<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 25, 1998
REGISTRATION NO. 333-53745
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)
THOMAS E. MURPHY
CHIEF FINANCIAL 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>
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.
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<PAGE> 2
For an index of the Exhibits filed as part of this Registration Statement,
see page II-2 hereof.
<PAGE> 3
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 SEPTEMBER 24, 1998
5,500,000 SHARES
CORPORATE STAFFING RESOURCES, INC.
[LOGO]
COMMON STOCK
Of the 5,500,000 shares of Common Stock offered hereby, 4,750,000 shares
are being sold by Corporate Staffing Resources, Inc. (the "Company") and 750,000
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 MATERIAL RISKS
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>
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Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount (1) Company (2) Stockholders
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total (3)......................... $ $ $ $
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</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 825,000 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> 4
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> 5
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 The Mega Force Staffing Companies, 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 six 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,
including 91 branches added by the Company since March 1997 through the
acquisition of eight additional staffing and professional service companies. 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 six months ended June 30, 1998, the Company's pro
forma revenues and operating income were $235.8 million and $131.9 million, and
$11.4 million and $6.1 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 six months
ended June 30, 1998, Commercial Staffing generated approximately 78.6% and 77.5%
of the Company's pro forma revenues and 68.5% and 67.3% of the Company's pro
forma gross profits, respectively. For the year ended December 31, 1997 and for
the six months ended June 30, 1998, Professional Services generated
approximately 21.4% and 22.5% of the Company's pro forma revenues and 31.5% and
32.7% 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> 6
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 June 30, 1998, the Company
had 22 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 eight companies with an
aggregate of 91 branches and 1997 revenues of $170.2 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 and negotiating acquisition contracts.
The Company is a Delaware corporation which was organized on March 4, 1997.
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 17.4% from approximately $29.3 billion in 1992 to approximately
$76.8 billion in 1998. Furthermore, according to Staffing Industry Report,
revenues from information technology and technical staffing are estimated to
have grown at a compound annual rate of 24.0% from approximately $5.1 billion in
1992 to approximately $18.5 billion in 1998. 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> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.................. 4,750,000 shares
Common Stock offered by the Selling Stockholders..... 750,000 shares
Common Stock to be Outstanding after the Offering
(1)................................................ 14,428,114 shares
Use of proceeds by the Company....................... To repay certain indebtedness. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............... CSRI
</TABLE>
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(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)
500,000 shares of Common Stock will be issuable at the initial public
offering price upon exercise of options to be granted concurrently with the
consummation of this Offering). See "Management," "Capitalization" and
"Principal and Selling Stockholders."
5
<PAGE> 8
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA (3)
SIX MONTHS ----------------------------------
YEAR ENDED ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, JUNE 30,
---------------------------- ------------------ ------------ -------------------
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 $43,643 $117,055 $235,828 $107,324 $131,946
Cost of services......................... 57,173 54,724 93,557 35,798 93,227 183,039 83,297 102,470
------- ------- -------- ------- -------- -------- -------- --------
Gross profit............................. 10,177 10,825 21,007 7,845 23,828 52,789 24,027 29,476
Selling, general and administrative
expenses............................... 8,081 8,652 13,861 5,644 18,483 37,961 17,516 21,856
Depreciation and amortization............ 295 284 836 239 1,129 3,055 1,406 1,549
Other operating expenses................. 1,574 842 1,158 232 -- 409 81 --
------- ------- -------- ------- -------- -------- -------- --------
Operating income......................... 227 1,047 5,152 1,730 4,216 11,364 5,024 6,071
Interest expense......................... 275 266 1,570 518 1,780 2,201 786 1,093
Other income expense..................... (10) (115) (124) (21) (137) (205) (170) --
------- ------- -------- ------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary item..................... (38) 896 3,706 1,233 2,573 9,368 4,408 4,978
Provisions for income taxes.............. -- -- 1,904 805 1,158 4,296 2,038 2,240
------- ------- -------- ------- -------- -------- -------- --------
Income (loss) before extraordinary
item................................... (38) 896 1,802 428 1,415 $ 5,072 $ 2,370 $ 2,738
======== ======== ========
Extraordinary item, net of tax benefit
(5).................................... -- -- 1,672 -- --
------- ------- -------- ------- --------
Net income (loss)........................ $ (38) $ 896 $ 130 $ 428 $ 1,415
======= ======= ======== ======= ========
Basic earnings per common share:
Income before extraordinary item....... $ .36 $ .10 $ .15 $ .35 $ .16 $ .19
======== ======== ========
Extraordinary item, net of tax
benefit.............................. (.33) -- --
-------- ------- --------
Net income........................... $ .03 $ .10 $ .15
======== ======= ========
Average shares outstanding............... 5,061 4,385 9,678 14,428 14,428 14,428
Diluted earnings per common share:
Income before extraordinary item....... $ .32 $ .09 $ .15 $ .35 $ .16 $ .19
======== ======== ========
Extraordinary item, net of tax
benefit.............................. (.30) -- --
-------- ------- --------
Net income........................... $ .02 $ .09 $ .15
======== ======= ========
Average shares outstanding............... 5,580 4,946 9,692 14,428 14,428 14,442
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------
ACTUAL PRO FORMA (4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 14,718 $ 15,373
Total assets................................................ 103,128 111,887
Total debt.................................................. 60,174 24,821
Shareholders' equity........................................ 29,861 73,036
</TABLE>
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(1) The Company was organized in March 1997. Therefore, the Statement of Income
Data represents the operations of the Company's predecessors, Mega Force
Staffing Services, Inc. for the period ended March 12, 1997 and The Mega
Force Group 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, the
discontinuation of the Company's Professional Employer Organization, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments," 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 borrowings under
the credit agreement and repayment of notes payable to shareholders; (ii)
the elimination of certain management and consulting fees pursuant to
certain agreements which will be terminated upon the consummation of the
Offering and (iii) the increase in the average shares outstanding to reflect
the issuance of shares in 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 4,750,000 shares issued by the Company in the Offering and
the application of the estimated net proceeds therefrom.
(5) Represents non-recurring expenses incurred by the Company in connection with
the refinancing of its credit facility in December 1997.
6
<PAGE> 9
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 July 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, integration of the acquired
companies 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 limited
unless it is able to obtain additional capital through debt or equity financing.
See "Management's
7
<PAGE> 10
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
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.
SEASONALITY
The Company's quarterly operating results are affected by 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> 11
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."
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 regions in which the
Company operates and in the United States as a whole. 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 regional or
national 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 2.9% and 9.5% of the
Company's pro forma revenues for the year ended December 31, 1997 and the six
months ended June 30, 1998, respectively. For the year ended December 31, 1997
and the six months ended June 30, 1998, the Company's five largest clients
accounted for approximately 9.6% and 16.6% of the Company's pro forma revenues,
respectively. In May 1998, the Company was informed by its largest client during
the six months ended June 30, 1998 that it intends to reduce substantially its
use of temporary staffing. The additional 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.
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.
9
<PAGE> 12
YEAR 2000 ISSUES; POTENTIAL IMPACT ON CUSTOMERS
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, in less than two years, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. The Company has completed an assessment of its
computer software and systems with respect to Year 2000 compliance and is in the
process of implementing necessary modifications and systems upgrades. There can
be no assurances that these modifications and upgrades will be successful or
that Year 2000 compliance problems will not have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
in the course of its business the Company performs consulting on Year 2000
problems for certain of its clients. In the event such clients experience Year
2000 compliance difficulties, the Company could become involved in professional
liability litigation. Moreover, Year 2000 issues could significantly disrupt the
business and purchasing patterns of clients and potential clients and reduce
their need for the Company's services, which could have a material adverse
effect on the Company's business, operating results and financial condition.
SYSTEMS INTEGRATION
The Company currently utilizes several different front and back office
management information systems at its subsidiaries. Although management believes
the Company's systems are adequate and can be readily expanded without
significant additional capital expenditures, there can be no assurances that the
systems of the Company's subsidiaries can be integrated successfully or in a
timely manner, or that delays or problems in systems integration will not have a
material adverse effect on the Company's business, operating results and
financial condition.
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
10
<PAGE> 13
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 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."
INTANGIBLE ASSETS
As of June 30, 1998, the Company had intangible assets of $68.3 million,
net of accumulated amortization, arising principally from the Company's
acquisition of Hamilton-Ryker, CSR, Inc. and five other smaller companies. Such
intangible assets comprised approximately 66.3% of total assets and 228.8% of
total shareholders' equity as of June 30, 1998 (67.7% of total assets and 103.6%
of total shareholders' equity on a pro forma basis, giving effect to the
acquisition of Programming Management and Systems, Inc. completed after June 30,
1998, related borrowings under the Company's Credit Agreement (as defined
herein) and application of the proceeds of this Offering). Such intangible
assets may increase if additional acquisitions are completed and will increase
upon payment of contingent earnout amounts with respect to completed
acquisitions. These intangible assets result in significant recurring
amortization expense. In addition, any impairment of such assets, with resultant
write-offs, could have a material adverse effect on the Company's business,
operating results and financial condition.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
After completion of the Offering, the Company's executive officers,
directors and current stockholders will beneficially own approximately 61.9% 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."
11
<PAGE> 14
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 14,428,114 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 8,928,114 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 500,000 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 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,
12
<PAGE> 15
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."
SUBSTANTIAL DILUTION
Purchasers of Common Stock in this Offering will experience immediate and
substantial dilution in net tangible book value of $10.18 per share of Common
Stock and present stockholders will experience an increase in net tangible book
value of $4.55 per share of Common Stock. To the extent that currently
outstanding options to purchase Common Stock are exercised, there will be
further dilution. See "Dilution."
NO DIVIDENDS
The Company does not intend to pay any dividends on its Common Stock in the
foreseeable future and is prohibited from doing so under the terms of its Credit
Agreement. See "Dividend Policy."
13
<PAGE> 16
THE COMPANY
The Company was organized on March 4, 1997 under the name "Mega Force
Staffing Companies, Inc." and is the successor to Mega Force Staffing Services,
Inc. and The Mega Force Group, a group of operating companies that provided
clerical and light industrial staffing services in the southeastern United
States beginning 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 six businesses, NPS of Atlanta, Inc., Intranational Computer
Consultants Inc., CMS Management Services Company, Monday Temporary Services,
Inc., Networld Solutions, Inc., and Programming Management & Systems, Inc.
(together with Hamilton-Ryker and CSR, Inc., the "Completed Acquisitions").
The table below sets forth certain information with respect to the
Completed Acquisitions.
<TABLE>
<CAPTION>
1997 PURCHASE
DATE REVENUES PRICE BRANCHES YEAR SERVICES
COMPANY ACQUIRED (IN MILLIONS) (IN MILLIONS) ACQUIRED HEADQUARTERS FOUNDED PROVIDED
- --------------------------- --------- ------------- ------------- -------- ---------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Hamilton-Ryker Company,
LLC(1)................... Mar. 1997 $ 43.7 $10.9 27 Martin, TN 1971 Clerical/Light
Industrial
CSR(2)(3).................. Dec. 1997 71.3 22.1 49 South Bend, IN 1987 Clerical/Light
Industrial/IT
NPS of Atlanta,
Inc.(4)(5)............... Feb. 1998 11.1 6.1 5 Atlanta, GA 1991 Clerical
Intranational Computer
Consultants, Inc.(6) .... Mar. 1998 14.5 5.9 3 Petaluma, CA 1996 IT
CMS Management Services
Company(7)............... May 1998 13.9 15.5 3 South Bend, IN 1986 Accounting/IT
Monday Temporary Services,
Inc.(8) ................. May 1998 6.2 3.8 1 Kalamazoo, MI 1985 Clerical/Light
Industrial
Networld Solutions,
Inc.(9).................. June 1998 .9 2.2 1 San Diego, CA 1997 IT
Programming Management &
Systems, Inc.(10)........ July 1998 8.6 7.8 2 St. Louis, MO 1984 IT
------ ----- --
$170.2 $74.3 91
====== ===== ==
</TABLE>
- ---------------
(1) Purchase price consisted of $3.5 million in cash, $1.0 million in notes
payable to sellers and Common Stock valued at $6.4 million.
(2) Purchase price consisted of Common Stock valued at $22.1 million.
(3) The CSR revenues represent $66.0 million of revenues of CSR, Inc. and its
predecessor from January 1 to December 3, 1997 and $5.3 million of revenues
of CSR, Inc.'s successor from December 4 to December 31, 1997.
(4) Revenues are for the twelve months ended October 31, 1997.
(5) Purchase price consisted of $6.1 million in cash. The purchase agreement
provides for additional consideration of up to $2.3 million if the acquired
company meets certain financial targets.
(6) Purchase price consisted of $5.9 million in cash. The purchase agreement
provides for additional consideration of up to $6.0 million if the acquired
company meets certain financial targets.
(7) Purchase price consisted of $10.5 million in cash and $5.0 million in
subordinated notes. The purchase agreement provides for additional
consideration of up to $4.5 million if the acquired company meets certain
financial targets.
(8) Purchase price consisted of $3.8 million in cash.
(9) Purchase price consisted of $2.2 million in cash. The purchase agreement
provides for additional consideration of a multiple of adjusted EBIT of the
acquired company in excess of targeted EBIT for the years ending December
31, 1998, 1999 and 2000.
(10) Purchase price consisted of $7.8 million in cash. The purchase agreement
provides for additional consideration of a multiple of adjusted EBIT of the
acquired company in excess of targeted EBIT for the years ending May 31,
1999 and 2000.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $43.2 million ($48.5 if the
Underwriters' over-allotment option is exercised in full), assuming an initial
offering price of $10.00 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 (i) to repay
$40.8 million of outstanding indebtedness under its Credit Agreement (as defined
herein) and (ii) to repay certain notes payable to shareholders of $2.4 million.
At September 15, 1998, the Company had $63.1 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 September
15, 1998, the weighted average interest rate for outstanding borrowings under
the Credit Agreement was 8.5% and the interest rate for the notes payable to
shareholders 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 Relationships and
Related 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.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at June 30, 1998; (ii) the pro forma capitalization of the Company at
June 30, 1998, giving effect to the acquisitions completed by the Company after
that date and the sale of the 4,750,000 shares of Common Stock offered by the
Company hereby (at an assumed public offering price of $10.00 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 JUNE 30, 1998
(IN THOUSANDS)
-------------------
ACTUAL PRO FORMA
------- ---------
<S> <C> <C>
Current portion of long-term debt........................... $ 2,150 2,000
======= =======
Long-term debt, excluding current portion:
Bank indebtedness(1)...................................... $52,750 19,821
Subordinated promissory notes............................. 5,274 3,000
------- -------
Total long-term debt.............................. 58,024 22,821
------- -------
Shareholders' equity:
Common stock, $.01 par value, 50,000,000 shares authorized
upon consummation of the Offering: 9,678,114 shares
issued and outstanding, actual and 14,428,114 shares
issued and outstanding, pro forma(2)................... 97 145
Additional paid-in capital................................ 29,309 72,436
Retained earnings......................................... 455 455
------- -------
Shareholders' equity.............................. 29,861 73,036
------- -------
Total capitalization........................................ $87,885 95,857
======= =======
</TABLE>
- ---------------
(1) Actual long-term bank indebtedness does not include borrowings of
approximately $10.3 million incurred after June 30, 1998.
(2) 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)
500,000 shares of Common Stock will be issuable at the initial public
offering price upon exercise of options to be granted concurrently with the
consummation of this Offering). See "Management" and "Principal and Selling
Stockholders."
16
<PAGE> 19
DILUTION
The pro forma net tangible book deficiency, prior to offering adjustments,
of the Company at June 30, 1998 was approximately $45.8 million, or $4.73 per
share of Common Stock. Pro forma net tangible book deficiency 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 June 30, 1998. After giving
effect to the sale of the 4,750,000 shares of Common Stock offered by the
Company (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 deficiency of the Company at June 30,
1998 would have been approximately $2.7 million, or $.18 per share. This
represents an immediate increase in such pro forma net tangible book value of
$4.55 per share to existing shareholders at June 30, 1998 and an immediate net
tangible book value dilution of $10.18 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....................... $ 10.00
Pro forma net tangible book deficiency per share as of
June 30, 1998, prior to Offering adjustments........... $ (4.73)
Increase in pro forma net tangible book value per share
attributable to the Offering........................... 4.55
--------
Pro forma net tangible book deficiency per share after the
Offering............................................... (.18)
---------
Dilution per share to new investors....................... $ 10.18
=========
</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 $10.00 per share but before deducting the underwriting
discount and estimated Offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(1) AVERAGE
-------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 9,678,114 67.1% $29,861,000 38.6% $ 3.09
New investors.................. 4,750,000 32.9% 47,500,000 61.4% 10.00
---------- ----- ----------- -----
Total.......................... 14,428,114 100.0% $77,361,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Total consideration paid by existing stockholders represents the Company's
pro forma combined shareholders' equity at June 30, 1998, before giving
effect to offering adjustments.
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. An additional 500,000 shares of Common Stock will be issuable at the
initial public offering price upon the exercise of options to be granted
concurrently with the consummation of this Offering. See "Management."
17
<PAGE> 20
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 six months ended June 30, 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 six months ended June 30,
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 the first day of the
relevant period. 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.
