limited liability company and its members account for
F-62
<PAGE> 113
CMS MANAGEMENT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
their proportionate shares of the Company's items of income, deduction, losses,
and credits. Therefore, these statements do not include any provision for income
taxes for these entities. The amount of net income included in the combined
statement of income related to these entities was approximately $295,000 for the
year ended December 31, 1997.
For CMS/TemPro of Indianapolis, Inc., deferred taxes are provided on a
liability method whereby deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
This entity files its income tax returns under the cash basis method.
Therefore, the composition of the deferred tax assets and liabilities in the
accompanying combined balance sheet at December 31, 1997 primarily relates to
the difference between the accrual basis of reporting for financial statement
purposes and the cash basis of reporting for income tax purposes and consist of
the following:
<TABLE>
<S> <C>
Gross deferred tax assets:
Accrued expenses.......................................... $ 20,000
Deferred compensation..................................... 44,000
Net operating losses...................................... 21,000
---------
85,000
---------
Gross deferred tax liabilities:
Trade receivables......................................... (41,000)
Prepaid expenses.......................................... (230,000)
Depreciation.............................................. (3,000)
---------
(274,000)
---------
Net deferred tax (liabilities).............................. $(189,000)
=========
Presented in the accompanying balance sheet as follows:
Long-term deferred tax assets............................. $ 41,000
Current deferred tax liabilities.......................... (230,000)
---------
$(189,000)
=========
</TABLE>
The provision for federal and state income taxes for the year ended
December 31, 1997 consists of a $61,000 reduction in the net deferred tax
liabilities.
8. LEASE OBLIGATIONS
The Companies lease their office space under operating leases which require
monthly rentals currently totaling $19,096, plus the payment of property taxes,
normal maintenance, and insurance on the properties, and which expire at various
dates through December 2004.
F-63
<PAGE> 114
CMS MANAGEMENT SERVICES COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The total minimum rental commitment under the above leases at December 31,
1997 is due as follows:
<TABLE>
<S> <C>
During the year ending December 31,
1998............................................. $ 222,705
1999............................................. 204,237
2000............................................. 190,367
2001............................................. 190,367
2002............................................. 190,367
Thereafter....................................... 344,639
----------
$1,342,682
==========
</TABLE>
The rent expense, excluding property taxes, maintenance, and insurance,
included in the combine statement of income for the year ended December 31, 1997
was approximately $210,000.
9. CASH FLOWS INFORMATION
Supplemental information relative to the statement of cash flows for the
year ended December 31, 1997 is as follows:
<TABLE>
<S> <C>
Supplemental disclosures of cash flows information:
Cash payments for:
Interest.................................................... $44,144
Income taxes................................................ $16,678
</TABLE>
10. SUBSEQUENT EVENT
On May 1,1998, Corporate Staffing Resources, Inc. acquired substantially
all of the assets and liabilities of CMS Management Services Co., TemPro
Resources, Inc., CMS Services, Inc. and CMS/TemPro of Nashville, LLC. and
acquired 100% of the stock of CMS/TemPro of Indianapolis, Inc.
F-64
<PAGE> 115
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Intranational Computer Consultants, Inc.
We have audited the accompanying balance sheet of Intranational Computer
Consultants, Inc., as of December 31, 1997, and the related statements of income
and retained earnings 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 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 Intranational Computer
Consultants, Inc., as of December 31, 1997, and the results of its operations
and cash flows for the year then ended, in conformity with generally accepted
accounting principles.
MOSS-ADAMS LLP
Santa Rosa, California
February 6, 1998 (except for Note 11,
as to which the date is March 1, 1998)
F-65
<PAGE> 116
INTRANATIONAL COMPUTER CONSULTANTS, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current assets:
Cash...................................................... $ 32,400
Accounts receivable....................................... 1,640,900
Refundable income taxes................................... 7,800
Prepaid expenses.......................................... 10,400
Note receivable -- stockholder............................ 43,000
----------
Total current assets.............................. 1,734,500
Property and equipment, net................................. 108,900
Deposits.................................................... 8,500
----------
Total assets...................................... $1,851,900
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Outstanding checks, net of bank balance................... $ 40,200
Line of credit............................................ 55,000
Accounts payable.......................................... 452,300
Accrued payroll and related liabilities................... 644,700
Deferred income taxes..................................... 43,000
----------
Total current liabilities......................... 1,235,200
----------
Deferred income taxes....................................... 143,000
Stockholders' equity
Common stock, no par value; 500,000 shares authorized,
52,000 shares issued and outstanding................... 5,000
Retained earnings........................................... 468,700
----------
Total stockholders' equity........................ 473,700
----------
Total liabilities and stockholders' equity........ $1,851,900
==========
</TABLE>
See accompanying notes.
F-66
<PAGE> 117
INTRANATIONAL COMPUTER CONSULTANTS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Revenues.................................................... $14,512,300
Cost of services.......................................... 10,890,200
-----------
Gross profit................................................ 3,622,100
Operating expenses:
Selling, general, and administrative expenses............. 3,520,800
Depreciation and amortization............................. 21,700
-----------
Operating income............................................ 79,600
-----------
Other income (expense):
Interest expense.......................................... (11,900)
Other, net................................................ (14,300)
-----------
(26,200)
-----------
Income before benefit from income taxes..................... 53,400
Benefit from income taxes................................... 39,200
-----------
Net income.................................................. 92,600
Retained earnings, December 31, 1996 (as restated).......... 376,100
-----------
Retained earnings, December 31, 1997........................ $ 468,700
===========
</TABLE>
See accompanying notes.
F-67
<PAGE> 118
INTRANATIONAL COMPUTER CONSULTANTS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 92,600
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 21,700
Deferred income taxes..................................... (42,000)
Change in:
Accounts receivable.................................... 120,600
Prepaid expenses....................................... 4,900
Refundable income taxes................................ (800)
Deposits............................................... (5,100)
Accounts payable....................................... 235,500
Accrued liabilities.................................... (416,600)
Income taxes payable................................... (2,000)
---------
Net cash provided by operating activities................... 8,800
---------
INVESTING ACTIVITIES
Purchases of property and equipment......................... (76,000)
Payments on note receivable from stockholder................ 1,700
---------
Net cash (used in) investing activities..................... (74,300)
---------
FINANCING ACTIVITIES
Net repayments under line of credit......................... (167,900)
Outstanding checks, net of bank balance..................... 40,200
---------
Net cash (used in) financing activities..................... (127,700)
---------
Decrease in cash............................................ (193,200)
Cash, December 31, 1996..................................... 225,600
---------
Cash, December 31, 1997..................................... $ 32,400
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................. $ 11,900
Income taxes.............................................. 7,000
</TABLE>
See accompanying notes.
F-68
<PAGE> 119
INTRANATIONAL COMPUTER CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations
Intranational Computer Consultants, Inc., is a professional services firm
specializing in providing technical support for mainframe and mid-range computer
operations, technical consulting, and software development services, to
organizations with large-scale information processing and distribution needs
located in the San Francisco Bay Area.
Accounts Receivable
Accounts receivable are stated at net realizable value. An allowance for
doubtful accounts was not considered necessary at December 31, 1997.
Property and Equipment
Property and equipment are stated at cost and depreciated using accelerated
and straight line methods over estimated useful lives ranging from 3 to 7 years.
Additions or improvements are capitalized at cost, while maintenance and repair
expenditures are charged to operations.
Income Taxes
Income taxes are recognized using enacted tax rates and are composed of
taxes on financial accounting income that is adjusted for requirements of
current tax law, and deferred taxes. Deferred taxes are the expected future tax
consequences of temporary differences between the financial statement carrying
amounts and tax basis of existing assets and liabilities.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions affecting the reported amounts of assets, liabilities, revenues,
expenses, and the disclosure of contingent assets and liabilities. The amounts
estimated could differ from actual results.
Advertising
Advertising costs are expensed as incurred and were $47,000 for the year
ended December 31, 1997.
Concentrations of Risk
Financial instruments potentially subjecting the Company to concentrations
of credit risk consist primarily of trade receivables. This credit risk is
limited due to the financial strength of the Company's customers. Three
customers account for 30% of revenues and $305,100 of trade receivables for the
year ended and as of December 31, 1997.
2. ACCOUNTS RECEIVABLE
<TABLE>
<S> <C>
Trade............................................ $1,631,200
Other receivables................................ 9,700
----------
$1,640,900
==========
</TABLE>
F-69
<PAGE> 120
INTRANATIONAL COMPUTER CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTE RECEIVABLE -- STOCKHOLDER
The note receivable from stockholder is due in semi-monthly installments of
$200, including interest at 7% and is secured by computer equipment. The note
was repaid in full subsequent to December 31, 1997. Interest received from the
stockholder was $3,000 for the year ended December 31, 1997.
4. PROPERTY AND EQUIPMENT
<TABLE>
<S> <C>
Computers and equipment..................................... $125,900
Furniture and fixtures...................................... 45,700
Other....................................................... 15,900
--------
187,500
Less accumulated depreciation............................... 78,600
--------
$108,900
========
</TABLE>
5. BORROWINGS UNDER LINE OF CREDIT
The Company has available a $1,000,000 line of credit that is subject to a
limitation equal to 80% of eligible accounts receivable. Interest is at the
bank's prime rate plus 1.5%. The line of credit matures November 1998, and is
secured by substantially all assets of the Company and the stockholders'
personal guarantees.
6. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company rents office space under an operating lease expiring in
February 1999. The monthly lease payment, currently $6,350, is adjusted annually
based on increases in the Consumer Price Index, as defined in the agreement. In
no case will the annual increase be less than 3% nor more than 6%. The Company
is responsible for substantially all costs associated with repairs, maintenance,
taxes, and insurance. An option exists to extend the lease for an additional
four year period.
The Company leases computer equipment from a stockholder under an operating
lease expiring in July 2000. The lease requires semi-annual payments of $17,000,
with the Company responsible for maintenance, taxes and insurance.
The Company leases additional office space under operating leases expiring
through August 1998.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1998.............................................. $112,300
1999.............................................. 40,600
2000.............................................. 17,000
--------
$169,900
========
</TABLE>
Rent expense for the year ended December 31, 1997, was $133,700, including
$34,000 paid to a stockholder.
7. PENSION PLAN
The Company provides an Internal Revenue Code Section 401(k) Plan covering
substantially all employees meeting certain age and service requirements. Plan
contributions are made at the discretion of the Board of Directors. The Company
did not contribute to the plan during the year ended December 31, 1997.
F-70
<PAGE> 121
INTRANATIONAL COMPUTER CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. BENEFIT FROM INCOME TAXES
The significant temporary differences between the carrying amounts and tax
basis of existing assets and liabilities that give rise to deferred tax assets
and liabilities include using a different method of depreciation for tax
purposes; deduction of paid vacation pay, actual bad debt write-offs, paid
stockholder salaries, and the current state tax liability in the following year.
During the year ended December 31, 1997, the Company changed from the cash
method of accounting for income taxes to the accrual method. The Company is
allowed to recognize the tax liability generated by this change over a four year
period, which is recognized as a deferred tax liability.
<TABLE>
<S> <C>
Provision for income taxes
Federal................................................... $ 1,900
California................................................ 900
--------
2,800
Change in deferred income taxes............................. (42,000)
--------
$(39,200)
========
Current deferred income taxes consist of the following:
Gross deferred tax assets................................. $ (8,200)
Gross deferred tax liabilities............................ 51,200
--------
$ 43,000
========
Non-current deferred income taxes consist of the following:
Gross deferred tax assets................................. $ (9,800)
Gross deferred tax liabilities............................ 152,800
--------
$143,000
========
</TABLE>
9. PRIOR PERIOD ADJUSTMENT
The Company, in reviewing certain transactions associated with accrued
commissions, concluded that the full accrual required for commission expense had
not been included in the December 31, 1996, financial statements. Accordingly,
to reflect the impact those liabilities would have had on the prior year's
financial statements, the Company has reduced retained earnings by $61,500 from
that previously reported. As the Company was on the cash basis of accounting for
tax purposes, this adjustment has no effect on prior year income taxes.
10. CONTINGENCIES
The Company has employment agreements with certain of its executive
officers that provide for lump sum severance payments upon termination of
employment under certain circumstances or a change of control, as defined in the
agreements. The maximum contingent liability under these agreements is
approximately $150,000. See Note 11.
The Company has been notified of a potential claim regarding amounts owed
to a former hourly contractor. Damages, if any, can not be estimated at this
time. Management believes the claim is without merit and intends to vigorously
defend its position.
11. SUBSEQUENT EVENTS
Subsequent to year end, the stockholders of the Company sold all of the
issued and outstanding stock to a previously unrelated corporation.
Subsequent to year end, the Company was notified that its insurance
coverage would be discontinued in March, 1998. Management believes it will be
able to obtain adequate insurance upon expiration of the current policy.
F-71
<PAGE> 122
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
NPS of Atlanta, Inc. and Affiliate
We have audited the accompanying combined balance sheet of NPS of Atlanta,
Inc. and Affiliate, (a Georgia Corporation) as of October 31, 1997, and the
related combined statements of operations, stockholders' equity, 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 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of NPS of
Atlanta, Inc. and its Affiliate as of October 31, 1997, and the results of their
operations and their cash flows for the period then ended, in conformity with
generally accepted accounting principles.
BROOKS, HOLMES, WILLIAMS & COOK, LLC
Atlanta, Georgia
January 19, 1998, except for Note 10,
as to which the date is February 23, 1998
F-72
<PAGE> 123
NPS OF ATLANTA, INC.
AND AFFILIATE
COMBINED BALANCE SHEET
AS OF OCTOBER 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 100
Accounts receivable -- trade, net (Note 1)................ 1,072,657
Unbilled revenue.......................................... 242,270
Advances to employees..................................... 2,267
Prepaid expenses.......................................... 23,497
Income tax refunds receivable............................. 20,885
Deferred income taxes, current portion (Note 8)........... 6,500
----------
Total current assets.............................. 1,368,176
Property and equipment, net (Note 2)........................ 284,928
Other assets
Advances to stockholder (Note 3).......................... 180,750
Deposits.................................................. 1,107
Deferred income taxes (Note 8)............................ 56,000
----------
Total assets...................................... $1,890,961
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of cash in bank................... $ 73,409
Line of credit (Note 6)................................... 619,436
Accounts payable.......................................... 23,466
Accrued wages, payroll taxes and other liabilities........ 289,766
Capital lease obligation -- current portion (Note 5)...... 1,612
Deferred compensation short-term (Note 11)................ 30,000
Deferred income taxes (Note 8)............................ 49,600
----------
Total current liabilities......................... 1,087,289
Long-term liabilities
Capital lease obligation, net (Note 5).................... 783
Deferred compensation Long-term (Note 11)................. 210,000
Deferred income taxes (Note 8)............................ 11,400
----------
1,309,472
Commitments (Note 9)
Stockholders' equity
Common stock (Note 7)..................................... 2,000
Paid in capital........................................... 161,056
Retained earnings......................................... 418,433
----------
Total stockholders' equity........................ 581,489
----------
Total liabilities and stockholders' equity........ $1,890,961
==========
</TABLE>
See accompanying notes.
F-73
<PAGE> 124
NPS OF ATLANTA, INC.
AND AFFILIATE
COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
Revenues.................................................... $11,071,827
Direct cost of sales...................................... 8,090,318
-----------
Gross profit................................................ 2,981,509
Operating expenses
Selling, general and administrative expenses.............. 2,962,080
Depreciation.............................................. 73,193
-----------
Operating loss............................................ (53,764)
Other income (expense)
Gain on sale.............................................. 3,232
Interest expense.......................................... (46,929)
-----------
Loss before income taxes.................................... (97,461)
Provision for income taxes -- benefit (Note 8).............. 61,068
-----------
Net loss.................................................... $ (36,393)
===========
</TABLE>
See accompanying notes.
F-74
<PAGE> 125
NPS OF ATLANTA, INC.
AND AFFILIATE
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK PAID-IN EARNINGS
(NOTE 7) CAPITAL (DEFICIT) TOTAL
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance at October 31, 1996....................... $2,000 $161,056 $ 585,009 $ 748,065
Net loss........................................ -- -- (36,393) (36,393)
Distributions to stockholder.................... -- -- (130,183) (130,183)
------ -------- --------- ---------
Balance at October 31, 1997....................... $2,000 $161,056 $ 418,433 $ 581,489
====== ======== ========= =========
</TABLE>
See accompanying notes.
F-75
<PAGE> 126
NPS OF ATLANTA, INC.
AND AFFILIATE
COMBINED STATEMENT OF CASH FLOWS
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $ (36,393)
---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 73,193
(Increase) decrease in:
Accounts receivable.................................... (333,230)
Unbilled revenue....................................... (88,095)
Other current assets................................... 21,908
(Increase) decrease in:
Checks in excess of cash in bank....................... 73,409
Accounts payable....................................... (6,180)
Accrued wages, payroll taxes and other liabilities..... 83,899
Deferred compensation.................................. (60,000)
Deferred income taxes.................................. (42,548)
---------
Total adjustments........................................... (277,644)
---------
Net cash used in operating activities....................... (314,037)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment....................... (96,317)
Proceeds from sale of investment............................ 57,500
---------
Net cash used in investing activities....................... (38,817)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line of credit.................................. 369,471
Distributions to stockholders............................... (130,183)
---------
Net cash provided by financing activities................... 239,288
---------
Net decrease in cash........................................ (113,566)
Cash at beginning of period................................. 113,666
---------
Cash at end of period....................................... $ 100
=========
SUPPLEMENTAL DISCLOSURES
Interest paid............................................. $ 46,424
Income tax refunds received............................... $ 16,139
Assets acquired through capital leases.................... $ 3,185
</TABLE>
See accompanying notes.
F-76
<PAGE> 127
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
OCTOBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are presented on a combined basis. Both companies
are located in Atlanta, Georgia, incorporated in the State of Georgia, and are
under common control and ownership. The following companies are included in
these combined financial statements:
<TABLE>
<CAPTION>
TAX DATE FISCAL
NAME OF COMPANY STATUS INCORPORATED YEAR END
- --------------- ------ ------------ --------
<S> <C> <C> <C>
NPS of Atlanta, Inc............................. C-Corporation 01-11-91 10/31
NPS Staffing Specialist, Inc.................... S-Corporation 02-22-95 12/31
</TABLE>
Intercompany transactions and balances have been eliminated in combination.
Organization and Business
NPS of Atlanta, Inc. provides temporary and permanent staffing solutions to
companies and organizations located throughout metro Atlanta on a fee basis.
NPS Staffing Specialists, Inc. provides promotional and marketing services
to the staffing industry. NPS Staffing Specialists, Inc.'s sole customer is NPS
of Atlanta, Inc.
NPS of Atlanta, Inc. and its Affiliate (the "Company") operate five offices
throughout the Atlanta, metropolitan area.
Business and Credit Concentrations
Financial instruments that potentially subject the Company to
concentrations of credit risk are accounts receivable. The Company continually
evaluates the credit worthiness of its customers; however, the Company generally
does not require collateral. The Company maintains cash balances in various
accounts at a financial institution which, in the aggregate, may exceed
federally insured amounts at times.
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 of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with
purchased original maturities of three months or less. As of October 1997, the
Company held no investments.
Revenue Recognition
The Company recognizes revenue as services are performed net of estimated
credits and uncollectible amounts. The company sells its services to its
customers primarily on a fee basis.
F-77
<PAGE> 128
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Unbilled Revenue
The Company accrues the earned revenues and the related costs of employee
services which have not been billed at the end of an accounting period.
Financial Instruments
The fair market value of financial instruments is determined by reference
to various market data and other valuation techniques as appropriate. The
Company believes that the fair values of financial instruments approximate their
recorded values.
Allowance for Doubtful Accounts
Management evaluates on a regular basis the need for an allowance for
doubtful accounts and provides for amounts which may eventually become
uncollectible and any disputed charges. The allowance for doubtful accounts as
of October 31, 1997 is $10,000.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
statement purposes is provided by the straight-line method over the estimated
economic lives of the depreciable assets. Maintenance and repairs are charged to
operations as incurred, while major renewals and betterments which substantially
extend the useful life of property and equipment are capitalized.
Income Taxes
NPS Staffing Specialists, Inc., with the consent of its stockholder,
elected under the Internal Revenue Code and comparable state regulations to be
an S Corporation. Under these provisions, the Company does not pay federal or
state corporate income taxes on its taxable income, rather, the stockholder of
the S Corporation reports the Company's taxable income (or loss) and any tax
credits on his personal income tax returns. Therefore, no provision or liability
for federal income taxes has been included for this entity in these combined
financial statements as it relates to NPS Staffing Specialists, Inc.
For tax purposes, NPS of Atlanta, Inc. is a regular corporation subject to
federal and state income taxes. See Note 8 regarding the tax provision (benefit)
as it relates to NPS of Atlanta, Inc.'s taxable income or loss. Generally,
income tax expense (benefit) for this entity includes federal and state taxes
currently payable and deferred taxes arising from temporary differences in bases
of assets and liabilities for financial reporting and income tax purpose. These
differences result principally from depreciation, deferred compensation,
allowance for doubtful accounts and the use of the cash basis of accounting for
tax purposes.
Other
The Company operates in an industry, staffing, which has a large employee
base, is prone to workers compensation claims and is subject to the risks
inherent with such employment.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising expense was $137,802 for the year ended
December 31, 1997.
F-78
<PAGE> 129
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C> <C>
Furniture and equipment..................................... 7 $ 375,753
Leasehold improvements...................................... 5 109,597
---------
485,350
Less accumulated depreciation............................... (200,422)
---------
Property and equipment, net................................. $ 284,928
=========
</TABLE>
Depreciation expense for the year ended October 31, 1997 is $73,193.
3. ADVANCES TO STOCKHOLDER
As of October 31, 1997, advances had been made to the sole shareholder
aggregating $180,750. These amounts are unsecured and non interest-bearing.
4. RELATED PARTY TRANSACTIONS
The Company leases office space for two of its offices from an
officer/shareholder of NPS of Atlanta, Inc. and Affiliate. Under these leases,
the Companies are responsible for property taxes, insurance, utilities and
substantially all repairs and maintenance of the properties. Lease terms include
annual rent payments of $109,092 through October 31, 2002; thereafter an annual
rent payment of $13,092 through January 31, 2004. Rent payments to be
officer/shareholders for the twelve months ended October 31, 1997 totaled
$106,553.
5. CAPITAL LEASE OBLIGATIONS
In 1997, the Company acquired a copier for $3,185. This system was financed
through a lease. For financial reporting purposes, $3,185 has been capitalized
representing the minimum lease payments over 36 months, with the lease expiring
in 1999. The property under capital lease as of October 31, 1997 is as follows:
<TABLE>
<S> <C>
Capitalized cost............................................ $3,185
Less accumulated depreciation............................... (228)
------
Net book value.............................................. $2,957
======
</TABLE>
The future minimum lease payments under the capital lease and the net
present value of the future minimum lease payments at October 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $1,984
1999........................................................ 827
------
Total minimum lease payments................................ 2,811
Less amount representing interest........................... 416
------
Present value of net minimum lease payments................. 2,395
Less current maturities of capital lease.................... 1,612
------
Long-term capital lease obligation.......................... $ 783
======
</TABLE>
F-79
<PAGE> 130
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LINE OF CREDIT
NPS of Atlanta, Inc. has a $1,000,000 revolving line of credit facility for
the purpose of financing accounts receivables. Interest accrues at prime plus
1.0% and is payable monthly. The outstanding balance is due the earlier of March
15, 1998 or on demand by the financial institution and is guaranteed by NPS
Staffing Specialists, Inc. and the officers and shareholders of NPS of Atlanta,
Inc.
Accounts receivable are pledges as collateral and the available credit is
limited to 80% of the accounts receivable less than 60 days outstanding. The
interest rate at October 31, 1997 was 9.25%.
7. COMMON STOCK
The following details corporate shares authorized, issued and outstanding,
and the initial capitalization for each corporation in the group. These are no
treasury shares.
<TABLE>
<CAPTION>
ISSUED AND
NAME OF COMPANY AUTHORIZED OUTSTANDING PAR VALUE AMOUNT
--------------- ---------- ----------- --------- ------
<S> <C> <C> <C> <C>
NPS of Atlanta, Inc.
Class A -- voting............................ 1,000,000 10,000 None $1,000
Class B -- non voting........................ 1,000,000 None None
NPS Staffing Specialists, Inc.................. 1,000,000 1,000 None 1,000
------
Balance October 31, 1997....................... $2,000
======
</TABLE>
8. INCOME TAXES
The income tax provision in these financial statements represents only the
related income tax benefits of NPS of Atlanta, Inc. which incurred an operating
loss of $462,000 for financial reporting purposes and $279,000 for tax purposes
for its fiscal year ended October 31, 1997. The primary difference between the
financial reporting loss and taxable loss is income taxable in the current year
due to a change in accounting methods in 1994 which for tax purposes could be
taken into taxable income over a four year period. This income was recorded for
financial reporting purposes in a lump sum in 1994.
NPS of Atlanta, Inc. has net operating loss carryforwards and charitable
contributions carryforwards available to offset future taxable income. The
amounts and expiration dates of these carryforwards are listed below:
<TABLE>
<CAPTION>
CARRYFORWARDS AMOUNT EXPIRATION
------------- -------- ----------------
<S> <C> <C>
Net operating loss........................................ $198,500 October 31, 2012
Charitable contributions -- federal/state income tax...... 6,600 October 31, 2002
Provision for income taxes -- benefit:
Current income tax benefit.............................. $20,315
Deferred income tax benefit............................. 40,753
-------
Total provision for income taxes -- benefit............... $61,068
=======
</TABLE>
9. OPERATING LEASES
The Company leases five office facilities in Atlanta, GA. These leases
expire in 1998 through 2004.
The Company leases office equipment under a non-cancelable operating lease
over a 51-month term, expiring February 2001.
F-80
<PAGE> 131
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
This lease has been classified as an operating lease under the provisions
of Financial Accounting Standards Board Statement 13. The following summarizes
the future minimum rentals required by the noncancelable lease for the years
ending December 31:
<TABLE>
<S> <C>
1998.............................................. $184,524
1999.............................................. 172,093
2000.............................................. 140,811
2001.............................................. 142,080
2002.............................................. 125,909
2003.............................................. 13,092
2004.............................................. 3,273
--------
$781,782
========
</TABLE>
Rent expense for the twelve months ended October 31,1997 is $179,303.
10. SUBSEQUENT EVENTS
On February 23, 1998, the shareholders of NPS of Atlanta, Inc. and the
shareholder of NPS Staffing Specialists, Inc. sold all of the issued and
outstanding stock of these companies to a previously unrelated corporation for
cash that was paid at closing.
The primary shareholder continues to be employed by NPS of Atlanta, Inc. at
a salary of $5,000 per month until June 30, 1998. Effective July 1, 1998, both
shareholders will be engaged as consultants by NPS of Atlanta, Inc. for an
eighteen-month period for an aggregate fee of $75,000, payable in 12 monthly
amounts of $6,250 commencing July 1, 1998.
11. DEFERRED COMPENSATION AGREEMENT
On November 12, 1996, NPS of Atlanta, Inc. executed a deferred compensation
agreement with a former key employee for past services rendered. Terms of the
agreement include monthly compensation of $2,500 beginning December 1996 through
November 2005. The agreement also states that should substantially all the
capital stock or assets of NPS of Atlanta, Inc. be sold, the unpaid balance of
the agreement shall become due within ten days of the sale closing date. At
October 31,1997, the balance of the unpaid deferred compensation was $240,000 of
which $30,000 is classified as a current liability (due within twelve months)
and $210,000 is classified as a non-current liability (due beyond twelve
months). Deferred compensation expense was $30,000 for the year ended December
31,1997.
12. CONTINGENCIES
Certain claims, suits, and complaints arising in the ordinary course of
operations have been filed or are pending against the Company. Management
believes that the outcome of such matters, if any, will not have a material
impact on the Company's financial position or results of future operations.
F-81
<PAGE> 132
======================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or the Selling
Stockholders or any Underwriter. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to whom it is unlawful to make such offer in such jurisdiction to any person in
any jurisdiction. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since such
date.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 26
Management............................ 34
Certain Transactions.................. 39
Principal and Selling Stockholders.... 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 49
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1998 (25 days after the commencement of this offering) all
dealers effecting transactions in the Common Stock offered hereby, 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.
======================================================
======================================================
SHARES
CORPORATE STAFFING
RESOURCES, INC.
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC
BT Alex. Brown
The Robinson-Humphrey
Company
, 1998
======================================================
<PAGE> 133
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with this
Registration Statement. The Company will pay all expenses of the offering. All
of such expenses are estimates, other than the filing fees payable to the
Securities and Exchange Commission, NASD and Nasdaq.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee............... $25,443.75
NASD Filing Fee............................................. $ 9,125.00
Nasdaq Listing Fee.......................................... *
Printing Fees and Expenses.................................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent's and Registrar's Fees....................... *
Miscellaneous............................................... *
----------
TOTAL............................................. *
==========
</TABLE>
- ---------------
* To be completed in an amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
[The Company's Charter provides that, to the fullest extent that
limitations on the liability of directors and officers are permitted by the
Delaware General Corporation Law (the "DGCL"), no director or officer of the
Company shall have any liability to the Company or its stockholders for monetary
damages. The DGCL provides that a corporation's charter may include a provision
which restricts or limits the liability of its directors or officers to the
corporation or its stockholders for money damages except: (1) to the extent that
it is provided that the person actually received an improper benefit or profit
in money, property or services, for the amount of the benefit or profit in
money, property or services actually received, or (2) to the extent that a
judgment or other final adjudication adverse to the person is entered in a
proceeding based on a finding in the proceeding that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The Company's
Charter and Bylaws provide that the Company [shall] indemnify and advance
expenses to its currently acting and its former directors to the fullest extent
permitted by the DGCL and that the Company shall indemnify and advance expenses
to its officers to the same extent as its directors and to such further extent
as is consistent with law.]
[The Charter and Bylaws provide that the Company will indemnify its
directors and officers and may indemnify employees or agents of the Company to
the fullest extent permitted by law against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Company. However, nothing in the Charter or Bylaws of the
Company protects or indemnifies a director, officer, employee or agent against
any liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office. To the extent that a director has been
successful in defense of any proceeding, the DGCL provides that he shall be
indemnified against reasonable expenses incurred in connection therewith.]
The form of underwriting agreement, filed as Exhibit 1.1 hereto, contains
provisions by which the Underwriters agree to indemnify the Company and each
officer, director and controlling person of the Company against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, the
Company has issued securities in the following transactions, each of which was
intended to be exempt from the registration requirements of the
II-1
<PAGE> 134
Securities Act of 1933, as amended, by virtue of Section 4(2) thereunder. No
underwriters were involved in connection with the sales of these securities.
<TABLE>
<CAPTION>
DATE PURCHASER CONSIDERATION
---- --------- -------------
<S> <C> <C>
</TABLE>
ITEM 16. EXHIBITS.
(a)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<C> <S> <C> <C>
*1.01 -- Form of Underwriting Agreement
2.01 -- Business Combination Agreement, by and among Mega Force
Staffing Services, Inc., the MFSS Shareholders and The
Hamilton-Ryker Company, L.L.C., dated as of March 12,
1997.
*2.02 -- [Mega Force/CSR]
2.03 -- Stock Purchase Agreement by and among Corporate Staffing
Resources, Inc., Richard Niermann and Mary Ann Niermann,
dated as of February 23, 1998.
2.04 -- Stock Purchase Agreement by and between Corporate
Staffing Resources, Inc. and the Krauthamer Family
Limited Partnership, dated as of March 2, 1998.
2.05 -- Stock Purchase Agreement by and among Corporate Staffing
Resources, Inc., Corporate Staffing Resources of
Indiana, Inc., CMS Management Services LLC, CMS
Management Services, Co., TemPro Resources, Inc., CMS
Services, Inc., CMS/TemPro Resources of Nashville LLC,
CMS/TemPro Resources of Indianapolis, Inc., Joseph A.
Noto, Joseph R. Pozsgai, Jr., Donald E. Zerfas, Richard
G. Halstead, Patrick B. Laake, and C. Rick Bellar.
*2.06 -- [Monday]
*3.01 -- Restated Articles of Incorporation
*3.02 -- Bylaws
*4.01 -- Specimen Common Stock Certificate
*5.01 -- Opinion of Latham & Watkins
10.01 -- Employment Agreement between Corporate Staffing
Resources, Inc. and William W. Wilkinson, dated as of
May 1, 1998.
10.02 -- Employment Agreement between Corporate Staffing
Resources, Inc. and William J. Wilkinson, dated as of
May 1, 1998.
*10.03 -- Employment Agreement between Corporate Staffing
Resources, Inc. and Thomas E. Murphy, dated as of
.
*10.04 -- Employment Agreement between Corporate Staffing
Resources, Inc. and Jerry F. Stone, dated as of
.
*10.05 -- Employment Agreement between Corporate Staffing
Resources, Inc. and T. Wayne McCreignt, dated as of
.
*10.06 -- Employment Agreement between Corporate Staffing
Resources, Inc. and D. Crawford Gallimore, dated as of
.
10.07
10.08
10.09
</TABLE>
II-2
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<C> <S> <C> <C>
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
*15.01 -- Letter re: unaudited interim financial information
*22.01 -- Subsidiaries of the registrant
23.01 -- Consent of Independent Accountants
23.01(a) -- Consent of Ernst & Young LLP with respect to the
financial statements of Corporate Staffing Resources,
Inc.
23.01(b) -- Consent of Crowe, Chizek and Company LLP with respect to
the financial statements of CSR, Inc. and Subsidiaries
and Predecessor
23.01(c) -- Consent of Ernst & Young LLP with respect to the
financial statements of The Hamilton-Ryker Company, LLC
23.01(d) -- Consent of McGladrey & Pullen, LLP with respect to the
financial statements of CMS Management Services Company
23.01(e) -- Consent of Moss-Adams, LLP with respect to the financial
statements of Intranational Computer Consultants, Inc.
23.01(f) -- Consent of Brooks, Holmes, Williams & Cook, LLC with
respect to the financial statements of NPS of Atlanta,
Inc.
23.02 -- Consent of Latham & Watkins
24.01 -- Power of Attorney (included on signature pages hereto)
99.01 -- Additional Exhibits
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
SCHEDULE NO. DESCRIPTION PAGE NO.
------------ ----------- --------
<C> <S> <C>
II Valuation and Qualifying Accounts S-3
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling persons of the Registrant
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 Registrant 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-3
<PAGE> 136
The undersigned registrant hereby undertakes that:
(1) 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 Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective 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-4
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in South Bend, Indiana on
, 1998.
CORPORATE STAFFING RESOURCES, INC.
By /s/ WILLIAM W. WILKINSON
-----------------------------------
William W. Wilkinson
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Thomas E. Murphy and William W. Wilkinson (with
full power to each of them to act alone) as his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead in any and all capacities to sign any or all amendments or post-effective
amendments to this Registration Statement, including registration statements
filed or amendments made pursuant to Rule 462 under the Securities Act of 1933,
as amended, and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, to sign
any and all applications, registration statements, notices or other document
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 substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, 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 has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM W. WILKINSON Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (Principal
William W. Wilkinson Executive Officer)
/s/ THOMAS E. MURPHY Chief Financial Officer (Principal
- ----------------------------------------------------- Financial Officer)
Thomas E. Murphy
/s/ T. WAYNE MCCREIGHT Director
- -----------------------------------------------------
T. Wayne McCreight
/s/ WILLIAM J. WILKINSON Director
- -----------------------------------------------------
William J. Wilkinson
/s/ JOHN GEER Director
- -----------------------------------------------------
John Geer
/s/ ROBERT W. MACDONALD Director
- -----------------------------------------------------
Robert W. MacDonald
</TABLE>
S-1
<PAGE> 138
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CONOR T. MULLETT Director
- -----------------------------------------------------
Conor T. Mullett
/s/ JOHN P. SHOEMAKER Director
- -----------------------------------------------------
John P. Shoemaker
/s/ H. RONALD STONE Director
- -----------------------------------------------------
H. Ronald Stone
/s/ D. CRAWFORD GALLIMORE Director
- -----------------------------------------------------
D. Crawford Gallimore
/s/ JERRY F. STONE Director
- -----------------------------------------------------
Jerry F. Stone
</TABLE>
S-2
<PAGE> 139
CORPORATE STAFFING RESOURCES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COSTS AND FROM BALANCE AT
OF PERIOD EXPENSES RESERVES END OF PERIOD
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts.................. $122,132 $179,711 $ 81,943 $219,900
Year ended December 31, 1996:
Allowance for doubtful accounts.................. 50,000 109,546 37,414 122,132
Year ended December 31, 1995:
Allowance for doubtful accounts.................. 40,000 194,545 184,545 50,000
</TABLE>
S-3
<PAGE> 1
EXHIBIT 2.01
BUSINESS COMBINATION AGREEMENT
THIS BUSINESS COMBINATION AGREEMENT (the "Agreement") is made and
entered into effective the 12th day of March, 1997, by and among MEGA FORCE
STAFFING SERVICES, INC., a North Carolina corporation ("MFSS"), the undersigned
shareholders of MFSS (collectively, the "MFSS Shareholders" and individually, a
"MFSS Shareholder"), THE HAMILTON-RYKER COMPANY, L.L.C., a Tennessee limited
liability company ("Hamilton-Ryker"), and the undersigned members of
Hamilton-Ryker (collectively, the "Hamilton-Ryker Members" and individually, a
"Hamilton-Ryker Member").
W I T N E S S E T H:
WHEREAS, the parties hereto have determined that it is in their best
long-term interests to effect a business combination whereby the Hamilton-Ryker
Members shall exchange their Hamilton-Ryker Interests for capital stock in The
Mega Force Staffing Companies, Inc., a Delaware corporation to be formed
pursuant to the terms and provisions hereof ("Mega Force"), and simultaneously
causing a merger of Hamilton-Ryker with and into The Hamilton-Ryker Company,
Inc., a North Carolina corporation and a wholly owned subsidiary of Mega Force
("HRC"), with the effect of a contribution to the capital of MFSS by Mega Force
in exchange for the capital stock of MFSS; and at the same time MFSS
Shareholders shall exchange their capital stock in MFSS for shares in Mega Force
and MFSS shall become a wholly owned subsidiary of Mega Force; and
WHEREAS, the parties intend for such combination to constitute an
exchange of property for stock to which Section 351 of the Internal Revenue Code
of 1986, as amended, applies;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Certain Defined Terms. When used in this Agreement, the
following capitalized words and phrases shall have the following meanings
assigned to them:
(a) "33 Act" means the Securities Act of 1933, as amended, and
any similar or successor federal law then in force.
(b) "34 Act" means the Securities Exchange Act of 1934, as
amended, and any similar or successor federal law then in force.
(c) "Add Backs" mean those certain non-recurring items of
income and expense of Hamilton-Ryker charged to Hamilton-Ryker's
earnings and listed on Schedule 1.1(c).
(d) "Affiliate" means, with respect to any specified person,
any other person in the field of Staffing Services who, directly or
indirectly, owns or controls, is under common ownership or control
with, or is owned or controlled by, such specified person.
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<PAGE> 2
(e) "Benefit Plans" means, with respect to any specified
person, any and all (i) profit sharing, pension, ESOP, 401(k) or other
retirement plans or programs, (ii) current and deferred compensation,
severance, vacation, stock purchase, stock option, bonus and incentive
compensation benefits, (iii) medical, hospital, life, health, accident,
disability, death and other fringe and welfare benefits, including any
split-dollar life insurance policies, and (iv) other individual and
group arrangements and agreements, including any unwritten
compensation, fringe benefit, payroll or employment practices,
procedures or policies of any kind or description.
(f) "Bylaws" means the bylaws of Mega Force, substantially in
the form attached hereto as Exhibit 1.1(f), to be adopted as the
initial bylaws of Mega Force.
(g) "Certificate of Incorporation" means the Amended and
Restated Certificate of Incorporation of Mega Force, substantially in
the form attached hereto as Exhibit 1.1(g), to be filed with the
Secretary of State of the State of Delaware.
(h) "Closing" shall mean the effective date or dates of the
consummation and effectuation of the contributions to the capital of
Mega Force and related transactions contemplated herein pursuant to the
terms and conditions of this Agreement.
(i) "Closing Date" shall refer to the date or dates on which
the Closing actually occurs.
(j) "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any similar or successor federal tax law then in force.
(k) "Commission" means the United States Securities and
Exchange Commission, and any successor in interest thereto.
(l) "Control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of an entity in the field of Staffing Services,
whether through the ownership of voting securities, by contract or
otherwise.
(m) "Creditanstalt" shall mean Creditanstalt Corporate
Finance, Inc., a Delaware corporation, Mega Force's senior lender.
(n) "Creditanstalt Warrants" means warrants for the right to
purchase Mega Force Class A Common Stock or Class B Non-Voting Common
Stock, substantially in the form of the Warrant Agreement attached
hereto as Exhibit 1.1(n), sometimes referred to as the "Creditanstalt
Warrant Agreement."
(o) "Encumbrance" shall mean any security interest, mortgage,
lien, pledge, claim, charge, escrow, or other encumbrance affecting
title.
(p) "Environmental Condition" means, with respect to any
specified person, (i) the introduction into the environment of any
pollution, including, without limitation, any contaminant, irritant or
pollutant or other toxic or hazardous substance, in violation of any
federal, state or local law, ordinance or governmental rule or
regulations, as a result of any spill, discharge, leak, emission,
escape, injection, dumping or release of any kind whatsoever of any
substance or exposure of any type in any work places or to any medium,
including, without limitation, air, land, surface waters or ground
waters, or from any generation,
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<PAGE> 3
transportation, treatment, discharge, storage or disposal of waste
materials, raw materials, hazardous materials, toxic materials or
products of any kind or from the storage, use or handling of any
hazardous or toxic materials or other substances, as a result of which
such person has or may become liable to any person or by any reason of
which any of the assets of such person may suffer or be subjected to
any lien, encumbrance or restriction of any nature, or (ii) any
noncompliance with any federal, state or local environmental law, rule,
regulation or order as a result of or in connection with any of the
foregoing.
(q) "GAAP" means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board and the Commission or in such other statements by such other
entity or other practices and procedures as may be approved by a
significant segment of the accounting profession, which are applicable
to the circumstances as of the date of determination.
(r) "Hamilton-Ryker Debt" shall mean Hamilton-Ryker's debt to
the Hamilton-Ryker Members of $2,746,337.00.
(s) "Hamilton-Ryker Interests" shall mean, with respect to
each Hamilton-Ryker Member, all of the issued and outstanding equity
membership interests of Hamilton-Ryker and of any Affiliates of
Hamilton-Ryker, including, without limitation, the assets of Career
Management, Inc., a Kentucky corporation ("Career Management"),
purchased by Hamilton-Ryker pursuant to an Asset Purchase Agreement
dated November 4, 1996, owned of record or beneficially by such
Hamilton-Ryker Member on the Closing Date.
(t) "HRC" means The Hamilton-Ryker Company, Inc., a North
Carolina corporation to be formed pursuant to the terms and provisions
hereof, Mega Force's wholly owned subsidiary.
(u) "HRC Bylaws" means the bylaws of The Hamilton-Ryker
Company, Inc., substantially in the form attached hereto as Exhibit
1.1(u), to be adopted as the initial bylaws of The Hamilton-Ryker
Company, Inc.
(v) "HRC Articles of Incorporation" means the Articles of
Incorporation of The Hamilton-Ryker Company, Inc., in the form attached
hereto as Exhibit 1.1(v), as filed with the Secretary of State of the
State of North Carolina.
(w) "IRS" shall mean the Internal Revenue Service, and any
successor in interest thereto.
(x) "Lock-Up Agreement" shall mean, with respect to a party
hereto, that certain agreement to be executed by the party pursuant to
which the party agrees not to sell or otherwise transfer any of the
Mega Force stock issued thereto pursuant to the terms thereof for the
time specified therein, substantially in the form attached hereto as
Exhibit 1.1(x).
(y) "MFSS Common Stock" shall mean the common stock, with no
par value, of MFSS.
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<PAGE> 4
(z) "MFSS Shares" shall mean, with respect to each MFSS
Shareholder, all of the issued and outstanding shares of capital stock
of MFSS owned of record or beneficially by the MFSS Shareholder on the
Closing Date.
(aa) "MFSS Springing Warrants" means those warrants for the
right to purchase Mega Force Class A Common Stock or Class B Non-Voting
Common Stock, substantially in the form attached hereto as Exhibit
1.1(aa)
(bb) "Mega Force Equity" shall mean the to be issued Mega
Force Class A Common Stock, Mega Force Class B Non-Voting Common Stock,
the MFSS Springing Warrants and the Creditanstalt Springing Warrants.
(cc) "Mega Force Class A Common Stock" shall mean the Class A
common stock, par value of one cent ($.01) per share, of Mega Force.
(dd) "Mega Force Class B Non-Voting Common Stock" shall mean
the Class B non-voting common stock, par value of one cent ($.01) per
share, of Mega Force.
(ee) "Mega Force Shares" shall mean the to-be issued shares of
capital stock of Mega Force.
(ff) "Registration Rights Agreement" means the Registration
Rights Agreement, by and among the holders of Mega Force Common Stock,
substantially in the form attached hereto as Exhibit 1.1(ff), to be
entered into at Closing.
(gg) "Staffing Services" means providing placement for
temporary personnel for clerical, light industrial, industrial,
technical and professional positions including direct search and
placement, project/department outsourcing, and career transition and
out-placement services.
(hh) "Stockholders Agreement" means the Stockholders
Agreement, by and among the holders of Mega Force Common Stock,
substantially in the form attached hereto as Exhibit 1.1(hh), to be
entered into at Closing.
(ii) "Subordination Agreement" shall mean a subordination
agreement acceptable in form to Mega Force and Creditanstalt,
substantially in the form set forth in Exhibit 1.1(ii).
(jj) "Subsidiary" or "Subsidiaries" of any person means any
corporation or other entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at the
time directly or indirectly owned or controlled by such person or one
or more Subsidiaries of such person.
Section 1.2 Other Defined Terms. Any capitalized term not specifically
defined in Section 1.1 shall have the meaning provided for the term in the
section in this Agreement in which such term is first used.
Section 1.3 References. All references in this Agreement to "Articles"
and "Sections" shall be to articles and sections of this Agreement unless
otherwise noted. The words "hereof," "herein," "hereby," "hereinafter,"
"heretofore," "hereunder" and words of similar import shall also refer to
material set forth in this Agreement as a whole and not to any particular
subdivision unless expressly so limited.
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<PAGE> 5
ARTICLE II
Capital Contributions, Cash Payments, Notes and Organizational Matters
Section 2.1 Formation of Mega Force; Directors. Prior to the Closing
Mega Force shall be formed as a duly organized corporation in good standing
under the laws of the State of Delaware; the members of its Board of Directors
shall be named in stockholder resolutions set forth on Exhibit 2.1 hereto.
Section 2.2 Contribution by MFSS Shareholders. Upon the terms and
subject to the conditions of this Agreement, on the Closing Date, the MFSS
Shareholders shall be deemed to transfer, convey, assign and deliver all of
their MFSS Shares to Mega Force as a contribution to the capital of Mega Force,
free and clear of any Encumbrance in a transaction intended to comply with the
provisions of Section 351 of the Code, as amended.
Section 2.3 Merger of Hamilton-Ryker and HRC; Contributions by the
Hamilton-Ryker Members; Contribution of Business to HRC. Upon the terms and
subject to the conditions of this Agreement and the Agreement and Plan of
Merger, on the Closing Date, the Hamilton-Ryker Members shall transfer, convey,
assign and deliver all of their Hamilton-Ryker Interests, free and clear of any
Encumbrance, to Mega Force and receive in exchange the Mega Force Equity set
forth in Section 2.4, hereof in a transaction intended to comply with the
provisions of Section 351 of the Code, as amended. On the Closing Date,
Hamilton-Ryker shall merge with and into Mega Force, with Mega Force being the
surviving entity, in accordance with the Members Consent and the Agreement and
Plan of Merger set forth on Exhibit 2.3. Also on the Closing Date, Mega Force
will contribute the assets, liabilities and business generally of the former
Hamilton-Ryker to HRC, Mega Force's wholly owned subsidiary.
Section 2.4 Issuance of Mega Force Equity. On the Closing Date, on the
basis of and in reliance upon the representations and warranties of the
respective parties set forth herein, and in exchange for the MFSS Shares and the
Hamilton-Ryker Interests, Mega Force shall issue and deliver Mega Force Equity
in the following amounts and to the following parties as set forth specifically
on Schedule 2.4 hereto:
(a) 398,376 shares Mega Force Class A Common Stock and 398,374
shares of Mega Force Class B Non-Voting Common Stock,
representing 20% of the fully diluted equity interests of Mega
Force, to the Hamilton-Ryker Members;
(b) 1,414,232 shares Mega Force Class A Common Stock and
1,414,230 shares of Mega Force Class B Non-Voting Common
Stock, representing 71% of the fully diluted equity interest
of Mega Force, to the MFSS Shareholders;
(c) Creditanstalt Warrants of 358,538 shares of Mega Force
Class A Common Stock or Mega Force Class B Non-Voting Common
Stock, representing 9.00% of the fully diluted equity interest
of Mega Force, to Creditanstalt, as set forth in the
Creditanstalt Warrant Agreement, of which (i) warrants for
258,944 shares of Mega Force Class A Common Stock or Mega
Force Class B Non-Voting Common Stock, representing 6.50% of
the fully diluted equity interest of Mega Force shall be
immediately exercisable and (ii) warrants for 99,594 shares of
Mega Force Class A Common Stock or Mega Force Class B
Non-Voting Common Stock, representing 2.50% of the fully
diluted equity interest of Mega Force shall become exercisable
only at such time as the aggregate amount of loans made to
Mega Force under the
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<PAGE> 6
Loan and Security Agreement of even date herewith among Mega
Force, the lenders party thereto and Creditanstalt-Bankverein
as agent (the "Loan Agreement") equals or exceeds $20,000,000;
and
(d) MFSS Springing Warrants for a total of 99,594 shares of
Mega Force Class A Common Stock, representing 2.50% of the
fully diluted equity interest of Mega Force to those MFSS
Shareholders so designated on Schedule 2.4 exercisable only if
all loans and other obligations outstanding under the Loan
Agreement are paid in full, whether by pre-payment or upon
maturity, and the Loan Agreement is terminated prior to the
time that the aggregate amount of the loans made to Mega Force
under the Loan Agreement equals or exceeds $20,000,000.
Section 2.5 No Anti-Dilution. The parties understand and agree that
there are no anti-dilution provisions relating to future rights or issuance of
stock except as expressly provided for holders of Creditanstalt Warrants.
Section 2.6 Certain Cash Payments. On the Closing Date, Mega Force
shall pay to the Hamilton-Ryker Members $2.25 million ($2,250,000) in cash (the
"Cash Payment").
Section 2.7 Notes. On the Closing Date, Mega Force shall issue to the
Hamilton-Ryker Members notes in the aggregate principal amount of One Million
Dollars ($1,000,000), in the form set forth on Exhibit 2.7 hereto (collectively,
the "Mega Force Notes" and individually, a "Mega Force Note"), with each of the
two Hamilton-Ryker Members receiving a Mega Force Note in the principal amount
of Five Hundred Thousand Dollars ($500,000). The Mega Force Notes shall be
subordinated to senior debt of Mega Force by operation of the Subordination
Agreement.
Section 2.8 Retirement and Assumption of Debt.
(a) Retirement and Assumption of Hamilton-Ryker Debt. As of
the Closing Date, Hamilton-Ryker Debt shall be $2,746,337.00.
Immediately following the Closing, this debt shall be retired
and assumed as follows: (1) Cash from the accounts of
Hamilton-Ryker of up to $1,622,504, and (2) the balance, not
to exceed $1,123,833, shall be assumed by Mega Force and
amended and restated as set forth in Exhibit 2.8 (the
"Hamilton-Ryker Notes", together with the Mega Force Notes
sometimes referred to as the "Notes"). The Hamilton-Ryker
Notes shall be subordinated to senior debt of Mega Force by
operation of the Subordination Agreement.
(b) Retirement of Bank of Sharon Note in the Amount of
$1,250,000. On the Closing Date, this debt shall be paid in
full by Mega Force from the proceeds of the Loan Transaction
of even date.
Section 2.9 Adjustments to Cash Payment and Notes. The amount of the
Cash Payment and the Notes may be adjusted as set forth in Section 7.4 hereof.
Section 2.10 Bylaws. On the Closing Date, the Bylaws shall be adopted
by Mega Force as its bylaws.
Section 2.11 Consent of Directors. On the Closing Date, the directors
of Mega Force named in its formative resolutions shall execute a Consent of
Directors in Lieu of Organizational Meeting of Directors, substantially in the
form attached hereto as Exhibit 2.11.
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<PAGE> 7
Section 2.12 Exchange of Certificates. On the Closing Date, each holder
of an outstanding certificate or certificates theretofore representing MFSS
Shares or Hamilton-Ryker Interests shall surrender the same to Mega Force and
shall receive in exchange a certificate representing the Mega Force shares to be
issued thereto pursuant to the terms hereof.
Section 2.13 MFSS Board of Directors, Bylaws and Officers. The members
of MFSS's Board of Directors shall be named in shareholder resolutions set forth
in Exhibit 2.13 hereto. MFSS's Amended and Restated Bylaws, set forth in Exhibit
2.13, shall be adopted by MFSS as its amended and restated bylaws. The directors
of MFSS named in the aforementioned shareholder resolution shall execute a
Consent of Directors, substantially in the form attached hereto as Exhibit 2.13.
Section 2.14 HRC Board of Directors, Bylaws and Officers. The members
of HRC's Board of Directors shall be named in shareholder resolutions set forth
in Exhibit 2.14 hereto. The HRC Bylaws shall be adopted by HRC as its bylaws.
The directors of HRC named in its formative resolutions shall execute a Consent
of Directors in Lieu of Organizational Meeting of Directors, substantially in
the form attached hereto as Exhibit 2.14.
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties of the MFSS Shareholders.
The MFSS Shareholders, jointly and severally, hereby represent and warrant to
Hamilton-Ryker and the Hamilton-Ryker Members the following:
(a) Capital Stock. All of the shares of capital stock of MFSS
are owned of record and beneficially by the MFSS Shareholders. Each
MFSS Shareholder has good title to the MFSS Shares, free and clear of
any Encumbrances. There are no agreements, outstanding rights of first
refusal, pre-emptive rights, options or other agreements providing for
purchase rights or other rights to receive any of the MFSS shares.
(b) No Conflicts; Approvals. Neither the execution, delivery
and performance of this Agreement by any MFSS Shareholder nor the
consummation of the transactions contemplated herein will (i) result in
any conflict with, breach of, or default (or give rise to any rights to
termination, cancellation or acceleration or loss of any right or
benefit) under or require any consent or approval which has not been
obtained with respect to any of the terms, conditions, or provisions of
any material contract or agreement to which any MFSS Shareholder is a
party, or (ii) violate any order, law, rule or regulation applicable to
the MFSS Shareholders. No action, consent or approval by, or filing by
the MFSS Shareholders with any federal, state, municipal, foreign or
other court or governmental body or agency, or any other regulatory
body, is required in connection with the execution, delivery or
performance by the MFSS Shareholders of this Agreement, including the
contribution of their MFSS Shares to Mega Force, except for any such
action, consent, approval or filing obtained prior to the date hereof
and except where the failure to obtain such action, consent, approval
or filing would have a material adverse effect on the transaction
contemplated herein.
(c) No Untrue or Inaccurate Representation or Warranty. No
representation or warranty by the MFSS Shareholders set forth herein
contains any untrue statement of a
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<PAGE> 8
material fact or omits to state a material fact necessary to make the
statements contained herein not misleading.
Section 3.2 Representations and Warranties of MFSS. MFSS hereby
represents and warrants to Hamilton-Ryker and the Hamilton-Ryker Members the
following:
(a) Organization, Authority and Capacity. MFSS is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of North Carolina and has the full power
and authority necessary to (i) execute, deliver and perform its
obligations under this Agreement, and (ii) carry on its business as it
has been and is now being conducted and to own and lease the properties
and assets which it now owns or leases. MFSS is duly qualified to do
business and is in good standing in each jurisdiction in which the
failure to be so qualified or in good standing would have a material
adverse effect on its business. MFSS has no Subsidiaries.
(b) Authorization and Validity. The execution, delivery and
performance of this Agreement by MFSS have been duly authorized by all
necessary action on the part of MFSS. This Agreement has been duly
executed and delivered by MFSS and constitutes the legal, valid and
binding obligation of MFSS, enforceable against MFSS in accordance with
its terms, except as such terms may be limited by bankruptcy,
insolvency, or other laws affecting creditors' rights generally, or as
such terms may be modified by a court of equity.
(c) Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance by MFSS of this Agreement: (i)
does not require the consent of or notice to any governmental or
regulatory authority or any other third party; (ii) will not conflict
with any provision of MFSS's articles of incorporation or bylaws; (iii)
will not conflict with or result in a violation of any law, ordinance,
regulation, ruling, judgment, order or injunction of any court or
governmental instrumentality to which MFSS is a party or by which MFSS
or any of its assets or properties are bound; (iv) will not conflict
with, constitute grounds for termination of, result in a breach of,
constitute a default under, require any notice under, or accelerate or
permit the acceleration of any performance required by the terms of any
agreement, instrument, license or permit to which MFSS is a party or by
which any of its assets or properties are bound; and (v) will not
create any Encumbrance or restriction upon any of the assets or
properties of MFSS.
(d) Governing Documents. True and correct copies of the
organizational documents and all amendments thereto of MFSS (certified
by the Secretary of State of the State of North Carolina) and copies of
the bylaws of MFSS have been provided to Hamilton-Ryker. Hamilton-Ryker
has previously been provided with access to MFSS's minutes, and such
minutes accurately reflect all proceedings of the shareholders and
board of directors of MFSS (and all committees thereof). The stock
record books of MFSS, which have been made available to Hamilton-Ryker
for review, contain true, complete and accurate records of the stock
ownership of MFSS.
(e) Outstanding and Authorized Capitalization. The authorized
capital stock of MFSS consists of 100,000 shares of common stock, of
which 50,000 shares of common stock are issued and outstanding and
owned beneficially and of record by the MFSS Shareholders as of the
date of this Agreement. All of the issued and outstanding shares of
capital stock of MFSS are duly and validly issued and outstanding and
are fully paid and nonassessable under the laws of the State of North
Carolina. None of the outstanding shares of capital stock of MFSS has
been issued in violation of any pre-emptive rights of the current or
past
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<PAGE> 9
shareholders of MFSS. Except as set forth in this Section 3.2(e), there
are no shares of capital stock or other equity securities of MFSS
outstanding and no outstanding rights relating to the capital stock of
MFSS.
(f) Financial Statements. Attached hereto as Schedule 3.2(f)
are the audited combined financial statements of MFSS (for the purposes
of this Section 3.2(f), MFSS shall also include its prior Affiliates)
for the year ended December 31, 1995 and quarterly unaudited combined
financial statements for MFSS's most recently ended quarterly period,
which reflect the results of the operations and financial condition of
MFSS for such periods and at such dates (collectively, the "MFSS
Financial Statements"). The MFSS Financial Statements have been
prepared in accordance with GAAP and present fairly in all material
respects the financial position of MFSS as of the dates indicated and
present fairly in all material respects the results of MFSS's
operations for the periods then ended, and are in accordance with the
books and records of MFSS, which have been properly maintained and are
complete and correct in all material respects.
Section 3.3 Representations and Warranties of the Hamilton-Ryker
Members. The Hamilton-Ryker Members, jointly and severally, hereby represent and
warrant to MFSS and MFSS Shareholders the following:
(a) Equity. All of the capital equity of Hamilton-Ryker is
owned of record and beneficially by the Hamilton-Ryker Members. Each
Hamilton-Ryker Member has good title to his respective share of the
Hamilton-Ryker Interests, free and clear of any Encumbrances. There are
no outstanding rights of first refusal, pre-emptive rights, options or
other agreements providing for purchase rights with respect to any of
the Hamilton-Ryker Interests.
(b) No Conflicts; Approvals. Neither the execution, delivery
and performance of this Agreement by any Hamilton-Ryker Member nor the
consummation of the transactions contemplated herein will (i) result in
any conflict with, breach of, or default (or give rise to any rights to
termination, cancellation or acceleration or loss of any right or
benefit) under or require any consent or approval which has not been
obtained with respect to any of the terms, conditions, or provisions of
any material contract or agreement to which any Hamilton-Ryker Member
is a party or (ii) violate any order, law, rule or regulation
applicable to the Hamilton-Ryker Members. No action, consent or
approval by, or filing by the Hamilton-Ryker Members with any federal,
state, municipal, foreign or other court or governmental body or
agency, or any other regulatory body, is required in connection with
the execution, delivery or performance by the Hamilton-Ryker Members of
this Agreement, including the contribution of their Hamilton-Ryker
Interests to Mega Force, except for any such action, consent, approval
or filing obtained prior to the date hereof and except where the
failure to obtain such action, consent, approval or filing would have a
material adverse effect on the transactions contemplated herein.
(c) No Untrue or Inaccurate Representation or Warranty. No
representation or warranty by the Hamilton-Ryker Members set forth
herein contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein
not misleading.
Section 3.4 Representations and Warranties of Hamilton-Ryker and
Affiliates. Hamilton-Ryker and its Affiliates hereby represent and warrant to
MFSS and the MFSS Shareholders the following; provided, that with respect to any
Hamilton-Ryker Affiliate, the representations and warranties shall also apply to
such Affiliates:
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(a) Organization, Authority and Capacity. Hamilton-Ryker is a
limited liability company or partnership duly organized, validly
existing, and in good standing under the laws of its state of
organization and has the full power and authority necessary to carry on
its business as it has been and is now being conducted and to own and
lease the properties and assets which it now owns or leases.
Hamilton-Ryker is duly qualified to do business and is in good standing
in each jurisdiction in which a failure to be so qualified or in good
standing would have a material adverse effect on its business.
(b) Authorization and Validity. The execution, delivery and
performance of this Agreement by Hamilton-Ryker have been duly
authorized by all necessary action on the part of Hamilton-Ryker. This
Agreement has been duly executed and delivered by Hamilton-Ryker and
constitutes the legal, valid and binding obligation of Hamilton-Ryker,
enforceable against Hamilton-Ryker in accordance with its terms, except
as may be limited by bankruptcy, insolvency, or other laws affecting
creditors' rights generally, or as may be modified by a court of
equity.
(c) Absence of Conflicting Agreements or Required Consents.
The execution, delivery and performance by Hamilton-Ryker of this
Agreement: (i) does not require the consent of or notice to any
governmental or regulatory authority or any other third party; (ii)
will not conflict with any provision of Hamilton-Ryker's organizational
or governing documents; (iii) will not conflict with or result in a
violation of any law, ordinance, regulation, ruling, judgment, order or
injunction of any court or governmental instrumentality to which
Hamilton-Ryker is a party or by which Hamilton-Ryker or any of its
assets or properties are bound; (iv) will not conflict with, constitute
grounds for termination of, result in a breach of, constitute a default
under, require any notice under, or accelerate or permit the
acceleration of any performance required by the terms of any agreement,
instrument, license or permit to which Hamilton-Ryker is a party or by
which any of its assets or properties are bound; and (v) will not
create any Encumbrance or restriction upon any of the assets or
properties of Hamilton-Ryker.
(d) Governing Documents. True and correct copies of the
organizational documents and all amendments thereto of Hamilton-Ryker
(certified by the Secretary of State of the State of Tennessee) and
copies of the bylaws or operating agreements of Hamilton-Ryker have
been provided to MFSS. MFSS has been provided previously with access to
Hamilton-Ryker's minutes, and such minutes accurately reflect all
proceedings of the members and directors or managers of Hamilton-Ryker
(and all committees thereof). The membership record books of
Hamilton-Ryker, which have been made available to MFSS for review,
contain true, complete and accurate records of the equity ownership of
Hamilton-Ryker.
(e) Outstanding and Authorized Capitalization. The authorized
equity of Hamilton-Ryker consists of membership interests, of which all
membership interests are owned beneficially and of record by the
Hamilton-Ryker Members as of the date of this Agreement. All of the
issued and outstanding equity interests of Hamilton-Ryker are duly and
validly issued and outstanding and are fully paid and nonassessable
under the laws of the State of Tennessee. None of the outstanding
equity interests of Hamilton-Ryker has been issued in violation of any
pre-emptive rights of the current or past members of Hamilton-Ryker.
Except as set forth in this Section 3.4(e), there are no shares of
equity securities of Hamilton-Ryker outstanding and no outstanding
rights relating to the equity interests of Hamilton-Ryker.
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(f) Financial Statements. Attached hereto as Schedule 3.4(f)
are the unaudited consolidated financial statements of Hamilton-Ryker
for the year ended December 31, 1995 and the six-month period ended
June 30, 1996, as well as quarterly unaudited consolidated financial
statements for Hamilton-Ryker's most recently ended quarterly period,
which reflect the results of operations and financial condition of
Hamilton-Ryker for such periods and at such dates (collectively, the
"Hamilton-Ryker Financial Statements"). The Hamilton-Ryker Financial
Statements have been prepared in accordance with GAAP on a consolidated
basis and present fairly in all material respects the financial
position of Hamilton-Ryker as of the dates indicated and present fairly
in all material respects the results of the operations of
Hamilton-Ryker for the periods then ended, and are in accordance with
the books and records of Hamilton-Ryker, which have been properly
maintained and are complete and correct in all material respects.
(g) Absence of Changes. Except as disclosed on Schedule
3.4(g), since December 31, 1995, Hamilton-Ryker has not:
(1) suffered any material adverse change in its
working capital, condition (financial or otherwise), assets,
liabilities, reserves, business or operations;
(2) paid, discharged or satisfied any material
liability other than in the ordinary course of business;
(3) written off as uncollectible any account
receivable other than in the ordinary course of business;
(4) compromised any debts, claims or rights or
disposed of any of its properties or assets other than in the
ordinary course of business;
(5) entered into any commitments or transactions not
in the ordinary course of business involving aggregate value
in excess of $100,000 or made aggregate capital expenditures
or commitments in excess of $100,000;
(6) made any material change in any method of
accounting or accounting practice;
(7) subjected any of its assets, tangible or
intangible, to any Encumbrance or restriction of any nature
whatsoever, except for liens for current property taxes not
yet due and payable;
(8) increased any salaries, wages or employee
benefits for any employee other than in the ordinary course of
business;
(9) hired, committed to hire or terminated any
employee other than in the ordinary course of business;
(10) declared, set aside or made (or became obligated
for) any payment, dividend or other distribution to any holder
of capital stock or purchased, redeemed or otherwise acquired,
directly or indirectly, (or
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<PAGE> 12
became obligated to purchase, redeem or otherwise acquire) any
of its capital stock;
(11) terminated or amended any material contract,
license or other instrument to which Hamilton-Ryker is a party
or suffered any loss or termination or threatened loss or
termination of any existing material contract, business
arrangement or supplier;
(12) effected any change in its capital structure; or
(13) agreed, whether in writing or otherwise, to take
any action described in this Section 3.4(g).
(h) No Undisclosed Liabilities. Except as listed on Schedule
3.4(h) hereto, or as otherwise disclosed herein or in the Schedules
hereto, Hamilton-Ryker has no liabilities or obligations, whether
accrued, absolute, contingent or otherwise, other than liabilities and
obligations reflected in the Hamilton-Ryker Financial Statements or
incurred in the ordinary course of its business since the date of
Hamilton-Ryker's most recent balance sheet included in the
Hamilton-Ryker Financial Statements.
(i) Litigation. Except as listed on Schedule 3.4(i) hereto,
(i) there are no claims, lawsuits, actions, arbitrations,
administrative or other proceedings pending against or affecting the
assets, properties or business of Hamilton-Ryker, and, to the knowledge
of Hamilton-Ryker, no such matter is threatened and there is no basis
for any such action, (ii) to the knowledge of Hamilton-Ryker, there are
no governmental or administrative investigations or inquiries pending
that involve Hamilton-Ryker, and (iii) there are no judgments against
or consent decrees binding on Hamilton-Ryker or any of their respective
assets.
(j) No Violation of Law. Except as set forth on Schedule
3.4(j) hereto, to the knowledge of Hamilton-Ryker, Hamilton-Ryker has
not been and is not now in violation of any applicable local, state or
federal law, ordinance, regulation, order, injunction or decree, or any
other requirement of any governmental body, agency or authority or
court binding on it, or relating to its property or business or its
advertising, sales or pricing practices, except for any such violations
as would not individually or in the aggregate have a material adverse
effect on Hamilton-Ryker, financial or otherwise.
(k) Real and Personal Property.
(1) Schedule 3.4(k)(1) sets forth a list of all items
of material personal and mixed, tangible and intangible,
property, rights and assets of Hamilton-Ryker. Except as set
forth on Schedule 3.4(k)(1), Hamilton-Ryker (i) has good and
valid title to all of the personal and mixed, tangible and
intangible, property, rights and assets which it purports to
own, including all the personal property and assets reflected
in the Hamilton-Ryker Financial Statements; and (ii) owns such
rights, assets and personal property free and clear of all
liens, encumbrances or restrictions of any nature whatsoever
(except for current year ad valorem taxes).
(2) Schedule 3.4(k)(2) contains a true and correct
description of all real property owned or leased by
Hamilton-Ryker, including all improvements located thereon.
Except as set forth on Schedule 3.4(k)(2),
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<PAGE> 13
Hamilton-Ryker has good and valid title to all real property
owned by it, free and clear of any liens, encumbrances or
restrictions of any nature whatsoever. MFSS has been furnished
with true, correct and complete copies of all leases, deeds,
easements and other documents and instruments concerning the
matters listed on Schedule 3.4(k)(2). No condemnation or
similar actions are currently in effect or pending against any
part of any real property owned or leased by Hamilton-Ryker
thereof and, to the best knowledge of Hamilton-Ryker, no such
action is threatened against any such real property. There are
no encroachments, leases, easements, covenants, restrictions,
reservations or other burdens of any nature which might impair
in any material respect the use of any owned or leased real
property in a manner consistent with past practices nor does
any part of any building structure or any other improvement
thereon encroach on any other property.
(3) To the knowledge of Hamilton-Ryker, the present
zoning, subdivision, building and other ordinances and
regulations applicable to any owned or leased real property
permit the continued operation, use, occupancy and enjoyment
of such real property consistent with past practices, and
Hamilton-Ryker is in compliance with, and has received no
notices of violations of, any applicable zoning, subdivision
or building regulation, ordinance or other law, regulation, or
requirement. Hamilton-Ryker has all rights and easements
necessary for public ingress thereto and egress therefrom and
for the provision of all utility services thereto, including
any required curb cut or street opening permits or licenses
for vehicular access over presently existing roads and
driveways.
(4) The assets (including all buildings and
improvements in connection therewith owned by Hamilton-Ryker)
of Hamilton-Ryker are in good operating condition and repair,
ordinary wear and tear excepted.
(5) Each piece of real property set forth on Schedule
3.4(k)(2) is, to the knowledge of Hamilton-Ryker, separately
assessed for real property tax assessment purposes and is not
combined with any other real property for such tax assessment
purposes. Schedule 3.4(k)(5) contains true, complete and
correct copies of the most recent tax bills for each piece of
real property set forth on Schedule 3.4(k)(2).
(6) Schedule 3.4(k)(6) contains a complete and
correct list of all trademarks, trade names, service marks,
service names, brand names, copyrights, technology rights and
licenses, know-how, software and patents, registrations
thereof and applications therefor, and any other intellectual
property used in the business of Hamilton-Ryker, together with
a complete list of all licenses granted by or to
Hamilton-Ryker with respect to any of the foregoing.
Hamilton-Ryker is not in receipt of any notice of any
violation of, and has no reason to believe that the operations
of Hamilton-Ryker are violating the rights of others with
respect to, any such matter, and Hamilton-Ryker has taken
reasonable measures to protect its rights with respect to any
such matters as are proprietary to it.
(l) Contracts and Commitments.
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<PAGE> 14
(1) Schedule 3.4(l) contains a complete and accurate
list of all contracts, agreements, commitments, instruments
and obligations (whether written or oral, contingent or
otherwise) of Hamilton-Ryker concerning the following matters
(collectively, the "Hamilton-Ryker Agreements"):
(i) the lease (as lessee or lessor) or
license (as licensee or licensor) of any real or
personal property (tangible or intangible);
(ii) the employment or engagement of any
officer, director, employee, consultant or agent;
(iii) any arrangement limiting the freedom
of Hamilton-Ryker to compete in any manner in any
line of business or requiring Hamilton-Ryker to share
profits;
(iv) any arrangement that could reasonably
be anticipated to have a material adverse effect on
Hamilton-Ryker, financial or otherwise;
(v) any arrangement not in the ordinary
course of business;
(vi) any power of attorney, whether limited
or general, granted by or to Hamilton-Ryker; and
(vii) any arrangement granting a member of
Hamilton-Ryker any rights which are not common to all
other members of Hamilton-Ryker; and
(viii) any other arrangement that requires
performance for a period of more than 90 days or that
requires payments in excess of $50,000.