18
<PAGE> 21
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA (3)
------------
YEAR ENDED SIX MONTHS YEAR ENDED
DECEMBER 31, ENDED JUNE 30, DECEMBER 31,
------------------------------------------------ ------------------ ------------
1993 1994 1995 1996 1997 1997 1998 1997
------- ------- ------- ------- -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA: (2)
Revenues:........................... $49,705 $59,408 $67,350 $65,549 $114,564 $43,643 $117,055 $235,828
Cost of services.................... 42,882 51,515 57,173 54,724 93,557 35,798 93,227 183,039
------- ------- ------- ------- -------- ------- -------- --------
Gross profit........................ 6,823 7,893 10,177 10,825 21,007 7,845 23,828 52,789
Selling, general and administrative
expenses........................... 4,382 6,718 8,081 8,652 13,861 5,644 18,483 37,961
Depreciation and amortization....... 214 283 295 284 836 239 1,129 3,055
Other operating expenses............ -- -- 1,574 842 1,158 232 -- 409
------- ------- ------- ------- -------- ------- -------- --------
Operating income.................... 2,227 892 227 1,047 5,152 1,730 4,216 11,364
Interest expense.................... 67 158 275 266 1,570 518 1,780 2,201
Other (income) expense.............. 45 2 (10) (115) (124) (21) (137) (205)
------- ------- ------- ------- -------- ------- -------- --------
Income (loss) before taxes and
extraordinary item................. 2,115 732 (38) 896 3,706 1,233 2,573 9,368
Provisions for income taxes......... 57 69 -- -- 1,904 805 1,158 4,296
------- ------- ------- ------- -------- ------- -------- --------
Income (loss) before extraordinary
item............................... 2,058 663 (38) 896 1,802 428 1,415 $ 5,072
========
Extraordinary item, net of tax
benefit (5)........................ -- -- -- -- 1,672 -- --
------- ------- ------- ------- -------- ------- --------
Net income (loss)................... $ 2,058 $ 663 $ (38) $ 896 $ 130 $ 428 $ 1,415
======= ======= ======= ======= ======== ======= ========
Basic earnings per common share:
Income before extraordinary item... $ .36 $ .10 $ .15 $ .35
========
Extraordinary item, net of tax
benefit.......................... (.33) -- --
-------- ------- --------
Net income....................... $ .03 $ .10 $ .15
======== ======= ========
Average shares outstanding.......... 5,061 4,385 9,678 14,428
Diluted earnings per common share:
Income before extraordinary item... $ .32 $ .09 $ .15 $ .35
========
Extraordinary item, net of tax
benefit.......................... (.30) -- --
-------- ------- --------
Net income....................... $ .02 $ .09 $ .15
======== ======= ========
Average shares outstanding.......... 5,580 4,946 9,692 14,428
<CAPTION>
PRO FORMA (3)
-------------------
SIX MONTHS
ENDED JUNE 30,
-------------------
1997 1998
-------- --------
<S> <C> <C>
STATEMENT OF INCOME DATA: (2)
Revenues:........................... $107,324 $131,946
Cost of services.................... 83,297 102,470
-------- --------
Gross profit........................ 24,027 29,476
Selling, general and administrative
expenses........................... 17,516 21,856
Depreciation and amortization....... 1,406 1,549
Other operating expenses............ 81 --
-------- --------
Operating income.................... 5,024 6,071
Interest expense.................... 786 1,093
Other (income) expense.............. (170) --
-------- --------
Income (loss) before taxes and
extraordinary item................. 4,408 4,978
Provisions for income taxes......... 2,038 2,240
-------- --------
Income (loss) before extraordinary
item............................... 2,370 2,738
Extraordinary item, net of tax
benefit (5)........................ -- --
-------- --------
Net income (loss)................... $ 2,370 $ 2,738
======== ========
Basic earnings per common share:
Income before extraordinary item... $ .16 $ .19
======== ========
Extraordinary item, net of tax
benefit..........................
Net income.......................
Average shares outstanding.......... 14,428 14,428
Diluted earnings per common share:
Income before extraordinary item... $ .16 $ .19
======== ========
Extraordinary item, net of tax
benefit..........................
Net income.......................
Average shares outstanding.......... 14,428 14,442
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------
ACTUAL PRO FORMA (4)
-------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 14,718 $ 15,373
Total assets.............................................. 103,128 111,887
Total debt................................................ 60,174 24,821
Shareholders' equity...................................... 29,861 73,036
</TABLE>
- ---------------
(1) The Company was organized in March 1997. Therefore, the Statement of Income
Data represents the operations of the Company's predecessors, Mega Force
Staffing Services, Inc. for the period ending March 12, 1997 and the Mega
Force Group 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, the
discontinuation of the Company's Professional Employer Organization, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments," 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 borrowings under
the credit agreement and repayment of notes payable to shareholders; (ii)
the elimination of certain management and consulting fees pursuant to
certain agreements which will be terminated upon the consummation of the
Offering and (iii) the increase in the average shares outstanding to reflect
the issuance of shares in 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 4,750,000 shares issued by the Company in the Offering and
the application of the estimated net proceeds therefrom.
(5) Represents non-recurring expenses incurred by the Company in connection with
the refinancing of its credit facility in December 1997.
19
<PAGE> 22
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,
including 91 branches added by the Company since March 1997 through the
acquisition of eight additional staffing and professional service companies. 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 six months ended June 30, 1998, the Company's pro
forma revenues and operating income were $235.8 million and $131.9 million, and
$11.4 million and $6.1 million, respectively.
The Company primarily provides two types of staffing services: (i)
Commercial Staffing, including vendor-on-premises, 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 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 September 15, 1998, the Company had recorded approximately
$75.7 million as goodwill, representing the excess of the fair value of the
consideration paid over the fair value of the assets acquired. GAAP requires
that goodwill be amortized over the period that the related assets provide
ongoing benefits to the Company. The Company has concluded that anticipated
future cash flows associated with
20
<PAGE> 23
intangible assets recognized in the Completed Acquisitions will continue
indefinitely, and therefore, has adopted a 40 year period for the amortization
of goodwill. The pro forma effect of this amortization expense on operating
income is approximately $1.9 million annually. Approximately 27.3% of the
goodwill is deductible for federal income tax purposes over 15 years. Any
impairment of goodwill, with resultant write-offs, could have a material adverse
effect on the Company's operating results and financial condition.
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
In May 1998, the Company was informed by a client at which it had
established a VOP relationship in the fourth quarter of 1997 that the client
intends to reduce substantially its use of temporary staffing at certain
manufacturing facilities, resulting in a reduction in the amount of revenues
that the Company anticipates generating from this client in the future. The
client accounted for $12.6 million of revenues for the six months ended June 30,
1998.
In June 1998, the Company discontinued its Professional Employer
Organization (the "PEO Business"), which had revenues of $3.1 million and
operating income of $100,000 in the six months ended June 30, 1998.
HISTORICAL AND PRO FORMA OPERATING DATA
The historical operating data of the Company for the year ended December
31, 1997 and six months ended June 30, 1997 and June 30, 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, and the Company's historical operating data for the year ended
December 31, 1997 includes the operating data of Mega Force Staffing Services,
Inc. from January 1 through March 12, 1997.
Pro forma information gives effect to the Completed Acquisitions, the
discontinuation of the PEO Business 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 Acquisitions. Pro forma adjustments for the Offering include: (i) a
reduction of interest expense resulting from repayment of borrowings under the
credit agreement and repayment of notes payable to shareholders; 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.
21
<PAGE> 24
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
------------------------------
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, JUNE 30, YEAR ENDED JUNE 30,
----------------------- -------------- 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 82.0 79.6 77.6 77.6 77.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit.............................. 15.1 16.5 18.3 18.0 20.4 22.4 22.4 22.3
----- ----- ----- ----- ----- ----- ----- -----
Selling, general and administrative
expenses................................ 12.0 13.2 12.1 12.9 15.8 16.1 16.3 16.5
Depreciation and amortization............. 0.4 0.4 0.7 0.6 1.0 1.3 1.3 1.2
Other operating expenses.................. 2.4 1.3 1.0 0.5 -- .2 .1 --
----- ----- ----- ----- ----- ----- ----- -----
Operating income.......................... 0.3% 1.6% 4.5% 4.0% 3.6% 4.8% 4.7% 4.6%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
PRO FORMA SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30,
1997
Revenues. Revenues increased 22.9% to $131.9 million for the six months
ended June 30, 1998 from $107.3 million for the six months ended June 30, 1997.
The increase was due to an increase in billable hours of approximately 21.3% and
an increase in the average rate per hour of approximately 1.3%. The increase in
revenues was a result of a 22.1% increase in revenues from Commercial Staffing
to $102.2 million for the six months ended June 30, 1998 from $83.7 million for
the six months ended June 30, 1997, and a 25.9% increase in revenues from
Professional Services to $29.7 million for the six months ended June 30, 1998
from $23.6 million for the six months ended June 30, 1997. Commercial Staffing
revenues increased primarily as a result of the establishment of a new VOP
relationship, which provided $12.6 million of revenues for the six months ended
June 30, 1998. In May 1998, the Company was informed by this client that it
intends to reduce substantially its use of temporary staffing. See "-- Recent
Developments." Commercial Staffing revenues also increased as a result of
increased billings to existing clients, the addition of new clients and the
opening of 16 new branches. 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 9 new branches.
Gross Profit. Gross profit increased 22.7% to $29.5 million for the six
months ended June 30, 1998 from $24.0 million for the six months ended June 30,
1997. Gross profit as a percentage of revenues remained relatively constant at
22.3% for the six months ended June 30, 1998 compared to 22.4% for the six
months ended June 30, 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 24.8% to $21.9 million for the six months
ended June 30, 1998 from $17.5 million for the six months ended June 30, 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 relatively constant at 16.5% for the six months
ended June 30, 1998 compared to 16.3% for the six months ended June 30, 1997.
Depreciation and Amortization. Depreciation and amortization expenses
increased 10.2% to $1.5 million for the six months ended June 30, 1998 from $1.4
million for the six months ended June 30, 1997. Depreciation and amortization
expenses as a percentage of revenues decreased to 1.2% for the six months ended
June 30, 1998 from 1.3% for the six months ended June 30, 1997.
Other Operating Expenses. During the six months ended June 30, 1997, the
Company incurred other operating expenses of $81,000, 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
20.8% to $6.1 million for the six months ended June 30, 1998 from $5.0 million
for the six months ended June 30, 1997, and operating
22
<PAGE> 25
income as a percentage of revenues remained relatively constant at 4.6% for the
six months ended June 30, 1998 and 4.7% for the six months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Revenues. Revenues increased 168.2% to $117.1 million for the six months
ended June 30, 1998 from $43.6 million for the six months ended June 30, 1997.
The increase was due to an increase in billable hours of approximately 133.8%
and an increase in the average rate per hour of approximately 14.7%. Revenues
increased primarily due to the inclusion of the full six months results of
operations of CSR, Inc. and Hamilton-Ryker and partial period results for other
acquired companies for the six months ended June 30, 1998 and the establishment
of a new VOP relationship, which provided $12.6 million of revenues for the six
months ended June 30, 1998. In May 1998, the Company was informed by this client
that it intends to reduce substantially its use of temporary staffing. See
"-- Recent Developments."
Gross Profit. Gross profit increased 203.7% to $23.8 million for the six
months ended June 30, 1998 from $7.8 million for the six months ended June 30,
1997. Gross profit as a percentage of revenues increased to 20.4% for the six
months ended June 30, 1998 from 18.0% for the six months ended June 30, 1997.
This increase resulted from the inclusion of the full six 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 227.5% to $18.5 million for the six months
ended June 30, 1998 from $5.6 million for the six months ended June 30, 1997.
Selling, general and administrative expenses as a percentage of revenues
increased to 15.8% for the six months ended June 30, 1998 from 12.9% for the six
months ended June 30, 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 372.4% to $1.1 million for the six months ended June 30, 1998 from
$239,000 for the six months ended June 30, 1997. Depreciation and amortization
expenses as a percentage of revenues increased to 1.0% for the six months ended
June 30, 1998 from 0.6% for the six months ended June 30, 1997. The increase was
due to a full six months of amortization of goodwill in 1998 in connection with
the acquisitions of Hamilton-Ryker and CSR, Inc.
Other Operating Expenses. During the six months ended June 30, 1997, the
Company incurred other operating expenses of $232,000 related to amounts paid to
a former member of management.
Operating Income. As a result of the foregoing, operating income increased
143.7% to $4.2 million for the six months ended June 30, 1998 from $1.7 million
for the six months ended June 30, 1997, and operating income as a percentage of
revenues decreased to 3.6% for the six months ended June 30, 1998 from 4.0% for
the six months ended June 30, 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. The
increase was due to an increase in billable hours of approximately 52.9% and an
increase in the average rate per hour of approximately 14.3%. These increases
were 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, both at higher average
rates per hour than the Company. A significant portion of this increase was also
due to the establishment of a new VOP relationship, which provided $5.2 million
of revenues for the year ended December 31, 1997. This client has indicated to
the Company that it intends to reduce substantially its use of temporary
staffing. See "-- Recent
23
<PAGE> 26
Developments." 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 60.2% to $13.9 million for the year ended
December 31, 1997 from $8.7 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 13.2% 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. Other operating expenses increased 37.5% to $1.2
million for the year ended December 31, 1997 from $842,000 for the year ended
December 31, 1996. Other operating expenses as a percentage of revenues
decreased to 1.0% for the year ended December 31, 1997 from 1.3% for the year
ended December 31, 1996. During the year ended December 31, 1997, other
operating expenses consisted primarily of severance fees paid to two former
executive employees of the Company and amounts paid to a third former executive
employee, and in the year ended December 31, 1996 consisted of amounts paid to a
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 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 the result of a decrease of approximately 7.8% in
billable hours offset by an increase in the average billing rate per hour of
approximately 5.6%. 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 increased 7.1% to $8.7 million for the year ended
December 31, 1996 from $8.1 million for the year ended December 31, 1995.
Selling, general and administrative expenses as a percentage of revenues
increased to 13.2% for the year ended December 31, 1996 from 12.0% for the year
ended December 31, 1995. This increase resulted from constant fixed costs
distributed over a smaller revenue base.
24
<PAGE> 27
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.
Other Operating Expenses. Other operating expenses decreased 46.5% to
$842,000 for the year ended December 31, 1996 from $1.6 million for the year
ended December 31, 1995. Other operating expenses as a percentage of revenues
decreased to 1.3% for the year ended December 31, 1996 from 2.4% for the year
ended December 31, 1995. Other operating expenses consisted of amounts paid to a
former executive in both periods.
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 $715,000 and $2.2 million for the six
months ended June 30, 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 six months ended June 30, 1998 as
compared to the six months ended June 30, 1997 was due to an increase in net
income, an increase in accrued payroll and related taxes resulting from the
timing of temporary staff payroll and increases in other accrued expenses offset
by increases in accounts receivable. 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 $3.7 million and
$29.7 million first six 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 which, net of cash received, resulted in a use of cash of
approximately $3.0 million during the six months ended June 30, 1997 and the
year ended December 31, 1997. During the six months ended June 30, 1998, the
Company completed the acquisitions of five staffing companies, resulting in a
use of cash of approximately $28.5 million.
Net cash provided by financing activities was $2.9 million and $25.6 for
the six month periods ended June 30, 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 extends credit to its customers on an unsecured basis on terms
which vary by subsidiary and by customer. Payment is generally due within 10-30
days after invoice. The Company performs ongoing credit evaluations of its
customers' financial condition. Amounts charged to expense for uncollectible
accounts were $195,000, $110,000 and $180,000 during the years ended December
31, 1995, 1996 and 1997, respectively. Average days sales outstanding have
historically ranged from 30 to 40 days.
25
<PAGE> 28
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, $63.1 million of
which was outstanding at September 15, 1998. The Company expects that,
immediately upon completion of the Offering and repayment of a portion of
currently outstanding amounts with the proceeds of the Offering, $52.7 million
will be available under the facility. 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 $43.2 million. The
Company intends to use the net proceeds of this Offering as follows: (i)
approximately $40.8 million to repay the outstanding indebtedness under the
Credit Facility and (ii) approximately $2.4 million to repay certain notes
payable to shareholders.
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 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.
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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 has completed an assessment of its computer software and
systems with respect to Year 2000 compliance and is in the process of
implementing necessary software modifications and system upgrades. The Company
believes that any costs that may be incurred to modify existing software or
upgrade systems will not be material.