(2) Hamilton-Ryker has delivered to MFSS true and
complete copies of all of the Hamilton-Ryker Agreements.
Except as indicated on Schedule 3.4(l) hereto, the
Hamilton-Ryker Agreements are valid and effective in
accordance with their respective terms, and there is not under
any of such Hamilton-Ryker Agreements (i) any existing or
claimed default by Hamilton-Ryker or any event which with
notice or lapse of time, or both, would constitute a default
by Hamilton-Ryker or (ii) to the knowledge of Hamilton-Ryker,
any existing or claimed default by any other party or event
which with notice or lapse of time, or both, would constitute
a default by any such party. Except as indicated on Schedule
3.4(l), the continuation, validity and effectiveness of the
Hamilton-Ryker Agreements will not be affected by the
transactions contemplated by this Agreement and the
transactions contemplated by this Agreement will not result in
a breach of or default under, or require the consent of any
other party to, any of the Hamilton-Ryker Agreements. There is
no actual or, to the knowledge of Hamilton-Ryker, threatened
termination, cancellation or limitation of any of the
Hamilton-Ryker Agreements. To the knowledge of Hamilton-Ryker,
there
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<PAGE> 15
is no pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any other party to the
Hamilton-Ryker Agreements.
(m) Employment and Labor Matters.
(1) Schedule 3.4(m)(1) sets forth (i) the number of
full-time and part-time employees of Hamilton-Ryker and (ii)
the name and compensation paid to each employee of or
consultant to Hamilton-Ryker who received salary, benefits and
bonuses for either of Hamilton-Ryker's most recently ended
fiscal years in excess of $50,000.
(2) Hamilton-Ryker is in compliance in all material
respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment,
wages and hours, occupational safety and health, including
laws concerning unfair labor practices within the meaning of
Section 8 of the National Labor Relations Act, as amended, and
the employment of non-residents under the Immigration Reform
and Control Act of 1986, as amended.
(3) Except as disclosed on Schedule 3.4(m)(3),
(i) there are no charges, governmental
audits, investigations, administrative proceedings or
complaints concerning employment practices of
Hamilton-Ryker pending or, to the knowledge of
Hamilton-Ryker, threatened before any federal, state
or local agency or court, and, to the knowledge of
Hamilton-Ryker, no basis for any such matter exists;
(ii) Hamilton-Ryker is not a party to any
union or collective bargaining agreement, and, to the
knowledge of Hamilton-Ryker, no union attempts to
organize the employees of Hamilton-Ryker have been
made, nor are any such attempts now threatened; and
(iii) Hamilton-Ryker has not experienced any
organized slowdown, work interruption, strike, or
work stoppage by its employees.
(n) Employee Benefit Matters. The Benefit Plans described in
Schedule 3.4(n) are the only Benefit Plans maintained by Hamilton-Ryker
for the benefit of its members, officers, directors, employees, former
employees, or independent contractors. Except as disclosed on Schedule
3.4(n), there are no contributions or payments due with respect to any
of the Benefit Plans of Hamilton-Ryker, nor will any such contributions
or payments be due or required to be paid on or prior to the Closing
Date. Each Benefit Plan of Hamilton-Ryker has been operated and
administered in compliance with the provisions of ERISA, and the
provisions of the Code applicable to it. No Benefit Plan of
Hamilton-Ryker or its ERISA Affiliates which is subject to the minimum
funding standards of ERISA or the Code, if any, has incurred any
accumulated funding deficiency within the meaning of ERISA or the Code.
All contributions with respect to a Benefit Plan of Hamilton-Ryker or
its ERISA Affiliates that is subject to Code Section 412 or ERISA
Section 302 have been timely made and there is
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<PAGE> 16
no lien or expected to be a lien under Code Section 412(n) or ERISA
Section 302(f) or tax under Code Section 4971. No Benefit Plan of
Hamilton-Ryker or its ERISA Affiliates has a "liquidity shortfall" as
defined in Code Section 412(m)(5). Neither Hamilton-Ryker nor its ERISA
Affiliates are subject to or can reasonably be expected to become
subject to a lien under Code Section 401(a)(29). No event has occurred
in connection with a Benefit Plan of Hamilton-Ryker or its ERISA
Affiliates that could result in liability to Hamilton-Ryker under Title
IV of ERISA. Hamilton-Ryker has not incurred any liability to the
Pension Benefit Guaranty Corporation in connection with any Benefit
Plan of Hamilton-Ryker or its ERISA Affiliates which is subject to
Title IV of ERISA, if any. The assets of each Benefit Plan of
Hamilton-Ryker or its ERISA Affiliates that is subject to Title IV of
ERISA, if any, are sufficient to provide all "benefit liabilities" (as
defined in ERISA Section 4001(a)(16)) under such Benefit Plan if such
Benefit Plan terminated, and are also sufficient to provide all other
benefits due under the Benefit Plan (including, but not limited to,
ancillary, disability, shutdown, early retirement and welfare
benefits). Neither Hamilton-Ryker nor its ERISA Affiliates have had an
"obligation to contribute" (as defined in ERISA Section 4212) to a
"multiemployer pension plan" (as defined in ERISA Sections 4001(a)(3)
and 3(37)(A)) at any time. No event which constitutes a reportable
event as defined in Section 4043 of ERISA has occurred or is continuing
with respect to any Benefit Plan covered by ERISA. No facts exist which
will result in a material increase in the premium costs of any Benefit
Plan for which benefits are insured or a material increase in benefit
costs of any Benefit Plan which provides self-insured benefits. No
"prohibited transaction" (as defined in ERISA Section 406 or Code
Section 4975) has occurred with respect to any Benefit Plan. None of
the Benefit Plans has any current or projected liability in respect of
post-employment or post-retirement health or medical or life insurance
benefits for former or retired employees of Hamilton-Ryker, except as
required to avoid excise taxes under Code Section 4980B. All Benefit
Plans subject to Code Section 4980B or Part 6 of Title I of ERISA have
been maintained in compliance with the requirements of Code Section
4980B and Part 6 of Title I of ERISA. There is no contract, agreement,
plan or arrangement covering any employee or former employee of
Hamilton-Ryker that could result in the payment of any amount that
would not be deductible under Code Sections 162(m) or 280G. As of the
Closing Date, Hamilton-Ryker will have no material liabilities under
any Benefit Plan that is not reflected in the Hamilton-Ryker Financial
Statements.
(o) Insurance Policies. Except as described on Schedule
3.4(o), all of the assets and business of Hamilton-Ryker is insured in
such amounts and against such losses, casualties or risks as are
customary for similar properties and businesses, and Hamilton-Ryker has
maintained such customary insurance continuously from the earlier of
(i) the date of its inception and (ii) the date of inception of any of
its predecessors. Schedule 3.4(o) sets forth a complete and accurate
list and description of all insurance policies in force naming
Hamilton-Ryker, or any employee thereof, as an insured or beneficiary
or as a loss payee or for which Hamilton-Ryker has paid or is obligated
to pay all or part of the premiums, including, without limitation, all
liability, fire, health and life insurance policies. All such policies
are in full force and effect and the premiums due thereon have been
timely paid. Hamilton-Ryker has not received notice of any pending or
threatened termination or premium increase (retroactive or otherwise)
with respect thereto, and, to the knowledge of Hamilton-Ryker,
Hamilton-Ryker is in compliance with all conditions contained therein.
Except as set forth on Schedule 3.4(o), there are no pending claims
against such insurance by Hamilton-Ryker as to which insurers are
defending under reservation of rights or have denied liability, and
except as set forth on Schedule 3.4(o), there exists no claim under
such insurance that has not been properly filed by Hamilton-Ryker. To
the knowledge of Hamilton-Ryker, there are no outstanding or
unfulfilled requirements or recommendations of any insurance company
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<PAGE> 17
insuring Hamilton-Ryker regarding any repairs to or work to be
performed with respect to the assets of Hamilton-Ryker. Hamilton-Ryker
has complied with any such requirements and recommendations as to which
Hamilton-Ryker has received notice. Schedule 3.4(o) contains a listing
of all claims made and loss histories in respect of any insurance
maintained by Hamilton-Ryker or any predecessor during the past three
(3) years. Schedule 3.4(o) contains also a listing by amount and
description of all current and pending workers' compensation reserves
and claims naming Hamilton-Ryker as employer.
(p) Environmental Matters. Except as set forth in Schedule
3.4(p), there are no present or past Environmental Conditions in any
way relating to the business, properties or assets of Hamilton-Ryker
and Hamilton-Ryker is currently operating its business in compliance
with all federal, state and local environmental laws.
(q) Accounts Receivable and Payable. To the knowledge of
Hamilton-Ryker, except as set forth on Schedule 3.4(q), the accounts
receivable of Hamilton-Ryker outstanding as of the Closing Date will be
subject to no defenses, counterclaims, or rights of setoff other than
those arising in the ordinary course of business and for which adequate
reserves have been established. Except as set forth on Schedule 3.4(q),
no undisputed accounts payable of Hamilton-Ryker are, at this date,
over 45 days old.
(r) Taxes.
(1) Except as listed in Schedule 3.4(r) or as
reflected in the Hamilton-Ryker Financial Statements, there
does not exist and will not after the Closing Date exist any
liability for taxes which may be asserted by any taxing
authority against, and no lien or other encumbrance for taxes
will attach to, Hamilton-Ryker or its respective assets other
than taxes due in respect of periods for which tax returns are
not yet due and for which adequate accruals have been made in
the Hamilton-Ryker Financial Statements. All federal, state
and local tax returns and tax reports required to be filed
prior to the date hereof with respect to Hamilton-Ryker have
been filed (other than returns for which extensions to file
have been granted) with the appropriate governmental agencies
in all jurisdictions in which such returns and reports are
required to be filed, all of which are true, correct and
complete, and all amounts shown as owing thereon have been
paid.
(2) Except as listed on Schedule 3.4(r),
Hamilton-Ryker has not received notice of any tax claims being
asserted or any proposed assessment by any taxing authority
and no tax returns of Hamilton-Ryker have been examined by the
IRS or the appropriate state agencies for any fiscal year or
period ended prior to the date hereof, and Hamilton-Ryker is
not presently under, nor has it received notice of any,
contemplated investigation or audit by the IRS or any state
agency concerning any fiscal year or period ended prior to the
date hereof. Except as listed on Schedule 3.4(r),
Hamilton-Ryker has not executed any extension or waivers of
any statute of limitations on the assessment or collection of
any tax due that is currently in effect.
(3) Hamilton-Ryker and any predecessors in interest
have withheld or collected from each payment made to each of
their employees the amount of all taxes required to be
withheld or collected therefrom and
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Hamilton-Ryker and any predecessors in interest have paid the
same to the proper tax depositories or collecting authorities.
(4) For purposes hereof, "taxes" shall mean any
federal, state, county, local, foreign or other tax, charge,
imposition or other levy (including interest or penalties
thereon) including, without limitation, income taxes,
estimated taxes, excise taxes, sales taxes, use taxes, gross
receipts taxes, franchise taxes, taxes on earnings and
profits, employment and payroll related taxes, property taxes,
real property transfer taxes, Federal Insurance Contributions
Act taxes, taxes on value added and import duties, whether or
not measured in whole or in part by net income, imposed by the
United States or any political subdivision thereof or by any
jurisdiction other than the United States or any political
subdivision thereof.
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(s) Licenses and Authorizations.
(1) Hamilton-Ryker is the holder of all valid
licenses and other rights and authorizations required by law,
ordinance, regulation or ruling of any governmental regulatory
authority necessary to operate its business. Set forth on
Schedule 3.4(s) is a correct and complete list of such
licenses, permits and other authorizations, complete and
correct copies of which have been provided to MFSS.
(2) To the knowledge of Hamilton-Ryker, no material
violation, default, order or deficiency exists with respect to
any of the items listed on Schedule 3.4(s). Hamilton-Ryker has
not received any notice of any action pending or recommended
by any state or federal agencies having jurisdiction over the
items listed on Schedule 3.4(s), either to revoke, withdraw or
suspend any license, right or authorization thereunder. To the
knowledge of Hamilton-Ryker, no event has occurred which, with
the giving of notice, the passage of time, or both, would
constitute grounds for a violation, order or deficiency with
respect to any of the items listed on Schedule 3.4(s) or to
revoke, withdraw or suspend any such license. Except as listed
on Schedule 3.4(s), no consent or approval of, prior filing
with or notice to, or any action by, any governmental body or
agency or any other third party is required in connection with
any such license, right or authorization by reason of the
consummation of the transactions contemplated by this
Agreement and the continued operation of the businesses of
Hamilton-Ryker thereafter on a basis consistent with past
practices.
(t) Inspections and Investigations. Except as set forth and
described in Schedule 3.4(t), (i) Hamilton-Ryker has not, during the
past three (3) years, been the subject of any inspection,
investigation, survey, audit, monitoring or other form of review by any
governmental regulatory entity, trade association, professional review
organization, accrediting organization or certifying agency for the
purpose of any alleged improper activity, nor has Hamilton-Ryker
received any notice of deficiency in connection with its operations,
(ii) there are not presently any outstanding deficiencies or work
orders of any governmental authority having jurisdiction over
Hamilton-Ryker, or other third party, requiring conformity to any
applicable agreement, statute, regulation, ordinance or bylaw,
including, but not limited to, the government and private programs, and
(iii) there is not any notice of any claim, requirement or demand of
any licensing or certifying agency or other third party supervising or
having authority over Hamilton-Ryker or its operations to rework or
redesign any part thereof or to provide additional furniture, fixtures,
equipment, appliances or inventory so as to conform to or comply with
any existing law, code, rule, regulation or standard. Copies of all
reports, correspondence, notices and other documents relating to any
matter described or referenced in Schedule 3.4(t) have been provided to
MFSS.
(u) Statements True and Correct. No representation or warranty
made herein by Hamilton-Ryker, nor in any statement, certificate or
instrument to be furnished to MFSS by Hamilton-Ryker pursuant to this
Agreement, contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make
the statements contained herein and therein not misleading.
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<PAGE> 20
(v) Subsidiaries and Predecessors. Except as set forth on
Schedule 3.4(v), Hamilton-Ryker has not owned and does not currently
own, directly or indirectly, of record, beneficially or equitably, any
capital stock or other equity, ownership or proprietary interest in any
corporation, partnership, limited liability company, association,
trust, joint venture or other entity. Set forth on Schedule 3.4(v) is a
listing of all predecessor companies of Hamilton-Ryker, including the
names of any entities from whom Hamilton-Ryker previously acquired
material assets, and any other entity of which Hamilton-Ryker has been
a subsidiary or division. Except as listed on Schedule 3.4(v),
Hamilton-Ryker has not sold or disposed of, by way of asset sale, stock
sale, spin-off or otherwise, any material assets or business of
Hamilton-Ryker.
ARTICLE IV
Covenants of the Parties
Section 4.1 Covenants of Hamilton-Ryker. Hamilton-Ryker hereby
covenants and agrees as follows:
(a) Access and Information. Prior to the Closing Date:
(1) Hamilton-Ryker shall give representatives of MFSS
reasonable access during normal business hours to each of the
offices in which the business operations of Hamilton-Ryker are
conducted, books, accounts and records and all other relevant
documents and will make available, and use its best efforts to
cause their independent auditors to make available, copies of
all such documents and information with respect to the
business and properties of Hamilton-Ryker as representatives
of MFSS may from time to time reasonably request, including,
without limitation, the working papers used to prepare the
Hamilton-Ryker Financial Statements and income tax returns
filed previously by or on behalf of Hamilton-Ryker, all in
such manner as not unduly to disrupt Hamilton-Ryker's normal
business activities. Hamilton-Ryker's accountants shall
prepare and deliver to MFSS an analysis of the Hamilton-Ryker
Financial Statements illustrating appropriate adjustments to
GAAP.
(2) Hamilton-Ryker shall confer on a regular and
frequent basis with one or more representatives of MFSS to
report material operational matters and to report the general
status of on-going operations of Hamilton-Ryker.
(3) Hamilton-Ryker shall notify MFSS of any material
adverse change in the financial position, earnings or business
of Hamilton-Ryker, of any unexpected emergency or other
unanticipated change in the business of Hamilton-Ryker, or of
any governmental complaints, investigations or hearings or
adjudicatory proceedings (or communications indicating that
the same may be contemplated), or of any other matter which
may be material to Hamilton-Ryker, or which would cause the
representations contained in Section 3.4 hereof not to be true
and correct, and shall keep MFSS fully informed of such events
and permit its representatives to participate in all
discussions relating thereto.
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(b) Conduct of Business. Prior to the Closing Date, except as
otherwise approved by MFSS or necessary to consummate the transactions
contemplated by this Agreement, Hamilton-Ryker shall conduct its
business only in the ordinary course thereof consistent with past
practice and in such a manner that the representations and warranties
contained in Section 3.4 hereof shall be true and correct at and as of
the Closing Date (except for changes contemplated, permitted or
required by this Agreement) and so that the conditions to be satisfied
by Hamilton-Ryker at the Closing Date shall have been satisfied.
Hamilton-Ryker shall, consistent with conducting its business in
accordance with reasonable business judgment, preserve its business
intact; and use its best and most diligent efforts to (i) preserve and
maintain the business organization and the personnel of its business,
(ii) keep available to Mega Force the services of its present
employees, (iii) preserve for Mega Force the goodwill of its customers
and all others having business relations with either Hamilton-Ryker,
and (iv) promptly pay or perform, in accordance with its current
policies and procedures, when due, all liabilities incurred prior to
the Closing Date.
(c) Unusual Events. Until the Closing Date, Hamilton-Ryker
shall supplement or amend all relevant Exhibits and Schedules with
respect to any matter thereafter 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 such Exhibits or Schedules.
(d) Departmental Violations. Hamilton-Ryker shall make all
reasonable attempts to comply with all notices of violations of law or
municipal ordinances, orders or requirements noted in or issued by
government agencies or departments having authority with respect to
buildings, fire, labor, health, or any other federal, state or
municipal department having jurisdiction against or affecting the
operations of Hamilton-Ryker, prior to the Closing Date unless
contesting the same in good faith. All such notices, after the date
hereof and prior to the Closing Date, shall be complied with by
Hamilton-Ryker, as applicable, prior to the Closing Date. Upon written
request, Hamilton-Ryker, as required, shall furnish MFSS with an
authorization to make the necessary searches for such notices.
(e) Prior Consent of MFSS. Between the date hereof and the
Closing Date, Hamilton-Ryker will not, without the prior written
consent of MFSS:
(1) make any change in its governing instruments;
(2) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of
any kind;
(3) declare or pay a dividend;
(4) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures
in excess of $5,000 in the aggregate, except for purchases of
inventory in accordance with past practices in the ordinary
course of business;
(5) increase the compensation payable or to become
payable to any officer, director, shareholder, employee or
independent contractor;
(6) create, assume or permit to exist any new
Encumbrance;
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(7) sell, assign, lease or otherwise transfer or
dispose of any of its property or assets, except in the
ordinary course of business consistent with past practices;
(8) negotiate for the acquisition of any business or
the start-up of any new business;
(9) merge or consolidate or agree to merge or
consolidate with or into any other entity;
(10) waive any of its material rights or claims;
(11) knowingly breach or permit a breach or amend or
terminate any material contract to which it is a party or by
which it is bound or any Permit;
(12) enter into any other transaction outside the
ordinary course of it's business or prohibited hereunder; or
(13) adopt, amend or terminate any Employee Benefit
Plan.
(f) Since June 30, 1996 and up to the Closing Date,
Hamilton-Ryker shall not have expended, or contracted to expend more
than $275,000 in aggregate capital expenditures.
(g) Exclusivity. Prior to the Closing Date, Hamilton-Ryker and
the Hamilton-Ryker Members affirm their covenant not to engage in
discussion with any other party concerning merger, sale or combination
of the Hamilton-Ryker business.
Section 4.2 Covenants of MFSS. MFSS hereby covenants and agrees as
follows:
(a) Access and Information. Prior to the Closing Date:
(1) MFSS thereof shall give representatives of
Hamilton-Ryker reasonable access during normal business hours
to each of the offices in which the business operations of
MFSS are conducted, books, accounts and records and all other
relevant documents and will make available, and use its best
efforts to cause its independent auditors to make available,
copies of all such documents and information with respect to
the business and properties of MFSS, as representatives of
Hamilton-Ryker may from time to time reasonably request,
including, without limitation, the working papers used to
prepare the MFSS Financial Statements and income tax returns
filed previously by or on behalf of MFSS, all in such manner
as not unduly to disrupt MFSS's normal business activities.
MFSS's accountants shall prepare and deliver to Hamilton-Ryker
an analysis of the MFSS Financial Statements illustrating
appropriate adjustments to GAAP.
(2) MFSS shall confer on a regular and frequent basis
with one or more representatives of Hamilton-Ryker to report
material operational matters and to report the general status
of on-going operations of MFSS.
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(3) MFSS shall notify Hamilton-Ryker of any material
adverse change in the financial position, earnings or business
of MFSS, and any unexpected emergency or other unanticipated
change in the business of MFSS, and of any governmental
complaints, investigations or hearings or adjudicatory
proceedings (or communications indicating that the same may be
contemplated), or of any other matter which may be material to
MFSS, or any Subsidiary thereof, or which would cause the
representations contained in Section 3.2 hereof not to be true
and correct and shall keep Hamilton-Ryker fully informed of
such events and permit its representatives to participate in
all discussions relating thereto.
(b) Conduct of Business. Prior to the Closing Date, except as
otherwise approved by Hamilton-Ryker or necessary to consummate the
transactions contemplated by this Agreement, MFSS shall conduct its
business only in the ordinary course thereof consistent with past
practice and in such a manner that the representations and warranties
contained in Section 3.2 hereof shall be true and correct at and as of
the Closing Date (except for changes contemplated, permitted or
required by this Agreement) and so that the conditions to be satisfied
by MFSS at the Closing Date shall have been satisfied. MFSS shall,
consistent with conducting its business in accordance with reasonable
business judgment, preserve its business intact; and use its best and
most diligent efforts to (i) preserve and maintain the business
organization and the personnel of its business, (ii) keep available to
Mega Force the services of its present employees, (iii) preserve for
Mega Force the goodwill of its customers and all others having business
relations with MFSS, and (iv) promptly pay or perform, in accordance
with its current policies and procedures, when due, all liabilities
incurred prior to the Closing Date.
(c) Unusual Events. Until the Closing Date, MFSS shall
supplement or amend all relevant Exhibits and Schedules with respect to
any matter thereafter 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 such Exhibits or Schedules.
(d) Departmental Violations. MFSS shall make all reasonable
attempts to comply with all notices of violations of law or municipal
ordinances, orders or requirements noted in or issued by government
agencies or departments having authority with respect to buildings,
fire, labor, health, or any other federal, state or municipal
department having jurisdiction against or affecting the operations of
MFSS or any Subsidiary thereof prior to the Closing Date unless
contesting the same in good faith. All such notices, after the date
hereof and prior to the Closing Date, shall be complied with by MFSS
prior to the Closing Date. Upon written request, MFSS shall furnish
Hamilton-Ryker with an authorization to make the necessary searches for
such notices.
(e) Prior Consent of Hamilton-Ryker. Prior to the Closing
Date, MFSS will not, without the prior written consent of
Hamilton-Ryker:
(1) make any change in its governing instruments;
(2) issue any securities, options, warrants, calls,
conversion rights or commitments relating to its securities of
any kind;
(3) declare or pay a dividend;
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(4) enter into any contract or commitment or incur or
agree to incur any liability or make any capital expenditures
in excess of $5,000 in the aggregate, except for purchases of
inventory in accordance with past practices in the ordinary
course of business;
(5) increase the compensation payable or to become
payable to any officer, director, shareholder, employee or
independent contractor;
(6) create, assume or permit to exist any new
Encumbrance;
(7) sell, assign, lease or otherwise transfer or
dispose of any of its property or assets, except in the
ordinary course of business consistent with past practices;
(8) negotiate for the acquisition of any business or
the start-up of any new business;
(9) merge or consolidate or agree to merge or
consolidate with or into any other entity;
(10) waive any of its material rights or claims;
(11) knowingly breach or permit a breach or amend or
terminate any material contract to which it is a party or by
which it is bound or any Permit;
(12) enter into any other transaction outside the
ordinary course of it's business or prohibited hereunder; or
(13) adopt, amend or terminate any Employee Benefit
Plan.
ARTICLE V
Conditions Precedent to Closing
Section 5.1 Conditions Precedent to Performance by the MFSS
Shareholders. All obligations hereunder of the MFSS Shareholders are subject to
the performance, at or prior to the Closing Date, of all covenants and
agreements contained herein which are to be performed by Hamilton-Ryker and each
of the Hamilton-Ryker Members at or prior to such Closing Date and to the
fulfillment at, or prior to, the Closing Date, of each of the following
conditions (unless expressly waived in writing by the MFSS Shareholders at any
time at or prior to the Closing Date):
(a) Representations and Warranties True. All of the
representations and warranties made by Hamilton-Ryker and each
Hamilton-Ryker Member herein shall be true as of the date of this
Agreement, shall be deemed to have been made again at and as of the
Closing Date, and shall be true at and as of the Closing Date in all
material respects and MFSS shall have been furnished with a certificate
of the President or any Vice President or managing member of
Hamilton-Ryker, dated the Closing Date, in his or her corporate
capacity, certifying to the truth of such representations and
warranties as of the Closing Date.
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(b) No Obstructive Proceeding. No action or proceedings shall
have been instituted against, and no order, decree or judgment of any
court, agency, commission or governmental authority shall be subsisting
against the MFSS Shareholders or the Hamilton-Ryker Members which seeks
to, or would, render it unlawful as of the Closing Date to effect the
transfer of the Hamilton-Ryker Interests and the MFSS Shares in
accordance with the terms hereof. Also, no substantive legal objection
to the transactions contemplated by this Agreement shall have been
received from or threatened by any governmental department or agency.
(c) Opinion of Hamilton-Ryker's Counsel. MFSS shall have
received on the Closing Date an opinion of legal counsel to
Hamilton-Ryker, dated the Closing Date, in form and substance
satisfactory to MFSS, to the effect set forth in Exhibit 5.1(c).
(d) Consents and Approvals. Any consents required from any
public or regulatory agency having jurisdiction shall have been
received, including termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, if applicable to the
contemplated transactions, and any consents required from third parties
to the transactions contemplated herein shall have been received.
(e) Proceedings and Documents Satisfactory. All proceedings in
connection with the transfer of the Hamilton-Ryker Interests and all
certificates and documents delivered to the parties pursuant to this
Agreement shall be satisfactory in form and substance to the parties
acting reasonably and in good faith.
(f) Execution of Employment Contracts. D. Crawford Gallimore
and T. Wayne McCreight shall each execute an Employment Contract with
Mega Force, in substantially the forms attached hereto as Exhibit
5.1(f), with annual cash compensation fixed at $150,000. Other
executive officers of Hamilton-Ryker whose names appear on Schedule
5.1(f) shall enter into employment and non-competition agreements with
Mega Force in a form substantially similar to Exhibit 5.1(f).
(g) No Adverse Change. From the date of this Agreement until
the Closing Date, the operations of Hamilton-Ryker shall have been
conducted in the ordinary course of business, consistent with past
practices, and from the date of the Hamilton-Ryker Financial Statements
until the Closing Date no event shall have occurred or have been
threatened which has or would have a material and adverse effect upon
the operations of Hamilton-Ryker and shall not have sustained any loss
or damage to its business, whether or not insured, or been the subject
of any activity that affects materially and adversely the value of its
assets, properties or operations.
(h) Financing. Mega Force shall have obtained commitments for
debt or equity financing for at least $25 million ($25,000,000) prior
to the Closing Date and be prepared to consummate the financing
transaction at Closing.
(i) Lock-Up Agreement. Mega Force and each of the
Hamilton-Ryker Members shall have entered into a Lock-Up Agreement in
the form of Exhibit 1.1(x).
(j) Delivery of Transfer Instruments. The instruments of
transfer and certificates described in Section 6.4 shall have been
properly executed and delivered to MFSS.
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(k) Incumbency Certificates. MFSS shall have received from
Hamilton-Ryker appropriate Incumbency Certificates, dated as of the
Closing Date, containing specimens of the signatures of the appropriate
officers of Hamilton-Ryker.
(l) Bring Down Certificate. MFSS shall have received a true
and complete and accurate list as of the Closing Date, showing (i) all
liabilities, obligations and contracts and agreements of Hamilton-Ryker
incurred or entered into since the date hereof, other than those
contracts, liabilities and obligations incurred or entered into in the
ordinary course of the operations of Hamilton-Ryker (excluding
liabilities resulting from or arising out of any claim for medical
malpractice or other tort liability), and (ii) all assets of
Hamilton-Ryker acquired since the date hereof other than those assets
acquired in the ordinary course of their operations.
(m) Registration Rights Agreement. Each of the Hamilton-Ryker
Members shall have entered into the Registration Rights Agreement in
the form of Exhibit 1.1(ff).
(n) Stockholders Agreement. Each of the Hamilton-Ryker Members
shall have entered into the Stockholders Agreement in the form of
Exhibit 1.1(hh).
(o) Trademark Assignment. The Hamilton-Ryker Company, Inc., a
Tennessee corporation, and the Hamilton-Ryker Members shall each
transfer and convey any and all right, title and interest in and to the
"Hamilton-Ryker" name to Mega Force. The Hamilton-Ryker Company, Inc.
shall have entered into Trademark Assignments in the form of Exhibit
5.1(o), which shall transfer and convey all right, title and interest
in and to the "Hamilton-Ryker" trademark and copyrights to Mega Force.
(p) Hamilton-Ryker and HRC Merger. Hamilton-Ryker and the
Hamilton-Ryker Members shall execute or cause to be entered the Members
Consent and the Agreement and Plan of Merger in the form of Exhibit
2.3. A Certificate of Merger shall be executed, filed and accepted in
the office of the Secretary of State of Tennessee and North Carolina
evidencing such merger.
Section 5.2 Conditions Precedent to Performance by the Hamilton-Ryker
Members. All obligations hereunder of the Hamilton-Ryker Members are subject to
the performance, at or prior to such Closing Date, of all covenants and
agreements contained herein which are to be performed by MFSS and each of the
MFSS Shareholders at or prior to the Closing Date and to the fulfillment at, or
prior to, the Closing Date, of each of the following conditions (unless
expressly waived in writing by the Hamilton-Ryker Members at any time at or
prior to such Closing Date):
(a) Representations and Warranties True. All of the
representations and warranties made by MFSS and each of the MFSS
Shareholders herein shall be true as of the date of this Agreement,
shall be deemed to have been made again at and as of the Closing Date,
and shall be true at and as of the Closing Date in all material
respects and the Hamilton-Ryker Members shall have been furnished with
appropriate certificates of the President or any Vice President, dated
the Closing Date, in his or her corporate capacity, certifying to the
truth of such representations and warranties as of the Closing Date.
(b) No Obstructive Proceeding. No action or proceedings shall
have been instituted against, and no order, decree or judgment of any
court, agency, commission or governmental authority shall be subsisting
against the MFSS Shareholders or the Hamilton-Ryker Members which seeks
to, or would, render it unlawful as of the Closing Date to effect
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the transfer of the MFSS Shares or the Hamilton-Ryker Interests in
accordance with the terms hereof, and no such action shall seek damages
in a material amount by reason of the transactions contemplated hereby.
Also, no substantive legal objection to the transactions contemplated
by this Agreement shall have been received from or threatened by any
governmental department or agency.
(c) Opinion of MFSS's Counsel. The Hamilton-Ryker Members
shall have received on the closing date an opinion of legal counsel to
MFSS, dated the Closing Date, in form and substance satisfactory to the
Hamilton-Ryker Members, to the effect set forth in Exhibit 5.2(c).
(d) Consents and Approvals. Any consents required from any
public or regulatory agency having jurisdiction shall have been
received, including termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, if applicable to the
contemplated transactions, and any consents required from third parties
to the transaction contemplated herein shall have been received.
(e) Proceedings and Documents Satisfactory. All proceedings in
connection with the transfers contemplated herein and all certificates
and documents delivered to the parties pursuant to this Agreement shall
be satisfactory in form and substance to the parties acting reasonably
and in good faith.
(f) Execution of Employment Contracts. H. Ronald Stone and
Jerry F. Stone shall each execute an Employment Contract with Mega
Force, in substantially the forms attached hereto as Exhibit 5.2(f).
(g) No Adverse Change. From the date of this Agreement until
the Closing Date, the operations of MFSS shall have been conducted in
the ordinary course of business, consistent with past practices, and
from the date of the MFSS Financial Statements until the Closing Date
no event shall have occurred or have been threatened which has or would
have a material and adverse effect upon the operations of MFSS and
shall not have sustained any loss or damage to its business, whether or
not insured, or been the subject of any activity that affects
materially and adversely the value of its assets, properties or
operations.
(h) Lock-Up Agreement. Mega Force and each of the MFSS
Shareholders shall have entered into a Lock-Up Agreement in the form of
Exhibit 1.1(x).
(i) Delivery of Transfer Instruments. The instruments of
transfer and certificates described in Section 6.2 hereof shall have
been properly executed and delivered to Hamilton-Ryker.
(j) Registration Rights Agreement. Each of the MFSS
Shareholders shall have entered into a Registration Rights Agreement in
the form of Exhibit 1.1(ff).
(k) Stockholders' Agreement. Each of the MFSS Shareholders
shall have entered into a Stockholders Agreement in the form of Exhibit
1.1(hh).
(l) Incumbency Certificates. Hamilton-Ryker shall have
received from MFSS appropriate Incumbency Certificates, dated as of the
Closing Date, containing specimens of the signatures of the appropriate
officers of MFSS.
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(m) Bring Down Certificate. Hamilton-Ryker shall have received
a true and complete and accurate list as of the Closing Date, showing
(i) all liabilities, obligations and contracts and agreements of MFSS
incurred or entered into since the date hereof, other than those
contracts, liabilities and obligations incurred or entered into in the
ordinary course of the operations of MFSS, (excluding liabilities
resulting from or arising out of any claim for medical malpractice or
other tort liability), and (ii) all assets of MFSS acquired since the
date hereof other than those assets acquired in the ordinary course of
their operations.
ARTICLE VI
Closing
Section 6.1 The Closing. The Closing shall take place at the offices of
Moore & Van Allen, PLLC in Raleigh, North Carolina or at such other place as may
be fixed by mutual consent of the MFSS Shareholders and the Hamilton-Ryker
Members.
Section 6.2 Closing Activities. At the Closing, each of the
Hamilton-Ryker Members and the MFSS Shareholders shall deliver or cause to be
delivered each of the respective items described in Section 6.3 hereof, and
shall execute such other documents, certificates and agreements as are
contemplated elsewhere herein.
Section 6.3 Closing Deliveries.
(a) Hamilton-Ryker Members. The Hamilton-Ryker Members shall
deliver the Hamilton-Ryker Interests to Mega Force in exchange for the
Mega Force Shares.
(b) MFSS Shareholders. The MFSS Shareholders shall deliver the
MFSS Shares to Mega Force in exchange for the Mega Force Shares.
(c) All Parties. Each of the parties hereto shall, as
appropriate, deliver or cause to be delivered the following:
(1) The certificates, dated as of the Closing Date,
referred to in Article V hereof;
(2) The executed agreements, contracts, certificates
and assignments referred to in Article V hereof;
(3) The opinions of legal counsels referred to in
Sections 5.1 and 5.2 hereof; and
(4) Such other instrument or instruments as shall be
necessary or appropriate to carry out and effect the purpose
and intent of this Agreement.
(d) Cash Payment; Notes. Mega Force shall deliver or cause to
have delivered to the Hamilton-Ryker Members the Cash Payment, the Mega
Force Notes and the Hamilton-Ryker Notes.
ARTICLE VII
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Certain Post Closing Covenants
Section 7.1 Full Cooperation. Each of the parties hereto shall
cooperate and take such action, including the execution of such other documents,
as may be necessary to fully consummate the transactions contemplated hereby,
and as may be reasonably requested in order to carry out the provisions and
purposes of this Agreement and the transactions contemplated herein.
Section 7.2 Tax Covenant. The parties hereto intend that the
contribution to the capital of Mega Force of the MFSS Shares and the
Hamilton-Ryker Interests will qualify as a transfer of assets pursuant to the
requirements of Section 351 of the Code, and that the transfer of assets from
Hamilton-Ryker to HRC shall constitute a contribution to capital in exchange for
capital stock by Mega Force, HRC's parent, also pursuant to the requirements of
Section 351 of the Code. Accordingly:
(a) Both prior to and after the Closing Date, all books and
records shall be maintained, and all federal income tax returns and
schedules thereto shall be filed in a manner consistent with the
contributions contemplated herein being qualified as transfers under
Section 351 of the Code. Each party shall provide to each other such
tax information, reports, returns, or schedules as may be reasonably
required to assist such party in accounting for and reporting such
contributions as so qualified.
(b) Notwithstanding anything herein to the contrary, no party
hereto shall have any obligation to indemnify and defend any other
party (or such party's shareholders, partners or members) with respect
to any tax, interest, penalties, loss, claims, damages, costs or
expenses (including all attorney fees and accounting fees relating to
audit, IRS appeals, and litigation, including judicial appeals
therefrom) incurred in connection with an assertion by the IRS that the
contributions to Mega Force or to HRC contemplated herein (or any one
of them) do (does) not qualify under Section 351 of the Code.
Section 7.3 Appointment of Ernst & Young. The Board of Directors of
Mega Force shall appoint Ernst & Young, LLP ("Ernst & Young") as auditors of
Mega Force.
Section 7.4 Post Closing Adjustments. The total consideration paid to
the Hamilton-Ryker Members shall be adjusted as set forth below.
(a) An increase to the Cash Payment, subject to any offset set
forth in (b) below, shall be made proportionately for any increase in
the net assets of Hamilton-Ryker as of February 28, 1997 from the
figure of $2,366,132.00 as of June 30, 1996. Net assets for the
purposes of this adjustment shall consist of Hamilton-Ryker's total
assets less Hamilton-Ryker's total liabilities (in both cases including
Affiliates) as determined by an audit of Hamilton-Ryker's financial
statements by Ernst & Young as of February 28, 1997 as required by Mega
Force or its senior lenders plus the Hamilton-Ryker Debt of
$2,746,337.00. In any event Hamilton-Ryker's financial statements will
be audited by Ernst & Young as of December 31, 1996 and any adjustments
will be reflected in the calculation of net assets as of February 28,
1997.
(b) Hamilton-Ryker's EBITDA for the twelve (12) months ending
as of February 28, 1997 shall be determined by an audit or review by
Ernst & Young ("Audited EBITDA"), as required by Mega Force or its
senior lenders. The sum of Audited EBITDA and Add Backs shall
constitute "Adjusted EBITDA." If Adjusted EBITDA is greater than or
equal to $1,600,000.00, then there shall be no adjustment under this
Section 7.4(b). If
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Adjusted EBITDA is less than $1,600,000, then the amount that Adjusted
EBITDA is less than $1,600,000.00 will be multiplied by 6.5 and said
product shall be deducted proportionately from the non-equity
consideration received by the Hamilton-Ryker Members as follows: (1)
from the Cash Payment made in accordance with subsection (a) above, in
the same proportion as the Cash Payment is to the sum of the Cash
Payment, the Mega Force Notes, and the Hamilton-Ryker Notes; and (2)
from the Mega Force Notes, in the same proportion as the Mega Force
Notes are to the sum of the Cash Payment, the Mega Force Notes, and the
Hamilton-Ryker Notes; and (3) from the Hamilton-Ryker Notes, in the
same proportion as the Hamilton-Ryker Notes are to the sum of the Cash
Payment, the Mega Force Notes, and the Hamilton-Ryker Notes.
(c) If the sum of net assets as of February 28, 1997 as
determined pursuant to (a) above is less than $2,366,132.00, then the
amount that said net assets is less than $2,366,132.00 shall be
deducted proportionately from the total consideration made to the
Hamilton-Ryker Members as follows: (1) from the Mega Force Notes, in
the same proportion as the Mega Force Notes are to the sum of the Mega
Force Notes and the Hamilton-Ryker Notes; and (2) from the
Hamilton-Ryker Notes, in the same proportion as the Hamilton-Ryker
Notes are to the sum of the Mega Force Notes and the Hamilton-Ryker
Notes.
Section 7.5 Career Management Acquisition. Mega Force or its
Subsidiaries shall retire or assume those Hamilton-Ryker Notes relating to the
acquisition of Career Management as specifically set forth on Schedule 7.5.
Section 7.6 Mechanics of Settlement. The post-closing adjustment shall
be determined no later than ten (10) working days following the issuance of the
Ernst & Young audit report of Hamilton-Ryker. The post-closing adjustment shall
be determined by determined by Ernst & Young as required by Mega Force or its
senior lender. Each party will have ten (10) working days to appeal to Ernst &
Young for changes in such audited figures.
(a) Ernst & Young may consider appeals for changes and using
its sole discretion either change or not change the findings of its
audit, all to be determined within ten (10) working days after
receiving any record of appeal.
(b) Subject to the process of appeal and reconsideration as
set forth above, the parties agree that the findings of Ernst & Young
shall be conclusive and final as to the post-closing adjustments set
forth in Section 7.4. The parties further agree to indemnify and hold
harmless Ernst & Young from any claims or damages arising from
conducting its audit or publishing its findings to the parties.
(c) Within five (5) days following the conclusion of any
appeal and reconsideration by Ernst & Young, Mega Force shall receive
from the Hamilton-Ryker Members a check or checks in total amount of
any decrease in the purchase price as reflected in the Cash Payment as
adjusted by operation of Section 7.4, and the Mega Force Notes and
Hamilton-Ryker Notes shall be amended and restated to reflect such
decrease. Should an increase in the purchase price be indicated by the
Ernst & Young audit, then five (5) days after the conclusion of any
appeal and reconsideration by Ernst & Young, Mega Force shall issue to
the Hamilton-Ryker Members a check or checks in total amount of any
increase in the purchase price as reflected in the Cash Payment and
adjusted by operation of Section 7.4, and the Mega Force Notes and
Hamilton-Ryker Notes shall be amended and restated to reflect such
increase.
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<PAGE> 31
Section 7.7 Use of Name. As of the Closing the Hamilton-Ryker Members
will cease and desist from using the name "Hamilton-Ryker", "The Hamilton-Ryker
Company, LLC" or "The Hamilton-Ryker Company, Inc." for any and all activities
and will cause any entity, corporation, or partnership under their control using
the Hamilton-Ryker name to have changed its name prior to or as of Closing.
ARTICLE VIII
Termination
Section 8.1 Optional Termination. This Agreement may be terminated and
the contribution of the MFSS Shares and the Hamilton-Ryker Interests abandoned
at any time prior to the Closing Date as follows:
(a) By the mutual consent of MFSS and Hamilton-Ryker;
(b) By MFSS if any representation or warranty of
Hamilton-Ryker or any Hamilton-Ryker Holder contained in this Agreement
or in any certificate or other document executed and delivered by
Hamilton-Ryker or the Hamilton-Ryker Members pursuant to this Agreement
is or becomes untrue or breached in any material respect or if
Hamilton-Ryker or any Hamilton-Ryker Member fails to comply in any
material respect with any covenant or agreement contained herein, and
any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within twenty (20) days after receipt of written
notice thereof;
(c) By Hamilton-Ryker if any representation or warranty of
MFSS or any MFSS Shareholder contained in this Agreement or in any
certificate or other document executed and delivered by MFSS or any
MFSS Shareholder pursuant to this Agreement is or becomes untrue or
breached in any material respect or if MFSS or any MFSS Shareholder
fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within twenty (20) days after
receipt of written notice thereof;
(d) By either Hamilton-Ryker or MFSS if any action, suit,
proceeding or claim before any court, governmental agency or other
entity has been instituted or threatened against Hamilton-Ryker or MFSS
which, if adversely determined, would have a material adverse effect on
the assets or business of Hamilton-Ryker or MFSS.
(e) By either Hamilton-Ryker or MFSS, following the failure of
any conditions precedent to Closing for the party seeking termination
as set forth in Article V hereof.
(f) In the event that the transactions referred to herein
shall not have closed by May 31, 1997 and (i) such failure to close
shall not be the fault of the Hamilton-Ryker Members, then the
Hamilton-Ryker Members shall have the option to terminate their
obligations hereunder, or (ii) such failure to close shall not be the
fault of the MFSS Shareholders, then the MFSS Shareholders shall have
the option to terminate their obligations hereunder.
Section 8.2 Effect of Termination. In the event this Agreement is
terminated pursuant to the provisions of this Article VIII:
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<PAGE> 32
(a) Then, (i) Hamilton-Ryker and MFSS shall deliver to the
other all documents previously delivered (and copies thereof in its
possession) concerning one another and the transactions contemplated
hereby and (ii) none of the parties nor any of their respective
shareholders, directors, officers, or agents shall have any liability
to the other party for costs, expenses, loss of anticipated profits,
consequential damages, or otherwise, except for any deliberate breach
or deliberate omission resulting in breach of any of the provisions of
this Agreement.
(b) After termination each party shall keep confidential all
information provided by the other parties pursuant to this Agreement
which is not in the public domain, and shall exercise the same care in
handling such information as it would exercise with similar information
of its own.
ARTICLE IX
Federal Securities Laws Restrictions
Section 9.1 Investment Representations. Each party hereto hereby
acknowledges that the Mega Force Shares to be delivered pursuant to the
provisions of this Agreement (i) have not been and will not be registered under
the '33 Act, or any state securities laws, and Mega Force is under no obligation
to so register such Mega Force Shares, (ii) must be held indefinitely unless the
same are subsequently registered or an exemption from such registration is
available, and (iii) have been acquired solely for the recipient's own account,
for investment purposes only and with no present intention of distributing,
selling or otherwise disposing of the Mega Force Shares in connection with a
distribution within the meaning of the '33 Act and the rules and regulations
thereunder.
Section 9.2 Compliance with Law. Each of the Hamilton-Ryker Members and
the MFSS Shareholders covenants, warrants and represents that none of the Mega
Force Shares to be issued to it pursuant to this Agreement will be offered,
sold, assigned, pledged, hypothecated, transferred or otherwise disposed of
except (i) pursuant to the provisions of a Lock-Up Agreement and (ii) after full
compliance with all of the applicable provisions of the '33 Act and the rules
and regulations of the Securities and Exchange Commission and applicable state
securities laws and regulations. All certificates evidencing the Mega Force
Shares shall bear the following legend (together with any other legends required
by the Lock-Up Agreement applicable state securities laws) for as long as Mega
Force deems it necessary:
"The shares represented hereby have not been registered under
the Securities Act of 1933, as amended (the "Act"), or the
securities laws of any state and may not be sold or otherwise
transferred unless in compliance with the Act and all other
applicable securities laws."
ARTICLE X
Indemnification
Section 10.1 Indemnification by Hamilton-Ryker and the Hamilton-Ryker
Members. Hamilton-Ryker and the Hamilton-Ryker Members each agree jointly and
severally to indemnify, defend and hold harmless MFSS and MFSS Shareholders and
their successors and assigns from, against and with respect to any and all
claims, liabilities, obligations, losses, damages, assessments, judgments, costs
or expenses (including,
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<PAGE> 33
without limitation, reasonable attorneys' fees and costs and expenses incurred
in investigating, preparing, defending against or prosecuting any litigation or
claim, action, suit, proceeding or demand), of any kind or character, arising
out of or in any manner incident, relating or attributable to: (i) any
inaccuracy in a representation or any breach of any warranty of Hamilton-Ryker
or the Hamilton-Ryker Members contained in this Agreement or in any certificate,
instrument of transfer or other instrument, document or agreement executed or
delivered by Hamilton-Ryker or the Hamilton-Ryker Members in connection with
this Agreement, or (ii) any failure by Hamilton-Ryker or the Hamilton-Ryker
Members to perform or observe, or to have performed or observed, in full, any
covenant, agreement or condition to be performed or observed by him or her under
this Agreement or under any certificate or other instrument, document or
agreement executed by him, her or it in connection with this Agreement.
Section 10.2 Indemnification by MFSS and the MFSS Shareholders. MFSS
and the MFSS Shareholders each agree to indemnify, defend and hold harmless
Hamilton-Ryker and the Hamilton-Ryker Members and their successors and assigns
from, against and with respect to any and all claims, liabilities, obligations,
losses, damages, assessments, judgments, costs or expenses (including, without
limitation, reasonable attorneys' fees and costs and expenses incurred in
investigating, preparing, defending against or prosecuting any litigation or
claim, action, suit, proceeding or demand), of any kind or character, arising
out of or in any manner incident, relating or attributable to: (i) any
inaccuracy in a representation or any breach of any warranty of MFSS or the MFSS
Shareholders contained in this Agreement or in any certificate, instrument of
transfer or other instrument, document or agreement executed or delivered by
MFSS or the MFSS Shareholders in connection with this Agreement, or (ii) any
failure by MFSS or the MFSS Shareholders to perform or observe, or to have
performed or observed, in full, any covenant, agreement or condition to be
performed or observed by MFSS or the MFSS Shareholders under this Agreement or
under any certificate or other instrument, document or agreement executed by it
in connection with this Agreement.
Section 10.3 Definitions. Any person or entity seeking indemnification
pursuant to this Article X is hereinafter referred to as an Indemnitee and any
person or entity against whom indemnification is sought is hereinafter referred
to as an Indemnitor.
Section 10.4 Procedures for Payment of Claims by Indemnitor(s). In the
event any Indemnitee(s) shall have any claim against any Indemnitor(s), whether
by reason of a third party action, suit or proceeding or by reason of any other
liability of the Indemnitor(s) for indemnification pursuant to this Article IX,
the Indemnitee(s) shall provide the Indemnitor(s) with written notice of the
claim which shall set forth the reasons why the Indemnitee(s) are liable for the
claim (the "Indemnification Notice"). If the claim involves any action, suit or
proceeding commenced by a third party, the Indemnification Notice shall be
accompanied by a copy of any complaint or other documents asserting the claim.
If all or any portion of the claim is contingent or if any portion of the amount
of the claim is unknown at the time the Indemnification Notice is given, the
Indemnification Notice shall be sufficient if it states the known amount of the
claim, if any, and indicates that the ultimate amount of the claim is unknown.
Within ten (10) days from the date the Indemnification Notice is given,
the Indemnitor(s) shall give the Indemnitee(s) written notice (the
"Responsibility Notice") as to whether the Indemnitor(s) agree the Indemnitor(s)
are liable pursuant to this Article X for all or any portion of the claim stated
in the Indemnification Notice.
Within thirty (30) days after the Indemnification Notice is given by
the Indemnitee(s), the Indemnitor(s) shall pay to the Indemnitee(s) any and all
amounts for which the Indemnitor(s) accepted liability pursuant to the
Responsibility Notice. If the Indemnitor(s) have acknowledged liability for a
contingent claim or a claim or liability of unknown amount, the Indemnitor(s)
shall pay the Indemnitee(s) for such claim within thirty (30) days after the
Indemnitee(s) give the Indemnitor(s) written reasonable evidence that the claim
or liability is no longer contingent or of the amount of the claim or liability.
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<PAGE> 34
Section 10.5 Procedures for Defense of Claims. If any claim or
liability is asserted or threatened, or any action, suit or proceeding is
commenced by any third party against any Indemnitee(s) that might result in any
liability being imposed on any Indemnitor(s) hereunder, the Indemnitee(s) shall,
within a reasonable time following the receipt of same, give an Indemnification
Notice to the Indemnitor(s) together with a copy of any complaint or other
documents asserting such claim. Within ten (10) days from the date the
Indemnification Notice is given, the Indemnitor(s) shall give the Indemnitee(s)
written notice as to whether the Indemnitor(s) elect to defend any such claim or
liability (the "Defense Notice"); provided, however, that during the interim,
the Indemnitee(s) shall be entitled to take reasonable action with respect to
such claim which the Indemnitee(s) deem necessary to protect against such
further damage or default with respect thereto. The Indemnitor(s) may not elect
to defend any claim or liability unless they also agree that the Indemnitor(s)
are liable to the Indemnitee(s) for such claim or liability pursuant to this
Article X.
If the Indemnitor(s) elect to defend any such claim or liability, such
defense shall be at the cost and expense of the Indemnitor(s) and using
professionals chosen by the Indemnitor(s), subject to the approval of the
Indemnitee(s), which approval shall not unreasonably be denied. In the event
that the Indemnitor(s) shall elect to defend any claim or liability pursuant to
this subparagraph, the Indemnitee(s) agree that (i) they will permit the
Indemnitor(s), their attorneys, accountants or other agents to have access to
all relevant properties, records and documents of the Indemnitee(s) and to
furnish to the Indemnitor(s) such financial, commercial, legal, operations and
other information as the Indemnitor(s) may reasonably request and as may be
related to the claim or liability being contested; (ii) they will cooperate to
permit the Indemnitor(s) to make any investigations which they may reasonably
request. If the Indemnitor(s) do not elect to defend any claim or liability, the
Indemnitor(s) shall nevertheless cooperate with the Indemnitee(s) to the same
extent the Indemnitee(s) would have been required to cooperate with the
Indemnitor(s) had the Indemnitor(s) elected to defend against the claim or
liability.
If the Indemnitor(s) elect to defend any claim or liability pursuant to
this paragraph, the Indemnitee(s) may participate in the defense of such claim
or liability that the Indemnitor(s) have elected to defend, but such
participation shall be at their own expense unless a conflict of interest exists
which makes such participation advisable; provided, however, that, if the
liability or claim is ultimately shown to have been caused by the Indemnitee(s)
and not the Indemnitor(s), such participation shall be at the expense of the
Indemnitee(s). A conflict of interest shall not be deemed to exist solely by
reason of the liability of the Indemnitor(s) pursuant to this Article X.
If the Indemnitor(s) elect to defend any claim or liability pursuant to
this paragraph, the Indemnitee(s) shall not settle or agree to settle any claim
or liability without the prior written consent of the Indemnitor(s), which shall
not unreasonably be withheld. In the event the Indemnitor(s) fail to consent to
the settlement of any claim or liability within ten (10) days after the written
request therefor by any Indemnitee(s), the Indemnitee(s) shall be entitled to
settle such claim or liability. In the event the Indemnitor(s) do not elect to
defend against any claim or liability, the Indemnitee(s) shall be entitled to
take such actions to defend against such claim or liability as the Indemnitee(s)
shall deem reasonable, including, without limitation, settlement of such claim
or liability without consent by Indemnitor(s). It is agreed that settlement of
any claim or liability shall not determine whether the Indemnitor(s) are liable
to the Indemnitee(s) pursuant to this Article X, which liability is to be
determined in accordance with the provisions of this Article X without regard to
the Indemnitee(s) right to settle as provided herein.
If as provided above, the Indemnitor(s) have no right to defend any
claim or liability, the Indemnitee(s) shall nevertheless provide the
Indemnitor(s) with reasonable amounts of information about the defense conducted
by the Indemnitee(s) and the Indemnitor(s) shall nevertheless cooperate with the
Indemnitee(s) to aid in the defense as provided herein.
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<PAGE> 35
ARTICLE XI
Notices
Section 11.1 In General. All notices, demands and other communications
required or permitted under this Agreement shall be sufficiently given if
delivered in person or mailed by certified mail, postage prepaid, return receipt
requested, if addressed as provided herein.
Section 11.2 Addresses.
(a) If to MFSS, address to:
Mega Force Staffing Services, Inc.
1001 Hay Street
P.O. Drawer 53449
Fayetteville, NC 28305-3449
Attention: Mr. Jerry Stone
with a copy to:
Moore & Van Allen, PLLC
One Hannover Square, Suite 1700
P.O. Box 26507
Raleigh, North Carolina 27611
Attention: John S. Russell, Esq.
(b) If to the Hamilton-Ryker Members, address to:
The Hamilton-Ryker Company, Inc.
947 East Main Street
P.O. Box 1068
Martin, TN 38237
Attention: Mr. Crawford Gallimore
with a copy to:
Glankler Brown
One Commerce Square, 17th Floor
Memphis, TN 38103
Attention: King Rogers, Esq.
Section 11.3 Changes to Address. Notwithstanding the foregoing, any
party hereto may change its address for notice purposes by designated such
changed address in writing and delivering a copy thereof to each of the other
parties hereto in the manner provided hereinabove.
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<PAGE> 36
ARTICLE XII
Miscellaneous Provisions
Section 12.1 Assignment. No party hereto shall have any right at any
time to assign this Agreement, or any rights, benefits, duties, or obligations
therein or thereunder, to any person or entity without the prior written consent
of each of the other parties hereto. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their permitted assigns.
Section 12.2 Amendments. This Agreement may be amended from time to
time by the written agreement of the parties hereto.
Section 12.3 Headings. The captions set forth in this Agreement are for
convenience only and shall not be considered as part of this Agreement or as in
any way limiting or amplifying the terms and provisions hereof.
Section 12.4 Governing Law. This Agreement shall in all respects be
interpreted, construed, and governed by and in accordance with the laws of the
State of North Carolina.
Section 12.5 Entire Agreement. This Agreement embodies all the
representations, warranties, covenants, and agreements of the parties in
relation to the subject matter hereof, and no representations, warranties,
covenants, understandings, or agreements, or otherwise, in relation thereto
exist between the parties except as expressly set forth herein.
Section 12.6 Complete Agreement. This Agreement and those other
documents expressly referred to herein embody the complete agreement and
understanding between the parties and supersede and preempt any prior
understandings, agreements, or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any way.
Section 12.7 Payment of Expenses. Each party hereto shall pay their own
expenses, including, without limitation, the disbursements and fees of their
respective attorneys, accountants, advisors, agents, and other representatives,
incidental to the preparation and carrying out of this Agreement, whether or not
the transaction contemplated hereby is consummated.
Section 12.8 Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original, and all of which taken
together constitute one and the same Agreement.
Section 12.9 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal, or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality, or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed, and enforced in such jurisdiction as if such invalid,
illegal, or unenforceable provision had never been contained herein.
Section 12.10 Survival. The indemnities, warranties and representations
made in this Agreement shall survive the Closing for a period of two (2) years
(except for tax indemnities, warranties and representations which shall survive
the Closing for a period of three (3) years), irrespective of any investigation
made by or on behalf of any party, and shall not be deemed merged in any
document or instrument executed or delivered at the Closing.
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<PAGE> 37
Section 12.11 Waiver. Any waiver of any provision hereof shall not be
effective unless made expressly and in a writing executed in the name of the
party sought to be charged. The failure of any party to insist, in any one or
more instances, on performance of any of the terms or conditions of this
Agreement shall not be construed as a waiver or relinquishment of any rights
granted hereunder or the future performance of any such term, covenant or
condition, but the obligations of the parties with respect thereto shall
continue in full force and effect.
[remainder of page intentionally left blank]
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<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MFSS: MEGA FORCE STAFFING SERVICES, INC.,
a North Carolina corporation
By: /s/ Jerry F. Stone
-----------------------------------------
Jerry F. Stone
President
THE MFSS SHAREHOLDERS: /s/ Jerry F. Stone
----------------------------------------------
Jerry F. Stone
/s/ H. Ronald Stone
----------------------------------------------
H. Ronald Stone
/s/ Hal H. Bibee
----------------------------------------------
Hal H. Bibee
CARMEN NICHOLE STONE TRUST
/s/ Jerry F. Stone
----------------------------------------------
By: Jerry F. Stone, Trustee
SARAH KATHERINE STONE TRUST
/s/ Jerry F. Stone
----------------------------------------------
By: Jerry F. Stone, Trustee
GINGER S. MCDONALD TRUST
/s/ Jerry F. Stone
----------------------------------------------
By: Jerry F. Stone, Trustee
HEATH SHEPHERD STONE TRUST
/s/ H. Ronald Stone
----------------------------------------------
By: H. Ronald Stone, Trustee
SARAH ASHLEY STONE TRUST
/s/ H. Ronald Stone
----------------------------------------------
By: H. Ronald Stone, Trustee
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<PAGE> 39
Hamilton-Ryker: THE HAMILTON-RYKER COMPANY, L.L.C.,
a Tennessee limited liability company
By:
-----------------------------------
T. Wayne McCreight, President
The Hamilton-Ryker Members:
-----------------------------------------
D. Crawford Gallimore
-----------------------------------------
T. Wayne McCreight
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<PAGE> 40
SCHEDULE 2.4
to the Business Combination Agreement
Mega Force Equity
2.4(a) THE HAMILTON-RYKER MEMBERS:
<TABLE>
<CAPTION>
Class A Class B
Common Shares Non-Voting Common
Shares
<S> <C> <C>
199,188 199,187 D. Crawford Gallimore
199,188 199,187 T. Wayne McCreight
------- -------
398,376 398,374
</TABLE>
2.4(b) THE MFSS SHAREHOLDERS:
<TABLE>
<CAPTION>
Class A Class B
Common Shares Non-Voting Common
Shares
<S> <C> <C>
858,156 858,156 H. Ronald Stone
386,369 386,369 Jerry F. Stone
98,997 98,995 Hal H. Bibee
14,142 14,142 Carmen Nichole Stone Trust
14,142 14,142 Sarah Katherine Stone Trust
14,142 14,142 Ginger S. McDonald Trust
14,142 14,142 Heath Shepherd Stone Trust
14,142 14,142 Sarah Ashley Stone Trust
------ ------
1,414,232 1,414,230
</TABLE>
2.4(c) CREDITANSTALT WARRANTS FOR CLASS A COMMON STOCK OR CLASS B NON-VOTING
COMMON STOCK:
<TABLE>
<S> <C>
(i) 258,944 immediately exercisable
(ii) exercisable only at such time as the aggregate amount
of loans made to Mega Force under the Loan and
99,594 Security Agreement equals or exceeds $20,000,000
-------
358,538
</TABLE>
2.4(d) MFSS SPRINGING WARRANTS FOR CLASS A COMMON STOCK OR CLASS B NON-VOTING
COMMON STOCK
<TABLE>
<S> <C>
68,675 H. Ronald Stone
30,919 Jerry F. Stone
99,594
</TABLE>
<PAGE> 1
Exhibit 2.03
STOCK PURCHASE AGREEMENT
Dated as of February 23, 1998
between
PURCHASER:
Corporate Staffing Resources, Inc.
AND
SELLERS:
Richard Niermann
Mary Ann Niermann
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of February ___, 1998
(this "Agreement"), is by and among Corporate Staffing Resources, Inc., a
Delaware corporation (the "Purchaser") and Richard Niermann and Mary Ann
Niermann (individually, a Seller and, collectively, the "Sellers").
RECITALS
A. The Purchaser desires to purchase from the Sellers, and the
Sellers desire to sell to Purchaser all of the issued and outstanding capital
stock of NPS Atlanta, Inc. and NPS Staffing Specialists, Inc, both Georgia
corporations (individually, a "Subject Company," and collectively, the "Subject
Companies") upon the terms and subject to the conditions contained herein (the
"Acquisition.
B. In connection with the Acquisition, the parties desire to
set forth certain agreements, representations, warranties and covenants made by
one or more parties to the other or others as an inducement to the consummation
of the Acquisition, upon the terms and subject to the conditions contained
herein.
C. In connection with the Acquisition, the Sellers are willing
to indemnify the Purchaser against certain losses and liabilities they may incur
as a result of the Acquisition, upon the terms and subject to the conditions
contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
1.1 Defined Terms. As used herein, the terms below shall have
the following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall have the meaning set forth in
Section 5.8.
"Acquisition" shall have the meaning set forth in recital (A)
to this Agreement.
"Advisors" shall have the meaning set forth in Section 7.1.
"Affiliate" shall have the meaning set forth in the Exchange
Act. Without limiting the foregoing, all directors and officers of a Person that
is a corporation and all managing members of
<PAGE> 3
a Person that is a limited liability company, shall be deemed Affiliates of such
Person for all purposes hereunder.
"Agreement" shall mean this Stock Purchase Agreement.
"Applicable Contract" shall mean any Contract (a) under which
any Subject Company has or may acquire any rights, (b) under which any Subject
Company has or may become subject to any obligation or liability, or (c) by
which any Subject Company or any of the assets owned or used by it is or may
become bound.
"Balance Sheet" shall have the meaning set forth in Section
5.4.
"Best Efforts" shall mean the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a Material
Adverse Change in the benefits to such Person of this Agreement and the
Transactions.
"Breach" shall mean and a breach of a representation,
warranty, covenant, obligation, or other provision of this Agreement or any
Transaction Documents will be deemed to have occurred if there is or has been
(a) any inaccuracy in or breach of, or any failure to perform or comply with,
such representation, warranty, covenant, obligation, or other provision, or (b)
any claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision.
"CERCLA" shall mean the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et. seq.,
as amended.
"Claim" shall have the meaning set forth in Section 10.2(d).
"Claim Notice" shall have the meaning set forth in Section
10.2(d).
"Cleanup" shall mean any investigation, cleanup, removal,
containment or other remediation or response actions.
"Closing" shall have the meaning set forth in Section 4.1.
"Closing Date" shall have the meaning set forth in Section 11.
l(d).
"Closing Payment" shall have the meaning set forth in Section
2.2(a).
"Confidential Information" shall have the meaning set forth in
Section 12.10(b).
2
<PAGE> 4
"Consent" shall mean any approval, consent, ratification,
waiver, or other authorization (including any Governmental Authorization).
"Consideration" shall have the meaning set forth in Section
2.2(b).
"Consulting Agreement" shall have the meaning set forth in
Section 4.3(b).
"Contingent Amounts" shall have the meaning set forth in
Section 2.2(b).
"Contingent Amount Payment Event" shall have the meaning set
forth in Section 2.2(b).
"Contract" shall mean any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding.
"Copyrights" shall have the meaning set forth in Section
5.20(a).
"Covenant Payment" shall have the meaning set forth in Section
3.1.
"Damages" shall have the meaning set forth in Section 10.2(a).
"Deferred Compensation Liability" shall mean the aggregate
amount owing by the Subject Companies to former employees, shareholders,
officers or directors of any of the Subject Companies which is payable on or
after the Closing Date and which has not been paid prior to the Closing Date.
"Disclosure Schedules" shall mean the schedules prepared and
delivered by the Sellers for and to the Purchaser and dated as of the date
hereof, which set forth the exceptions to the representations and warranties
contained herein and certain other information called for by this Agreement, and
all referenced attachments thereto. Unless otherwise specified, each reference
in this Agreement to any numbered schedule is a reference to that numbered
schedule which is included in the Disclosure Schedules.
"EBITDA" shall mean earnings before interest, taxes,
depreciation and amortization.
"Encumbrance" shall mean any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"Environment" shall mean soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins and wetlands),
3
<PAGE> 5
groundwater, drinking water supply, stream sediments, ambient air (including
indoor air), plant and animal life and any other environmental medium or natural
resource.
"Environmental. Health and Safety Liabilities" shall mean any
cost, damage, expense, Liability, obligation or other responsibility arising
from or under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial or inspection costs and expenses
arising under any Environmental Law or Occupational Safety and Health
Law;
(c) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any Cleanup required by applicable Environmental Law
or Occupational Safety and Health Law (whether or not such Cleanup has
been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative or
remedial measures required under any Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial" and "response action" include
the types of activities covered by CERCLA.
"Environmental Law" shall mean all federal, state, district,
local and foreign laws, all rules or regulations promulgated thereunder and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the Environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including without limitation
(i) laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, materials, wastes or other substances into
the Environment and (ii) laws relating to the identification, generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
recovery, transport or other handling of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances. Environmental Laws shall
include, without limitation, CERCLA, the Toxic Substances Control Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the
Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the
Occupational Safety and Health Act, as amended, the California Health & Safety
Code (Section 25100 et seq., 39000 et seq.) and the California Water Code
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<PAGE> 6
(Section 13000, et seq.) and all analogous laws promulgated or issued by any
state or other governmental authority.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA Affiliate" shall mean any other Person that, together
with the Target or any Subsidiary of Target, is or was required to be treated as
a single employer under IRC Section 414(b) or (c), and solely for the purposes
of potential liability under ERISA Section302(c)(ii) and IRC Section412(c)(ii)
and the lien created under ERISA Section302(f) and IRC Section412(n), under IRC
Section414(m) or (o).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
"Facilities" shall mean any real property, leaseholds or other
interests currently or formerly owned or operated by any Subject Company and any
buildings, plants, structures or equipment (including motor vehicles, tank cars
and rolling stock) currently or formerly owned or operated by any Subject
Company.
"Family" shall mean, with respect to any individual (i) the
individual, (i) the individual's spouse, (iii) any other natural Person who is
related to the individual or the individual's spouse within the second degree
and (iv) any other natural Person who resides with such individual.
"Financial Statements" shall have the meaning set forth in
Section 5.4(a).
"Fixed Amount" shall have the meaning set forth in Section
2.2(a).
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Authorization" shall mean any approval, Consent,
license, permit, waiver or other authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" shall mean any:
(a) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or
entity and any court or other tribunal);
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<PAGE> 7
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power of any nature.
"Gross Margin" shall mean the excess of (1) Gross Billings
during a business week over (ii) the sum of Wages and Direct Payroll Costs
payable with respect to that business week. "Gross Billings" shall mean the
amount billed for staffing employees to New Clients and for all New Business.
"Wages" shall mean the gross compensation payable to staffing employees for
services performed for New Clients and in connection with New Business. "Direct
Payroll Costs" shall mean the employer's share of federal social security taxes,
federal and state unemployment taxes and contributions, and worker's
compensation premiums, all with respect to Wages. "New Clients" shall mean
clients for whom the Subject Companies have not provided any staffing employees
since January 1, 1997 from any of the offices of the Subject Companies existing
on the Closing Date and whose business locations to which staffing employees are
assigned after the Closing Date are geographically closer to one of the New
Offices than to any of the offices of the Subject Companies existing on the
Closing Date. "New Business" shall mean staffing business (1) provided to client
business locations which are geographically closer to one of the New Offices
than to any of the existing offices of the Subject Companies, (2) which was not
provided from any of the existing offices of the Subject Companies to the client
business locations between January 1, 1997 and the Closing Date and (3) which is
provided pursuant to the authorization and approval of a client representative
who is not the same client representative (or successor thereof) who has
authorized or approved the providing of staffing employees by the Subject
Companies to the client prior to the Closing Date.
Staffing Business which is not New Business and not with New
Clients shall continue to be serviced from the existing office which currently
services the business for a period of not less than 12 months following the
Closing Date.
"Hazardous Activity" shall mean the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment or use
(including any withdrawal or other use of groundwater) of Hazardous Materials
in, on, under, about or from the Facilities or any part thereof into the
Environment and any other act, business, operation or thing that increases the
danger or risk of danger or poses an unreasonable risk of harm to Persons or
property on or off the Facilities or that may affect the value of the Facilities
or the Subject Companies.
"Hazardous Materials" shall mean any waste or other substance
that is listed, defined, designated or classified as, or otherwise determined to
be, hazardous, radioactive or toxic or a pollutant or a contaminant subject to
regulation, control or remediation under any Environmental Law (whether solids,
liquids or gases), including any mixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor, polychlorinated biphenyls and asbestos or asbestos-containing
materials.
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<PAGE> 8
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"Intellectual Property Assets" shall have the meaning set
forth in Section 5.20(a).
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, or any successor law
"IRS" shall mean the United States Internal Revenue Service or
any successor agency.
"Knowledge" shall mean and an individual will be deemed to
have "Knowledge" of a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Knowledge of the Sellers" or other similar phrases shall mean
the Knowledge of the Sellers and the actual knowledge of any other executive
officer of any Subject Company.
"Leases" shall have the meaning set forth in Section 4.3(b).
"Legal Requirement" shall mean any federal, state, local,
municipal, foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Liability" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, whether known, unknown, accrued,
absolute, contingent, matured or unmatured.
"Marks" shall have the meaning set forth in Section 5.20(a).
"Material Adverse Effect" or "Material Adverse Change" shall
mean any significant and substantial adverse effect or change (being in excess
of $10,000) in the condition (financial or other), business, results of
operations, liabilities or operations of any party, its business and/or assets
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<PAGE> 9
or on the ability of such party or its stockholders or shareholders, as the case
may be, to consummate the Transactions, or any event or condition which would,
with the passage of time, be reasonably expected to constitute a "Material
Adverse Effect" or "Material Adverse Change."
"Material Interest" shall mean direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of voting securities
or other voting interests representing at least 10% of the outstanding voting
power of a Person or equity securities or other equity interests representing at
least 10% of the outstanding equity securities or equity interests in a Person.
"Multiemployer Plan" shall have the meaning set forth in ERISA
Section3(37)(A).
"Net Debt" shall mean the excess of (a) all Liabilities of the
Subject Companies for borrowed money over (b) the sum of (i) cash and cash
equivalents of the Subject Companies and (ii) all receivables of the Subject
Companies by the Sellers, in each case as of the Closing Date.
"New Offices" shall have the meaning set forth in Section
2.2(b).
"Noncompetition Period" shall have the meaning set forth in
Section 3.4.
"Occupational Safety and Health Law" shall mean any Legal
Requirement designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful
working conditions.
"Order" shall mean any award, decision, injunction, judgment,
order, ruling, subpoena or verdict entered, issued, made or rendered by any
court, administrative agency or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" shall describe any action taken
by a Person if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority) and is not required to be authorized by
the parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
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<PAGE> 10
"Organizational Documents" shall mean (a) the articles or
certificate of incorporation, all certificates of determination and designation,
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate or articles of limited partnership of a limited partnership;
(d) the operating agreement, limited liability company agreement and the
certificate or articles of organization or formation of a limited liability
company; (e) any charter or similar document adopted or filed in connection with
the creation, formation or organization of a Person; and (f) any amendment to
any of the foregoing.
"Other Benefit Obligations" shall mean all obligations,
arrangements or customary practices, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, employees or agents, other than obligations,
arrangements and practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not depend upon the
amount of service rendered, sabbatical policies, severance payment policies and
fringe benefits within the meaning of IRC Section132.
"Patents" shall have the meaning set forth in Section 5.20(a).
"Pension Plan" shall have the meaning set forth in ERISA
3(2)(A).
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or Governmental Body.
"Plan" shall have the meaning set forth in ERISA Section3(3).
"Plan Sponsor" shall have the meaning set forth in ERISA
Section 3(16)(B).
"Post-Closing Partial Period" shall have the meaning set forth
in Section 10.3(b).
"Pre-Closing Partial Period" shall have the meaning set forth
in Section 10.3(a).
"Proceeding" shall mean any action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"Proposed Acquisition Transaction" shall have the meaning set
forth in Section 7.6.
"Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Indemnified Parties" shall have the meaning set
forth in Section 10.2(b).
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<PAGE> 11
"Qualified Plan" shall mean any Plan that meets or purports to
meet the requirements of IRC Section401(a).
"Related Person" shall mean with respect to a particular
individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
(f) any Related Person of any individual described in clause
(b) or (c).
"Release" shall mean any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping or other releasing into the
Environment, whether intentional or unintentional.
"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
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<PAGE> 12
"Seller Indemnified Party" shall have the meaning set forth in
Section 10.2(a).
"Sellers" shall have the meaning set forth in the first
paragraph of this Agreement.
"Sellers' Accountant" shall have the meaning set forth in
Section 2.3(a).
"Sellers' Closing Documents" shall have the meaning set forth
in Section 5.2(a).
"Staffing Services Business" shall have the meaning set forth
in Section 3.4.
"Stock" shall have the meaning set forth in Section 2.1(b).
"Straddle Period" shall have the meaning set forth in Section
10.3(b).
"Subject Companies" shall have the meaning set forth in the
first paragraph of this Agreement. "Subject Company" shall refer to any one of
the Subject Companies.
"Subsidiary" shall mean, with respect to any Person (for the
purposes of this definition, the "Owner"), any corporation or other Person of
which securities or other interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries .
"Tax" or "Taxes" shall mean any federal, state, local, foreign
or other tax, levy, impost, fee, assessment or other governmental charge,
including without limitation income, estimated income, gross receipts, business,
occupation, franchise, property, payroll, personal property, sales, transfer,
use, employment, commercial rent, occupancy, franchise or withholding taxes, and
any premium, including without limitation, interest, penalties and additions in
connection therewith.
"Tax Return" shall mean any return (including any information
return), report, statement, schedule, notice, form or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of, or compliance with, any Legal
Requirement relating to any Tax.
"Territory" shall have the meaning set forth in Section 3.4.
"Threat of Release" shall mean a substantial likelihood of a
Release that may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
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"Threatened" shall describe any claim, Proceeding, dispute,
action or other matter if (i) any demand or statement has been made (orally or
in writing) with respect to such claim, Proceeding, dispute, action or other
matter, (ii) any notice has been given (orally or in writing) with respect
thereto or (iii) any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action or other matter is likely to be asserted, commenced, taken or
otherwise pursued in the future.
"Threshold" shall have the meaning set forth in Section
10.2(d).
"Title IV Plans" shall mean all Pension Plans that are subject
to regulation under Title IV of ERISA, 29 U.S.C. Section1301 et seq., other than
Multiemployer Plans.
"Trade Secrets" shall have the meaning set forth in Section
5.20(a).
"Transaction Documents" shall mean this Agreement, the
Consulting Agreement, the Leases, and all instruments executed, filed or
otherwise prepared, exchanged or delivered in accordance with this Agreement.
"Transactions" shall mean the Acquisition and the other
transactions contemplated by the Transaction Documents.
"Welfare Plan" shall have the meaning given in ERISA
Section3(1).
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock.
(a) Upon the terms and subject to the conditions set forth
herein, on the Closing Date each of the Sellers shall sell, convey,
transfer, assign and deliver to the Purchaser, and the Purchaser shall
purchase from the Sellers, all of the outstanding shares of capital
stock of the Subject Companies (the "Stock"), which Stock is owned by
each of the Sellers in the amounts set forth next to the name of each
such Seller in Schedule 2.1.
2.2 Consideration. Upon the terms and subject to the
conditions set forth herein, in consideration for the transfer of the Stock
pursuant to Section 2.1 of this Agreement:
(a) On the Closing Date, the Purchaser shall pay to the
Sellers an aggregate of Six Million Sixty One Thousand Dollars
($6,061,000) in cash, less the sum of (i) Net Debt and (ii) Deferred
Compensation Liability (the "Closing Payment). The Closing Payment as
adjusted pursuant to Section 2.3 is referred to herein as the "Fixed
Amount, and together with the Contingent Amounts, collectively referred
to herein as the "Consideration."
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(b) On or before the times hereinafter set forth, the
Purchaser shall pay to the Sellers, the additional cash amounts
hereinafter described (the "Contingent Amounts"). Prior to the first
anniversary of the Closing Date, the Subject Companies shall open three
(3) additional staffing offices in Georgia at locations strategically
selected by the Sellers and approved by the Purchaser (Individually a
"New Office" and collectively the "New Offices"). Upon Sellers
selecting a New Office location, Sellers shall identify in writing to
the Purchaser the specific location and shall simultaneously tender the
proposed lease agreement for the New Office (the "New Office Lease").
The New Office location and the New Office Lease shall be deemed to be
accepted by the Purchaser unless Purchaser shall have delivered to
Sellers, within ten (10) days after receipt of the New Office location
and New Office Lease, a written notice stating its objection (and
reasons therefor) to the location and/or its objections and suggested
revisions to the New Office Lease. If the objections proposed by the
Purchaser are not agreed to by Sellers, then the Purchaser and Sellers
shall negotiate in good faith to resolve their disagreements and make
reasonably requested changes to the New Office Lease. However,
notwithstanding the above, the approval by the Purchaser of the New
Office location and of the New Office Lease Agreement shall not be
unreasonably withheld, and if (1) the identified location is not within
an unreasonably close proximity to a present office of the Subject
Companies, (2) the cost of leasing the New Office location pursuant to
the New Office Lease is within the parameters of the budget attached
hereto as Schedule 2.2(b) (the "Budget") and (3) the terms of the New
Office Lease are commercially reasonable and similar to other lease
agreements entered into by the Subject Companies with non-Affiliates
for their business offices and do not involve a lease term in excess of
three (3) years, Purchaser shall approve the location and cause one of
the Subject Companies to sign the New Office Lease. If, after a period
of ten (10) days following the date on which the Purchaser gives the
Sellers notice of its objections, the approval of the Purchaser has not
been provided in writing to Sellers, then the Sellers shall immediately
have the right, exercisable within ten (10) days thereafter, to submit
the matter to binding arbitration before the American Arbitration
Association pursuant to its rules for expedited arbitration. The
authority of the arbitrator shall be limited to a determination of
whether the Purchaser's refusal of approval was reasonable or
unreasonable under the forgoing provisions. If the arbitrator's award
is that the Purchaser's refusal was unreasonable, the one year period
for the opening of New Offices shall be extended for the period of time
between the filing of the demand for arbitration and the date of the
arbitrator's award. The Purchaser agrees to immediately make available
to the Subject Companies the appropriate funds and cause one of the
Subject Companies to execute the New Office Lease within five (5) days
of an arbitrator's award if in favor of the Sellers and shall
immediately afford Sellers access to the Subject Companies' employees
to implement the opening of the New Office if the expense of opening
the New Office (excluding any expenses associated with the arbitration)
remains within the parameters of the Budget.
Purchaser shall pay to the Sellers the following Contingent Amounts
upon the first occurrence of the following events (each, a "Contingent Amount
Payment Event");
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(i) Three Hundred Twenty Four Thousand Dollars
($324,000) if and when the New Offices have been opened and
actively conducting staffing business by soliciting New
Clients and assigning staffing employees to New Clients for
three (3) consecutive months; plus
(ii) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Twelve Thousand Dollars ($12,000) per week during
any consecutive 4-week period during the 12-month period after
the Closing Date (a "4-week period"); plus
(iii) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Fifteen Thousand Dollars ($15,000) during a 4-week
period; plus
(iv) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Eighteen Thousand Dollars ($18,000) during a 4-week
period; plus
(v) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Twenty Two Thousand Five Hundred Dollars ($22,500)
during a 4-week period; plus
(vi) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Twenty Seven Thousand Dollars ($27,000) during a
4-week period; plus
(vii) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Thirty-Two Thousand Dollars ($32,000) during a
4-week period; plus
(viii) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Thirty Five Thousand Dollars ($35,000) during a
4-week period; plus
(ix) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Forty Thousand Dollars ($40,000) during a 4-week
period; plus
(x) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Forty Five Thousand Dollars ($45,000) during a
4-week period; plus
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(xi) Two Hundred Thousand Dollars ($200,000) if and
when the New Offices achieve in aggregate an average Gross
Margin of Fifty Thousand Dollars ($50,000) during a 4-week
period.
Each Contingent Amount shall be payable in cash within thirty
(30) days after the end of the month in which the applicable Contingent
Amount Payment Event occurs ("Due Date") provided, however, that each
Contingent Amount payable with respect to a Contingent Amount Payment
Event that occurs after the three New Offices have accumulated a
deficit (computed in a manner specifically identified in the Budget) in
excess of $178,500 ("Excess Deficit"), shall be reduced by the amount
of Excess Deficit not previously deducted from payments of Contingent
Amounts. For the purpose of this section, the parties acknowledge that
the Budget contains an operating budget for a single New Office and for
all three New Offices and a capital budget for the single New Office
and for all three New Offices. The parties understand and agree that
the Purchaser hereby approves and authorizes the capital expenditures
identified in the capital budget for each single New Office and for the
three New Offices and the operating expenditures contained in the
operating budget for each single New Office and the three New Offices.
Therefore, the parties agree that any of the New Offices may be opened
and Purchaser shall cause the appropriate Subject Company to expend the
funds in accordance with the capital budget and operating budget
identified within the Budget and that the Excess Deficit, if any, shall
be determined by comparing the actual operating deficit incurred
(computed in the same manner identified in the Budget) to the sum of
$178,500. The parties acknowledge that the Excess Deficit adjustment
shall not apply to the payment of the $324,000 identified in subsection
2.2(b) (i) above. Further, the parties agree that if the Excess Deficit
is eliminated and subsequently reduced below $178,500, such Excess
Deficit reversal shall be paid to Sellers in a manner consistent with
the payment of Contingent Amounts pursuant to this section to the
extent of earlier reductions for Excess Deficits.
In addition, if one or more, but less than all, of the
Contingent Amount Payment Events occur on or before the first
anniversary of the Closing Date, the Purchaser shall pay to the Sellers
a prorata portion of the Contingent Amount that would have been paid if
the next Contingent Amount Payment Event had occurred. The prorata
amount shall be a fraction of the Contingent Amount, the numerator of
which is the excess of the aggregate average Gross Margin for the
highest 4-week period over the aggregate average Gross Margin for the
last occurred Contingent Amount Payment Event and the denominator of
which is the Gross Margin difference between the last occurred
Contingent Amount Payment Event and the next following Contingent
Amount Payment Event. (For purposes of illustration, if the aggregate
average Gross Margin for the highest 4-week period is more than $32,000
and less than $35,000, the Sellers will be entitled to a prorata
portion of the $200,000 Contingent Amount for the $35,000 Gross Margin
payment event, the numerator of which would be the Gross Margin excess
over $32,000 for the highest 4-week period and the denominator of which
would be $3,000.)
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(c) Within fifteen (15) days after each month end following
the opening of the first New Office, the Purchaser shall deliver to the
Sellers a written report setting forth the Purchaser's computation of
the Gross Margin of each of the New Offices for each weekly period
ending in the month and the aggregate Excess Deficit of the New Offices
to date. The Sellers will be entitled to access during normal business
hours to the relevant records and documents of the Subject Companies to
aid in their review of the Gross Margin and Excess Deficit computations
for the New Offices. Each report shall be deemed to be accepted by and
shall be conclusive for purposes of determining the Gross Margin of the
New Offices for each week included in a report and the Excess Deficit
to date except to the extent, if any, that the Sellers shall have
delivered to the Purchaser, within fifteen (15) days after the date on
which the report is delivered to the Sellers, a written notice to the
Purchaser stating in detail the Sellers' exceptions and the Sellers'
computations of Gross Margin and Excess Deficit, if any. If a change
proposed by the Sellers is disputed by the Purchaser, then the
Purchaser and the Sellers will negotiate in good faith to resolve the
dispute. If, after a period of twenty (20) days following the date on
which the Sellers give the Purchaser notice of any such proposed
change, any such proposed change still remains disputed, then the
Purchaser and the Sellers shall together choose an independent firm of
public accountants of regional or national standing (the "Accounting
Firm") to resolve any remaining disputes. The Accounting Firm shall act
as an arbitrator to determine, based solely on presentations by the
Purchaser and the Sellers, and not by independent review, only those
issues still in dispute. The decision of the Accounting Firm shall be
final and binding and shall be in accordance with the terms of this
Section 2.2. All of the fees and expenses of the Accounting Firm, if
any, shall be paid by the Purchaser and the Sellers in the proportion
that the Contingent Amount determined by the Accounting Firm bears to
the Contingent Amount proposals submitted by the parties to the
Accounting Firm; provided, however, that if the Accounting Firm
determines that either party's position is totally correct, then the
other party shall pay all of the fees and expenses of the Accounting
Firm.
(d) Any Contingent Amount not paid on or before its Due Date
shall be payable with interest at the rate of ten percent (10%) per
annum accruing from the Due Date to the date of payment.
(e) On the Closing Date, the Purchaser shall deliver to the
Sellers the Closing Payment in cash by wire transfer of immediately
available funds to the respective bank accounts designated by the
Sellers in a writing delivered to the Purchaser not less than two (2)
business days prior to the Closing. On or before the due date for
payment of each Contingent Amount, the Purchaser shall deliver to the
Sellers the Contingent Amount in cash by wire transfer of immediately
available funds to the bank account designated by the Sellers or their
legal counsel identified in Section 12.2.
2.3 Post-Closing Adjustment
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(a) As promptly as practicable after the Closing Date (but in
no event more than sixty (60) days after the Closing Date), the Sellers
shall cause Brooks, Holmes, Williams & Cook LLC (the "Sellers'
Accountant") to prepare and deliver to the Purchasers a compiled
combined balance sheet of the Subject Companies as of the close of
business on the day immediately preceding the Closing Date (the
"Closing Balance Sheet"). The Closing Balance Sheet will be prepared in
accordance with GAAP, applied on a basis consistent with the Balance
Sheet. Sellers' Accountant will be entitled to reasonable access during
normal business hours to the relevant records and working papers of the
Subject Companies and its personnel, including Noel Johnson, to aid in
its preparation of the Closing Balance Sheet. The Sellers will be
solely responsible for all costs of the Sellers' Accountant. The
Closing Balance Sheet shall be deemed to be accepted by and shall be
conclusive for the purposes of the adjustment described in Sections
2.3(b) hereof with respect to the Subject Companies except to the
extent, if any, that the Purchaser shall have delivered, within thirty
(30) days after the date on which the Closing Balance Sheet is
delivered to the Purchaser, a written notice to the Seller stating each
and every item to which the Purchaser takes exception as not being in
accordance with GAAP applied on a basis consistent with the Balance
Sheet or as having computational errors, specifying in reasonable
detail the nature and extent of any such exception (it being understood
that any amounts not disputed shall be paid promptly). If a change
proposed by the Purchaser is disputed by the Sellers then the Purchaser
and the Sellers shall negotiate in good faith to resolve such dispute.
If, after a period of twenty (20) days following the date on which the
Purchaser gives the Sellers notice of any such proposed change, any
such proposed change still remains disputed, then the Purchaser and the
Sellers shall together choose an independent firm of public accountants
of nationally recognized standing (the "Accounting Firm") to resolve
any remaining disputes. The Accounting Firm shall act as an arbitrator
to determine, based solely on presentations by the Sellers and the
Purchaser and not by independent review, only those issues still in
dispute. The decision of the Accounting Firm shall be final and binding
and shall be in accordance with the provisions of this Section 2.3(a).
All of the fees and expenses of the Accounting Firm, if any, shall be
paid by the Purchaser and the Sellers in the proportions that the
Accounting Firm's determination of Shareholders' Equity Deficiency
bears to the Shareholders' Equity Deficiency proposals submitted by the
parties to the Accounting Firm; provided, however, that, if the
Accounting Firm determines that either party's position is totally
correct, then the other party shall pay one hundred percent (100%) of
the costs and expenses incurred by the Accounting Firm in connection
with any such determination.
(b) If a Closing Balance Sheet prepared as provided in Section
2.3(a) is not delivered to the Purchaser within sixty (60) days after
the Closing Date, then the Closing Balance Sheet shall mean the Closing
Balance Sheet prepared by the Purchaser (rather than the Sellers'
Accountant) in accordance with GAAP, applied on a basis consistent with
the Balance Sheet and submitted to the Sellers within 120 days after
the Closing, which Closing Balance Sheet shall be conclusive and
binding on the Sellers and the Purchaser is the determination of the
amount, if any, of the Shareholders' Equity Deficiency.
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(c) In the event that there is a Shareholders' Equity
Deficiency (as defined below) of Twenty Thousand Dollars ($20,000) or
more, the Sellers shall pay to the Purchaser, as an adjustment to the
consideration, an amount equal to the entire Shareholders' Equity
Deficiency. Any payments required to be made by the Sellers pursuant to
this Section 3.1(b) shall be made within ten (10) days of the Closing
Financial Statements Delivery Date (as defined below) by wire transfer
of immediately available funds to an account designated by the
Purchaser.
(d) The term "Shareholders Equity Deficiency" shall mean with
respect to the Subject Companies (i) the amount, if any, by which the
Shareholders' Equity is less than Five Hundred Eighty-One Thousand Four
Hundred Eighty-Nine Dollars ($581,489).
(e) The term Shareholders' Equity" shall mean, with respect to
the Subject Companies, the amount by which the total assets of the
Subject Companies exceeds the total liabilities of the Subject
Companies, in each case as set forth on the Closing Balance Sheet;
provided, however, that if any change to the Closing Balance Sheet is
agreed to by the Purchaser and the Sellers in accordance with Section
2.3(a), or any dispute between the Purchaser and the Sellers with
respect to the Closing Balance Sheet is resolved in accordance with
Section 2.3(a), then "Shareholders' Equity" shall be calculated after
giving effect to any such change or resolution.
(f) All payments required to be made pursuant to this Section
2.3 shall be paid with interest thereon at the rate of ten percent
(10%) per annum and accruing from the Closing Date to the date of
payment.
2.4 Allocation of Consideration. The Consideration shall be allocated
among the Sellers as set forth in Schedule 2.4 hereto. The Consideration shall
also be allocated between the Stock of each of the Subject Companies as set
forth in Schedule 2.4 hereto.
ARTICLE III
SELLERS' AGREEMENTS RESPECTING
POST-CLOSING COMPETITION
3.1 Reasons For Agreements. The Purchaser is making a
substantial investment pursuant to this Agreement in reliance upon the fact that
the knowledge and expertise developed by the Sellers in their management of the
business and affairs of the Subject Companies will be preserved and will not be
used in competition with the Purchaser, the Subject Companies or their
Affiliates. It is necessary for the protection of the Purchaser, the Subject
Companies and their Affiliates that the Sellers provide the agreements and
assurances set forth in this Article III and the Sellers do so in consideration
of the additional payment by the Purchaser to each of the Sellers of Fifty
Thousand Dollars ($50,000) (the "Covenant Payment").
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3.2 The Sellers' Agreements. The Sellers individually and
collectively agree that none of the Sellers will, directly or indirectly, except
for the benefit of the Purchaser or its Affiliates, or with the consent of the
Purchaser, which consent may be granted or withheld at the Purchaser's sole
discretion:
(a) during the Noncompetition Period (as defined in Section
3.4 thereof), become a stockholder, partner, member, manager,
associate, employee, owner, agent, creditor, independent contractor,
co-venturer, a consultant or otherwise, or encourage, counsel, advise
or financially assist or support a spouse of a Seller or any other
member of the immediate family that resides with him to be or become,
or a Seller to himself be, or be interested in or associated with any
other Person, firm or business engaged in the Staffing Services
Business in the Territory (as defined in Section 3.4 hereof), or in any
Staffing Services Business directly competitive with that of the
Purchaser or its Affiliates, as then constituted, or himself engage in
such business; provided, however, that nothing herein shall be
construed to prohibit owning not more than five percent (5%) of any
class of securities issued by an entity in the Staffing Services
Business which is subject to the reporting requirements of the Exchange
Act or traded in the over-the-counter market; or
(b) during the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be solicited
for or on behalf of such Seller or third parties, from parties who were
customers of the Subject Companies or of Purchaser or its Affiliates,
any Staffing Services Business transacted by or with such customer by
the Subject Companies or by the Purchaser or its Affiliates; or
(c) during the Noncompetition Period, in the Territory, accept
or cause or authorize, directly or indirectly, to be accepted for or on
behalf of such Seller or for third parties, any such Staffing Services
Business from any such customers of the Subject Companies or of the
Purchaser or its Affiliates; or
(d) during the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used by the
Purchaser or its Affiliates or by the Subject Companies relating to the
business or the operations, employees or customers of the Subject
Companies or the Purchaser or its Affiliates which constitutes
proprietary or confidential information of the Subject Companies or the
Purchaser or its Affiliates ("Confidential Information"), including
without limitation any Confidential Information contained in any
customer lists, mailing lists and sources thereof, statistical data and
compilations, patents, copyrights, trademarks, trade names, inventions,
formulae, methods, processes, agreements, contracts, manuals or any
other documents, and (2) from and after the date hereof, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used by the
Purchaser which constitutes Confidential Information, but excluding any
Confidential Information which has become part of common knowledge or
understanding in the Staffing Services Business industry or otherwise
in the public domain (other than from
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disclosure by Sellers in violation of this Agreement); provided,
however, that this Section shall not be applicable to the extent that
any of the Sellers is required to testify in a judicial or regulatory
proceeding pursuant to the order of a judge or administrative law judge
after such Seller requests that the confidentiality of such
Confidential Information be preserved, and in the event that the
Sellers receive a subpoena or other order to produce or testify as to
Confidential Information, the Sellers shall notify the Purchaser in
order to provide the Purchaser with an opportunity to quash at the
Purchaser's expense; or
(e) during the noncompetition Period, in the Territory,
(1) solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding
three hundred and sixty (360) days was an employee) of the
Subject Companies or of the Purchaser or its Affiliates or any
other person who is under contract with or rendering services
to the Subject Companies or to the Purchaser or its
Affiliates, to terminate his or her employment, by, or
contractual relationship with, such Person or to refrain from
extending or renewing the same (upon the same or new terms) or
to refrain from rendering services to or for such Person or to
become employed by or to enter into contractual relations with
any Persons other than such Person or to enter into a
relationship with a competitor of the Subject Companies; the
Purchaser or its Affiliates,
(2) approach any such employee or other person for
any of the foregoing purposes, or
(3) authorize or approve or assist in the taking of
any such actions by any person other than the Subject
Companies, the Purchaser or its Affiliates.
3.3 Interpretation and Remedies.
(a) The invalidity or non-enforceability of Section 3.2 in any
respect shall not affect the validity or enforceability of Section 3.2
in any other respect or of any other provisions of this Article III. In
the event that any provision of Section 3.2 shall be held invalid or
unenforceable by a court of competent jurisdiction by reason of the
geographic or business scope or the duration thereof, such invalidity
or unenforceability shall attach only to the scope or duration of such
provision and shall not affect or render invalid or unenforceable any
other provision of Section 3.2 and, to the fullest extent permitted by
law, this Section 3.2 shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly
drafted so as not to be invalid or unenforceable and further, to the
extent permitted by law, such geographic or business scope or the
duration thereof may be re-written by a court of competent jurisdiction
to make such sufficiently limited to be enforceable.
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(b) The Sellers acknowledge that the Purchaser's remedy at law
for any breach of the provisions of Section 3.2 is and will be
insufficient and inadequate and that the Purchaser shall be entitled to
equitable relief, including by way of temporary restraining order,
temporary injunction, and permanent injunction, in addition to any
remedies the Purchaser may have at law. If either party files suit to
enforce or to enjoin the enforcement of any of the provisions of this
Section 3.2, the Purchaser shall be entitled to recover, in addition to
all other damages or remedies provided for herein, all of its costs
incurred in prosecuting or defending such suit, including reasonable
attorneys' fees, if the Purchaser prevails in such suit.
3.4 Definitions. " Noncompetition Period" shall mean the period
commencing on the Closing Date and ending five (5) years after the Closing Date,
provided, however, that if a Seller violates any of the provisions of Section
3.2, the term of the Noncompetition Period shall be automatically extended for a
like period of time from the date on which the Seller permanently ceases such
violation or from the date of the entry by a court of competent jurisdiction of
a final order of judgment enforcing such provision, whichever period is later.
"Staffing Services Business" shall mean (A) a firm which
recruits, trains and/or tests employees and assigns them to clients (i) to
provide staffing help services for such client to support or supplement the
client's work force in work situations such as employee absences, temporary
skill shortages, seasonal workloads and special assignments and projects, (ii)
to provide staffing help services for such client for short-term and long-term
temporary placement and temporary to permanent arrangements for the client to
eventually hire the service provider as its own employee, and (iii) to provide
permanent individual employees for permanent employment placement fees, or (B)
any of the business activities described in (A).
"Territory" shall mean the State of Georgia, and outside such
state, within a radius of fifty (50) miles from any office (including any client
location where employees provide staffing services on site) operated during the
Noncompetition Period by the Subject Companies, or by the Purchaser or any of
its Affiliates.
ARTICLE IV
CLOSING
4.1 Closing. Upon the terms and subject to the conditions set
forth herein, the closing of the Transactions (the "Closing") shall be held at
10:00 a.m. local time on the Closing Date at the offices of the Purchaser, 100
Michiana Square, 100 E. Wayne Street, Suite 100, South Bend, Indiana 46601,
unless the parties hereto otherwise agree.
4.2 Deliveries at Closing.
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(a) Closing Payment. The Purchaser will deliver the Closing
Payment (allocated among the Sellers as set forth in Schedule 2.4) to
each of the Sellers.
(b) Covenant Payment. The Purchaser will deliver the Covenant
Payment to each of the Sellers.
(c) Payment of Bank Debt. The Purchaser will pay to the
respective obligees thereof the amount of indebtedness for borrowed
money in the amounts and to the obligees set forth in the Sellers'
certificate delivered pursuant to Section 4.2(g)(iv) hereof.
(d) Payment of Seller Receivables. The Sellers will repay to
the Subject Companies the amount of the Subject Companies' receivables
from the Sellers in the amount set forth in the Sellers' certificate
delivered pursuant to Section 4(g)(iv) hereof.
(e) Stock Certificates. At the Closing, the Sellers shall
deliver to the Purchaser certificates evidencing the Stock (duly
endorsed in blank for transfer or accompanied by stock powers duly
executed in blank).
(f) Purchaser Certificates. The Purchaser will furnish the
Sellers with such certificates of its officers and others to evidence
compliance with the conditions set forth in this Agreement as may be
reasonably requested by the Sellers, which shall include, but not be
limited to a certificate executed by the Secretary or an Assistant
Secretary of the Purchaser, certifying, as of the Closing Date, (A) a
true and complete copy of the Organizational Documents of the
Purchaser, certified as of a recent date by the Secretary of State of
Delaware, (B) a true and complete copy of the resolutions of the board
of directors of the Purchaser, authorizing the execution, delivery and
performance of this Agreement by the Purchaser, and the consummation of
the transactions contemplated hereby and (C) incumbency matters.
(g) Sellers' Certificates. The Sellers will furnish the
Purchaser with such certificates of the Sellers and the officers of the
Subject Companies and others to evidence compliance with the conditions
set forth in this Agreement as may be reasonably requested by the
Purchaser, which shall include, but not be limited to:
(i) A certificate executed by the Secretary or an
Assistant Secretary of each Subject Company certifying as of
the Closing Date (A) a true and complete copy of the
Organizational Documents of such Subject Company, certified as
of a recent date by the appropriate Secretary of State and (B)
incumbency matters;
(ii) A certificate of the appropriate Secretary of
State certifying the good standing of each Subject Company in
its state of incorporation and all states in which it is
qualified to do business;
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(iii) A certificate of each of the Sellers'
non-foreign status, pursuant to Treasury Regulation section
1.1445-2(b)(2); and
(iv) A certificate of the Sellers certifying the
amount and the obligees of the Deferred Compensation Liability
and each amount required in the computation of Net Debt and
the obligees of the indebtedness for borrowed money.
4.3 Other Closing Transactions.
(a) Consulting Agreement and Employment Agreement. At the
Closing, a Subject Company shall enter into the consulting agreement
with the Sellers in the form of Exhibit A-2 hereto (the "Consulting
Agreement") and a Subject Company shall enter into the employment
agreement with Richard Niermann in the form of Exhibit A-2 (the
"Employment Agreement').
(b) Leases. At the Closing, a Subject Company, the
Shareholder(s) and the Purchaser shall enter into real estate leases in
the form of Exhibit B-1 and B-2 hereto (the "Leases").
(c) IRC Section 338(h)(10) Election. At the Closing, the
Purchaser and the Sellers will execute such documents and forms as
shall be required for an effective election under Section 338(h)(10) of
the IRC with respect to the purchase and sale of the Stock of NPS
Staffing Specialists, Inc. The deemed purchase price of the assets of
NPS Staffing Specialists, Inc. shall be allocated as set forth in
Schedule 2.4 hereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers hereby, jointly and severally, represents
and warrants to the Purchaser that the following representations and warranties
are, as of the date hereof, and will be, as of the Closing Date, true and
correct:
5.1 Organization and Good Standing.
(a) Each of the Subject Companies is duly organized, validly
existing, and in good standing under the laws of its jurisdiction of
formation, with full power and authority to conduct its business as it
is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
Contracts to which it is a party. Each of the Subject Companies is duly
qualified to do business and is in good standing under the laws of each
state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure
to be so qualified or in good standing would not reasonably be expected
to have a Material Adverse Effect on such Subject Company.
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Schedule 5.1 contains a complete and accurate list of jurisdictions in
which each of the Subject Companies is authorized to do business.
(b) Subsidiaries. None of the Subject Companies has any
Subsidiaries and, except as otherwise set forth on Schedule 5.1, none
of the Subject Companies has any direct or indirect stock or other
equity or ownership interest (whether controlling or not) in any
corporation, association, partnership, joint venture or other entity.
5.2 Authority; No Conflict.
(a) This Agreement and the other Transaction Documents to
which the Sellers or the Subject Companies are a party (the "Sellers'
Closing Documents") have been duly executed and delivered by the
Sellers and the Subject Companies, to the extent that they are a party
thereto, and constitute the legal, valid, and binding obligations of
the Sellers and/or the Subject Companies, as the case may be,
enforceable against the Sellers and/or the Subject Companies in
accordance with their respective terms, in each case except as such
enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors'
rights generally and (ii) the general principles of equity, regardless
of whether asserted in a proceeding in equity or at law. The Sellers
and the Subject Companies have all requisite power, authority and
capacity to execute and deliver this Agreement and the Sellers' Closing
Documents and to perform their respective obligations under this
Agreement and the Sellers' Closing Documents.
(b) Except as set forth in Schedule 5.2, neither the execution
and delivery of this Agreement and the Sellers' Closing Documents nor
the consummation or performance of any of the Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a
violation of (A) any provision of the Organizational Documents
of any of the Subject Companies or (B) any resolution adopted
by the board of directors of any of the Subject Companies or
the shareholders or other equity owners of any of the Subject
Companies;
(ii) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person
the right to challenge any of the Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement
or any Order to which any of the Subject Companies or any of
the assets owned or used by any of the Subject Companies, may
be subject;
(iii) contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate or modify, any Governmental Authorization
that is held by any of the Subject Companies or that otherwise
relates to the business of, or any of the assets owned or used
by, any of the Subject Companies;
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(iv) contravene, conflict with or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate or modify, any Applicable Contract; or
(v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by any of the Subject Companies,
except in the case of each of clauses (ii) through (v) above, for such
contraventions, conflicts, violations, Liabilities, reassessments, revaluations,
breaches or creations of Encumbrances which, individually and in the aggregate,
would not have a Material Adverse Effect on the Subject Companies.
Except as set forth in Schedule 5.2, neither of the Subject
Companies is, or will be, required to give any notice to or obtain any Consent
from any Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Transactions.
5.3 Capitalization. Schedule 5.3 contains a complete and
accurate description of the capitalization of each of the Subject Companies
(including the identity of each shareholder (or holder of other equity interest)
of each Subject Company and the number of shares (or other equity interests)
held by each such Person). The Sellers have, or will have at Closing, title to
all of the Stock, in each case, free and clear of all Encumbrances. All of the
Stock is and will be, as of the Closing Date, duly authorized, validly issued,
fully paid and non-assessable. Except as set forth on Schedule 5.3, there are no
outstanding subscriptions, calls, commitments, warrants or options for the
purchase of shares of any capital stock or other securities of any of the
Subject Companies or any securities convertible into or exchangeable for shares
of capital stock or other securities issued by any of the Subject Companies, or
any other commitments of any kind for the issuance of additional shares of
capital stock or other securities issued by any of the Subject Companies. None
of the outstanding capital stock or equity interests or other securities of any
Subject Company was issued in violation of the Securities Act.
5.4 Financial Statements. The Sellers have delivered to the
Purchaser (a) compiled combined balance sheet of the Subject Companies as of
October 31 for each of the fiscal years 1995 and 1996 and the related combined
statement of income for each of the fiscal years then ended, together with the
report thereon of Brooks, Holmes, Williams & Cook, LLC, independent certified
public accountants, (b) an audited combined balance sheet of the Subject
Companies as of October 31, 1997 (including the notes thereto, the "Balance
Sheet"), and the related combined statements of income, changes in shareholders'
equity, and cash flow for the 12-month period then ended, together with the
report thereon of Brooks, Holmes, Williams & Cook, LLC, independent certified
public accountants (including the notes thereto), and (c) compiled combined
balance sheet of the Subject Companies as of January 31, 1998 and the related
combined statement of income for the three month
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period then ended together with the report thereon of Brooks, Holmes, Williams &
Cook LLC, independent certified public accountants (collectively, clauses (a),
(b) and (c) above are referred to herein as the "Financial Statements"). The
Financial Statements fairly and accurately present the financial condition and
the results of operations, income, expenses, assets, liabilities, changes in
stockholders' equity, and cash flow of the Subject Companies on a combined basis
as of the respective dates of, and for the periods referred to in, the Financial
Statements, all in accordance with GAAP. The Financial Statements reflect the
consistent application of such accounting principles throughout the periods
involved, except for the accounting treatment of the Deferred Compensation
Liability. No financial statements of any Person other than the Subject
Companies are required by GAAP to be included in the Financial Statements. The
Balance Sheet and the income statement contain adequate accruals for, and pro
rated anticipated expenses for, periodic and annual bonuses, incentive
compensation, vacation, "flex time" and other similar benefits (based on then
existing compensation arrangements and past practices).
5.5 Books and Records. The books of account, minute books,
stock record books, and other records of the Subject Companies, all of which
have been made available to the Purchaser, are complete and correct and, in all
material respects, have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Exchange Act
(regardless of whether or not any of the Subject Companies is subject to that
Section), including the maintenance of an adequate system of internal controls,
and, with respect to the books of account, fairly and accurately reflect the
income, expenses, assets and liabilities of the Subject Companies. The minute
books of the Subject Companies contain, in all material respects, accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the board of directors, and committees of the board of directors
of the Subject Companies, and no meeting of any such stockholders, board of
directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Subject Companies.
5.6 Title to Properties: Encumbrances. The Subject Companies
do not own, and since their respective inceptions have not owned, any real
property or any interest, other than a leasehold interest, in any real property.
Schedule 5.6 contains a complete and accurate list of all leasehold interests in
real property owned by any of the Subject Companies. Schedule 5.6 lists and
describes all real property leased by any Subject Company. The Sellers have
delivered a copy of all such leases to the Purchaser and all such leases are
legal, valid, binding, enforceable and in full force and effect, and following
the Closing, such leases will continue to be legal, valid, binding and
enforceable by the Subject Companies that are party thereto and in full force
and effect. There are no disputes, oral agreements or forbearances in effect as
to any such leases. Each of the Subject Companies owns all the properties and
assets (whether real, personal or mixed and whether tangible or intangible) that
it purports to own, including all of the properties and assets reflected in the
Balance Sheet (except for personal property sold since the date of the Balance
Sheet in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by any of the Subject Companies since the date
of the Balance Sheet (except for personal property acquired and sold since the
date of the Balance Sheet in the Ordinary Course of Business), which
subsequently purchased or acquired properties and assets are listed in Schedule
5.6. Except as set forth in Schedule
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5.6, all material properties and assets reflected in the Balance Sheet are free
and clear of all Encumbrances.
5.7 Condition and Sufficiency of Assets. The buildings,
plants, structures and equipment which comprise the office space of the Subject
Companies are in good operating condition and repair, except where failure to be
in such condition would not have a Material Adverse Effect on each such Subject
Company. The building, plants, structures and equipment which comprise the
office space of the Subject Companies are adequate for the uses to which they
are being put, and none of such buildings, plants, structures or equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The building, plants,
structures and equipment which comprise the office space of the Subject
Companies are sufficient for the continued conduct of the business of the
Subject Companies after the Closing in substantially the same manner as
conducted prior to the Closing.
5.8 Accounts Receivable. All accounts receivable of the
Subject Companies that are reflected on the accounting records of any of the
Subject Companies as of the Closing and, unless paid prior to Closing, all
accounts receivable of the Subject Companies that are reflected on the Balance
Sheet (collectively, the "Accounts Receivable") represent or will represent
valid obligations arising from sales actually made or services actually
performed in the Ordinary Course of Business. Unless paid prior to the Closing,
the Accounts Receivable are or will be as of the Closing current and collectible
net of the respective reserves shown on the Balance Sheet or on the accounting
records of any of the Subject Companies as of the Closing (which reserves are
adequate and calculated consistent with past practice and, in the case of the
reserves as of the Closing, will not represent a greater percentage of the
Accounts Receivable as of the Closing than the reserve reflected in the Balance
Sheet represented of the Accounts Receivable reflected therein and will not
represent a Material Adverse Change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any setoff,
within ninety days after the day on which it first becomes due and payable.
There is no contest, claim or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable.
5.9 No Undisclosed Liabilities. Except as set forth in
Schedule 5.9, none of the Subject Companies has any Liabilities except for
Liabilities reflected or reserved against in the Balance Sheet and current
Liabilities incurred in the Ordinary Course of Business since the date thereof.
5.10 Taxes.
(a) Except as set forth in Schedule 5.10, there have been
properly completed and filed on a timely basis and in correct form all
Tax Returns required to be filed by any of the Subject Companies on or
prior to the date hereof. As of the time of filing, the foregoing Tax
Returns correctly reflected in all material respects the facts
regarding the income, business, assets, operations, activities, status
or other matters of the applicable entity or any other
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information required to be shown thereon. In particular, the foregoing
returns are not subject to penalties under Section 6662 of the IRC,
relating to accuracy-related penalties (or any corresponding provision
of the state, local or foreign Tax law) or any predecessor provision of
law. Except as set forth in Schedule 5.10, an extension of time within
which to file any Tax Return that has not been filed has not been
requested or granted.
(b) With respect to all amounts in respect of Taxes imposed on
any of the Subject Companies or for which any of the Subject Companies
is or could be liable, whether to taxing authorities (as, for example,
under law) or to other Persons or entities (as, for example, under Tax
allocation agreements), with respect to all taxable periods or portions
of periods ending on or before the Closing, all applicable Tax laws and
agreements have been complied with in all material respects, and all
such amounts required to be paid by the Subject Companies to taxing
authorities or others on or before the date hereof have been paid.
(c) No material issues have been raised (and are currently
pending) by any taxing authority in connection with any of the Tax
Returns of any of the Subject Companies. No waiver of statute of
limitation with respect to any Tax Return has been given by or
requested from any of the Subject Companies. Schedule 5.10 sets forth
(i) the taxable years of the Subject Companies as to which the
respective statutes of limitations with respect to Taxes have not
expired, and (ii) with respect to such taxable years, (A) those years
for which examinations have been completed, (B) those years for which
examinations are presently being conducted, (C) those years for which
examinations have not been initiated, and (D) those years for which
required Tax Returns have not yet been filed. Except to the extent
shown in Schedule 5.10, all deficiencies asserted or assessments made
as a result of any examinations have been fully paid, or are fully
reflected as a liability in the Financial Statements, or are being
contested and an adequate reserve therefor has been established and is
fully reflected in the Financial Statements.
(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of any of the Subject Companies.
(e) None of the Subject Companies is a party to or bound by
any Tax indemnity, Tax sharing or Tax allocation agreement.
(f) None of the Subject Companies has ever been a member of an
affiliated group of corporations, within the meaning of Section 1504 of
the IRC.
(g) None of the Subject Companies has filed a consent pursuant
to the collapsible corporation provisions of Section 341(f) of the IRC
(or any corresponding provision of state, local or foreign income Tax
law) or agreed to have Section 341(f)(2) of the IRC (or any
corresponding provision of state, local or foreign income Tax law)
apply to any disposition of any asset owned by it.
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(h) None of the assets of any of the Subject Companies is
property that any of the Subject Companies is required to treat as
being owned by any other Person pursuant to the "safe harbor lease"
provisions of former Section 168(f)(8) of the IRC.
(i) None of the assets of any of the Subject Companies
directly or indirectly secures any debt, the interest on which is
Tax-exempt under Section 103(a) of the IRC.
(j) None of the assets of any of the Subject Companies is
"tax-exempt use property" within the meaning of Section 168(h) of the
IRC.
(k) None of the Subject Companies has agreed to make nor is
any Subject Company required to make any adjustment under Section
481(a) of the IRC by reason of a change in accounting method or
otherwise.
(l) None of the Subject Companies has participated in or will
participate in an international boycott within the meaning of Section
999 of the IRC.
(m) None of the Subject Companies is a party to any agreement,
Contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the IRC.
(n) None of the Subject Companies has or has had a permanent
establishment in any foreign country, as defined in any applicable Tax
treaty or convention between the United States and such foreign
country.
(o) No stockholder of any of the Subject Companies is a Person
other than a United States Person within the meaning of the IRC.
(p) None of the Subject Companies is a party to any joint
venture, partnership or other arrangement or contract that could be
treated as a partnership for federal and applicable state income Tax
purposes.
(q) The unpaid Taxes of the Companies do not exceed the
reserve for Tax liability (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth or included in the Balance Sheet, as adjusted for the passage
of time through the Closing, in accordance with the past custom and
practice of the Subject Companies.
(r) NPS Staffing Specialists, Inc. has at all times during its
existence properly been treated as an S Corporation (as defined in the
IRC) for federal and applicable state income tax purposes.
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5.11 No Material Adverse Change. Since the date of the Balance
Sheet, other than changes in net worth there has not been any Material Adverse
Change in the business or operations of any of the Subject Companies, and, to
the Knowledge of the Sellers, no event has occurred or circumstance exists that
may result in such a Material Adverse Change.
5.12 Employee Benefits.
(a) (i) Schedule 5.12 contains a complete and accurate list of
all Plans and Other Benefit Obligations of the Subject
Companies, and identifies as such all Plans that are Qualified
Plans.
(ii) Schedule 5.12 contains a complete and accurate
list of (A) all ERISA Affiliates of the Subject Companies, and
(B) all Plans of which any such ERISA Affiliate is or was a
Plan Sponsor, in which any such ERISA Affiliate participates
or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
(iii) Schedule 5.12 sets forth the financial cost of
all obligations owed under any Plan of any of the Subject
Companies or Other Benefit Obligation of any of the Subject
Companies that is not subject to the disclosure and reporting
requirements of ERISA.
(b) the Sellers and the Subject Companies have delivered to
the Purchaser:
(i) all documents that set forth the terms of each
Plan and Other Benefit Obligations of the Subject Companies
and of any related trust, including (A) all plan descriptions
and summary plan descriptions of the Plans of the Subject
Companies for which plan descriptions and summary plan
descriptions are required to be prepared, filed and
distributed and (B) all summaries and descriptions furnished
to participants and beneficiaries regarding the Plans and the
Other Benefit Obligations of the Subject Companies for which a
plan description or summary plan description is not required;
(ii) all personnel, payroll and employment manuals
and policies of the Subject Companies;
(iii) a written description of any Plan or Other
Benefit Obligation of the Subject Companies that is not
otherwise in writing;
(iv) all registration statements filed with respect
to any Plan of the Subject Companies;
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(v) all insurance policies purchased by or to provide
benefits under any Plan of the Subject Companies;
(vi) all contracts with third party administrators,
actuaries, investment managers, consultants and other
independent contractors that relate to any Plan or Other
Benefit Obligation of the Subject Companies;
(vii) all reports submitted within the four years
preceding the date of this Agreement by third party
administrators, actuaries, investment managers, consultants or
other independent contractors with respect to any Plan or
Other Benefit Obligation of the Subject Companies;
(viii) all notifications to employees of the Subject
Companies of their rights under ERISA Section601 et seq. and
IRC Section4980B;
(ix) the Form 5500 filed with respect to each Plan of
the Subject Companies for the most recent three plan years,
including all schedules thereto and the opinions of
independent accountants;
(x) all notices that were given by the Subject
Companies or any ERISA Affiliate of any of the Subject
Companies or any Plan of the Subject Companies to the IRS or
any participant or beneficiary, pursuant to statute, within
the four years preceding the date of this Agreement, including
notices that are expressly mentioned elsewhere in this Section
5.12;
(xi) all notices that were given by the IRS or the
Department of Labor to any of the Subject Companies, any of
their ERISA Affiliates or any Plan of the Subject Companies
within the four years preceding the date of this Agreement;
and
(xii) the most recent IRS determination letter for
each Qualified Plan which is a Plan of the Subject Companies.
(c) Except as set forth in Schedule 5.12:
(i) Each of the Subject Companies has performed all
of its respective obligations under all the Plans and Other
Benefit Obligation of the Subject Companies. Each of the
Subject Companies has made appropriate entries in its
respective financial records and statements for all
obligations and liabilities under such Plans and Other Benefit
Obligations that have accrued but are not due.
(ii) No statement, either written or, to the
Knowledge of the Sellers, oral, has been made by any of the
Subject Companies to any Person with regard to any Plan or
Other Benefit Obligation that was not in accordance with the
Plan or Other
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Benefit Obligation and that could have an adverse economic
consequence to any of the Subject Companies.
(iii) Each of the Subject Companies, with respect to
all the Plans and the Other Benefit Obligations of the Subject
Companies, is, and each Plan and Other Benefit Obligation of
the Subject Companies is in full compliance with ERISA, the
IRC, and other applicable Laws including the provisions of
such Laws expressly mentioned in this Section 5. 12.
(1) No transaction prohibited by ERISA 406
and no "prohibited transaction" under IRC 4975(c) has
occurred with respect to any Plan of the Subject
Companies.
(2) None of the Subject Companies has any
liability to the IRS with respect to any Plan,
including any liability imposed by Chapter 43 of the
IRC.
(3) None of the Subject Companies has any
liability under ERISA 502.
(4) All filings required by ERISA and the
IRC as to each Plan of the Subject Companies have
been timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have
been timely provided.
(5) All contributions and payments made or
accrued by Subject Companies and the ERISA Affiliates
of the Subject Companies with respect to all the
Plans and Other Benefit Obligations of the Subject
Companies are deductible under IRC 162 or 404. No
amount, nor any asset of any Plan of the Subject
Companies is subject to Tax as unrelated business
taxable income.
(iv) None of the Subject Companies nor any ERISA
Affiliate of any of the Subject Companies sponsors or
maintains, previously sponsored or maintained, or has or had
any obligation to contribute to any Title IV Plan,
Multiemployer Plan or any Welfare Plan that provides or will
provide benefits described in Section 3(1) of ERISA to any
former employee or retiree of the Subject Companies or any
ERISA Affiliate of any of the Subject Companies, except as
required under Part 6 of Title I of ERISA and Section 4980B of
the Code.
(v) Each Plan of the Subject Companies which is not a
Multi-Employer Plan can be terminated within thirty days,
without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits
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promised by such Plan, other than vesting of any accrued
benefits under any Pension Plan.
(vi) No event has occurred or circumstance exists
that could result in a material increase in premium costs of
the Plans and Other Benefit Obligations of the Subject
Companies that are insured or a material increase in benefit
costs of such Plans and Other Benefit Obligations that are
self-insured.
(vii) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal
proceeding involving, any Plan or Other Benefit Obligation of
the Subject Companies is pending or, to the Knowledge of the
Sellers, is Threatened.
(viii) Each Qualified Plan of the Subject Companies
is qualified in form and operation under IRC Section 401(a);
each trust for each such Plan is exempt from federal income
Tax under IRC Section 501(a). No event has occurred or
circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan
or trust.
(ix) Each of the Subject Companies has complied with
the provisions of ERISA Section601 et seq. and IRC
Section 4980B.
(x) No payment that is owed or may become due to any
director, officer, employee or agent of any of the Subject
Companies will be non-deductible to any of the Subject
Companies or subject to Tax under IRC Section 280G or
Section 4999; nor will any of the Subject Companies be
required to "gross up" or otherwise compensate any such
Person because of the imposition of any excise Tax on a
payment to such Person.
(xi) Neither the execution of the Transaction
Documents nor the consummation of the Transactions will result
in the payment, vesting or acceleration of any benefit.
5.13 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Schedule 5.13:
(i) each of the Subject Companies is, and at all
times since January 1, 1995 has been, in all material
respects, in compliance with each Legal Requirement that is or
was applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
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(ii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) (A) may
constitute or result in a violation by any of the Subject
Companies of, or a failure on the part of any of the Subject
Companies to comply with, any Legal Requirement or (B) may
give rise to any obligation on the part of any of the Subject
Companies to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and
(iii) no Subject Company has received, at any time
since January 1, 1995, any written or, to the Knowledge of the
Sellers, other notice or other communication from any
Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential violation of, or
failure to comply with, any Legal Requirement or (B) any
actual, alleged, possible or potential obligation on the part
of any of the Subject Companies to undertake, or to bear all
or any portion of the cost of, any remedial action of any
nature.
(b) Schedule 5.13 contains a complete and accurate list of
each material Governmental Authorization that is held by any of the
Subject Companies or that otherwise relates to the business of, or to
any of the assets owned or used by, any of the Subject Companies. Each
Governmental Authorization listed or required to be listed in Schedule
5.13 is valid and in full force and effect. Except as set forth in
Schedule 5.13:
(i) each of the Subject Companies is, and at all
times since January 1, 1995, has been, in all material
respects, in full compliance with all of the terms and
requirements of each Governmental Authorization identified or
required to be identified in Schedule 5.13;
(ii) no event has occurred or circumstance exists
that (A) constitutes or results directly or indirectly in a
violation of or a failure to comply with any term or
requirement of any Governmental Authorization or (B) results
directly or indirectly in the revocation, withdrawal,
suspension, cancellation or termination of, or any
modification to, any Governmental Authorization;
(iii) none of the Subject Companies has received, at
any time since January 1, 1995, any written or, to the
Knowledge of the Sellers, other notice or communication from
any Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential violation of or failure
to comply with any term or requirement of any Governmental
Authorization or (B) any actual, proposed, possible or
potential revocation, withdrawal, suspension, cancellation,
termination of or modification to any Governmental
Authorization; and
(iv) all material applications required to have been
filed for the renewal of the Governmental Authorizations have
been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other material filings required
to have been
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made with respect to such Governmental Authorizations have
been duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Schedule 5.13
collectively constitute all of the material Governmental Authorizations
necessary to permit each of the Subject Companies to lawfully conduct and
operate its business in the manner it currently conducts and operates such
business and to permit the Subject Companies to own and use their assets in the
manner in which they currently own and use such assets.
5.14 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 5.14, there is no pending
Proceeding:
(i) that has been commenced by or against any of the
Subject Companies or, to the Knowledge of the Sellers, that
otherwise relates to or may affect the business of, or any of
the assets owned or used by, any of the Subject Companies; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering
with, any of the Transactions.
Except as set forth in Schedule 5.14, to the Knowledge of the
Sellers, (1) no such Proceeding has been Threatened, and (2) no event has
occurred or circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding. The Sellers have delivered to the
Purchaser copies of all pleadings, correspondence, and other documents relating
to each Proceeding listed in Schedule 5.14. The Proceedings listed in Schedule
5.14 will not, individually or in the aggregate, have a Material Adverse Effect
on the business, operations, assets, condition or prospects of any of the
Subject Companies.
(b) Except as set forth in Schedule 5.14:
(i) there is no Order to which any of the Subject
Companies or any of the assets owned or used by any of the
Subject Companies, is subject;
(ii) none of the Sellers is subject to any Order that
relates to the business of, or any of the assets owned or used
by, any of the Subject Companies; and
(iii) to the Knowledge of the Sellers, no officer,
director, agent or employee of any of the Subject Companies is
subject to any Order that prohibits such officer, director,
agent or employee from engaging in or continuing any conduct,
activity or practice relating to the business of any of the
Subject Companies.
(c) Except as set forth in Schedule 5.14:
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(i) each of the Subject Companies is, and at all
times since January 1, 1995, has been, in full compliance with
all of the terms and requirements of each Order to which it,
or any of the assets owned or used by it, is or has been
subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which any of the Subject
Companies or any of the assets owned or used by any of the
Subject Companies, is subject; and
(iii) none of the Subject Companies has received, at
any time since January 1, 1995, any written or, to the
Knowledge of the Sellers, other notice or communication from
any Governmental Body or any other Person regarding any
actual, alleged, possible or potential violation of, or
failure to comply with, any term or requirement of any Order
to which any of the Subject Companies or any of the assets
owned or used by any of the Subject Companies, is or has been
subject.
5.15 Absence of Certain Changes and Events.
Except as set forth in Schedule 5.15, since the date of the
Balance Sheet, each of the Subject Companies has conducted its business only in
the Ordinary Course of Business and there has not been any:
(a) change in authorized or issued capital stock of, or other
equity interests in, any of the Subject Companies; grant of any stock
option or right to purchase shares of capital stock, of or other equity
interests in, any of the Subject Companies; issuance of any security
convertible into such capital stock or other equity interests; grant of
any registration rights; purchase, redemption, retirement or other
acquisition by any of the Subject Companies of any shares of any such
capital stock or other equity interests; or declaration or payment of
any dividend or other distribution or payment in respect of shares of
capital stock or other equity interests;
(b) amendment to the Organizational Documents of any of the
Subject Companies;
(c) payment or increase by any of the Subject Companies of any
bonuses, salaries, or other compensation to any stockholder, director,
officer or (except in the Ordinary Course of Business) employee or
entry into any employment, severance or similar Contract with any
director, officer or employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employees of any of the Subject Companies;
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(e) damage to or destruction or loss of any asset or property
of any of the Subject Companies, whether or not covered by insurance,
that would have a Material Adverse Effect on any of the Subject
Companies;
(f) entry into, termination or acceleration of, or receipt of
notice of termination of (i) any material license, distributorship,
dealer, sales representative, joint venture, credit or similar
agreement or (ii) any Contract or transaction involving a Liability by
or to any of the Subject Companies of at least $10,000;
(g) sale (other than sales in the Ordinary Course of
Business), lease or other disposition of any material asset or property
of any of the Subject Companies or mortgage, pledge or imposition of
any lien or other Encumbrance on any material asset or property of any
of the Subject Companies, including the sale, lease or other
disposition of any of the Intellectual Property Assets;
(h) delay or failure to repay when due any obligation,
including without limitation, accounts payable and accrued expenses;
(i) accrual of any expenses except for such accruals in the
Ordinary Course of Business;
(j) capital expenditures in excess of $10,000;
(k) cancellation or waiver of any claims or rights with a
value to any of the Subject Companies in excess of $10,000;
(l) any payment, discharge or satisfaction of any Liability by
any Subject Company, other than the payment, discharge or satisfaction
of Liabilities, in the Ordinary Course of Business;
(m) incurrence of or increase in, any Liability, except in the
Ordinary Course of Business, or any deferred payment of or failure to
pay when due, any Liability;
(n) material change in the accounting methods used by any of
the Subject Companies;
(o) material disagreement or dispute with any key employee
with respect to compensation, equity ownership, duties or authority; or
(p) agreement, whether oral or written, by any of the Subject
Companies to do any of the foregoing.
5 . 16 Contracts; No Defaults.
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(a) Schedule 5.16 contains a complete and accurate list, and
the Sellers have made available to the Purchaser true and complete
copies, of:
(i) each written Applicable Contract that involves
performance of services or delivery of goods by any of the
Subject Companies of an amount or value, individually or, for
a series of related Applicable Contracts, in the aggregate, in
excess of $10,000;
(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to
any of the Subject Companies of an amount or value,
individually or, for a series of related Applicable Contracts,
in the aggregate, in excess of $20,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures of any of the Subject Companies, individually or,
for a series of related Applicable Contracts, in the
aggregate, in excess of $10,000, or receipts of any of the
Subject Companies, individually or, for a series of related
Applicable Contracts, in the aggregate, in excess of $20,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract of any of the Subject Companies affecting
the ownership of, leasing of, title to, use of, or any
leasehold or other interest in, any real or personal property
(except personal property leases and installment and
conditional sales agreements having a value per item or
aggregate payments of less than $10,000 and with terms of less
than one year);
(v) each licensing agreement or other Applicable
Contract of any of the Subject Companies with respect to
patents, trademarks, copyrights or other intellectual
property, except agreements with current or former employees,
regarding the appropriation or the non-disclosure of any of
the Intellectual Property Assets;
(vi) each collective bargaining agreement and other
Applicable Contract of any of the Subject Companies to or with
any labor union or other employee representative of a group of
employees and each other written employment or consulting
agreement with any employees or consultants;
(vii) each joint venture, partnership and other
Applicable Contract of any of the Subject Companies (however
named) involving a sharing of profits, losses, costs or
liabilities by any of the Subject Companies with any other
Person;
(viii) each Applicable Contract of any of the Subject
Companies containing covenants that in any way purport to
restrict the business activity of any of the Subject Companies
or any Affiliate of any of the Subject Companies or limit the
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freedom of any of the Subject Companies or any Affiliate of
any of the Subject Companies to engage in any line of business
or to compete with any Person;
(ix) each Applicable Contract of any of the Subject
Companies providing for payments to or by any Person based on
sales, purchases or profits, other than direct payments for
goods;
(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by any of the Subject Companies to
be responsible for consequential damages;
(xii) each Applicable Contract of any of the Subject
Companies for capital expenditures in excess of $10,000;
(xiii) each Applicable Contract which, to the
Knowledge of the Sellers, will result in a material loss to
the Subject Companies;
(xiv) each Applicable Contract between a Subject
Company and its former or current stockholders, directors,
officers and employees (other than standard employment
agreements previously furnished to or approved by the
Purchaser);
(xv) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by any of the Subject Companies other than in the
Ordinary Course of Business; and
(xvi) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Schedule 5.16 sets forth reasonably complete details
concerning such Contracts, including the parties to the Contracts, the amount of
the remaining commitment of any of the Subject Companies under the Contracts,
and the place where details relating to the Contracts are located.
(b) Except as set forth in Schedule 5.16, no officer,
director, agent, employee, consultant or contractor of any of the
Subject Companies is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant or
contractor to (A) engage in or continue any conduct, activity or
practice relating to the business of any of the Subject Companies or
(B) assign to any of the Subject Companies or to any other Person any
rights to any invention, improvement or discovery.
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(c) Except as set forth in Schedule 5.16, each Contract
identified or required to be identified in Schedule 5.16 is in full
force and effect and is valid and enforceable in accordance with its
terms.
(d) Except as set forth in Schedule 5.16:
(i) each of the Subject Companies is, and at all
times since January 1, 1995, has been, in compliance with all
material terms and requirements of each material Contract
under which any of the Subject Companies has or had any
obligation or Liability or by which any of the Subject
Companies or any of the assets owned or used by any of the
Subject Companies is or was bound;
(ii) each other Person that has or had any obligation
or Liability under any material Contract under which any of
the Subject Companies has or had any rights is, and at all
times since January 1, 1995 has been, in compliance with all
material terms and requirements of such Contract;
(iii) to the Knowledge of the Sellers, no event has
occurred or circumstance exists that (with or without notice
or lapse of time) may contravene, conflict with, or result in
a violation or breach of, or give any of the Subject Companies
or any other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance
of, or to cancel, terminate or modify, any Applicable
Contract; and
(iv) neither of the Subject Companies has given to or
received from any other Person, at any time since January 1,
1995, any written or, to the Knowledge of the Sellers, other
notice or other communication regarding any actual, alleged,
possible or potential violation or breach of, or default
under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to any of the Subject Companies under current or completed
Contracts with any Person and no such Person has made written demand
for such renegotiation.
(f) The Contracts relating to the provision of products or
services by the Subject Companies have been entered into in the
Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in
violation of any Legal Requirement.
5. 17 Insurance.
(a) The Subject Companies have delivered to the Purchaser:
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(i) a true and complete list of all policies of
insurance to which any of the Subject Companies is a party or
under which any of the Subject Companies or any director or
officer of any of the Subject Companies, is or has been
covered at any time within the three years preceding the date
of this Agreement; and
(ii) any statement by the auditor of the Financial
Statements prepared in connection with such Financial
Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17 describes:
(i) any self-insurance arrangement by or affecting
any of the Subject Companies, including any reserves
established thereunder; and
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by any
of the Subject Companies.
(c) Schedule 5.17 sets forth, by year, for the current policy
year and each of the three preceding policy years:
(i) a summary of the loss experience under each
policy; and
(ii) a statement describing the loss experience for
all claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth in Schedule 5.17:
(i) All policies to which any of the Subject
Companies is a party or that provide coverage to any of the
Subject Companies or any director or officer of any of the
Subject Companies:
(l) are valid, outstanding and enforceable;
(2) taken together, provide adequate
insurance coverage for the assets and the operations
of the Subject Companies for all risks normally
insured against by a Person carrying on the same
business as any of the Subject Companies;
(3) are sufficient for compliance with all
Legal Requirements and Contracts to which any of the
Subject Companies is a party or by which it is bound;
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(4) will continue in full force and effect
following the consummation of the Transactions; and
(5) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of any of the Subject
Companies.
(ii) neither of the Subject Companies has received
(A) any refusal of coverage or any notice that a defense will
be afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) To the Knowledge of the Sellers, each of the
Subject Companies has given notice to the insurer of all
claims that may be insured thereby.
5 .18 Environmental Matters .
Except as set forth in Schedule 5.18:
(a) Each of the Subject Companies is, and at all times has
been, in full compliance with, and has not been and is not in violation
of or liable under, any Environmental Law, except where such
noncompliance or violations would not, individually or in the
aggregate, have a Material Adverse Effect on any of the Subject
Companies. To the Knowledge of the Sellers, none of the Subject
Companies has any basis to expect, nor has it or any other Person for
whose conduct any of the Subject Companies is or may be held to be
responsible received, any actual or Threatened order or written or
other notice or communication from (i) any Governmental Body or private
citizen acting in the public interest or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal or
mixed) in which any of the Subject Companies has had an interest, or
with respect to any property or Facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported,
used or processed by the Subject Companies or any other Person for
whose conduct any of the Subject Companies is or may be held
responsible, or from which Hazardous Materials have been transported,
treated, stored, handled, transferred, disposed, recycled or received.
(b) There are no pending or Threatened claims, Encumbrances or
other restrictions of any nature, resulting from any Environmental,
Health and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting (i) to the Knowledge of
the Sellers, any of the Facilities or (ii) any other properties and
assets (whether real, personal or mixed) in which any of the Subject
Companies has or had an interest.
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(c) Neither the Subject Companies nor any other Person for
whose conduct any of the Subject Companies is or may be held
responsible, has received any citation, directive, inquiry, notice,
Order, summons, warning or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual or
potential violation or failure to comply with any Environmental Law, or
of any alleged, actual or potential obligation to undertake or bear the
cost of any Environmental, Health and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether
real, personal or mixed) in which any of the Subject Companies has or
had an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred,
imported, used or processed by the Subject Companies or any other
Person for whose conduct any of the Subject Companies is or may be held
responsible, have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
(d) Neither the Subject Companies nor any other Person for
whose conduct any of the Subject Companies is or may be held
responsible, has any Environmental, Health and Safety Liabilities with
respect to the Facilities or, to the Knowledge of the Sellers, with
respect to any other properties and assets (whether real, personal or
mixed) in which any of the Subject Companies (or any predecessor), has
or had an interest, or at any property geologically or hydrologically
adjoining the Facilities or any such other property or assets.
(e) To the Knowledge of the Sellers, there are no Hazardous
Materials present on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, dumps or any other part of the
Facilities or such adjoining property, or incorporated into any
structure therein or thereon. None of the Subject Companies, any other
Person for whose conduct any of the Subject Companies is or may be held
responsible, or, to the Knowledge of the Sellers, any other Person, has
permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or
assets (whether real, personal or mixed) in which any of the Subject
Companies has or had an interest.
(f) To the Knowledge of the Sellers, there has been no Release
or Threat of Release of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used
or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal or mixed) in which any of
the Subject Companies has or had an interest, or, to the Knowledge of
the Sellers, any geologically or hydrologically adjoining property,
whether by the Subject Companies or any other Person.
(g) The Subject Companies have delivered to the Purchaser true
and complete copies and results of any reports, studies, analyses,
tests or monitoring possessed or initiated by any of the Subject
Companies pertaining to Hazardous Materials or Hazardous Activities
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in, on or under the Facilities or concerning compliance by the Subject
Companies or any other Person for whose conduct it is or may be held
responsible with Environmental Laws.
5.19 Labor Relations; Compliance: Employees. Except as set
forth in Schedule 5.19, since January 1, 1995, neither of the Subject Companies
has been nor is a party to any collective bargaining or other labor Contract.
Except as set forth in Schedule 5.19, since January 1, 1995, there has not been,
there is not presently pending or existing, and, to the Knowledge of the
Sellers, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage or employee grievance process, (b) any Proceeding against or affecting
any of the Subject Companies relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission or any comparable
Governmental Body, organizational activity or other labor or employment dispute
against or affecting any of the Subject Companies or their respective premises
or (c) any application for certification of a collective bargaining agent. No
event has occurred or circumstance exists that could provide the basis for any
work stoppage or other labor dispute. There is no lockout of any employees by
any of the Subject Companies, and no such action is contemplated by any of the
Subject Companies. Except as set forth in Schedule 5.19, the Subject Companies
have complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health and plant closing. Except as set
forth in Schedule 5.19, none of the Subject Companies is liable for the payment
of any compensation, damages, taxes, fines, penalties or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
Schedule 5.19 sets forth the names of all Persons employed by any of the Subject
Companies who are expected to receive more than $50,000 annualized cash
compensation for the 1998 calendar year from any of the Subject Companies
(including without limitation, salary, commission and bonus) and who are
expected to be employed by any of the Subject Companies on the Closing Date.
Except as set forth in Schedule 5.19, neither of the Subject Companies has
entered into any severance or similar arrangement in respect of any personnel
that provides for any obligation (absolute or contingent) of any of the Subject
Companies or any other Person to make any payment to any such personnel
following termination of employment.
5.20 Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual
Property Assets" includes:
(i) the name "NPS" and all fictional business names,
trade names, registered and unregistered trademarks, service
marks and applications owned by, used by or licensed to any of
the Subject Companies (collectively, "the Marks");
(ii) all of the patents, patent applications and
inventions and discoveries that may be patentable of any of
the Subject Companies (collectively, "the Patents");
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(iii) all of the copyright rights in both published
works and unpublished works of any of the Subject Companies
(collectively, "the Copyrights"); and
(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings and blue prints
owned, used or licensed by any of the Subject Companies as
licensee or licensor (collectively, "the Trade Secrets").
(b) Agreements. Schedule 5.20 contains a complete and accurate
list and summary description, including any royalties paid or received
by any of the Subject Companies, of all Contracts relating to the
Intellectual Property Assets to which any of the Subject Companies is a
party or by which any of the Subject Companies is bound, except for any
license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less
than $1,000 under which any of the Subject Companies is the licensee.
There are no outstanding and, to the Knowledge of the Sellers, no
Threatened disputes or disagreements with respect to any such contract.
(c) Know-How Necessary for the Business. The Intellectual
Property Assets are all those necessary for the operation of the
business of any of the Subject Companies as it is currently conducted.
(d) Patents. None of the Subject Companies has been issued any
Patents or has any Patents pending No process or know-how used by any
of the Subject Companies is known to infringe or is alleged to infringe
any patent or other proprietary right of any other Person.
(e) Trademarks.
(i) Schedule 5.20 contains a complete and accurate
list and summary description of all the Marks of the Subject
Companies. Except as set forth in Schedule 5.20, the Subject
Companies are the owners of such right, title and interest in
and to each of the Marks as is necessary to conduct the
business of the Subject Companies, free and clear of all
liens, security interests, charges, Encumbrances, equities and
other adverse claims.
(ii) Except as set forth in Schedule 5.20, all the
Marks of the Subject Companies that have been registered with
the United States Patent and Trademark Office are, to the
Knowledge of the Sellers, currently in compliance with all
formal legal requirements (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing.
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(iii) Except as set forth in Schedule 5.20, no Mark
of the Subject Companies has been or is now involved in any
opposition, invalidation or cancellation and, to the Knowledge
of the Sellers, no such action is Threatened with the respect
to any of the Marks of the Subject Companies.
(iv) Except as set forth in Schedule 5.20, to the
Knowledge of the Sellers, there is no potentially interfering
trademark or trademark application of any third party.
(v) Except as set forth in Schedule 5.20, no Mark of
any Subject Company is infringed or, to the Knowledge of the
Sellers, has been challenged or threatened in any way. None of
the Marks of the Subject Companies used by any of the Subject
Companies is known to infringe or is alleged to infringe any
trade name, trademark or service mark of any third party.
(f) Copyrights.
(i) Schedule 5.20 contains a complete and accurate
list and summary description of all the Copyrights of the
Subject Companies. The Subject Companies are the owners of
such right, title and interest in and to each of the
Copyrights as is necessary to conduct the business of the
Subject Companies, free and clear of all material liens,
security interests, charges, Encumbrances, equities and other
adverse claims.
(ii) All the material Copyrights of the Subject
Companies that have been registered are currently in
compliance with formal legal requirements, are valid and
enforceable and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the date
of Closing.
(iii) No Copyright of the Subject Companies is
infringed or, to the Knowledge of the Sellers, has been
challenged or threatened in any way. None of the subject
matter of any of the Copyrights of the Subject Companies is
known to infringe or is alleged to infringe any copyright of
any third party or is a derivative work based on the work of a
third party.
(g) Trade Secrets. None of the Subject Companies has any Trade
Secrets and no Trade Secrets are necessary or currently used by any of
the Subject Companies to conduct its business as it is presently
conducted.
5.21 Certain Payments. To the knowledge of the Sellers, since
January 1, 1995, none of the Subject Companies, nor any director, officer, agent
or employee of any of the Subject Companies or any other Person affiliated with
or acting for or on behalf of any of the Subject Companies, has directly or
indirectly, (a) made any contribution, gift, bribe, rebate, payoff, influence
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payment, kickback or other payment to any Person, private or public, regardless
of form, whether in money, property or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of any of the Subject Companies or any Affiliate of
any of the Subject Companies or (iv) in violation of any Legal Requirement or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of any of the Subject Companies.