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<PAGE> 30
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,
including 91 branches added by the Company since March 1997 through the
acquisition of eight additional staffing and professional service companies. 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 six months ended June 30, 1998, the Company's pro
forma revenues and operating income were $235.8 million and $131.9 million, and
$11.4 million and $6.1 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 six months ended June 30, 1998, Commercial
Staffing generated approximately 78.6% and 77.5% of the Company's pro forma
revenues and 68.5% and 67.3% of the Company's pro forma gross profits,
respectively. For the year ended December 31, 1997 and for the six months ended
June 30, 1998, Professional Services generated approximately 21.4% and 22.5% of
the Company's pro forma revenues and 31.5% and 32.7% 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 17.4% from approximately $29.3
billion in 1992 to approximately $76.8 billion in 1998. Within the U.S. staffing
services industry, the market for office support grew at a compound annual rate
of approximately 12.4% from approximately $8.5 billion in 1992 to approximately
$17.1 billion in 1998, and the market for industrial staffing services grew at a
compound annual rate of approximately 16.0% from approximately $6.0 billion in
1992 to approximately $14.6 billion in 1998. Furthermore, according to Staffing
Industry Report, revenues from information technology and technical staffing are
estimated to have grown at a compound annual rate of 24.0% from approximately
$5.1 billion in 1992 to approximately $18.5 billion in 1998. 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 22.5% of
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the Company's pro forma revenues and generated 32.7% of the Company's pro forma
gross profit in the six months ended June 30, 1998. The Company currently
employs 53 recruiters and 51 sales consultants in Professional Services, a 79.3%
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 June 30, 1998, the Company
had 22 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. 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 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 eight companies with an aggregate of 91
branches and 1997 revenues of $170.2 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 and negotiating acquisition contracts. 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.
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;
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(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 and at newly acquired
companies. 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 implements a formal process of budgeting and quarterly
performance reviews at all newly acquired companies. 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 30
branches (including VOPs) 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 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
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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 $185.4 million, or 78.6%, of 1997
pro forma revenues, and $36.2 million, or 68.5%, of 1997 pro forma gross profit.
Professional Services generated approximately $50.4 million, or 21.4%, of pro
forma revenues in the year ended December 31, 1997, and $16.6 million, or 31.5%,
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 106 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. The Company has 22
VOP partnering relationships. VOP has evolved to include managing a client's
entire staffing needs in some cases. Revenues from VOP clients have grown to
21.4% of Commercial Staffing pro forma revenue for fiscal 1997. In connection
with its VOP services, the Company intends to expand into new geographic areas
in order to serve both existing and new clients. The Company believes that
clients are generally reluctant to terminate VOP arrangements once in place,
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 26 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
companies in major metropolitan markets. The Company believes that providing
Professional Services to its clients offers the attractive opportunities for
growth in sales and profits.
CLIENT RELATIONSHIPS
The Company has a broad client base. The Company's largest client accounted
for approximately 2.9% of the Company's 1997 pro forma revenues and 9.5% of pro
forma revenues for the six months ended June 30, 1998. This client has informed
the Company that it intends to reduce substantially its use of temporary
staffing. The Company's five largest clients together accounted for 9.6% of the
Company's 1997 pro forma
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revenues and 16.6 % of pro forma revenues for the six months ended June 30,
1998. 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 June 30, 1998, the Company had approximately 689 full-time
employees. On a pro forma basis, the Company employed over 12,000 temporary
employees in a typical week in 1997. The Company typically does not enter into
employment agreements with its full-time or temporary employees and does not
have an exclusive relationship with its temporary employees. 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 53 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 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
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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 and 24 VOP sites in four regions: the Midwest (Indiana, Michigan,
Missouri, and Ohio), the Southeast (Georgia, Maryland, New Jersey, North
Carolina, South Carolina, and Virginia), the South (Kentucky, Louisiana,
Mississippi, Tennessee, Texas) and the West (California). Set forth below are
the Company's branches and VOP sites by region and the pro forma revenues for
each region for the six months ended June 30, 1998 and the year ended December
31, 1997.
<TABLE>
<CAPTION>
NUMBER OF BRANCHES PRO FORMA
AND VOP SITES PRO FORMA REVENUES FOR THE
------------------------ REVENUES FOR THE SIX MONTHS
DECEMBER 31, JUNE 30, YEAR ENDED ENDED
REGION 1997 1998 DECEMBER 31, 1997 JUNE 30, 1998
- ------ ------------ -------- ----------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Midwest.................................... 51 61 $ 92,995 $ 50,735
Southeast.................................. 48 53 81,418 43,312
South...................................... 31 35 45,471 27,597
West....................................... 7 7 15,944 10,302
--- --- -------- --------
Total:.............................. 137 156 $235,828 $131,946
=== === ======== ========
</TABLE>
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
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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. Many of the Company's IT
services branches use software 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's systems allow the
remote printing of paychecks at many of its branches. The Company reviews its
systems periodically and upgrades and implements new systems based on a
cost-benefit analysis. Certain of the Company's subsidiaries operate on
free-standing systems. Although the Company believes that its systems can be
readily expanded to meet increased demands without significant additional
expenditures, there can be no assurances that the systems of the Company's
subsidiaries can be integrated successfully or in a timely manner. See "Risk
Factors -- Systems Integration."
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 Relationships and Related 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' compensa-
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tion 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 business and is not
currently aware of any infringing uses or other conditions that would materially
and adversely affect its use of proprietary rights.
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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<PAGE> 38
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William W. Wilkinson (1)(6)............ 65 Chairman of the Board and Chief
Executive Officer
Jerry F. Stone (1)(2).................. 47 President of Mega Force Staffing
Services, Inc. and Director
T. Wayne McCreight (1)(4).............. 52 President of The Hamilton-Ryker
Company, Inc. and Director
William J. Wilkinson (1)(4)............ 36 President of Corporate Staffing
Resources of Indiana, Inc. and Director
Thomas E. Murphy....................... 36 Executive Vice President and Chief
Financial Officer
D. Crawford Gallimore (1)(2)........... 49 Chief Administrative Officer and
Director
John Geer (1)(2)....................... 52 Director
Robert W. MacDonald (1)(5)............. 51 Director
Conor T. Mullett (1)(5)................ 31 Director
David Pairitz (3)(4)................... 62 Director
Richard H. Rosenthal (3)(6)............ 65 Director
Theodore F. Savastano (3)(5)........... 61 Director
John P. Shoemaker (1)(2)............... 33 Director
H. Ronald Stone (1)(6)................. 51 Director
</TABLE>
- ---------------
(1) Pursuant to an agreement among the Company, IPP 97 Private Equity, LLC (an
affiliate of William E. Simon & Sons, LLC ("Simon")), Mellon Ventures, L.P.
("Mellon") and the other stockholders of the Company dated December 3, 1997
(the "Stockholders Agreement"), Simon designated Mr. MacDonald and Mr.
Mullett as Directors, Mellon Designated Mr. Geer and Mr. Shoemaker as
Directors, the Mega Force Stockholders (as defined in the Stockholders
Agreement) designated Mr. H. Ronald Stone, Mr. Jerry F. Stone, Mr. Gallimore
and Mr. McCreight as Directors, Mr. William W. Wilkinson designated himself
and Mr. William J. Wilkinson designated himself. See "Certain Relationships
and Related Transactions -- Stockholders Agreement."
(2) Mr. Jerry F. Stone, Mr. Gallimore, Mr. Geer and Mr. Shoemaker have informed
the Company that they intend to resign as Directors effective upon
consummation of the Offering.
(3) Has been elected as a Director effective as of the consummation of the
Offering.
(4) Will serve in the class of directors whose terms expire at the Annual
Meeting of Stockholders in 1999.
(5) Will serve in the class of directors whose terms expire at the Annual
Meeting of Stockholders in 2000.
(6) Will serve in the class of directors whose terms expire at the Annual
Meeting of Stockholders in 2001.
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. Mr. Wilkinson served as the Chief Executive
Officer of CSR, Inc. until it was acquired by the Company. Previously Mr.
Wilkinson spent 28 years
36
<PAGE> 39
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 Services, 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. Mr. Stone has informed the Company that he intends to resign
as Director effective upon consummation of the Offering.
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, Corporate Staffing Resources of
Indiana, Inc., since December 1997. In 1987, Mr. Wilkinson co-founded CSR-Ind.
and served as its President and Chief Operating Officer from January 1992 until
it was acquired by CSR, Inc. Mr. Wilkinson served in the same position at CSR,
Inc. 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.
Thomas E. Murphy. Mr. Murphy has served as Executive Vice President and
Chief Financial Officer since December 1997. Until joining the Company, Mr.
Murphy was a partner in the Elkhart, Indiana office of Crowe, Chizek and
Company, LLP, the independent auditor of CSR, Inc. and subsidiaries. Previously,
Mr. Murphy 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. Mr. Gallimore has informed
the Company that he intends to resign as Director effective upon consummation of
the Offering.
John Geer. Mr. Geer has served as a Director of the Company since February
1998. He is a Managing Director of Mellon Ventures, Inc., having joined Mellon
in February 1998. 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. Mr. Geer has informed the Company that he intends to
resign as Director effective upon the consummation of the Offering.
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.
David A. Pairitz. Mr. Pairitz will become a Director of the Company,
effective upon consummation of the Offering. Mr. Pairitz is a partner in the
Elkhart, Indiana office of Crowe, Chizek and Company, LLP, the
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<PAGE> 40
independent auditor of CSR, Inc. and subsidiaries. Mr. Pairitz has a B.S. in
accounting from the University of Notre Dame.
Richard A. Rosenthal. Mr. Rosenthal will become a Director of the Company,
effective upon consummation of the Offering. Mr. Rosenthal served as Director of
Athletics at the University of Notre Dame from 1987 to 1995 and as Chief
Executive Officer of St. Joseph Bank from 1962 to 1987. Mr. Rosenthal serves on
the Board of Directors of LaCrosse Footwear, Inc., Athey Products Corporation
and several other privately held companies. Mr. Rosenthal has a B.S. from
University of Notre Dame and is a graduate of the School of Banking of the
University of Wisconsin.
Theodore F. Savastano. Mr. Savastano will become a Director of the Company,
effective upon consummation of the Offering. Mr. Savastano is the founder of,
and has served since 1994 as Chairman of the Board of Directors of, Waterlink,
Inc., a publicly-traded water and wastewater treatment, manufacturing and
service company. From 1988 to 1994, Mr. Savastano served as Chief Financial
Officer of Summit Environmental Group, Inc., a consulting engineering company.
Mr. Savastano has a B.S. from Syracuse University.
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. Mr.
Shoemaker has informed the Company that he intends to resign as Director
effective upon consummation of the Offering.
H. Ronald Stone. Mr. Stone has served as a director of the Company since
its founding in March 1997. Mr. Stone founded the Company and its predecessors,
Mega Force Staffing Services, Inc. and The Mega Force Group. He served as chief
executive officer of the Company's predecessors 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.
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
38
<PAGE> 41
incurred in attending directors' meetings. Upon completion of the Offering,
non-employee directors of the Company will receive options to purchase 10,000
shares of Common Stock at the initial public offering price. In addition, each
non-employee director will receive $2,500 for each meeting of the Board attended
and $500 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 a Compensation Committee and plans
to establish an Audit Committee upon consummation of the Offering in order to
assist the Board in the discharge of its duties. 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. Mr. Mullet, Mr. Shoemaker and Mr. H. Ronald Stone currently serve on
the Compensation Committee. Mr. Stone served as the Company's Chief Executive
Officer until December 3, 1997. Upon consummation of the Offering, Mr. Mullett,
Mr. Rosenthal, Mr. Savastano and Mr. H. Ronald Stone will 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. Upon
consummation of the Offering, Mr. Pairitz, Mr. Rosenthal, Mr. Savastano and Mr.
MacDonald will 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.
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, Corporate Staffing Resources of
Indiana, Inc. (1).............................. 17,308 -- -- --
</TABLE>
39
<PAGE> 42
<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>
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 and its predecessors from January 1, 1997 to December
2, 1997. The Company has entered into a Consulting Services Agreement with
H. Ronald Stone pursuant to which the Company will pay Mr. Stone fees of
$200,000 in calendar 1998. See "Certain Relationships and Related
Transactions."
(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.
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 or directors.
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
Services, Inc.), McCreight (President of The Hamilton-Ryker Company, Inc.),
William J. Wilkinson (President of Corporate Staffing Resources of Indiana,
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.
The Company's Incentive Compensation Plan for Senior Officers provides (i)
that 50% of the incentive compensation of Mr. Stone, Mr. McCreight and William
J. Wilkinson is based on the financial performance of the subsidiary (Mega Force
Staffing Services, Inc., The Hamilton-Ryker Company, Inc. and Corporate Staffing
Resources of Indiana, Inc., 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.
Stone, Mr. McCreight 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
40
<PAGE> 43
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.
EMPLOYEE BENEFIT PLANS
Non-Qualified Option Plan. Effective 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 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 500,000 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 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.
41
<PAGE> 44
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 Plans. As a result of its recent acquisitions, the Company
currently maintains several 401(k) Profit Sharing Plans, defined contribution
pension plans with a cash or deferred arrangement as described in section 401(k)
of the Code (each, a "401(k) Plan"). The 401(k) Plans are intended to qualify
under section 401(a) of the Code, so that contributions, and income earned
thereon, are not taxable to employees until withdrawn. In general, regular
full-time Company employees over the age of 18 are eligible to participate under
one of the 401(k) Plans, depending on the operating subsidiary at which the
employee is employed. The 401(k) Plans 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 Trustees of the 401(k) Plans invest 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. The Company is currently in the process of consolidating its
401(k) plans.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
The Company, IPP 97 Private Equity, LLC (an affiliate of Simon), Mellon and
the other stockholders of the Company are parties to a Stockholders Agreement.
Pursuant to the Stockholders Agreement, Simon designated Mr. MacDonald and Mr.
Mullett as Directors, Mellon designated Mr. Geer and Mr. Shoemaker as Directors,
the Mega Force Stockholders designated Mr. H. Ronald Stone, Mr. Jerry F. Stone,
Mr. Gallimore and Mr. McCreight as Directors, and Mr. William W. Wilkinson
designated himself and Mr. William J. Wilkinson designated himself as Directors.
Mr. Jerry F. Stone, Mr. Gallimore, Mr. Geer and Mr. MacDonald have informed the
Company that they intend to resign as Directors effective upon consummation of
the Offering. Pursuant to the Stockholders Agreement, Mr. Pairitz, Mr. Rosenthal
and Mr. Savastano will become Directors upon consummation of the Offering. The
Stockholders Agreement terminates upon the consummation of the Offering.
REGISTRATION RIGHTS AGREEMENT
For a description of the Registration Rights Agreement among the Company,
Simon, Mellon, H. Ronald Stone and certain other stockholders of the Company,
see "Shares Eligible for Future Sale."
TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS PRIOR TO THE FORMATION OF THE COMPANY
H. Ronald Stone ("Ronald Stone") and Jerry F. Stone ("Jerry Stone") are
Directors of the Company, and each owns in excess of 5% of the Company's
outstanding Common Stock. During 1996, Mega Force Staffing Services, Inc.
("MFSS") made cash distributions of $3,860,000 and $772,000 to Ronald Stone and
Jerry Stone, respectively. Of these amounts, $1,256,000 and $251,000,
respectively, were reinvested as additional paid in capital. In addition, Ronald
Stone and Jerry Stone loaned MFSS $1,667,000 and $333,000, respectively, which
was reflected as notes payable to shareholders. These notes were repaid in full
in 1997.
42
<PAGE> 45
THE HAMILTON-RYKER COMPANY, LLC TRANSACTIONS
D. Crawford Gallimore ("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. T. Wayne McCreight
is the President of The Hamilton-Ryker Company, Inc., a director of the Company
and the holder, directly or indirectly, of in excess of 5% of the Company's
outstanding Common Stock. 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 $1,373,169 notes (the
"HRC-LLC Notes") payable to each of McCreight and Gallimore. During 1997,
$811,252 was repaid on each of McCreight's and Gallimore's notes.
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, and the balance is recorded as notes
payable to shareholders on the books of the Company, bearing interest at a rate
of 8%. In addition, in 1997, McCreight and Gallimore each received a cash
distribution of $625,000 from HRC-LLC.
THE ACQUISITION OF THE HAMILTON-RYKER COMPANY, LLC BY THE COMPANY
On March 12, 1997, MFSS and HRC-LLC effected a business combination. In
order to effect the combination, the Company was formed as a holding company;
HRC-LLC was merged into the Company; the HRC-LLC business was contributed by the
Company to The Hamilton-Ryker Company, Inc., a newly formed North Carolina
Corporation ("HRC-Inc."), as a capital contribution; and Jerry Stone and Ronald
Stone contributed the capital stock of MFSS to the Company as a capital
contribution. The business combination resulted in HRC-Inc. and MFSS becoming
wholly-owned subsidiaries of the Company. In the transaction, McCreight and
Gallimore received cash of $3,502,000, notes payable for $1,000,000 (the "MFSS
Notes"), 398,376 shares of common stock (currently represented by 796,752 shares
of common stock, following a subsequent 2 for 1 stock split) and 398,374 shares
of non-voting common stock (currently represented by 318,221 shares of common
stock following the December 3, 1997 transaction with CSR, Inc. and a subsequent
2 for 1 stock split), representing approximately 20% of the common equity of the
Company, and Ronald Stone and Jerry Stone received 1,414,232 shares of the
Company's common stock (currently represented by 2,828,464 shares of common
stock following a subsequent 2 for 1 stock split) and 1,414,230 shares of
non-voting common stock (currently represented by 1,129,689 shares of common
stock following the December 3, 1997 transaction with CSR, Inc. and a subsequent
2 for 1 stock split), representing approximately 69% of the common equity of the
Company as of the date of the merger. Ronald Stone and Jerry Stone also received
springing warrants to purchase 99,594 shares of Common Stock at $.01 per share,
exercisable in the event that amounts outstanding under the Company's loan
agreement were paid in full and amounts thereunder had not exceeded $20 million.