5.22 No Other Agreements to Sell Assets or Capital Stock of
any of the Subject Companies. None of the Subject Companies, nor any officers,
directors or Affiliates of the Subject Companies have any commitment or legal
obligation, absolute or contingent, to any other Person or firm, other than as
contemplated by the Transactions, to sell, assign, transfer or effect a sale of
any of the assets (other than inventory and products in the Ordinary Course of
Business), to sell or effect a sale of the capital stock or other equity
interests of any of the Subject Companies, to effect any merger, consolidation,
liquidation, dissolution or other reorganization of any of the Subject
Companies, to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing.
5.23 Relationships with Related Persons. Except as set forth
in Schedule 5.23, none of the Subject Companies, nor any of their respective
Related Persons is or has owned (of record or as a beneficial owner) an equity
interest or any other financial or profit interest in a Person that has (i) had
business dealings or a material financial interest in any transaction with any
of the Subject Companies other than business dealings or transactions conducted
in the Ordinary Course of Business with any of the Subject Companies at
substantially prevailing market prices and on substantially prevailing market
terms or (ii) engaged in a business competing with any of the Subject Companies
with respect to any line of the products or services of any of the Subject
Companies in any market presently served by any of the Subject Companies, except
for less than one percent (1%) of the outstanding capital stock of any such
competing business that is publicly traded on any recognized exchange or in the
over-the-counter market. Except as set forth in Schedule 5.23, no Related Person
of any of the Subject Companies is a party to any Contract with, or has any
claim or right against, any of the Subject Companies.
5.24 Customers and Suppliers. Schedule 5.24 contains a
complete and accurate list of the twenty (20) largest suppliers and twenty (20)
largest customers of the Subject Companies during the last fiscal year, showing
the approximate total purchases by the Subject Companies from each such supplier
during such fiscal year and the total sales by the Subject Companies to each
such customer during such fiscal year. Since the date of the Balance Sheet,
there has been no adverse change in the business relationship with any supplier
or customer named in Schedule 5.24 and no threat or indication that any such
change is reasonably foreseeable.
5.25 Bank Accounts. Schedule 5.25 sets forth an accurate and
complete list showing the name and address of each bank in which any of the
Subject Companies has any account, safe
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deposit box, borrowing arrangement or certificate of deposit, the number of any
such account or any such box and the names of all Persons authorized to draw
thereon or to have access thereto.
5.26 Brokers and Finders; Advisors. Neither the Sellers nor
any of the Subject Companies nor their respective agents have incurred any
obligation or Liability for brokerage or finders' fees or agents' commissions or
other similar payment in connection with this Agreement. The Sellers agree to
indemnify the Purchaser and the Subject Companies against and to hold the
Purchaser and the Subject Companies harmless from, any claims for brokerage or
similar commission or other compensation which may be made against the Purchaser
or the Subject Companies by any third party in connection with the Transactions,
which claim is based upon such third party having acted as broker, finder,
investment banker, advisor, consultant or appraiser or in any similar capacity
on behalf of any of the Subject Companies, the Sellers or any of their
respective Affiliates.
5.27 Disclosure. No representation or warranty of the Sellers
in this Agreement and no statement in the Disclosure Schedules omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Sellers as
follows:
6.1 Organization of Purchaser. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and corporate authority to own,
lease and operate its properties and to carry on its business in the manner in
which such business is now being conducted, to own the Stock being acquired in
the Acquisition pursuant to this Agreement and to enter into and perform its
obligations under this Agreement.
6.2 Corporate Authority and Ability. All requisite corporate
authorizations for the execution, delivery and performance by the Purchaser of
this Agreement and the consummation of the Transactions have been obtained. No
further corporate action shall be necessary on the part of the Purchaser to
authorize the execution, delivery and performance of this Agreement or the
consummation of the Transactions.
6.3 Authorization: No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms. Upon the execution and delivery by the
Purchaser of the Transaction Documents to which it is a party, such
Transaction Documents will constitute the legal, valid and binding
obligations of the
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Purchaser, enforceable against the Purchaser in accordance with their
respective terms, except where such enforceability may be limited by
(i) bankruptcy, insolvency, moratorium, reorganization and other
similar laws affecting creditors' rights generally and (ii) the general
principles of equity, regardless of whether asserted in a proceeding in
equity or at law. The Purchaser has the absolute and unrestricted
right, power, and authority to execute and deliver this Agreement and
the Transaction Documents to which it is a party and to perform its
obligations under this Agreement and the Transaction Documents to which
it is a party.
(b) Neither the execution and delivery of this Agreement by
the Purchaser nor the consummation or performance of any of the
Transactions by the Purchaser will give any Person the right to
prevent, delay, or otherwise interfere with any of the Transactions
pursuant to: (i) any provision of the Purchaser's Organizational
Documents; (ii) any resolution adopted by the board of directors or the
stockholders of the Purchaser; (iii) any Legal Requirement or Order to
which the Purchaser may be subject; or (iv) any Contract to which the
Purchaser is a party or by which the Purchaser may be bound, except in
the case of each of clauses (iii) and (iv) above, for such
contraventions, conflicts, violations, Liabilities, reassessments,
revaluations, breaches or creations of Encumbrances which, individually
and in the aggregate, would not have a Material Adverse Effect with
respect to the Purchaser. Except as set forth in Schedule 6.3, the
Purchaser is not and will not be required to obtain any Consent from
any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the
Transactions.
6.4 Proceedings. There is no pending Proceeding that has been
commenced against the Purchaser and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Transactions. To the Purchaser's knowledge, no such Proceeding has been
Threatened.
6.5 Investment. The Purchaser is purchasing the Stock for its
own account for investment, without a view to their distribution within the
meaning of Section 2(11) of the Securities Act.
6.6 Brokers or Finders. The Purchaser and its respective
officers and agents have incurred no obligation or Liability, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through the Purchaser as a result of the action
of the Purchaser or its respective officers or agents.
6.7 Disclosure. No representation or warranty of the Purchaser
in this Agreement and no statement in Schedule 6.2 omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. The copies of the charter
documents and bylaws of the Purchaser delivered to the Sellers prior to the
Closing shall be true, correct and complete.
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ARTICLE VII
ACTIONS OF THE SELLERS, AND THE PURCHASER BEFORE AND
AFTER THE CLOSING DATE
Each of the Sellers and the Purchaser covenant and agree with
each other as follows:
7.1 Access and Investigation. Between the date of this
Agreement and the Closing, the Sellers will (a) afford the Purchaser and its
Representatives and prospective lenders and their Representatives (collectively,
"Advisors") full and free access to the Subject Companies' personnel,
properties, Contracts, books and records and other documents and data, (b)
furnish the Purchaser and its Advisors with copies of all such Contracts, books
and records and other existing documents and data as they may reasonably request
and (c) furnish the Purchaser and its Advisors with such additional financial,
operating and other data and information as they may reasonably request.
7.2 Operation of Business. Between the date of this Agreement
and the Closing, the Sellers will cause each of the Subject Companies to:
(a) conduct its business only in the Ordinary Course of
Business;
(b) use its Best Efforts to preserve intact its current
business organization, keep available the services of its current
officers, employees and agents and maintain the relations and good will
with its suppliers, customers, landlords, creditors, employees, agents
and others having business relationships with it;
(c) confer with the Purchaser and its Advisors concerning
operational matters of a material nature; and
(d) otherwise report periodically to the Purchaser concerning
the status of its business, operations and finances.
7.3 Negative Covenants.
(a) Except as otherwise expressly permitted by this Agreement,
between the date of this Agreement and the Closing, the Subject
Companies and the Sellers will not, without the prior consent of the
Purchaser, take any affirmative action or fail to take any reasonable
action within its control, as a result of which any of the changes or
events listed in Section 5.15 is likely to occur.
7.4 Required Approvals.
As promptly as practicable after the date of this Agreement,
each party will make all filings required by Legal Requirements to be made by it
in order to consummate the Transactions
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(including all filings under the HSR Act, if any). Between the date of this
Agreement and the Closing, the parties will (a) cooperate with respect to all
filings that they may elect to make or may be required by Legal Requirements to
make in connection with the Transactions and (b) cooperate in obtaining all
consents identified in Schedules 5.2 or 6.2 (including taking all actions
requested to cause early termination of any applicable waiting period under the
HSR Act).
7.5 Notification.
Between the date of this Agreement and the Closing, each party to this Agreement
will promptly notify each other party hereto in writing if such party becomes
aware of any fact or condition that causes or constitutes a Breach of any of its
representations and warranties as of the date of this Agreement, or if such
party becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition; provided, however, that such disclosure
shall not be deemed to cure any Breach of a representation or warranty. Should
any such fact or condition require any change in the Disclosure Schedules if
such Schedules were dated the date of the occurrence or discovery of any such
fact or condition, the discovering party will promptly deliver to each other
party a supplement to the Disclosure Schedules specifying such change. During
the same period, each party to this Agreement will promptly notify each other
party hereto of the occurrence of any Breach of any covenant or agreement by
such party in this Article VII or of the occurrence of any event that may make
the satisfaction of the conditions in Articles VIII and IX impossible or
unlikely; provided, however, that such disclosure shall not be deemed to cure
any Breach of a covenant or agreement or to satisfy a condition. Each party to
this Agreement shall promptly notify each other party hereto of any default, the
threat or commencement of any Proceeding or any development that occurs before
the Closing that could in any way materially affect such party, the business or
assets of such party or the ability of such party to consummate the
Transactions.
7.6 No Negotiation.
Until thirty (30) days from the date hereof or unless this
Agreement is earlier terminated pursuant to Article XI, neither the Subject
Companies nor the Sellers nor any of their respective Representatives will
directly or indirectly solicit, initiate or encourage any inquiries or proposals
from, discuss or negotiate with, provide any non-public information to or
consider the merits of any unsolicited inquiries or proposals from, any Person
(other than the Purchaser) relating to any transaction involving the sale of all
or a substantial portion of its business or assets of any of the Subject
Companies or any of their capital stock or other equity interests or any merger,
consolidation, business combination or similar transaction involving any of the
Subject Companies (each such transaction referred to herein as a "Proposed
Acquisition Transaction"). The Subject Companies and the Sellers will
immediately notify the Purchaser if any discussions or negotiations are sought
to be initiated, any inquiry or proposal is made or any information is requested
with respect to any Proposed Acquisition Transaction and notify the Purchaser of
the terms of any
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proposal which they or their respective Representatives may receive in respect
of any such Proposed Acquisition Transaction, including without limitation the
identity of the prospective purchaser or soliciting party. The Subject Companies
and the Sellers shall also provide the Purchaser with a copy of any offer.
7.7 New Office Organization and Related Cooperation. Following
the Closing, Sellers and Purchaser agree to openly communicate and cooperate
with one another in connection with the selection of New Office locations and
the negotiation of appropriate terms, conditions and covenants to be contained
in New Office Leases. Purchaser agrees to provide the Subject Companies, in a
timely manner, appropriate funds for the payment of organizational and operating
expenses pursuant to the Budget and to cause the Subject Companies to use best
efforts to provide employees for the locating, organizing, staffing and
operating each New Office in the manner consistent with the mutual benefit to be
derived by Sellers and the Subject Companies from the organization and operation
of the New Offices and the reasonable needs of the Subject Companies with
respect to the staffing and operation of their existing offices. The provision
of operating funds and employees of the Subject Companies shall be provided in a
manner consistent with the Budget.
Staffing business that is not New Business and is not with New
Clients shall continue to be serviced from the existing office which currently
services the business for a period of not less than 12 months following the
Closing Date.
7.8 Purchaser's Payment of Deferred Compensation Liability. On
the first business day after the Closing Date, the Purchaser will pay to the
obligee thereof the amount of the Deferred Compensation Liablity as set forth in
the Sellers' Certificate delivered pursuant to Section 4.2(g)(iv) hereof.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The Purchaser's obligation to pay the Consideration and to
take the other actions required to be taken by the Purchaser at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Purchaser, in whole or
in part):
8.1 Accuracy of Representations. All of the representations
and warranties of the Sellers in this Agreement (considered collectively) and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing.
8.2 Sellers' and Subject Companies' Performance.
(a) All of the covenants and obligations that the Sellers and
the Subject Companies are required to perform or to comply with
pursuant to this Agreement at or prior
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to the Closing (considered collectively) and each of these covenants
and obligations (considered individually), must have been performed and
complied with in all material respects.
(b) The Sellers and the Subject Companies must have delivered
each of the documents required to be delivered by the Sellers and the
Subject Companies pursuant to Section 4.2.
8.3 Consents. Each of the Consents identified in Schedule 5.2
must have been obtained and must be in full force and effect.
8.4 Additional Documents.
Sellers must have delivered to the Purchaser such documents as
the Purchaser may reasonably request for the purpose of (i) evidencing the
accuracy of any representation or warranty of the Sellers, (ii) evidencing the
performance by the Subject Companies and the Sellers, or the compliance by the
Subject Companies and the Sellers with, any covenant or obligation required to
be performed or complied with by the Subject Companies and the Sellers, (iii)
evidencing the satisfaction of any condition referred to in this Article VIII or
(iv) otherwise facilitating the consummation of any of the Transactions.
8.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Subject Companies, or (b) is
entitled to all or any portion of the Consideration payable for the Stock.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE
The Sellers' obligation to sell the Stock in exchange for the
Consideration and to take the other actions required to be taken by the Sellers
at the Closing is subject to the satisfaction, at or prior to the Closing, of
each of the following conditions (any of which may be waived by the Sellers, in
whole or in part):
9.1 Accuracy of Representations. All of the representations
and warranties of the Purchaser in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing.
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9.2 The Purchaser's Performance.
(a) All of the covenants and obligations that the Purchaser is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered by the Purchaser
pursuant to Section 4.2 must have been delivered.
9.3 Consents. Each of the Consents identified in Schedule 6.2
must have been obtained and must be in full force and effect.
9.4 Additional Documents.
The Purchaser must have delivered to the Sellers such
documents as the Sellers may reasonably request for the purpose of (i)
evidencing the accuracy of any of Purchaser's representations and warranties,
(ii) evidencing the performance by the Purchaser of, or the compliance by the
Purchaser with, any covenant or obligation required to be performed or complied
with by the Purchaser, (iii) evidencing the satisfaction of any condition
referred to in this Article IX or (iv) otherwise facilitating the consummation
or performance of any of the Transactions.
ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Survival of Representations. Etc. The representations and
warranties of the Sellers and the Purchaser contained herein shall survive until
two (2) years after the Closing; provided, however, that the representations and
warranties contained in Section 5.10, Section 5.12 and Section 5.18 shall
continue to survive until sixty (60) days after the expiration of the applicable
statute of limitations (giving effect to any waiver or extension thereof). The
right to indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted with respect to, or any Knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedies based on such representations, warranties, covenants
and obligations.
10.2 Indemnifications.
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(a) By the Sellers. The Sellers shall indemnify, save and hold
harmless the Purchaser and its Affiliates and Subsidiaries and each of
their respective Representatives (individually, a Seller Indemnified
Party, and collectively, the "Seller Indemnified Parties"), from and
against any and all costs, losses, Liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands and expenses (whether or not
arising out of third-party claims), including without limitation losses
in connection with workers compensation claims, interest, penalties,
costs of mitigation, losses in connection with any Environmental Law
(including without limitation any clean-up, remedial correction or
responsive action), damages to the Environment, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the
foregoing (herein, "Damages"), incurred in connection with, arising out
of, resulting from or incident to (i) any Breach of any representation
or warranty (including, but not limited to, the representations and
warranties contained in Section 5.10) made by the Sellers in this
Agreement; (ii) any Breach of any covenant or agreement made by the
Sellers in this Agreement or any certificate delivered by the Seller at
the Closing; or (iii) any products or services provided by any of the
Subject Companies prior to the Closing.
The term "Damages" as used in this Section 10.2 is not limited
to matters asserted by third parties against any Indemnified Party, but includes
Damages incurred or sustained by an Indemnified Party in the absence of third
party claims. Payments by any Indemnified Party of amounts for which such
Indemnified Party is indemnified hereunder shall not be a condition precedent to
recovery. The rights and remedies provided in this Article X shall be exclusive
as to any Damages incurred by a party under this Agreement; provided, however,
that nothing herein shall preclude a party from exercising its rights under this
Agreement and applicable law to such equitable remedies, including without
limitation specific performance and injunctions.
(b) By Purchaser. Purchaser shall indemnify, save and hold
harmless the Sellers and their respective Affiliates and
Representatives (the "Purchaser Indemnified Parties") from and against
any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any Breach of any representation or
warranty made by the Purchaser in this Agreement; or (ii) any Breach of
any covenant or agreement made by the Purchaser in this Agreement.
(c) Cooperation. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and its Representatives
(including without limitation their attorneys) in the investigation,
trial and defense of such lawsuit or action and any appeal arising
therefrom; provided, however, that the indemnified party may, at its
own cost, participate in negotiations, arbitrations and the
investigation, trial and defense of such lawsuit or action and any
appeal arising therefrom. The parties shall cooperate with each other
in any notifications to insurers.
(d) Defense of Claims. If a claim for Damages (a "Claim") is
to be made by an indemnified party hereunder against the indemnifying
party, the indemnified party shall give written notice (a "Claim
Notice") to the indemnifying party as soon as practicable after the
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indemnified party becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under
this Section 10.2. If any lawsuit or enforcement action is filed
against an indemnified party, written notice thereof shall be given to
the indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the citation or
summons). The failure of any indemnified party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except
to the extent that the indemnifying party has been damaged by such
failure. After such notice, if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall
be obligated under the terms of their indemnity hereunder in connection
with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at the indemnifying party's own cost, risk
and expense, (i) to take control of the defense and investigation of
such lawsuit or action, (ii) to employ and engage attorneys of its own
choice, but, in any event, reasonably acceptable to the indemnified
party, to handle and defend the same unless the named parties to such
action or proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party
has been advised in writing by counsel that there may be one or more
legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in
which event the indemnified party shall be entitled, at the
indemnifying party's cost, risk and expense, to separate counsel of its
own choosing and (iii) to compromise or settle such lawsuit or action,
which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably
withheld.
If the indemnifying party fails to assume the defense of such
lawsuit or action within fifteen (15) calendar days after receipt of the Claim
Notice, the indemnified party against which such lawsuit or action has been
asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such lawsuit or action on behalf of and for
the account and risk of the indemnifying party; provided, however, that such
lawsuit or action shall not be compromised or settled without the written
consent of the indemnifying party which consent shall not be unreasonably
withheld. If the indemnified party settles or compromises such lawsuit or action
without the prior written consent of the indemnifying party, the indemnifying
party will bear no liability hereunder for or with respect to such lawsuit or
action. In the event the indemnified party assumes the defense of the lawsuit or
action, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 10.2 and for any final judgment
(subject to any right of appeal) and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any Damages by reason of
such settlement or Judgment.
(e) Representatives. No individual Representative of any party
shall be personally liable for any Damages under the provisions
contained in this Section 10.2 (except to the extent any such Person is
party hereto in his or her individual capacity). Nothing
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herein shall relieve either party of any Liability to make any payment
expressly required to be made by such party pursuant to this Agreement.
(f) Limitation on Indemnity/Commitments.
(i) The indemnification obligation of the Sellers and
the Purchaser with respect to any Breach of any representation
or warranty pursuant to Section 10.2(a)(i) or (b)(i) shall be
limited to Claims for Damages made prior to the last date of
survival thereof referred to in Section 10.1. The
indemnification obligation of the Sellers and the Purchaser
with respect to any Breach of any covenant or agreement
pursuant to Section 10.2(a)(ii) or (b)(ii) shall survive
indefinitely subject to the terms of this Agreement.
(ii) The Seller Indemnified Parties may not recover
Damages from the Sellers pursuant to Section 10.2(a)(i) or
10.3(a)(iii) until the aggregate amount of Damages relating to
such Claims for which the Indemnified Parties, in the
aggregate, are entitled to indemnification under Section
10.2(a)(i) or 10.3(a)(iii) exceeds One Hundred Thousand
Dollars ($100,000) (the "Threshold"); provided, however, in
the event that the aggregate amount of Damages for which the
Indemnified Parties are seeking indemnification under Section
10.2(a)(i) or 10.3(a)(iii) exceeds such amount, the
Indemnified Parties may recover the full amount of such
Damages. Except as provided in Section 10.2(e)(iii), the
maximum amount of Damages for which the Sellers shall be
liable pursuant to this Section 10.2 shall be Two Million
Dollars ($2,000,000). The Indemnified Parties shall have the
right to make a Claim hereunder prior to the time at which the
Threshold that is applicable to such Claim has been surpassed
for the purpose of asserting such Claim within the relevant
survival period of the applicable indemnification obligation
and any such Claim made within such period shall, to the
extent such Threshold ultimately is met, survive until its
final resolution.
(iii) The maximum damages limitations in Section
10.2(f) (ii) shall not apply to any Damages incurred in
connection with, arising out of, or resulting from any Breach
of any representation or warranty made by the Sellers in
Sections 5.3, 5.10, 5.11, 5.12 and 5.18.
(iv) The Purchaser Indemnified Parties may not
recover Damages from the Purchaser pursuant to Section
10.2(b)(i) until the aggregate amount of Damages for which the
Purchaser Indemnified Parties, in the aggregate, are entitled
to indemnification exceeds the Threshold; provided, however,
in the event that the aggregate amount of Damages for which
the Purchaser Indemnified Parties are seeking indemnification
under Section 10.2(b)(i) exceeds such amount, the Purchaser
Indemnified Parties may recover the full amount of such
Damages. Notwithstanding the foregoing, the maximum aggregate
amount of Damages for which the Purchaser
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shall be liable pursuant to this Section 10.2 shall be an
amount equal to Two Million Dollars ($2,000,000). The
Purchaser Indemnified Parties shall have the right to make a
Claim hereunder prior to the time at which the Threshold that
is applicable to such Claim has been surpassed for the purpose
of asserting such Claim within the relevant survival period of
the applicable indemnification obligation and any such Claim
made within such period shall, to the extent such Threshold
ultimately is met, survive until its final resolution.
(v) Neither (a) the termination of the representations or
warranties contained herein, nor (b) the expiration of the
indemnification obligations described above, will affect the rights of
an indemnified party in respect of any Claim made by such indemnified
party received by the Sellers prior to the expiration of the applicable
survival period provided herein.
10.3 Tax.
(a) Tax Indemnification. Except for Taxes that are reserved
for on the Closing Balance Sheet, the Sellers shall be responsible for
and pay and shall jointly and severally indemnify and hold harmless the
Purchaser and each of the Subject Companies (and each of their
respective affiliates, successors and assigns) from and against (i) all
Taxes imposed on any of the Subject Companies, or for which any of the
Subject Companies is liable, with respect to (A) all periods ending on
or prior to the Closing Date or (B) any period beginning before the
Closing Date and ending after the Closing Date, but only with respect
to the portion of such period up to and including the Closing Date
(such portion, a "Pre-Closing Partial Period"), (ii) any costs or
expenses (other than the time of employees of the Subject Companies and
advisory fees and facilitating fees associated with a federal income
tax audit of a Tax Return for a period ending on or prior to the
Closing Date or for a Pre-Closing Partial Period) with respect to the
Taxes indemnified hereunder and (iii) advisory fees and facilitating
fees with respect to a federal income tax audit for a period ending on
or prior to the Closing Date or for a Pre-Closing Partial Period. For
purposes of this Section 10.3(a), Taxes shall include the amount of
Taxes which would have been paid but for the application of any credit
or net operating or capital loss deduction attributable to any period
(or portion thereof) ending after the Closing Date, but shall not
include amounts which would have been paid but for the application of
any credit or net operating or capital loss deductions attributable to
any period (or portion thereof) ending on or before the Closing Date.
(b) Straddle Periods. Any Taxes with respect to any Subject
Company that relate to a Tax period beginning on or before the Closing
Date and ending after the Closing Date (a "Straddle Period") shall be
apportioned between the Pre-Closing Partial Period and the portion of
such Straddle Period beginning on the day after the Closing Date (the
"Post-Closing Partial Period"), as determined from the Books and
Records of such Subject Company during the portion of such period
ending on the Closing Date and the portion of such period beginning on
the day following the Closing Date consistent with the past
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practices of each Subject Company. The Purchaser shall cause each
Subject Company to file any Tax Returns for any Straddle Period, and
the Purchaser shall pay all Taxes shown as due on any such Tax Returns.
The Sellers shall pay the Purchaser all such Taxes apportioned to the
Pre-Closing Partial Period (to the extent not paid by any Subject
Company prior to the Closing Date or accrued or otherwise reflected as
a Liability on the Closing Balance Sheet) due pursuant to the filing of
any such Tax Returns under the provisions of this Section 10.3(b)
within fifteen (15) business days of receipt of notice of such filing
by the Purchaser, which notice shall set forth in reasonable detail the
calculations regarding the Sellers' share of such Taxes.
(c) Refunds. The Purchaser agrees to assign and promptly remit
(and to cause each Subject Company to assign and promptly remit) all
refunds (including interest thereon) net of any Tax effect to the
Purchaser or any Subject Company, received by the Purchaser or any
Subject Company of any Taxes for which the Sellers have indemnified the
Purchaser or any Subject Company hereunder; provided, however, that the
Purchaser shall be entitled to the portion of any refund resulting from
a carryback (including carrybacks to periods ending on or prior to the
Closing Date) of a net operating loss, net capital loss, Tax credit or
similar item sustained or arising in any period ending after the
Closing Date or in any Post-Closing Partial Period.
(d) Tax Returns for Pre-Closing Periods. The Sellers shall
prepare or cause to be prepared, and timely file or cause to be filed,
all Tax Returns (except for any 1998 partial year Tax Return for the
Subject Companies arising from an election of the Purchaser ) of any
Subject Company for all taxable periods of such Subject Company ending
on or prior to the Closing Date and shall pay or cause to be paid all
Taxes due with respect to such Tax Returns. With respect to any Tax
Return of the Subject Companies for a 1998 partial year period ending
on or prior to the Closing Date, Sellers shall pay or cause to be paid
all taxes due with respect to such period as determined from the Books
and Records of the Subject Companies for such period (to the extent not
paid by any Subject Company prior to the Closing Date or accrued or
otherwise reflected as a Liability on the Closing Balance Sheet). With
respect to any such Tax Returns for income Taxes required to be filed
by the Sellers and not required to be filed before the Closing Date,
the Sellers shall provide the Purchaser and its authorized
Representatives with copies of any such completed Tax Return at least
twenty (20) business days prior to the due date for filing of such Tax
Return and the Purchaser and its Representatives shall have the right
to review such Tax Return prior to the filing of such Tax Return.
Sellers and the Purchaser agree to consult and resolve in good faith
any issues arising as a result of such review.
(e) Other Matters. The Purchaser shall promptly notify the
Sellers in writing upon receipt by the Purchaser or any Affiliate of
the Purchaser of notice of (i) any pending or threatened federal,
state, local or foreign Tax audits or assessments of any Subject
Company and (ii) any pending or threatened federal, state, local or
foreign Tax audits or assessments of the Purchaser or any Affiliate of
the Purchaser which may affect the Tax
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Liabilities of any Subject Company with respect to any period ending on
or before the Closing Date, or any Pre-Closing Partial Period. The
Sellers shall promptly notify the Purchaser in writing upon receipt by
the Sellers or any affiliate of the Sellers of notice of any pending or
threatened federal, state, local or foreign Tax audits or assessments
relating to the income, properties or operations of any Subject
Company.
The Purchaser and the Sellers shall cooperate with each other
in the conduct of any audit or other proceedings involving any Subject Company
for periods beginning before the Closing Date and each may participate at its
own expense, provided that the Sellers shall have the right to control the
conduct of any such audit or proceeding for which the Sellers (i) agree that any
resulting Tax is covered by the indemnity provided in Section 10.3(a) of this
Agreement and (ii) demonstrate to the Purchaser their ability to make such
indemnity payment. Notwithstanding the foregoing, neither the Purchaser nor the
Sellers may settle or otherwise resolve any such claim, suit or proceeding
without the consent of the other party, such consent not to be unreasonably
withheld.
After the Closing Date, the Purchaser and the Sellers shall
make available to the other, as reasonably requested, all information, records
or documents relating to Tax liabilities or potential Tax liabilities of any
Subject Company and shall preserve all such information, records and documents
until the expiration of any applicable statute of limitations, including
extensions thereof, or such other period as required by law. The Purchaser and
the Sellers shall also make available to each other as reasonably requested by
the Purchaser or the Sellers, as the case may be, personnel responsible for
preparing or maintaining information, records and documents, in connection with
Tax matters. In case at any time after the Closing Date any further action is
necessary to carry out the purposes of this Agreement, the parties hereto shall
take all such necessary action.
All sales, value added, use, state or local transfer and gains
Taxes, registration, stamp and similar Taxes imposed in connection with the
Transactions shall be borne equally by the Purchaser, on the one hand, and the
Sellers, on the other hand.
Any payments made to the Sellers, any Subject Company or the
Purchaser pursuant to this Article X shall constitute an adjustment of the
Consideration for Tax purposes and shall be treated as such by the Purchaser and
the Sellers on their Tax Returns to the extent permitted by law.
All Tax sharing or similar agreements, if any, to which any
Subject Company is a party will be canceled at or prior to the Closing and
neither the Purchaser nor any Subject Company shall have any obligation under
any such agreement.
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ARTICLE XI
TERMINATION
11.1 Termination Events.
This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by the Sellers, on the one hand, or by the Purchaser on
the other hand, if a Breach of any provision of this Agreement having a
Material Adverse Effect or representing a Material Adverse Change has
been committed by the other party or its Affiliates and such Breach has
not been expressly waived in writing;
(b) (i) by the Purchaser if any of the conditions in Article
VIII has not been satisfied as of the Closing or if satisfaction of
such a condition is or becomes impossible (other than through the
failure of the Purchaser to comply with their respective obligations
under this Agreement) and the Purchaser has not expressly waived such
condition in writing on or before the Closing; or (ii) by the Sellers,
if any of the conditions in Article IX has not been satisfied as of the
Closing or if satisfaction of such a condition is or becomes impossible
(other than through the failure of the Sellers or the Subject Companies
to comply with its obligations under this Agreement) and the Sellers
have not expressly waived such condition in writing on or before the
Closing;
(c) by mutual consent of Purchaser and the Sellers; or
(d) by either the Purchaser or the Sellers if the Closing has
not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under
this Agreement) on or before February 23, 1998 (the "Closing Date"), or
such later date as the Parties may agree upon.
11.2 Effect of Termination.
Each party's right of termination under Section 11.1 is in
addition to any other rights it may have under this Agreement or otherwise, and
the exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to Section 11.1, all further obligations
of the Parties under this Agreement will terminate, except that the obligations
in Sections 10.2, 10.3, 12.6, 12.9 and 12.10 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of this
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
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ARTICLE XII
MISCELLANEOUS
12.1 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by any party without the prior written
consent of the other party; except that the Purchaser may, without such consent,
assign all such rights to any lender as collateral security Subject to the
foregoing, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
12.2 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
If to the Purchaser, addressed to such Purchaser at:
William W. Wilkinson
Corporate Staffing Resources, Inc.
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, IN 46601
Telephone: (219) 233-8209
Telecopy: (219) 280-2661
with a copy to:
Philip L. Carson, Esq.
Miller Carson Boxberger & Murphy LLP
1400 One Summit Square
Fort Wayne, IN 46802-3173
Telephone: (219) 423-9411
Telecopy: (219) 423-4329
If to either of the Sellers, addressed to such Seller at:
Richard D. Niermann
5625 Bahia Mar Circle
Stone Mountain, GA 30087
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With a copy to:
Robert G. Aitkens, Esq.
Aitkens & Aitkens, P.C.
1827 Powers Ferry Road
Building One, Suite 100
Atlanta, GA 30339
Telephone: (770) 952-4000
Telecopy: (770) 952-4015
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.3 Choice of Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware (without
giving effect to its choice of law principles), except with respect to matters
of law concerning the internal corporate affairs of any corporate entity which
is a party to or the subject of this Agreement, and as to those matters the law
of the jurisdiction under which the respective entity derives its powers shall
govern.
12.4 Entire Agreement: Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto (including the Disclosure
Schedule and the other agreements referred to herein), constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. This Agreement may not be amended
except in an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
12.5 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.6 Expenses. Each party to this Agreement will bear its
respective expenses incurred in connection with the preparation, execution and
performance of this Agreement and the Transactions (it being understood that in
the event of termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by the other party); provided, however, that the
Purchaser will pay for the expense of the combined audit of the Subject
Companies for the 12-month period ended October 31, 1997, in an amount not
exceeding $17,000, irrespective of whether the Transactions are closed or
terminated pursuant to the terms of Section 11.1.
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12.7 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
12.8 Titles. The titles, captions or headings of the Articles
and Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.9 Publicity. Except as required by law, none of the
Purchaser, the Subject Companies nor the Sellers shall issue any press release
or make any public statement regarding this Agreement and the Transactions,
without prior written approval of the other parties; provided, however, that in
the case of announcements, statements, acknowledgments or revelations which
either party is required by law to make, issue or release, the making, issuing
or releasing of any such announcement, statement, acknowledgment or revelation
by the party so required to do so by law shall not constitute a breach of this
Agreement if such party shall have given, to the extent reasonably possible, not
less than two (2) calendar days prior notice to the other party, and shall have
attempted, to the extent reasonably possible, to clear such announcement,
statement, acknowledgment or revelation with the other party. Each party hereto
agrees that it will not unreasonably withhold any such consent or clearance. The
Purchaser may, without the consent of the Sellers, issue or make an appropriate
press release or public announcement after the Closing.
12.10 Confidential Information.
(a) No Disclosure. The parties acknowledge that the
Transaction described herein is of a confidential nature and shall not
be disclosed except to consultants, advisors and Affiliates or as
required by law, until such time as the parties make a public
announcement regarding the Transaction as provided in Section 12.9.
(b) Preservation of Confidentiality. In connection with the
negotiation of this Agreement, the preparation for the consummation of
the Transactions, and the performance of obligations hereunder, the
Purchaser acknowledges that it will have access to confidential and
proprietary information relating to the Subject Companies and the
Sellers acknowledge that they will have access to confidential
information relating to the Purchaser and its Affiliates, in each case,
including technical or marketing information, ideas, methods,
developments, inventions, improvements, business plans, trade secrets,
scientific or statistical data, diagrams, drawings, specifications or
other proprietary information relating thereto, together with all
analyses, compilations, studies or other documents, records or data
prepared by the Sellers and the Subject Companies or the Purchaser, as
the case may be, or their respective Representatives or Affiliates,
which contain or otherwise reflect or are generated from such
information ("Confidential Information"). The term "Confidential
Information" does not include information received by one party in
connection with the
64
<PAGE> 66
Transactions which (i) is or becomes generally available to the public
other than as a result of a disclosure by such party or its
Representatives, (ii) was within such party's possession prior to its
being furnished to such party by or on behalf of the other party in
connection with the Transactions, provided that the source of such
information was not known by such party to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the other party or any other Person
with respect to such information or (iii) becomes available to such
party on a non-confidential basis from a source other than the other
party or any of their respective Representatives, provided that such
source is not bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the
other party or any other Person with respect to such information.
(c) Each party shall treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and
not disclose any such Confidential Information, except to its
Representatives and Affiliates who need to know such Confidential
Information in connection with the Transactions. Each party shall use
all reasonable efforts to cause its Representatives to treat all such
Confidential Information of the other party as confidential, preserve
the confidentiality thereof and not disclose any such Confidential
Information. Each party shall be responsible for any breach of this
Agreement by any of its Representatives. If, however, Confidential
Information is disclosed, the party responsible for such disclosure
shall immediately notify the other party in writing and take all
reasonable steps required to prevent further disclosure.
(d) Until the Closing or the termination of this Agreement,
all Confidential Information shall remain the property of the party who
originally possessed such information. In the event of the termination
of this Agreement for any reason whatsoever, each party shall, and
shall cause its Representatives to, return to the other party all
Confidential Information (including all copies, summaries and extracts
thereof) furnished to such party by the other party in connection with
the Transactions.
(e) If one party or any of its Representatives or Affiliates
is requested or required (by oral questions, interrogatories, requests
for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) or is required by
operation of law to disclose any Confidential Information, such party
shall provide the other party with prompt written notice of such
request or requirement, which notice shall, if practicable, be at least
forty-eight (48) hours prior to making such disclosure, so that the
other party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in
the absence of a protective order or other remedy or the receipt of
such a waiver, such party or any of its Representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Confidential Information, then such party may disclose that portion of
the Confidential Information which such counsel advises is legally
required to be disclosed, provided that such party uses its reasonable
efforts to
65
<PAGE> 67
preserve the confidentiality of the Confidential Information,
whereupon such disclosure shall not constitute a breach of
this Agreement.
12.11 Burden and Benefit. This Agreement shall be binding upon
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. There are no third party beneficiaries of this
Agreement; provided, however, that any Person that is not a party to this
Agreement but, by the terms of Section 10.2, is entitled to indemnification,
shall be considered a third party beneficiary of this Agreement, with full
rights of enforcement as though such Person was a signatory to this Agreement.
12.12 Arbitration. In the event there shall be a dispute among
the parties arising out of or relating to this Agreement or the breach thereof,
other than Section 2.2(c), Section 2.3 or Article III, the parties agree that
such dispute shall be resolved by final and binding arbitration in Nashville,
Tennessee administered by the American Arbitration Association ("AAA"), in
accordance with AAA's Commercial Arbitration Rules then in effect. Depositions
may be taken and other discovery may be obtained during such arbitration
proceedings to the same extent as authorized under the Federal Rules of Civil
Procedure. The Purchaser and the Sellers shall each bear their own expenses
(including without limitation the fees and expenses of legal counsel and
accountants) in connection with such arbitration and the Purchaser and the
Sellers shall each bear one-half of the arbitrator's fees and expenses;
provided, however, that the arbitral award shall allocate such fees and expenses
of counsel, accountants, other advisers and the arbitrator according to the
relevant success of the Purchaser and the Sellers in the arbitration, as
determined by the arbitrator. The arbitrator shall award an amount equal to the
actual monetary damages suffered which may include interest costs. Any award
issued as a result of such arbitration shall be final and binding between the
parties and shall be enforceable by any court having jurisdiction over the party
against whom enforcement is sought.
12.13 Limitation of Liability. Notwithstanding anything to the
contrary in this Agreement, in no event shall any party hereto be liable for any
incidental or consequential damages occasioned by any failure to perform or the
breach of any obligation under this Agreement.
12.14 Additional Survival. In addition to the survival of
representations and warranties and other provisions referenced in Section 10.1
of this Agreement, which shall survive pursuant to the terms of such Section,
the obligations of the Sellers and the Purchaser contained in Sections 2.1, 2.2,
4.2, 4.3, 12.6, 12.9 and 12.10 and in Article III and Article X of this
Agreement shall survive the Closing Date indefinitely.
66
<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
PURCHASER:
Corporate Staffing Resources, Inc.
/s/ William W. Wilkinson
--------------------------------
By: William W. Wilkinson
Its: Chairman of the Board & Chief Executive
Officer
SELLERS:
/s/ Richard Niermann
--------------------------
Richard Niermann
/s/ Mary Ann Niermann
--------------------------
Mary Ann Niermann
67
<PAGE> 69
SCHEDULE 2.1
Target Stock
150 shares of Common Stock issued and outstanding William W. Wilkinson owns 75
shares of Common Stock William J. Wilkinson owns 75 shares of Common Stock
Sold Stock
Sold Stock equals 120 shares of Common Stock of Target William W. Wilkinson owns
60 shares of Sold Stock William J. Wilkinson owns 60 shares of Sold Stock
Contributed Stock
Contributed Stock equals 30 shares of Common Stock of Target William W.
Wilkinson owns 15 shares of Contributed Stock William J. Wilkinson owns 15
shares of Contributed Stock
LLC Interests
LLC Interests equals 2 Units in Corporate Staffing Resources LLC William W.
Wilkinson owns 1 Unit William J. Wilkinson owns 1 Unit
<PAGE> 70
SCHEDULE 2.2
Each of the Sellers will receive 50% of each of the
Consideration, the Present Shares, the 1997 Shares, the 1998 Shares and the Cash
Portion.
All of the Consideration except for $200,000 will be allocated
to the Shares. $200,000 of the Consideration will be allocated to the LLC
Interests.
<PAGE> 71
SCHEDULE 6.2
NONE.
<PAGE> 72
SCHEDULE 6.3
See attached.
<PAGE> 73
1. The capitalization of CSR, Inc., a Delaware Corporation ("Newco A") consists
of 1,000,000 shares of common stock, $.01 par value, and 1,000,000 shares of
preferred stock, $.01 par value, of which 110,000 shares of common stock and
110,000 shares of preferred stock are issued and outstanding (upon consummation
of the acquisition).
The owners of the outstanding shares and their respective ownership
are:
William W. Wilkinson and William J. Wilkinson (collectively
"The Wilkinsons"): 22,000 shares of common stock and 22,000
shares of preferred stock.
ING (U.S.) Capital Corporation: 4,800 shares of common stock
and 4,800 shares of preferred stock.
IPP97: 83,200 shares of common stock and 83,200 shares of
preferred stock.
No person owns any option, warrant or other right to acquire
any capital stock of Newco A except ING (U.S.) Capital
Corporation. The Company, following the Closing, will adopt a
stock incentive plan for the employees of the Company and its
Subsidiaries. Pursuant to Article 2 of the Acquisition
Agreement, the Company may issue further shares of common
stock to The Wilkinsons.
2. The capitalization of CSR Acquisition Corp. ("Newco B") consists of 1,000
shares of common stock, no par value, of which 100 shares are issued and
outstanding. Immediately following the Closing, Newco B will merge with
Corporate Staffing Resources, Inc., an Indiana Corporation ("Holdings").
The owners of the outstanding shares and their respective ownership
are:
Newco A: 100 shares.
No person owns any option, warrant or other right to acquire
any capital stock of Newco B.
<PAGE> 1
Exhibit 2.04
STOCK PURCHASE AGREEMENT
Dated as of March 2, 1998
between
PURCHASER:
Corporate Staffing Resources, Inc.
AND
SELLERS:
Krauthamer Family
Limited Partnership
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I................................................................................................1
1.1 Defined Terms..........................................................................1
ARTICLE II - PURCHASE AND SALE OF STOCK.................................................................11
2.1 Transfer of Stock..........................................................................11
2.2 Consideration. ...........................................................................11
2.3 Closing Payment...........................................................................11
2.4 Contingent Amounts........................................................................12
2.5 Post Closing Adjustments..................................................................14
2.6 Manner of Payment.........................................................................17
2.7 Allocation of Consideration. ..............................................................17
ARTICLE III - SELLERS' AGREEMENTS RESPECTING
POST-CLOSING COMPETITION...............................................................................17
3.1 Reasons For Agreements. ...................................................................17
3.2 The Sellers' Agreements. ..................................................................17
3.3 Interpretation and Remedies................................................................19
3.4 Definitions................................................................................20
3.5 Termination of Sellers' Agreements.........................................................20
ARTICLE IV - CLOSING....................................................................................20
4.1 Closing. .................................................................................20
4.2 Deliveries at Closing.....................................................................20
4.3 Other Closing Transactions................................................................21
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF
THE SELLERS............................................................................................22
5.1 Organization and Good Standing.............................................................22
5.2 Authority; No Conflict.....................................................................22
5.3 Capitalization. ..........................................................................23
5.4 Financial Statements......................................................................24
5.5 Books and Records. .......................................................................24
5.6 Title to Properties: Encumbrances. .......................................................25
5.7 Condition and Sufficiency of Assets........................................................25
5.8 No Undisclosed Liabilities.................................................................25
5.9 Taxes......................................................................................25
5.10 No Material Adverse Change...............................................................27
5.11 Employee Benefits........................................................................27
5.12 Compliance with Legal Requirements; Governmental Authorizations..........................31
5.13 Legal Proceedings; Orders................................................................33
5.14 Absence of Certain Changes and Events....................................................34
5.15 Contracts; No Defaults...................................................................35
5.16 Insurance................................................................................38
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
5.17 Environmental Matters ...................................................................40
5.18 Labor Relations; Compliance: Employees...................................................41
5.19 Intellectual Property....................................................................42
5.20 Certain Payments.........................................................................43
5.21 No Other Agreements to Sell Assets or Capital Stock of the Subject Company. .............43
5.22 Relationships with Related Persons.......................................................43
5.23 Customers and Suppliers..................................................................44
5.24 Bank Accounts. ..........................................................................44
5.25 Brokers and Finders; Advisors............................................................44
5.26 Disclosure. .............................................................................44
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF PURCHASER...............................................44
6.1 Organization of Purchaser.................................................................45
6.2 Corporate Authority and Ability...........................................................45
6.3 Authorization: No Conflict................................................................45
6.4 Proceedings...............................................................................46
6.5 Investment................................................................................46
6.6 Brokers or Finders........................................................................46
ARTICLE VII - ACTIONS OF THE SELLERS AND THE PURCHASER BEFORE
THE CLOSING DATE.......................................................................................46
7.1 Access and Investigation..................................................................46
7.2 Operation of Business.....................................................................46
7.3 Negative Covenants........................................................................47
7.4 Required Approvals........................................................................47
7.5 Notification..............................................................................47
7.6 No Negotiation............................................................................48
7.7 Best Efforts..............................................................................48
ARTICLE VIII - CONDITIONS PRECEDENT TO
PURCHASER'S OBLIGATION TO CLOSE.........................................................................48
8.1 Accuracy of Representations...............................................................48
8.2 Sellers' and Subject Companies' Performance...............................................48
8.3 Consents..................................................................................49
8.4 Additional Documents......................................................................49
8.5 No Proceedings............................................................................49
8.6 Financing.................................................................................49
8.7 No Prohibition............................................................................49
8.8 No Claim Regarding Stock Ownership or Sale Proceeds.......................................49
8.9 Kurt Krauthamer Insurability...............................................................50
ARTICLE IX - CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE....................................................................................50
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
9.1 Accuracy of Representations...............................................................50
9.2 The Purchaser's Performance...............................................................50
9.3 Consents..................................................................................50
9.4 Additional Documents......................................................................50
9.5 No Proceedings...........................................................................50
9.6 No Prohibition...........................................................................51
ARTICLE X - SELLERS' INDEMNIFICATION; REMEDIES..........................................................51
10.1 Survival of Representations. Etc.........................................................51
10.2 Indemnifications.........................................................................51
10.3 Tax......................................................................................55
ARTICLE XI - ADDITIONAL PURCHASER'S INDEMNIFICATION; REMEDIES...........................................57
11.1 The Indemnity............................................................................57
11.2 Notice and Cooperation...................................................................58
11.3 Seller's Claim for Indemnity; Payment....................................................58
ARTICLE XII - PURCHASER'S POST-CLOSING COVENANTS........................................................58
12.1 Subject Company Working Capital..........................................................58
12.2 Subject Company Name.....................................................................58
12.3 Purchaser's Existing California Business.................................................58
12.4 Separate Corporate Status. ..............................................................59
ARTICLE XIII - TERMINATION..............................................................................59
13.1 Termination Events.......................................................................59
13.2 Effect of Termination....................................................................59
ARTICLE XIV - MISCELLANEOUS.............................................................................60
14.1 Assignment..............................................................................60
14.2 Notices.................................................................................60
14.3 Choice of Law...........................................................................61
14.4 Entire Agreement: Amendments and Waivers................................................61
14.5 Multiple Counterparts...................................................................62
14.6 Expenses................................................................................62
14.7 Invalidity..............................................................................62
14.8 Titles..................................................................................62
14.9 Publicity...............................................................................62
14.10 Confidential Information................................................................62
14.11 Burden and Benefit......................................................................64
14.12 Service of Process; Consent to Jurisdiction.............................................64
14.13 Attorneys' Fees.........................................................................64
14.14 Limitation of Liability.................................................................65
14.15 Additional Survival.....................................................................65
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of March 2, 1998 (this
"Agreement"), is by and among Corporate Staffing Resources, Inc., a Delaware
corporation (the "Purchaser") and Krauthamer Family Limited Partnership, a
California limited partnership, ("Seller or "Sellers").
RECITALS
A. The Purchaser desires to purchase from the Sellers, and the
Sellers desire to sell to Purchaser all of the issued and outstanding capital
stock of Intranational Computer Consultants, a California corporation (the
"Subject Company") upon the terms and subject to the conditions contained herein
(the "Acquisition").
B. In connection with the Acquisition, the parties desire to
set forth certain agreements, representations, warranties and covenants made by
one or more parties to the other or others as an inducement to the consummation
of the Acquisition, upon the terms and subject to the conditions contained
herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I
1.1 Defined Terms. As used herein, the terms below shall have
the following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall have the meaning set forth in
Section 2.5(b).
"Acquisition" shall have the meaning set forth in recital A to
this Agreement.
"Advisors" shall have the meaning set forth in Section 7.1.
"Affiliate" shall have the meaning set forth in the Exchange
Act. Without limiting the foregoing, all directors and officers of a Person that
is a corporation and all managing members of a Person that is a limited
liability company, shall be deemed Affiliates of such Person for all purposes
hereunder.
"Agreement" shall mean this Stock Purchase Agreement.
<PAGE> 6
"Applicable Contract" shall mean any Contract (a) under which
the Subject Company has acquired any rights, (b) under which the Subject Company
has become subject to any obligation or liability, or (c) by which the Subject
Company or any of the assets owned or used by it is bound.
"Balance Sheet" shall have the meaning set forth in Section
5.6.
"Best Efforts" shall mean the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to ensure that
such result is achieved as expeditiously as possible; provided, however, that an
obligation to use Best Efforts under this Agreement does not require the Person
subject to that obligation to take actions that would result in a Material
Adverse Change in the benefits to such Person of this Agreement and the
Transactions.
"Breach" shall mean and a breach of a representation,
warranty, covenant, obligation, or other provision of this Agreement or any
Transaction Documents will be deemed to have occurred if there is or has been
any inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision.
"CERCLA" shall mean the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et. seq.,
as amended.
"Claim" shall have the meaning set forth in Section 10.2(d).
"Claim Notice" shall have the meaning set forth in Section
10.2(d).
"Cleanup" shall mean any investigation, cleanup, removal,
containment or other remediation or response actions.
"Closing" shall have the meaning set forth in Section 4.1.
"Closing Balance Sheet" shall have the meaning set forth in
Section 2.5(a).
"Closing Balance Sheet Date" shall mean the date immediately
preceding the Closing Date.
"Closing Date" shall have the meaning set forth in Section 13.
l(d).
"Closing Payment" shall have the meaning set forth in Section
2.3.
"Confidential Information" shall have the meaning set forth in
Section 14.10(b).
"Consent" shall mean any approval, consent, ratification,
waiver, or other authorization (including any Governmental Authorization).
2
<PAGE> 7
"Consideration" shall have the meaning set forth in Section
2.2.
"Contingent Amounts" shall have the meaning set forth in
Section 2.2.
"Contract" shall mean any agreement, contract, obligation,
promise, or undertaking (whether written or oral) that is legally binding.
"Copyrights" shall have the meaning set forth in Section
5.19(a).
"Covenant Payment" shall have the meaning set forth in Section
3.1.
"Damages" shall have the meaning set forth in Section 10.2(a).
"Disclosure Schedules" shall mean the schedules prepared and
delivered by the Sellers for and to the Purchaser and dated as of the date
hereof which set forth the exceptions to the representations and warranties
contained herein and certain other information called for by this Agreement.
Unless otherwise specified, each reference in this Agreement to any numbered
schedule is a reference to that numbered schedule which is included in the
Disclosure Schedules.
"EBIT" shall mean earnings before interest expense and tax
expenses determined in accordance with GAAP.
"Encumbrance" shall mean any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"Environment" shall mean soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins and wetlands), groundwater, drinking water supply, stream
sediments, ambient air (including indoor air), plant and animal life and any
other environmental medium or natural resource.
"Environmental. Health and Safety Liabilities" shall mean any
cost, damage, expense, Liability, obligation or other responsibility arising
from or under Environmental Law or Occupational Safety and Health Law and
consisting of or relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial or
3
<PAGE> 8
inspection costs and expenses arising under any Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any Cleanup required by applicable Environmental Law
or Occupational Safety and Health Law (whether or not such Cleanup has
been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative or
remedial measures required under any Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial" and "response action" include
the types of activities covered by CERCLA.
"Environmental Law" shall mean all federal, state, district,
local and foreign laws, all rules or regulations promulgated thereunder and all
orders, consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the Environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata), including without limitation
(i) laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, materials, wastes or other substances into
the Environment and (ii) laws relating to the identification, generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
recovery, transport or other handling of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances. Environmental Laws shall
include, without limitation, CERCLA, the Toxic Substances Control Act, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the
Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the
Occupational Safety and Health Act, as amended, the California Health & Safety
Code (Section 25100 et seq., 39000 et seq.) and the California Water Code
(Section 13000, et seq.) and all analogous laws promulgated or issued by any
state or other governmental authority.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"ERISA Affiliate" shall mean any other Person that, together
with the Subject Company, is or was required to be treated as a single employer
under IRC Section 414(b) or (c), and solely for the purposes of potential
liability under ERISA Section 302(c)(ii) and IRC Section 412(c)(ii) and the lien
created under ERISA Section 302(f) and IRC Section 412(n), under IRC Section
414(m) or (o).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated thereunder.
4
<PAGE> 9
"Facilities" shall mean any real property, leaseholds or other
interests currently or formerly owned or operated by the Subject Company and any
buildings, plants, structures or equipment (including motor vehicles) currently
or formerly owned or operated by the Subject Company.
"Family" shall mean, with respect to any individual (i) the
individual, (i) the individual's spouse, (iii) any other natural Person who is
related to the individual or the individual's spouse within the second degree
and (iv) any other natural Person who resides with such individual.
"Financial Statements" shall have the meaning set forth in
Section 5.4.
"Fixed Amount" shall have the meaning set forth in Section
2.2.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Authorization" shall mean any approval, Consent,
license, permit, waiver or other authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" shall mean any:
(a) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or
entity and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power of any nature.
"Hazardous Activity" shall mean the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment or use
(including any withdrawal or other use of groundwater) of Hazardous Materials
in, on, under, about or from the Facilities or any part thereof into the
Environment and any other act, business, operation or thing that increases the
danger or risk of danger or poses an unreasonable risk of harm to Persons or
property on or off the Facilities or that may affect the value of the Facilities
or the Subject Company.
"Hazardous Materials" shall mean any waste or other substance
that is listed, defined, designated or classified as, or otherwise determined to
be, hazardous, radioactive or toxic or a
5
<PAGE> 10
pollutant or a contaminant subject to regulation, control or remediation under
any Environmental Law (whether solids, liquids or gases), including any mixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor, polychlorinated biphenyls and
asbestos or asbestos-containing materials.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"Information Technology Staffing Services Business" shall have
the meaning set forth in Section 3.4.
"Intellectual Property Assets" shall have the meaning set
forth in Section 5.19(a).
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, or any successor law
"IRS" shall mean the United States Internal Revenue Service or
any successor agency.
"Knowledge" shall mean and an individual will be deemed to
have "Knowledge" of a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual should be aware of such fact or other
matter.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving as a director, executive officer, partner, executor or trustee of such
Person (or in any similar capacity) has, Knowledge of such fact or other matter.
"Knowledge of the Sellers" or other similar phrases shall mean
the Knowledge of the Sellers and the actual knowledge of any other executive
officer of the Subject Company.
"Krauthamer Employment Agreement" shall have the meaning set
forth in Section 2.4(f).
"Legal Requirement" shall mean any federal, state, local,
municipal, foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Liability" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any Person of any type, whether known, unknown, accrued,
absolute, contingent, matured or unmatured.
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<PAGE> 11
"Marks" shall have the meaning set forth in Section 5.19(a).
"Material Adverse Effect" or "Material Adverse Change" shall
mean any significant and substantial adverse effect or change in the condition
(financial or other), business, results of operations, liabilities or operations
of any party, its business and/or assets or on the ability of such party or its
stockholders or shareholders, as the case may be, to consummate the
Transactions, or any event or condition which would, with the passage of time,
constitute a "Material Adverse Effect" or "Material Adverse Change."
"Material Interest" shall mean direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of voting securities
or other voting interests representing at least 10% of the outstanding voting
power of a Person or equity securities or other equity interests representing at
least 10% of the outstanding equity securities or equity interests in a Person.
"Multiemployer Plan" shall have the meaning set forth in ERISA
Section 3(37)(A).
"Noncompetition Period" shall have the meaning set forth in
Section 3.4.
"Occupational Safety and Health Law" shall mean any Legal
Requirement designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards, and any program designed to
provide safe and healthful working conditions.
"Order" shall mean any award, decision, injunction, judgment,
order, ruling, subpoena or verdict entered, issued, made or rendered by any
court, administrative agency or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" shall describe any action taken
by a Person if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority) and is not required to be authorized by
the parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"Organizational Documents" shall mean (a) the articles or
certificate of incorporation, all certificates of determination and designation,
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership
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<PAGE> 12
agreement and the certificate or articles of limited partnership of a limited
partnership; (d) the operating agreement, limited liability company agreement
and the certificate or articles of organization or formation of a limited
liability company; (e) any charter or similar document adopted or filed in
connection with the creation, formation or organization of a Person; and (f) any
amendment to any of the foregoing.
"Other Benefit Obligations" shall mean all obligations,
arrangements or customary practices, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, employees or agents, other than obligations,
arrangements and practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not depend upon the
amount of service rendered, sabbatical policies, severance payment policies and
fringe benefits within the meaning of IRC Section 132.
"Patents" shall have the meaning set forth in Section 5.19(a).
"Pension Plan" shall have the meaning set forth in ERISA
Section 3(2)(A).
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or Governmental Body.
"Plan" shall have the meaning set forth in ERISA Section 3(3).
"Plan Sponsor" shall have the meaning set forth in ERISA
Section 3(16)(B).
"Post-Closing Partial Period" shall have the meaning set forth
in Section 10.3(b).
"Pre-Closing Partial Period" shall have the meaning set forth
in Section 10.3(a).
"Proceeding" shall mean any action, arbitration, audit,
hearing, investigation, litigation or suit (whether civil, criminal,
administrative, investigative or informal) commenced, brought, conducted or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"Proposed Acquisition Transaction" shall have the meaning set
forth in Section 7.6.
"Purchaser" shall have the meaning set forth in the first
paragraph of this Agreement.
"Purchaser Indemnified Parties" shall have the meaning set
forth in Section 10.2(b).
"Qualified Plan" shall mean any Plan that meets or purports to
meet the requirements of IRC Section 401(a).
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<PAGE> 13
"Related Person" shall mean with respect to a particular
individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director,
executive officer, partner, executor or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, executive officer,
partner, executor or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity).
"Release" shall mean any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, dumping or other releasing into the
Environment, whether intentional or unintentional.
"Representative" shall mean any officer, director, principal,
attorney, agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"Seller Indemnified Parties' shall have the meaning set forth
in Section 10.2(a).
"Sellers" shall have the meaning set forth in the first
paragraph of this Agreement.
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<PAGE> 14
"Sellers' Accountant" shall have the meaning set forth in
Section 2.4(a).
"Sellers' Closing Documents" shall have the meaning set forth
in Section 5.2(a).
"Shareholders' Equity" shall have the meaning set forth in
Section 2.5(a).
"Stock" shall have the meaning set forth in Section 2.1.
"Straddle Period" shall have the meaning set forth in Section
10.3(b).
"Subject Company" shall have the meaning set forth in the
first paragraph of this Agreement.
"Subsidiary" shall mean, with respect to any Person (for the
purposes of this definition, the "Owner"), any corporation or other Person of
which securities or other interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries .
"Tax" or "Taxes" shall mean any federal, state, local, foreign
or other tax, levy, impost, fee, assessment or other governmental charge,
including without limitation income, estimated income, gross receipts, business,
occupation, franchise, property, payroll, personal property, sales, transfer,
use, employment, commercial rent, occupancy, franchise or withholding taxes, and
any premium, including without limitation, interest, penalties and additions in
connection therewith.
"Tax Return" shall mean any return (including any information
return), report, statement, schedule, notice, form or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of, or compliance with, any Legal
Requirement relating to any Tax.
"Territory" shall have the meaning set forth in Section 3.4.
"Threat of Release" shall mean a substantial likelihood of a
Release that may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.
"Threatened" shall describe any claim, Proceeding, dispute,
action or other matter if (i) any demand or statement has been made (orally or
in writing) with respect to such claim, Proceeding, dispute, action or other
matter, (ii) any notice has been given (orally or in writing) with respect
thereto or (iii) any other event has occurred or any other circumstances exist,
that would lead
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<PAGE> 15
a prudent Person to conclude that such a claim, Proceeding, dispute, action or
other matter is likely to be asserted, commenced, taken or otherwise pursued in
the future.
"Threshold" shall have the meaning set forth in Section
10.2(e).
"Title IV Plans" shall mean all Pension Plans that are subject
to regulation under Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other
than Multiemployer Plans.
"Trade Secrets" shall have the meaning set forth in Section
5.19(a).
"Transaction Documents" shall mean this Agreement, the
Employment Agreement, and all instruments executed, filed or otherwise prepared,
exchanged or delivered in accordance with this Agreement.
"Transactions" shall mean the Acquisition and the other
transactions contemplated by the Transaction Documents.
"Welfare Plan" shall have the meaning given in ERISA
Section 3(1).
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock.
Upon the terms and subject to the conditions set forth herein,
on the Closing Date each of the Sellers shall sell, convey, transfer,
assign and deliver to the Purchaser, and the Purchaser shall purchase
from the Sellers, all of the outstanding shares of capital stock of the
Subject Company (the "Stock"), which Stock is owned by each of the
Sellers in the amounts set forth next to the name of each such Seller
in Schedule 2.1.
2.2 Consideration. Upon the terms and subject to the
conditions set forth herein, in consideration for the transfer of the Stock
pursuant to Section 2.1, the Purchaser shall pay to the Sellers, at the times
hereafter set forth, the Closing Payment pursuant to Section 2.3, as adjusted
pursuant to Section 2.5 and the Contingent Amounts pursuant to Section 2.4. The
Closing Payment as adjusted pursuant to Section 2.5 is referred to herein as the
"Fixed Amount" and together with the Contingent Amounts, collectively referred
to as the "Consideration."
2.3 Closing Payment. On the Closing Date, the Purchaser shall
pay to the Sellers an aggregate amount of Five Million Four Hundred Thousand
Dollars ($5,400,000) in cash (the "Closing Payment").
2.4 Contingent Amounts.
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(a) On or before the times hereinafter set forth, the
Purchaser shall pay to the Sellers the additional cash amounts
hereinafter described (the "Contingent Amounts"):
(i) An amount equal to six (6) multiplied by the
excess of (A) the Adjusted EBIT of the Subject Company for the
calendar year 1998 (the "1998 Adjusted EBIT") over (B) the
1997 Base; plus
(ii) An amount equal to six (6) multiplied by the
excess of (A) the Adjusted EBIT of the Subject Company for the
calendar year 1999 (the "1999 Adjusted EBIT") over (B) the
greater of [i] the 1997 Base or [ii] the 1998 Adjusted EBIT;
plus
(iii) An amount equal to six (6) multiplied by the
excess of (A) the Adjusted EBIT of the Subject Company for the
calendar year 2000 (the "2000 Adjusted EBIT") over (B) the
greater of [i] the 1997 Base or [ii] the 1998 Adjusted EBIT or
[iii] the 1999 Adjusted EBIT; provided, however, that the
aggregate of the Contingent Amounts shall not exceed Six
Million Dollars ($6,000,000).
(b) The "1997 Base" shall mean $875,000 unless the 1997
Adjusted EBIT of the Subject Company is less than $825,000 in which
event the "1997 Base" shall mean $875,000 less the amount by which
$825,000 exceeds 1997 Adjusted EBIT. "1997 Adjusted EBIT" shall mean
EBIT for 1997 adjusted as provided in Schedule 2.4(A) hereto. "Adjusted
EBIT" as used in determining the 1998 Annualized Adjusted EBIT, the
1999 Adjusted EBIT and the 2000 Adjusted EBIT shall mean the EBIT for
such period adjusted as provided in Schedule 2.4(B) hereto.
(c) As promptly as practicable after the end of each of the
calendar years 1998, 1999 and 2000 (but in no event more than sixty
(60) days after the year end) the Purchaser shall cause the Subject
Company to prepare and deliver to the Sellers an Adjusted EBIT
statement for the respective calendar year (the "Adjusted EBIT
Report"). Each Adjusted EBIT Report shall include an income statement
prepared in accordance with GAAP, a listing by item and amount of each
adjustment to EBIT in accordance with Schedule 2.4(B) hereof and the
Purchaser's determination of the amount of the Adjusted EBIT for the
applicable period. Each Adjusted EBIT Report shall be accompanied by a
certificate of the Chief Financial Officer of the Purchaser to the
effect that the Adjusted EBIT Report presents fairly in accordance with
GAAP the EBIT of the Subject Company for the period covered thereby and
properly and fully reflects each adjustment required to determine
Adjusted EBIT in accordance with Schedule 2.4(B) hereto. The Sellers
and a firm of independent public accountants designated by the Sellers
(the "Sellers' Accountant") will be entitled to reasonable access
during normal business hours to the relevant records and working papers
of the Subject Company and its accountants to aid in their review of
the Adjusted EBIT Report. The Sellers will be solely responsible for
all costs of the Sellers' Accountants. Each Adjusted EBIT Report shall
be deemed to be accepted by and shall be conclusive for the
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<PAGE> 17
purposes of determining the applicable Contingent Amount except to the
extent, if any, that the Sellers or the Sellers' Accountant shall have
delivered within thirty (30) days after the date on which the Adjusted
EBIT Report is delivered to Sellers, a written notice to the Purchaser
stating each and every item to which the Sellers take exception as not
being in accordance with GAAP or Schedule 2.4(B) hereto or as having
computational errors, specifying in reasonable detail the nature and
extent of any such exception (it being understood that any amounts not
disputed shall be paid promptly). If a change proposed by the Sellers
is disputed by the Purchaser, then the Purchaser and the Sellers shall
negotiate in good faith to resolve such dispute. If, after a period of
twenty (20) days following the date on which the Sellers give the
Purchaser notice of any such proposed change, any such proposed change
still remains disputed, then the Purchaser and the Sellers shall
together choose an independent firm of public accountants of nationally
recognized standing (the "Accounting Firm") to resolve any remaining
disputes. The Accounting Firm shall act as an arbitrator to determine,
based solely on presentations by the Sellers and the Purchaser, and not
by independent review, only those issues still in dispute. The decision
of the Accounting Firm shall be final and binding and shall be in
accordance with the provisions of this Section 2.4. All of the fees and
expenses of the Accounting Firm shall be paid by the Purchaser and the
Sellers based on the Accounting Firm's Adjusted EBIT determination in
relation to the Adjusted EBIT proposals submitted by the parties. For
purposes of illustration, if the Purchaser's submitted Adjusted EBIT is
$1,500,000, the Sellers' submitted Adjusted EBIT is $1,600,000 and the
Accounting Firm's determined Adjusted EBIT is $1,575,000, the Purchaser
shall pay 75% and the Sellers shall pay 25%.
(d) All payments of Contingent Amounts shall be made within
thirty (30) days following the applicable Adjusted EBIT Report Delivery
Date. The term "Adjusted EBIT Report Delivery Date" shall mean March 1
of the year in which the Adjusted EBIT Report is to be delivered as
provided in Section 2.4(c); provided, however, if any change to the
Adjusted EBIT Report is agreed to by the Purchaser and the Sellers in
accordance with this Section 2.4, then the date on which the Purchaser
and the Sellers agree in writing to such change shall be the Adjusted
EBIT Report Delivery Date; and, provided, further, that if any dispute
with respect to the Adjusted EBIT Report is resolved in accordance with
this Section 2.4, then the date on which the Accounting Firm delivers
its decision with respect to such dispute shall be the Adjusted EBIT
Report Delivery Date; provided, however, that any amounts not disputed
shall be paid promptly on March 31st.
(e) Any portion of any Contingent Amounts not paid by March 31
shall be payable with interest at the per annum rate of two percent
(2%) in excess of the prime rate published in the Wall Street Journal
money rates section accruing from March 31 of the year in which the
Adjusted EBIT Report is to be delivered to the date of payment together
with all of the Sellers' reasonable costs of collection, including
reasonable attorney's fees.
(f) After the Closing Date, Seller Kurt Krauthamer will be
employed by the Subject Company pursuant to the Employment Agreement in
the form of Exhibit A hereto
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<PAGE> 18
(the "Krauthamer Employment Agreement"). In the event the Subject
Company terminates the employment of Kurt Krauthamer other than
pursuant to Section 5(a)(i), (ii) or (iii) of the Krauthamer Employment
Agreement, the Purchaser shall pay to the Sellers as additional
Consideration and in lieu of any Contingent Amounts which would
otherwise have been payable with respect to the calendar year in which
employment terminated and each subsequent year the following:
(i) Six Million Dollars ($6,000,000), minus
(ii) all Contingent Amounts previously paid or
which have become payable to the Sellers.
Such amount, if any, shall be payable in equal cash
installments on the dates that the Contingent Amounts would
have been payable.
(g) In the event the Subject Company terminates the employment
of Kurt Krauthamer pursuant to Section 5(a)(i) of the Krauthamer
Employment Agreement and the reason for termination is any of the
reasons set forth in subsections (A) or (B) of Section 5(a)(i) of the
Krauthamer Employment Agreement, then all right of the Sellers to
receive Contingent Amounts with respect to the year in which employment
is terminated and each subsequent year shall terminate and the
Purchaser shall not be obligated to pay any Contingent Amounts with
respect to such years.
2.5 Post Closing Adjustments.
(a) Adjustments for 1997 Financial Results.
(i) On or before the date hereinafter provided, the
Purchaser shall pay to the Sellers the Adjustment Amount. The
"Adjustment Amount" shall mean:
(A) $500,000,
less
(B) an amount equal to 6.6 multiplied by the
excess, if any, of (A) $825,000 over (B) 1997
Adjusted EBIT,
plus
(C) the amount, if any, by which
Shareholders' Equity exceeds $550,000,
less
(D) the amount, if any, by which $550,000
exceeds Shareholders' Equity,
plus
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(E) an amount equal to six percent (6%) per
annum on the sum of (A), (B), (C) and (D), and
accruing from the Closing Date until the date of
payment based upon a 365-day year.
The term "Shareholders' Equity" shall mean the amount
which the total assets of the Subject Company exceeds the
total Liabilities of the Subject Company, in each case as set
forth on the Closing Balance Sheet; provided, however, that if
any change to the Closing Balance Sheet is agreed to by the
Purchaser and the Sellers in accordance with Section
2.5(a)(ii) or any dispute between the Purchaser and the
Sellers with respect to the Closing Balance Sheet is resolved
in accordance with Section 2.5(a)(ii), then 'Shareholders'
Equity" shall be calculated after giving effect to any such
change or resolution.
(ii) As promptly as practicable after the Closing
Date (but in no event more than thirty (30) days after the
Closing Date, the Sellers shall deliver to the Purchaser (A)
an audited balance sheet of the Subject Company as of December
31, 1997 and the related audited statements of income, changes
in shareholders' equity, and cash flow for the fiscal year
then ended, together with the report thereon of Moss Adams
LLP, independent certified public accountants, including the
notes thereto (the "1997 Financial Statements"), (B) the
Sellers' certificate of the amount of the 1997 Adjusted EBIT
listing by item and amount each adjustment to the 1997
Financial Statements EBIT in accordance with Schedule 2.4(A)
(the "1997 Adjusted EBIT Report") and (C) a compiled balance
sheet of the Subject Company as of the close of business on
the day immediately preceding the Closing Date, together with
the report thereon of Moss Adams LLP (the "Closing Balance
Sheet" and, together with the 1997 Financial Statements and
the 1997 Adjusted EBIT Report, collectively, the "Post-Closing
Financial Reports"). The 1997 Financial Statements and the
Closing Balance Sheet shall be prepared in accordance with
GAAP, applied on a basis consistent with the Financial
Statements and shall be accompanied by a certificate of the
Sellers to the effect that the 1997 Financial Statements and
the Closing Balance Sheet present fairly the financial
condition of the Subject Company for the period or as of the
date thereof. If GAAP requires expense accruals or other
accounting changes that are not consistent with prior
practices, both the beginning and ending balance sheet numbers
for the 1997 Financial Statements will changed in order not to
distort 1997 Adjusted EBIT. The Purchaser and a firm of
independent public accountants designated by the Purchaser
(the "Purchaser's Accountant") will be entitled to reasonable
access during normal business hours to the relevant records
and working papers of the Subject Company and its accountants
to aid in their review of the Post-Closing Financial Reports.
The Purchaser will be solely responsible for all costs of the
Purchaser's Accountants. The Post-Closing Financial Reports
shall be deemed to be accepted by and shall be conclusive for
the purposes of the Adjustment Amount described in Section
2.5(a)(i) hereof except to the extent, if any, that the
Purchaser or the Purchaser's Accountant shall have delivered,
within thirty
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<PAGE> 20
(30) days after the date on which the Post-Closing Financial
Reports are delivered to the Purchaser, a written notice to
the Sellers stating each and every item to which the Purchaser
takes exception as not being in accordance with GAAP or
Schedule 2.4(A) hereto or as having computational errors,
specifying in reasonable detail the nature and extent of any
such exception (it being understood that any portion of the
Adjustment Amount not disputed shall be paid promptly). If a
change proposed by the Purchaser is disputed by the Sellers,
then the Purchaser and the Sellers shall negotiate in good
faith to resolve such dispute. If, after a period of twenty
(20) days following the date on which the Purchaser gives the
Sellers notice of any such proposed change, any such proposed
change still remains disputed, then the Purchaser and the
Sellers shall together choose an independent firm of public
accountants of nationally recognized standing (the "Accounting
Firm") to resolve any remaining disputes. The Accounting Firm
shall act as an arbitrator to determine, based solely on
presentations by the Sellers and the Purchaser and not by
independent review, only those issues still in dispute. The
decision of the Accounting Firm shall be final and binding and
shall be in accordance with the provisions of this Section
2.5. All of the fees and expenses of the Accounting Firm shall
be paid by the Purchaser and the Sellers based on the
Accounting Firm's determination of the Adjustment Amount in
relation to the Adjustment Amount proposals submitted by the
parties. For purposes of illustration, if the Purchaser's
submitted Adjustment Amount is $300,000 and the Sellers'
submitted Adjustment Amount is $400,000 and the Accounting
Firm's determined Adjustment Amount is $375,000, the Purchaser
shall pay 75% and the Sellers shall pay 25%.
(iii) Any Adjustment Amount required to be paid to
the Sellers pursuant to this Section 2.5(a) shall be paid
within thirty (30) days of the Post-Closing Financial Reports
Delivery Date by wire transfer of immediately available funds
to the accounts previously designated by the Sellers. The term
"Post-Closing Financial Reports Delivery Date" shall mean the
date on which the Post-Closing Financial Reports are delivered
to the Purchaser pursuant to Section 2.5(a)(ii); provided,
however, that if any change to the Adjustment Amount is agreed
to by the Purchaser and the Sellers in accordance with Section
2.5(a)(ii), then the date on which the Purchaser and the
Sellers agree in writing to such change shall be the
Post-Closing Financial Reports Delivery Date; and provided,
further, that if any dispute with respect to the Adjustment
Amount is resolved in accordance with Section 2.5(a)(ii), then
the date on which the Accounting Firm delivers its decision
with respect to the Adjustment Amount shall be the
Post-Closing Financial Reports Delivery Date; it being
understood that any amounts not disputed shall be paid
promptly.
(iv) In the event that the Adjustment Amount as
determined pursuant to this Section 2.5(a) is a negative
amount, i.e., the sum of subsections (B), (C) and (D) of
Section 2.5(a)(i) exceed $500,000, the Adjustment Amount shall
be paid by the Sellers to the Purchaser within thirty (30)
days of the Post-Closing Financial Reports
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Delivery Date by wire transfer of immediately available funds
to an account designated by the Purchaser.
(b) Accounts Receivable Adjustment. If the amount of the
Closing Date Accounts Receivable not collected by December 31, 1998
exceeds the Closing Date Reserve, the excess will be applied as a
reduction and setoff against the Contingent Amount payable to the
Sellers with respect to 1998 and the uncollected Closing Date Accounts
Receivable will be assigned by the Subject Company to the Sellers. If
the Closing Date Reserve exceeds the amount of the Closing Date
Accounts Receivable not collected by December 31, 1998, the excess will
be paid by the Purchaser to the Sellers on or before March 31, 1999.
The term "Closing Date Accounts Receivable" shall mean the accounts
receivable of the Subject Company included in the Closing Balance
Sheet. The term "Closing Date Reserve" shall mean the amount shown as
the reserve for bad debts on the Closing Balance Sheet which the
parties agree shall be $10,000.
2.6 Manner of Payment. All payments by the Purchaser to the
Sellers shall be in cash by wire transfer of immediately available funds to the
respective bank accounts designated by the Sellers in writing to the Purchaser.
2.7 Allocation of Consideration. The Consideration shall be
allocated among the Sellers as set forth in Schedule 2.7 hereto.
ARTICLE III
SELLERS' AGREEMENTS RESPECTING
POST-CLOSING COMPETITION
3.1 Reasons For Agreements. The Purchaser is making a
substantial investment pursuant to this Agreement in reliance upon the fact that
the knowledge and expertise developed by the Sellers in their management of the
business and affairs of the Subject Company will be preserved and will not be
used in competition with the Purchaser, the Subject Company or its Affiliates.
It is necessary for the protection of the Purchaser, the Subject Company and its
Affiliates that the Sellers provide the agreements and assurances set forth in
this Article III and the Sellers do so in consideration of the additional
payment by the Purchaser to the Sellers of One Hundred Thousand Dollars
($100,000) (the "Covenant Payment").
3.2 The Sellers' Agreements. The Sellers severally and
collectively agree that neither of the Sellers will, directly or indirectly,
except for the benefit of the Purchaser or its Affiliates, or with the consent
of the Purchaser, which consent may be granted or withheld at the Purchaser's
sole discretion:
(a) during the Noncompetition Period (as defined in Section
3.4 thereof), become a stockholder, partner, member, manager,
associate, employee, owner, agent, creditor,
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independent contractor, co-venturer, a consultant or otherwise, or
encourage, counsel, advise or financially assist or support a spouse of
a Seller or any other member of the immediate family that resides with
him to be or become, or a Seller to himself be, or be interested in or
associated with any other Person, firm or business engaged in the
Information Technology Staffing Services Business in the Territory
(both as defined in Section 3.4 hereof); provided, however, that
nothing herein shall be construed to prohibit owning not more than five
percent (5%) of any class of securities issued by an entity in the
Information Technology Staffing Services Business which is subject to
the reporting requirements of the Exchange Act or traded in the
over-the-counter market; or
(b) during the Noncompetition Period, solicit, cause or
authorize, directly or indirectly, to be solicited for or on behalf of
such Seller or third parties, from parties who are, or within the
preceding three hundred sixty-five (365) days were, customers of the
Subject Company, any Information Technology Staffing Services Business
transacted by or with such customer by the Subject Company; or
(c) during the Noncompetition Period, solicit, cause or
authorize, directly or indirectly, to be solicited for or on behalf of
such Seller or third parties, any Information Technology Staffing
Services Business from any party who is then or was during the
preceding calendar year one of the fifty (50) largest customers of the
Purchaser and its Affiliates (determined on the basis of total revenues
from all services provided); or
(d) during the Noncompetition Period, in the Territory, accept
or cause or authorize, directly or indirectly, to be accepted for or on
behalf of such Seller or for third parties, any such Information
Technology Staffing Services Business from any such customers described
in (b) or (c) above; or
(e) during the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used by the
Subject Company relating to the business or the operations, employees
or customers of the Subject Company which constitutes proprietary or
confidential information of the Subject Company ("Confidential
Information"), including without limitation any Confidential
Information contained in any customer lists, mailing lists and sources
thereof, statistical data and compilations, patents, copyrights,
trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents, and (2) from and
after the date hereof, use, publish, disseminate or otherwise disclose,
directly or indirectly, any information heretofore or hereafter
acquired, developed or used by the Purchaser which constitutes
Confidential Information, but excluding any Confidential Information
which has become part of common knowledge or understanding in the
staffing services business industry or otherwise in the public domain
(other than from disclosure by Sellers in violation of this Agreement);
provided, however, that this Section shall not be applicable to the
extent that any of the Sellers is required to testify in a judicial or
regulatory proceeding pursuant to the order of a judge or
administrative law judge after such Seller
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requests that the confidentiality of such Confidential Information be
preserved, and in the event that the Sellers receive a subpoena or
other order to produce or testify as to Confidential Information, the
Sellers shall notify the Purchaser in order to provide the Purchaser
with an opportunity to quash at the Purchaser's expense; or
(f) during the Noncompetition Period,
(1) solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding
three hundred and sixty-five (365) days was an employee) or
staffing contractor of the Subject Company, to terminate his
or her employment, by, or contractual relationship with, such
Person or to refrain from extending or renewing the same (upon
the same or new terms) or to refrain from rendering services
to or for such Person or to become employed by or to enter
into contractual relations with any Persons other than such
Person or to enter into a relationship with a competitor of
the Subject Company;
(2) approach any such employee or staffing contractor
for any of the foregoing purposes, or
(3) authorize or approve or assist in the taking of
any such actions by any person other than the Subject Company,
the Purchaser or its Affiliates.
3.3 Interpretation and Remedies.
(a) The invalidity or non-enforceability of Section 3.2 in any
respect shall not affect the validity or enforceability of Section 3.2
in any other respect or of any other provisions of this Article III. In
the event that any provision of Section 3.2 shall be held invalid or
unenforceable by a court of competent jurisdiction by reason of the
geographic or business scope or the duration thereof, such invalidity
or unenforceability shall attach only to the scope or duration of such
provision and shall not affect or render invalid or unenforceable any
other provision of Section 3.2 and, to the fullest extent permitted by
law, this Section 3.2 shall be construed as if the geographic or
business scope or the duration of such provision had been more narrowly
drafted so as not to be invalid or unenforceable and further, to the
extent permitted by law, such geographic or business scope or the
duration thereof may be re-written by a court of competent jurisdiction
to make such sufficiently limited to be enforceable.
(b) The Sellers acknowledge that the Purchaser's remedy at law
for any breach of the provisions of Section 3.2 is and will be
insufficient and inadequate and that the Purchaser shall be entitled to
equitable relief, including by way of temporary restraining order,
temporary injunction, and permanent injunction, in addition to any
remedies the Purchaser may have at law. If either party files suit to
enforce or to enjoin the enforcement of any of the provisions of this
Section 3.2, the prevailing party shall be entitled to recover,
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in addition to all other damages or remedies provided for herein, all
of its costs incurred in prosecuting or defending such suit, including
reasonable attorneys' fees.
3.4 Definitions. " Noncompetition Period" shall mean the period
commencing on the Closing Date and ending five (5) years after the Closing Date,
provided, however, that if a Seller violates any of the provisions of Section
3.2, the term of the Noncompetition Period shall be automatically extended for a
period of time equal to the period of the Seller's violation of any of the
provisions of Section 3.2.
"Information Technology Staffing Services Business" shall mean
(A) a firm which recruits, trains and/or tests employees or independent
contractors and assigns them to clients (i) to provide information technology
services for such client to support or supplement the client's work force in
work situations such as employee absences, temporary skill shortages, seasonal
workloads and special assignments and projects, (ii) to provide information
technology services for such client for short-term and long-term temporary
placement and temporary to permanent arrangements for the client to eventually
hire the service provider as its own employee, and (iii) to provide permanent
individual information technology employees of contractors for permanent
placement fees, or (B) any of the business activities described in (A).
"Territory" shall mean Alameda, Contra Costa, Napa, Marin, San
Francisco, Sacramento, San Mateo, Santa Clara and Sonoma counties in the State
of California, and outside such counties, within a radius of fifty (50) miles
from any office operated during the Noncompetition Period by the Subject
Company.
3.5 Termination of Sellers' Agreements. If the Purchaser fails to pay
to the Sellers any of the Contingent Amounts on or before the date provided in
Section 2.4(d) or the Adjustment Amount on or before the date provided in
Section 2.5(a)(iii) and such failure is not cured by the Purchaser within
fifteen (15) days following the delivery by the Sellers to the Purchaser of
written demand specifying the amount due, then all of the agreements of the
Sellers set forth in this Article III and all of the agreements of Seller Kurt
Krauthamer set forth in Section 6 of the Krauthamer Employment Agreement shall
terminate and be of no further force or effect.
ARTICLE IV
CLOSING
4.1 Closing. Upon the terms and subject to the conditions set
forth herein, the closing of the Transactions (the "Closing") shall be held at
10:00 a.m. local time on the Closing Date at the offices of the Purchaser, 100
Michiana Square, 100 E. Wayne Street, Suite 100, South Bend, Indiana 46601,
unless the parties hereto otherwise agree.
4.2 Deliveries at Closing.
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(a) Consideration. The Purchaser will deliver the Closing
Payment (allocated among the Sellers as set forth in Schedule 2.7) to
each of the Sellers.
(b) The Purchaser will deliver the Covenant Payment to each of
the Sellers.
(c) Stock Certificates. At the Closing, the Sellers shall
deliver to the Purchaser certificates evidencing the Stock (duly
endorsed in blank for transfer or accompanied by stock powers duly
executed in blank).
(d) Purchaser Certificates. The Purchaser will furnish the
Sellers with such certificates of its officers and others to evidence
compliance with the conditions set forth in this Agreement as may be
reasonably requested by the Sellers, which shall include, but not be
limited to a certificate executed by the Secretary or an Assistant
Secretary of the Purchaser, certifying, as of the Closing Date, (A) a
true and complete copy of the Organizational Documents of the
Purchaser, including its articles of incorporation certified as of a
recent date by the Secretary of State of Delaware, (B) a true and
complete copy of the resolutions of the board of directors of the
Purchaser, authorizing the execution, delivery and performance of this
Agreement by the Purchaser, and the consummation of the transactions
contemplated hereby and (C) incumbency matters.
(e) Sellers' Certificates. The Sellers will furnish the
Purchaser with such certificates of the Sellers and the officers of the
Subject Company and others to evidence compliance with the conditions
set forth in this Agreement as may be reasonably requested by the
Purchaser, which shall include, but not be limited to:
(i) A certificate executed by the Secretary or an
Assistant Secretary of the Subject Company certifying as of
the Closing Date (A) a true and complete copy of the
Organizational Documents of the Subject Company, including its
articles of incorporation certified as of a recent date by the
Secretary of State of California and (B) incumbency matters;
(ii) A certificate of the appropriate Secretary of
State certifying the good standing of the Subject Company in
its state of incorporation and all states in which it is
qualified to do business; and
(iii) A certificate of each of the Sellers'
non-foreign status, pursuant to Treasury Regulation section
1.1445-2(b)(2).
4.3 Other Closing Transactions.
(a) Employment Agreement. At the Closing, the Subject Company
shall enter into the Krauthamer Employment Agreement with Kurt
Krauthamer in the form of Exhibit A hereto.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE SELLERS
Each of the Sellers hereby, jointly and severally, represents
and warrants to the Purchaser that the following representations and warranties
are, as of the date hereof, and will be, as of the Closing Date, true and
correct:
5.1 Organization and Good Standing.
(a) The Subject Company is duly organized, validly existing,
and in good standing under the laws of its jurisdiction of formation,
with full corporate power and authority to conduct its business as it
is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
Contracts to which it is a party. The Subject Company is duly qualified
to do business and is in good standing under the laws of each state or
other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure
to be so qualified or in good standing would not reasonably be expected
to have a Material Adverse Effect on the Subject Company. Schedule 5.1
contains a complete and accurate list of jurisdictions in which the
Subject Company is authorized to do business.
(b) Subsidiaries. The Subject Company has no Subsidiaries and,
except as otherwise set forth on Schedule 5.1, the Subject Company has
no direct or indirect stock or other equity or ownership interest
(whether controlling or not) in any corporation, association,
partnership, joint venture or other entity.
5.2 Authority; No Conflict.
(a) This Agreement and the other Transaction Documents to
which the Sellers or the Subject Company are a party (the "Sellers'
Closing Documents") have been duly executed and delivered by the
Sellers and the Subject Company, to the extent that they are a party
thereto, and constitute the legal, valid, and binding obligations of
the Sellers and/or the Subject Company, as the case may be, enforceable
against the Sellers and/or the Subject Company in accordance with their
respective terms, in each case except as such enforceability may be
limited by (i) bankruptcy, insolvency, moratorium, reorganization and
other similar laws affecting creditors' rights generally and (ii) the
general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. The Sellers and the Subject Company
have all requisite power, authority and capacity to execute and deliver
this Agreement and/or the Sellers' Closing Documents and to perform
their respective obligations under this Agreement and the Sellers'
Closing Documents.
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(b) Except as set forth in Schedule 5.2, neither the execution
and delivery of this Agreement and the Sellers' Closing Documents nor
the consummation or performance of any of the Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a
violation of (A) any provision of the Organizational Documents
of the Subject Company or (B) any resolution adopted by the
board of directors of the Subject Company or the shareholders
or other equity owners of the Subject Company;
(ii) contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person
the right to challenge any of the Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement
or any Order to which the Subject Company or any of the assets
owned or used by the Subject Company, may be subject;
(iii) contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend,
cancel, terminate or modify, any Governmental Authorization
that is held by the Subject Company or that otherwise relates
to the business of, or any of the assets owned or used by, the
Subject Company;
(iv) contravene, conflict with or result in a
violation or breach of any provision of, or give any Person
the right to declare a default or exercise any remedy under,
or to accelerate the maturity or performance of, or to cancel,
terminate or modify, any Applicable Contract; or
(v) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or
used by the Subject Company,
except in the case of each of clauses (ii) through (v) above, for such
contraventions, conflicts, violations, Liabilities, reassessments, revaluations,
breaches or creations of Encumbrances which, individually and in the aggregate,
would not have a Material Adverse Effect on the Subject Company.
Except as set forth in Schedule 5.2, the Subject Company is
not, nor will be, required to give any notice to or obtain any Consent from any
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Transactions, other than notices or
Consents the absence of which would not have a Material Adverse Effect on the
Subject Company.
5.3 Capitalization. Schedule 5.3 contains a complete and
accurate description of the capitalization of the Subject Company (including the
identity of each shareholder (or holder of other equity interest) of the Subject
Company and the number of shares (or other equity interests) held by
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each such Person). The Sellers have, or will have at Closing, title to all of
the Stock, in each case, free and clear of all Encumbrances. All of the Stock is
and will be, as of the Closing Date, duly authorized, validly issued, fully paid
and non-assessable. Except as set forth on Schedule 5.3, there are no
outstanding subscriptions, calls, commitments, warrants or options for the
purchase of shares of any capital stock or other securities of the Subject
Company or any securities convertible into or exchangeable for shares of capital
stock or other securities issued by the Subject Company, or any other
commitments of any kind for the issuance of additional shares of capital stock
or other securities issued by the Subject Company. None of the outstanding
capital stock or equity interests or other securities of the Subject Company was
issued in violation of the Securities Act.
5.4 Financial Statements. The Sellers have delivered to the
Purchaser (a) a compiled balance sheet of the Subject Company as of December 31,
1995 and the related statement of income for the year then ended, together with
the report thereon of Porter Accountancy Corp., independent certified public
accountants, (b) a reviewed balance sheet of the Subject Company as of December
31, 1996 and the related statements of income, changes in shareholders' equity
and cash flow for the year then ended, together with the report thereon of Moss
Adams, LLP (including the notes thereto), and (c) an internally prepared
statement of normalized EBITDA (computed in the manner requested by the
Purchaser) for each month of 1997 (collectively, clauses (a), (b) and (c), above
are referred to herein as the "Financial Statements"). Except as provided in
Schedule 5.4, the Financial Statements fairly and accurately present the
financial condition and the results of operations, income, expenses, assets,
liabilities, changes in stockholders' equity, and cash flow of the Subject
Company as of the respective dates of, and for the periods referred to in, the
Financial Statements, all in accordance with GAAP and reflect the consistent
application of such accounting principles throughout the periods involved,
except that accrued commissions on the December 31, 1996 balance sheet are
understated by $61,500 and the compiled 1995 financial statements have certain
expenses recorded on a cash basis. No financial statements of any Person other
than the Subject Company are required by GAAP to be included in the Financial
Statements. The December 31, 1996 balance sheet and the income statement contain
accruals for, and pro rated anticipated expenses for, periodic and annual
bonuses, incentive compensation, vacation, "flex time" and other similar
benefits (based on then existing compensation arrangements and past practices).
5.5 Books and Records. The books of account, minute books,
stock record books, and other records of the Subject Company, all of which have
been made available to the Purchaser, are complete and correct and, in all
material respects, have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls,
and, with respect to the books of account, fairly and accurately reflect the
income, expenses, assets and liabilities of the Subject Company. The minute
books of the Subject Company contain, in all material respects, accurate and
complete records of all meetings held of, and corporate action taken by, the
shareholders, the board of directors, and committees of the board of directors
of the Subject Company, and no meeting of any such shareholders, board of
directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Subject Company.
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5.6 Title to Properties: Encumbrances. The Subject Company
does not own, and since its inception has not owned, any real property or any
interest, other than a leasehold interest, in any real property. Schedule 5.6
contains a complete and accurate list of all leasehold interests in real
property owned by the Subject Company. Schedule 5.6 lists and describes all real
property leased by any Subject Company. The Sellers have delivered a copy of all
such leases to the Purchaser and, to the Knowledge of the Sellers, all such
leases are legal, valid, binding, enforceable and in full force and effect, and
following the Closing will continue to be legal, valid, binding and enforceable
by the Subject Company and in full force and effect. There are no disputes, oral
agreements or forbearances in effect as to any such leases. The Subject Company
owns all the properties and assets (whether real, personal or mixed and whether
tangible or intangible) that it purports to own, including all of the properties
and assets reflected in the unaudited December 31, 1997 balance sheet provided
to the Purchaser (the "Balance Sheet') (except for personal property sold since
the date of the Balance Sheet in the Ordinary Course of Business), and all of
the properties and assets purchased or otherwise acquired by the Subject Company
since the date of the Balance Sheet (except for personal property acquired and
sold since the date of the Balance Sheet in the Ordinary Course of Business),
which subsequently purchased or acquired properties and assets are listed in
Schedule 5.6. Except as set forth in Schedule 5.6, all material properties and
assets reflected in the Balance Sheet are free and clear of all Encumbrances,
except inchoate tax liens, liens for taxes not yet due and payable and liens not
material in amount.
5.7 Condition and Sufficiency of Assets. The buildings,
plants, structures and equipment which comprise the office space of the Subject
Company are in good operating condition and repair, except for normal wear and
tear and except where failure to be in such condition would not have a Material
Adverse Effect on the Subject Company. The building, plants, structures and
equipment which comprise the office space of the Subject Company are adequate
for the uses to which they are being put, and none of such buildings, plants,
structures or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures and equipment which comprise the office
space of the Subject Companies are sufficient for the continued conduct of the
business of the Subject Companies after the Closing in substantially the same
manner as conducted prior to the Closing.
5.8 No Undisclosed Liabilities. Except as set forth in
Schedule 5.8, the Subject Company has no Liabilities required to be disclosed
under GAAP except for Liabilities reflected or reserved against in the Balance
Sheet and Liabilities incurred in the Ordinary Course of Business since the date
thereof.
5.9 Taxes.
(a) Except as set forth in Schedule 5.9, there have been
properly completed and filed on a timely basis and in correct form all
Tax Returns required to be filed by Subject Company on or prior to the
date hereof. As of the time of filing, the foregoing Tax Returns
correctly reflected in all material respects the facts regarding the
income, business, assets, operations, activities, status or other
matters of the applicable entity or any other information
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required to be shown thereon. In particular, the foregoing returns are
not subject to penalties under Section 6662 of the IRC, relating to
accuracy-related penalties (or any corresponding provision of the
state, local or foreign Tax law) or any predecessor provision of law.
Except as set forth in Schedule 5.9, an extension of time within which
to file any Tax Return that has not been filed has not been requested
or granted.
(b) With respect to all amounts in respect of Taxes imposed on
the Subject Company or for which the Subject Company is or could be
liable, whether to taxing authorities (as, for example, under law) or
to other Persons or entities (as, for example, under Tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing, all applicable Tax laws and agreements
have been complied with in all material respects, and all such amounts
required to be paid by the Subject Company to taxing authorities or
others on or before the date hereof have been paid.
(c) No material issues have been raised (and are currently
pending) by any taxing authority in connection with any of the Tax
Returns of the Subject Company. No waiver of statute of limitation with
respect to any Tax Return has been given by or requested from the
Subject Company. Schedule 5.9 sets forth (i) the taxable years of the
Subject Company as to which the statutes of limitations with respect to
Taxes have not expired, and (ii) with respect to such taxable years,
(A) those years for which examinations have been completed, (B) those
years for which examinations are presently being conducted, and (C)
those years for which required Tax Returns have not yet been filed.
Except to the extent shown in Schedule 5.9, all deficiencies asserted
or assessments made as a result of any examinations have been fully
paid, or are fully reflected as a liability in the Financial
Statements, or are being contested and an adequate reserve therefor has
been established and is fully reflected in the Financial Statements.
(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of any of the Subject Companies.
(e) The Subject Company is not a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement.
(f) The Subject Company has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of
the IRC.
(g) The Subject Company has not filed a consent pursuant to
the collapsible corporation provisions of Section 341(f) of the IRC (or
any corresponding provision of state, local or foreign income Tax law)
or agreed to have Section 341(f)(2) of the IRC (or any corresponding
provision of state, local or foreign income Tax law) apply to any
disposition of any asset owned by it.
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(h) None of the assets of the Subject Company is property that
the Subject Company is required to treat as being owned by any other
Person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the IRC.
(i) None of the assets of the Subject Company directly or
indirectly secures any debt, the interest on which is Tax-exempt under
Section 103(a) of the IRC.
(j) None of the assets of the Subject Company is "tax-exempt
use property" within the meaning of Section 168(h) of the IRC.
(k) The Subject Company has not agreed to make nor is the
Subject Company required to make any adjustment under Section 481(a) of
the IRC by reason of a change in accounting method or otherwise.
(l) The Subject Company is not a party to any agreement,
Contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the IRC.
(m) No stockholder of the Subject Company is a Person other
than a United States Person within the meaning of the IRC.
(n) The Subject Company is not a party to any joint venture,
partnership or other arrangement or contract that could be treated as a
partnership for federal and applicable state income Tax purposes.
(o) Except as set forth in Schedule 5.9, the unpaid Taxes of
the Subject Company does not exceed the reserve for Tax liability
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth or included in the
Balance Sheet, as adjusted for the passage of time through the Closing,
in accordance with the past custom and practice of the Subject Company.
5.10 No Material Adverse Change. Since the date of the Balance
Sheet, there has not been any Material Adverse Change in the business,
operations, properties, prospects, assets or financial condition of the Subject
Company, and, to the Knowledge of the Sellers, no event has occurred or
circumstance exists that may result in such a Material Adverse Change.
5.11 Employee Benefits.
(a) (i) Schedule 5.11 contains a complete and accurate list of
all Plans and Other Benefit Obligations of the Subject
Company, and identifies as such all Plans that are Qualified
Plans.
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(ii) Schedule 5.11 contains a complete and accurate
list of (A) all ERISA Affiliates of the Subject Company, and
(B) all Plans of which any such ERISA Affiliate is or was a
Plan Sponsor, in which any such ERISA Affiliate participates
or has participated, or to which any such ERISA Affiliate
contributes or has contributed.
(iii) Schedule 5.11 sets forth the financial cost of
all obligations owed under any Plan of the Subject Company or
Other Benefit Obligation of the Subject Company that is not
subject to the disclosure and reporting requirements of ERISA.
(b) Except as provided in Schedule 5.11, the Sellers and the
Subject Company have delivered to the Purchaser:
(i) all documents that set forth the terms of each
Plan and Other Benefit Obligations of the Subject Company and
of any related trust, including (A) all plan descriptions and
summary plan descriptions of the Plans of the Subject Company
for which plan descriptions and summary plan descriptions are
required to be prepared, filed and distributed and (B) all
summaries and descriptions furnished to participants and
beneficiaries regarding the Plans and the Other Benefit
Obligations of the Subject Company for which a plan
description or summary plan description is not required;
(ii) all personnel and employment manuals and
policies of the Subject Company;
(iii) a written description of any Plan or Other
Benefit Obligation of the Subject Company that is not
otherwise in writing;
(iv) all registration statements filed with respect
to any Plan of the Subject Company;
(v) all insurance policies purchased by or to provide
benefits under any Plan of the Subject Company;
(vi) all contracts with third party administrators,
actuaries, investment managers, consultants and other
independent contractors that relate to any Plan or Other
Benefit Obligation of the Subject Company;
(vii) all reports submitted within the four years
preceding the date of this Agreement by third party
administrators, actuaries, investment managers, consultants or
other independent contractors with respect to any Plan or
Other Benefit Obligation of the Subject Company;
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(viii) all notifications to employees of the Subject
Company of their rights under ERISA Section 601 et seq. and
IRC Section 4980B;
(ix) the Form 5500 filed with respect to each Plan of
the Subject Company for the most recent three plan years,
including all schedules thereto and the opinions of
independent accountants;
(x) all notices that were given by the Subject
Company or any ERISA Affiliate of the Subject Company or any
Plan of the Subject Company to the IRS or any participant or
beneficiary, pursuant to statute, within the four years
preceding the date of this Agreement, including notices that
are expressly mentioned elsewhere in this Section 5.11;
(xi) all notices that were given by the IRS or the
Department of Labor to the Subject Company, any of their ERISA
Affiliates or any Plan of the Subject Company within the four
years preceding the date of this Agreement; and
(xii) the most recent IRS determination letter for
each Qualified Plan which is a Plan of the Subject Company.
(c) Except as set forth in Schedule 5.11:
(i) The Subject Company has performed its obligations
in all material respects under all the Plans and Other Benefit
Obligation of the Subject Company. The Subject Company has
made appropriate entries in its financial records and
statements under GAAP for all obligations and liabilities
under such Plans and Other Benefit Obligations that have
accrued but are not due.
(ii) No statement, either written or, to the
Knowledge of the Sellers, oral, has been made by the Subject
Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other
Benefit Obligation and that could have an adverse economic
consequence to the Subject Company.
(iii) The Subject Company, with respect to all the
Plans and the Other Benefit Obligations of the Subject
Company, is, and each Plan and Other Benefit Obligation of the
Subject Company is in full compliance in all material respects
with ERISA, the IRC, and other applicable laws including the
provisions of such laws expressly mentioned in this Section 5.
11.
(1) No transaction prohibited by ERISA 406
and no "prohibited transaction" under IRC 4975(c) has
occurred with respect to any Plan of the Subject
Company.
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(2) The Subject Company has no liability to
the IRS with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.
(3) The Subject Company has no liability
under ERISA Section 502.
(4) All filings required by ERISA and the
IRC as to each Plan of the Subject Company have been
timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have
been timely provided.
(5) All contributions and payments made or
accrued by the Subject Company and the ERISA
Affiliates of the Subject Company with respect to all
the Plans and Other Benefit Obligations of the
Subject Company are deductible under IRC Section 162
or 404. No amount, nor any asset of any Plan of the
Subject Company is subject to Tax as unrelated
business taxable income.
(iv) Neither the Subject Company nor any ERISA
Affiliate of the Subject Company sponsors or maintains,
previously sponsored or maintained, or has or had any
obligation to contribute to any Title IV Plan, Multiemployer
Plan or any Welfare Plan that provides or will provide
benefits described in Section 3(1) of ERISA to any former
employee or retiree of the Subject Company or any ERISA
Affiliate of the Subject Company, except as required under
Part 6 of Title I of ERISA and Section 4980B of the Code.
(v) Each Plan of the Subject Company which is not a
Multi-Employer Plan can be terminated within thirty days,
without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits promised
by such Plan, other than vesting of any accrued benefits under
any Pension Plan.
(vi) To the Knowledge of the Sellers, no event has
occurred or circumstance exists that could result in a
material increase in premium costs of the Plans and Other
Benefit Obligations of the Subject Company that are insured or
a material increase in benefit costs of such Plans and Other
Benefit Obligations that are self-insured.
(vii) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal
proceeding involving, any Plan or Other Benefit Obligation of
the Subject Company is pending or, to the Knowledge of the
Sellers, is Threatened.
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(viii) Each Qualified Plan of the Subject Company is
qualified in form and operation under IRC Section 401(a); each
trust for each such Plan is exempt from federal income Tax
under IRC Section 501(a). No event has occurred or
circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan
or trust.
(ix) The Subject Company has complied with the
provisions of ERISA Section 601 et seq. and IRC Section 4980B.
(x) No payment that is owed or may become due to any
director, officer, employee or agent of the Subject Company
will be non-deductible to the Subject Company or subject to
Tax under IRC Section 280G or Section 4999; nor will the
Subject Company be required to "gross up" or otherwise
compensate any such Person because of the imposition of any
excise Tax on a payment to such Person.
(xi) Neither the execution of the Transaction
Documents nor the consummation of the Transactions will result
in the payment, vesting or acceleration of any benefit.
5.12 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Schedule 5.12:
(i) the Subject Company is, and at all times since
January 1, 1996 has been, in all material respects, in
compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) to the Knowledge of the Sellers, no event has
occurred or circumstance exists that (with or without notice
or lapse of time) (A) may constitute or result in a violation
by the Subject Company of, or a failure on the part of the
Subject Company to comply with, any Legal Requirement or (B)
may give rise to any obligation on the part of the Subject
Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and
(iii) the Subject Company has not received, at any
time since January 1, 1996, any written or, to the Knowledge
of the Sellers, other notice or other communication from any
Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential material violation of,
or material failure to comply with, any Legal Requirement or
(B) any actual, alleged, possible or potential material
obligation on the part of the Subject Company to undertake, or
to bear all or any portion of the cost of, any remedial action
of any nature.
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(b) Schedule 5.12 contains a complete and accurate list of
each material Governmental Authorization that is held by the Subject
Company or that otherwise relates to the business of, or to any of the
assets owned or used by, the Subject Company. Each Governmental
Authorization listed or required to be listed in Schedule 5.12 is valid
and in full force and effect. Except as set forth in Schedule 5.12:
(i) the Subject Company is, and at all times since
January 1, 1996, has been, in all material respects, in full
compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be
identified in Schedule 5.12;
(ii) to the Knowledge of the Sellers, no event has
occurred or circumstance exists that may (with or without
notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any
term or requirement of any Governmental Authorization listed
or required to be listed in Schedule 5.12 or (B) result
directly or indirectly in the revocation, withdrawal,
suspension, cancellation or termination of, or any
modification to, any Governmental Authorization listed or
required to be listed in Schedule 5.12;
(iii) the Subject Company has not received, at any
time since January 1, 1996, any written or, to the Knowledge
of the Sellers, other notice or communication from any
Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential material violation of
or material failure to comply with any term or requirement of
any Governmental Authorization or (B) any actual, proposed,
possible or potential revocation, withdrawal, suspension,
cancellation, termination of or modification to any
Governmental Authorization; and
(iv) all material applications required to have been
filed for the renewal of the Governmental Authorizations
listed or required to be listed in Schedule 5.12 have been
duly filed on a timely basis with the appropriate Governmental
Bodies, and all other material filings required to have been
made with respect to such Governmental Authorizations have
been duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Schedule 5.12
collectively constitute all of the material Governmental Authorizations
necessary to permit the Subject Company to lawfully conduct and operate its
business in the manner it currently conducts and operates such business and to
permit the Subject Company to own and use its assets in the manner in which it
currently owns and uses such assets.
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5.13 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 5.13, there is no pending
Proceeding:
(i) that, to the Knowledge of the Sellers, has been
commenced by or against the Subject Company or, to the
Knowledge of the Sellers, that otherwise relates to or may
affect the business of, or any of the assets owned or used by,
the Subject Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering
with, any of the Transactions.
To the Knowledge of the Sellers, (1) no such Proceeding has
been Threatened, and (2) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
The Sellers have delivered to the Purchaser copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in
Schedule 5.13. To the Knowledge of the Sellers, the Proceedings listed in
Schedule 5.13 will not, individually or in the aggregate, have a Material
Adverse Effect on the business, operations, assets, condition or prospects of
the Subject Company.
(b) Except as set forth in Schedule 5.13:
(i) there is no Order to which the Subject Company or
any of the assets owned or used by any of the Subject
Companies, is subject;
(ii) none of the Sellers is subject to any Order that
relates to the business of, or any of the assets owned or used
by, the Subject Company; and
(iii) to the Knowledge of the Sellers, no officer,
director, agent or employee of the Subject Company is subject
to any Order that prohibits such officer, director, agent or
employee from engaging in or continuing any conduct, activity
or practice relating to the business of the Subject Company.
(c) Except as set forth in Schedule 5.13:
(i) the Subject Company is, and at all times since
January 1, 1995, has been, in full compliance with all of the
terms and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;
(ii) to the Knowledge of the Sellers, no event has
occurred or circumstance exists that may constitute or result
in (with or without notice or lapse of time) a violation of or
failure to comply with any term or requirement of any Order
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<PAGE> 38
to which the Subject Company or any of the assets owned or
used by the Subject Company, is subject; and
(iii) the Subject Company has not received, at any
time since January 1, 1995, any written or, to the Knowledge
of the Sellers, other notice or communication from any
Governmental Body or any other Person regarding any actual,
alleged, possible or potential material violation of, or
material failure to comply with, any term or requirement of
any Order to which the Subject Company or any of the assets
owned or used by the Subject Company, is or has been subject.
5.14 Absence of Certain Changes and Events.
Except as set forth in Schedule 5.14, since the date of the
Balance Sheet, the Subject Company has conducted its business only in the
Ordinary Course of Business and there has not been any:
(a) change in authorized or issued capital stock of, or other
equity interests in, the Subject Company; grant of any stock option or
right to purchase shares of capital stock, of or other equity interests
in, the Subject Company; issuance of any security convertible into such
capital stock or other equity interests; grant of any registration
rights; purchase, redemption, retirement or other acquisition by the
Subject Company of any shares of any such capital stock or other equity
interests; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock or other
equity interests;
(b) amendment to the Organizational Documents of the Subject
Company;
(c) payment or increase by the Subject Company of any bonuses,
salaries, or other compensation to any stockholder, director, officer
or (except in the Ordinary Course of Business) employee or entry into
any employment, severance or similar Contract with any director,
officer or (except in the Ordinary Course of Business) employee;
(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employees of the Subject Company;
(e) damage to or destruction or loss of any asset or property
of the Subject Company, whether or not covered by insurance, that would
have a Material Adverse Effect on the Subject Company;
(f) entry into, termination or acceleration of, or receipt of
notice of termination of (i) any material license, distributorship,
dealer, sales representative, joint venture, credit or similar
agreement or (ii) any Contract or transaction involving a Liability by
or to the
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Subject Company of at least $10,000, except those entered into in the
Ordinary Course of Business;
(g) sale (other than sales in the Ordinary Course of
Business), lease or other disposition of any material asset or property
of the Subject Company or mortgage, pledge or imposition of any lien or
other Encumbrance on any material asset or property of the Subject
Company, including the sale, lease or other disposition of any of the
Intellectual Property Assets;
(h) delay or failure to repay when due any obligation,
including without limitation, accounts payable and accrued expenses,
except non-material obligations in the Ordinary Course of Business;
(i) accrual of any expenses except for such accruals in the
Ordinary Course of Business;
(j) capital expenditures in excess of $10,000;
(k) cancellation or waiver of any claims or rights with a
value to the Subject Company in excess of $10,000;
(l) any payment, discharge or satisfaction of any Liability by
the Subject Company, other than the payment, discharge or satisfaction
of Liabilities in the Ordinary Course of Business;
(m) incurrence of or increase in, any material Liability,
except in the Ordinary Course of Business, or any deferred payment of
or failure to pay when due, any material Liability;
(n) material change in the accounting methods used by the
Subject Company;
(o) material disagreement or dispute with any key employee of
the Subject Company with respect to compensation, equity ownership,
duties or authority; or
(p) agreement, whether oral or written, by the Subject Company
to do any of the foregoing.
5 . 15 Contracts; No Defaults.
(a) Schedule 5.15 contains a complete and accurate list, and
the Sellers have made available to the Purchaser true and complete
copies, of:
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(i) each written Applicable Contract that involves
performance of services or delivery of goods by the Subject
Company for a fixed price or a fixed deliverable;
(ii) each written Applicable Contract that involves
performance of services or delivery of goods or materials to
the Subject Company for a fixed price in excess of $25,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures of the Subject Company, individually or, for a
series of related Applicable Contracts, in the aggregate, in
excess of $10,000, or receipts of the Subject Company,
individually or, for a series of related Applicable Contracts,
in the aggregate, in excess of $20,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract of the Subject Company affecting the
ownership of, leasing of, title to, use of, or any leasehold
or other interest in, any real or personal property (except
personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $10,000 or with terms of less than one year);
(v) each licensing agreement or other Applicable
Contract of the Subject Company with respect to patents,
trademarks, copyrights or other intellectual property,
including agreements with current or former employees,
consultants or contractors regarding the appropriation or the
non-disclosure of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other
Applicable Contract of the Subject Company to or with any
labor union or other employee representative of a group of
employees and each other written employment or consulting
agreement with any employees or consultants;
(vii) each joint venture, partnership and other
Applicable Contract of the Subject Company (however named)
involving a sharing of profits, losses, costs or liabilities
by the Subject Company with any other Person;
(viii) each Applicable Contract of the Subject
Company containing covenants that in any way purport to
restrict the business activity of the Subject Company or any
Affiliate of the Subject Company or limit the freedom of the
Subject Company or any Affiliate of the Subject Company to
engage in any line of business or to compete with any Person;
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(ix) each Applicable Contract of the Subject Company
providing for payments to or by any Person based on sales,
purchases or profits, other than direct payments for goods and
compensation arrangements with employees;
(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by the Subject Company to be
responsible for consequential damages;
(xii) each Applicable Contract of the Subject Company
for capital expenditures in excess of $10,000;
(xiii) each Applicable Contract which, to the
Knowledge of the Sellers, will result in a material loss to
the Subject Company;
(xiv) each Applicable Contract between the Subject
Company and its former or current stockholders, directors,
officers and employees (other than standard employment
agreements previously furnished to or approved by the
Purchaser);
(xv) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by the Subject Company other than in the Ordinary
Course of Business; and
(xvi) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Schedule 5.15 sets forth reasonably complete details
concerning such Contracts, including the parties to the Contracts, the amount of
the remaining commitment of the Subject Company under the Contracts, and the
place where details relating to the Contracts are located.
(b) Except as set forth in Schedule 5.15, to the Knowledge of
the Sellers, no officer, director, agent, employee, consultant or
contractor of the Subject Company is bound by any Contract that
purports to limit the ability of such officer, director, agent,
employee, consultant or contractor to (A) engage in or continue any
conduct, activity or practice relating to the business of the Subject
Company or (B) assign to the Subject Company or to any other Person any
rights to any invention, improvement or discovery.
(c) Except as set forth in Schedule 5.15, to the Knowledge of
the Sellers, each Contract identified or required to be identified in
Schedule 5.15 is in full force and effect and is valid and enforceable
in accordance with its terms.
(d) Except as set forth in Schedule 5.15:
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(i) the Subject Company is in compliance with all
material terms and requirements of each material Contract
under which the Subject Company has any obligation or
Liability or by which the Subject Company or any of the assets
owned or used by the Subject Company is bound;
(ii) to the Knowledge of the Sellers, each other
Person that has any obligation or Liability under any material
Contract under which the Subject Company has any rights is in
compliance with all material terms and requirements of such
Contract;
(iii) to the Knowledge of the Sellers, no event has
occurred or circumstance exists that a reasonably prudent
person would conclude may contravene, conflict with, or result
in a violation or breach of, or give the Subject Company or
any other Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance
of, or to cancel, terminate or modify, any Applicable
Contract; and
(iv) the Subject Company has not given to or received
from any other Person, at any time since January 1, 1996, any
written or, to the Knowledge of the Sellers, other notice or
other communication regarding any actual, alleged, possible or
potential material violation or material breach of, or
material default under, any Applicable Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to the Subject Company under current or completed Applicable
Contracts with any Person and no such Person has made written demand
for such renegotiation.
(f) The Applicable Contracts relating to the provision of
products or services by the Subject Company have been entered into in
the Ordinary Course of Business and, to the Knowledge of the Sellers,
have been entered into without the commission of any act alone or in
concert with any other Person, or any consideration having been paid or
promised, that is or would be in violation of any Legal Requirement.
5. 16 Insurance.
(a) The Subject Company has delivered to the Purchaser:
(i) a true and complete list of all policies of
insurance to which the Subject Company is a party or under
which the Subject Company or any director or officer of the
Subject Company, is or has been covered by the Subject Company
at any time within the three years preceding the date of this
Agreement; and
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(ii) any statement by the auditor of the Financial
Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.16 describes:
(i) any self-insurance arrangement by or affecting
the Subject Company, including any reserves established
thereunder; and
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by the
Subject Company normally covered by insurance.
(c) Schedule 5.16 sets forth, by year, for the current policy
year and each of the three preceding policy years:
(i) a summary of the loss experience under each
policy; and
(ii) a statement describing the loss experience for
all claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth in Schedule 5.16:
(i) All policies to which the Subject Company is a
party or that provide coverage to the Subject Company or any
director or officer of the Subject Company:
(l) to the Knowledge of the Sellers, are
valid, outstanding and enforceable;
(2) are sufficient for compliance with all
Legal Requirements and Contracts to which the Subject
Company is a party or by which it is bound;
(3) will continue in full force and effect
following the consummation of the Transactions; and
(4) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of the Subject Company.
(ii) the Subject Company has not received (A) any
refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
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(iii) To the Knowledge of the Sellers, the Subject
Company has given notice to the insurer of all claims that may
be insured thereby.
5 .17 Environmental Matters .
Except as set forth in Schedule 5.17:
(a) The Subject Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law, except where such noncompliance or
violations would not, individually or in the aggregate, have a Material
Adverse Effect on the Subject Company. To the Knowledge of the Sellers,
the Subject Company has no basis to expect, nor has it or any other
Person for whose conduct the Subject Company is or may be held to be
responsible received, any actual or Threatened order or written or
other notice or communication from (i) any Governmental Body or private
citizen acting in the public interest or (ii) the current or prior
owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal or
mixed) in which the Subject Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials
were generated, manufactured, refined, transferred, imported, used or
processed by the Subject Company or any other Person for whose conduct
the Subject Company is or may be held responsible, or from which
Hazardous Materials have been transported, treated, stored, handled,
transferred, disposed, recycled or received.
(b) There are no pending or, to the Knowledge of the Sellers,
Threatened claims, Encumbrances or other restrictions of any nature,
resulting from any Environmental, Health and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting (i) to the Knowledge of the Sellers, any of the Facilities or
(ii) any other properties and assets (whether real, personal or mixed)
in which the Subject Company has or had an interest.
(c) Neither the Subject Company nor, to the Knowledge of the
Sellers, any other Person for whose conduct the Subject Company is or
may be held responsible, has received any citation, directive, inquiry,
notice, Order, summons, warning or other communication that relates to
Hazardous Activity, Hazardous Materials, or any alleged, actual or
potential violation or failure to comply with any Environmental Law, or
of any alleged, actual or potential obligation to undertake or bear the
cost of any Environmental, Health and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether
real, personal or mixed) in which the Subject Company has or had an
interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred,
imported, used or processed by the Subject Company or any other Person
for
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whose conduct the Subject Company is or may be held responsible, have
been transported, treated, stored, handled, transferred, disposed,
recycled or received.
(d) Neither the Subject Company nor, to the Knowledge of the
Sellers, any other Person for whose conduct the Subject Company is or
may be held responsible, has any Environmental, Health and Safety
Liabilities with respect to the Facilities or, to the Knowledge of the
Sellers, with respect to any other properties and assets (whether real,
personal or mixed) in which the Subject Company (or any predecessor),
has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or
assets.
(e) To the Knowledge of the Sellers, there are no Hazardous
Materials present on or in the Environment at the Facilities or at any
geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage
tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and
deposited or located in land, water, dumps or any other part of the
Facilities or such adjoining property, or incorporated into any
structure therein or thereon. Neither the Subject Company, or, to the
Knowledge of the Sellers, any other Person, has permitted or conducted,
or is aware of, any Hazardous Activity conducted with respect to the
Facilities or any other properties or assets (whether real, personal or
mixed) in which the Subject Company has or had an interest.
(f) To the Knowledge of the Sellers, there has been no Release
or Threat of Release of any Hazardous Materials at or from the
Facilities.
(g) The Subject Company has delivered to the Purchaser true
and complete copies and results of any reports, studies, analyses,
tests or monitoring possessed or initiated by the Subject Company
pertaining to Hazardous Materials or Hazardous Activities in, on or
under the Facilities or concerning compliance by the Subject Company or
any other Person for whose conduct it is or may be held responsible
with Environmental Laws.
5.18 Labor Relations; Compliance: Employees. Since January 1,
1996, the Subject Company has not been nor is a party to any collective
bargaining or other labor Contract. Since January 1, 1996, there has not been,
there is not presently pending or existing, and, to the Knowledge of the
Sellers, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage or employee grievance process, (b) any Proceeding against or affecting
the Subject Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission or any comparable Governmental Body,
organizational activity or other labor or employment dispute against or
affecting the Subject Company or its premises or (c) any application for
certification of a collective bargaining agent. No event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by the Subject Company, and
no such action is
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contemplated by the Subject Company. Except as set forth in Schedule 5.18, the
Subject Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health and plant
closing. Except as set forth in Schedule 5.18, the Subject Company is not liable
for the payment of any compensation, damages, taxes, fines, penalties or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements. Schedule 5.18 sets forth the names of all Persons employed
by the Subject Company who are expected to receive more than $50,000 annualized
cash compensation for the 1998 calendar year from the Subject Company (including
without limitation, salary, commission and bonus) and who are expected to be
employed by the Subject Company on the Closing Date. Except as set forth in
Schedule 5.18, the Subject Company has not entered into any severance or similar
arrangement in respect of any personnel that provides for any obligation
(absolute or contingent) of the Subject Company or any other Person to make any
payment to any such personnel following termination of employment.
5.19 Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual
Property Assets" includes:
(i) the name "Intranational Computer Consultants" and
all fictional business names, trade names, registered and
unregistered trademarks, service marks and applications owned
by, used by or licensed to the Subject Company (collectively,
"the Marks");
(ii) all of the patents, patent applications and
inventions and discoveries that may be patentable of the
Subject Company (collectively, "the Patents");
(iii) all of the copyright rights in both published
works and unpublished works of the Subject Company
(collectively, "the Copyrights"); and
(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings and blue prints
owned, used or licensed by the Subject Company as licensee or
licensor (collectively, "the Trade Secrets").
(b) Agreements. Schedule 5.19 contains a complete and accurate
list and summary description, including any royalties paid or received
by the Subject Company, of all Contracts relating to the Intellectual
Property Assets to which the Subject Company is a party or by which the
Subject Company is bound, except for any license implied by the sale of
a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $1,000 under which the
Subject Company is the licensee. There are no outstanding and, to the
Knowledge of the Sellers, no Threatened disputes or disagreements with
respect to any such Contract.
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(c) Know-How Necessary for the Business. Except as described
in Schedule 5.19, the Intellectual Property Assets are all those
necessary for the operation of the business of the Subject Company as
it is currently conducted. The Subject Company is the owner of such
right, title and interest in and to each of the Intellectual Property
Assets as is necessary to conduct the business of the Subject Company.
(d) Patents. The Subject Company has not been issued any
Patents and has no Patents pending and no Patents are necessary or
currently used by the Subject Company to conduct its business as it is
presently conducted. No process or know-how used by the Subject Company
is known to infringe or is alleged to infringe any patent or other
proprietary right of any other Person.
(e) Trademarks. The Subject Company has no Marks other than
its corporate name. To the knowledge of the Sellers, the corporate name
is not infringed or known to infringe any trade name of any third
party.
(f) Copyrights. The Subject Company has no copyrights.
(g) Trade Secrets. Except as set forth in Schedule 5.19, the
Subject Company has no Trade Secrets and no Trade Secrets are necessary
or currently used by the Subject Company to conduct its business as it
is presently conducted.
5.20 Certain Payments. Since January 1, 1996, neither the
Subject Company, nor any director, officer, agent or employee of the Subject
Company nor the Sellers has directly or indirectly, (a) made any contribution,
gift, bribe, rebate, payoff, influence payment, kickback or other payment to any
Person, private or public, regardless of form, whether in money, property or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of the Subject
Company or any Affiliate of the Subject Company or (iv) in violation of any
Legal Requirement or (b) established or maintained any fund or asset that has
not been recorded in the books and records of the Subject Company.
5.21 No Other Agreements to Sell Assets or Capital Stock of
the Subject Company. Neither the Subject Company, nor the Sellers have any
commitment or legal obligation, absolute or contingent, to any other Person or
firm, other than as contemplated by the Transactions, to sell, assign, transfer
or effect a sale of any of the assets (other than inventory and products in the
Ordinary Course of Business), to sell or effect a sale of the capital stock or
other equity interests of the Subject Company, to effect any merger,
consolidation, liquidation, dissolution or other reorganization of the Subject
Company, to enter into any agreement or cause the entering into of an agreement
with respect to any of the foregoing.
5.22 Relationships with Related Persons. Except as set forth
in Schedule 5.22, neither the Subject Company nor the Sellers has owned (of
record or as a beneficial owner) an equity
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interest or any other financial or profit interest in a Person that has (i) had
business dealings or a material financial interest in any transaction with the
Subject Company other than business dealings or transactions conducted in the
Ordinary Course of Business with the Subject Company at substantially prevailing
market prices and on substantially prevailing market terms or (ii) engaged in a
business competing with the Subject Company with respect to any line of the
products or services of the Subject Company in any market presently served by
the Subject Company, except for less than one percent (1%) of the outstanding
capital stock of any such competing business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 5.22, no Related Person of the Subject Company is a party to any
Contract with, or has any claim or right against, the Subject Company.
5.23 Customers and Suppliers. Schedule 5.23 contains a
complete and accurate list of the five (5) largest suppliers of the Subject
Company (excluding staffing subcontractors) during the last fiscal year, and
those customers of the Subject Company which generated revenues in excess of
$250,000 for the Subject Company during the last fiscal year, showing the
approximate total purchases by the Subject Company from each such supplier
during such fiscal year and the total sales by the Subject Company to each such
customer during such fiscal year. Since the date of the Balance Sheet, there has
been no adverse change in the business relationship with any supplier or
customer named in Schedule 5.23 and no threat or indication that any such change
is reasonably foreseeable.
5.24 Bank Accounts. Schedule 5.24 sets forth an accurate and
complete list showing the name and address of each bank in which the Subject
Company has any account, safe deposit box, borrowing arrangement or certificate
of deposit, the number of any such account or any such box and the names of all
Persons authorized to draw thereon or to have access thereto.
5.25 Brokers and Finders; Advisors. Except for John Hamachek &
Co., neither the Sellers nor the Subject Company nor their respective agents
have incurred any obligation or Liability for brokerage or finders' fees or
agents' commissions or other similar payment in connection with this Agreement.
The Sellers agree to indemnify the Purchaser and the Subject Company against and
to hold the Purchaser and the Subject Company harmless from, any claims for
brokerage or similar commission or other compensation which may be made against
the Purchaser or the Subject Company by any third party in connection with the
Transactions, which claim is based upon such third party having acted as broker,
finder, investment banker, advisor, consultant or appraiser or in any similar
capacity on behalf of the Subject Company, the Sellers or any of their
respective Affiliates.
5.26 Disclosure. No representation or warranty of the Sellers
in this Agreement and no statement in the Disclosure Schedules omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
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Purchaser hereby represents and warrants to the Sellers as
follows:
6.1 Organization of Purchaser. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and corporate authority to own,
lease and operate its properties and to carry on its business in the manner in
which such business is now being conducted, to own the Stock being acquired in
the Acquisition pursuant to this Agreement and to enter into and perform its
obligations under this Agreement.
6.2 Corporate Authority and Ability. All requisite corporate
authorizations for the execution, delivery and performance by the Purchaser of
this Agreement and the consummation of the Transactions have been obtained. The
Purchaser has the financial ability to perform its obligations under this
Agreement.
6.3 Authorization: No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms. Upon the execution and delivery by the
Purchaser of the Transaction Documents to which it is a party, such
Transaction Documents will constitute the legal, valid and binding
obligations of the Purchaser, enforceable against the Purchaser in
accordance with their respective terms, except where such
enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors'
rights generally and (ii) the general principles of equity, regardless
of whether asserted in a proceeding in equity or at law. The Purchaser
has the absolute and unrestricted right, power, and authority to
execute and deliver this Agreement and the Transaction Documents to
which it is a party and to perform its obligations under this Agreement
and the Transaction Documents to which it is a party.
(b) Neither the execution and delivery of this Agreement by
the Purchaser nor the consummation or performance of any of the
Transactions by the Purchaser will give any Person the right to
prevent, delay, or otherwise interfere with any of the Transactions
pursuant to: (i) any provision of the Purchaser's Organizational
Documents; (ii) any resolution adopted by the board of directors or the
stockholders of the Purchaser; (iii) any Legal Requirement or Order to
which the Purchaser may be subject; or (iv) any Contract to which the
Purchaser is a party or by which the Purchaser may be bound, except in
the case of each of clauses (iii) and (iv) above, for such
contraventions, conflicts, violations, Liabilities, reassessments,
revaluations, breaches or creations of Encumbrances which, individually
and in the aggregate, would not have a Material Adverse Effect with
respect to the Purchaser. Except as set forth in Schedule 6.2, the
Purchaser is not and will not be required to obtain any Consent from
any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the
Transactions.
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6.4 Proceedings. There is no pending Proceeding that has been
commenced against the Purchaser and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Transactions. To the Purchaser's knowledge, no such Proceeding has been
Threatened.
6.5 Investment. The Purchaser is purchasing the Stock for its
own account for investment, without a view to their distribution within the
meaning of Section 2(11) of the Securities Act.
6.6 Brokers or Finders. The Purchaser and its respective
officers and agents have incurred no obligation or Liability, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement and will indemnify and hold Sellers harmless from any such
payment alleged to be due by or through the Purchaser as a result of the action
of the Purchaser or its respective officers or agents.
ARTICLE VII
ACTIONS OF THE SELLERS AND THE PURCHASER BEFORE
THE CLOSING DATE
Each of the Sellers and the Purchaser covenant and agree with
each other as follows:
7.1 Access and Investigation. Between the date of this
Agreement and the Closing, the Sellers will (a) afford the Purchaser and its
Representatives and prospective lenders and their Representatives (collectively,
"Advisors") full and free access to the Subject Company's personnel, properties,
Contracts, books and records and other documents and data, (b) furnish the
Purchaser and its Advisors with copies of all such Contracts, books and records
and other existing documents and data as they may reasonably request and (c)
furnish the Purchaser and its Advisors with such additional financial, operating
and other data and information as they may reasonably request.
7.2 Operation of Business. Between the date of this Agreement
and the Closing, the Sellers will cause the Subject Company to:
(a) conduct its business only in the Ordinary Course of
Business;
(b) use its Best Efforts to preserve intact its current
business organization, keep available the services of its current
officers, employees and agents and maintain the relations and good will
with its suppliers, customers, landlords, creditors, employees, agents
and others having business relationships with it;
(c) confer with the Purchaser and its Advisors concerning
operational matters of a material nature; and
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(d) otherwise report periodically to the Purchaser concerning
the status of its business, operations and finances.
7.3 Negative Covenants.
(a) Except as otherwise expressly permitted by this Agreement,
between the date of this Agreement and the Closing, the Subject Company
and the Sellers will not, without the prior consent of the Purchaser,
take any affirmative action or fail to take any reasonable action
within its control, as a result of which any of the changes or events
listed in Section 5.14 is likely to occur.
7.4 Required Approvals.
As promptly as practicable after the date of this Agreement,
each party will make all filings required by Legal Requirements to be made by it
in order to consummate the Transactions (including all filings under the HSR
Act, if any). Between the date of this Agreement and the Closing, the parties
will (a) cooperate with respect to all filings that they may elect to make or
may be required by Legal Requirements to make in connection with the
Transactions and (b) cooperate in obtaining all consents identified in Schedules
5.2 or 6.2 (including taking all actions requested to cause early termination of
any applicable waiting period under the HSR Act).
7.5 Notification.
Between the date of this Agreement and the Closing, each party to this Agreement
will promptly notify each other party hereto in writing if such party becomes
aware of any fact or condition that causes or constitutes a Breach of any of its
representations and warranties as of the date of this Agreement, or if such
party becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition; provided, however, that such disclosure
shall not be deemed to cure any Breach of a representation or warranty. Should
any such fact or condition require any change in the Disclosure Schedules if
such Schedules were dated the date of the occurrence or discovery of any such
fact or condition, the discovering party will promptly deliver to each other
party a supplement to the Disclosure Schedules specifying such change. During
the same period, each party to this Agreement will promptly notify each other
party hereto of the occurrence of any Breach of any covenant or agreement by
such party in this Article VII or of the occurrence of any event that may make
the satisfaction of the conditions in Articles VIII and IX impossible or
unlikely; provided, however, that such disclosure shall not be deemed to cure
any Breach of a covenant or agreement or to satisfy a condition. Each party to
this Agreement shall promptly notify each other party hereto of any default, the
threat or commencement of any Proceeding or any development that occurs before
the Closing that could in any way materially affect such party, the business or
assets of such party or the ability of such party to consummate the
Transactions.
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7.6 No Negotiation.
Until sixty (60) days from the date hereof or unless this
Agreement is earlier terminated pursuant to Article XI, neither the Subject
Company nor the Sellers nor any of their respective Representatives will
directly or indirectly solicit, initiate or encourage any inquiries or proposals
from, discuss or negotiate with, provide any non-public information to or
consider the merits of any unsolicited inquiries or proposals from, any Person
(other than the Purchaser) relating to any transaction involving the sale of all
or a substantial portion of its business or assets of the Subject Company or any
of its capital stock or other equity interests or any merger, consolidation,
business combination or similar transaction involving the Subject Company (each
such transaction referred to herein as a "Proposed Acquisition Transaction").
The Subject Company and the Sellers will immediately notify the Purchaser if any
discussions or negotiations are sought to be initiated, any inquiry or proposal
is made or any information is requested with respect to any Proposed Acquisition
Transaction and notify the Purchaser of the terms of any proposal which they or
their respective Representatives may receive in respect of any such Proposed
Acquisition Transaction, including without limitation the identity of the
prospective purchaser or soliciting party. The Subject Company and the Sellers
shall also provide the Purchaser with a copy of any offer.
7.7 Best Efforts.
Between the date of this Agreement and the Closing, each of
the parties to this Agreement will use its Best Efforts to cause the conditions
in Articles VIII and IX to be satisfied.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The Purchaser's obligation to pay the Consideration and to
take the other actions required to be taken by the Purchaser at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Purchaser, in whole or
in part):
8.1 Accuracy of Representations. All of the representations
and warranties of the Sellers in this Agreement (considered collectively) and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing as if made on the
Closing without giving effect to any supplement to the Disclosure Schedules.
8.2 Sellers' and Subject Companies' Performance.
(a) All of the covenants and obligations that the Sellers and
the Subject Company are required to perform or to comply with pursuant
to this Agreement at or prior to the
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Closing (considered collectively) and each of these covenants and
obligations (considered individually), must have been performed and
complied with in all material respects.
(b) The Sellers and the Subject Company must have delivered
each of the documents required to be delivered by the Sellers and the
Subject Company pursuant to Section 4.2.
8.3 Consents. Each of the Consents identified in Schedule 5.2
must have been obtained and must be in full force and effect.
8.4 Additional Documents.
Sellers must have delivered to the Purchaser such documents as
the Purchaser may reasonably request for the purpose of (i) evidencing the
accuracy of any representation or warranty of the Sellers, (ii) evidencing the
performance by the Subject Company and the Sellers, or the compliance by the
Subject Company and the Sellers with, any covenant or obligation required to be
performed or complied with by the Subject Company and the Sellers, (iii)
evidencing the satisfaction of any condition referred to in this Article VIII or
(iv) otherwise facilitating the consummation of any of the Transactions.
8.5 No Proceedings. Since the date of this Agreement, there
must not have been commenced or Threatened against the Purchaser or against any
Person affiliated with the Purchaser, any Proceeding (a).involving any challenge
to, or seeking damages or other relief in connection with, any of the
Transactions or (b) that may have the effect of preventing, delaying, making
illegal or otherwise interfering with any of the Transactions.
8.6 Financing. The Purchaser shall have secured the financing
required to consummate the Acquisition and the other Transactions, upon terms
and subject to conditions reasonably satisfactory to them.
8.7 No Prohibition. Neither the consummation nor the
performance of any of the Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Purchaser to suffer any material
adverse consequence under, (a) any applicable Legal Requirement, including the
HSR Act or (b) any Legal Requirement that has been published, introduced, or
otherwise formally proposed by or before any Governmental Body.
8.8 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, the Subject Company, or (b) is entitled to all
or any portion of the Consideration payable for the Stock.
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8.9 Kurt Krauthamer Insurability. The Purchaser shall be
satisfied from the reports and results of physical examinations of Kurt
Krauthamer of the insurability of Kurt Krauthamer for life insurance purposes at
customary rates for healthy non-smokers of Kurt Krauthamer's age.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE
The Sellers' obligation to sell the Stock in exchange for the
Consideration and to take the other actions required to be taken by the Sellers
at the Closing is subject to the satisfaction, at or prior to the Closing, of
each of the following conditions (any of which may be waived by the Sellers, in
whole or in part):
9.1 Accuracy of Representations. All of the representations
and warranties of the Purchaser in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement,
and must be accurate in all material respects as of the Closing as if made on
the Closing, without giving effect to any supplement to the Disclosure
Schedules.
9.2 The Purchaser's Performance.
(a) All of the covenants and obligations that the Purchaser is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been
duly performed and complied with in all material respects.
(b) Each document required to be delivered by the Purchaser
pursuant to Section 4.2 must have been delivered.
9.3 Consents. Each of the Consents identified in Schedule 6.2
must have been obtained and must be in full force and effect.
9.4 Additional Documents.
The Purchaser must have delivered to the Sellers such
documents as the Sellers may reasonably request for the purpose of (i)
evidencing the accuracy of any of Purchaser's representations and warranties,
(ii) evidencing the performance by the Purchaser of, or the compliance by the
Purchaser with, any covenant or obligation required to be performed or complied
with by the Purchaser, (iii) evidencing the satisfaction of any condition
referred to in this Article IX or (iv) otherwise facilitating the consummation
or performance of any of the Transactions.
9.5 No Proceedings. Since the date of this Agreement, there
must not have been commenced or Threatened against the Sellers or the Subject
Company any proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Transactions or
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(b) that may have the effect of preventing, delaying, making illegal or
otherwise interfering with any of the Transactions.
9.6 No Prohibition. Neither the consummation nor the
performance of any of the Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause the Sellers to suffer any material
adverse consequence under, (a) any applicable Legal Requirement, including the
HSR Act and federal and state securities laws or (b) any Legal Requirement that
has been published, introduced, or otherwise formally proposed by or before any
Governmental Body.
ARTICLE X
SELLERS' INDEMNIFICATION; REMEDIES
10.1 Survival of Representations. Etc. The representations and
warranties of the Sellers and the Purchaser contained herein shall survive until
two (2) years after the Closing; provided, however, that the representations and
warranties contained in Section 5.9, Section 5.11 with respect to ERISA plans
and Section 5.17 shall continue to survive until sixty (60) days after the
expiration of the applicable statute of limitations (giving effect to any waiver
or extension thereof). The right to indemnification, payment of Damages or other
remedy based on such representations, warranties, covenants and obligations will
not be affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant or obligation; provided, however, that any party to this
Agreement who has Knowledge on or prior to the Closing Date of an inaccuracy or
Breach of a representation, warranty, covenant or obligation of any other party
to this Agreement shall notify such other party of such inaccuracy or Breach
prior to the Closing hereunder. A failure to provide the notice required by the
foregoing sentence shall preclude the party with such Knowledge from making a
claim for indemnification, Damages or other remedy for such inaccuracy or
Breach.
10.2 Indemnifications.
(a) By the Sellers. The Sellers shall indemnify, save and hold
harmless the Purchaser and its Affiliates and Subsidiaries and each of
their respective Representatives (individually, a "Seller Indemnified
Party", and collectively, the "Seller Indemnified Parties"), from and
against any and all costs, losses, Liabilities, obligations, damages,
lawsuits, deficiencies, claims, demands and expenses (whether or not
arising out of third-party claims), including without limitation losses
in connection with workers compensation claims, interest, penalties,
costs of mitigation, losses in connection with any Environmental Law
(including without limitation any clean-up, remedial correction or
responsive action), damages to the Environment, reasonable attorneys'
fees and all amounts
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paid in investigation, defense or settlement of any of the foregoing
(herein, "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any Breach of any representation or
warranty made by the Sellers in this Agreement; (ii) any Breach of any
covenant or agreement made by the Sellers in this Agreement or any
certificate delivered by the Seller at the Closing; or (iii) any
services provided by the Subject Company prior to the Closing to the
extent not reserved on the Closing Balance Sheet or covered by
insurance..
The term "Damages" as used in this Section 10.2 is not limited
to matters asserted by third parties against any indemnified party, but includes
Damages incurred or sustained by an indemnified party in the absence of third
party claims. Payments by any indemnified party of amounts for which such
indemnified party is indemnified hereunder shall not be a condition precedent to
recovery. The rights and remedies provided in this Article X and Article XI
shall be exclusive as to any Damages incurred by a party under this Agreement;
provided, however, that nothing herein shall preclude a party from exercising
its rights under this Agreement and applicable law to such equitable remedies,
including without limitation specific performance and injunctions.
(b) By Purchaser. Purchaser shall indemnify, save and hold
harmless the Sellers and their respective Affiliates and
Representatives (the "Purchaser Indemnified Parties") from and against
any and all Damages incurred in connection with, arising out of,
resulting from or incident to (i) any Breach of any representation or
warranty made by the Purchaser in this Agreement; (ii) any Breach of
any covenant or agreement made by the Purchaser in this Agreement; or
(iii) failure of Purchaser or Subject Company to pay the Liabilities of
the Subject Company as they become due.
(c) Cooperation. An indemnified party under this Agreement
shall cooperate in all reasonable respects with the indemnifying party
and its Representatives (including without limitation their attorneys)
in the investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom; provided, however, that the indemnified
party may, at its own cost, participate in negotiations, arbitrations
and the investigation, trial and defense of such lawsuit or action and
any appeal arising therefrom. The parties shall cooperate with each
other in any notifications to insurers.
(d) Defense of Claims. If a claim for Damages (a "Claim") is
to be made by an indemnified party hereunder against the indemnifying
party, the indemnified party shall give written notice (a "Claim
Notice") to the indemnifying party as soon as practicable after the
indemnified party becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under
this Section 10.2. If any lawsuit or enforcement action is filed
against an indemnified party, written notice thereof shall be given to
the indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the citation or
summons). The failure of any indemnified party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except
to the extent that the indemnifying party have been damaged by such
failure. After such notice, if the indemnifying party shall acknowledge
in writing to the
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indemnified party that the indemnifying party shall be obligated under
the terms of their indemnity hereunder in connection with such lawsuit
or action, then the indemnifying party shall be entitled, if they so
elect at their own cost, risk and expense, (i) to take control of the
defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of their own choice, but, in any event, reasonably
acceptable to the indemnified party, to handle and defend the same
unless the named parties to such action or proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and the indemnified party has been advised in writing
by counsel that there may be one or more legal defenses available to
such indemnified party that are different from or additional to those
available to the indemnifying party, in which event the indemnified
party shall be entitled, at the indemnifying party's cost, risk and
expense, to separate counsel of its own choosing and (iii) to
compromise or settle such lawsuit or action, which compromise or
settlement shall be made only with the written consent of the
indemnified party, such consent not to be unreasonably withheld.
If the indemnifying party fails to assume the defense of such
lawsuit or action within fifteen (15) calendar days after receipt of the Claim
Notice, the indemnified party against which such lawsuit or action has been
asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such lawsuit or action on behalf of and for
the account and risk of the indemnifying party; provided, however, that such
lawsuit or action shall not be compromised or settled without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld. If the indemnified party settles or compromises such lawsuit or action
without the prior written consent of the indemnifying party, the indemnifying
party will bear no liability hereunder for or with respect to such lawsuit or
action. In the event the indemnified party assumes the defense of the lawsuit or
action, the indemnified party will keep the indemnifying party reasonably
informed of the progress of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 10.2 and for any final judgment
(subject to any right of appeal) and the indemnifying party agrees to indemnify
and hold harmless an indemnified party from and against any Damages by reason of
such settlement or Judgment.
(e) Limitation on Indemnity/Commitments.
(i) The indemnification obligation of the
indemnifying party and the Purchaser with respect to any
Breach of any representation or warranty pursuant to Section
10.2(a)(i), (a)(iii) or (b)(i) shall be limited to Claims for
Damages made prior to the last date of survival thereof
referred to in Section 10.1. The indemnification obligation of
the indemnifying party with respect to any Breach of any
covenant or agreement pursuant to Section 10.2(a)(ii), (b)(ii)
or (b)(iii) shall survive indefinitely subject to the terms of
this Agreement.