The MFSS Notes in the amount of $500,000 to each of Gallimore and
McCreight, are unsecured, and the principal amounts bear interest at a rate of
8% based on a 360-day year and the actual number of days the principal is
outstanding during each interest period. Upon consummation of the Offering, the
MFSS Notes will be accelerated and paid in full.
In connection with the transaction, MFSS also issued notes in the amount of
$561,916 to each of Gallimore and McCreight. The notes, which are due April 12,
2002, are amendments and replacements of the HRC-LLC Notes. The notes are
unsecured, and the principal amounts bear interest at a rate of 8% based on a
360-day year and 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.
THE CSR, INC. TRANSACTIONS
William W. Wilkinson is the Company's Chairman of the Board and Chief
Executive Officer. William J. Wilkinson is a Director of the Company and
President of the Company's subsidiary, CSR, Inc. 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
43
<PAGE> 46
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"), 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. 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
$200,000 and issuance of 1,380 shares of CSR, Inc. Common Stock and 1,380 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.
THE ACQUISITION OF CSR, INC. BY THE COMPANY
Effective December 3, 1997, CSR, Inc., merged with and into the Company
(the "Acquisition"), and the separate existence of CSR, Inc. ceased. In
addition, the name of the Company was changed to Corporate Staffing Resources,
Inc. As part of the Acquisition, (i) each share of the Company's non-voting
common stock issued and outstanding immediately prior to the Acquisition was
converted into 0.3994 fully paid and nonassessable shares of 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
Common Stock; (iii) each share of CSR, Inc. Preferred Stock issued and
outstanding immediately prior to the Acquisition was converted into 7.8975 fully
paid and nonassessable shares of Common Stock; and (iv) the 258,944 warrants
which were, at the time of the Acquisition, each exercisable into one share of
either Common Stock or non-voting common stock, were automatically converted
into 258,944 warrants, each exercisable into .699718858 shares of Common Stock
at an exercise price of $.01 per warrant, and such warrants were exercised
immediately upon the effective date of the Acquisition. No fractional shares of
Common Stock were issued as part of the Acquisition. In lieu thereof, each
shareholder otherwise entitled to fractional shares received cash equal to the
product of the fraction of a 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 Company, and the
stockholders of the Company prior to the Acquisition, including McCreight,
Gallimore, Ronald Stone and Jerry Stone, owned in the aggregate, 54.28% of
outstanding capital stock of the Company. All of the Company's non-voting common
stock was cancelled and retired pursuant to the terms of the Acquisition.
44
<PAGE> 47
In connection with the Acquisition, the Company purchased 193,132 shares
and 128,756 shares of Common Stock of the Company from Ronald Stone and Jerry
Stone for $1,620,000 and $1,080,000, respectively. These shares were retired by
the Company during 1997. For book purposes, the Company allocated $965,660 and
$643,780, or $5.00 per share, as the purchase price paid to Ronald Stone and
Jerry Stone, respectively, and $654,340 and $436,220 as distributions paid to
Ronald Stone and Jerry Stone, respectively. The Company's other shareholders
approved the transaction.
Also in connection with the Acquisition, Ronald Stone issued a note in the
amount of $402,000 to MFSS, and Jerry Stone issued a note in the amount of
$158,100 to MFSS. The notes are in substitution and replacement of accounts
receivable on the books and records of the Company, which sums were advanced to
Ronald Stone and Jerry Stone in 1996. The notes 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 are payable semiannually.
The notes are due and payable on December 31, 2000. The Company has the right to
declare the remainder of the indebtedness evidenced by the notes due and payable
upon the effectiveness of the Offering. The Company does not intend to exercise
this option.
In connection with the Acquisition, the Company entered into an Executive
Management Agreement as of December 3, 1997, with Simon and Mellon. 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 shall pay Simon and Mellon the unpaid portion of the annual
fees payable in 1998.
The Company also entered into a Consulting Services Agreement as of
December 3, 1997 with Ronald Stone. 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 Stone, the Company has agreed to pay Stone fees of
$200,000 in calendar 1998, provide health insurance to 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.
OTHER RELATED PARTY TRANSACTIONS
The Company leases office space for certain of its branches from Stone
Development Corporation, an entity owned by Ronald Stone and Jerry Stone, and
Lumberton Professional Plaza, an entity in which Ronald Stone and Jerry Stone
are shareholders. The leases commenced December 1, 1996 and will terminate on
November 30, 2001. The aggregate annual lease payments are $251,301. 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 Partnership, a general partnership in which Gallimore and McCreight
are partners. The leases terminate on various dates through May 2003. 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.
David A. Pairitz, who will become a Director of the Company effective upon
consummation of the Offering, is a partner in the Elkhart, Indiana office of
Crowe, Chizek and Company, LLP. Crowe, Chizek and Company, LLP served as the
independent auditor of the Company's subsidiary, CSR, Inc. until its acquisition
by the Company on December 3, 1997 and received fees in connection with
providing professional services to CSR, Inc.
45
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information as of September 15, 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 (6)............... 464,570 4.8
William J. Wilkinson................... 464,568 4.8
Thomas E. Murphy....................... 27,540 .3
John Geer (7).......................... 1,571,734 16.2
Robert W. MacDonald (8)(9)............. 1,680,436 17.4
Conor T. Mullett (8)(9)................ 1,680,436 17.4
David A. Pairitz....................... -- --
Richard A. Rosenthal................... -- --
Theodore F. Savastano.................. -- --
John P. Shoemaker (7).................. 1,571,734 16.2
W.E. Simon & Sons, L.L.C. (9).......... 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) Includes 100,000 shares held by W.W. Wilkinson Family L.P., of which William
W. Wilkinson is a general partner.
(7) 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.
(8) 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.
(9) 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.
46
<PAGE> 49
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 9,678,114
shares of Common Stock outstanding, held of record by 25 persons. In addition,
on January 29, 1998, the Company granted 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 500,000 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 75% 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.
47
<PAGE> 50
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.
48
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
14,428,114 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 5,500,000 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, 5,253,112 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 1,500,000
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 595,000 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 8,822,908 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 144,281
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.
49
<PAGE> 52
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."
50
<PAGE> 53
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.
51
<PAGE> 54
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.
The financial statements of Programming Management & Systems, Inc. at
December 31, 1997 and for the year ended December 31, 1997 appearing in this
Prospectus and the Registration Statement have been audited by Stone Carlie &
Company, L.L.C., 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 such firm as experts in accounting and auditing.
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.
52
<PAGE> 55
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 June 30, 1998 Introduction....................... F-4
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of June 30, 1998.................................... F-5
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet.......................................... F-6
Unaudited Pro Forma Condensed Consolidated Statements of
Income Introduction.................................... F-7
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the six months ended June 30, 1998.......... F-8
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the six months ended June 30, 1997.......... F-9
Unaudited Pro Forma Condensed Consolidated Statement of
Income for the year ended December 31, 1997............ F-10
Notes to Unaudited Pro Forma Consolidated Statements of
Income................................................. F-11
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of June
30, 1998............................................... F-15
Unaudited Condensed Consolidated Statements of Income for
the six months ended June 30, 1997 and June 30, 1998... F-16
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1997 and June 30,
1998................................................... F-17
Notes to Unaudited Condensed Consolidated Financial
Statements............................................. F-18
AUDITED HISTORICAL FINANCIAL STATEMENTS (THE MEGA FORCE
GROUP AS THE PREDECESSOR TO CORPORATE STAFFING RESOURCES,
INC.)
Report of Independent Auditors............................ F-22
Balance Sheets as of December 31, 1996 and 1997........... F-23
Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................... F-24
Statements of Shareholders' Equity for the years ended
December 31, 1995, 1996 and 1997....................... F-25
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-26
Notes to Financial Statements............................. F-27
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
Report of Independent Auditors............................ F-37
Consolidated Balance Sheets as of December 31, 1996, May
14, 1997 and December 3, 1997.......................... F-38
Consolidated Statements of Income for the periods ended
December 31, 1995, 1996, May 14, 1997 and December 3,
1997................................................... F-39
Consolidated Statements of Shareholders' Equity for the
periods ended December 31, 1995, 1996, May 14, 1997 and
December 3, 1997....................................... F-40
Consolidated Statements of Cash Flows for the periods
ended December 31, 1995, 1996, May 14, 1997 and
December 3, 1997....................................... F-41
Notes to Consolidated Financial Statements................ F-42
THE HAMILTON-RYKER COMPANY, LLC
Report of Independent Auditors............................ F-47
Balance Sheets as of December 31, 1995 and 1996........... F-48
Statements of Income for the years ended December 31, 1995
and 1996............................................... F-49
Statements of Shareholders' Equity/Members' Capital for
the years ended December 31, 1995 and 1996............. F-50
Statements of Cash Flows for the years ended December 31,
1995 and 1996.......................................... F-51
Notes to Financial Statements............................. F-52
</TABLE>
F-1
<PAGE> 56
<TABLE>
<S> <C>
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Combined Balance Sheet as of March 31,
1998................................................... F-56
Unaudited Condensed Combined Statements of Income for the
three months ended March 31, 1997 and March 31, 1998... F-57
Unaudited Condensed Combined Statements of Cash Flows for
the three months ended March 31, 1997 and March 31,
1998................................................... F-58
Notes to Unaudited Condensed Combined Financial
Statements............................................. F-59
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors............................ F-60
Combined Balance Sheet as of December 31, 1997............ F-61
Combined Statement of Income for the year ended December
31, 1997............................................... F-62
Combined Statement of Retained Earnings and Members'
Equity for the year ended December 31, 1997............ F-63
Combined Statement of Cash Flows for the year ended
December 31, 1997...................................... F-64
Notes to Financial Statements............................. F-65
INTRANATIONAL COMPUTER CONSULTANTS, INC.
Independent Auditor's Report.............................. F-70
Balance Sheet as of December 31, 1997..................... F-71
Statement of Income and Retained Earnings for the year
ended December 31, 1997................................ F-72
Statement of Cash Flows for the year ended December 31,
1997................................................... F-73
Notes to Financial Statements............................. F-74
NPS OF ATLANTA, INC. AND AFFILIATE
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Combined Balance Sheet as of January
31, 1998............................................... F-77
Unaudited Condensed Combined Statements of Operations for
the three months ended January 31, 1997 and January 31,
1998................................................... F-78
Unaudited Condensed Combined Statements of Cash Flows for
the three months ended January 31, 1997 and January 31,
1998................................................... F-79
Notes to Unaudited Condensed Combined Financial
Statements............................................. F-80
AUDITED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ F-81
Combined Balance Sheet as of October 31, 1997............. F-82
Combined Statement of Operations for the year ended
October 31, 1997....................................... F-83
Combined Statement of Stockholders' Equity for the year
ended October 31, 1997................................. F-84
Combined Statement of Cash Flows for the year ended
October 31, 1997....................................... F-85
Notes to Combined Financial Statements for the year ended
October 31, 1997....................................... F-86
PROGRAM MANAGEMENT & SYSTEMS, INC.
UNAUDITED HISTORICAL FINANCIAL STATEMENTS
Unaudited Condensed Balance Sheet as of June 30, 1998..... F-91
Unaudited Condensed Statements of Income for the six
months ended June 30, 1997 and June 30, 1998........... F-92
Unaudited Condensed Statements of Cash Flows for the six
months ended June 30, 1997 and June 30, 1998........... F-93
Notes to Unaudited Condensed Financial Statements......... F-94
</TABLE>
F-2
<PAGE> 57
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report.............................. F-95
Balance Sheet as of December 31, 1997..................... F-96
Statement of Income for the year ended December 31,
1997................................................... F-97
Statement of Changes in Stockholders' Equity for the year
ended December 31, 1997................................ F-98
Statement of Cash Flows for the year ended December 31,
1997................................................... F-99
Notes to Financial Statements............................. F-100
</TABLE>
F-3
<PAGE> 58
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
The following unaudited pro forma condensed consolidated balance sheet
reflects the acquisition by the Company of Programming Management & Systems,
Inc. ("PMSI") 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 June 30, 1998. The pro forma information gives effect to
the acquisitions 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 PMSI
included elsewhere in this Prospectus.
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 June 30, 1998, nor does it purport to represent the
future consolidated financial position of the Company.
F-4
<PAGE> 59
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
OFFERING
COMPANY(1) PMSI(2) ADJUSTMENTS SUBTOTAL ADJUSTMENTS(6) PRO FORMA
---------- ------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.......... $ 19 $ 38 $ -- $ 57 $ -- $ 57
Accounts receivable................ 26,645 1,148 -- 27,793 -- 27,793
Other current assets............... 2,636 83 -- 2,719 -- 2,719
-------- ------ ------ -------- -------- --------
Total current assets....... 29,300 1,269 -- 30,569 -- 30,569
Property and equipment, net........ 3,407 22 -- 3,429 -- 3,429
Goodwill and other intangibles,
net............................. 68,329 -- 7,372(3) 75,701 -- 75,701
Other assets....................... 2,092 96 -- 2,188 -- 2,188
-------- ------ ------ -------- -------- --------
Total assets............... $103,128 $1,387 $7,372 $111,887 $ -- $111,887
======== ====== ====== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................... $ 912 $ 286 $ -- $ 1,198 $ -- $ 1,198
Accrued liabilities................ 4,012 -- 100 4,112 -- 4,112
Accrued payroll and related
taxes........................... 7,508 378 -- 7,886 -- 7,886
Current portion of long-term
debt............................ 2,150 -- -- 2,150 (150) 2,000
-------- ------ ------ -------- -------- --------
Total current
liabilities.............. 14,582 664 100 15,346 (150) 15,196
Long-term debt, less current
portion............................ 55,750 -- 7,822(4) 63,572 (40,751) 22,821
Notes payable to shareholders, less
current portion.................... 2,274 -- -- 2,274 (2,274) --
Other liabilities.................... 661 173 -- 834 -- 834
-------- ------ ------ -------- -------- --------
Total liabilities.......... 73,267 837 7,922 82,026 (43,175) 38,851
Shareholders' equity:
Common stock....................... 97 -- -- 97 48 145
Additional paid-in capital......... 29,309 6 (6)(5) 29,309 43,127 72,436
Retained earnings.................. 455 544 (544)(5) 455 -- 455
-------- ------ ------ -------- -------- --------
Total shareholders'
equity................... 29,861 550 (550) 29,861 43,175 73,036
-------- ------ ------ -------- -------- --------
Total liabilities and
shareholders' equity..... $103,128 $1,387 $7,372 $111,887 $ -- $111,887
======== ====== ====== ======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(1) Represents the historical consolidated balance sheet of the Company, as of
June 30, 1998, which reflects the acquisition of The Hamilton-Ryker Company,
LLC; CSR, Inc.; NPS of Atlanta, Inc.; Intranational Computer Consultants,
Inc; CMS Management Services Company; Monday Temporary Services, Inc. and
Networld Solutions, Inc.
(2) Represents the historical combined balance sheet of PMSI as of June 30,
1998.
(3) Represents the adjustments to the historical carrying value of PMSI to
reflect intangibles resulting from its acquisition. The PMSI purchase price
was approximately $7.9 million in cash. Purchase price was allocated as
follows: $550,000 to tangible assets (net of assumed liabilities of
$837,000), $50,000 to non-compete agreements, and $7.3 million to goodwill.
In addition, the Company agreed to pay the sellers additional consideration
contingent upon PMSI achieving certain financial targets during the twelve
month periods ended May 31, 1999 and 2000. The additional consideration,
which is not contractually limited, will be accrued in the period earned and
recorded as goodwill.
(4) Represents additional borrowings to finance the acquisition of PMSI under
the Company's revolving credit agreement. The Company's revolving credit
agreement allows the Company to borrow up to $75.0 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 stock of the Company's subsidiaries. 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.
(5) Represents the elimination of shareholders' equity of PMSI.
(6) Represents the adjustment to reflect the issuance and sale of 4,750,000
shares of common stock by the Company at the public offering price of $10.00
per share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds" elsewhere in this Prospectus.
F-6
<PAGE> 61
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
("Hamilton-Ryker"); CSR, Inc. ("CSR"); NPS of Atlanta, Inc. ("NPS");
Intranational Computer Consultants, Inc. ("ICC"); CMS Management Services
Company ("CMS"); Monday Temporary Services, Inc. ("Monday"); Networld Solutions,
Inc. ("Networld") and Programming Management & Systems, Inc. ("PMSI")
(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 six
months ended June 30, 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-7
<PAGE> 62
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
COMPLETED SALE OF OFFERING
COMPANY (1) ACQUISITIONS (2) PEO (3) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
----------- ---------------- ------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $1117,055 $17,984 $(3,093) $ -- $131,946 $ -- $131,946
Cost of services........... 93,227 12,176 (2,933) -- 102,470 -- 102,470
-------- ------- ------- ------- -------- ------- --------
Gross profit............... 23,828 5,808 (160) -- 29,476 -- 29,476
Operating expenses:
Selling, general and
administrative........ 18,483 4,137 (60) (417)(4) 22,143 (287)(8) 21,856
Depreciation and
amortization.......... 1,129 73 -- 347(5) 1,549 -- 1,549
-------- ------- ------- ------- -------- ------- --------
Operating income......... 4,216 1,598 (100) 70 5,784 287 6,071
Other (income) expense:
Interest expense......... 1,780 26 -- 1,116(6) 2,922 (1,829)(9) 1,093
Other income............... (137) -- -- 137 -- -- --
-------- ------- ------- ------- -------- ------- --------
Income before income
taxes.................... 2,573 1,572 (100) (1,183) 2,862 2,116 4,978
Provision for income
taxes.................... 1,158 210 -- (80)(10) 1,288 952(10) 2,240
-------- ------- ------- ------- -------- ------- --------
Net income................. $ 1,415 $ 1,362 $ (100) $(1,103) $ 1,574 $ 1,164 $ 2,738
======== ======= ======= ======= ======== ======= ========
Net income per share:
Basic.................... $ .15 $ .16 $ .19
Diluted.................. $ .15 .16 .19
Weighted average number of
shares of common stock
outstanding:
Basic.................... 9,678 9,678 4,750(11) 14,428
Diluted.................. 9,692 9,692 4,750(11) 14,442
</TABLE>
See accompanying notes.
F-8
<PAGE> 63
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------
COMPLETED SALE OF OFFERING
COMPANY (1) ACQUISITIONS (2) PEO (3) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
----------- ---------------- ------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $43,643 $67,241 $(3,560) $ -- $107,324 $ -- $107,324
Cost of services......... 35,798 50,869 (3,370) -- 83,297 -- 83,297
------- ------- ------- ------- -------- ------- --------
Gross profit............. 7,845 16,372 (190) -- 24,027 -- 24,027
Operating expenses:
Selling, general and
administrative...... 5,644 13,302 (58) (1,372)(4) 17,516 -- 17,516
Depreciation and
amortization........ 239 282 -- 885(5) 1,406 -- 1,406
Other operating
expenses............ 232 81 -- (132)(4) 181 (100)(8) 81
------- ------- ------- ------- -------- ------- --------
Operating income....... 1,730 2,707 (132) 619 4,924 100 5,024
Other (income) expense:
Interest expense....... 518 322 -- 1,775(6) 2,615 (1,829)(9) 786
Other (income)
expense............. (21) (149) -- -- (170) -- (170)
------- ------- ------- ------- -------- ------- --------
Income before income
taxes.................. 1,233 2,534 (132) (1,156) 2,479 1,929 4,408
Provision for income
taxes.................. 805 576 -- (115)(10) 1,266 772(10) 2,038
------- ------- ------- ------- -------- ------- --------
Net income (loss)........ $ 428 $ 1,958 $ (132) $(1,041) $ 1,213 $ 1,157 $ 2,370
======= ======= ======= ======= ======== ======= ========
Net income per share:
Basic.................. $ .10 $ .13 $ .16
Diluted................ .09 .13 .16
Weighted average number
of shares of common
stock outstanding:
Basic.................. 4,385 5,293(7) 9,678 4,750(11) 14,428
Diluted................ 4,946 4,732(7) 9,678 4,750(11) 14,428
</TABLE>
See accompanying notes.
F-9
<PAGE> 64
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
COMPANY ACQUISITIONS SALE OF OFFERING
(1) (2) PEO (3) ADJUSTMENTS SUBTOTAL ADJUSTMENTS PRO FORMA
---------- --------------- ------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $114,564 $128,802 $(7,538) $ -- $235,828 $ -- $235,828
Cost of services........... 93,557 96,594 (7,112) -- 183,039 -- 183,039
-------- -------- ------- ------- -------- ------- --------
Gross profit............... 21,007 32,208 (426) -- 52,789 -- 52,789
Operating expenses
Selling, general and
administrative........ 13,861 27,681 (127) (3,454)(4) 37,961 -- 37,961
Depreciation and
amortization.......... 836 679 -- 1,540(5) 3,055 -- 3,055
Other operating
expenses.............. 1,158 261 -- (642)(4) 777 (368)(8) 409
-------- -------- ------- ------- -------- ------- --------
Operating income......... 5,152 3,587 (299) 2,556 10,996 368 11,364
Other (income) expense:
Interest expense......... 1,570 860 -- 3,429(6) 5,859 (3,658)(9) 2,201
Other income............. (124) (81) -- -- (205) -- (205)
-------- -------- ------- ------- -------- ------- --------
Income before income taxes
and extraordinary item... 3,706 2,808 (299) (873)(10) 5,342 4,026 9,368
Provision for income
taxes.................... 1,904 673 -- 109 2,686 1,610(10) 4,296
-------- -------- ------- ------- -------- ------- --------
Income before extraordinary
item..................... $ 1,802 $ 2,135 $ (299) $ (982) $ 2,656 $ 2,416 $ 5,072
======== ======== ======= ======= ======== ======= ========
Income before extraordinary
item per share:
Basic.................... $ .36 $ .27 $ .35
Diluted.................. .32 .27 .35
Weighted average number of
shares of common stock
outstanding:
Basic.................... 5,061 4,617(7) 9,678 4,750 14,428
Diluted.................. 5,580 4,098(7) 9,678 4,750 14,428
</TABLE>
See accompanying notes.
F-10
<PAGE> 65
NOTES TO UNAUDITED PRO FORMA CONDENSED
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 Hamilton-Ryker,
CSR, NPS, ICC, CMS, Monday and Networld from the first day of each period
through their respective dates of acquisition (or the end of the period if
the acquisition date is subsequent to the end of the period) and PMSI for
the entirety of each period. Amounts for the period ended June 30, 1998
consist entirely of NPS, ICC, CMS, Monday, Networld and PMSI (together, the
"Other Completed Acquisitions"). The following tables present the
historical results of operations of Hamilton-Ryker, CSR, and the Other
Completed Acquisitions for the periods ended June 30, 1997 and December 31,
1997.
HISTORICAL RESULTS OF OPERATIONS OF THE COMPLETED ACQUISITIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR OTHER
HAMILTON- TO COMPLETED
RYKER CSR, INC. CSR, INC. ACQUISITIONS TOTAL
--------- ----------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $7,700 $23,658 $ 9,166 $26,717 $67,241
Cost of services...................... 6,159 19,003 7,342 18,365 50,869
------ ------- ------- ------- -------
Gross profit.......................... 1,541 4,655 1,824 8,352 16,372
Operating expenses:
Selling, general and
administrative................... 1,152 3,794 1,253 7,103 13,302
Depreciation and amortization....... 60 27 82 113 282
Other operating expenses............ -- 81 -- -- 81
------ ------- ------- ------- -------
Operating income.................... 329 753 489 1,136 2,707
Other income expense:
Interest expense.................... 98 63 104 57 322
Other income expense................ 38 -- (164) (23) (149)
------ ------- ------- ------- -------
Income before income taxes............ 193 690 549 1,102 2,534
Provision for income taxes............ 28 223 201 124 576
------ ------- ------- ------- -------
Net income............................ $ 165 $ 467 $ 348 $ 978 $ 1,958
====== ======= ======= ======= =======
</TABLE>
F-11
<PAGE> 66
HISTORICAL RESULTS OF OPERATIONS OF THE COMPLETED ACQUISITIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR OTHER
HAMILTON- TO COMPLETED
RYKER CSR, INC. CSR, INC. ACQUISITIONS TOTAL
--------- ----------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Revenues............................. $7,700 $23,658 $42,299 $55,145 $128,802
Cost of services..................... 6,159 19,003 33,504 37,928 96,594
------ ------- ------- ------- --------
Gross profit......................... 1,541 4,655 8,795 17,217 32,208
Operating expenses:
Selling, general and
administrative.................. 1,152 3,901 6,347 16,281 27,681
Depreciation and amortization...... 60 27 321 271 679
Other operating expenses........... -- -- 261 -- 261
------ ------- ------- ------- --------
Operating income................... 329 727 1,866 665 3,587
Other (income) expense:
Interest expense................... 98 63 589 110 860
Other (income) expense............. 38 -- -- (119) (81)
------ ------- ------- ------- --------
Income before income taxes and
extraordinary item................. 193 664 1,277 674 2,808
Provision for income taxes........... 28 223 576 (154) 673
------ ------- ------- ------- --------
Income before extraordinary item..... $ 165 $ 441 $ 701 $ 828 $ 2,135
====== ======= ======= ======= ========
</TABLE>
(3) Represents the historical operations of the Professional Employer
Organization ("PEO") discontinued by the Company in June 1998. The PEO
represented a non-strategic line of business in which the Company no longer
competes.
(4) 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
terms of employment agreements entered into connection with the Completed
Acquisitions and severance of $500,000 paid to an executive terminated in
conjunction with an acquisition.
Aggregate actual compensation paid to these individuals (all of whom had a
significant impact on the operating performance of the Completed
Acquisitions), aggregate compensation to these individuals under their new
employment agreements with the Company and the pro forma adjustments are
set forth below by period. The new employment agreements provide for
compensation per individual ranging from $100,000 to $150,000 and expire at
various dates through December 31, 2000.
<TABLE>
<CAPTION>
NEW
ACTUAL EMPLOYMENT PRO FORMA
COMPENSATION AGREEMENTS ADJUSTMENT
------------ ---------- ----------
<S> <C> <C> <C>
June 30, 1998......................................... $ 548 $ 131 $ 417
====== ====== ======
June 30, 1997......................................... $2,118 $ 614 $1,504
====== ====== ======
December 31, 1997..................................... $4,721 $1,125 $3,596
====== ====== ======
</TABLE>
(5) Represents an increase to amortization expense resulting from goodwill and
other intangibles 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. Non-compete agreements are being amortized
over their contractual terms (typically 5 years). In accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations," the
Company allocated the purchase price of each Completed Acquisition first to
identifiable tangible assets, then to identifiable intangible assets with
the
F-12
<PAGE> 67
remainder to goodwill. Fair value of tangible assets acquired approximated the
acquired company's book value in each case. Identified intangible assets
consisted of non-compete agreements and aggregated $635,000. Goodwill recorded
in connection with the Hamilton-Ryker and CSR acquisitions was $11.8
million and $27.2 million, respectively. Goodwill recorded in the remaining
acquisitions aggregated $37.3 million. A calculation of amortization for
each of the periods presented is set forth below:
<TABLE>
<CAPTION>
ANNUAL SEMI ANNUAL
$ AMORTIZATION AMORTIZATION
(000'S) LIFE (000'S) (000'S)
------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Goodwill................................. $76,300 40 years $1,908 $ 954
Non-Compete.............................. 635 5 years 127 64
------ ------
$2,035 $1,018
====== ======
</TABLE>
<TABLE>
<CAPTION>
AMOUNT INCLUDED
IN HISTORICAL PRO FORMA
AMORTIZATION INCOME STATEMENTS ADJUSTMENT
(000'S) (000'S) (000'S)
------------ ----------------- ----------
<S> <C> <C> <C>
June 30, 1998................................ $1,018 $671 $ 347
====== ==== ======
June 30, 1997................................ $1,018 $133 $ 885
====== ==== ======
December 31, 1997............................ $2,035 $495 $1,540
====== ==== ======
</TABLE>
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 operating results. The earnouts are
payable over 1 to 3 years and certain of them are not contractually limited
as to amount.
(6) Represents additional interest expense to reflect incremental borrowings of
approximately $46.0 million 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 differs from amounts resulting
from applying an interest rate of 8.5% to incremental borrowings of $46.0
million (the "Computed Amount") due to the Company having recorded interest
expense in its historical financial statements for the portion of the
period related debt was outstanding and as a result of the Company having
retired certain debt of the Completed Acquisitions at the time of closing,
as detailed below.
<TABLE>
<CAPTION>
AMOUNT REDUCTION OF
REFLECTED IN COMPLETED
COMPUTED HISTORICAL ACQUISITIONS PRO FORMA
AMOUNT STATEMENTS INTEREST ADJUSTMENT
(000'S) (000'S) (000'S) (000'S)
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
June 30, 1998........................... $1,955 $816 $ 23 $1,116
====== ==== ==== ======
June 30, 1997........................... $1,955 $123 $ 57 $1,775
====== ==== ==== ======
December 31, 1997....................... $3,910 $311 $170 $3,429
====== ==== ==== ======
</TABLE>
(7) Reflects the issuance of 1,593,500 shares of common stock on March 12, 1997
in connection with the Company's acquisition of Hamilton-Ryker (309,968
weighted from January 1, 1997 through March 12, 1997); the issuance of
4,425,002 shares of common stock on December 3, 1997 in connection with the
Company's acquisition of CSR (4,085,550 weighted from January 1, 1997
through December 3, 1997); the issuance of 561,544 shares of common stock
on December 3, 1997 (518,485 weighted from January 1, 1997 through December
3, 1997) upon the exercise of certain warrants which had been issued in
connection with the Hamilton-Ryker acquisition (these shares were
considered outstanding for the entirety of the year for purposes of diluted
shares outstanding); all offset by the Company's acquisition of 321,888
shares of common stock on December 3, 1997 in connection with the Company's
acquisition of CSR (297,195 weighted from January 1, 1997 through December
3 1997). All shares
F-13
<PAGE> 68
were valued at the fair value at the date of the transaction ($4 at March 12,
1997 and $5 on December 3, 1997).
(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. The Company's management believes that
the absence of these management and consulting services would not have
affected the Company's operating performance.
(9) Represents the reduction in interest expense resulting from the Company
repaying a portion of the borrowings outstanding under its credit agreement
with proceeds from the Offering. Adjustment is computed based upon net
proceeds of $43.2 million, and an interest rate of 8.5%, and the
application of $2.4 million thereof to the repayment of certain shareholder
notes bearing interest at 8% and 40.8 million thereof to repayment of
borrowings under the credit agreement bearing interest at an estimated rate
of 8.5%.
(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 4,750,000 shares of the Company's common stock at
$10.00 per share in connection with the public offering described in this
Prospectus, less the underwriting discount and estimated Offering expenses.
F-14
<PAGE> 69
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 19
Accounts receivable, less allowance....................... 26,645
Other current assets...................................... 2,636
--------
Total current assets.............................. 29,300
Property and equipment, net................................. 3,407
Goodwill and other intangibles, net......................... 68,329
Other assets................................................ 2,092
--------
Total assets...................................... $103,128
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 912
Accrued liabilities....................................... 4,012
Accrued payroll and related taxes......................... 7,508
Current portion of long-term debt......................... 2,150
--------
Total current liabilities......................... 14,582
Long-term debt, less current portion........................ 55,750
Notes payable to shareholders, less current portion......... 2,274
Other liabilities........................................... 661
--------
Total liabilities................................. 73,267
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
Retained earnings......................................... 455
--------
Total shareholders' equity........................ 29,861
--------
Total liabilities and shareholders' equity........ $103,128
========
</TABLE>
See accompanying notes.
F-15
<PAGE> 70
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
------- --------
<S> <C> <C>
Revenues.................................................... $43,643 $117,055
Cost of services............................................ 35,798 93,227
------- --------
Gross profit................................................ 7,845 23,828
Operating expenses:
Selling, general and administrative expenses.............. 5,644 18,483
Depreciation and amortization............................. 239 1,129
Other operating expenses.................................. 232 --
------- --------
Operating income............................................ 1,730 4,216
Other (income) expense:
Interest expense.......................................... 518 1,780
Other income.............................................. (21) (137)
------- --------
Income before provision for income taxes.................... 1,233 2,573
Provision for income taxes.................................. 805 1,158
------- --------
Net income.................................................. $ 428 $ 1,415
======= ========
Net income per share:
Basic..................................................... $ .10 $ .15
Diluted................................................... .09 $ .15
Weighted average number of shares of common stock
outstanding:
Basic..................................................... 4,385 9,678
Diluted................................................... 4,946 9,692
</TABLE>
See accompanying notes.
F-16
<PAGE> 71
CORPORATE STAFFING RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1998
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net cash provided by operating activities................. $ 715 $ 2,188
------- --------
INVESTING ACTIVITIES
Acquisitions, net of cash received........................ (3,281) (29,157)
Purchases of property and equipment....................... (397) (782)
Other..................................................... -- 195
------- --------
Net cash used in investing activities..................... (3,678) (29,744)
------- --------
FINANCING ACTIVITIES
Proceeds from borrowings under revolving credit
agreement.............................................. 10,550 35,086
Net change in borrowings under line of credit............. (3,422) --
Repayment of shareholder notes payable.................... (1,976) --
Repayment of revolving credit agreement................... (2,226) (9,507)
------- --------
Net cash provided by financing activities................. 2,926 25,579
------- --------
Net decrease in cash and cash equivalents................. (37) (1,977)
Cash and cash equivalents at beginning of period............ 237 1,996
------- --------
Cash and cash equivalents at end of period.................. $ 200 $ 19
======= ========
</TABLE>
See accompanying notes.