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(ii) Except as provided in Section 10.2(e)(iii), the
Seller Indemnified Parties may not recover Damages from the
indemnifying party pursuant to Section 10.2(a)(i) and (iii)
until the aggregate amount of Damages relating to such Claims
for which the Seller Indemnified Parties, in the aggregate,
are entitled to indemnification under Section 10.2(a)(i) and
(iii) exceeds One Hundred Thousand Dollars ($100,000) (the
"Threshold"); provided, however, in the event that the
aggregate amount of Damages for which the Seller Indemnified
Parties are seeking indemnification under Section 10.2(a)(i)
exceeds such amount, the Seller Indemnified Parties may
recover the full amount of such Damages; provided, further,
however, that the maximum aggregate amount of such Damages for
which the Sellers shall be liable shall not exceed Three
Million Dollars ($3,000,000). The Seller Indemnified Parties
shall have the right to make a Claim hereunder prior to the
time at which the Threshold that is applicable to Claims under
Section 10.2(a)(i) and (iii) has been surpassed for the
purpose of asserting such Claim within the relevant survival
period of the applicable indemnification obligation and any
such Claim made within such period shall, to the extent such
Threshold ultimately is met, survive until its final
resolution.
(iii) The Threshold and maximum damages limitations in Section
10.2(e)(ii) shall not apply to any Damages incurred in connection with,
arising out of or resulting from any Breach of any representation or
warranty made by the Sellers in Section 5.3, 5.9, 5.11 with respect to
ERISA plans, and 5.17.
(iv) The Purchaser Indemnified Parties may not recover Damages
from the Purchaser pursuant to Section 10.2(b)(i) until the aggregate
amount of Damages relating to such Claims for which the Purchaser
Indemnified Parties, in the aggregate, are entitled to indemnification
under Section 10.2(b)(i) exceeds the Threshold; provided, however, in
the event that the aggregate amount of Damages for which the Purchaser
Indemnified Parties are seeking indemnification under Section
10.2(b)(i) exceeds such amount, the Purchaser Indemnified Parties may
recover the full amount of such Damages; provided, further, however,
that the maximum aggregate amount of Damages for which the Purchaser
shall be liable pursuant to Section 10.2(b)(i) shall not exceed Two
Million Dollars ($2,000,000). The Purchaser Indemnified Parties shall
have the right to make a Claim hereunder prior to the time at which the
Threshold that is applicable to Claims under Section 10.2(b)(i) has
been surpassed for the purpose of asserting such Claim within the
relevant survival period of the applicable indemnification obligation
and any such Claim made within such period shall, to the extent such
Threshold ultimately is met, survive until its final resolution.
(v) Neither (a) the termination of the representations or
warranties contained herein, nor (b) the expiration of the
indemnification obligations described above, will affect the rights of
an indemnified party in respect of any Claim made by such indemnified
party received by the Sellers prior to the expiration of the applicable
survival period provided herein.
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(f) Representatives. No individual Representative of any party
shall be personally liable for any Damages under the provisions
contained in this Section 10.2 (except to the extent any such Person is
party hereto in his or her individual capacity). Nothing herein shall
relieve either party of any Liability to make any payment expressly
required to be made by such party pursuant to this Agreement.
10.3 Tax.
(a) Tax Indemnification. Except for Taxes that are reserved
for on the Closing Balance Sheet, the Sellers shall be responsible for
and pay and shall jointly and severally indemnify and hold harmless the
Purchaser and the Subject Company (and each of their respective
affiliates, successors and assigns) from and against (i) all Taxes
imposed on the Subject Company, or for which the Subject Company is
liable, with respect to (A) all periods ending on or prior to the
Closing Balance Sheet Date or (B) any period beginning before the
Closing Balance Sheet Date and ending after the Closing Balance Sheet
Date, but only with respect to the portion of such period up to and
including the Closing Balance Sheet Date (such portion, a "Pre-Closing
Partial Period"), and (ii) a prorata portion of any costs or expenses
incurred by the Subject Company with respect to the Taxes indemnified
hereunder. For purposes of this Section 10.3(a), Taxes shall include
the amount of Taxes which would have been paid but for the application
of any credit or net operating or capital loss deduction attributable
to any period (or portion thereof) ending after the Closing Balance
Sheet Date, but shall not include amounts which would have been paid
but for the application of any credit or net operating or capital loss
deductions attributable to any period (or portion thereof) ending on or
before the Closing Balance Sheet Date.
(b) Straddle Periods. Any Taxes with respect to the Subject
Company that relate to a Tax period beginning on or before the Closing
Balance Sheet Date and ending after the Closing Balance Sheet Date (a
"Straddle Period") shall be apportioned between the Pre-Closing Partial
Period and the portion of such Straddle Period beginning on the Closing
Date (the "Post-Closing Partial Period"), as determined from the books
and records of the Subject Company during the portion of such period
ending on the Closing Balance Sheet Date and the portion of such period
beginning on the day following the Closing Balance Sheet Date
consistent with the past practices of the Subject Company. The
Purchaser shall cause the Subject Company to file any Tax Returns for
any Straddle Period, and the Purchaser shall pay all Taxes shown as due
on any such Tax Returns. The Sellers shall pay the Purchaser all such
Taxes apportioned to the Pre-Closing Partial Period (to the extent not
paid by the Subject Company prior to the Closing Balance Sheet Date or
accrued or otherwise reflected as a Liability on the Closing Balance
Sheet) due pursuant to the filing of any such Tax Returns under the
provisions of this Section 10.3(b) within fifteen (15) business days of
receipt of notice of such filing by the Purchaser, which notice shall
set forth in reasonable detail the calculations regarding the Sellers'
share of such Taxes.
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(c) Refunds. The Purchaser agrees to assign and promptly remit
(and to cause the Subject Company to assign and promptly remit) all
refunds (including interest thereon) net of any Tax effect to the
Purchaser or the Subject Company, received by the Purchaser or the
Subject Company of any Taxes attributable to any period on or prior to
the Closing Balance Sheet Date; provided, however, that the Purchaser
shall be entitled to the portion of any refund resulting from a
carryback (including carrybacks to periods ending on or prior to the
Closing Date) of a net operating loss, net capital loss, Tax credit or
similar item sustained or arising in any period ending after the
Closing Date or in any Post-Closing Partial Period.
(d) Tax Returns for Pre-Closing Periods. The Sellers shall
prepare or cause to be prepared, and timely file or cause to be filed,
all Tax Returns (except for any 1998 partial year Tax Return for the
Subject Companies arising from an election of the Purchaser ) of the
Subject Company for all taxable periods of the Subject Company ending
on or prior to the Closing Balance Sheet Date and shall pay or cause to
be paid all Taxes due with respect to such Tax Returns (to the extent
not paid by the Subject Company prior to the Closing Date or accrued or
otherwise reflected as a Liability on the Closing Balance Sheet). With
respect to any Tax Return of the Subject Company for a 1998 partial
year period ending on or prior to the Closing Balance Sheet Date,
Sellers shall pay or cause to be paid all taxes due with respect to
such period as determined from the books and records of the Subject
Company for such period (to the extent not paid by the Subject Company
prior to the Closing Date or accrued or otherwise reflected as a
Liability on the Closing Balance Sheet). With respect to any such Tax
Returns required to be filed by the Sellers and not required to be
filed before the Closing Date, the Sellers shall provide the Purchaser
and its authorized Representatives with copies of any such completed
Tax Return at least ten (10) business days prior to the due date for
filing of such Tax Return and the Purchaser and its Representatives
shall have the right to review such Tax Return prior to the filing of
such Tax Return. Sellers and the Purchaser agree to consult and resolve
in good faith any issues arising as a result of such review.
(e) Other Matters. The Purchaser shall promptly notify the
Sellers in writing upon receipt by the Purchaser or any Affiliate of
the Purchaser of notice of (i) any pending or threatened federal,
state, local or foreign Tax audits or assessments of the Subject
Company and (ii) any pending or threatened federal, state, local or
foreign Tax audits or assessments of the Purchaser or any Affiliate of
the Purchaser which may affect the Tax Liabilities of the Subject
Company with respect to any period ending on or before the Closing
Date, or any Pre-Closing Partial Period. The Sellers shall promptly
notify the Purchaser in writing upon receipt by the Sellers or any
affiliate of the Sellers of notice of any pending or threatened
federal, state, local or foreign Tax audits or assessments relating to
the income, properties or operations of the Subject Company.
The Purchaser and the Sellers shall cooperate with each other
in the conduct of any audit or other proceedings involving the Subject Company
for periods beginning before the Closing Date and each may participate at its
own expense, provided that the Sellers shall have the right to
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control the conduct of any such audit or proceeding for which the Sellers (i)
agree that any resulting Tax is covered by the indemnity provided in Section
10.3(a) of this Agreement and (ii) demonstrate to the Purchaser their ability to
make such indemnity payment. Notwithstanding the foregoing, neither the
Purchaser nor the Sellers may settle or otherwise resolve any such claim, suit
or proceeding without the consent of the other party, such consent not to be
unreasonably withheld.
After the Closing Date, the Purchaser and the Sellers shall
make available to the other, as reasonably requested, all information, records
or documents relating to Tax liabilities or potential Tax liabilities of the
Subject Company and shall preserve all such information, records and documents
until the expiration of any applicable statute of limitations, including
extensions thereof, or such other period as required by law. The Purchaser and
the Sellers shall, if possible, make available to each other as reasonably
requested by the Purchaser or the Sellers, as the case may be, personnel
responsible for preparing or maintaining information, records and documents, in
connection with Tax matters. In case at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement, the
parties hereto shall take all such reasonably necessary action.
All sales, value added, use, state or local transfer and gains
Taxes, registration, stamp and similar Taxes imposed in connection with the
Transactions shall be borne equally by the Purchaser, on the one hand, and the
Sellers, on the other hand.
Any payments made to the Sellers, the Subject Company or the
Purchaser pursuant to this Article X shall constitute an adjustment of the
Consideration for Tax purposes and shall be treated as such by the Purchaser and
the Sellers on their Tax Returns to the extent permitted by law.
All Tax sharing or similar agreements, if any, to which the
Subject Company is a party will be canceled at or prior to the Closing and
neither the Purchaser nor the Subject Company shall have any obligation under
any such agreement.
ARTICLE XI
ADDITIONAL PURCHASER'S INDEMNIFICATION; REMEDIES
11.1 The Indemnity. The Purchaser and the Sellers believe that the
Contingent Amounts constitute payment for the sale of a capital asset and not
compensation to KURT AND CAROL KRAUTHAMER for the performance of services for
federal, state and local income tax purposes and shall report the entire
Consideration as payment for the sale of a capital asset and not as compensation
for the performance of services for all federal, state and local income tax
purposes. The Purchaser shall indemnify, save and hold harmless KURT AND CAROL
KRAUTHAMER from and against any and all additional federal, state and local
income taxes, including interest, assessed against KURT AND CAROL KRAUTHAMER as
a result of a determination by IRS or a state tax authority that any Contingent
Amount, or portion thereof, received by the Sellers constitutes compensation for
the performance of services and not gain from the sale of a capital asset
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("Compensation Income Taxes"). Such indemnification payment shall be grossed-up
to account for the fact that the indemnification payment itself is taxable (the
"Gross-Up Amount").
11.2 Notice and Cooperation. Sellers shall promptly notify the
Purchaser in writing upon receipt by KURT AND CAROL KRAUTHAMER of notice of any
pending or threatened federal, state or local Tax Audits or assessments of the
Sellers. The Purchaser and the Sellers shall cooperate with each other in the
conduct of any such audit with respect to any issue of Compensation Income Taxes
asserted by the auditing authority.
11.3 Seller's Claim for Indemnity; Payment. The Sellers shall promptly
notify the Purchaser in writing upon receipt by KURT AND CAROL KRAUTHAMER of any
assessment of Compensation Income Taxes and will consult with the Purchaser with
regard to any mutually agreeable strategy for negotiation or appeal of such
assessment. Upon receipt from KURT AND CAROL KRAUTHAMER of an assessment of
Compensation Income Taxes and a written acknowledgment, acceptance or consent to
such assessment by KURT AND CAROL KRAUTHAMER on applicable forms of the
assessing authority, the Purchaser shall within 10 business days thereafter pay
to KURT AND CAROL KRAUTHAMER in cash by wire transfer of immediately available
funds the amount of the Compensation Income Taxes and the Gross-Up Amount, and
the Purchaser and the Sellers shall thereafter report the Contingent Amounts for
tax purposes in accordance with the assessment.
ARTICLE XII
PURCHASER'S POST-CLOSING COVENANTS
The Purchaser covenants and agrees with the Sellers as
follows:
12.1 Subject Company Working Capital. After the Closing and
prior to December 31, 2000, the Purchaser will cause the Subject Company to
maintain or will provide for the benefit of the Subject Company working capital
and credit facilities sufficient to pay as and when they become due (a) all of
the Liabilities of the Subject Company incurred in the Ordinary Course of
Business other than Liabilities for capital expenditures and (b) Liabilities of
the Subject Company for capital expenditures in an individual amount not
exceeding $10,000 and in the aggregate amount not exceeding $50,000 in any
12-month period and any additional mutually agreed upon between the Purchaser
and the Sellers.
12.2 Subject Company Name. During the 12-month period after
the Closing, the Subject Company shall conduct its business solely and
exclusively under the name "Intranational Computer Consultants." During the
period thereafter through December 31, 2000, the Subject Company may conduct the
business under any name that includes as a part thereof or otherwise refers to
the name "Intranational Computer Consultants."
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12.3 Purchaser's Existing California Business. The Purchaser
currently has on-site offices at client GE Capital in San Francisco and
Sacramento, California (the "Existing Business"). The Subject Company will
assume responsibilities with respect to the Existing Business and/or receive
earnings with respect to the Existing Business to the extent, if any, as shall
be mutually agreed in writing by the Purchaser and the Sellers.
12.4 Separate Corporate Status. The Purchaser will maintain
the separate corporate existence of the Subject Company until December 31, 2000
and will not sell, transfer or dispose of any of the assets or business of the
Subject Company prior to December 31, 2000 except in the Ordinary Course of
Business or transfer any of the employees of the Subject Company.
ARTICLE XIII
TERMINATION
13.1 Termination Events.
This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by the Sellers, on the one hand, or by the Purchaser on
the other hand, if a Breach of any provision of this Agreement has been
committed by the other party or its Affiliates and such Breach has not
been expressly waived in writing;
(b) (i) by the Purchaser if any of the conditions in Article
VIII has not been satisfied as of the Closing or if satisfaction of
such a condition is or becomes impossible (other than through the
failure of the Purchaser to comply with their respective obligations
under this Agreement) and the Purchaser has not expressly waived such
condition in writing on or before the Closing; or (ii) by the Sellers,
if any of the conditions in Article IX has not been satisfied as of the
Closing or if satisfaction of such a condition is or becomes impossible
(other than through the failure of the Sellers or the Subject Company
to comply with its obligations under this Agreement) and the Sellers
have not expressly waived such condition in writing on or before the
Closing;
(c) by mutual consent of Purchaser and the Sellers; or
(d) by either the Purchaser or the Sellers if the Closing has
not occurred (other than through the failure of any party seeking to
terminate this Agreement to comply fully with its obligations under
this Agreement) on or before March 2, 1998 (the "Closing Date"), or
such later date as the Parties may agree upon.
13.2 Effect of Termination.
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Each party's right of termination under Section 13.1 is in
addition to any other rights it may have under this Agreement or otherwise, and
the exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to Section 13.1, all further obligations
of the Parties under this Agreement will terminate, except that the obligations
in Sections 14.6, 14.9 and 14.10 will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of this Agreement by
the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE XIV
MISCELLANEOUS
14.1 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by any party without the prior written
consent of the other party; except that the Purchaser may, without such consent,
assign all such rights to any lender as collateral security and assign all such
rights and obligations to a wholly owned Subsidiary (or a partnership controlled
by the Purchaser) or Subsidiaries of the Purchaser or to a successor in interest
to the Purchaser which shall assume all obligations and Liabilities of the
Purchaser, as the case may be, under this Agreement; provided, however, that no
such assignment shall relieve the Purchaser of any obligation or liability under
this Agreement. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
14.2 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
If to the Purchaser, addressed to such Purchaser at:
William W. Wilkinson
Corporate Staffing Resources, Inc.
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, IN 46601
Telephone: (219) 233-8209
Telecopy: (219) 280-2661
with a copy to:
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Philip L. Carson, Esq.
Miller Carson Boxberger & Murphy LLP
1400 One Summit Square
Fort Wayne, IN 46802-3173
Telephone: (219) 423-9411
Telecopy: (219) 423-4329
If to either of the Sellers, addressed to such Seller at:
5060 Grove Street
Sonoma, CA 95476
Telephone: (707) 996-6788
With a copy to:
Twila L. Foster, Esq.
Jackson Tufts Cole & Black, LLP
650 California Street
San Francisco, CA 94108-2613
Telephone: (415) 433-1950
Telecopy: (415) 392-3494
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
14.3 Choice of Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware (without
giving effect to its choice of law principles), except with respect to matters
of law concerning the internal corporate affairs of any corporate entity which
is a party to or the subject of this Agreement, and as to those matters the law
of the jurisdiction under which the respective entity derives its powers shall
govern.
14.4 Entire Agreement: Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto (including the Disclosure
Schedule and the other agreements referred to herein), constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. This Agreement may not be amended
except in an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute
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a waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
14.5 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
14.6 Expenses. Each party to this Agreement will bear its
respective expenses incurred in connection with the preparation, execution and
performance of this Agreement and the Transactions (it being understood that in
the event of termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by the other party); provided, however, that the
Purchaser will pay for the expense of the audit of the financial statements of
the Subject Company for the 12-month period ended December 31, 1997, in an
amount not exceeding $25,000, irrespective of whether the Transactions are
closed or terminated pursuant to the terms of Section 13.1.
14.7 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
14.8 Titles. The titles, captions or headings of the Articles
and Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
14.9 Publicity. Except as required by law, none of the
Purchaser, the Subject Company nor the Sellers shall issue any press release or
make any public statement regarding this Agreement and the Transactions, without
prior written approval of the other parties; provided, however, that in the case
of announcements, statements, acknowledgments or revelations which either party
is required by law to make, issue or release, the making, issuing or releasing
of any such announcement, statement, acknowledgment or revelation by the party
so required to do so by law shall not constitute a breach of this Agreement if
such party shall have given not less than two (2) calendar days prior notice to
the other party, and shall have attempted, to the extent reasonably possible, to
clear such announcement, statement, acknowledgment or revelation with the other
party. Each party hereto agrees that it will not unreasonably withhold any such
consent or clearance. The Purchaser may, without the consent of the Sellers,
issue or make an appropriate press release or public announcement after the
Closing.
14.10 Confidential Information.
(a) No Disclosure. The parties acknowledge that the
Transaction described herein is of a confidential nature and shall not
be disclosed except to consultants, advisors
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and Affiliates or as required by law, until such time as the parties
make a public announcement regarding the Transaction as provided in
Section 14.9.
(b) Preservation of Confidentiality. In connection with the
negotiation of this Agreement, the preparation for the consummation of
the Transactions, and the performance of obligations hereunder, the
Purchaser acknowledges that it will have access to confidential and
proprietary information relating to the Subject Company and the Sellers
acknowledge that they will have access to confidential information
relating to the Purchaser and its Affiliates, in each case, including
technical or marketing information, ideas, methods, developments,
inventions, improvements, business plans, trade secrets, scientific or
statistical data, diagrams, drawings, specifications or other
proprietary information relating thereto, together with all analyses,
compilations, studies or other documents, records or data prepared by
the Sellers and the Subject Company or the Purchaser, as the case may
be, or their respective Representatives or Affiliates, which contain or
otherwise reflect or are generated from such information ("Confidential
Information"). The term "Confidential Information" does not include
information received by one party in connection with the Transactions
which (i) is or becomes generally available to the public other than as
a result of a disclosure by such party or its Representatives, (ii) was
within such party's possession prior to its being furnished to such
party by or on behalf of the other party in connection with the
Transactions, provided that the source of such information was not
known by such party to be bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to
the other party or any other Person with respect to such information or
(iii) becomes available to such party on a non-confidential basis from
a source other than the other party or any of their respective
Representatives, provided that such source is not bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the other party or any other Person
with respect to such information.
(c) Each party shall treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and
not disclose any such Confidential Information, except to its
Representatives and Affiliates who need to know such Confidential
Information in connection with the Transactions. Each party shall use
all reasonable efforts to cause its Representatives to treat all such
Confidential Information of the other party as confidential, preserve
the confidentiality thereof and not disclose any such Confidential
Information. Each party shall be responsible for any breach of this
Agreement by any of its Representatives. If, however, Confidential
Information is disclosed, the party responsible for such disclosure
shall immediately notify the other party in writing and take all
reasonable steps required to prevent further disclosure.
(d) Until the Closing or the termination of this Agreement,
all Confidential Information shall remain the property of the party who
originally possessed such information. In the event of the termination
of this Agreement for any reason whatsoever, each party shall, and
shall cause its Representatives to, return to the other party all
Confidential Information
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(including all copies, summaries and extracts thereof) furnished to
such party by the other party in connection with the Transactions.
(e) If one party or any of its Representatives or Affiliates
is requested or required (by oral questions, interrogatories, requests
for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) or is required by
operation of law to disclose any Confidential Information, such party
shall provide the other party with prompt written notice of such
request or requirement, which notice shall, if practicable, be at least
forty-eight (48) hours prior to making such disclosure, so that the
other party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in
the absence of a protective order or other remedy or the receipt of
such a waiver, such party or any of its Representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Confidential Information, then such party may disclose that portion of
the Confidential Information which such counsel advises is legally
required to be disclosed, provided that such party uses its reasonable
efforts to preserve the confidentiality of the Confidential
Information, whereupon such disclosure shall not constitute a breach of
this Agreement.
14.11 Burden and Benefit. This Agreement shall be binding upon
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. There are no third party beneficiaries of this
Agreement; provided, however, that any Person that is not a party to this
Agreement but, by the terms of Section 10.2, is entitled to indemnification,
shall be considered a third party beneficiary of this Agreement, with full
rights of enforcement as though such Person was a signatory to this Agreement.
14.12 Service of Process; Consent to Jurisdiction.
(a) Service of Process. Each of the parties hereto irrevocably
consents to the service of any process, pleading, notices or other
papers in connection with a legal proceeding by the mailing of copies
thereof by registered, certified or first class mail, postage prepaid,
to such party at such party's address set forth herein, or by any other
method provided or permitted under Delaware law.
(b) Consent and Jurisdiction. Each party hereto irrevocably
and unconditionally (i) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the United
States District Court for the Northern District of Indiana or the
United States District Court for the Northern District of California;
(ii) consents to the jurisdiction of either such court in any such
suit, action or proceeding; and (iii) waives any objection which such
party may have to the laying of venue of any such suit, action or
proceeding in either such court.
14.13 Attorneys' Fees. If any party to this Agreement brings
an action to enforce its rights under this Agreement, the prevailing party shall
be entitled to recover its costs and expenses,
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including without limitation reasonable attorneys' fees, incurred in connection
with such action, including any appeal of such action.
14.14 Limitation of Liability. Notwithstanding anything to the
contrary in this Agreement, in no event shall any party hereto be liable for any
incidental or consequential damages occasioned by any failure to perform or the
breach of any obligation under this Agreement, except as provided in Section
2.4.
14.15 Additional Survival. In addition to the survival of
representations and warranties and other provisions referenced in Section 10.1
and 10.2 of this Agreement, which shall survive pursuant to the terms of such
Section, the obligations of the Sellers and the Purchaser contained in Sections
4.2, 14.6, 14.9 and 14.10 and in Article II, III, subject to the provisions of
Section 3.5, X and XI of this Agreement shall survive the Closing Date
indefinitely.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
PURCHASER:
Corporate Staffing Resources, Inc.
/s/ William W. Wilkinson
------------------------------------------------
By: William W. Wilkinson
Its: Chairman of the Board & Chief Executive
Officer
and
/s/ Thomas E. Murphy
------------------------------------------------
By: Thomas E. Murphy
Its: Vice President, CFO and Assistant Secretary
SELLERS:
Krauthamer Family Limited Partnership
By /s/ Kurt Krauthamer
----------------------------------------------
Kurt Krauthamer, its General Partner
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Exhibit 2.05
STOCK PURCHASE AGREEMENT
Dated as of _____________, 1998
between
PURCHASER:
Corporate Staffing Resources, Inc.
AND
SELLERS:
JOSEPH A. NOTO
JOSEPH R. POZSGAI, JR.
DONALD E. ZERFAS
PATRICK B. LAAKE
RICHARD G. HALSTEAD
C. RICK BELLAR
<PAGE> 2
STOCK AND ASSET PURCHASE AGREEMENT
THIS STOCK AND ASSET PURCHASE AGREEMENT dated as of May 1, 1998 (this
"Agreement"), is by and among Corporate Staffing Resources, Inc., a Delaware
corporation ("CSR"), Corporate Staffing Resources of Indiana, Inc. an Indiana
corporation ("CSR Indiana" and "Stock Purchaser), CMS Management Services LLC,
an Indiana limited liability company ("CMS LLC" and "Asset Purchaser"), CMS
Management Services, Co., an Indiana corporation, TemPro Resources, Inc. an
Indiana corporation, CMS Services Inc., an Indiana corporation, CMS/TemPro
Resources of Nashville LLC, a Tennessee limited liability company (individually
a "Subject Company" and "Asset Seller" and collectively with CMS/TemPro
Resources of Indianapolis, Inc., the "Subject Companies"), CMS/TemPro Resources
of Indianapolis, Inc. an Indiana corporation (a "Subject Company") and Joseph A.
Noto, Joseph R. Pozsgai, Jr., Donald E. Zerfas, Richard G. Halstead
(individually, a "Shareholder" and Stock Seller," and collectively with Patrick
B. Laake and C. Rick Bellar, the "Shareholders"), Patrick B. Laake (a
"Shareholder") and C. Rick Bellar (a "Shareholder").
RECITALS
A. The Stock Purchaser desires to purchase from the Stock Sellers and
the Stock Sellers desire to sell to the Stock Purchaser all of the issued and
outstanding capital stock of CMS/TemPro Resources of Indianapolis, Inc., upon
the terms and subject to the conditions contained herein (the "Stock
Acquisition").
B. The Asset Purchaser desires to purchase from each of the Asset
Sellers and each of the Asset Sellers desires to sell to the Asset Purchaser
certain of the assets of the respective Asset Sellers, upon the terms and
subject to the conditions contained herein (each, an "Asset Acquisition" and
together with the Stock Acquisition, the "Acquisitions").
C. In connection with the Acquisitions, the parties desire to set forth
certain agreements, representations, warranties and covenants made by one or
more parties to the other or others as an inducement to the consummation of the
Acquisitions, upon the terms and subject to the conditions contained herein.
D. The board of directors or managing member of each of the Asset
Sellers has determined that the Asset Acquisition is in the best interest of the
respective Asset Seller.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
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<PAGE> 3
1.1 Defined Terms. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"Accounts Receivable" shall have the meaning set forth in Section 5.8.
"Acquisitions" shall have the meaning set forth in recital B to this
Agreement.
"Adjusted Working Capital" shall have the meaning set forth in Section
2.7.
"Adjusted Working Capital Deficiency" shall have the meaning set forth
in Section 2.7.
"Advisors" shall have the meaning set forth in Section 7.1.
"Affiliate" shall have the meaning set forth in the Exchange Act.
Without limiting the foregoing, all directors and officers of a Person that is a
corporation and all managing members of a Person that is a limited liability
company, shall be deemed Affiliates of such Person for all purposes hereunder.
"Agreement" shall mean this Stock and Asset Purchase Agreement.
"Applicable Contract" shall mean any Contract (a) under which any
Subject Company has or may acquire any rights, (b) under which any Subject
Company has or may become subject to any obligation or liability, or (c) by
which any Subject Company or any of the assets owned or used by it is or may
become bound.
"Asset Acquisition" shall have the meaning set forth in Recital B of
this Agreement.
"Asset Purchaser" shall mean CMS LLC as provided in the first paragraph
of this Agreement.
"Asset Sellers" shall mean each of CMS Management Services Co., TemPro
Resources, Inc., CMS Services, Inc. and CMS/TemPro Resources of Nashville LLC,
as provided in the first paragraphs of this Agreement.
"Assumed Liabilities" shall have the meaning set forth in Section
2.2(b).
"Balance Sheet" shall have the meaning set forth in Section 5.4.
"Best Efforts" shall mean the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible; provided, however, that an obligation
to use Best Efforts under this Agreement does not
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require the Person subject to that obligation to take actions that would result
in a Material Adverse Change in the benefits to such Person of this Agreement
and the Transactions.
"Breach" shall mean and a breach of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any Transaction
Documents will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision.
"Cash and Cash Equivalents" shall have the meaning attributed to such
term under GAAP.
"CERCLA" shall mean the United States Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 et. seq., as amended.
"Claim" shall have the meaning set forth in Section 10.2(d).
"Claim Notice" shall have the meaning set forth in Section 10.2(d).
"Cleanup" shall mean any investigation, cleanup, removal, containment
or other remediation or response actions.
"Closing" shall have the meaning set forth in Section 4.1.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.7.
"Closing Cash Payment" shall have the meaning set forth in Section 2.4.
"Closing Date" shall have the meaning set forth in Section 11.l(d).
"CMS LLC" shall mean CMS Management Services LLC, an Indiana limited
liability company, as provided in the first paragraph of this Agreement.
"Confidential Information" shall have the meaning set forth in Section
12.10(b).
"Consent" shall mean any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
"Consideration" shall have the meaning set forth in Section 2.3.
"Contingent Amounts" shall have the meaning set forth in Section 2.6.
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<PAGE> 5
"Contract" shall mean any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Copyrights" shall have the meaning set forth in Section 5.20(a).
"Covenant Payments" shall have the meaning set forth in Section 3.1.
"CSR" shall mean Corporate Staffing Resources, Inc., a Delaware
corporation, as provided in the first paragraph of this Agreement.
"CSR Indiana" shall mean Corporate Staffing Resources of Indiana, Inc.,
an Indiana corporation, as provided in the first paragraph of this Agreement.
"Damages" shall have the meaning set forth in Section 10.2(a).
"Disclosure Schedules" shall mean the schedules prepared and delivered
by the Shareholders for and to the Purchasers and dated as of the date hereof,
which set forth the exceptions to the representations and warranties contained
herein and certain other information called for by this Agreement, and all
referenced attachments thereto. Unless otherwise specified, each reference in
this Agreement to any numbered schedule is a reference to that numbered schedule
which is included in the Disclosure Schedules.
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization.
"Employment Agreements" shall have the meaning set forth in Section
4.3(a).
"Encumbrance" shall mean any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"Environment" shall mean soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters, streams, ponds,
drainage basins and wetlands), groundwater, drinking water supply, stream
sediments, ambient air, plant and animal life and any other environmental medium
or natural resource.
"Environmental. Health and Safety Liabilities" shall mean any cost,
damage, expense, Liability, obligation or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and consisting of
or relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health and regulation of chemical substances or products);
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<PAGE> 6
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial or inspection costs and expenses
arising under any Environmental Law or Occupational Safety and Health
Law;
(c) financial responsibility under any Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any Cleanup required by applicable Environmental Law
or Occupational Safety and Health Law (whether or not such Cleanup has
been required or requested by any Governmental Body or any other
Person) and for any natural resource damages; or
(d) any other compliance, corrective, investigative or
remedial measures required under any Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial" and "response action" include the types
of activities covered by CERCLA.
"Environmental Law" shall mean all federal, state, district, local and
foreign laws, all rules or regulations promulgated thereunder and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the Environment, including without limitation (i) laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, materials, wastes or other substances into the Environment and (ii)
laws relating to the identification, generation, manufacture, processing,
distribution, use, treatment, storage, disposal, recovery, transport or other
handling of pollutants, contaminants, chemicals, industrial materials, wastes or
other substances. Environmental Laws shall include, without limitation, CERCLA,
the Toxic Substances Control Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking
Water Act, as amended, the Clean Air Act, as amended, and all analogous laws
promulgated or issued by any state or other governmental authority.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"ERISA Affiliate" shall mean any other Person that, together with the
Subject Companies, is or was required to be treated as a single employer under
IRC Section 414(b) or (c), and solely for the purposes of potential liability
under ERISA Section 302(c)(ii) and IRC Section 412(c)(ii) and the lien created
under ERISA Section 302(f) and IRC Section 412(n), under IRC Section 414(m) or
(o).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Extended Companies" shall have the meaning set forth in Section 2.6.
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<PAGE> 7
"Facilities" shall mean any real property, leaseholds or other
interests currently or formerly owned or operated by any Subject Company and any
buildings, plants, structures or equipment (including motor vehicles, tank cars
and rolling stock) currently or formerly owned or operated by any Subject
Company.
"Family" shall mean, with respect to any individual (i) the individual,
and (ii) the individual's spouse.
"Financial Statements" shall have the meaning set forth in Section
5.4(a).
"Fixed Amount" shall have the meaning set forth in Section 2.3.
"GAAP" shall mean United States generally accepted accounting
principles.
"Governmental Authorization" shall mean any approval, Consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" shall mean any:
(a) nation, state, county, city, town, village, district or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or
entity and any court or other tribunal); or
(d) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory or
taxing authority or power of any nature.
"Hazardous Activity" shall mean the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about or from the Facilities or any part thereof into the Environment.
"Hazardous Materials" shall mean any waste or other substance that is
listed, defined, designated or classified as, or otherwise determined to be,
hazardous, radioactive or toxic or a pollutant or a contaminant subject to
regulation, control or remediation under any Environmental Law (whether solids,
liquids or gases), including any mixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor, polychlorinated biphenyls and asbestos or asbestos-containing
materials.
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<PAGE> 8
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"Intellectual Property Assets" shall have the meaning set forth in
Section 5.20(a).
"IRC" shall mean the Internal Revenue Code of 1986, as amended, or any
successor law
"IRS" shall mean the United States Internal Revenue Service or any
successor agency.
"Knowledge" shall mean and an individual will be deemed to have
"Knowledge" of a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) such individual would be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive review of documents or files available to such
individual.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving as a
director, officer, partner, executor or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
"Knowledge of the Shareholder" or other similar phrases shall mean the
Knowledge of the particular Shareholder. "Knowledge of the Shareholders" with
respect to a Subject Company shall mean the Knowledge of any one or more of the
Shareholders who is a shareholder or member of that Subject Company.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign, international, multinational or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute or
treaty.
"Liability" shall mean any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, whether known, unknown, accrued, absolute,
contingent, matured or unmatured.
"Marks" shall have the meaning set forth in Section 5.20(a).
"Material Adverse Effect" or "Material Adverse Change" shall mean any
significant and substantial effect or change that is materially adverse to the
condition (financial or other), business, results of operations, liabilities or
operations and/or assets of any party taken as a whole
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<PAGE> 9
or any significant and substantial adverse effect or change on the ability of a
party or its stockholders or members, as the case may be, to consummate the
Transactions, or any event or condition which would, with the passage of time,
be reasonably expected to constitute a "Material Adverse Effect" or "Material
Adverse Change."
"Material Interest" shall mean direct or indirect beneficial ownership
(as defined in Rule 13d-3 under the Exchange Act) of voting securities or other
voting interests representing at least 10% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in a Person.
"Multiemployer Plan" shall have the meaning set forth in ERISA
Section 3(37)(A).
"Net Cash" shall mean the excess of (a) Cash and Cash Equivalents of
the Subject Companies over (b) all Liabilities of the Subject Companies for
borrowed money, in each case as of the Closing Date.
"Net Debt" shall mean the excess of (a) all Liabilities of the Subject
Companies for borrowed money over (b) Cash and Cash Equivalents of the Subject
Companies, in each case as of the Closing Date.
"Noncompetition Period" shall have the meaning set forth in Section
3.4.
"Notes" shall have the meaning set forth in Section 2.5.
"Occupational Safety and Health Law" shall mean any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards.
"Order" shall mean any award, decision, injunction, judgment, order,
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" shall describe any action taken by a
Person if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person; and
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority) and is not required to be authorized by
the parent company (if any) of such Person.
"Organizational Documents" shall mean (a) the articles or certificate
of incorporation, all certificates of determination and designation, and the
bylaws of a corporation; (b)
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<PAGE> 10
the partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate or
articles of limited partnership of a limited partnership; (d) the operating
agreement, limited liability company agreement and the certificate or articles
of organization or formation of a limited liability company; (e) any charter or
similar document adopted or filed in connection with the creation, formation or
organization of a Person; and (f) any amendment to any of the foregoing.
"Other Benefit Obligations" shall mean all obligations, arrangements or
material practices to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees or agents, other
than obligations, arrangements and practices that are Plans. Other Benefit
Obligations include consulting agreements under which the compensation paid does
not depend upon the amount of service rendered, sabbatical policies, severance
payment policies and fringe benefits within the meaning of IRC Section 132.
"Patents" shall have the meaning set forth in Section 5.20(a).
"Pension Plan" shall have the meaning set forth in ERISA 3(2)(A).
"Permitted Encumbrance" shall mean any Encumbrance (i) for taxes not
yet due and payable or being contested in good faith, (ii) arising in connection
with any bills of lading, warehouse receipts and other documents of title in the
ordinary course of business, (iii) relating to mechanics, materialmens, and
other similar liens arising in the ordinary course of business which will be
removed by the payment of the accounts payable or accrued liability to the
extent reflected on the Closing Balance Sheet; (iv) consisting of easements,
rights of way, restrictions and other similar encumbrances on any of the real
property leased by a party, or (v) relating to any replacements, extension,
modification or renewal of any Encumbrance described in Clauses (i) through (iv)
above.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union or
other entity or Governmental Body.
"Plan" shall have the meaning set forth in ERISA Section 3(3).
"Plan Sponsor" shall have the meaning set forth in ERISA Section
3(16)(B).
"Post-Closing Partial Period" shall have the meaning set forth in
Section 10.3(b).
"Pre-Closing Partial Period" shall have the meaning set forth in
Section 10.3(a).
"Proceeding" shall mean any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced,
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<PAGE> 11
brought, conducted or heard by or before, or otherwise involving, any
Governmental Body or arbitrator.
"Proposed Acquisition Transaction" shall have the meaning set forth in
Section 7.6.
"Purchased Assets" shall have the meaning set forth in Section 2.2(a).
"Purchasers" shall mean the Asset Purchaser and the Stock Purchaser.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 10.2(b).
"Qualified Plan" shall mean any Plan that meets or purports to meet the
requirements of IRC Section 401(a).
"Related Person" shall mean with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
(b) any Person that holds a Material Interest in such
specified Person;
(c) each Person that serves as a director, officer, partner,
executor or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
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(f) any Related Person of any individual described in clause
(b) or (c).
"Release" shall mean any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping or other releasing into the Environment,
whether intentional or unintentional.
"Representative" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Sellers" shall mean the Stock Sellers and the Asset Sellers.
"Sellers' Accountant" shall have the meaning set forth in Section
2.6(c).
"Sellers' Closing Documents" shall have the meaning set forth in
Section 5.2(a).
"Shareholder Indemnified Party" shall have the meaning set forth in
Section 10.2(a).
"Shareholders" shall mean Joseph A. Noto, Joseph R. Pozsgai, Jr.,
Donald E. Zerfas, Richard G. Halstead, Patrick B. Laake and C. Rick Bellar, as
provided in the first paragraph of this Agreement. "Shareholder" shall refer to
any one of the Shareholders.
"Staffing Services Business" shall have the meaning set forth in
Section 3.4.
"Stock Acquisition" shall have the meaning set forth in Recital A of
this Agreement.
"Stock Purchaser" shall mean CSR Indiana as provided in the first
paragraph of this Agreement.
"Stock Sellers" shall mean Joseph A. Noto, Joseph R. Pozsgai, Jr.,
Donald E. Zerfas and Richard G. Halstead, as provided in the first paragraph of
this Agreement.
"Subject Companies" shall have the meaning set forth in the first
paragraph of this Agreement. "Subject Company" shall refer to any one of the
Subject Companies.
"Subsidiary" shall mean, with respect to any Person (for the purposes
of this definition, the "Owner"), any corporation or other Person of which
securities or other interests having the power to elect a majority of that
corporation's or other Person's board of directors or similar governing body, or
otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having
such power only upon the happening of a contingency that has not occurred) are
held by the Owner or one or more of its Subsidiaries .
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<PAGE> 13
"Tax" or "Taxes" shall mean any federal, state, local, foreign or other
tax, levy, impost, fee, assessment or other governmental charge, including
without limitation income, estimated income, gross receipts, business,
occupation, franchise, property, payroll, personal property, sales, transfer,
use, employment, commercial rent, occupancy, franchise or withholding taxes, and
any premium, including without limitation, interest, penalties and additions in
connection therewith.
"Tax Return" shall mean any return (including any information return),
report, statement, schedule, notice, form or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of, or compliance with, any Legal Requirement relating to any
Tax.
"Territory" shall have the meaning set forth in Section 3.4.
"Threatened" shall describe any claim, Proceeding, dispute, action or
other matter if (i) any demand or statement has been made (orally or in writing)
with respect to such claim, Proceeding, dispute, action or other matter, (ii)
any notice has been given (orally or in writing) with respect thereto or (iii)
any other event has occurred or any other circumstances exist, that would lead a
prudent Person to conclude that such a claim, Proceeding, dispute, action or
other matter is likely to be asserted, commenced, taken or otherwise pursued in
the future.
"Threshold" shall have the meaning set forth in Section 10.2(f).
"Title IV Plans" shall mean all Pension Plans that are subject to
regulation under Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than
Multiemployer Plans.
"Trade Secrets" shall have the meaning set forth in Section 5.20(a).
"Transaction Documents" shall mean this Agreement, the Employment
Agreements, the Notes, and all instruments executed, filed or otherwise
prepared, exchanged or delivered pursuant to the requirements of this Agreement.
"Transactions" shall mean the Acquisitions and the other transactions
contemplated by the Transaction Documents.
"Welfare Plan" shall have the meaning given in ERISA Section 3(1).
ARTICLE II
PURCHASE AND SALE OF STOCK AND ASSETS
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2.1 Purchase and Sale of Stock. Upon the terms and subject to the
conditions set forth herein, on the Closing Date each of the Stock Sellers shall
sell, convey, transfer, assign and deliver to the Stock Purchaser, and the Stock
Purchaser shall purchase from the Stock Sellers, all of the outstanding shares
of capital stock of, CMS/TemPro Resources of Indianapolis, Inc. (the "Stock"),
which Stock is owned by each of the Stock Sellers in the amounts set forth next
to the name of each such Stock Seller in Schedule 2.1.
2.2 Purchase and Sale of Purchased Assets; Assumption of Assumed
Liabilities.
(a) Upon the terms and subject to the conditions set forth
herein, on the Closing Date each of the Asset Sellers shall sell,
convey, transfer, assign and deliver to the Asset Purchaser, and the
Asset Purchaser shall purchase from each of the Asset Sellers, all of
the Assets of the Asset Seller of every kind and nature except: (a) Tax
refunds; (b) all interests of the Asset Seller of every kind and nature
in the CMS/TemPro Resources of Nashville, LLC Savings and Retirement
Plan ("Nashville 401(k) Plan") and the CMS Management Services 401(k)
Plan ("CMS 401(k) Plan"); (c) the corporate and limited liability
company minute books and stock and membership records of the Asset
Sellers; and (d) any Account Receivable to the extent that it has not
been collected in full within 180 days after the day on which it first
becomes due and payable (the "Purchased Assets").
(b) On the Closing Date, subject to the Shareholders'
indemnification obligations pursuant to Article X, the Asset Purchaser
shall assume, pay, perform and discharge all Liabilities of the Asset
Sellers of every kind, character and description, whether accrued,
absolute, contingent or otherwise, arising on or before the Closing
Date, except Liabilities arising under or with respect to the Nashville
401(k) Plan or the CMS 401(k) Plan (the "Assumed Liabilities").
2.3 Consideration. Upon the terms and subject to the conditions set
forth herein, in consideration for the transfer of the Stock pursuant to Section
2.1 and the transfer of the Purchased Assets subject to the assumption of the
Assumed Liabilities pursuant to Section 2.2 , the Purchasers shall pay to the
Sellers, at the times hereafter set forth, the Closing Cash Payment pursuant to
Section 2.4, as adjusted pursuant to Section 2.7, the Notes pursuant to Section
2.5 and the Contingent Amounts pursuant to Section 2.6. The Closing Cash Payment
as adjusted pursuant to Section 2.7 and the Notes are referred to herein
collectively as the "Fixed Amount" and together with the Contingent Amounts,
collectively referred to as the "Consideration." The Consideration shall be
allocated among the Sellers as set forth in Schedule 2.3 hereto; except that the
Net Debt or Net Cash shall be allocated among the Sellers as set forth in the
Sellers' Certificate of Net Debt or Net Cash.
2.4 Closing Cash Payment. On the Closing Date, the Purchasers shall pay
to the Sellers an aggregate amount of Ten Million Two Hundred Forty Thousand
Dollars ($10,240,000) plus Net Cash or less Net Debt in cash by wire transfer of
immediately available funds to the account
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<PAGE> 15
or accounts designated by the respective Sellers to the Purchasers at least two
(2) business days prior to the Closing (the "Closing Cash Payment").
2.5 Notes. On the Closing Date, the Purchaser shall issue to the
Sellers promissory notes in the form of Exhibit A hereto in the aggregate amount
of Five Million Dollars ($5,000,000) (the "Notes").
2.6 Contingent Amounts.
(a) On or before the times hereinafter set forth, the
Purchaser shall pay to the Sellers the additional cash amounts
hereinafter described (the "Contingent Amounts"):
(i) An amount equal to the sum of (A) $37,083 for
each full $10,000 of 1998 Adjusted EBITDA between $2,600,000
and $2,900,000 and (B) 55.63% of the 1998 Adjusted EBITDA
between $2,900,000 and $3,100,000; plus
(ii) An amount equal to the sum of (A) $22,250 for
each full $10,000 of 1999 Adjusted EBITDA between $3,200,000
and $3,700,000 and (B) 55.63% of 1999 Adjusted EBITDA between
$3,700,000 and $4,300,000; plus
(iii) An amount equal to the sum of (A) $11,125 for
each full $10,000 of 2000 Adjusted EBITDA between $3,800,000
and $4,800,000 and (B) 55.63% of 2000 Adjusted EBITDA between
$4,800,000 and $6,000,000.
(b) "Adjusted EBITDA" as used in determining 1998 Adjusted
EBITDA and 1999 Adjusted EBITDA shall mean EBITDA of the Extended
Companies for such period adjusted as provided in Schedule 2.6 hereto
and Adjusted EBITDA as used in determining 2000 Adjusted EBITDA shall
mean the highest EBITDA of the Extended Companies for any 12 month
trailing period during the 16 month period beginning January 1, 2000
and ending April 30, 2001 adjusted as provided in Schedule 2.6 hereto.
"Extended Companies" shall mean (i) the Subject Companies for the
period from January 1, 1998 through the date immediately preceding the
Closing Date, (ii) CMS LLC on and after the Closing Date and (iii) all
additional divisions or Affiliates of CSR (whether currently existing
or subsequently created or acquired) in which any of the Shareholders
or any of the employees of the Subject Companies or CMS LLC establish
accounting or information technology Staffing Services Business in
accordance with recommendations of the Shareholders to CSR and CSR's
approval of such recommendations, which approval shall not be
unreasonably withheld.
(c) Within sixty (60) days after the end of each of the
calendar years 1998 and 1999 and within sixty (60) days after April 30,
2001, CSR shall cause the Extended Companies to prepare and deliver to
the Sellers an Adjusted EBITDA statement for the respective calendar
year (the "Adjusted EBITDA Report"). Each Adjusted EBITDA Report shall
include an income statement prepared in accordance with GAAP, a listing
by item and
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amount of each adjustment to EBITDA in accordance with Schedule 2.6
hereof and CSR's determination of the amount of the Adjusted EBITDA for
the applicable period. Each Adjusted EBITDA Report shall be accompanied
by a certificate of the Chief Financial Officer of CSR to the effect
that the Adjusted EBITDA Report presents fairly in accordance and
consistent with the method utilized by the parties for calculating
EBITDA as of December 31, 1997 (as set forth on Schedule 2.6) the
EBITDA of the Extended Companies for the period covered thereby and
properly and fully reflects each adjustment required to determine
Adjusted EBITDA in accordance with Schedule 2.6 hereto. The Sellers and
a firm of independent public accountants designated by the Sellers (the
"Sellers' Accountant") will be entitled to reasonable access during
normal business hours to the relevant records and working papers of the
Extended Companies and their accountants to aid in their review of the
Adjusted EBITDA Report. The Sellers will be solely responsible for all
costs of the Sellers' Accountants. Each Adjusted EBITDA Report shall be
deemed to be accepted by and shall be conclusive for the purposes of
determining the applicable Contingent Amount except to the extent, if
any, that the Sellers or the Sellers' Accountant shall have delivered
within thirty (30) days after the date on which the Adjusted EBITDA
Report is delivered to Sellers, a written notice to CSR stating each
and every item to which the Sellers take exception as not being in
accordance with GAAP or Schedule 2.6 hereto or the definition of
Extended Companies or as having computational errors, specifying in
reasonable detail the nature and extent of any such exception (it being
understood that any amounts not disputed shall be paid promptly). If a
change proposed by the Sellers is disputed by CSR, then CSR and the
Sellers shall negotiate in good faith to resolve such dispute. If,
after a period of twenty (20) days following the date on which the
Sellers give CSR notice of any such proposed change, any such proposed
change still remains disputed, then CSR and the Sellers shall together
choose an independent firm of public accountants of nationally
recognized standing (the "Accounting Firm") to resolve any remaining
disputes. The Accounting Firm shall act as an arbitrator to determine,
based solely on presentations by the Sellers and CSR, and not by
independent review, only those issues still in dispute. The decision of
the Accounting Firm shall be final and binding and shall be in
accordance with the provisions of this Section 2.6. All of the fees and
expenses of the Accounting Firm shall be paid by CSR and the Sellers
based on the Accounting Firm's Adjusted EBITDA determination in
relation to the Adjusted EBITDA proposals submitted by the parties. For
purposes of illustration, if CSR's submitted Adjusted EBITDA is
$3,000,000, the Sellers' submitted Adjusted EBITDA is $4,000,000 and
the Accounting Firm's determined Adjusted EBITDA is $3,750,000, CSR
shall pay 75% and the Sellers shall pay 25%.
(d) Subject to the provisions of Section 2.6(f), all payments
of Contingent Amounts shall be made within thirty (30) days following
the applicable Adjusted EBITDA Report Delivery Date. The term "Adjusted
EBITDA Report Delivery Date" shall mean the date by which the Adjusted
EBITDA Report is to be delivered as provided in Section 2.6(c);
provided, however, if any change to the Adjusted EBITDA Report is
agreed to by CSR and the Shareholders in accordance with this Section
2.6, then the date on which CSR and the Shareholders agree in writing
to such change shall be the Adjusted EBITDA Report Delivery
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Date; and, provided, further, that if any dispute with respect to the
Adjusted EBITDA Report is resolved in accordance with this Section 2.6,
then the date on which the Accounting Firm delivers its decision with
respect to such dispute shall be the Adjusted EBITDA Report Delivery
Date; provided, however, that any amounts not disputed shall be paid
promptly on March 31st.
(e) Any portion of any Contingent Amounts not paid by March 31
(or July 31, 2001, with respect to 2000 Adjusted EBITDA) shall be
payable with interest at the rate of eight percent (8%) per annum
accruing from such date of the year in which the Adjusted EBITDA Report
is to be delivered to the date of payment.
(f) Subordination. Each of the Sellers and the Shareholders
acknowledges, covenants and agrees that the Contingent Amounts shall be
subordinated upon and pursuant to the following terms and provisions
set forth in this Section 2.6(f) (collectively the "Subordination
Provisions").
(1) As used in these Subordination Provisions, the
following terms shall have the following meanings:
"Administrative Agent" shall mean ING (U.S.)
Capital Corporation or any subsequent administrative agent or
trustee for the holders of indebtedness outstanding under a
Debt Agreement.
"Debt Agreement" shall mean (A) that certain
Loan Agreement (as at any time amended) dated as of December
4, 1997 among Corporate Staffing Resources, Inc. ("CSR"), as
Borrower, ING (U.S.) Capital Corporation, a Delaware
corporation, and Creditanstalt Corporate Finance, Inc., a
Delaware corporation, as Co-Agents and as initial Lenders, and
ING (U.S.) Capital Corporation, as Administrative Agent for
the Lenders under the Loan Agreement, or (B) any loan or
similar credit agreement hereafter entered into by CSR, as
Borrower, evidencing a refinancing of the credit facilities of
CSR presently provided by the Loan Agreement described in
subsection (A) above or (C) any other instrument, indenture or
agreement evidencing or setting forth the terms and conditions
of any present or future indebtedness of CSR for borrowed
money or evidenced by notes, debentures or other debt
securities.
"Default" means any event or condition
which, after satisfaction of any requirement expressly set
forth in the Debt Agreement for the giving of notice or the
lapse of time, or both, would become an Event of Default.
"Event of Default" means (i) any event upon
the occurrence of which Senior Creditors may accelerate the
maturity of any Senior Obligations and (ii) failure to pay any
Senior Obligations at maturity.
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"Senior Creditors" shall mean the holders of
indebtedness outstanding under a Debt Agreement and each
Administrative Agent.
"Senior Obligations" shall mean all
obligations and liabilities of CSR under each Debt Agreement,
whether for principal, interest, premium, fees, costs, taxes,
indemnification or otherwise.
(2) Each of the Sellers and the Shareholders hereby
absolutely and irrevocably subordinates the payment and performance of
the Contingent Amounts to the Senior Obligations, provided that unless
and until the Administrative Agent has given written notice to the
Sellers or the Shareholders that a Default or Event of Default has
occurred and is continuing, the Sellers and/or the Shareholders shall
be entitled to receive and retain (and the Purchasers shall pay) the
Contingent Amounts as and when they become due under the terms of this
Agreement (but not any prepayments). This subordination shall be
continuing in nature, and shall not be affected by any bankruptcy or
insolvency of CSR or any of its subsidiaries. The Sellers and the
Shareholders agree that any written notice of a Default or an Event of
Default which is delivered to the Sellers or the Shareholders by the
Administrative Agent shall be conclusive as to the existence thereof in
the absence of a contrary determination by a court of competent
jurisdiction. Upon written notice from the Administrative Agent to the
Sellers or the Shareholders that such Default or Event of Default has
been cured or waived in accordance with the applicable provisions of
the Debt Agreement, the Sellers and/or the Shareholders may again
receive payments of the Contingent Amounts as and when they become due,
including Contingent Amounts the payment of which was previously
suspended (but not prepayments).
(3) In the event CSR or any of its subsidiaries
become debtors in any voluntary or involuntary bankruptcy proceeding,
the Sellers and the Shareholders shall have the following rights:
(A) The Sellers and/or the Shareholders may
file one or more proofs of claim in such bankruptcy with
respect to the Contingent Amounts, provided that the Sellers
and the Shareholders shall not be entitled to receive payment
of their claims prior to payment in full of the Senior
Obligations, and, in the event of any distribution to the
Sellers and/or the Shareholders with respect to the Contingent
Amounts at a time when any Senior Obligations remain unpaid,
the Sellers and the Shareholders shall pay over such
distribution to the Senior Creditors to be applied by the
Senior Creditors in reduction of the Senior Obligations, and
the Sellers and/or the Shareholders shall become subrogated to
the Senior Creditors' claims to the extent of any such
payments made at such time, if any, as the Senior Obligations
due the Senior Creditors are fully and finally satisfied, but
not sooner.
(B) The Sellers and/or the Shareholders may
appear and be heard on any matter relating to their claim in
any bankruptcy proceeding, but shall not seek to assert rights
contrary to these Subordination Provisions.
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If the Sellers and/or the Shareholders should fail to
file a proof of claim within 30 days prior to the expiration of the
time period within which creditors must file their proofs of claim or
take any other action advisable to preserve their claims against the
Purchasers within 30 days prior to the relevant bar date or other time
limit, the Administrative Agent may file such claim or take such action
as the attorney in fact for the Sellers and/or the Shareholders. In the
event of any financing of CSR or any of its subsidiaries by the Senior
Creditors during any bankruptcy, arrangement or reorganization
proceeding with respect to CSR or any of its subsidiaries, the Sellers
and the Shareholders agree that the Contingent Amounts shall be and
continue to remain subordinate and subject to the subordination
provided herein, and the Sellers and the Shareholders agree to take all
such actions in such proceedings as may be required in order to further
effectuate and continue such subordination.
(4) The Sellers and the Shareholders represent and
warrant to the Senior Creditors that they have not assigned or
transferred the Contingent Amounts to any third party, nor do they
have, or shall they assert the benefit of, (A) any lien or security
interest in the property or assets of CSR or any of its subsidiaries,
(B) any agreement prohibiting the granting of any lien or security
interest in the property or assets of CSR or its subsidiaries or (C)
any guaranty or other suretyship arrangement by any affiliate of CSR in
their favor. Except for an assignment by an Asset Seller to one or more
of the shareholders of the Asset Seller in connection with the
liquidation of the Asset Seller, no Seller or Shareholder may assign or
transfer any interest in the Contingent Amounts unless the assignee or
transferee has first assumed the obligations of the Sellers under these
Subordination Provisions in a writing in form and substance acceptable
to the Administrative Agent. Each Shareholder of an Asset Seller to
whom an Asset Seller assigns an interest in the Contingent Amounts
hereby confirms to the Administrative Agent that it assumes and is
bound to all of the obligations of that Asset Seller under these
Subordination Provisions.
(5) The Sellers and the Shareholders agree that the
Senior Creditors may at any time and from time to time, without the
Sellers' or Shareholders' consent, and without notice, do any one or
more of the following in the Senior Creditors' sole and absolute
discretion, and without affecting the subordination provided hereby:
(A) renew, accelerate, extend the time for payment of, or increase the
Senior Obligations and any or all of the obligations of CSR and its
Subsidiaries, of any guarantors of the obligations of CSR or any of its
Subsidiaries, or of any other party at any time directly or
contingently liable for the payment of any of the Senior Obligations;
(B) grant any other indulgence to CSR or any other person in respect of
any or all of the Senior Obligations or any other matter; (C) amend,
alter or change in any respect whatsoever any term or provision
relating to any or all of the Senior Obligations, including the rate of
interest thereon; (D) substitute or add, or take any action or omit to
take any action which results in the release of any one or more
endorsers or guarantors of all or any part of the Senior Obligations;
(E) apply any sums received from CSR, any guarantor, endorser, or
cosigner, or from the disposition of any collateral to any
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indebtedness whatsoever owing from such person or secured by such
collateral in such manner and order as the Senior Creditors determine
in their sole discretion, and regardless of whether such indebtedness
is part of the Senior Obligations, is secured, or is due and payable;
(F) permit CSR and its Subsidiaries to use proceeds of the collateral
for any purpose; (G) make loans or advances or other credit
accommodations to CSR and its Subsidiaries secured in whole or in part
by the collateral or refrain from making any such loans or advances or
credit accommodations; (H) accept partial payments of, compromise or
settle, refuse to enforce, or release all or any parties to, any or all
of the Senior Obligations; (I) settle, release (by operation of law or
otherwise), compound, compromise, collect or liquidate any of the
Senior Obligations or the collateral in any manner permitted by
applicable law; (J) accept, release, waive, surrender, enforce,
exchange, modify, impair, or extend the time for the performance,
discharge, or payment of, any and all property of any kind securing any
or all of the Senior Obligations or any guaranty of any or all of the
Senior Obligations, or on which the Administrative Agent or any of the
Senior Creditors at any time may have a lien, or refuse to enforce its
rights or make any compromise or settlement or agreement therefor in
respect of any or all of such property, and/or (K) fail to perfect,
subordinate or terminate any lien in favor of the Senior Creditors. The
Senior Creditors are not under and shall not hereafter be under any
obligation to marshal any assets in favor of the Sellers or
Shareholders or against or in payment of any or all of the Senior
Obligations, and may proceed against any of the collateral in such
order and manner as it elects.
(6) Unless and until the Senior Obligations have been
paid and discharged in full, Sellers and Shareholders shall not,
without the giving of ten (10) days prior written notice to the Senior
Creditors, directly or indirectly take any of the following actions:
(A) Commence any lawsuit or legal proceeding
against the Purchasers to collect the Contingent Amounts or
attempt to collect, levy upon or foreclose upon any property
or assets of CSR or its subsidiaries;
(B) Seek to attach any asset of CSR or any
of its subsidiaries, or seek the appointment of a liquidator,
trustee, conservator, receiver, keeper or custodian for CSR,
any of its subsidiaries or any of its assets;
(C) Commence any involuntary bankruptcy or
insolvency proceedings against CSR or any of its subsidiaries;
or
(D) Take any other enforcement action
against CSR or any of its subsidiaries with respect to the
Contingent Amounts:
provided, however, that, notwithstanding the foregoing, if a Default or
an Event of Default shall occur, the Administrative Agent may, by
written notice to Sellers or Shareholders, suspend Sellers' and
Shareholders' right to take any of the actions listed in clauses (A) -
(D)
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above for a period of not greater than 180 days after the
Administrative Agent gives Sellers written notice that such Default or
Event of Default shall have occurred and be continuing (each, a
"Blockage Period"); provided, further, however, that the Administrative
Agent's right to suspend Sellers' and Shareholders' right to take such
actions as a result of a specific event or circumstance that gave rise
to the Default or Event of Default shall be limited to 180 days during
any consecutive 360 days. The foregoing shall not, however, limit or
restrict the Administrative Agent's right to suspend the taking of such
actions with respect to a Default or an Event of Default that is
created by the occurrence of a different event or circumstance. Any
Blockage Period shall immediately terminate in the event the
Administrative Agent waives in writing, the Default or Event of Default
that gives rise thereto. Notwithstanding any other provisions contained
in this Subsection 6, Sellers and Shareholders shall have no right to
take any of the actions listed in clauses (A) - (D) above if the Senior
Creditors shall have elected to accelerate the maturity of the Senior
Obligations until the Senior Obligations have been paid and discharged
in full.
(7) These Subordination Provisions shall be binding
upon and inure to the benefit of the Sellers, the Shareholders and the
Senior Creditors and their successors and assigns. Without limiting the
generality of the foregoing, the Sellers and Shareholders acknowledge
that the Senior Creditors may freely assign their interests in the
Senior Obligations, or sell participations therein. The Sellers and
Shareholders agree that "Senior Creditor" shall refer also to any
assignees or participants of any of the Senior Creditors party to any
Debt Agreement. These Subordination Provisions (i) are for the sole
benefit of the Senior Creditors, the Sellers and the Shareholders, and
their respective successors in interest, (ii) shall be enforceable by
the Senior Creditors as third party beneficiaries hereof, and (iii) may
not be amended or waived as to any Secured Creditor except with the
written consent of that Senior Creditor. No other person or entity
shall have any rights hereunder or is a third party beneficiary.
(8) In the event that any payment of all or any
portion of the Senior Obligations is avoided or required to be returned
pursuant to any of Sections 544, 545, 547, 548 or 549 of the Bankruptcy
Code or for any other reason, these Subordination Provisions shall be
revived and reinstated, and all such avoided or returned Senior
Obligations shall be entitled to the benefits of these Subordination
Provisions, and the Contingent Amounts shall be subordinated to all
such avoided or returned Senior Obligations.
(9) In the event of any action based upon or arising
out of these Subordination Provisions, the prevailing party shall be
entitled to recover from the non-prevailing party all out-of-pocket
costs, fees and reasonable expenses incurred in connection therewith,
including, without limitation, reasonable attorneys' fees.
(10) All notices or other communications hereunder
shall be in writing and shall be deemed to have been duly given and
effective upon delivery, if personally delivered or sent by telegram,
telex, or telecopy, or effective three (3) business days after mailing
if
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sent by express, certified or registered mail, to the Sellers or
Shareholders at the address set forth in Section 12.2..
(g) In the event CMS LLC terminates the employment of a
Shareholder pursuant to Section 5(a)(i) of the Shareholder's Employment
Agreement and the reason for termination is any of the reasons set
forth in subsections (A) or (B) of Section 5(a)(i) of the Shareholder's
Employment Agreement, then all right of the terminated Shareholder to
receive his portion of Contingent Amounts with respect to the year in
which employment is terminated and each subsequent year shall terminate
and the Purchasers shall be obligated to pay the terminated
Shareholder's portion of any Contingent Amounts with respect to such
years to the other Shareholders in accordance with the written
directions of the other Shareholders.
2.6(h) An Asset Seller may assign and transfer its rights to
Contingent Amounts to one or more of the Shareholders of the Asset
Seller in connection with a liquidation of the Asset Seller upon ten
(10) days prior written notice to CSR and the Purchasers.
2.7 Post-Closing Adjustment
(a) As promptly as practicable after the Closing Date (but in
no event more than sixty (60) days after the Closing Date), CSR shall
cause the Subject Companies to prepare and deliver to the Sellers a
combined balance sheet of the Subject Companies as of the close of
business on the day immediately preceding the Closing Date (the
"Closing Balance Sheet"). The Closing Balance Sheet will be prepared in
accordance with GAAP, applied on a basis consistent with the Balance
Sheet. The Sellers and Sellers' Accountant will be entitled to
reasonable access during normal business hours to the relevant records
and working papers of the Subject Companies to aid in the review of the
Closing Balance Sheet. The Sellers will be solely responsible for all
costs of the Sellers' Accountant. The Closing Balance Sheet shall be
deemed to be accepted by and shall be conclusive for the purposes of
the adjustment described in Section 2.7(b) hereof with respect to the
Subject Companies except to the extent, if any, that the Sellers shall
have delivered, within thirty (30) days after the date on which the
Closing Balance Sheet is delivered to the Sellers, a written notice to
CSR stating each and every item to which the Sellers take exception as
not being in accordance with GAAP applied on a basis consistent with
the Balance Sheet or as having computational errors, specifying in
reasonable detail the nature and extent of any such exception (it being
understood that any amounts not disputed shall be paid promptly). If a
change proposed by the Sellers is disputed by CSR then CSR and the
Sellers shall negotiate in good faith to resolve such dispute. If,
after a period of twenty (20) days following the date on which the
Sellers give CSR notice of any such proposed change, any such proposed
change still remains disputed, then CSR and the Shareholders shall
together choose an independent firm of public accountants of nationally
recognized standing (the "Accounting Firm") to resolve any remaining
disputes. The Accounting Firm shall act as an arbitrator to determine,
based solely on presentations by the Sellers and CSR and not by
independent review, only those issues still in dispute. The decision of
the Accounting Firm shall be final
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and binding and shall be in accordance with the provisions of this
Section 2.7(a). All of the fees and expenses of the Accounting Firm, if
any, shall be paid by CSR and the Sellers in the proportions that the
Accounting Firm's determination of Adjusted Working Capital Deficiency
bears to the Adjusted Working Capital Deficiency proposals submitted by
the parties to the Accounting Firm; provided, however, that, if the
Accounting Firm determines that either party's position is totally
correct, then the other party shall pay one hundred percent (100%) of
the costs and expenses incurred by the Accounting Firm in connection
with any such determination.
(b) In the event that there is an Adjusted Working Capital
Deficiency (as defined below), the Sellers shall pay to the Purchasers,
as an adjustment to the Consideration, an amount equal to the Adjusted
Working Capital Deficiency. Any payments required to be made by the
Sellers pursuant to this Section 2.7(b) shall be made within ten (10)
days after the amount of the Adjusted Working Capital Deficiency has
been determined pursuant to Section 2.7(a) by wire transfer of
immediately available funds to an account designated by the Purchaser.
(c) The term "Adjusted Working Capital Deficiency" shall mean
with respect to the Subject Companies (i) the amount, if any, by which
the Adjusted Working Capital is less than $720,000.00.
(d) The term "Adjusted Working Capital" shall mean, with
respect to the Subject Companies, the amount by which (i) current
assets of the Subject Companies exclusive of cash and cash equivalents
exceeds (ii) current liabilities of the Subject Companies exclusive of
the current portion of indebtedness for borrowed money, all determined
in accordance with GAAP, in each case as set forth on the Closing
Balance Sheet; provided, however, that if any change to the Closing
Balance Sheet is agreed to by CSR and the Shareholders in accordance
with Section 2.7(a), or any dispute between CSR and the Shareholders
with respect to the Closing Balance Sheet is resolved in accordance
with Section 2.7(a), then "Adjusted Working Capital" shall be
calculated after giving effect to any such change or resolution.
(f) All payments required to be made pursuant to this Section
2.7 shall be paid with interest thereon at the rate of eight percent
(8%) per annum and accruing from the Closing Date to the date of
payment.
ARTICLE III
SHAREHOLDERS' AGREEMENTS RESPECTING
POST-CLOSING COMPETITION
3.1 Reasons For Agreements. The Purchasers are making a
substantial investment pursuant to this Agreement in reliance upon the fact that
the knowledge and expertise developed by the Shareholders in their management of
the business and affairs of the Subject Companies will be
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preserved and will not be used in competition with the Purchasers, the Subject
Companies or their Affiliates. It is necessary for the protection of the
Purchasers, the Subject Companies and their Affiliates that the Shareholders
provide the agreements and assurances set forth in this Article III and the
Shareholders do so in consideration of the additional payment by the Purchasers
to each of the Shareholders other than C. Rick Bellar of Fifty Thousand Dollars
($50,000) and to C. Rick Bellar of Ten Thousand Dollars ($10,000) (the "Covenant
Payments").
3.2 The Shareholders' Agreements. Each Shareholder
individually agrees that the Shareholder will not, directly or indirectly,
except for the benefit of the Purchasers or their Affiliates or with the consent
of the Purchasers, which consent may be granted or withheld at the Purchasers'
sole discretion:
(a) during the Noncompetition Period (as defined in Section
3.4 thereof), become a stockholder, partner, member, manager,
associate, employee, owner, agent, creditor, independent contractor,
co-venturer, a consultant or otherwise, or encourage, counsel, advise
or financially assist or support a spouse of a Shareholder or any other
member of the immediate family that resides with him to be or become,
or a Shareholder to himself be, or be interested in or associated with
any other Person, firm or business engaged in the Staffing Services
Business in the Territory (as defined in Section 3.4 hereof), or in any
Staffing Services Business directly competitive with that of the
Purchasers, as then constituted, or himself engage in such business;
provided, however, that nothing herein shall be construed to prohibit
owning not more than five percent (5%) of any class of securities
issued by an entity in the Staffing Services Business which is subject
to the reporting requirements of the Exchange Act or traded in the
over-the-counter market; or
(b) during the Noncompetition Period, in the Territory,
solicit, cause or authorize, directly or indirectly, to be solicited
for or on behalf of such Shareholder or third parties, from parties who
were customers of the Subject Companies, the Extended Companies or the
Purchasers, any Staffing Services Business transacted by or with such
customer by the Subject Companies, the Extended Companies or the
Purchasers; or
(c) during the Noncompetition Period, in the Territory, accept
or cause or authorize, directly or indirectly, to be accepted for or on
behalf of such Shareholder or for third parties, any such Staffing
Services Business from any such customers of the Subject Companies, the
Extended Companies or the Purchasers; or
(d) during the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or used by the
Purchasers or by the Subject Companies or the Extended Companies
relating to the business or the operations, employees or customers of
the Subject Companies, the Extended Companies, or the Purchasers which
constitutes proprietary or confidential information of the Subject
Companies, or the Extended Companies or the Purchasers ("Confidential
Information"), including without limitation any Confidential
Information
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contained in any customer lists, mailing lists and sources thereof,
statistical data and compilations, patents, copyrights, trademarks,
trade names, inventions, formulae, methods, processes, agreements,
contracts, manuals or any other documents, and (2) from and after the
date hereof, use, publish, disseminate or otherwise disclose, directly
or indirectly, any information heretofore or hereafter acquired,
developed or used by the Purchasers which constitutes Confidential
Information, but excluding any Confidential Information which has
become part of common knowledge or understanding in the Staffing
Services Business industry or otherwise in the public domain (other
than from disclosure by Shareholder in violation of this Agreement);
provided, however, that this Section shall not be applicable to the
extent that the Shareholder is required to testify in a judicial or
regulatory proceeding pursuant to the order of a judge or
administrative law judge after such Shareholder requests that the
confidentiality of such Confidential Information be preserved, and in
the event that the Shareholder receives a subpoena or other order to
produce or testify as to Confidential Information, the Shareholder
shall notify the Purchasers in order to provide the Purchasers with an
opportunity to quash at the Purchasers' expense; or
(e) during the noncompetition Period, in the Territory,
(1) solicit, entice, persuade or induce, directly or
indirectly, any employee (or person who within the preceding
three hundred and sixty (360) days was an employee) of the
Subject Companies, the Extended Companies or of the Purchasers
or any other person who is under contract with or rendering
services to the Subject Companies, the Extended Companies or
the Purchasers, to terminate his or her employment, by, or
contractual relationship with, such Person or to refrain from
extending or renewing the same (upon the same or new terms) or
to refrain from rendering services to or for such Person or to
become employed by or to enter into contractual relations with
any Persons other than such Person or to enter into a
relationship with a competitor of the Subject Companies, the
Extended Companies or the Purchasers,
(2) approach any such employee or other person for
any of the foregoing purposes, or
(3) authorize or approve or assist in the taking of
any such actions by any person other than the Subject
Companies, the Extended Companies or the Purchasers.