F-17
<PAGE> 72
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
six month period ended June 30, 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 six months ended June 30, 1998, the Company, in separate
transactions, acquired two commercial staffing companies (NPS of Atlanta, Inc.
and Monday Temporary Services, Inc. for a combined purchase price of
approximately $9.9 million and three professional services companies
(Intranational Computer Consultants, Inc.; CMS Management Services Company and
Networld Solutions, Inc.) for a combined purchase price of approximately $23.6
($18.6 million cash and $5.0 in subordinated notes). In addition, in connection
with these acquisitions the Company entered into earnout agreements which could
result in additional purchase price upon the achievement of certain operating
results, as defined. The earnouts are payable over 1 to 3 years and are not
contractually limited as to amount. 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 $30.0 million is being amortized on a
straight-line basis over 40 years.
Subsequent to June 30, 1998, the Company completed the acquisition of an
additional professional services company Programming Management & Systems, Inc.
("PMSI"). The initial aggregate purchase price of the acquisition was
approximately $7.8 million, which could be increased by contingent earnouts
based upon the acquired company achieving certain operating results, as defined.
The earnout, which is payable over 1 to 3 years, is not contractually limited.
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. Goodwill of approximately $7.5 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 six months ended June 30, 1998.
F-18
<PAGE> 73
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 June 30, 1998, giving effect to the acquisition
of PMSI, which occurred subsequent to June 30, 1998, as if it had occurred on
that date. All other acquisitions are reflected in the Company's June 30, 1998
historical unaudited condensed consolidated balance sheet.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 30,569
Property and equipment...................................... 3,429
Other assets................................................ 77,889
--------
Total assets...................................... $111,887
========
Current liabilities......................................... $ 15,346
Long-term debt.............................................. 65,846
Other liabilities........................................... 834
Shareholders' equity........................................ 29,861
--------
Total liabilities and shareholders' equity........ $111,887
========
</TABLE>
The following unaudited pro forma results for the six months ended June 30,
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 six month periods.
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
-----------------------
JUNE 30, JUNE 30,
1997 1998
---------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Total revenues.............................................. $107,324 $131,946
Net income.................................................. 1,213 1,574
Net income per share (Basic and diluted).................... .13 .16
</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.
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, the Company established a
net deferred tax liability of $284,000 representing the tax effect of cumulative
temporary differences as of January 1, 1997.
F-19
<PAGE> 74
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
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 six months ended June 30, 1998. At June 30,
1998 there were 95,000 options outstanding with a weighted-average remaining
contractual life of 9.58 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 six
months ended June 30, 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 relating to employee stock options follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Pro forma net income........................................ $1,375
Pro forma earnings per share
Basic..................................................... $ .14
Diluted................................................... .14
</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.
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 six months ended June 30, 1998, the dilutive effect of stock
options increased the weighted average number of shares of common stock
considered to be outstanding by 14,000 shares. During the six
F-20
<PAGE> 75
CORPORATE STAFFING RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- (CONTINUED)
months ended June 30, 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
(comprehensive income equaled net income for the quarter ended June 30, 1998).
The Company is evaluating the impact of SFAS No. 131.
F-21
<PAGE> 76
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
as to which the date is May 15, 1998 and
Note 14, as to which the date is
July 2, 1998
F-22
<PAGE> 77
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
Deferred income taxes..................................... -- 1,120,000
----------- -----------
Total current assets.............................. 5,745,596 22,876,679
Insurance loss fund......................................... 860,236 2,112,689
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-23
<PAGE> 78
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....... 8,080,552 8,652,387 13,860,235
Depreciation and amortization...................... 294,943 284,000 835,875
Other operating expenses........................... 1,573,976 841,425 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-24
<PAGE> 79
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-25
<PAGE> 80
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-26
<PAGE> 81
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. was formed on March 4, 1997 as the
holding company for Mega Force Staffing Services, Inc. On December 31, 1996,
Mega Force Staffing Services, Inc. succeeded to the business of 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. Mega Force Staffing Companies,
Inc., Mega Force Staffing Services, Inc. and The Mega Force Group were all owned
by the same two related shareholders.
Mega Force Staffing Companies, Inc. acquired The Hamilton-Ryker Company,
LLC on March 12, 1997 and CSR, Inc. on December 3, 1997, at which time Mega
Force Staffing Companies, Inc. changed its name to Corporate Staffing Resources,
Inc. The acquisition of CSR, Inc. was accounted for as a purchase and
consideration consisted of 4,425,002 shares of common stock valued at
$22,125,000.
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>
F-27
<PAGE> 82
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-28
<PAGE> 83
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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 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.
F-29
<PAGE> 84
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
the straight-line method over forty years. In accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations," the Company allocated
the purchase price of each Completed Acquisition first to identifiable tangible
assets, then to identifiable intangible assets, with the remainder to goodwill.
Fair value of tangible assets acquired approximated the acquired company's book
value in each case. Identifiable intangible assets were immaterial. 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 years ended December 31, 1995, 1996 and 1997, the Company
incurred operating expenses aggregating $1,573,976, $841,425 and $1,158,301,
respectively, which primarily consisted of amounts paid to a former executive in
1995 and 1996 and of severance paid to two former executives of the Company and
amounts paid to a third former executive in 1997. 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
F-30
<PAGE> 85
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Eurodollar loans, and was collateralized by primarily all accounts receivable
and equipment of the Company. In connection with the credit facility, the
Company issued 517,888 warrants to the lender, each exercisable into one share
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 warrants
were automatically converted into 517,888 new warrants, each exercisable into
.699718858 shares of the Company's common stock.
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 stock of the Company's subsidiaries. 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
F-31
<PAGE> 86
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 non-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 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
Prior to 1997, The Mega Force Group consisted of ten operating companies.
On January 1, 1997, Mega Force Staffing Companies, Inc., one of the companies,
exchanged its common stock for all of the outstanding common stock of the other
nine operating companies. Ownership both prior to and after the recapitalization
was retained by the two related shareholders. The historical accounting basis of
the companies was carried forward to Mega Force Staffing Companies, Inc. because
of the continuing ownership.
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 561,564 shares issued under the warrants 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 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.
F-32
<PAGE> 87
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
F-33
<PAGE> 88
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
Income taxes on income before extraordinary item at federal
statutory rate............................................ $ 1,260,000
State taxes, net of federal benefit......................... 180,000
Nondeductible goodwill...................................... 170,000
Other, net.................................................. 10,000
Conversion from S Corporation to C Corporation at January 1,
1997...................................................... 284,000
-----------
Provision for income taxes.................................. $ 1,904,000
===========
</TABLE>
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 with the remainder due April 12, 2002. 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.
On December 3, 1997, the Company entered into an Executive Management
Agreement with two of its institutional shareholders. Under the agreement, the
Company receives certain managerial assistance and in return agreed to pay the
parties an aggregate of $375,000 per year. During the year ended December 31,
1997, the Company paid these parties $31,550.
During the years ended December 31, 1995, 1996 and 1997, the Company leased
office space from related parties (see Note 10).
During the year ended December 31, 1997, the Company issued warrants to its
lender and to two shareholders (see Note 6).
F-34
<PAGE> 89
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 four staffing
companies (NPS of Atlanta, Inc.; Intranational Computer Consultants, Inc.; CMS
Management Services Company and Monday Temporary Services, Inc.) and two
information technology consulting companies (Networld Solutions, Inc. and
Programming Management & Systems, Inc.) for a combined purchase price of
approximately $41.3 million ($36.3 million cash and $5.0 million in subordinated
notes). In addition, in connection with five of these acquisitions, the Company
agreed to pay the sellers additional consideration which could result in
additional purchase price over the next three years based upon the achievement
of certain operating results by the acquired operations, as defined. Some of
these arrangements are not contractually limited as to the amount. The
acquisitions will be accounted for using the purchase method, and the operating
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
$36.2 million will be amortized on a straight-line basis over 40 years. The
portion of the consideration contingent upon future performance will be accrued
in the period earned and recorded as goodwill and amortized over the remaining
life of the existing goodwill.
F-35
<PAGE> 90
CORPORATE STAFFING RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 annual periods.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $197,711 $243,366
Income before extraordinary item............................ 2,279 2,955
Income before extraordinary item per share -- basic and
diluted................................................... .24 .31
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.
F-36
<PAGE> 91
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-37
<PAGE> 92
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
---------- ----------- -----------
Total assets................................ $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
---------- ----------- -----------
Total shareholders' equity.................. 2,286,463 7,250,129 10,997,629
---------- ----------- -----------
Total liabilities and shareholders'
equity.................................... $6,845,204 $22,509,440 $23,735,953
========== =========== ===========
</TABLE>
See accompanying notes.
F-38
<PAGE> 93
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-39
<PAGE> 94
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-40
<PAGE> 95
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) (665,577)
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............ -- -- -- (3,216,667)
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-41
<PAGE> 96
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 an employee staffing organization with emphasis in skilled
light industrial, clerical and outplacement staffing 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., retained 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-42
<PAGE> 97
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-43
<PAGE> 98
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-44
<PAGE> 99
CSR, INC. AND SUBSIDIARIES AND PREDECESSOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation of provision for income taxes computed at the
federal statutory rate (34%) to the reported provision for income taxes:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MAY 14, DECEMBER 3,
1995 1996 1997 1997
------------ ------------ -------- -----------
<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-45
<PAGE> 100
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
During 1997 the Company entered into an agreement with two of its
shareholders 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-46
<PAGE> 101
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-47
<PAGE> 102
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-48
<PAGE> 103
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-49
<PAGE> 104
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-50
<PAGE> 105
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-51
<PAGE> 106
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-52
<PAGE> 107
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-53
<PAGE> 108
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-54
<PAGE> 109
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-55
<PAGE> 110
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-56
<PAGE> 111
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-57
<PAGE> 112
CMS MANAGEMENT SERVICES COMPANY
UNAUDITED CONDENSED COMBINED STATEMENTS 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-58
<PAGE> 113
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-59
<PAGE> 114
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-60
<PAGE> 115
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-61
<PAGE> 116
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-62
<PAGE> 117
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-63
<PAGE> 118
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-64
<PAGE> 119
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-65
<PAGE> 120
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-66
<PAGE> 121
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-67
<PAGE> 122
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-68
<PAGE> 123
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-69
<PAGE> 124
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-70
<PAGE> 125
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-71
<PAGE> 126
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-72
<PAGE> 127
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-73
<PAGE> 128
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-74
<PAGE> 129
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-75
<PAGE> 130
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.
F-76
<PAGE> 131
NPS OF ATLANTA, INC.
AND AFFILIATE
UNAUDITED CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash...................................................... $ 92,739
Accounts receivable -- trade, net......................... 685,872
Advances to employees..................................... 6,497
Prepaid expenses.......................................... 12,555
Income tax refunds receivable............................. 20,885
Deferred income taxes, current portion.................... 6,500
----------
Total current assets.............................. 825,048
Property and equipment, net................................. 269,546
Other assets
Advances to stockholder................................... 187,514
Deposits.................................................. 1,107
Deferred income taxes..................................... 56,000
----------
Total assets...................................... $1,339,215
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 453,249
Accounts payable.......................................... 5,059
Accrued wages, payroll taxes and other liabilities........ 91,830
Capital lease obligation -- current portion............... 1,703
Deferred compensation short-term.......................... 30,000
Deferred income taxes..................................... 49,600
----------
Total current liabilities......................... 631,441
Long-term liabilities
Capital lease obligation, net............................. 322
Deferred compensation Long-term........................... 202,500
Deferred income taxes..................................... 11,400
----------
845,663
Stockholders' equity
Common stock.............................................. 2,000
Paid in capital........................................... 161,056
Retained earnings......................................... 330,496
----------
Total stockholders' equity........................ 493,552
----------
Total liabilities and stockholders' equity........ $1,339,215
==========
</TABLE>
See accompanying notes.
F-77
<PAGE> 132
NPS OF ATLANTA, INC.
AND AFFILIATE
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Revenues.................................................... $2,384,339 $2,233,847
Direct cost of sales...................................... 1,735,322 1,638,056
---------- ----------
Gross profit................................................ 649,017 595,791
Operating expenses
Selling, general and administrative expenses.............. 800,174 650,483
Depreciation.............................................. 19,177 16,902
---------- ----------
Operating loss............................................ (170,334) (71,594)
Other income (expense)
Interest expense.......................................... (8,666) (13,643)
---------- ----------
Loss before income taxes.................................... (179,000) (85,237)
Provision for income taxes.................................. -- --
---------- ----------
Net loss.................................................... $ (179,000) $ (85,237)
========== ==========
</TABLE>
See accompanying notes.
F-78
<PAGE> 133
NPS OF ATLANTA, INC.
AND AFFILIATE
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... (179,000) $ (85,237)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 19,177 16,902
(Increase) decrease in:
Accounts receivable.................................... (13,655) 386,785
Unbilled revenue....................................... -- 242,270
Other current assets................................... 9,077 6,712
Increase (decrease) in:
Checks in excess of cash in bank....................... -- (73,409)
Accounts payable....................................... (4,604) (18,407)
Accrued wages, payroll taxes and other liabilities..... 6,121 (197,936)
Deferred compensation.................................. -- (7,500)
Total adjustments........................................... 16,116 355,417
--------- ---------
Net cash provided by (used in) operating activities......... (162,884) 270,180
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment....................... (46,542) (1,520)
Advances to stockholder..................................... -- (6,764)
--------- ---------
Net cash used in investing activities....................... (46,542) (8,284)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line of credit....................... 100,000 (166,187)
Distributions to stockholders............................... -- (2,700)
Payments on capital lease obligations....................... -- (370)
--------- ---------
Net cash provided by financing activities................... 100,000 (169,257)
--------- ---------
Net increase (decrease) in cash............................. (109,426) 92,639
Cash at beginning of period................................. 113,666 100
--------- ---------
Cash at end of period....................................... $ 4,240 $ 92,739
========= =========
</TABLE>
See accompanying notes.
F-79
<PAGE> 134
NPS OF ATLANTA, INC.
AND AFFILIATE
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
JANUARY 31, 1998
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.
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 NPS of Atlanta, Inc. and Affiliate
audited financial statements for the year ended January 31, 1998, included
elsewhere in this Prospectus.
2. 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.
F-80
<PAGE> 135
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-81
<PAGE> 136
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-82
<PAGE> 137
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-83
<PAGE> 138
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-84
<PAGE> 139
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-85
<PAGE> 140
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-86
<PAGE> 141
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-87
<PAGE> 142
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-88
<PAGE> 143
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
</TABLE>
<TABLE>
<S> <C> <C> <C>
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-89
<PAGE> 144
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-90
<PAGE> 145
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
UNAUDITED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 38,138
Accounts receivable....................................... 1,147,894
Prepaid expenses.......................................... 82,971
----------
Total current assets................................. 1,269,003
Property and equipment, net................................. 21,662
Other assets................................................ 95,812
----------
Total assets......................................... $1,386,477
==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 285,880
Accrued expenses.......................................... 377,825
----------
Total current liabilities............................ 663,705
Deferred income taxes....................................... 173,000
----------
Total liabilities.................................... 836,705
Owners' equity
Common stock.............................................. 300
Additional paid in capital................................ 8,986
Retained earnings......................................... 543,872
Less cost of 100 shares of treasury stock................. (3,386)
----------
Total owners' equity................................. 549,772
----------
Total liabilities and owners' equity................. $1,386,477
==========
</TABLE>
See accompanying notes.
F-91
<PAGE> 146
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Service revenues............................................ $4,226,555 $4,556,598
Cost of services.......................................... 3,136,669 3,296,401
---------- ----------
Gross profit................................................ 1,089,886 1,260,197
Operating expenses:
Selling, general, and administrative expenses............. 945,601 783,664
Depreciation.............................................. 3,874 3,312
---------- ----------
Operating income............................................ 140,411 473,221
---------- ----------
Other (income) expense:
Interest Expense.......................................... 517 570
Other, net................................................ (2,572) (4,342)
---------- ----------
(2,055) (3,772)
---------- ----------
Income before provision for income taxes.................... 142,466 476,993
Provision for income taxes.................................. 59,380 1,000
---------- ----------
Net income.................................................. 83,086 475,993
========== ==========
</TABLE>
See accompanying notes.
F-92
<PAGE> 147
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1997 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 83,086 $475,993
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 3,874 3,312
Provision for deferred income taxes....................... -- (16,000)
Changes in assets and liabilities:
Accounts receivable.................................... (98,115) (231,811)
Prepaid expenses....................................... (23,483) (72,462)
Other assets........................................... 6,470 3,748
Accounts payable....................................... 165,878 252,980
Accrued expenses....................................... 145,982 25,774
-------- --------
Net cash provided by operating activities................... 283,692 441,534
Investing activities........................................ -- --
Capital expenditures........................................ (13,462) --
-------- --------
Net cash used in investing activities....................... (13,462) --
FINANCING ACTIVITIES
Proceeds from (principal payments on) note payable, net..... (112,000) (10,000)
Distributions to stockholders............................... -- (394,143)
-------- --------
Net cash provided (used) by financing activities............ (112,000) (404,143)
-------- --------
Increase in cash............................................ 158,230 37,391
Cash at beginning of period................................. 14,569 747
-------- --------
Cash at end of period....................................... $172,799 $ 38,138
======== ========
</TABLE>
See accompanying notes.
F-93
<PAGE> 148
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1998
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Nature of Business
Programming Management & Systems, Inc. is an information technology
staffing firm specializing in outplacement services. These services are offered
to customers primarily in the Midwestern United States.
Basis of Presentation
The unaudited condensed 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 normal recurring accruals) considered
necessary for a fair presentation have been included. These financial statements
should be read in conjunction with Programming Management & Systems, Inc.
audited financial statements for the year ended December 31, 1997, included
elsewhere in this Prospectus.
2. SUBSEQUENT EVENT
On July 2, 1998, Corporate Staffing Resources, Inc. acquired 100% of the
stock of Programming Management & Systems, Inc.
F-94
<PAGE> 149
INDEPENDENT AUDITORS' REPORT
Board of Directors
Programming Management & Systems, Inc.
St. Louis, Missouri
We have audited the accompanying balance sheet of Programming Management &
Systems, Inc. as of December 31, 1997 and the related statements of income
changes in 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Programming Management &
Systems, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ STONE CARLIE & COMPANY, L.L.C.
St. Louis, Missouri
June 16, 1998
F-95
<PAGE> 150
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Cash and cash equivalents................................. $ 747
Accounts receivable....................................... 916,083
Prepaid expenses.......................................... 10,509
Deferred income taxes..................................... 33,000
----------
Total current assets................................. 960,339
----------
Property and equipment
Computer equipment........................................ 92,372
Furniture and fixtures.................................... 22,160
----------
114,532
Less accumulated depreciation............................. 89,558
----------
24,974
----------
Other assets
Cash surrender value of life insurance policies........... 69,155
Other..................................................... 30,405
----------
99,560
----------
$1,084,873
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable.............................................. $ 10,000
Accounts payable.......................................... 32,900
Accrued salaries and wages................................ 164,867
Accrued health care liability............................. 67,000
Other accrued expenses.................................... 120,184
----------
Total current liabilities............................ 394,951
----------
Deferred income taxes....................................... 222,000
----------
Stockholders' equity
Common stock; $1 par value, 30,000 shares authorized, 300
shares issued and outstanding.......................... 300
Additional paid-in capital................................ 8,986
Retained earnings......................................... 462,022
----------
471,308
Less cost of 100 shares of treasury stock................. 3,386
----------
467,922
----------
$1,084,873
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE> 151
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net sales................................................... $8,567,749
Cost of services............................................ 6,260,993
----------
Gross profit................................................ 2,306,756
Selling, general and administrative expenses................ 2,307,718
----------
Loss from operations........................................ (962)
Other income................................................ 29,342
----------
Income before income taxes.................................. 28,380
Income tax expense.......................................... 7,000
----------
Net income.................................................. $ 21,380
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 152
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- -------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996...... 180 $180 $9,106 $440,642 100 ($3,386) $446,542
Shares of common stock
retired....................... (80) (80) 80 -- -- -- --
Shares of common stock issued... 200 200 ($ 200) -- -- -- --
Net income...................... -- -- -- 21,380 -- -- 21,380
--- ---- ------ -------- --- ------- --------
Balance, December 31, 1997...... 300 $300 $8,986 $462,022 100 ($3,386) $467,922
=== ==== ====== ======== === ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-98
<PAGE> 153
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 21,380
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 7,188
Deferred income taxes..................................... (55,000)
Changes in operating assets and liabilities
Accounts receivable.................................... 15,521
Prepaid expenses....................................... 27,772
Other assets........................................... 12,244
Accounts payable....................................... 26,681
Accrued salaries and wages............................. 28,466
Accrued health care liability.......................... (12,000)
Other accrued expenses................................. 70,191
---------
Net cash provided by operating activities................... 142,443
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment.......................... (13,463)
Increase in cash surrender value of life insurance
policies.................................................. (20,802)
---------
Net cash used by investing activities....................... (34,265)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable.................................. 300,000
Principal payments on note payable.......................... (422,000)
---------
Net cash used by financing activities....................... (122,000)
---------
Net decrease in cash and cash equivalents................... (13,822)
Cash and cash equivalents, beginning of year................ 14,569
---------
Cash and cash equivalents, end of year...................... $ 747
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 840
=========
Cash paid for income taxes.................................. $ 2,836
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-99
<PAGE> 154
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Programming Management & Systems, Inc. (the company) is a St. Louis based
staffing company specializing in the placement of information technology
personnel on a contract basis with Midwestern manufacturing and health care
companies.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid financial instruments purchased
with a maturity of three months or less to be cash equivalents.
The company places its cash and cash equivalents in a high quality bank.
These balances occasionally exceed federally insured limits.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of five to seven years.
ACCRUED HEALTH CARE LIABILITY
The accrued health care liability represents the estimated costs of known
and anticipated claims under the company's health insurance policies. For each
claim, the company self-insures up to the actual amount or deductible of the
claim, whichever is lower.
REVENUE RECOGNITION
Revenues are recognized as income in the period the related services are
provided.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are computed using the liability method. Under this method,
income tax expense is the tax payable or refundable for the current period plus
or minus the net change in deferred tax assets and liabilities. Deferred income
tax assets and liabilities are computed for those differences between the
financial and tax basis of assets and liabilities that have future tax
consequences, using the currently enacted tax laws and rates. Deferred income
tax assets and liabilities are classified as current and noncurrent based on the
classification of the related assets or liabilities for financial reporting
purposes, or based on the expected reversal date for deferred taxes that are not
related to an asset or liability. Valuation allowances are established, if
necessary, to reduce a deferred tax asset to the amount that will more likely
than not be realized.
CONCENTRATION OF CREDIT RISKS
The company's principal financial instruments subject to credit risk are
accounts receivable. Management provides an allowance for doubtful accounts
based on an evaluation of potentially uncollectible accounts. Management has
determined that an allowance for doubtful accounts is not necessary at December
31, 1997.
F-100
<PAGE> 155
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- NOTE PAYABLE
The note payable balance is the amount drawn on a $500,000 line of credit
with a bank. Amounts drawn on the line are due on demand. The line of credit
expires April 18, 1998. Outstanding balances are secured by accounts receivable.
Interest accrues at the bank's prime rate plus 1.5 percent (10 percent at
December 31, 1997) and is payable monthly.
Upon expiration of the note agreement, the company renewed the line of
credit through April 1999 under the same terms and conditions except for the
interest rate, which is equal to the bank's prime rate plus one percent.
NOTE 3 -- INCOME TAXES
The components of income tax expense for the year ended December 31, 1997
are as follows:
<TABLE>
<S> <C>
Current income tax expense
Federal................................................... $ 52,000
State..................................................... 10,000
--------
62,000
Deferred income tax benefit (55,000)
--------
$ 7,000
========
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Current deferred income tax assets:
Accrued vacation.......................................... $ 7,000
Accrued health care liability............................. 24,000
Other..................................................... 2,000
---------
$ 33,000
=========
Noncurrent deferred income tax liabilities:
Cash to accrual conversion................................ $(213,000)
Depreciation.............................................. (9,000)
---------
$(222,000)
=========
</TABLE>
Effective January 1, 1997, the company converted from the cash to accrual
basis of accounting for income tax purposes. The deferred tax liability
presented above represents the remaining balance of income taxes to be paid as a
result of this conversion. The company will make these payments in four equal
annual installments beginning in 1997.
NOTE 4 -- LEASES
The Company leases equipment and office space under noncancellable
operating lease agreements that expire at various dates through 1999. Future
minimum lease payments required under agreements with lease terms in excess of
one year are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998............................................... $23,760
1999............................................... 5,640
-------
$29,400
=======
</TABLE>
F-101
<PAGE> 156
PROGRAMMING MANAGEMENT & SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense is $24,648 for the year ended December 31, 1997. The office
space is leased from a partnership related through common ownership. Rent
expense under this lease is $9,300 for the year ended December 31, 1997.
NOTE 5 -- BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan that covers
employees who have met certain eligibility requirements. An employee can defer
up to 20 percent of eligible compensation under the plan, subject to Internal
Revenue Service limitations. The plan provides for a company match of 75 percent
of the first 6 percent of an employee's deferral as well as discretionary
company profit sharing contributions. Company contributions are $274,907 for the
year ended December 31, 1997.
NOTE 6 -- BUSINESS CONCENTRATIONS
Approximately 71 percent of net sales for the year ended December 31, 1997
relates to four significant customers, each representing greater than 10 percent
of net sales. The loss of one or more of these customers could have a material
adverse effect on the company. Accounts receivable related to these customers is
$447,472 at December 31, 1997.
NOTE 7 -- SUBSEQUENT EVENTS
Effective January 1, 1998, the Company elected to be taxed under the
provisions of subchapter "S" of the Internal Revenue Code. Under these
provisions, the Company does not pay federal or state corporate income taxes on
its taxable income. Instead, the stockholders report their proportionate share
of the company's taxable income or loss on their personal income tax returns.
As a result of the election, deferred income tax assets of $33,000 and
deferred income tax liabilities of $9,000 at December 31, 1997 will be reversed
and charged to income tax expense during 1998. The remaining deferred income
taxes represent certain corporate level income taxes related to the conversion
from the cash to the accrual basis of accounting for income tax purposes (See
Note 3).
The company is currently negotiating the sale of its business to Corporate
Staffing Resources, Inc. Under the terms of the proposed sale, Corporate
Staffing Resources, Inc. will acquire 100 percent of the outstanding common
stock of the company for an amount equal to a multiple of earnings before
interest and taxes adjusted for certain recurring, nonrecurring and contingent
amounts.
F-102
<PAGE> 157
================================================================================
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........................... 14
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 28
Management............................ 36
Certain Relationships and Related
Transactions........................ 42
Principal and Selling Stockholders.... 46
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 49
Underwriting.......................... 50
Legal Matters......................... 51
Experts............................... 51
Additional Information................ 52
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> 158
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.......................................... 85,000.00
Printing Fees and Expenses.................................. 150,000.00
Legal Fees and Expenses..................................... 250,000.00
Accounting Fees and Expenses................................ 250,000.00
Blue Sky Fees and Expenses.................................. 5,000.00
Transfer Agent's and Registrar's Fees....................... 5,000.00
Miscellaneous............................................... 20,431.25
-----------
TOTAL............................................. $800,000.00
===========
</TABLE>
The Selling Stockholders will bear the underwriting commissions and
discounts associated with the Common Stock sold by them in the Offering, the
fees and expenses of their legal counsel and certain other expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law (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 provides that the Company shall, to the fullest
extent permitted by Section 145 of the General Company Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a Director, officer, employee or agent and shall
insure to the benefit of the heirs, executors and administrators of such person.
The Company's Bylaws provide that the Company shall indemnify to the
maximum extent permitted by law any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Company) by reason of the fact
that he is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another Company,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable
II-1
<PAGE> 159
cause to believe his conduct was unlawful. To the extent that a present or
former director or officer of the Company shall be successful on the merits or
otherwise in defense of any action, suit or proceeding, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
The form of underwriting agreement, filed as Exhibit 1.01 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 Securities Act
of 1933, as amended, by virtue of Section 4(2) or 3(a)(9) thereunder. No
underwriters were involved in connection with the sales of these securities.
<TABLE>
<CAPTION>
EXEMPTION
SECURITIES SOLD PURCHASERS CONSIDERATION CLAIMED
--------------- ---------- ------------- ---------
<S> <C> <C> <C>
4,425,002 shares of Common Temporary Simon, L.L.C., IPP All outstanding capital stock of Section 4(2)
Stock on December 3, 1997 97 Private Equity, L.L.C., CSR, Inc.
ING (U.S.) Capital
Corporation, Mellon
Ventures, L.P., William W.
Wilkinson, William J.
Wilkinson, Thomas E. Murphy
and five other individuals
2,839,779 shares of Common D. Crawford Gallimore, T. Exchange of each share of the Section 3(a)(9)
Stock on December 3, 1997 Wayne McCreight, Jerry F. Company's non-voting common stock
Stone, H. Ronald Stone, for .3994 shares of Common Stock
Ginger S. McDonald Trust,
Sarah Katherine Stone Trust,
Carmen Nicole Stone Trust,
Sarah Ashley Stone Trust,
Heath Shepherd Stone Trust
and Hal H. Bibee
362,376 shares of Common Stock CreditAanstalt Corporate Exchange of outstanding warrants Section 3(2)(9)
on December 3, 1997 Finance, Inc. (each exerciseable into 1 share of
Common Stock) for new warrants
(each exerciseable into .699718858
shares of Common Stock) and
exercise of such warrants
796,752 shares of Common Stock D. Crawford Gallimore, T. All outstanding membership Section 4(2)
and 794,748 shares of Wayne McCreight interests in The Hamilton-Ryker
non-voting common stock on Company, LLC
March 12, 1997
2,897,140 shares of Common Jerry F. Stone, H. Ronald Capital contribution of all Section 4(2)
Stock, 2,897,134 shares of non- Stone, Ginger S. McDonald outstanding capital stock of Mega
voting common stock and Trust, Sarah Katherine Stone Force Staffing Services, Inc.
springing warrants to purchase Trust, Carmen Nicole Stone
99,594 pre-split shares of Trust, Sarah Ashley Stone
Common Stock on March 12, 1997 Trust, Heath Shepherd Stone
Trust, and Hal H. Bibee
258,944 warrants (each CreditAnstalt Corporate Extension of credit under Loan Section 4(2)
exerciseable into 1 share of Finance, Inc. Agreement
Common Stock at $.01) on March
12, 1997
</TABLE>
II-2
<PAGE> 160
ITEM 16. EXHIBITS.
(a)
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<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 -- Agreement and Plan of Merger by and between CSR, Inc.
and The Mega Force Staffing Companies, Inc., dated as of
December 3, 1997.
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 dated
as of May 1, 1998.
*2.06 -- Asset Purchase Agreement, dated as of May 6, 1998, by
and among Corporate Staffing Resources LLC, Monday
Temporary Services, Inc. and John Monday and Susan
Monday.
*2.07 -- Stock Purchase Agreement, dated as of July 2, 1998, by
and among Corporate Staffing Resources, Inc. and Susan
E. Volk and Gary T. Volk, Trustees under the Volk Living
Trust, and Gerald R. Miller.
*2.08 -- Stock Purchase Agreement, dated as of June 25, 1998, by
and among Corporate Staffing Resources, Inc. and Scott
M. Herron and Darryl Vidal.
*3.01 -- Restated Articles of Incorporation
*3.02 -- Bylaws
**4.01 -- Specimen Common Stock Certificate
*5.01 -- Form of 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 -- Corporate Staffing Resources, Inc. Non-Qualified Stock
Option Plan
</TABLE>
II-3
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- -----------
<C> <S> <C> <C>
*10.08 -- First Amendment to the Corporate Staffing Resources,
Inc. Non-Qualified Stock Option Plan
*10.09 -- Amended and Restated Loan Agreement, dated as of May 14,
1998, by and among Corporate Staffing Resources, Inc.,
as Borrower, ING (U.S.) Capital Corporation and
CreditAnstalt Corporate Finance, Inc. as Co-Agents, ING
(U.S.) Capital Corporation, CreditAnstalt Corporate
Finance, Inc. and Societe Generale, as Lenders and ING
(U.S.) Capital Corporation, as Administrative Agent.
*10.10 -- Registration Rights Agreement
*10.11 -- Stockholders Agreement
**10.12 -- Amendment of Stockholders Agreement
*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.
*23.01(g) -- Consent of Stone, Carlie & Company, L.L.C. with respect
to the financial statements of Programming Management &
Systems, Inc.
23.02 -- Consent of Latham & Watkins
24.01 -- Power of Attorney (included on signature pages hereto)
*27.01 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
** To be filed by amendment.
*** Executed opinion 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
II-4
<PAGE> 162
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.
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-5
<PAGE> 163
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
September 25, 1998.
CORPORATE STAFFING RESOURCES, INC.
By /s/ WILLIAM W. WILKINSON
--------------------------------------
William W. Wilkinson
Chairman and Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <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
/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
*By: /s/ WILLIAM W. WILKINSON
-------------------------------------------
William W. Wilkinson
Individually and as
Attorney-in-Fact
</TABLE>
S-1
<PAGE> 164
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-2
<PAGE> 1
EXHIBIT 2.02
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CSR, INC.
AND
THE MEGA FORCE STAFFING COMPANIES, INC.
Dated as of: December 3, 1997
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 3, 1997 (this
"Agreement"), is entered into by and between CSR, INC., a Delaware corporation
("CSR"), and THE MEGA FORCE STAFFING COMPANIES, INC., a Delaware corporation
("MFSC"). CSR and MFSC are each referred to herein individually as a "Party"
and collectively as the "Parties."
RECITALS
A. The respective boards of directors of MFSC and CSR have approved
the combination of the businesses of CSR and MFSC pursuant to the terms of this
Agreement.
B. In furtherance of such combination, the respective boards of
directors of MFSC and CSR have approved the merger of CSR with and into MFSC,
with MFSC being the surviving corporation (the "Merger"), pursuant to the terms
of this Agreement and in accordance with the applicable provisions of the
Delaware General Corporation Law (the "Delaware Law").
C. The board of directors of MFSC has resolved to recommend the Merger
and the adoption of this Agreement to the MFSC Stockholders (as defined below),
subject to the terms, conditions and agreements set forth hereinafter.