3.3 Interpretation and Remedies.
(a) The invalidity or non-enforceability of Section 3.2 in any
respect shall not affect the validity or enforceability of Section 3.2
in any other respect or of any other provisions of this Article III. In
the event that any provision of Section 3.2 shall be held invalid or
unenforceable by a court of competent jurisdiction by reason of the
geographic or business scope or the duration thereof, such invalidity
or unenforceability shall attach only
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to the scope or duration of such provision and shall not affect or
render invalid or unenforceable any other provision of Section 3.2 and,
to the fullest extent permitted by law, this Section 3.2 shall be
construed as if the geographic or business scope or the duration of
such provision had been more narrowly drafted so as not to be invalid
or unenforceable and further, to the extent permitted by law, such
geographic or business scope or the duration thereof may be re-written
by a court of competent jurisdiction to make such sufficiently limited
to be enforceable.
(b) Each Shareholder acknowledges that the Purchasers' remedy
at law for any breach of the provisions of Section 3.2 is and will be
insufficient and inadequate and that the Purchasers shall be entitled
to equitable relief, including by way of temporary restraining order,
temporary injunction, and permanent injunction, in addition to any
remedies the Purchasers may have at law. If either party files suit to
enforce or to enjoin the enforcement of any of the provisions of this
Section 3.2, the prevailing party shall be entitled to recover, in
addition to all other damages or remedies provided for herein, all of
its costs incurred in prosecuting or defending such suit, including
reasonable attorneys' fees.
3.4 Definitions. " Noncompetition Period" shall mean the period
commencing on the Closing Date and ending five (5) years after the Closing Date,
provided, however, that if a Shareholder violates any of the provisions of
Section 3.2, the term of the Noncompetition Period for such Shareholder shall be
automatically extended for a like period of time from the date on which the
Shareholder permanently ceases such violation or from the date of the entry by a
court of competent jurisdiction of a final order of judgment enforcing such
provision, whichever period is later.
"Staffing Services Business" shall mean recruiting, training
and/or testing employees and assigning them to clients (a) to provide staffing
help services for such client to support or supplement the client's work force
in work situations such as employee absences, temporary skill shortages,
seasonal workloads and special assignments and projects, (b) to provide staffing
help services for such client for short-term and long-term temporary placement
and temporary to permanent arrangements for the client to eventually hire the
service provider as its own employee, and (c) to provide permanent individual
employees for permanent employment placement fees.
"Territory" shall mean the States of Indiana, Michigan and
Tennessee, and outside such state, within a radius of fifty (50) miles from any
office (including any client location where employees provide staffing services
on site) operated during the Noncompetition Period by the Subject Companies or
the Extended Companies.
3.5 Termination of Shareholders' Agreements. If the Purchasers
fail to pay to the Shareholders any of the Contingent Amounts within ninety (90)
days following the date provided in Section 2.6(d) or if the Purchasers fail to
pay to the Shareholders any installment payment of principal or interest on the
Notes within one hundred eighty (180) days following the scheduled payment date
of the installment, then in either event, all of the agreements of the
Shareholders set
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forth in this Article III and all of the agreements of the Shareholders set
forth in Section 6 of their respective Employment Agreements shall terminate and
be of no further force or effect.
ARTICLE IV
CLOSING
4.1 Closing. Upon the terms and subject to the conditions set
forth herein, the closing of the Transactions (the "Closing") shall be held at
10:00 a.m. local time on the Closing Date at the offices of CSR, 100 Michiana
Square, 100 E. Wayne Street, Suite 100, South Bend, Indiana 46601, unless the
parties hereto otherwise agree.
4.2 Deliveries at Closing.
(a) Closing Payment. The Purchasers will deliver the Closing
Payment (allocated among the Sellers as set forth in Schedule 2.3) to
each of the Sellers.
(b) Covenant Payment. The Purchasers will deliver the Covenant
Payments to the Shareholders.
(c) Notes. The Purchasers will deliver to the Sellers the
Notes in the respective principal amounts as set forth in Schedule 2.3.
(d) Payment of Funded Debt. The Purchaser will pay to the
respective obligees thereof the amount of indebtedness for borrowed
money in the amounts and to the obligees set forth in the Sellers'
certificate delivered pursuant to Section 4.2(i)(iv) hereof.
(e) Bills of Sale. At the Closing, each of the Asset Sellers
will execute and deliver to the Asset Purchaser a bill of sale for all
of the Purchased Assets of the respective Asset Seller.
(f) Assumption of Assumed Liabilities. At the Closing, the
Asset Purchaser will execute and deliver to each of the Asset Sellers
an undertaking to assume, pay and perform all of the Assumed
Liabilities of the Asset Seller.
(g) Stock Certificates. At the Closing, the Stock Sellers will
deliver to the Stock Purchaser certificates evidencing the Stock (duly
endorsed in blank for transfer or accompanied by stock powers duly
executed in blank).
(h) Purchasers Certificates. The Purchasers and CSR will
furnish the Sellers with such certificates of its officers and others
to evidence compliance with the conditions set forth in this Agreement
as may be reasonably requested by the Sellers, which shall include,
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but not be limited to a certificate executed by the Secretary or an
Assistant Secretary of each of CSR and the Purchasers, certifying, as
of the Closing Date, (A) a true and complete copy of the Organizational
Documents of CSR and the Purchasers, including its certificate of
incorporation or organization certified as of a recent date by the
appropriate Secretary of State, (B) a true and complete copy of the
resolutions of its board of directors or managers, authorizing the
execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby and (C) incumbency
matters.
(i) Sellers' Certificates. The Sellers will furnish the
Purchasers with such certificates of the Sellers and the officers of
the Subject Companies and others to evidence compliance with the
conditions set forth in this Agreement as may be reasonably requested
by the Purchaser, which shall include, but not be limited to:
(i) A certificate executed by the Secretary or an
Assistant Secretary of each Subject Company certifying as of
the Closing Date (A) a true and complete copy of the
Organizational Documents of such Subject Company, including
its articles of incorporation or organization certified as of
a recent date by the appropriate Secretary of State, (B)
incumbency matters, and (C) for each Subject Company that is
an Asset Seller, a true and complete copy of the resolutions
of the board of directors or managers and of the Shareholders
or members authorizing and approving the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby.
(ii) A certificate of the appropriate Secretary of
State certifying the good standing of each Subject Company in
its state of incorporation and all states in which it is
qualified to do business;
(iii) A certificate of each of the Sellers'
non-foreign status, pursuant to Treasury Regulation section
1.1445-2(b)(2); and
(iv) A certificate of the Sellers' certifying the
amount of each amount required in the computation of Net Debt
or Net Cash the obligees of the indebtedness for borrowed
money and the allocation of Net Debt or Net Cash.
4.3 Other Closing Transactions.
(a) Employment Agreements. At the Closing, CMS LLC shall enter
into an employment agreement with each of the Shareholders in the form
of Exhibit B (the "Employment Agreements").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
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Each of the Shareholders hereby represents and warrants to CSR
and the Purchaser that the following representations and warranties are, as of
the date hereof, and will be, as of the Closing Date, true and correct as to
each Subject Company of which the respective Shareholder is a shareholder or
member:
5.1 Organization and Good Standing.
(a) The Subject Company is duly organized, validly existing,
and in good standing under the laws of its jurisdiction of formation,
with full power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under
Contracts to which it is a party. Except as set forth in Schedule 5.1,
the Subject Company is duly qualified to do business and is in good
standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or
the nature of the activities conducted by it, requires such
qualification, except where the failure to be so qualified or in good
standing would not reasonably be expected to have a Material Adverse
Effect on such Subject Company. Schedule 5.1 contains a complete and
accurate list of jurisdictions in which the Subject Company is
authorized to do business.
(b) Subsidiaries. The Subject Company has no Subsidiaries and,
except as otherwise set forth on Schedule 5.1, the Subject Company has
no direct or indirect stock or other equity or ownership interest
(whether controlling or not) in any corporation, association,
partnership, joint venture or other entity.
5.2 Authority; No Conflict.
(a) This Agreement and the other Transaction Documents to
which the Shareholder or the Subject Company is a party (the "Sellers'
Closing Documents") have been duly authorized, executed and delivered
by the Shareholder and the Subject Company, to the extent that they are
a party thereto, and constitute the legal, valid, and binding
obligations of the Shareholder and/or the Subject Company, as the case
may be, enforceable against the Shareholder and/or the Subject Company
in accordance with their respective terms, in each case except as such
enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors'
rights generally and (ii) the general principles of equity, regardless
of whether asserted in a proceeding in equity or at law. The
Shareholder and the Subject Company have all requisite power, authority
and capacity to execute and deliver this Agreement and the Sellers'
Closing Documents and to perform their respective obligations under
this Agreement and the Sellers' Closing Documents.
(b) Except as set forth in Schedule 5.2, neither the execution
and delivery of this Agreement and the Sellers' Closing Documents nor
the consummation or performance of any of the Transactions will,
directly or indirectly (with or without notice or lapse of time):
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(i) contravene, conflict with or result in a
violation of (A) any provision of the Organizational Documents
of the Subject Company or (B) any resolution adopted by the
board of directors of the Subject Company or the shareholders
or other equity owners of the Subject Company;
(ii) to the Knowledge of the Shareholders,
contravene, conflict with or result in a violation of, or give
any Governmental Body or other Person the right to challenge
any of the Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which
the Subject Company or any of the assets owned or used by the
Subject Companies, may be subject;
(iii) to the Knowledge of the Shareholders,
contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate or
modify, any Governmental Authorization that is held by the
Subject Company or that otherwise relates to the business of,
or any of the assets owned or used by, the Subject Company;
(iv) to the Knowledge of the Shareholders,
contravene, conflict with or result in a violation or breach
of any provision of, or give any Person the right to declare a
default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate or modify,
any Applicable Contract; or
(v) result in the imposition or creation of any
Encumbrance (other than a Permitted Encumbrance) upon or with
respect to any of the assets owned or used by the Subject
Company,
except in the case of each of clauses (ii) through (v) above, for such
contraventions, conflicts, violations, Liabilities, reassessments, revaluations,
breaches or creations of Encumbrances which, individually and in the aggregate,
would not have a Material Adverse Effect on the Subject Companies.
To the Knowledge of the Shareholders, except as set forth in
Schedule 5.2, the Subject Company is not, nor will be, required to give any
notice to or obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Transactions.
5.3 Capitalization. Schedule 5.3 contains a complete and
accurate description of the capitalization of the Subject Company (including the
identity of each shareholder (or holder of other equity interest) of the Subject
Company and the number of shares (or other equity interests) held by each such
Person). The Shareholder has, or will have at Closing, title to all of the
shares or membership interest shown as owned by the Shareholder on Schedule 5.3,
in each case, free and
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clear of all Encumbrances. All of the Stock Seller's Stock is and will be, as of
the Closing Date, duly authorized, validly issued, fully paid and
non-assessable. Except as set forth on Schedule 5.3, there are no outstanding
subscriptions, calls, commitments, warrants or options for the purchase of
shares of any capital stock or other securities of the Subject Company or any
securities convertible into or exchangeable for shares of capital stock or other
securities issued by the Subject Company, or any other commitments of any kind
for the issuance of additional shares of capital stock or other securities
issued by the Subject Company. None of the outstanding capital stock or equity
interests or other securities of the Subject Company was issued in violation of
the Securities Act.
5.4 Financial Statements. The Subject Companies have delivered
to CSR (a) internally prepared balance sheets of the Subject Companies as of
December 31 for each of the years 1995 and 1996 and the related statements of
income, for each of the years then ended, (b) an audited combined balance sheet
of the Subject Companies as of December 31, 1997 (including the notes thereto,
the "Balance Sheet"), and the related combined statements of income, changes in
shareholders' equity, and cash flow for the 12-month period then ended, together
with the report thereon of McGladrey & Pullen, LLP, independent certified public
accountants (including the notes thereto), and (c) an internally prepared
combined Statement of normalized EBITDA for each month of 1997 (collectively,
clauses (a), (b) and (c) above are referred to herein as the "Financial
Statements"). The Financial Statements described in clause (b) above fairly and
accurately present the financial condition and the results of operations,
income, expenses, assets, liabilities, changes in stockholders' equity, and cash
flow of the Subject Companies as of the respective dates of, and for the periods
referred to in, the Financial Statements, all in accordance with GAAP; the
Financial Statements described in clause (b) above reflect the consistent
application of such accounting principles throughout the periods involved. No
financial statements of any Person other than the Subject Companies are required
by GAAP to be included in the Financial Statements. The Financial Statements
described in clause (a) above were prepared in accordance with the books and
records of the Subject Companies and in accordance with the past practices of
the Subject Companies. Except as set forth in Schedule 5.4, the Balance Sheet
and the income statement contain adequate accruals for, and pro rated
anticipated expenses for, periodic and annual bonuses, incentive compensation,
vacation, "flex time" and other similar benefits (based on then existing
compensation arrangements and past practices).
5.5 Books and Records. The books of account, minute books,
stock record books, and other records of the Subject Company, all of which have
been made available to the Purchaser, are complete and correct in all material
respects and, in all material respects, have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls, and, with respect to the books of account, fairly reflect the
income, expenses, assets and liabilities of the Subject Company subject to year
end adjustments. The minute books of the Subject Company contain, in all
material respects, accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the board of directors, and
committees of the board of directors of the Subject Company. At the Closing, all
of those books and records will be in the possession of the Subject Company.
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5.6 Title to Properties: Encumbrances. The Subject Company
does not own, and since its inception has not owned, any real property or any
interest, other than a leasehold interest, in any real property. Schedule 5.6
contains a complete and accurate list of all leasehold interests in real
property owned by the Subject Company. Schedule 5.6 lists and describes all real
property leased by the Subject Company. The Subject Company has delivered a copy
of all such leases to CSR or the Purchasers and all such leases are legal,
valid, binding, enforceable and in full force and effect. There are no disputes,
oral agreements or forbearances in effect as to any such leases. The Subject
Company owns all the properties and assets (whether real, personal or mixed and
whether tangible or intangible) that it purports to own, including all of the
properties and assets reflected in the Balance Sheet (except for personal
property sold since the date of the Balance Sheet in the Ordinary Course of
Business), and all of the properties and assets purchased or otherwise acquired
by the Subject Company since the date of the Balance Sheet, which subsequently
purchased or acquired properties and assets, other than personal property
acquired in the Ordinary Course of Business, are listed in Schedule 5.6. Except
as set forth in Schedule 5.6, all material properties and assets of the Subject
Company reflected in the Balance Sheet are free and clear of all Encumbrances
other than Permitted Encumbrances.
5.7 Condition and Sufficiency of Assets. The buildings,
plants, structures and equipment which comprise the office space of the Subject
Company is in reasonable working order and adequate for its intended use, except
where failure to be in such condition would not have a Material Adverse Effect
on such Subject Company. The building, plants, structures and equipment which
comprise the office space of the Subject Company is adequate for the uses to
which they are being put, and none of such buildings, plants, structures or
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The building,
plants, structures and equipment which comprise the office space of the Subject
Company are sufficient for the continued conduct of the business of the Subject
Company after the Closing in substantially the same manner as conducted prior to
the Closing.
5.8 Accounts Receivable. All accounts receivable of the
Subject Company that are reflected on the accounting records of the Subject
Company as of the Closing and, unless paid prior to Closing, all accounts
receivable of the Subject Company that are reflected on the Balance Sheet
(collectively, the "Accounts Receivable") represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Except as set forth in Schedule 5.8, unless
paid prior to the Closing, the Accounts Receivable are or will be as of the
Closing current and collectible net of the respective reserves shown on the
Balance Sheet or on the accounting records of the Subject Company as of the
Closing (which reserves are adequate and calculated consistent with past
practice and, in the case of the reserves as of the Closing, will not represent
a greater percentage of the Accounts Receivable as of the Closing than the
reserve reflected in the Balance Sheet and will not represent a Material Adverse
Change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, except as set forth in Schedule 5.8, each of the
Accounts Receivable either has been or will be collected in full, without any
setoff, within one hundred eighty days after the day on which it first becomes
due and payable. There is no contest, claim or right of set-off, other than
returns in the Ordinary Course of Business,
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under any Contract with any obligor of an Accounts Receivable relating to the
amount or validity of such Accounts Receivable.
5.9 No Undisclosed Liabilities. Except as set forth in
Schedule 5.9, the Subject Company has no Liabilities required to be disclosed
under GAAP except for Liabilities reflected or reserved against in the Balance
Sheet (including the notes thereto) and current Liabilities incurred in the
Ordinary Course of Business since the date thereof.
5.10 Taxes.
(a) Except as set forth in Schedule 5.10, there have been
properly completed and filed on a timely basis and in correct form all
Tax Returns required to be filed by the Subject Company on or prior to
the date hereof. As of the time of filing, the foregoing Tax Returns
correctly reflected in all material respects the facts regarding the
income, business, assets, operations, activities, status or other
matters of the applicable entity or any other information required to
be shown thereon. In particular, the foregoing returns are not subject
to penalties under Section 6662 of the IRC, relating to
accuracy-related penalties (or any corresponding provision of the
state, local or foreign Tax law) or any predecessor provision of law.
Except as set forth in Schedule 5.10, an extension of time within which
to file any Tax Return that has not been filed has not been requested
or granted.
(b) With respect to all amounts in respect of Taxes imposed on
the Subject Company or for which the Subject Company is or could be
liable, whether to taxing authorities (as, for example, under law) or
to other Persons or entities (as, for example, under Tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing, all applicable Tax laws and agreements
have been complied with in all material respects, and all such amounts
required to be paid by the Subject Company to taxing authorities or
others on or before the date hereof have been paid.
(c) No material issues have been raised (and are currently
pending) by any taxing authority in connection with any of the Tax
Returns of the Subject Company. No waiver of statute of limitation with
respect to any Tax Return has been given by or requested from the
Subject Company. Schedule 5.10 sets forth (i) the taxable years of the
Subject Company as to which the respective statutes of limitations with
respect to Taxes have not expired, and (ii) with respect to such
taxable years, (A) those years for which examinations have been
completed, (B) those years for which examinations are presently being
conducted, (C) those years for which examinations have not been
initiated, and (D) those years for which required Tax Returns have not
yet been filed. Except to the extent shown in Schedule 5.10, all
deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a
liability in the Financial Statements, or are being contested and an
adequate reserve therefor has been established and is fully reflected
in the Financial Statements.
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(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) on the assets of the Subject Company.
(e) The Subject Company is not a party to or bound by any Tax
indemnity, Tax sharing or Tax allocation agreement.
(f) Except as set forth in Schedule 5.10, the Subject Company
has never been a member of an affiliated group of corporations, within
the meaning of Section 1504 of the IRC.
(g) The Subject Company has not filed a consent pursuant to
the collapsible corporation provisions of Section 341(f) of the IRC (or
any corresponding provision of state, local or foreign income Tax law)
or agreed to have Section 341(f)(2) of the IRC (or any corresponding
provision of state, local or foreign income Tax law) apply to any
disposition of any asset owned by it.
(h) None of the assets of the Subject Company is property that
the Subject Company is required to treat as being owned by any other
Person pursuant to the "safe harbor lease" provisions of former Section
168(f)(8) of the IRC.
(i) None of the assets of the Subject Company directly or
indirectly secures any debt, the interest on which is Tax-exempt under
Section 103(a) of the IRC.
(j) None of the assets of the Subject Company is "tax-exempt
use property" within the meaning of Section 168(h) of the IRC.
(k) Except as set forth in Schedule 5.10, the Subject Company
has not agreed to make nor is the Subject Company required to make any
adjustment under Section 481(a) of the IRC by reason of a change in
accounting method or otherwise.
(l) The Subject Company is not a party to any agreement,
Contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the IRC.
(m) Neither the Subject Company nor the Shareholders is a
Person other than a United States Person within the meaning of the IRC.
(n) CSM/TemPro Resources of Nashville, LLC (the "LLC") has at
all times during its existence properly been treated as a partnership
for federal and applicable state income Tax purposes. Except for the
LLC and except as set forth in Schedule 5.10, none of the Subject
Companies is a party to any joint venture, partnership or other
arrangement or contract that could be treated as a partnership for
federal and applicable state income Tax purposes.
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(o) The unpaid Taxes of the Subject Company do not exceed the
reserve for Tax liability (excluding any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
set forth or included in the Balance Sheet, as adjusted for the passage
of time through the Closing, in accordance with the past custom and
practice of the Subject Company.
(p) CMS Management Services, Co., TemPro Resources, Inc. and
CMS Services, Inc. have properly been treated as an S Corporation (as
defined in the IRC) for federal and applicable state income tax
purposes since the following respective dates: January 1, 1989, January
1, 1989 and September 23, 1997.
5.11 No Material Adverse Change. Since the date of the Balance
Sheet, there has not been any Material Adverse Change in the business,
operations, properties, assets or condition of the Subject Company, and, to the
Knowledge of the Shareholders, no event has occurred or circumstance exists that
may result in such a Material Adverse Change.
5.12 Employee Benefits.
(a) (i) Schedule 5.12 contains a complete and accurate list of
all currently existing Plans and Other Benefit Obligations of
the Subject Company, and identifies as such all Plans that are
Qualified Plans.
(ii) Schedule 5.12 contains a complete and accurate
list of (A) all ERISA Affiliates of the Subject Company, and
(B) all currently existing Plans of which any such ERISA
Affiliate is a Plan Sponsor, in which any such ERISA Affiliate
participates, or to which any such ERISA Affiliate
contributes.
(iii) Schedule 5.12 sets forth the approximate 1997
annual payment for all current obligations owed under any such
Plan of the Subject Company or Other Benefit Obligation of the
Subject Company that is not subject to the disclosure and
reporting requirements of ERISA.
(b) the Subject Company has delivered to CSR copies of:
(i) all documents that set forth the terms of each
currently existing Plan and Other Benefit Obligations of the
Subject Company and of any related trust, including (A) all
plan descriptions and summary plan descriptions of the Plans
of the Subject Company for which plan descriptions and summary
plan descriptions are required to be prepared, filed and
distributed and (B) all summaries and descriptions furnished
to participants and beneficiaries regarding the Plans and the
Other Benefit Obligations of the Subject Company for which a
plan description or summary plan description is not required;
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(ii) all currently existing personnel and employment
manuals and policies of the Subject Company;
(iii) a written description of any Plan or Other
Benefit Obligation of the Subject Company that is not
otherwise in writing;
(iv) all SEC registration statements filed with
respect to any Plan of the Subject Company;
(v) all currently existing insurance policies
purchased by or to provide benefits under any Plan of the
Subject Company;
(vi) all currently existing contracts with third
party administrators, actuaries, investment managers,
consultants and other independent contractors that relate to
any Plan or Other Benefit Obligation of the Subject Company;
(vii) all reports submitted within the three years
preceding the date of this Agreement by third party
administrators, actuaries, investment managers, consultants or
other independent contractors with respect to any Plan or
Other Benefit Obligation of the Subject Company;
(viii) all notifications to employees of the Subject
Company of their rights under ERISA Section 601 et seq. and
IRC Section 4980B given during the last two (2) years;
(ix) the Form 5500 filed with respect to each Plan of
the Subject Company for the most recent three plan years,
including all schedules thereto and the opinions of
independent accountants;
(x) all notices that were given by the Subject
Company or any ERISA Affiliate of the Subject Company or any
Plan of the Subject Companies to the IRS or any participant or
beneficiary, pursuant to statute, within the three years
preceding the date of this Agreement, including notices that
are expressly mentioned elsewhere in this Section 5.12;
(xi) all notices relating to a Plan or other Benefit
Obligation that were given by the IRS or the Department of
Labor to the Subject Company, any of its ERISA Affiliates or
any Plan of the Subject Company within the three years
preceding the date of this Agreement; and
(xii) the most recent IRS determination letter for
each Qualified Plan which is a Plan of the Subject Company.
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(c) Except as set forth in Schedule 5.12:
(i) The Subject Company has performed all of its
obligations under all the Plans and Other Benefit Obligation
of the Subject Company. The Subject Companies has made
appropriate entries in its financial records and statements
for all obligations and liabilities under such Plans and Other
Benefit Obligations that have accrued but are not due.
(ii) No statement, either written or, to the
Knowledge of the Shareholders, oral, has been made by the
Subject Company to any Person with regard to any Plan or Other
Benefit Obligation that was not in accordance with the Plan or
Other Benefit Obligation and that could have an adverse
economic consequence to any of the Subject Company.
(iii) The Subject Company, with respect to all the
Plans and the Other Benefit Obligations of the Subject
Company, is, and each Plan and Other Benefit Obligation of the
Subject Company is in full compliance in all material respects
with ERISA, the IRC, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section 5.
12.
(1) No transaction prohibited by ERISA 406
and no "prohibited transaction" under IRC 4975(c) has
occurred with respect to any Plan of the Subject
Company.
(2) The Subject Company has no liability to
the IRS with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.
(3) The Subject Company has no liability
under ERISA Section 502.
(4) All filings required by ERISA and the
IRC as to each Plan of the Subject Company have been
timely filed, and all notices and disclosures to
participants required by either ERISA or the IRC have
been timely provided.
(5) All contributions and payments made or
accrued by the Subject Company and the ERISA
Affiliates of the Subject Company with respect to all
the Plans and Other Benefit Obligations of the
Subject Company are or will be deductible under IRC
162 or 404 subject to the requirements and
limitations provided therein. No amount, nor any
asset of any Plan of the Subject Company is subject
to Tax as unrelated business taxable income.
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(iv) Neither the Subject Company nor any ERISA
Affiliate of the Subject Company sponsors or maintains,
previously sponsored or maintained, or has or had any
obligation to contribute to any Title IV Plan, Multiemployer
Plan or any Welfare Plan that provides or will provide
benefits described in Section 3(1) of ERISA to any former
employee or retiree of the Subject Company or any ERISA
Affiliate of the Subject Company, except as required under
Part 6 of Title I of ERISA and Section 4980B of the Code.
(v) To the Knowledge of the Shareholders, each Plan
of the Subject Company which is not a Multi-Employer Plan can
be terminated within thirty days, without payment of any
additional contribution or amount for any time periods after
termination of the Plan and without the vesting or
acceleration of any benefits promised by such Plan, other than
vesting of any accrued benefits under any Pension Plan.
(vi) To the Knowledge of the Shareholders, no event
has occurred or circumstance exists as of the Closing that
could result in a material increase in premium costs of the
Plans and Other Benefit Obligations of the Subject Company
that are insured or a material increase in benefit costs of
such Plans and Other Benefit Obligations that are
self-insured.
(vii) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal
proceeding involving, any Plan or Other Benefit Obligation of
the Subject Company is pending or, to the Knowledge of the
Shareholders, is Threatened.
(viii) Each Qualified Plan of the Subject Company is
qualified in form and operation under IRC Section 401(a); each
trust for each such Plan is exempt from federal income Tax
under IRC Section 501(a). No event has occurred or
circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan
or trust.
(ix) The Subject Company has complied with the
provisions of ERISA Section 601 et seq. and IRC Section 4980B.
(x) No payment that is owed or may become due to any
director, officer, employee or agent of any of the Subject
Company will be non-deductible to the Subject Company or
subject to Tax under IRC Section 280G or Section 4999; nor
will the Subject Company be required to "gross up" or
otherwise compensate any such Person because of the imposition
of any excise Tax on a payment to such Person.
5.13 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Schedule 5.13:
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(i) the Subject Company is, and at all times since
January 1, 1995 has been, in all material respects, in
compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its
business or the ownership or use of any of its assets;
(ii) to the Knowledge of the Shareholders, no event
has occurred or circumstance exists that (with or without
notice or lapse of time) (A) may constitute or result in a
violation by the Subject Company of, or a failure on the part
of the Subject Company to comply with, any Legal Requirement
or (B) may give rise to any obligation on the part of the
Subject Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature; and
(iii) the Subject Company has not received, at any
time since January 1, 1995, any written or, to the Knowledge
of the Shareholders, other notice or other communication from
any Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential violation of, or
failure to comply with, any Legal Requirement or (B) any
actual, alleged, possible or potential obligation on the part
of any of the Subject Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature.
(b) Schedule 5.13 contains a complete and accurate list of
each material Governmental Authorization that is held by the Subject
Company or that otherwise relates to the business of, or to any of the
assets owned or used by, the Subject Company. Each Governmental
Authorization is valid and in full force and effect. Except as set
forth in Schedule 5.13:
(i) the Subject Company is, and at all times since
January 1, 1995, has been, in all material respects, in full
compliance with all of the terms and requirements of each
Governmental Authorization;
(ii) to the Knowledge of the Shareholders, no event
has occurred or circumstance exists that (A) constitutes or
results directly or indirectly in a violation of or a failure
to comply with any term or requirement of any Governmental
Authorization or (B) results directly or indirectly in the
revocation, withdrawal, suspension, cancellation or
termination of, or any modification to, any Governmental
Authorization;
(iii) the Subject Company has not received, at any
time since January 1, 1995, any written or, to the Knowledge
of the Shareholders, other notice or communication from any
Governmental Body or any other Person regarding (A) any
actual, alleged, possible or potential violation of or failure
to comply with any term or requirement of any Governmental
Authorization or (B) any actual, proposed,
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possible or potential revocation, withdrawal, suspension,
cancellation, termination of or modification to any
Governmental Authorization; and
(iv) all material applications required to have been
filed for the renewal of the Governmental Authorizations have
been duly filed on a timely basis with the appropriate
Governmental Bodies, and all other material filings required
to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the
appropriate Governmental Bodies.
The Governmental Authorizations listed in Schedule 5.13
collectively constitute all of the material Governmental Authorizations
necessary to permit the Subject Company to lawfully conduct and operate its
business in the manner it currently conducts and operates such business and to
permit the Subject Company to own and use its assets in the manner in which it
currently owns and uses such assets.
5.14 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 5.14, there is no
pending Proceeding:
(i) that has been commenced by or, to the Knowledge
of the Shareholders or the Subject Company, against the
Subject Company or, to the Knowledge of the Shareholders, that
otherwise relates to or may affect the business of, or any of
the assets owned or used by, the Subject Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal or otherwise interfering
with, any of the Transactions.
Except as set forth in Schedule 5.14, to the Knowledge of the
Shareholder, (1) no such Proceeding has been Threatened, and (2) no event has
occurred or circumstance exists that may give rise to or serve as a basis for
the commencement of any such Proceeding. The Subject Company has delivered to
CSR or the Purchasers copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Schedule 5.14. The Proceedings
listed in Schedule 5.14 will not, individually or in the aggregate, have a
Material Adverse Effect on the business, operations, assets, condition or
prospects of the Subject Company.
(b) Except as set forth in Schedule 5.14:
(i) there is no Order to which the Subject
Company or any of the assets owned or used by the Subject
Company, is subject;
(ii) the Shareholder is not subject to any Order that
relates to the business of, or any of the assets owned or used
by, the Subject Company; and
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(iii) to the Knowledge of the Shareholders, no
officer, director, agent or employee of the Subject Company is
subject to any Order that prohibits such officer, director,
agent or employee from engaging in or continuing any conduct,
activity or practice relating to the business of the Subject
Company.
(c) Except as set forth in Schedule 5.14:
(i) the Subject Company is, and at all times since
January 1, 1995, has been, in full compliance with all of the
terms and requirements of each Order to which it, or any of
the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which the Subject Company
or any of the assets owned or used by the Subject Company, is
subject; and
(iii) the Subject Company has not received, at any
time since January 1, 1995, any written or, to the Knowledge
of the Shareholders, other notice or communication from any
Governmental Body or any other Person regarding any actual,
alleged, possible or potential violation of, or failure to
comply with, any term or requirement of any Order to which the
Subject Company or any of the assets owned or used by the
Subject Company, is or has been subject.
5.15 Absence of Certain Changes and Events.
Except as set forth in Schedule 5.15, since the date of the
Balance Sheet, the Subject Company has conducted its business only in the
Ordinary Course of Business and there has not been any:
(a) change in authorized or issued capital stock of, or other
equity interests in, the Subject Company; grant of any stock option or
right to purchase shares of capital stock, of or other equity interests
in, the Subject Company; issuance of any security convertible into such
capital stock or other equity interests; grant of any registration
rights; purchase, redemption, retirement or other acquisition by the
Subject Company of any shares of any such capital stock or other equity
interests; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock or other
equity interests;
(b) amendment to the Organizational Documents of the Subject
Company;
(c) payment or increase by the Subject Company (except in the
Ordinary Course of Business) of any bonuses, salaries, or other
compensation to any stockholder, director, officer or employee or entry
into any employment, severance or similar Contract with any director,
officer or employee;
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(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement or other employee benefit plan for or
with any employees of the Subject Company;
(e) damage to or destruction or loss of any asset or property
of any of the Subject Companies, whether or not covered by insurance,
that would have a Material Adverse Effect on the Subject Company;
(f) entry into, termination or acceleration of, or receipt of
notice of termination of (i) any material license, distributorship,
dealer, sales representative, joint venture, credit or similar
agreement or (ii) any Contract or transaction involving a Liability by
or to the Subject Company of at least $25,000;
(g) sale (other than sales in the Ordinary Course of
Business), lease or other disposition of any material asset or property
of the Subject Company or mortgage, pledge or imposition of any lien or
other Encumbrance on any material asset or property of the Subject
Company, including the sale, lease or other disposition of any of the
Intellectual Property Assets;
(h) delay or failure to repay when due any obligation,
including without limitation, accounts payable and accrued expenses
(except in the Ordinary Course of Business);
(i) accrual of any expenses except for such accruals in the
Ordinary Course of Business;
(j) capital expenditures in excess of $25,000;
(k) cancellation or waiver of any claims or rights with a
value to the Subject Company in excess of $10,000;
(l) any payment, discharge or satisfaction of any Liability by
any Subject Company, other than the payment, discharge or satisfaction
of Liabilities, in the Ordinary Course of Business;
(m) incurrence of or increase in, any Liability, except in the
Ordinary Course of Business, or any deferred payment of or failure to
pay when due, any Liability;
(n) material change in the accounting methods used by the
Subject Company;
(o) material disagreement or dispute with any key employee
with respect to compensation, equity ownership, duties or authority; or
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(p) agreement, whether oral or written, by the Subject Company
to do any of the foregoing.
5.16 Contracts; No Defaults.
(a) Schedule 5.16 contains a complete and accurate list, and
the Subject Company has made available to CSR or the Purchasers true
and complete copies, of:
(i) each written Applicable Contract that involves
performance of services or delivery of goods by the Subject
Company for a fixed price in excess of $10,000 or a fixed
deliverable;
(ii) each written Applicable Contract that involves
performance of services or delivery of goods or materials to
the Subject Company for a fixed price in excess of $25,000;
(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves
expenditures of the Subject Company, individually or, for a
series of related Applicable Contracts, in the aggregate, in
excess of $10,000, or receipts of the Subject Company,
individually or, for a series of related Applicable Contracts,
in the aggregate, in excess of $20,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Applicable Contract of the Subject Company affecting the
ownership of, leasing of, title to, use of, or any leasehold
or other interest in, any real or personal property (except
personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of
less than $10,000 and with terms of less than one year);
(v) each licensing agreement or other Applicable
Contract of the Subject Company with respect to patents,
trademarks, copyrights or other intellectual property of the
Subject Company, except agreements with current or former
employees, regarding the appropriation or the non-disclosure
of any of the Intellectual Property Assets;
(vi) each collective bargaining agreement and other
Applicable Contract of the Subject Company to or with any
labor union or other employee representative of a group of
employees and each other written employment or consulting
agreement with any employees or consultants, except for
written employment or consulting agreements with billable
employees or billable consultants;
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(vii) each joint venture, partnership and other
Applicable Contract of the Subject Company (however named)
involving a sharing of profits, losses, costs or liabilities
by the Subject Company with any other Person;
(viii) each Applicable Contract of the Subject
Company containing covenants that in any way purport to
restrict the business activity of any of the Subject Company
or any Affiliate of the Subject Company or limit the freedom
of the Subject Company or any Affiliate of the Subject Company
to engage in any line of business or to compete with any
Person;
(ix) each Applicable Contract of the Subject Company
providing for payments to or by any Person based on sales,
purchases or profits, other than direct payments for goods;
(x) each power of attorney that is currently
effective and outstanding;
(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides
for an express undertaking by the Subject Company to be
responsible for consequential damages;
(xii) each executory Applicable Contract of the
Subject Company for capital expenditures in excess of $10,000;
(xiii) each Applicable Contract which, to the
Knowledge of the Shareholders, will result in a material loss
to the Subject Company;
(xiv) each Applicable Contract between the Subject
Company and its former or current stockholders, directors,
officers and employees (other than standard employment
agreements previously furnished to or approved by the
Purchaser);
(xv) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by the Subject Company other than in the Ordinary
Course of Business; and
(xvi) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
(b) Except as set forth in Schedule 5.16, no officer,
director, agent, employee, consultant or contractor of the Subject
Company is bound by any Contract that purports to limit the ability of
such officer, director, agent, employee, consultant or contractor to
engage in or continue any conduct, activity or practice relating to the
business of any of the Subject Company.
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(c) Except as set forth in Schedule 5.16, each Contract
identified or required to be identified in Schedule 5.16 is in full
force and effect and is valid and enforceable in accordance with its
terms except to the extent the invalidity or unenforceability of such
Contract would not have a Material Adverse Effect on the Subject
Company.
(d) Except as set forth in Schedule 5.16:
(i) the Subject Company is and to the Knowledge of
the Shareholders, at all times since January 1, 1995, has
been, in compliance with all material terms and requirements
of each material Contract under which the Subject Company has
any obligation or Liability or by which the Subject Company or
any of the assets owned or used by the Subject Company is or
was bound;
(ii) to the Knowledge of the Shareholders, each other
Person that has any obligation or Liability under any material
Contract under which the Subject Company has any rights is,
and at all times since January 1, 1995 has been, in compliance
with all material terms and requirements of such Contract;
(iii) to the Knowledge of the Shareholders, no event
has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with, or
result in a violation or breach of, or give the Subject
Company or any other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate or modify, any
Applicable Contract; and
(iv) the Subject Company has not given to or received
from any other Person, at any time since January 1, 1995, any
written or, to the Knowledge of the Shareholders, other notice
or other communication regarding any actual, alleged, possible
or potential violation or breach of, or default under, any
Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to the Subject Company under current or completed Contracts
with any Person and no such Person has made written demand for such
renegotiation.
(f) The Contracts relating to the provision of products or
services by the Subject Company have been entered into in the Ordinary
Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration
having been paid or promised, that is or would be in violation of any
Legal Requirement.
5. 17 Insurance.
(a) The Subject Company has delivered to CSR:
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(i) a true and complete list of all policies of
insurance to which the Subject Company is a party or under
which the Subject Company or any director or officer of the
Subject Company, is or has been covered at any time within the
three years preceding the date of this Agreement; and
(ii) any statement by the auditor of the Financial
Statements prepared in connection with such Financial
Statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Schedule 5.17 describes:
(i) any self-insurance arrangement by or affecting
the Subject Company, including any reserves established
thereunder; and
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by the
Subject Company.
(c) Schedule 5.17 sets forth, by year, for the current policy
year and each of the three preceding policy years:
(i) a summary of the loss experience under each
policy; and
(ii) a statement describing the loss experience for
all claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth in Schedule 5.17:
(i) All policies to which the Subject Company is a
party or that provide coverage to the Subject Company or any
director or officer of the Subject Company:
(l) are valid, outstanding and enforceable;
(2) are sufficient for compliance with all
Legal Requirements and Contracts to which the Subject
Company is a party or by which it is bound;
(3) will continue in full force and effect
following the consummation of the Transactions; and
(4) do not provide for any retrospective
premium adjustment or other experienced-based
liability on the part of any of the Subject
Companies.
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(ii) the Subject Company has not received (A) any
refusal of coverage or any notice that a defense will be
afforded with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance policy
is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to
perform its obligations thereunder.
(iii) To the Knowledge of the Shareholders, the
Subject Company has given notice to the insurer of all
material claims that may be insured thereby.
5.18 Environmental Matters .
Except as set forth in Schedule 5.18:
(a) The Subject Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable
under, any Environmental Law, except where such noncompliance or
violations would not, individually or in the aggregate, have a Material
Adverse Effect on the Subject Company. To the Knowledge of the
Shareholders, the Subject Company has no basis to expect, nor has it or
any other Person for whose conduct the Subject Company is or may be
held to be responsible received, any actual or Threatened order or
written or other notice or communication from (i) any Governmental Body
or private citizen acting in the public interest or (ii) the current or
prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any
actual or Threatened obligation to undertake or bear the cost of any
Environmental, Health and Safety Liabilities with respect to any of the
Facilities or any other properties or assets (whether real, personal or
mixed) in which the Subject Company has had an interest, or with
respect to any property or Facility at or to which Hazardous Materials
were generated, manufactured, refined, transferred, imported, used or
processed by the Subject Companies or any other Person for whose
conduct the Subject Company is or may be held responsible, or from
which Hazardous Materials have been transported, treated, stored,
handled, transferred, disposed, recycled or received.
(b) There are no pending or Threatened claims, Encumbrances or
other restrictions of any nature, resulting from any Environmental,
Health and Safety Liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting (i) to the Knowledge of
the Shareholders, any of the Facilities or (ii) any other properties
and assets (whether real, personal or mixed) in which the Subject
Company has or had an interest.
(c) Neither the Subject Company nor, to the Knowledge of the
Shareholders, any other Person for whose conduct the Subject Company is
or may be held responsible, has received any citation, directive,
inquiry, notice, Order, summons, warning or other communication that
relates to Hazardous Activity, Hazardous Materials, or any alleged,
actual or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual or potential obligation to
undertake or bear the cost of any Environmental,
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Health and Safety Liabilities with respect to any of the Facilities or
any other properties or assets (whether real, personal or mixed) in
which the Subject Company has or had an interest, or with respect to
any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used or processed by the
Subject Company or any other Person for whose conduct the Subject
Company is or may be held responsible, have been transported, treated,
stored, handled, transferred, disposed, recycled or received.
(d) Neither the Subject Company nor, to the Knowledge of the
Shareholders, any other Person for whose conduct the Subject Company is
or may be held responsible, has any Environmental, Health and Safety
Liabilities with respect to the Facilities or, to the Knowledge of the
Shareholders, with respect to any other properties and assets (whether
real, personal or mixed) in which the Subject Company (or any
predecessor), has or had an interest, or to the Knowledge of the
Shareholders at any property geologically or hydrologically adjoining
the Facilities or any such other property or assets.
(e) To the Knowledge of the Shareholders, there has been no
Release or Threat of Release of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used
or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal or mixed) in which the
Subject Company has or had an interest.
(f) The Subject Company has delivered to the Purchaser true
and complete copies and results of any reports, studies, analyses,
tests or monitoring possessed or initiated by the Subject Company
pertaining to Hazardous Materials or Hazardous Activities in, on or
under the Facilities or concerning compliance by the Subject Company or
any other Person for whose conduct it is or may be held responsible
with Environmental Laws.
5.19 Labor Relations; Compliance: Employees. Except as set
forth in Schedule 5.19, since January 1, 1995, the Subject Company has not been
nor is a party to any collective bargaining or other labor Contract. Except as
set forth in Schedule 5.19, since January 1, 1995, there has not been, there is
not presently pending or existing, and, to the Knowledge of the Shareholders,
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage or
employee grievance process, (b) any Proceeding against or affecting the Subject
Company relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters, including any charge or complaint filed
by an employee or union with the National Labor Relations Board, the Equal
Employment Opportunity Commission or any comparable Governmental Body,
organizational activity or other labor or employment dispute against or
affecting the Subject Company or its premises or (c) any application for
certification of a collective bargaining agent. To the Knowledge of the
Shareholders, no event has occurred or circumstance exists that could provide
the basis for any work stoppage or other labor dispute. There is no lockout of
any employees by the Subject Company, and no such action is contemplated by the
Subject Company. Except as set forth in Schedule 5.19, the Subject Company has
complied in all material respects with all Legal
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Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and health
and plant closing. Except as set forth in Schedule 5.19, the Subject Company is
not liable for the payment of any compensation, damages, taxes, fines, penalties
or other amounts, however designated, for failure to comply with any of the
foregoing Legal Requirements. Schedule 5.19 sets forth the names of all Persons
employed by the Subject Company who are expected to receive more than $100,000
annualized cash compensation for the 1998 calendar year from the Subject Company
(including without limitation, salary, commission and bonus) and who are
expected to be employed by the Subject Company on the Closing Date. Except as
set forth in Schedule 5.19, the Subject Company has not entered into any
severance or similar arrangement in respect of any personnel that provides for
any obligation (absolute or contingent) of the Subject Company or any other
Person to make any payment to any such personnel following termination of
employment.
5.20 Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual
Property Assets" includes:
(i) the corporate name and all fictional business
names, trade names, registered and unregistered trademarks,
service marks and applications owned by, used by or licensed
to any of the Subject Company (collectively, "the Marks");
(ii) all of the patents, patent applications and
inventions and discoveries that may be patentable of the
Subject Company (collectively, "the Patents");
(iii) all of the copyright rights in both published
works and unpublished works of the Subject Company
(collectively, "the Copyrights"); and
(iv) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings and blue prints
owned, used or licensed by the Subject Company as licensee or
licensor (collectively, "the Trade Secrets").
(b) Agreements. Schedule 5.20 contains a complete and accurate
list and summary description, including any royalties paid or received
by the Subject Company, of all Contracts relating to the Intellectual
Property Assets to which the Subject Company is a party or by which the
Subject Company is bound, except for any license implied by the sale of
a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $1,000 under which the
Subject Company is the licensee. There are no outstanding and, to the
Knowledge of the Shareholders, no Threatened disputes or disagreements
with respect to any such contract.
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(c) Know-How Necessary for the Business. The Intellectual
Property Assets are all those necessary for the operation of the
business of the Subject Company as it is currently conducted.
(d) Patents. The Subject Company has not been issued any
Patents nor has any Patents pending No process or know-how used by the
Subject Company is known to infringe or is alleged to infringe any
patent or other proprietary right of any other Person.
(e) Trademarks.
(i) Schedule 5.20 contains a complete and accurate
list and summary description of all the Marks of the Subject
Company. Except as set forth in Schedule 5.20, the Subject
Company is the owners of such right, title and interest in and
to each of the Marks as is necessary to conduct the business
of the Subject Company, free and clear of all liens, security
interests, charges, Encumbrances, equities and other adverse
claims.
(ii) Except as set forth in Schedule 5.20, all the
Marks of the Subject Company that have been registered with
the United States Patent and Trademark Office are, to the
Knowledge of the Shareholders, currently in compliance with
all formal legal requirements (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing.
(iii) Except as set forth in Schedule 5.20, no Mark
of the Subject Company has been or is now involved in any
opposition, invalidation or cancellation and, to the Knowledge
of the Shareholders, no such action is Threatened with the
respect to any of the Marks of the Subject Company.
(iv) Except as set forth in Schedule 5.20, to the
Knowledge of the Shareholders, there is no potentially
interfering trademark or trademark application of any third
party.
(v) Except as set forth in Schedule 5.20, no Mark of
the Subject Company is infringed or, to the Knowledge of the
Shareholders, has been challenged or threatened in any way.
None of the Marks of the Subject Company used by the Subject
Company is known to infringe or is alleged to infringe any
trade name, trademark or service mark of any third party.
(f) Copyrights. The Subject Company has no Copyrights.
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(g) Trade Secrets. Except as set forth in Schedule 5.20, the
Subject Company has no Trade Secrets and no Trade Secrets are necessary
or currently used by the Subject Company to conduct its business as it
is presently conducted.
5.21 Certain Payments. To the Knowledge of the Shareholders,
since January 1, 1995, neither the Subject Company, nor any director, officer,
agent or employee of the Subject Company or any other Person affiliated with or
acting for or on behalf of any of the Subject Company, has directly or
indirectly, (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, regardless
of form, whether in money, property or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions or for special concessions already
obtained, for or in respect of the Subject Company or any Affiliate of the
Subject Company or (iv) in violation of any Legal Requirement or (b) established
or maintained any fund or asset that has not been recorded in the books and
records of the Subject Company.
5.22 No Other Agreements to Sell Assets or Capital Stock of
the Subject Company. Neither the Subject Company, nor any officers, directors or
Affiliates of the Subject Company have any commitment or legal obligation,
absolute or contingent, to any other Person or firm, other than as contemplated
by the Transactions, to sell, assign, transfer or effect a sale of any of the
assets (other than inventory and products in the Ordinary Course of Business),
to sell or effect a sale of the capital stock or other equity interests of the
Subject Company, to effect any merger, consolidation, liquidation, dissolution
or other reorganization of the Subject Company, to enter into any agreement or
cause the entering into of an agreement with respect to any of the foregoing.
5.23 Relationships with Related Persons. Except as set forth
in Schedule 5.23, neither the Subject Company, nor any of its Related Persons is
or has owned (of record or as a beneficial owner) an equity interest or any
other financial or profit interest in a Person that has (i) had business
dealings or a material financial interest in any transaction with the Subject
Company other than business dealings or transactions conducted in the Ordinary
Course of Business with the Subject Company at substantially prevailing market
prices and on substantially prevailing market terms or (ii) engaged in a
business competing with any of the Subject Companies with respect to any line of
the products or services of the Subject Company in any market presently served
by the Subject Company, except for less than one percent (1%) of the outstanding
capital stock of any such competing business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Schedule 5.23, no Related Person of the Subject Company is a party to any
Contract with, or has any claim or right against, the Subject Company.
5.24 Customers and Suppliers. Schedule 5.24 contains a
complete and accurate list of the five (5) largest suppliers and ten (10)
largest customers of the Subject Company during the last fiscal year, showing
the approximate total purchases by the Subject Company from each such supplier
during such fiscal year and the total sales by the Subject Company to each such
customer during such fiscal year. Since the date of the Balance Sheet, there has
been no adverse change in the
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business relationship with any supplier or customer named in Schedule 5.24 and
no threat or indication that any such change is reasonably foreseeable.
5.25 Bank Accounts. Schedule 5.25 sets forth an accurate and
complete list showing the name and address of each bank in which the Subject
Company has any account, safe deposit box, borrowing arrangement or certificate
of deposit, the number of any such account or any such box and the names of all
Persons authorized to draw thereon or to have access thereto.
5.26 Brokers and Finders; Advisors. Neither the Shareholder
nor the Subject Company nor their respective agents have incurred any obligation
or Liability for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement. The Shareholder agrees to
indemnify the Purchaser and the Subject Company against and to hold CSR and the
Purchasers and the Subject Company harmless from, any claims for brokerage or
similar commission or other compensation which may be made against CSR, the
Purchasers or the Subject Company by any third party in connection with the
Transactions, which claim is based upon such third party having acted as broker,
finder, investment banker, advisor, consultant or appraiser or in any similar
capacity on behalf of the Subject Company, the Shareholders or any of their
respective Affiliates.
5.27 Disclosure. No representation or warranty of the
Shareholder in this Agreement and no statement in the Disclosure Schedules with
respect to the Subject Company omits to state a material fact necessary to make
the statements herein or therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF CSR AND THE PURCHASER
CSR and the Purchasers hereby represent and warrant to the
Sellers and the Shareholders as follows:
6.1 Organization. CSR is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
corporate power and corporate authority to own, lease and operate its properties
and to carry on its business in the manner in which such business is now being
conducted, and to enter into and perform its obligations under this Agreement.
CSR Indiana is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana, with full corporate power and
corporate authority to own, lease and operate its properties and to carry on its
business in the manner in which such business is now being conducted, to own the
Stock being acquired in the Stock Acquisition pursuant to this Agreement and to
enter into and perform its obligations under this Agreement. CMS LLC is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Indiana, with full company power and authority to
own the Assets being acquired in the Asset Acquisitions and to engage in the
Staffing Services Business and to enter into and perform its obligations under
this Agreement. CMS LLC is newly organized and has not engaged in or conducted
any business and will not engage in or conduct any business prior to the Closing
Date other than the execution and
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delivery of this Agreement and the consummation of the transactions contemplated
hereby. CSR is the owner of all of the issued and outstanding shares of the
capital stock of CSR Indiana. CSR Indiana is the owner of ninety-nine percent
(99%) of the membership interests in CMS LLC. The remaining one percent (1%)
membership interest in CMS LLC is owned by CSR Manager, Inc., a wholly owned
subsidiary of CSR. CSR Manager, Inc. is the Manager of CMS LLC.
6.2 Corporate Authority and Ability. All requisite corporate
authorizations for the execution, delivery and performance by CSR and each of
the Purchasers of this Agreement and the consummation of the Transactions have
been obtained. No further corporate action shall be necessary on the part of CSR
or the Purchasers to authorize the execution, delivery and performance of this
Agreement or the consummation of the Transactions.
6.3 Authorization: No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of CSR and the Purchasers, enforceable against them in
accordance with its terms. Upon the execution and delivery by CSR and
the Purchasers of the Transaction Documents to which they are a party,
such Transaction Documents will constitute the legal, valid and binding
obligations of CSR and the Purchasers, enforceable against them in
accordance with their respective terms, except where such
enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors'
rights generally and (ii) the general principles of equity, regardless
of whether asserted in a proceeding in equity or at law. CSR and each
of the Purchasers has the absolute and unrestricted right, power, and
authority to execute and deliver this Agreement and the Transaction
Documents to which it is a party and to perform its obligations under
this Agreement and the Transaction Documents to which it is a party.
(b) Neither the execution and delivery of this Agreement by
CSR or the Purchasers nor the consummation or performance of any of the
Transactions by CSR or the Purchasers will give any Person the right to
prevent, delay, or otherwise interfere with any of the Transactions
pursuant to: (i) any provision of Organizational Documents of CSR or
the Purchasers; (ii) any resolution adopted by the board of directors
or the stockholders or members of CSR or the Purchasers; (iii) any
Legal Requirement or Order to which CSR or the Purchasers may be
subject; or (iv) any Contract to which CSR or the Purchasers is a party
or by which CSR or the Purchasers may be bound, except in the case of
each of clauses (iii) and (iv) above, for such contraventions,
conflicts, violations, Liabilities, reassessments, revaluations,
breaches or creations of Encumbrances which, individually and in the
aggregate, would not have a Material Adverse Effect with respect to the
Purchaser. Except as set forth in Schedule 6.3, neither CSR nor the
Purchasers is and will not be required to obtain any Consent from any
Person in connection with the execution and delivery of this Agreement
or the consummation or performance of any of the Transactions.
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6.4 Financial Statements. CSR has delivered to the
Shareholders (a) internally prepared balance sheets of CSR as of January 31,
1998 and February 28, 1998 and the related statements of income, for each of
such periods, and (b) an audited balance sheet of CSR as of December 31, 1997
(including the notes thereto) (the "CSR Balance Sheet), and the related combined
statements of income, changes in shareholders' equity and cash flow for the
twelve month period then ended, together with the report thereon of Ernst &
Young LLP, independent certified public accountants (including the notes
thereto) (the "CSR Financial Statements"). The CSR Financial Statements fairly
and accurately present the financial condition and the results of operations,
income, expenses, assets, liabilities, changes in stockholders' equity, and cash
flow of CSR as of the respective dates of, and for the periods referred to in
the Financial Statements, all in accordance with GAAP; the CSR Financial
Statements reflect the consistent application of such accounting principles
throughout the periods involved. No financial statements of any person other
than CSR are required by GAAP to be included in the Financial Statements.
6.5 No Material Adverse Change. Since the date of CSR's
Balance Sheet, there has not been any Material Adverse Change in the business,
operations, properties, assets or condition of CSR or the Purchasers, and to the
Knowledge of CSR and the Purchasers, no event has occurred or circumstances
exist that may result in such a Material Adverse Change.
6.6 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 6.6, there is no
pending Proceeding:
(i) that has been commenced by or against
CSR or the Purchasers or, to the Knowledge of CSR or
the Purchasers, that otherwise relates to or may
effect the business of or any of the assets owned or
used by, CSR or the Purchasers; or
(ii) that challenges, or that may have the
effect of preventing, delaying, making illegal or
otherwise interfering with, any of the Transaction.
To the Knowledge of CSR or the Purchasers, (1) no
such Proceeding has been threatened, and (2) no event has
occurred or circumstances exists that may give rise to or
serve as a basis for the commencement of any such Proceeding.
(b) Except as set forth in Schedule 6.6:
(i) there is no order to which CSR or the Purchasers
or any of the assets owned or used by CSR or the Purchasers is
subject;
(ii) neither CSR nor the Purchasers is subject to any
Order that relates to the business of, or any of the assets
owned or used by, CSR or the Purchasers; and
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(iii) to the Knowledge of CSR and the Purchasers, no
officer, director, agent or employee of CSR or the Purchasers
is subject to any Order that prohibits such officer, director,
agent or employee from engaging in or continuing any conduct,
activity or practice relating to the business of CSR or the
Purchasers.
(c) Except as set forth in Schedule 6.6:
(i) CSR and the Purchasers are, and at all times
since January 1, 1995 have been, in full compliance with all
of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstances exist
that may constitute or result in (with or without notice or
lapse of time) a violation of or failure to comply with any
term or requirement of any Order to which CSR or the
Purchasers or any of the assets owned or used by CSR or the
Purchasers, is subject; and
(iii) neither CSR nor the Purchasers has received, at
any time since January 1, 1995, any written notice or, to the
Knowledge of CSR or the Purchasers, other notice or
communication from any Governmental Body or any other Person
regarding any actual, alleged, possible or potential violation
of, or failure to comply with, any term or requirement of any
Order to which CSR or the Purchasers or any of the assets
owned or used by CSR or the Purchasers, is or has been
subject.
6.7 Proceedings. There is no pending Proceeding that has been
commenced against CSR or the Purchasers and that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Transactions. To the Knowledge of CSR and the Purchasers, no such
Proceeding has been Threatened.
6.8 Relationship with Related Persons. Except as set forth in
Schedule 6.8, neither CSR, the Purchasers or any of their Related Persons is or
has owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in a Person that has (i) had business dealings or a
material financial interest in any transaction with CSR or the Purchasers other
than business dealings or transactions conducted in the Ordinary Course of
Business with CSR or the Purchasers at substantially prevailing market prices
and on substantially prevailing market terms, or (ii) engaged in a business
competing with CSR or Purchasers with respect to any line of the products or
services of CSR or the Purchasers in any market presently served by CSR or the
Purchasers, except for less than one percent (1%) of the outstanding capital
stock of any such competing business that is publicly traded on any recognized
exchange or in the over-the-counter market.
6.9 Investment. The Stock Purchaser is purchasing the Stock
for its own account for investment, without a view to their distribution within
the meaning of Section 2(11) of the Securities Act.
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6.10 Brokers or Finders. Neither CSR nor the Purchasers or
their respective officers and agents have incurred any obligation or Liability,
for brokerage or finders' fees or agents' commissions or other similar payment
in connection with this Agreement and will indemnify and hold the Sellers and
the Shareholders harmless from any such payment alleged to be due by or through
CSR or the Purchasers as a result of the action of CSR or the Purchasers or
their respective officers or agents.
6.11 Disclosure. No representation or warranty of CSR and/or
the Purchasers in this Agreement and no statement in Schedule 6.3 omits to state
a material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading. The copies of the
charter documents and bylaws of CSR and the Purchasers delivered to the Sellers
or Shareholders prior to the Closing shall be true, correct and complete.
ARTICLE VII
ACTIONS OF THE SELLERS, THE SHAREHOLDERS, THE PURCHASERS
AND CSR BEFORE AND AFTER THE CLOSING DATE
Each of the Sellers, the Shareholders, the Purchasers and CSR
covenant and agree with each other as follows:
7.1 Access and Investigation.
(a) Between the date of this Agreement and the Closing, the
Sellers and Shareholders will (a) afford CSR and the Purchasers and
their Representatives and prospective lenders and their Representatives
(collectively, "Purchaser's Advisors") access to the Subject Companies'
personnel, properties, Contracts, books and records and other documents
and data, provided, however, no such access will be allowed to
personnel without the prior consent of the Shareholders, (b) furnish
CSR and the Purchasers and Purchasers' Advisors with copies of all such
Contracts, books and records and other existing documents and data as
they may reasonably request and (c) furnish CSR and the Purchasers and
Purchasers' Advisors with such additional financial, operating and
other data and information as they may reasonably request.
(b) Between the Date of this Agreement and the Closing, CSR
and the Purchasers will (a) afford the Sellers, the Shareholders and
their Representatives ("Sellers Advisor's") access to CSR's and
Purchasers' personnel, properties, documents and data which have a
bearing on the Notes and/or the Contingent Amounts, (b) furnish the
Sellers, the Shareholders and Seller's Advisors with copies of all
Contracts, books and records and other existing documents and data
relevant to the Notes and Contingent Amounts, and (c) furnish the
Seller, the Shareholders and Seller's Advisors with such additional
financial operating and other data and information as they may
reasonably request so long as it is relevant to the Notes and
Contingent Amounts.
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7.2 Operation of Business. Between the date of this Agreement
and the Closing, CSR and the Purchasers will and the Shareholders will cause
each of the Subject Companies to:
(a) conduct its business only in the Ordinary Course of
Business;
(b) use its Best Efforts to preserve intact its current
business organization, keep available the services of its current
officers, employees and agents and maintain the relations and good will
with its suppliers, customers, landlords, creditors, employees, agents
and others having business relationships with it;
(c) confer with each other and their Advisors concerning
operational matters of a material nature; and
(d) otherwise report periodically to each other concerning the
status of their respective businesses, operations and finances.
7.3 Negative Covenants.
(a) Except as otherwise expressly permitted by this Agreement,
between the date of this Agreement and the Closing, the Subject
Companies and the Shareholders will not, without the prior consent of
CSR, take any affirmative action or fail to take any reasonable action
within its control, as a result of which any of the changes or events
listed in Section 5.15 is likely to occur.
7.4 Required Approvals.
As promptly as practicable after the date of this Agreement,
each party will make all filings required by Legal Requirements to be made by it
in order to consummate the Transactions (including all filings under the HSR
Act, if any). Between the date of this Agreement and the Closing, the parties
will (a) cooperate with respect to all filings that they may elect to make or
may be required by Legal Requirements to make in connection with the
Transactions and (b) cooperate in obtaining all consents identified in Schedules
5.2 or 6.2.
7.5 Notification.
Between the date of this Agreement and the Closing, each party to this Agreement
will promptly notify each other party hereto in writing if such party becomes
aware of any fact or condition that causes or constitutes a Breach (which has or
will have a Material Adverse Effect) of any of its representations and
warranties as of the date of this Agreement, or if such party becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach (which has or will have a Material Adverse Effect) of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition; provided,
however,
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that such disclosure shall not be deemed to cure any Breach of a representation
or warranty. Should any such fact or condition require any change in the
Disclosure Schedules if such Schedules were dated the date of the occurrence or
discovery of any such fact or condition, the discovering party will promptly
deliver to each other party a supplement to the Disclosure Schedules specifying
such change. During the same period, each party to this Agreement will promptly
notify each other party hereto of the occurrence of any Breach (which has or
will have a Material Adverse Effect) of any covenant or agreement by such party
in this Article VII or of the occurrence of any event that may make the
satisfaction of the conditions in Articles VIII and IX impossible or unlikely;
provided, however, that such disclosure shall not be deemed to cure any Breach
of a covenant or agreement or to satisfy a condition. Each party to this
Agreement shall promptly notify each other party hereto of any default, the
threat or commencement of any Proceeding or any development that occurs before
the Closing that could in any way materially affect such party, the business or
assets of such party or the ability of such party to consummate the
Transactions.
7.6 No Negotiation.
Until thirty (30) days from the date hereof or unless this
Agreement is earlier terminated pursuant to Article XI, neither the Subject
Companies nor the Shareholders nor any of their respective Representatives will
directly or indirectly solicit, initiate or encourage any inquiries or proposals
from, discuss or negotiate with, provide any non-public information to or
consider the merits of any unsolicited inquiries or proposals from, any Person
(other than CSR and the Purchasers) relating to any transaction involving the
sale of all or a substantial portion of its business or assets of any of the
Subject Companies or any of their capital stock or other equity interests or any
merger, consolidation, business combination or similar transaction involving any
of the Subject Companies (each such transaction referred to herein as a
"Proposed Acquisition Transaction"). The Subject Companies and the Shareholders
will immediately notify CSR if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made or any information is requested with
respect to any Proposed Acquisition Transaction and notify CSR of the terms of
any proposal which they or their respective Representatives may receive in
respect of any such Proposed Acquisition Transaction, including without
limitation the identity of the prospective purchaser or soliciting party. The
Subject Companies and the Shareholders shall also provide CSR with a copy of any
offer.
7.7. Assumption of Asset Sellers' Liabilities. Subject to the
Shareholders' indemnification obligations pursuant to Article X, from and after
the Closing Date the Asset Purchaser shall assume, pay, perform and discharge
all Assumed Liabilities of each of the Asset Sellers of every kind, character
and description, whether accrued, absolute, contingent or otherwise, arising on
or before the Closing Date.
7.8 Conduct of Subject Companies' Business. From and after the
Closing Date until December 31, 2000, unless all of the Shareholders shall
otherwise consent in writing, CSR and the Purchasers will cause all of the
business of the Subject Companies to be conducted by CMS LLC, will maintain the
separate corporate existence of CMS LLC, and will not sell, transfer or
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dispose of any of the assets or business of the Subject Companies or CMS LLC
except in the Ordinary Course of Business or transfer any of the employees of
CMS LLC. On the Closing Date CSR Indiana will assign and transfer all of the
business assets and liabilities of CMS/TemPro Resources of Indianapolis, Inc. to
CMS LLC.
7.9 Indemnity Obligations. CSR and the Purchasers covenant and
agree that their indemnity obligations to the Shareholders shall include those
liabilities described in the letter agreement among CSR, the Purchasers and the
Shareholders dated the Closing Date.
7.10 CMS 401(k) Plans and Related Matters. Prior to Closing,
appropriate documentation will be adopted by the Subject Companies for
termination of the Nashville 401(k) Plan and termination of the CMS 401(k) Plan.
In addition to 100% vesting of those employees covered by each of such two
Qualified Plans, such documentation will provide (subject to compliance with IRS
requirements and applicable plan provisions) that employees who terminate
employment from the Subject Companies, shall be entitled to a distribution of
their benefits from such Plans either through a lump sum distribution, rollover
to an IRA or other Qualified Plan as may be permitted by such other Qualified
Plan. Subject Companies shall remain fully responsible and liable for any and
all liabilities/benefits ERISA compliance, or claims relating to the CMS 401(k)
Plan or Nashville 401(k) Plan and the Shareholders shall fully indemnify CSR and
Purchasers from any and all Liabilities associated with the CMS 401(k) Plan or
the Nashville 401(k) Plan.
7.11 Credit for Service with Subject Companies. CSR and
Purchasers hereby agree that to the extent that any employees of the Subject
Companies become employees of CSR, Purchasers or any related entity, their
service with the Subject Companies will be credited for vesting and eligibility
purposes if they are covered by any Qualified Plan of CSR, Purchasers or any
related entity after closing. It is CSR's and Purchasers' intention that all
current employees of Subject Companies will be offered employment by CMS LLC as
of the Closing Date.
7.12 Post Closing Cooperation of CSR and the Purchasers. CSR
and the Purchasers recognize that it is in the mutual best interests of the
Purchasers and the Sellers to achieve the Adjusted EBITDA levels that would
allow the Sellers to maximize the Contingent Amounts. CSR and the Purchasers
therefore agree to cooperate with an assist the Sellers (subject to the exercise
of prudent business judgment by CSR and the Purchasers) in Sellers' attempt to
maximize the Contingent Amounts.
7.13 The Sellers' and the Shareholders' Compliance with
Subordination Provisions of the Notes. Each of the Sellers and the Shareholders
covenant and agree for the benefit of the Senior Lenders (as defined in the
Notes) to comply with and be bound by each of the Subordination Provisions (as
defined in the Notes) set forth in the Notes.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASERS' OBLIGATION TO CLOSE
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The Purchasers' obligation to pay the Consideration and to
take the other actions required to be taken by the Purchasers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Purchasers, in whole or
in part):
8.1 Accuracy of Representations. All of the representations
and warranties of the Shareholders in this Agreement (considered collectively)
and each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing.
8.2 Shareholders' and Subject Companies' Performance.
(a) All of the covenants and obligations that the Shareholders
and the Subject Companies are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered
collectively) and each of these covenants and obligations (considered
individually), must have been performed and complied with in all
material respects.
(b) The Shareholders and the Subject Companies must have
delivered each of the documents required to be delivered by the
Shareholders and the Subject Companies pursuant to Section 4.2.
8.3 Consents. Each of the Consents identified in Schedule 5.2
must have been obtained and must be in full force and effect.
8.4 Additional Documents.
The Shareholders must have delivered to the Purchaser such
documents as the Purchaser may reasonably request for the purpose of (i)
evidencing the accuracy of any representation or warranty of the Shareholders,
(ii) evidencing the performance by the Subject Companies and the Shareholders,
or the compliance by the Subject Companies and the Shareholders with, any
covenant or obligation required to be performed or complied with by the Subject
Companies and the Shareholders, (iii) evidencing the satisfaction of any
condition referred to in this Article VIII or (iv) otherwise facilitating the
consummation of any of the Transactions.
8.5 No Claim Regarding Stock Ownership or Sale Proceeds. There
must not have been made or Threatened by any Person any claim asserting that
such Person (a) is the holder or the beneficial owner of, or has the right to
acquire or to obtain beneficial ownership of, any stock of, or any other voting,
equity, or ownership interest in, any of the Subject Companies, or (b) is
entitled to all or any portion of the Consideration payable for the Stock or the
Assets.
ARTICLE IX
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CONDITIONS PRECEDENT TO SELLERS'
OBLIGATION TO CLOSE
The Sellers' obligation to sell the Stock and the Assets in
exchange for the Consideration and to take the other actions required to be
taken by the Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by the Sellers, in whole or in part):
9.1 Accuracy of Representations. All of the representations
and warranties of CSR and the Purchasers in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing.
9.2 The Purchasers' Performance.
(a) All of the covenants and obligations that CSR and the
Purchasers are required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and
each of these covenants and obligations (considered individually), must
have been duly performed and complied with in all material respects.
(b) Each document required to be delivered by CSR and the
Purchasers pursuant to Section 4.2 must have been delivered.
9.3 Consents. Each of the Consents identified in Schedule 6.2
must have been obtained and must be in full force and effect.
9.4 Additional Documents.
CSR and the Purchasers must have delivered to the Sellers such
documents as the Sellers may reasonably request for the purpose of (i)
evidencing the accuracy of any of CSR's or Purchasers' representations and
warranties, (ii) evidencing the performance by CSR and the Purchasers of, or the
compliance by CSR or the Purchasers with, any covenant or obligation required to
be performed or complied with by CSR or the Purchasers, (iii) evidencing the
satisfaction of any condition referred to in this Article IX or (iv) otherwise
facilitating the consummation or performance of any of the Transactions.
ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 Survival of Representations. Etc. The representations and
warranties of the Shareholders and of CSR and the Purchasers contained herein
and the indemnity obligations of the
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Shareholders set forth in Section 10.2(a)(iii) shall survive until two (2) years
after the Closing; provided, however, that the representations and warranties
contained in Section 5.10, Section 5.12 and Section 5.18 shall continue to
survive until sixty (60) days after the expiration of the applicable statute of
limitations (giving effect to any waiver or extension thereof). All of said
representations and warranties shall in no respect be limited or diminished by
any past or future investigation on the part of CSR or Purchasers; provided,
however, that to the extent that as a result of any such investigation prior to
the Closing, CSR or the Purchasers have actual knowledge that any representation
or warranty of the Shareholders is untrue or that any covenant or agreement made
by the Shareholders have not been performed, then the Shareholders shall not
have any liability with respect to such untrue representation or warranty or
such unperformed covenant or agreement.
10.2 Indemnifications.
(a) By the Shareholders. Each Shareholder shall indemnify,
save and hold harmless CSR and the Purchasers and their Affiliates and
Subsidiaries and each of their respective Representatives
(individually, a Shareholder Indemnified Party, and collectively, the
"Shareholder Indemnified Parties"), from and against any and all costs,
losses, Liabilities, damages, lawsuits and demands (whether or not
arising out of third-party claims), including without limitation losses
in connection with workers compensation claims, interest, penalties,
costs of mitigation, losses in connection with any Environmental Law
(including without limitation any clean-up, remedial correction or
responsive action), damages to the Environment, attorneys' fees and all
amounts paid in investigation, defense or settlement of any of the
foregoing (herein, "Damages"), incurred in connection with, arising out
of, resulting from or incident to (i) any Breach of any representation
or warranty (including, but not limited to, the representations and
warranties contained in Section 5.10) made by the Shareholder in this
Agreement; (ii) any Breach of any covenant or agreement made by the
Shareholder in this Agreement or any certificate delivered by the
Shareholder at the Closing; or (iii) the negligent performance of any
services to clients or customers by the Subject Company of which the
Shareholder is a shareholder or member prior to the Closing.
The term "Damages" as used in this Section 10.2 is not limited
to matters asserted by third parties against any indemnified Party, but includes
Damages incurred or sustained by an indemnified Party in the absence of third
party claims. Payments by any indemnified Party of amounts for which such
indemnified Party is indemnified hereunder shall not be a condition precedent to
recovery. The rights and remedies provided in this Article X shall be exclusive
as to any Damages incurred by a party under this Agreement; provided, however,
that nothing herein shall preclude a party from exercising its rights under this
Agreement and applicable law to such equitable remedies, including without
limitation specific performance and injunctions.
(b) By Purchasers and CSR. Purchasers shall indemnify, save
and hold harmless the Shareholders, the Sellers and their respective
Affiliates and Representatives (the "Purchaser Indemnified Parties")
from and against any and all Damages incurred in connection with,
arising out of, resulting from or incident to (i) any Breach of any
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representation or warranty made by CSR and the Purchasers in this
Agreement; or (ii) any Breach of any covenant or agreement made by CSR
and/or the Purchasers in this Agreement.
(c) Cooperation. The indemnified party shall cooperate in all
reasonable respects with the indemnifying party and its Representatives
(including without limitation their attorneys) in the investigation,
trial and defense of such lawsuit or action and any appeal arising
therefrom; provided, however, that the indemnified party may, at its
own cost, participate in negotiations, arbitrations and the
investigation, trial and defense of such lawsuit or action and any
appeal arising therefrom. The parties shall cooperate with each other
in any notifications to insurers.
(d) Defense of Claims. If a claim for Damages (a "Claim") is
to be made by an indemnified party hereunder against the indemnifying
party, the indemnified party shall give written notice (a "Claim
Notice") to the indemnifying party as soon as practicable after the
indemnified party becomes aware of any fact, condition or event which
may give rise to Damages for which indemnification may be sought under
this Section 10.2. If any lawsuit or enforcement action is filed
against an indemnified party, written notice thereof shall be given to
the indemnifying party as promptly as practicable (and in any event
within fifteen (15) calendar days after the service of the citation or
summons). The failure of any indemnified party to give timely notice
hereunder shall not affect rights to indemnification hereunder, except
to the extent that the indemnifying party has been damaged by such
failure. After such notice, if the indemnifying party shall acknowledge
in writing to the indemnified party that the indemnifying party shall
be obligated under the terms of their indemnity hereunder in connection
with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at the indemnifying party's own cost, risk
and expense, (i) to take control of the defense and investigation of
such lawsuit or action, (ii) to employ and engage attorneys of its own
choice, but, in any event, reasonably acceptable to the indemnified
party, to handle and defend the same unless the named parties to such
action or proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and the indemnified party
has been advised in writing by counsel that there may be one or more
legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in
which event the indemnified party shall be entitled, at the
indemnifying party's cost, risk and expense, to separate counsel of its
own choosing and (iii) to compromise or settle such lawsuit or action,
which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably
withheld.
If the indemnifying party fails to assume the defense of such
lawsuit or action within fifteen (15) calendar days after receipt of the Claim
Notice, the indemnified party against which such lawsuit or action has been
asserted will (upon delivering notice to such effect to the indemnifying party)
have the right to undertake, at the indemnifying party's cost and expense, the
defense, compromise or settlement of such lawsuit or action on behalf of and for
the account and risk of the indemnifying party; provided, however, that such
lawsuit or action shall not be compromised or
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settled without the written consent of the indemnifying party which consent
shall not be unreasonably withheld. If the indemnified party settles or
compromises such lawsuit or action without the prior written consent of the
indemnifying party, the indemnifying party will bear no liability hereunder for
or with respect to such lawsuit or action. In the event the indemnified party
assumes the defense of the lawsuit or action, the indemnified party will keep
the indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 10.2 and for any final judgment (subject to any right of appeal) and the
indemnifying party agrees to indemnify and hold harmless an indemnified party
from and against any Damages by reason of such settlement or Judgment.
(e) Representatives. No individual Representative of any party
shall be personally liable for any Damages under the provisions
contained in this Section 10.2 (except to the extent any such Person is
party hereto in his or her individual capacity). Nothing herein shall
relieve either party of any Liability to make any payment expressly
required to be made by such party pursuant to this Agreement.
(f) Limitation on Indemnity/Commitments.
(i) The indemnification obligation of the
Shareholders and of the Purchasers and CSR with respect to any
Breach of any representation or warranty pursuant to Section
10.2(a)(i) or (b)(i) and of the Shareholders with respect to
Damages arising under Section 10.2(a)(iii) shall be limited to
Claims for Damages made prior to the last date of survival
thereof referred to in Section 10.1. The indemnification
obligation of the Shareholders and the Purchasers and CSR with
respect to any Breach of any covenant or agreement pursuant to
Section 10.2(a)(ii) or (b)(ii) shall survive indefinitely
subject to the terms of this Agreement.
(ii) The Shareholder Indemnified Parties may not recover
Damages from the Shareholders pursuant to Section 10.2(a)(i)
or 10.3(a)(iii) until the aggregate amount of Damages relating
to such Claims for which the Shareholder Indemnified Parties,
in the aggregate, are entitled to indemnification under
Section 10.2(a)(i) or 10.3(a)(iii) exceeds Two Hundred
Thousand Dollars ($200,000) (the "Threshold"); provided,
however, in the event that the aggregate amount of Damages for
which the Shareholder Indemnified Parties are seeking
indemnification under Section 10.2(a)(i) or 10.3(a)(iii)
exceeds such amount, the Shareholder Indemnified Parties may
recover the amount of such Damages in excess of One Hundred
Thousand Dollars ($100,000); provided, further, however, that
for Claims Notices given prior to the first anniversary of the
Closing Date the maximum aggregate amount of such Damages for
which the Shareholders shall be liable pursuant to Section
10.2(a)(i) and 10.3(a)(iii) shall not exceed Five Million
Dollars $5,000,000) and, that, for Claims Notices given on or
after the first anniversary of the Closing Date, the maximum
aggregate amount of such Damages for which the Shareholders
shall be liable
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pursuant to Section 10.2(a)(i) and 10.3 (a)(iii) shall not
exceed Four Million Dollars ($4,000,000). The Shareholder
Indemnified Parties shall have the right to make a Claim
hereunder prior to the time at which the Threshold that is
applicable to such Claim has been surpassed for the purpose of
asserting such Claim within the relevant survival period of
the applicable indemnification obligation and any such Claim
made within such period shall, to the extent such Threshold
ultimately is met, survive until its final resolution.
(iii) The Threshold and maximum damages limitations
in Section 10.2(e)(ii) shall not apply to Damages incurred in
connection with, arising out of or resulting from any Breach
of any representation or warranty made by the Shareholders in
Section 5.3.
(iv) The Purchaser Indemnified Parties may not
recover Damages from CSR or the Purchasers pursuant to Section
10.2(b)(i) until the aggregate amount of Damages for which the
Purchaser Indemnified Parties, in the aggregate, are entitled
to indemnification exceeds the Threshold; provided, however,
in the event that the aggregate amount of Damages for which
the Purchaser Indemnified Parties are seeking indemnification
under Section 10.2(b)(i) exceeds such amount, the Purchaser
Indemnified Parties may recover the amount of such Damages in
excess of One Hundred Thousand Dollars ($100,000); provided,
further, however, that for claims notices given prior to the
first anniversary of the Closing Date the maximum aggregate
amount of Damages for which CSR and the Purchasers shall be
liable pursuant to Section 10.2(b)(i) shall not exceed Five
Million Dollars ($5,000,000) and, that, for Claims Notices
given on or after the first anniversary of the Closing Date
the maximum aggregate of such Damages for which CSR and the
Purchasers shall be liable pursuant to Section 10.2(b)(i)
shall not exceed Four Million Dollars ($4,000,000). The
Purchaser Indemnified Parties shall have the right to make a
Claim hereunder prior to the time at which the Threshold that
is applicable to such Claim has been surpassed for the purpose
of asserting such Claim within the relevant survival period of
the applicable indemnification obligation and any such Claim
made within such period shall, to the extent such Threshold
ultimately is met, survive until its final resolution.
(v) Neither (a) the termination of the
representations or warranties contained herein, nor (b) the
expiration of the indemnification obligations described above,
will affect the rights of an indemnified party in respect of
any Claim made by such indemnified party received by the
indemnifying party prior to the expiration of the applicable
survival period provided herein.
10.3 Tax.
(a) Tax Indemnification.
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(i) With Respect to each of the Asset Sellers. The
Shareholders of each Asset Seller shall be responsible for and
pay and shall jointly and severally indemnify and hold
harmless CSR and the Purchasers from and against all Taxes
imposed on the Asset Seller or for which the Asset Seller is
liable, with respect to all periods ending on or after the
Closing Date.
(ii) With respect to CMS/TemPro Resources of
Indianapolis, Inc. ("CMS/TemPro INDY"). Except for Taxes that
are reserved for on the Closing Balance Sheet, the Stock
Sellers shall be responsible for and pay and shall jointly and
severally indemnify and hold harmless CSR and the Purchasers
and CSM/TemPro INDY (and each of their respective affiliates,
successors and assigns) from and against (i) all Taxes imposed
on CMS/TemPro INDY, or for which CMS/TemPro INDY is liable,
with respect to any period beginning before the Closing
Balance Sheet Date and ending on or after the Closing Balance
Sheet Date but only with respect to the portion of such period
up to and including the Closing Balance Sheet Date (such
portion, a "Pre-Closing Partial Period"), (ii) any costs or
expenses (other than the time of employees of CMS/TemPro INDY
and advisory fees and facilitating fees associated with a
federal income tax audit of a Tax Return for a Pre-Closing
Partial Period) with respect to the Taxes indemnified under
this Section 10.3(a)(ii) and (iii) advisory fees and
facilitating fees with respect to a federal income tax audit
for a Pre-Closing Partial Period. For purposes of this Section
10.3(a)(ii), Taxes shall include the amount of Taxes which
would have been paid but for the application of any credit or
net operating or capital loss deduction attributable to any
period (or portion thereof) beginning on the Closing Balance
Sheet Date and ending after the Closing Balance Sheet Date,
but shall not include amounts which would have been paid but
for the application of any credit or net operating or capital
loss deductions attributable to any period (or portion
thereof) ending on or before the Closing Date.
(b) Refunds. The Purchasers agree to assign and promptly remit
(and to cause CMS/TemPro INDY to assign and promptly remit) all refunds
(including interest thereon) net of any Tax effect to the Purchasers or
CMS/TemPro INDY received by the Purchasers or CMS/TemPro INDY of any
Taxes for which the Stock Sellers have indemnified the Purchasers or
CMS/TemPro INDY hereunder; provided, however, that the Purchasers shall
be entitled to the portion of any refund resulting from a carryback
(including carrybacks to periods ending on or prior to the Closing
Balance Sheet Date) of a net operating loss, net capital loss, Tax
credit or similar item sustained or arising in any period ending after
the Closing Balance Sheet Date or in any Post-Closing Partial Period.
(c) Asset Sellers' Tax Returns. The Shareholders of each Asset
Seller shall prepare or cause to be prepared, and timely file, or cause
to be filed, all Tax Returns of the Asset Seller for all taxable
periods of the Asset Seller ending on or after the Closing Date and
shall pay or cause to be paid all taxes due with respect to such Tax
Returns.
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(d) Other Matters. The Purchasers shall promptly notify the
Shareholders in writing upon receipt by the Purchasers or any Affiliate
of the Purchasers of notice of (i) any pending or threatened federal,
state, local or foreign Tax audits or assessments of any Subject
Company and (ii) any pending or threatened federal, state, local or
foreign Tax audits or assessments of the Purchasers or any Affiliate of
the Purchasers which may affect the Tax Liabilities of any Subject
Company with respect to any period ending on or before the Closing
Balance Sheet Date, or any Pre-Closing Partial Period. The Shareholders
shall promptly notify the Purchaser in writing upon receipt by the
Shareholders or any affiliate of the Shareholders of notice of any
pending or threatened federal, state, local or foreign Tax audits or
assessments relating to the income, properties or operations of any
Subject Company.
CSR, the Purchasers and the Stock Sellers shall cooperate with
each other in the conduct of any audit or other proceedings involving CSM/TemPro
INDY for periods beginning before the Closing Date and each may participate at
its own expense, provided that the Stock Sellers shall have the right to control
the conduct of any such audit or proceeding for which the Stock Sellers (i)
agree that any resulting Tax is covered by the indemnity provided in Section
10.2(a)(i) or 10.3(a)(ii) of this Agreement and (ii) demonstrate to the
Purchasers their ability to make such indemnity payment. Notwithstanding the
foregoing, neither CSR, the Purchasers nor the Stock Sellers may settle or
otherwise resolve any such claim, suit or proceeding without the consent of the
other party, such consent not to be unreasonably withheld.
After the Closing Date, the Purchasers and the Shareholders
shall make available to the other, as reasonably requested, all information,
records or documents relating to Tax liabilities or potential Tax liabilities of
any Subject Company and shall preserve all such information, records and
documents until the expiration of any applicable statute of limitations,
including extensions thereof, or such other period as required by law. The
Purchasers and the Shareholders shall also make available to each other as
reasonably requested by the Purchasers or the Shareholders, as the case may be,
personnel responsible for preparing or maintaining information, records and
documents, in connection with Tax matters. In case at any time after the Closing
Date any further action is necessary to carry out the purposes of this
Agreement, the parties hereto shall take all such necessary action.
All sales, value added, use, state or local transfer and gains
Taxes, registration, stamp and similar Taxes imposed in connection with the
Transactions shall be borne by the Purchasers.
Any payments made to the Shareholders, any Subject Company or
CSR and the Purchasers pursuant to this Article X or pursuant to the terms of
the letter agreement referred to in Section 7.9 hereof shall constitute an
adjustment of the Consideration for Tax purposes and shall be treated as such by
the Purchasers and the Sellers on their Tax Returns to the extent permitted by
law.
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All Tax sharing or similar agreements, if any, to which any
Subject Company is a party will be canceled at or prior to the Closing and
neither the Purchasers nor any Subject Company shall have any obligation under
any such agreement.
The indemnity obligations and other responsibilities of each
Shareholder in this Section 10.3 shall apply only with respect to a Subject
Company of which the Shareholder is a shareholder or member.
ARTICLE XI
TERMINATION
11.1 Termination Events.
This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by the Sellers, on the one hand, or by CSR and the
Purchasers on the other hand, if a Breach of any provision of this
Agreement having a Material Adverse Effect or representing a Material
Adverse Change has been committed by the other party or its Affiliates
and such Breach has not been expressly waived in writing;
(b) (i) by the Purchasers and CSR if any of the conditions in
Article VIII has not been satisfied as of the Closing or if
satisfaction of such a condition is or becomes impossible (other than
through the failure of CSR or the Purchasers to comply with their
respective obligations under this Agreement) and the Purchasers have
not expressly waived such condition in writing on or before the
Closing; or (ii) by the Sellers, if any of the conditions in Article IX
has not been satisfied as of the Closing or if satisfaction of such a
condition is or becomes impossible (other than through the failure of
the Sellers or the Subject Companies to comply with its obligations
under this Agreement) and the Sellers have not expressly waived such
condition in writing on or before the Closing;
(c) by mutual consent of CSR, the Purchasers and the Sellers;
or
(d) by either CSR and the Purchasers or the Sellers if the
Closing has not occurred (other than through the failure of any party
seeking to terminate this Agreement to comply fully with its
obligations under this Agreement) on or before May 1, 1998 (the
"Closing Date"), or such later date as the Parties may agree upon.
11.2 Effect of Termination.
Each party's right of termination under Section 11.1 is in
addition to any other rights it may have under this Agreement or otherwise, and
the exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to Section 11.1, all further
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obligations of the Parties under this Agreement will terminate, except that the
obligations in Sections 12.6, 12.9 and 12.10 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of this
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
ARTICLE XII
MISCELLANEOUS
12.1 Assignment. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by any party without the prior written
consent of the other party; provided, however, that any Asset Seller may assign
its rights and obligations under this Agreement including the rights and
obligations with respect to the Notes and the Contingent Amounts to its
Shareholders in connection with any liquidation of the Asset Sellers. Subject to
the foregoing, this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
12.2 Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by telecopy, electronic or
digital transmission method; the day after it is sent, if sent for next day
delivery to a domestic address by recognized overnight delivery service (e.g.,
Federal Express); and upon receipt, if sent by certified or registered mail,
return receipt requested. In each case notice shall be sent to:
If to CSR or the Purchasers, addressed to CSR at:
William W. Wilkinson
Corporate Staffing Resources, Inc.
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, IN 46601
Telephone: (219) 233-8209
Telecopy: (219) 280-2661
with a copy to:
Philip L. Carson, Esq.
Miller Carson Boxberger & Murphy LLP
1400 One Summit Square
Fort Wayne, IN 46802-3173
Telephone: (219) 423-9411
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Telecopy: (219) 423-4329
If to CMS Management Services Co. or TemPro Resources, Inc.,
addressed to each of its Shareholders, Patrick B. Laake,
Joseph A. Noto, Joseph R. Pozsgai, Jr. and Donald E. Zerfas,
at their respective notice addresses provided herein.
If to CSM/TemPro Resources of Indianapolis, Inc. or CMS
Services, Inc., addressed to each of its Shareholders, Richard
G. Halstead, Joseph A. Noto, Joseph R. Pozsgai, Jr. and Donald
E. Zerfas, at their respective notice addresses provided
herein.
If to CSM/TemPro Resources of Nashville, LLC, to each of its
members, C. Rick Bellar, Joseph A. Noto, Patrick B. Laake,
Joseph R. Pozsgai, Jr. and Donald E. Zerfas, at their
respective notice addresses provided herein.
If to Patrick B. Laake, addressed to him at:
51621 Old Mill Road
South Bend, IN 46637
If to Joseph A. Noto, addressed to him at:
52000 Juniper Road
South Bend, IN 46617
If to Joseph R. Pozsgai, Jr., addressed to him at:
52004 Fall Creek Dr.
Granger, IN 46530
If to Donald E. Zerfas, addressed to him at
12131 Timberline Trace North
Granger, IN 46530
If to Richard G. Halstead, addressed to him at:
6458 Bramford Ct.
Indianapolis, IN 46256
If to C. Rick Bellar, addressed to him at:
1107 Temple Ridge Ct.
Nashville, TN 37221
With a copy in the case of each notice to a Subject Company or
a Shareholder to.:
Nelson J. Vogel, Jr.
Barnes & Thornburg
600 1st Source Bank Center
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100 North Michigan
South Bend, IN 46601
Telephone: (219) 233-1171
Telecopy: (219) 237-1125
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
12.3 Choice of Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Indiana (without giving
effect to its choice of law principles), except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or the subject of this Agreement, and as to those matters the law of
the jurisdiction under which the respective entity derives its powers shall
govern.
12.4 Entire Agreement: Amendments and Waivers. This Agreement,
together with all exhibits and schedules hereto (including the Disclosure
Schedule) and the other agreements referred to herein, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. This Agreement may not be amended
except in an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement shall
be binding unless executed in writing by the party to be bound thereby. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.
12.5 Multiple Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.6 Expenses. Each party to this Agreement will bear its
respective expenses incurred in connection with the preparation, execution and
performance of this Agreement and the Transactions (it being understood that in
the event of termination of this Agreement, the obligation of each party to pay
its own expenses will be subject to any rights of such party arising from a
breach of this Agreement by the other party).
12.7 Invalidity. In the event that any one or more of the
provisions contained in this Agreement or in any other instrument referred to
herein, shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
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12.8 Titles. The titles, captions or headings of the Articles
and Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
12.9 Publicity. Except as required by law, none of CSR, the
Purchasers, the Subject Companies nor the Shareholders shall issue any press
release or make any public statement regarding this Agreement and the
Transactions, without prior written approval of the other parties; provided,
however, that in the case of announcements, statements, acknowledgments or
revelations which either party is required by law to make, issue or release, the
making, issuing or releasing of any such announcement, statement, acknowledgment
or revelation by the party so required to do so by law shall not constitute a
breach of this Agreement if such party shall have given, to the extent
reasonably possible, not less than two (2) calendar days prior notice to the
other party, and shall have attempted, to the extent reasonably possible, to
clear such announcement, statement, acknowledgment or revelation with the other
party. Each party hereto agrees that it will not unreasonably withhold any such
consent or clearance.
12.10 Confidential Information.
(a) No Disclosure. The parties acknowledge that the
Transactions described herein are of a confidential nature and shall
not be disclosed except to consultants, advisors and Affiliates or as
required by law, without the prior written consent of the parties.
(b) Preservation of Confidentiality. In connection with the
negotiation of this Agreement, the preparation for the consummation of
the Transactions, and the performance of obligations hereunder, CSR and
the Purchasers acknowledges that they will have access to confidential
and proprietary information relating to the Subject Companies and the
Sellers acknowledge that they will have access to confidential
information relating to CSR and its Affiliates, in each case, including
technical or marketing information, ideas, methods, developments,
inventions, improvements, business plans, trade secrets, scientific or
statistical data, diagrams, drawings, specifications or other
proprietary information relating thereto, together with all analyses,
compilations, studies or other documents, records or data prepared by
the Sellers and the Subject Companies or CSR, as the case may be, or
their respective Representatives or Affiliates, which contain or
otherwise reflect or are generated from such information ("Confidential
Information"). The term "Confidential Information" does not include
information received by one party in connection with the Transactions
which (i) is or becomes generally available to the public other than as
a result of a disclosure by such party or its Representatives, (ii) was
within such party's possession prior to its being furnished to such
party by or on behalf of the other party in connection with the
Transactions, provided that the source of such information was not
known by such party to be bound by a confidentiality agreement with or
other contractual, legal or fiduciary obligation of confidentiality to
the other party or any other Person with respect to such information or
(iii) becomes available to such party on a non-confidential basis from
a source other than the other party or any of their respective
Representatives, provided that such source is not bound
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by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the other party or any other
Person with respect to such information.
(c) Each party shall treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and
not disclose any such Confidential Information, except to its
Representatives and Affiliates who need to know such Confidential
Information in connection with the Transactions. Each party shall use
all reasonable efforts to cause its Representatives to treat all such
Confidential Information of the other party as confidential, preserve
the confidentiality thereof and not disclose any such Confidential
Information. Each party shall be responsible for any breach of this
Agreement by any of its Representatives. If, however, Confidential
Information is disclosed, the party responsible for such disclosure
shall immediately notify the other party in writing and take all
reasonable steps required to prevent further disclosure.
(d) Until the Closing or the termination of this Agreement,
all Confidential Information shall remain the property of the party who
originally possessed such information. In the event of the termination
of this Agreement for any reason whatsoever, each party shall, and
shall cause its Representatives to, return to the other party all
Confidential Information (including all copies, summaries and extracts
thereof) furnished to such party by the other party in connection with
the Transactions.
(e) If one party or any of its Representatives or Affiliates
is requested or required (by oral questions, interrogatories, requests
for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) or is required by
operation of law to disclose any Confidential Information, such party
shall provide the other party with prompt written notice of such
request or requirement, which notice shall, if practicable, be at least
forty-eight (48) hours prior to making such disclosure, so that the
other party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in
the absence of a protective order or other remedy or the receipt of
such a waiver, such party or any of its Representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Confidential Information, then such party may disclose that portion of
the Confidential Information which such counsel advises is legally
required to be disclosed, provided that such party uses its reasonable
efforts to preserve the confidentiality of the Confidential
Information, whereupon such disclosure shall not constitute a breach of
this Agreement.
(f) In the event of the termination of this Agreement for any
reason whatsoever, each of CSR and the Purchasers jointly and severally
covenant and agree for the benefit of each of the Subject Companies and
the Shareholders that during the 12 month period following the date of
this Agreement, neither CSR, the Purchasers, nor any of their
Affiliates will solicit, entice, persuade or induce, directly or
indirectly, any internal staff (non-billable) employee of any of the
Subject Companies to terminate their employment by or with a Subject
Company or to refrain from extending or renewing the same (upon the
same or new
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terms) or to refrain from rendering services to or for a Subject
Company or to become employed by or enter into contractual relations
with any persons other than a Subject Company or to enter into a
relationship with a competitor of any Subject Company, approach any
such internal staff employee for any of the foregoing purposes, or
authorize or knowingly approve or assist in the taking of any such
actions by any person.
12.11 Burden and Benefit. This Agreement shall be binding upon
and shall inure to the benefit of, the parties hereto and their respective
successors and permitted assigns. There are no third party beneficiaries of this
Agreement; provided, however, that any Person that is not a party to this
Agreement but, by the terms of Section 10.2, is entitled to indemnification,
shall be considered a third party beneficiary of this Agreement, with full
rights of enforcement as though such Person was a signatory to this Agreement.
12.12 Service of Process; Consent to Jurisdiction.
(a) Services of Process. Each of the parties hereto
irrevocably consents to the service of any process, pleading, notices
or other papers by the mailing of copies thereof by registered,
certified or first class mail, postage prepaid, to such party at such
party's address set forth herein, or by any other method provided or
permitted under Indiana law.
(b) Consent and Jurisdiction. Each party hereto irrevocably
and unconditionally (i) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in the United
States District Court for the Northern District of Indiana or, if such
court does not have jurisdiction or will not accept jurisdiction, in
any court of general jurisdiction in the County of St. Joseph, Indiana;
(ii) consents to the jurisdiction of any such court in any such suit,
action or proceeding; and (iii) waives any objection which such party
may have to the laying of venue of any such suit, action or proceeding
in any such court.
12.13. Attorneys' Fees. If any party to this Agreement brings
an action to enforce its rights under this Agreement, the prevailing party shall
be entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
12.14 Limitation of Liability. Notwithstanding anything to the
contrary in this Agreement, in no event shall any party hereto be liable for any
incidental or consequential damages occasioned by any failure to perform or the
breach of any obligation under this Agreement.
12.15 Additional Survival. In addition to the survival of
representations and warranties and other provisions referenced in Section 10.1
of this Agreement, which shall survive pursuant to the terms of such Section,
the obligations of the parties contained in Sections 2.1, 2.2, 2.3, 2.6, 4.2,
4.3, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 12.6, 12.9 and 12.10 and in Article
III and Article X of this Agreement shall survive the Closing Date indefinitely.
73
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have executed, or have
caused this Agreement to be duly executed on their respective behalf by their
respective officers thereunto duly authorized, all as of the day and year first
above written.
<TABLE>
<S> <C>
Corporate Staffing Resources of Indiana, Inc. Corporate Staffing Resources, Inc.
Inc.
/s/ William W. Wilkinson /s/ William W. Wilkinson
- --------------------------------------------- ---------------------------------------------
By: William W. Wilkinson By: William W. Wilkinson
Its: Chairman and Chief Executive Officer Its: Chairman & Chief Executive Officer
CMS Management Services, Co. CMS Management Services LLC
/s/ Joseph A. Noto /s/ William W. Wilkinson
- --------------------------------------------- ---------------------------------------------
By: Joseph A. Noto By: William W. Wilkinson
Its: President Its: Chairman and CEO of its Managing
Member
/s/ Joseph A. Noto
TemPro Resources, Inc. ---------------------------------------------
/s/ Joseph A. Noto Joseph A. Noto
- --------------------------------------------- /s/ Joseph R. Pozsgai
By: Joseph A. Noto ---------------------------------------------
Its: President Joseph R. Pozsgai, Jr.
/s/ Donald E. Zerfas
---------------------------------------------
CMS Services, Inc. Donald E. Zerfas
/s/ Joseph A. Noto /s/ Patrick B. Laake
- --------------------------------------------- ---------------------------------------------
By: Joseph A. Noto Patrick B. Laake
Its: Vice President /s/ Richard G. Halstead
---------------------------------------------
Richard G. Halstead
CMS/TemPro Resources of Indianapolis, /s/ C. Rick Bellar
Inc. ---------------------------------------------
/s/ Richard G. Halstead C. Rick Bellar
- ---------------------------------------------
By: Richard G. Halstead
Its: President
CMS/TemPro Resources of Nashville, LLC
/s/ C. Rick Bellar
- ---------------------------------------------
By: C. Rick Bellar
Its: President
</TABLE>
74
<PAGE> 1
Exhibit 10.01
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective May 1, 1998 (the "Effective Date"), by and between CORPORATE STAFFING
RESOURCES, INC., a Delaware corporation (hereinafter referred to as "the
Company") and WILLIAM W. WILKINSON (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Company under the terms
of an Employment Agreement dated December 3, 1997 (the "1997 Agreement"); and
WHEREAS, the Company and the Employee desire to amend and restate the
terms of the Employee's employment with the Company as hereinafter provided in
substitution for the 1997 Agreement; and
WHEREAS, in the course of building the business of the Company and its
Affiliates (as defined in Section 7 hereof), and in his capacity as an officer
thereof, Employee will gain knowledge of the business, affairs, customers and
methods of the Company and its Affiliates, will have access to lists of the
Company's and its Affiliates' customers and their needs, and will become
personally known to and acquainted with the Company's and its Affiliates'
customers, thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on the
Effective Date and terminate on December 31, 2002, unless sooner terminated as
hereinafter provided.
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as its Chief Executive
Officer and shall have such authority and shall perform such duties
consistent with his position as may be reasonably assigned to him and
shall report to the Board of Directors (the "Board of Directors") of
the Company or any
<PAGE> 2
other person designated by the Board of Directors; provided, however,
that without the approval of the Board of Directors, Employee may not,
on behalf of the Company, (A) enter into employment arrangements for
the Company's employees for any fixed term or duration, (B) borrow
funds or make material capital expenditures or commitments, (C) sell
common stock or any other security of the Company or acquire or sell
any subsidiary of the Company, (D) alter or adopt any employee benefit
plans, or (E) adopt or maintain any employee policy or program
different from those of the Company on the Effective Date to the extent
the Employee is knowledgeable with respect to such policy or program.
The Company shall retain full direction and control of the means and
methods by which the Employee performs the above services. Employee
shall use all reasonable efforts to further the interests of the
Company and shall devote substantially all of his business time and
attention to his duties hereunder.
(b) Except with the prior written approval of the Board of Directors
(which the Board of Directors may grant or withhold in their sole
discretion), Employee, during the term of this Agreement or any renewal
thereof, will not (i) accept any other employment, (ii) serve on the
board of directors or similar body of any other business entity, or
(iii) engage, directly or indirectly, in any other business activity
(whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to,
that of the Company or any of its Affiliates.
(c) Employee shall be entitled to be reimbursed in accordance with the
policies of the Company, as adopted and amended from time to time, for
all reasonable and necessary expenses incurred by him in connection
with the performance of his duties of employment hereunder; provided
Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY AND OTHER COMPENSATION.
(a) Base Salary. The Company shall pay to Employee a base
salary at the rate of $200,000 per annum (the "Base Salary") through
the term of this Agreement as specified in
2
<PAGE> 3
Section 1 hereof, or any renewal thereof, payable semi-monthly on the
15th and the last day of the month as per the normal pay practices of
the Company (e.g., standard employee deductions such as income tax
withholdings, social security, etc.). The Base Salary shall be reviewed
in connection with Employee's annual performance review and may be
increased in the sole discretion of the Board of Directors.
(b) Incentive Compensation. In addition to the Base Salary,
Employee shall be entitled during the term of this Agreement to
participate in an incentive compensation plan described on Schedule
3(b) developed for Employee (or for Employee and other similarly
situated individuals within the Company), subject to meeting the
requirements set forth in such plan for benefits. The incentive
compensation plan applicable to Employee for calendar year 1998 will be
determined following final approval of the Company's 1998 budget.
4. BENEFITS.
(a) Employee shall be entitled to participate in any employee
benefit plans maintained by the Company for its full time employees.
The Company shall pay or reimburse Employee for one-half (1/2) of the
cost of health insurance for Employee and his dependents. Employee
shall be entitled to four (4) weeks vacation per annum and such
holidays as the Company may establish as Company policy. Nothing
herein, however, is intended or shall be construed to require the
Company to institute or continue all, or any particular, plan or
benefits.
(b) The Company shall provide Employee with an automobile for
business use pursuant to the Company's automobile policy for officers
described on schedule 4(b) and shall pay or reimburse Employee for
automobile expenses actually incurred. Employee shall provide the
Company with records regarding automobile usage in accordance with the
Company's reporting policy.
5. TERMINATION OF AGREEMENT.
(a) Employee's employment hereunder shall or may be
terminated, as the case may be, under the following circumstances:
3
<PAGE> 4
(i) the Company may terminate Employee's employment
hereunder for "cause" by delivery of a written notice to
Employee concerning the same. "Cause" shall mean by reason of
any of the following: (A) Employee's conviction of, or plea of
nolo contendere to, any felony or to any crime or offense
causing substantial harm to the Company or any of its
Affiliates (whether or not for personal gain) or involving
acts of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee's violation of the Company's substance
abuse policy, (C) willful and intentional misuse or diversion
of the Company's or any of its Affiliate's funds,
embezzlement, or fraudulent or willful and material
misrepresentations or concealments on any written reports
submitted to the Company or any of its Affiliates, (D)
material failure to perform the duties of Employee's
employment or his habitual neglect thereof, (E) material
failure to follow or comply with the reasonable and lawful
written directives of the Board of Directors of the Company,
(F) a material breach by Employee of the provisions of Section
6 of this Agreement; provided, however, that in the case of
the foregoing clauses (D), (E) and (F), Employee shall have
been informed, in writing, of such material failure referred
to in the foregoing clauses (D), (E) and (F), respectively,
and provided with a reasonable opportunity to cure such
material failure, if such failure is subject to cure;
(ii) Employee's employment hereunder shall terminate
if, because of a mental or physical disability or infirmity,
Employee is unable to perform the essential functions of such
person's duties, with or without reasonable accommodation, for
a consecutive period of one hundred twenty (120) days or a
non-consecutive period of one hundred twenty (120) days during
any twelve month period, or such other period as may be
required by applicable employment laws; or
(iii) upon the death of Employee;
(iv) the Employee hereby agrees that the Company may
dismiss him under this Section 5 by delivery from the Company
to Employee of written notice of such dismissal, without
regard (A) to any general or specific policies
4
<PAGE> 5
(whether written or oral) of the Company relating to the
employment or termination of its employees, or (B) to any
statements made to Employee, whether made orally or contained
in any document, pertaining to Employee's relationship with
the Company. Notwithstanding anything to the contrary
contained herein, including in Section 1 of this Agreement,
the Employee's employment with the Company is not for any
specified term and may be terminated by the Company at any
time, for any reason, with or without cause, without liability
except with respect to the payments provided for by Section
5(b);
(v) the Employee may voluntarily resign his position
and terminate his employment with the Company at any time by
delivery of a written notice of resignation to the Company
(the "Notice of Resignation"). The Notice of Resignation shall
set forth the date such resignation shall become effective
(the "Date of Resignation"), which date shall, in any event,
be no more than thirty (30) days from the date the Notice of
Resignation is delivered to the Company; provided the Company
shall, in its discretion and by sending written notice to
Employee, be entitled to deem the Employee's resignation
effective at any time within such thirty day period, and such
date specified by the Company shall then become the "Date of
Resignation." Notwithstanding any such action by the Company,
Employee's severance and his rights thereunder shall be set as
if the Employee voluntarily resigned; or
(vi) if not terminated sooner pursuant to Sections
5(a)(i) through 5(a)(v) above, the Employee's employment
hereunder shall terminate December 31, 2002; provided,
however, the Company and Employee may elect to extend the term
of Employee's employment pursuant to the terms of this
Agreement and/or enter into a new employment agreement.
(b) In the event of the termination of Employee's employment:
(i) pursuant to Section 5(a)(i) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after
5
<PAGE> 6
the Date of Termination, and any benefits (except as otherwise
required by applicable law)) other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.), shall
cease;
(ii) pursuant to Section 5(a)(ii) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued unpaid Base Salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease;
(iii) pursuant to Section 5(a)(iii) hereof, then as
of the Date of Termination all of the Company's obligations
hereunder (including without limitation the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid Base Salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease;
(iv) pursuant to Section 5(a)(iv) hereof, then in
such event the Company shall (a) continue to pay Employee's
Base Salary (without offset for any compensation received by
Employee from any subsequent employment by any person, other
than by an Affiliate of the Company or pursuant to a violation
of Section 6 hereof) and to provide for the continuation of
any Company health insurance benefits for which Employee would
be eligible but for such termination on the basis in effect as
of the Date of Termination, subject to the Company's right to
amend, modify or terminate any such plan, for a period of two
(2) years from the Date of
6
<PAGE> 7
Termination (provided, that such continuation shall not cause
the term of this Agreement to be extended beyond December 31,
2002), and (b) pay the earned portion, if any, of any
incentive compensation applicable to Employee through the Date
of Termination;
(v) pursuant to Section 5(a)(v) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease; and
(vi) pursuant to Section 5(a)(vi) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay the Employee's Base Salary accruing after
the Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.), shall
cease.
(c) "Date of Termination" shall mean (i) if Employee's
employment is terminated pursuant to Section 5(a)(i), the date
specified in the written notice of termination delivered to Employee by
the Company, (ii) if the Employee's employment is terminated pursuant
to Section 5(a)(ii), the date which is (A) the one hundred twentieth
(120th) consecutive day of such inability or (B) the one hundred and
twentieth (120th) day in any twelve (12) month period of such
inability, (iii) if Employee's employment is terminated pursuant to
Section 5(a)(iii), the date of his death, (iv) if Employee's employment
is terminated pursuant to Sections 5(a)(iv), the date specified in the
written notice of termination delivered to Employee by the Company, (v)
if Employee's employment is terminated pursuant to Section 5(a)(v), the
Date of Resignation, and (vi)
7
<PAGE> 8
if Employee's employment is terminated pursuant to Section 5(a)(vi),
December 31, 2002.
(d) The Employee hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the
Employee in the course of or incident to his employment, belongs to the
Company and shall be promptly returned to the Company upon termination
of the Employee's employment hereunder. "Personal Property" includes,
without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or
copies thereof (including computer files), and all other proprietary
information relating to the business of the Company. Following
termination, Employee will not retain any written or other tangible
material containing any proprietary information of the Company. Upon
termination of Employee's employment hereunder, Employee shall be
deemed to have resigned from all offices and directorships then held
with the Company or any Affiliate.
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company and its Affiliates.
Therefore, in consideration of this Agreement, Employee hereby agrees
that neither he nor his spouse nor any other member of his immediate
family that resides with him will, directly or indirectly, except for
the benefit of the Company or its Affiliates, or with the prior written
consent of the Board of Directors of the Company, which consent may be
granted or withheld at the sole discretion of the Company's Board of
Directors:
(i) during the Noncompetition Period (as hereinafter
defined) become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise,
or encourage, counsel, advise or financially assist or support
his spouse or any other member of his immediate family that
resides with him to be or become, or himself be or become
interested in or associated with any person, corporation, firm
or business engaged in a Staffing Services Business (as
hereinafter defined) in the States of Indiana,
8
<PAGE> 9
Michigan, Ohio, North Carolina, South Carolina, Tennessee and
Mississippi, and, outside such states, within a radius of
fifty (50) miles from any office, including client on-site
offices, operated during the Noncompetition Period by the
Company or any of its Affiliates (the "Territory"), or in any
Staffing Services Business directly competitive with that of
the Company or any of its Affiliates, or himself engage in
such business; provided, however, that:
(A) nothing herein shall be construed to
prohibit Employee from owning not more than five
percent (5%) of any class of securities issued by an
entity which is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended,
or which is traded over the counter; and
(B) the foregoing shall not restrict
Employee with respect to businesses, other than
Staffing Services Businesses, engaged in by the
Company or its Affiliates during the Noncompetition
Period unless Employee either is or was substantially
involved in such other businesses of the Company or
such Affiliates or had access to Confidential
Information (as hereinafter defined) with respect to
such other businesses;
(ii) during the Noncompetition Period in the
Territory, solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of himself or
third parties, from parties who are, or within the preceding
three hundred sixty (360) days were, customers of the Company
or its Affiliates, any Staffing Services Business transacted
by or with such customer by the Company or its Affiliates;
(iii) during the Noncompetition Period in the
Territory, accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of himself or for
third parties, any such Staffing Services Business from any
such customers of the Company or its Affiliates;
(iv) during the Noncompetition Period in the
Territory, solicit, cause or authorize, directly or
9
<PAGE> 10
indirectly, to be solicited for or on behalf of himself or
third parties, from parties who are, or within the preceding
three hundred sixty (360) days were, customers of the Company
or its Affiliates with whom Employee had business contacts on
behalf of the Company or any of its Affiliates, any Staffing
Services Business or any other business transacted with such
customer by the Company or its Affiliates;
(v) during the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or
used by the Company or its Affiliates relating to its business
or the operations, employees or customers of the Company or
its Affiliates which constitutes proprietary or confidential
information of the Company or its Affiliates, including
without limitation, any information contained in any customer
lists, mailing lists and sources thereof, statistical data and
compilations, patents, copyrights, trademarks, trade names,
inventions, formulae, methods, processes, agreements,
contracts, manuals or any other documents (collectively,
"Confidential Information"), but excluding any Confidential
Information which has become part of common knowledge or
understanding or publicly available in the industry or
otherwise in the public domain (other than from disclosure by
Employee in violation of this Agreement); or
(vi) during the Noncompetition Period, in the
Territory,
(A) solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who
within the preceding three hundred sixty [360] days
was an employee) of the Company or its Affiliates or
any other person who is under contract with or
rendering services to the Company or its Affiliates,
to terminate their employment by, or contractual
relationship with, such person or to refrain from
extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or
for such person or to become employed by or to enter
into contractual relations with any persons other
10
<PAGE> 11
than such person or to enter into a relationship with
a competitor of the Company or its Affiliates,
(B) approach any such employee for any of
the foregoing purposes, or
(C) authorize or knowingly approve or assist
in the taking of any such actions by any person other
than the Company or its Affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the Effective Date and
ending twenty-four months after the date Employee ceases to be an
officer or employee of the Company or any of its Affiliates for any
reason; provided, however, that if Employee's employment is terminated
pursuant to Section 5(a)(iv) hereof, the term "Noncompetition Period"
shall mean the period commencing on the Effective Date and ending on
the last date on which Employee is entitled to receive any payments
pursuant to Section 5(b)(iv) hereof. Provided further that if Employee
violates any of the provisions of subsection (a), the term of the
Noncompetition Period shall be automatically extended for a like period
of time from the date on which Employee permanently ceases such
violation or from the date of the entry by a court of competent
jurisdiction of a final order of judgment enforcing such provision,
whichever period is later.
(c) For purposes of this Agreement, the term "Staffing
Services Business" shall mean (A) a firm which recruits, trains and/or
tests employees and assigns them to clients (i) to provide staffing
help services for such client to support or supplement the client's
work force in work situations such as employee absences, temporary
skill shortages, seasonal workloads and special assignments and
projects, (ii) to provide staffing help services for such client for
short-term and long-term temporary placement and temporary to permanent
arrangements for the client to eventually hire the service provider as
its own employee, and (iii) to provide permanent individual employees
for permanent employment placement fees, or (B) any of the business
activities described in this subsection (c).
(d) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or
11
<PAGE> 12
enforceability of this Section 6 in any other respect or of any other
provisions of this Agreement. In the event that any provision of this
Section 6 shall be held invalid or unenforceable by a court of
competent jurisdiction by reason of the geographic or business scope or
the duration thereof, such invalidity or unenforceability shall attach
only to the scope or duration of such provision and shall not affect or
render invalid or unenforce able any other provision of this agreement,
and, to the fullest extent permitted by law, this Agreement shall be
construed as if the geographic or business scope or the duration of
such provision had been more narrowly drafted so as not to be invalid
or unenforceable.
(e) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary restraining order,
temporary injunction, and permanent injunction, in addition to any
remedies the Company may have at law. If either party files suit to
enforce or to enjoin the enforcement of any of the provisions of this
Section 6, the Company shall be entitled to recover, in addition to all
other damages or remedies provided for herein, all of its costs
incurred in prosecuting or defending such suit, including reasonable
attorneys' fees, if the Company prevails in such suit.
(f) The provisions of this Section 6 shall survive termination
of this Agreement.
7. FINANCIAL REPORTING. During the term of this Agreement the Company
will furnish Employee, as soon as available after the end of each monthly
accounting period, an internal consolidated financial report of the Company.
8. AFFILIATES. As used in this Agreement, "Affiliates" shall mean any
partnership, joint venture, limited liability company or corporation that,
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, the Company. The term "Control"
includes, without limitation, the possession, directly or indirectly, of the
power to direct the management and policies of a corporation, partnership, joint
venture or limited liability company, whether through the ownership of voting
securities, by contract or otherwise.
12
<PAGE> 13
9. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered, when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to Employee: William W. Wilkinson
One Michiana Square
100 E. Wayne Street, Suite 100
South Bend, IN 46601
If to the Company:Corporate Staffing Resources, Inc.
One Michiana Square
100 East Wayne Street, Suite 100
South Bend, IN 46601
Attn: Board of Directors
With a copy to: Paul D. Tosetti, Esq.
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. DIVISIBILITY OF AGREEMENT. In the event that any term, condition or
provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
11. CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
Indiana (without reference to the choice of law provisions of such State's law),
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this Agreement,
and as to those matters of the law of the jurisdiction under which the
respective entity derives its powers shall govern.
13
<PAGE> 14
12. ARBITRATION. Notwithstanding anything herein to the contrary, in
the event that there shall be a dispute among the parties arising out of or
relating to this Agreement or the breach thereof, other than Section 6, the
parties agree that such dispute shall be resolved by final and binding
arbitration in Chicago, Illinois administered by the American Arbitration
Association ("AAA"), in accordance with AAA's Commercial Arbitration Rules then
in effect. Depositions may be taken and other discovery may be obtained during
such arbitration proceedings to the same extent as authorized in civil judicial
proceedings. Any award issued as a result of such arbitration shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses of such arbitration (including reasonable attorneys' fees) or any
action to enforce an arbitration award shall be paid by the party that does not
prevail in such arbitration.
13. LIMITATION ON LIABILITIES. If Employee is awarded any damages as
compensation for any breach or action related to this Agreement, a breach of any
covenant contained in this Agreement (whether express or implied by either law
or fact), or any other cause of action based in whole or in part on any breach
of any provision of this agreement, such damages shall be limited to contractual
damages and shall exclude (i) punitive damages, and (ii) consequential and/or
incidental damages (e.g., lost profits and other indirect or speculative
damages). The maximum amount of damages that Employee may recover for any reason
shall be the amount equal to all amounts owed (but not yet paid) to Employee
pursuant to this Agreement through its natural term or through any period for
which severance is due pursuant to Section 5(b) hereof.
14. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto and all
oral or written employment agreements or arrangements between the Company (and
any of its subsidiaries) and Employee including the 1997 Agreement. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
15. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or
14
<PAGE> 15
other entity with which the Company shall merge or consolidate or to which the
Company shall lease or sell all or substantially all of its assets and may be
assigned by the Company to any Affiliate of the Company or to any corporation or
entity with which such Affiliate shall merge or consolidate or which shall lease
or acquire all or substantially all of the assets of such Affiliate; provided
that as a condition to such sale of assets or merger, the purchaser or surviving
company, as the case may be, shall have assumed the obligations of the Company
under this Agreement.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
17. EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE:
/s/ William W. Wilkinson
----------------------------------------
William W. Wilkinson
CORPORATE STAFFING RESOURCES, INC.
By /s/ Conor T. Mullett
--------------------------------------
15
<PAGE> 1
Exhibit 10.02
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective May 1, 1998 (the "Effective Date"), by and between CORPORATE STAFFING
RESOURCES, INC., a Delaware corporation (hereinafter referred to as "the
Company") and WILLIAM J. WILKINSON (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Employee has been employed by the Company under the terms
of an Employment Agreement dated December 3, 1997 (the "1997 Agreement"); and
WHEREAS, the Company and the Employee desire to amend and restate the
terms of the Employee's employment with the Company as hereinafter provided in
substitution for the 1997 Agreement; and
WHEREAS, in the course of building the business of the Company and its
Affiliates (as defined in Section 7 hereof), and in his capacity as an officer
thereof, Employee will gain knowledge of the business, affairs, customers and
methods of the Company and its Affiliates, will have access to lists of the
Company's and its Affiliates' customers and their needs, and will become
personally known to and acquainted with the Company's and its Affiliates'
customers, thereby establishing a personal relationship with such customers for
the benefit of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. TERM OF AGREEMENT. The term of this Agreement shall commence on the
Effective Date and terminate on December 31, 2002, unless sooner terminated as
hereinafter provided.
2. DUTIES AND PERFORMANCE.
(a) During the term of this Agreement, Employee shall be
employed by the Company on a full-time basis as President of the
Company's subsidiary Corporate Staffing Resources LLC and shall have
such authority and shall perform such duties consistent with his
position as may be reasonably assigned to him and shall report to the
Chief Executive Officer of the
<PAGE> 2
Company or any other person designated by the Board of Directors of the
Company (the "Board of Directors"); provided, however, that without the
approval of the Board of Directors, Employee may not, on behalf of the
Company, (A) enter into employment arrangements for the Company's
employees for any fixed term or duration, (B) borrow funds or make
material capital expenditures or commitments, (C) sell common stock or
any other security of the Company or acquire or sell any subsidiary of
the Company, (D) alter or adopt any employee benefit plans, or (E)
adopt or maintain any employee policy or program different from those
of the Company on the Effective Date to the extent the Employee is
knowledgeable with respect to such policy or program. The Company shall
retain full direction and control of the means and methods by which the
Employee performs the above services. Employee shall use all reasonable
efforts to further the interests of the Company and shall devote
substantially all of his business time and attention to his duties
hereunder.
(b) Except with the prior written approval of the Board of
Directors (which the Board of Directors may grant or withhold in their
sole discretion), Employee, during the term of this Agreement or any
renewal thereof, will not (i) accept any other employment, (ii) serve
on the board of directors or similar body of any other business entity,
or (iii) engage, directly or indirectly, in any other business activity
(whether or not pursued for pecuniary advantage) that is or may be
competitive with, or that might place him in a competing position to,
that of the Company or any of its Affiliates.
(c) Employee shall be entitled to be reimbursed in accordance
with the policies of the Company, as adopted and amended from time to
time, for all reasonable and necessary expenses incurred by him in
connection with the performance of his duties of employment hereunder;
provided Employee shall, as a condition of such reimbursement, submit
verification of the nature and amount of such expenses in accordance
with the reimbursement policies from time to time adopted by the
Company.
3. BASE SALARY AND OTHER COMPENSATION.
(a) Base Salary. The Company shall pay to Employee a base
salary at the rate of $150,000 per annum (the "Base
2
<PAGE> 3
Salary") through the term of this Agreement as specified in Section 1
hereof, or any renewal thereof, payable semi-monthly on the 15th and
the last day of the month as per the normal pay practices of the
Company (e.g., standard employee deductions such as income tax
withholdings, social security, etc.). The Base Salary shall be reviewed
in connection with Employee's annual performance review and may be
increased in the sole discretion of the Board of Directors.
(b) Incentive Compensation. In addition to the Base Salary,
Employee shall be entitled during the term of this Agreement to
participate in an incentive compensation plan described on Schedule
3(b) developed for Employee (or for Employee and other similarly
situated individuals within the Company), subject to meeting the
requirements set forth in such plan for benefits. The incentive
compensation plan applicable to Employee for calendar year 1998 will be
determined following final approval of the Company's 1998 budget.
4. BENEFITS.
(a) Employee shall be entitled to participate in any employee
benefit plans maintained by the Company for its full time employees.
The Company shall pay or reimburse Employee for one-half (1/2) of the
cost of health insurance for Employee and his dependents. Employee
shall be entitled to four (4) weeks vacation per annum and such
holidays as the Company may establish as Company policy. Nothing
herein, however, is intended or shall be construed to require the
Company to institute or continue all, or any particular, plan or
benefits.
(b) The Company shall provide Employee with an automobile for
business use pursuant to the Company's automobile policy for officers
described on schedule 4(b) and shall pay or reimburse Employee for
automobile expenses actually incurred. Employee shall provide the
Company with records regarding automobile usage in accordance with the
Company's reporting policy.
5. TERMINATION OF AGREEMENT.
(a) Employee's employment hereunder shall or may be
terminated, as the case may be, under the following circumstances:
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<PAGE> 4
(i) the Company may terminate Employee's employment
hereunder for "cause" by delivery of a written notice to
Employee concerning the same. "Cause" shall mean by reason of
any of the following: (A) Employee's conviction of, or plea of
nolo contendere to, any felony or to any crime or offense
causing substantial harm to the Company or any of its
Affiliates (whether or not for personal gain) or involving
acts of theft, fraud, embezzlement, moral turpitude or similar
conduct, (B) Employee's violation of the Company's substance
abuse policy, (C) willful and intentional misuse or diversion
of the Company's or any of its Affiliate's funds,
embezzlement, or fraudulent or willful and material
misrepresentations or concealments on any written reports
submitted to the Company or any of its Affiliates, (D)
material failure to perform the duties of Employee's
employment or his habitual neglect thereof, (E) material
failure to follow or comply with the reasonable and lawful
written directives of the Chief Executive Officer or Board of
Directors of the Company, (F) a material breach by Employee of
the provisions of Section 6 of this Agreement; provided,
however, that in the case of the foregoing clauses (D), (E)
and (F), Employee shall have been informed, in writing, of
such material failure referred to in the foregoing clauses
(D), (E) and (F), respectively, and provided with a reasonable
opportunity to cure such material failure, if such failure is
subject to cure;
(ii) Employee's employment hereunder shall terminate
if, because of a mental or physical disability or infirmity,
Employee is unable to perform the essential functions of such
person's duties, with or without reasonable accommodation, for
a consecutive period of one hundred twenty (120) days or a
non-consecutive period of one hundred twenty (120) days during
any twelve month period, or such other period as may be
required by applicable employment laws; or
(iii) upon the death of Employee;
(iv) the Employee hereby agrees that the Company may
dismiss him under this Section 5 by delivery from the
4
<PAGE> 5
Company to Employee of written notice of such dismissal,
without regard (A) to any general or specific policies
(whether written or oral) of the Company relating to the
employment or termination of its employees, or (B) to any
statements made to Employee, whether made orally or contained
in any document, pertaining to Employee's relationship with
the Company. Notwithstanding anything to the contrary
contained herein, including in Section 1 of this Agreement,
the Employee's employment with the Company is not for any
specified term and may be terminated by the Company at any
time, for any reason, with or without cause, without liability
except with respect to the payments provided for by Section
5(b);
(v) the Employee may voluntarily resign his position
and terminate his employment with the Company at any time by
delivery of a written notice of resignation to the Company
(the "Notice of Resignation"). The Notice of Resignation shall
set forth the date such resignation shall become effective
(the "Date of Resignation"), which date shall, in any event,
be no more than thirty (30) days from the date the Notice of
Resignation is delivered to the Company; provided the Company
shall, in its discretion and by sending written notice to
Employee, be entitled to deem the Employee's resignation
effective at any time within such thirty day period, and such
date specified by the Company shall then become the "Date of
Resignation." Notwithstanding any such action by the Company,
Employee's severance and his rights thereunder shall be set as
if the Employee voluntarily resigned; or
(vi) if not terminated sooner pursuant to Sections
5(a)(i) through 5(a)(v) above, the Employee's employment
hereunder shall terminate December 31, 2002; provided,
however, the Company and Employee may elect to extend the term
of Employee's employment pursuant to the terms of this
Agreement and/or enter into a new employment agreement.
(b) In the event of the termination of Employee's employment:
(i) pursuant to Section 5(a)(i) hereof, then as of
the Date of Termination all of the Company's obligations
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<PAGE> 6
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)) other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.), shall
cease;
(ii) pursuant to Section 5(a)(ii) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued unpaid Base Salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease;
(iii) pursuant to Section 5(a)(iii) hereof, then as
of the Date of Termination all of the Company's obligations
hereunder (including without limitation the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid Base Salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease;
(iv) pursuant to Section 5(a)(iv) hereof, then in
such event the Company shall (a) continue to pay Employee's
Base Salary (without offset for any compensation received by
Employee from any subsequent employment by any person, other
than by an Affiliate of the Company or pursuant to a violation
of Section 6 hereof) and to provide for the continuation of
any Company health insurance benefits for which Employee would
be eligible but for such termination on the basis in effect as
of the Date of Termination, subject to the
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<PAGE> 7
Company's right to amend, modify or terminate any such plan,
for a period of two (2) years from the Date of Termination
(provided, that such continuation shall not cause the term of
this Agreement to be extended beyond December 31, 2002), and
(b) pay the earned portion, if any, of any incentive
compensation applicable to Employee through the Date of
Termination;
(v) pursuant to Section 5(a)(v) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay Employee's Base Salary accruing after the
Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.) shall
cease; and
(vi) pursuant to Section 5(a)(vi) hereof, then as of
the Date of Termination all of the Company's obligations
hereunder (including, without limitation, the Company's
obligations to pay the Employee's Base Salary accruing after
the Date of Termination, and any benefits (except as otherwise
required by applicable law)), other than those obligations
which have accrued but remain unpaid as of the Date of
Termination (such as accrued but unpaid salary, expense
reimbursements, health insurance premiums, retirement plan
contributions, if any, vacation pay, sick pay, etc.), shall
cease.
(c) "Date of Termination" shall mean (i) if Employee's
employment is terminated pursuant to Section 5(a)(i), the date
specified in the written notice of termination delivered to Employee by
the Company, (ii) if the Employee's employment is terminated pursuant
to Section 5(a)(ii), the date which is (A) the one hundred twentieth
(120th) consecutive day of such inability or (B) the one hundred and
twentieth (120th) day in any twelve (12) month period of such
inability, (iii) if Employee's employment is terminated pursuant to
Section 5(a)(iii), the date of his death, (iv) if Employee's employment
is terminated pursuant to Sections 5(a)(iv), the date specified in the
written notice of termination delivered to Employee by
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<PAGE> 8
the Company, (v) if Employee's employment is terminated pursuant to
Section 5(a)(v), the Date of Resignation, and (vi) if Employee's
employment is terminated pursuant to Section 5(a)(vi), December 31,
2002.
(d) The Employee hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by the
Employee in the course of or incident to his employment, belongs to the
Company and shall be promptly returned to the Company upon termination
of the Employee's employment hereunder. "Personal Property" includes,
without limitation, all books, manuals, records, reports, notes,
contracts, lists, blueprints, and other documents, or materials, or
copies thereof (including computer files), and all other proprietary
information relating to the business of the Company. Following
termination, Employee will not retain any written or other tangible
material containing any proprietary information of the Company. Upon
termination of Employee's employment hereunder, Employee shall be
deemed to have resigned from all offices and directorships then held
with the Company or any Affiliate.
6. COVENANT NOT TO COMPETE; CONFIDENTIALITY.
(a) Employee acknowledges that in the course of his employment
by the Company he has and will become privy to various economic and
trade secrets and relationships of the Company and its Affiliates.
Therefore, in consideration of this Agreement, Employee hereby agrees
that neither he nor his spouse nor any other member of his immediate
family that resides with him will, directly or indirectly, except for
the benefit of the Company or its Affiliates, or with the prior written
consent of the Board of Directors of the Company, which consent may be
granted or withheld at the sole discretion of the Company's Board of
Directors:
(i) during the Noncompetition Period (as hereinafter
defined) become an officer, director, stockholder, partner,
member, manager, associate, employee, owner, agent, creditor,
independent contractor, co-venturer, consultant or otherwise,
or encourage, counsel, advise or financially assist or support
his spouse or any other member of his immediate family that
resides with him to be or become, or himself be or become
interested in or associated with any person, corporation,
8
<PAGE> 9
firm or business engaged in a Staffing Services Business (as
hereinafter defined) in the States of Indiana, Michigan, Ohio,
North Carolina, South Carolina, Tennessee and Mississippi,
and, outside such states, within a radius of fifty (50) miles
from any office, including client on-site offices, operated
during the Noncompetition Period by the Company or any of its
Affiliates (the "Territory"), or in any Staffing Services
Business directly competitive with that of the Company or any
of its Affiliates, or himself engage in such business;
provided, however, that:
(A) nothing herein shall be construed to
prohibit Employee from owning not more than five
percent (5%) of any class of securities issued by an
entity which is subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended,
or which is traded over the counter; and
(B) the foregoing shall not restrict
Employee with respect to businesses, other than
Staffing Services Businesses, engaged in by the
Company or its Affiliates during the Noncompetition
Period unless Employee either is or was substantially
involved in such other businesses of the Company or
such Affiliates or had access to Confidential
Information (as hereinafter defined) with respect to
such other businesses;
(ii) during the Noncompetition Period in the
Territory, solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of himself or
third parties, from parties who are, or within the preceding
three hundred sixty (360) days were, customers of the Company
or its Affiliates, any Staffing Services Business transacted
by or with such customer by the Company or its Affiliates;
(iii) during the Noncompetition Period in the
Territory, accept or cause or authorize, directly or
indirectly, to be accepted for or on behalf of himself or for
third parties, any such Staffing Services Business from any
such customers of the Company or its Affiliates;
9
<PAGE> 10
(iv) during the Noncompetition Period in the
Territory, solicit, cause or authorize, directly or
indirectly, to be solicited for or on behalf of himself or
third parties, from parties who are, or within the preceding
three hundred sixty (360) days were, customers of the Company
or its Affiliates with whom Employee had business contacts on
behalf of the Company or any of its Affiliates, any Staffing
Services Business or any other business transacted with such
customer by the Company or its Affiliates;
(v) during the Noncompetition Period, use, publish,
disseminate or otherwise disclose, directly or indirectly, any
information heretofore or hereafter acquired, developed or
used by the Company or its Affiliates relating to its business
or the operations, employees or customers of the Company or
its Affiliates which constitutes proprietary or confidential
information of the Company or its Affiliates, including
without limitation, any information contained in any customer
lists, mailing lists and sources thereof, statistical data and
compilations, patents, copyrights, trademarks, trade names,
inventions, formulae, methods, processes, agreements,
contracts, manuals or any other documents (collectively,
"Confidential Information"), but excluding any Confidential
Information which has become part of common knowledge or
understanding or publicly available in the industry or
otherwise in the public domain (other than from disclosure by
Employee in violation of this Agreement); or
(vi) during the Noncompetition Period, in the
Territory,
(A) solicit, entice, persuade or induce,
directly or indirectly, any employee (or person who
within the preceding three hundred sixty [360] days
was an employee) of the Company or its Affiliates or
any other person who is under contract with or
rendering services to the Company or its Affiliates,
to terminate their employment by, or contractual
relationship with, such person or to refrain from
extending or renewing the same (upon the same or new
terms) or to refrain from rendering services to or
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<PAGE> 11
for such person or to become employed by or to enter
into contractual relations with any persons other
than such person or to enter into a relationship with
a competitor of the Company or its Affiliates,
(B) approach any such employee for any of
the foregoing purposes, or
(C) authorize or knowingly approve or assist
in the taking of any such actions by any person other
than the Company or its Affiliates.
(b) For purposes of this Agreement, the term "Noncompetition
Period" shall mean the period commencing on the Effective Date and
ending twenty-four months after the date Employee ceases to be an
officer or employee of the Company or any of its Affiliates for any
reason; provided, however, that if Employee's employment is terminated
pursuant to Section 5(a)(iv) hereof, the term "Noncompetition Period"
shall mean the period commencing on the Effective Date and ending on
the last date on which Employee is entitled to receive any payments
pursuant to Section 5(b)(iv) hereof. Provided further that if Employee
violates any of the provisions of subsection (a), the term of the
Noncompetition Period shall be automatically extended for a like period
of time from the date on which Employee permanently ceases such
violation or from the date of the entry by a court of competent
jurisdiction of a final order of judgment enforcing such provision,
whichever period is later.
(c) For purposes of this Agreement, the term "Staffing
Services Business" shall mean (A) a firm which recruits, trains and/or
tests employees and assigns them to clients (i) to provide staffing
help services for such client to support or supplement the client's
work force in work situations such as employee absences, temporary
skill shortages, seasonal workloads and special assignments and
projects, (ii) to provide staffing help services for such client for
short-term and long-term temporary placement and temporary to permanent
arrangements for the client to eventually hire the service provider as
its own employee, and (iii) to provide permanent individual employees
for permanent employment placement fees, or (B) any of the business
activities described in this subsection (c).
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<PAGE> 12
(d) The invalidity or non-enforceability of this Section 6 in
any respect shall not affect the validity or enforceability of this
Section 6 in any other respect or of any other provisions of this
Agreement. In the event that any provision of this Section 6 shall be
held invalid or unenforceable by a court of competent jurisdiction by
reason of the geographic or business scope or the duration thereof,
such invalidity or unenforceability shall attach only to the scope or
duration of such provision and shall not affect or render invalid or
unenforce able any other provision of this agreement, and, to the
fullest extent permitted by law, this Agreement shall be construed as
if the geographic or business scope or the duration of such provision
had been more narrowly drafted so as not to be invalid or
unenforceable.
(e) Employee acknowledges that the Company's remedy at law for
any breach of the provisions of this Section 6 is and will be
insufficient and inadequate and that the Company shall be entitled to
equitable relief, including by way of temporary restraining order,
temporary injunction, and permanent injunction, in addition to any
remedies the Company may have at law. If either party files suit to
enforce or to enjoin the enforcement of any of the provisions of this
Section 6, the Company shall be entitled to recover, in addition to all
other damages or remedies provided for herein, all of its costs
incurred in prosecuting or defending such suit, including reasonable
attorneys' fees, if the Company prevails in such suit.
(f) The provisions of this Section 6 shall survive termination
of this Agreement.
7. FINANCIAL REPORTING. During the term of this Agreement the Company
will furnish Employee, as soon as available after the end of each monthly
accounting period, an internal consolidated financial report of the Company.
8. AFFILIATES. As used in this Agreement, "Affiliates" shall mean any
partnership, joint venture, limited liability company or corporation that,
directly or indirectly through one or more intermediaries Controls, or is
Controlled by, or is under common Control with, the Company. The term "Control"
includes, without limitation, the possession, directly or indirectly, of the
power to direct the management and policies of a corporation, partnership,
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<PAGE> 13
joint venture or limited liability company, whether through the ownership of
voting securities, by contract or otherwise.
9. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered, when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to Employee: William J. Wilkinson
52464 Woodington Court
Granger, IN 46530
If to the Company:Corporate Staffing Resources, Inc.
One Michiana Square
100 East Wayne Street, Suite 100
South Bend, IN 46601
Attn: Board of Directors
With a copy to: Paul D. Tosetti, Esq.
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. DIVISIBILITY OF AGREEMENT. In the event that any term, condition or
provision of this Agreement is for any reason rendered void, all remaining
terms, conditions and provisions shall remain and continue as valid and
enforceable obligations of the parties hereto.
11. CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
Indiana (without reference to the choice of law provisions of such State's law),
except with respect to matters of law concerning the internal corporate affairs
of any corporate entity which is a party to or the subject of this
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<PAGE> 14
Agreement, and as to those matters of the law of the jurisdiction under which
the respective entity derives its powers shall govern.
12. ARBITRATION. Notwithstanding anything herein to the contrary, in
the event that there shall be a dispute among the parties arising out of or
relating to this Agreement or the breach thereof, other than Section 6, the
parties agree that such dispute shall be resolved by final and binding
arbitration in Chicago, Illinois administered by the American Arbitration
Association ("AAA"), in accordance with AAA's Commercial Arbitration Rules then
in effect. Depositions may be taken and other discovery may be obtained during
such arbitration proceedings to the same extent as authorized in civil judicial
proceedings. Any award issued as a result of such arbitration shall be final and
binding between the parties thereto, and shall be enforceable by any court
having jurisdiction over the party against whom enforcement is sought. The fees
and expenses of such arbitration (including reasonable attorneys' fees) or any
action to enforce an arbitration award shall be paid by the party that does not
prevail in such arbitration.
13. LIMITATION ON LIABILITIES. If Employee is awarded any damages as
compensation for any breach or action related to this Agreement, a breach of any
covenant contained in this Agreement (whether express or implied by either law
or fact), or any other cause of action based in whole or in part on any breach
of any provision of this agreement, such damages shall be limited to contractual
damages and shall exclude (i) punitive damages, and (ii) consequential and/or
incidental damages (e.g., lost profits and other indirect or speculative
damages). The maximum amount of damages that Employee may recover for any reason
shall be the amount equal to all amounts owed (but not yet paid) to Employee
pursuant to this Agreement through its natural term or through any period for
which severance is due pursuant to Section 5(b) hereof.
14. COMPLETE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect to the employment of Employee and
supersedes all prior arrangements or understandings with respect thereto and all
oral or written employment agreements or arrangements between the Company (and
any of its subsidiaries) and Employee including the 1997 Agreement. This
Agreement may not be altered or amended except by a writing, duly executed by
the party against whom such alteration or amendment is sought to be enforced.
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<PAGE> 15
15. ASSIGNMENT. This Agreement is personal and non-assignable by
Employee. It shall inure to the benefit of any corporation or other entity with
which the Company shall merge or consolidate or to which the Company shall lease
or sell all or substantially all of its assets and may be assigned by the
Company to any Affiliate of the Company or to any corporation or entity with
which such Affiliate shall merge or consolidate or which shall lease or acquire
all or substantially all of the assets of such Affiliate; provided that as a
condition to such sale of assets or merger, the purchaser or surviving company,
as the case may be, shall have assumed the obligations of the Company under this
Agreement.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument.
17. EMPLOYEE'S ACKNOWLEDGMENT. Employee acknowledges (a) that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so by the
Company, and (b) that he has read and understands the Agreement, is fully aware
of its legal effect, and has entered into it freely based on his own judgment.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement in multiple counterparts as of the day and year first above written.
EMPLOYEE:
/s/ William J. Wilkinson
----------------------------------------
William J. Wilkinson
CORPORATE STAFFING RESOURCES, INC.
By /s/ Conor T. Mullett
--------------------------------------
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<PAGE> 1
Exhibit 23.01(a)
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 24, 1998, (except for Note 6 and Note 14 as to
which the date is May 15, 1998) in the Registration Statement (Form S-1 No.
33-00000) and related Prospectus of Corporate Staffing Resources, Inc. for the
registration of __________ shares of its common stock.
/s/ Ernst & Young LLP
Raleigh, NC
May 27, 1998
<PAGE> 1
Exhibit 23.01(b)
[CROWE CHIZEK LOGO]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference or our firm under the caption "Experts" and to the
use of our report dated March 24, 1998, for CSR, Inc. and Subsidiaries and
Predecessor, in the Registration Statement (Form S-1, File 333-0 ) and
related Prospectus of Corporate Staffing Resources, Inc.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
May 26, 1998
<PAGE> 1
Exhibit 23.01(c)
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 8, 1998 with respect to the financial statements of
The Hamilton-Ryker Company, LLC included in the Registration Statement (Form S-1
No. 33-00000) and related Prospectus of Corporate Staffing Resources, Inc. for
the registration of __________ shares of its common stock.
/s/ Ernst & Young LLP
Raleigh, NC
May 27, 1998
<PAGE> 1
Exhibit 23.01(d)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our Firm under the caption "Experts" and to the
use of our report, dated February 20, 1998, for CMS Management Services Company,
in the Requisition Statement (Form S-1, File 333-0 ) and related Prospectus
of Corporate Staffing Resources, Inc.
/s/ McGladrey & Pullen, LLP
South Bend, Indiana
May 26, 1998
<PAGE> 1
Exhibit 23.01(e)
[MOSS-ADAMS LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated February 6, 1998, except for Note 11, as to which the
date is March 1, 1998, for Intranational Computer Consultants, Inc., in the
Registration Statement (Form S-1, File 333-0 ) and related
Prospectus of Corporate Staffing Resources, Inc.
/s/ Moss-Adams LLP
Santa Rosa, California
May 26, 1998
<PAGE> 1
Exhibit 23.01(f)
[BROOKS, HOLMES, WILLIAMS & COOK, LLC LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated January 19, 1998, for NPS of Atlanta, Inc., in the
Registration Statement (Form S-1, File 333-0 ) and related Prospectus
of Corporate Staffing Resources, Inc.
/s/ Brooks, Holmes,
Williams & Cook, LLC
Atlanta, Georgia
May 26, 1998
<PAGE> 1
EXHIBIT 23.02
We consent to the reference to our firm under the caption "Legal Matters"
in the Registration Statement on Form S-1 and related Prospectus of Corporate
Staffing Resources, Inc. filed with the Securities and Exchange Commission on
May 27, 1998.
Latham & Watkins