D. The board of directors of CSR has resolved to recommend the Merger
and the adoption of this Agreement to the CSR Stockholders (as defined below),
subject to the terms, conditions and agreements set forth hereinafter.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and premises
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.
"Advisors" shall have the meaning set forth in Section 6.2.
"Affiliate" shall have the meaning set forth in the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder. Without
limiting the foregoing, all directors and officers of a Person (as defined
below) that is a corporation, all managing partners of a Person that is a
partnership 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 Agreement and Plan of Merger.
1
<PAGE> 3
"Applicable Contract" shall mean any Contract (a) under which any
Party has or may acquire any rights, (b) under which any Party has or may become
subject to any obligation or Liability, or (c) by which any Party or any of the
assets owned or used by it is or may become bound.
"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
material inaccuracy in or material breach of, or any material 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 materially inconsistent with such representation, warranty,
covenant, obligation, or other provision.
"CSR" shall mean CSR, Inc., a Delaware corporation, prior to the
Effective Date.
"CSR Accounts Receivable" shall have the meaning set forth in Section
4.8.
"CSR Balance Sheet" shall have the meaning set forth in Section 4.4.
"CSR Certificates" shall have the meaning set forth in Section 2.6(a).
"CSR Closing Documents" shall have the meaning set forth in Section
4.2(a).
"CSR Common Stock" shall mean the common stock, par value $.01, of
CSR.
"CSR Copyrights" shall have the meaning set forth in Section 4.20(a).
"CSR Dissenting Shares" shall mean the CSR Common Stock and CSR
Preferred Stock held by any CSR Stockholder who becomes entitled to the payment
of fair value for his CSR Common Stock or CSR Preferred Stock, as the case may
be, under the Delaware Law if the Delaware Law provides for such payment in
connection with the Merger.
"CSR Exchange Agent" shall mean CSR in its role as the agent of the
CSR Stockholders and for the purposes provided in Sections 2.5 and 2.6.
"CSR Financial Statements" shall have the meaning set forth in Section
4.4.
"CSR Indemnified Parties" shall have the meaning sat forth in Section
10.2(b).
"CSR Intellectual Property Assets" shall have the meaning set forth in
Section 4.20(a).
"CSR Interim Balance Sheet" shall have the meaning set forth in
Section 4.4.
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<PAGE> 4
"CSR Marks" shall have the meaning set forth in Section 4.20(a).
"CSR Other Benefit Obligation" shall mean an Other Benefit Obligation
owed, adopted or followed by CSR or an ERISA Affiliate CSR.
"CSR Patents" shall have the meaning set forth in Section 4.20(a).
"CSR Plan" shall mean all Plans of which CSR or an ERISA Affiliate of
CSR is or was a Plan Sponsor, or to which CSR or an ERISA Affiliate of CSR
otherwise contributes or has contributed, or in which CSR or an ERISA Affiliate
of CSR otherwise participates or has participated. All references to Plans in
Section 4.12 are to CSR Plans unless the context requires otherwise.
"CSR Preferred Stock" shall mean the Series A Preferred Stock, par
value $.01 per share, of CSR.
"CSR Stockholders" shall mean (i) the holders of the CSR Common Stock
and CSR Preferred Stock prior to the effectiveness of the Merger and (ii) the
Persons described in clause (i) above and their permitted transferees after the
effectiveness of the Merger.
"CSR Stockholders' Consent" shall have the meaning set forth in
Section 2.1.
"CSR Trade Secrets" shall have the meaning set forth in Section
4.20(a).
"CSR VEBA" shall mean a VEBA whose members include employees of CSR or
any ERISA Affiliate of CSR.
"CERCLA" shall mean the United States Comprehensive Environmental
Response, Compensation, and Liability Act. 42 U.S.C. Section 9601 et seq., as
amended.
"Certificate of Merger" shall mean that certain Certificate of Merger
dated as of the Effective Date, substantially in the form of Exhibit I hereto.
"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 redemption or response actions.
"Closing" shall mean the closing of the Transactions on the Effective
Date at and as of the Effective Time.
"Consent" shall mean any approval, consent, ratification, waiver or
other authorization (including any Governmental Authorization).
"Constituent Corporations" shall have the meaning set forth in Section
2.2.
3
<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.
Damages" shall have the meaning set forth in Section 10.2(a) hereof.
"Delaware Law" shall have the meaning set forth in Recital B.
"Disclosure Schedules" shall mean the schedules prepared and delivered
by each Party for and to the other Parties 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.
"Effective Date" shall have the meaning set forth in Section 2.2.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Employment Agreements" shall have the meaning set forth in Section
3.2(f).
"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 inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under 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
4
<PAGE> 6
(d) any other compliance, corrective, investigative or remedial
measures required under Environmental 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, California Health & Safety Code
(Section 25100 et seq., Section 39000 et seq.), and 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, as amended, 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, would 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.
"Facilities" shall mean any real property, leaseholds, or other
interests currently or formerly owned or operated by a Party (or any of its
Subsidiaries) and any buildings, plants, structures, or equipment (including
motor vehicles, tank cars and rolling stock) currently or formerly owned or
operated by a Party (or any of its Subsidiaries).
"Family" shall mean, with respect to any individual, (i) the
individual, (ii) 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.
"GAAP" shall mean United States generally accepted accounting
principles, applied on a consistent basis.
5
<PAGE> 7
"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);
(d) multi-national organization or body; or
(e) body exercising, or emitted 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 Parties.
"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.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, or any successor law, and all regulations and rules issued
pursuant to that Act or any successor law.
"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 fan or other matter if:
(a) such individual is actually aware of such fact or other matter; or
6
<PAGE> 8
(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, managing member,
executor or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"Legal Requirement" 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.
"Make-Whole Distribution" shall have the meaning set forth in Section
10.2(e).
"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.
"MFSC" shall mean The Mega Force Staffing Companies, Inc., a Delaware
corporation.
"MFSC Accounts Receivable" shall have the meaning set forth in Section
5.8.
"MFSC Balance Sheets" shall have the meaning set forth in Section 5.4.
"MFSC Certificates" shall have the meaning set forth in Section
2.6(a).
"MFSC Closing Documents" shall have the meaning set forth in Section
5.2(a).
"MFSC Common Stock" shall mean, collectively, the MFSC Voting Common
Stock and the MFSC Non-Voting Common Stock.
"MFSC Copyrights" shall have the meaning set forth in Section 5.20(a).
"MFSC Dissenting Shares" shall mean the MFSC Voting Common Stock or
MFSC Non-Voting Common Stock held by any MFSC Stockholder who becomes entitled
to the payment of
7
<PAGE> 9
fair value for his MFSC Voting Common Stock or MFSC Non-Voting Common Stock
under the Delaware Law if the Delaware Law provides for such payment in
connection with the Merger.
"MFSC Exchange Agent" shall mean MFSC in its role as the agent of the
MFSC Stockholders and for the purposes provided in Sections 2.5 and 2.6.
"MFSC Financial Statements" shall have the meaning set forth in
Section 5.4.
"MFSC Indemnified Parties" shall have the meaning set forth in Section
10.2(a).
"MFSC Intellectual Property Assets" shall have the meaning set forth
in Section 5.20(a).
"MFSC Interim Balance Sheet" shall have the meaning set forth in
Section 5.4.
"MFSC Marks" shall have the meaning set forth in Section 5.20(a).
"MFSC Non-Voting Common Stock" shall mean the class B non-voting
common stock, par value $.01 per share, of MFSC.
"MFSC Other Benefit Obligation" shall mean an Other Benefit Obligation
owed, adopted or followed by MFSC or an ERISA Affiliate of MFSC.
"MFSC Patents" shall have the meaning set forth in Section 5.20(a).
"MFSC Plan" shall mean all Plans of which MFSC or an ERISA Affiliate
of MFSC is or was a Plan Sponsor, or to which MFSC or an ERISA Affiliate of MFSC
otherwise contributes or has contributed, or in which MFSC or an ERISA Affiliate
of MFSC otherwise participates or has participated. All references to Plans in
Section 5.12 are to MFSC Plans unless the context requires otherwise.
"MFSC Stockholders" shall mean (i) the holders of the MFSC Common
Stock prior to the effectiveness of the Merger and (ii) the holders of MFSC
Common Stock after the effectiveness of the Merger to the extent that such
Persons (x) obtained such MFSC Common Stock as Merger Consideration upon
conversion of their MFSC Non-Voting Common Stock upon the effectiveness of the
Merger or (y) held such MFSC Common Stock immediately prior to the effectiveness
of the Merger, and the permitted transferees of such Persons.
"MFSC Stockholders' Consent" shall have the meaning set forth in
Section 2.1.
"MFSC Trade Secrets" shall have the meaning set forth in Section
5.20(a).
"MFSC VEBA" shall mean a VEBA whose members include employees of MFSC
or any ERISA Affiliate of MFSC.
"MFSC Voting Common Stock" shall mean the class A common stock, par
value $.01 per share, of MFSC, and, after the Effective Time, shall mean the
common stock, par value $.01 per share, of the Surviving Corporation.
8
<PAGE> 10
"Merger" shall have the meaning set forth in Recital B.
"Merger Consideration" shall have the meaning set forth in Section
2.3(a).
"Multi-Employer Plan" shall have the meaning set forth in ERISA
Section 3(37)(A).
"New Certificate" shall have the meaning set forth in Section 2.6(a).
"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 by applicable law or the
Organizational Documents of such Person 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 (i) the articles or certificate
of incorporation, all certificates of determination or designation and the
bylaws of the subject corporation, (ii) the partnership agreement and any
statement of partnership of the subject general partnership, (iii) the limited
partnership agreement and certificate of limited partnership of the subject
limited partnership, (iv) the certificate of formation and operating agreement
or limited liability company agreement of the subject limited liability company,
and (v) any other charter or similar document adopted or filed in connection
with the creation, formation or organization of the subject Person, and all
amendments 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.
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<PAGE> 11
"Party" shall have the meaning set forth in the preamble hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"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).
"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 6.8.
"Qualified Plan" shall mean any Plan that meets or purports to meet
the requirements of IRC Section 401(a).
"Registration Rights Agreement" shall have the meaning set forth in
Section 3.2(d).
"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,
managing member, executor or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(u) 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;
(v) any Person that holds a Material Interest in such specified
Person;
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<PAGE> 12
(w) each Person that serves as a director, officer, partner, managing
member, executor or trustee of such specified Person (or in a similar
capacity);
(x) any Person in which such specified Person holds a Material
Interest;
(y) any Person with respect to which such specified Person serves as a
general partner, managing member or a trustee (or in a similar capacity);
and
(z) any Related Person of any individual described in clause (v) or
(w).
"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.
"Stockholders' Agreement" shall have the meaning set forth in Section
3.2(e).
"Stockholders' Consents" shall have the meaning set forth in Section
2.1.
"Stone Documents" shall have the meaning set forth in Section 3.2(g).
"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.
"Surviving Corporation" shall have the meaning set forth in Section
2.2.
"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, 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.
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"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 any such claim, Proceeding, dispute, action or other matter has
been made in writing or, to the Knowledge of a Person, by means of any other
notice, or if 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.
"Title IV Plans" shall mean all Pension Plans that are subject to
Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer
Plans.
"Transaction Documents" shall mean this Agreement, the Certificate of
Merger, the Employment Agreements, the Stone Documents, the Stockholders'
Agreement and the Registration Rights Agreement and all other documents or
instruments executed, filed or otherwise prepared, exchanged or delivered in
accordance with this Agreement.
"Transactions" shall mean the Merger and the other transactions
contemplated by the Transaction Documents.
"VEBA" shall mean a voluntary employees' beneficiary association which
is exempt or purported to be exempt from federal taxation under IRC Section
501(c)(9).
"Welfare Plan" shall have the meaning given in ERISA Section 3(1).
ARTICLE II.
THE MERGER
2.1 Approval of the Transactions. The Transactions and the Transaction
Documents shall be submitted for adoption and approval of the MFSC Stockholders
in a manner allowed under the Delaware Law (the "MFSC Stockholders' Consent").
The Transactions and the Transaction Documents shall be submitted for adoption
and approval to the CSR Stockholders in a manner allowed under the Delaware Law
(individually, the "CSR Stockholders' Consent" and together with the MFSC
Stockholders' Consent, the "Stockholders' Consents"). MFSC and CSR shall
coordinate and cooperate with respect to the timing of such Stockholders'
Consents. The board of directors of MFSC shall recommend that the MFSC
Stockholders approve and adopt this Agreement, the other Transaction Documents
and the Transactions. The board of directors of CSR shall recommend that the CSR
Stockholders approve and adopt this Agreement, the other Transaction Documents
and the Transactions.
2.2 The Merger. As soon as practicable after the satisfaction or
waiver of the conditions contained herein, the Parties hereto will cause the
Merger to be consummated by filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (the time of such filing being the
"Effective Time," and the date upon which the Effective Time occurs, the
"Effective Date"), which certificate shall be in the form of Exhibit I attached
hereto. At the Effective Time, in accordance with this Agreement and the
Delaware Law, CSR shall be merged with and into MFSC,
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the separate existence of CSR (except as may be continued by operation of law)
shall cease, and MFSC shall continue as the surviving corporation. MFSC and CSR
are sometimes referred to herein as the "Constituent Corporations," and MFSC
(following the consummation of the Merger) is sometimes referred to herein as
the "Surviving Corporation." The Certificate of Merger shall (i) provide that
the name of the Surviving Corporation shall be changed from "The Mega Force
Staffing Companies, Inc." to "Corporate Staffing Resources, Inc." and (ii) shall
amend and restate the certificate of incorporation of the Surviving Corporation
in the manner set forth in Exhibit I hereto.
2.3 Effect of the Merger.
(a) Except for MFSC Dissenting Shares, CSR Dissenting Shares or shares
of MFSC Common Stock, CSR Common Stock and CSR Preferred Stock described in
Section 2.3(b), and in each case subject to adjustment as provided in Section
2.6(e), (i) each share of MFSC Non-Voting Common Stock issued and outstanding
immediately prior to the Effective Time shall automatically be converted into
0.3994 fully paid and nonassessable shares of MFSC Voting Common Stock, (ii)
each share of CSR Common Stock issued and outstanding immediately prior to the
Effective Time shall automatically be converted into 5.9871 fully paid and
nonassessable shares of MFSC Voting Common Stock, (iii) each share of CSR
Preferred Stock issued and outstanding immediately prior to the Effective Time
shall automatically be converted into 7.8975 fully paid and nonassessable shares
of MFSC Voting Common Stock and (iv) the 258,944 warrants held by
Creditanstalt-Bankverein, Cayman Islands Branch, each of which is presently
exercisable into one (1) share of either MFSC Voting Common Stock or MFSC
Non-Voting Common Stock, at an exercise price of $.01 per warrant (the
"Creditanstalt Warrants"), shall automatically be converted into 258,944
warrants each of which shall be exercisable into .699718858 shares of MFSC
Voting Common Stock, at an exercise price of $.01 per warrant, and such warrants
shall be exercised immediately after the Effective Time. The MFSC shares of MFSC
Voting Common Stock into which MFSC Non-Voting Common Stock, CSR Common Stock
and CSR Preferred Stock have been automatically converted as a result of the
Merger, plus cash in lieu of any fractional share pursuant to Section 2.6(f),
are sometimes collectively referred to herein as the "Merger Consideration."
With respect to any shares of CSR Common Stock that were issued pursuant to the
CSR, Inc. Employee Stock Incentive Plan, the Merger Consideration will be issued
pursuant to an MFSC employee stock incentive plan. Immediately following
consummation of the Merger and the transactions contemplated by the Stone
Documents (and assuming further that there are no CSR Dissenting Shares and that
there are no MFSC Dissenting Shares), the CSR Stockholders will own, in the
aggregate, 45.72% of the outstanding capital stock of the Surviving Corporation
and the MFSC Stockholders will own, in the aggregate, 54.28% of the outstanding
stock of the Surviving Corporation.
(b) Each share of MFSC Non-Voting Common Stock, CSR Common Stock and
CSR Preferred Stock held in treasury by MFSC or owned by CSR shall be cancelled
and retired, and no payment or conversion into Merger Consideration shall be
made with respect thereto.
(c) At and after the Effective Date, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations; and all singular rights,
privileges, powers and franchises of either of the Constituent Corporations, and
all property, real, personal and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation, and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter the property of
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the Surviving Corporation as they were of the Constituent Corporations, the
title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations, shall not revert or be in any way impaired; but all
rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired, and all debts,
Liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts and Liabilities had been incurred by it.
2.4 MFSC Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, MFSC Dissenting Shares, if any, shall not be converted into the
Merger Consideration or the right to receive cash in lieu of fractional shares
of MFSC Common Stock, but holders of such MFSC Dissenting Shares shall be
entitled to receive payment of the appraised value of such shares (which payment
shall be made from the assets of MFSC) in accordance with the provisions of
Section 262 of the Delaware Law, except that any MFSC Dissenting Shares held by
a stockholder who shall thereafter withdraw such demand for appraisal of such
shares, or shall lose the right to appraisal as provided in such Section 262,
shall thereupon be deemed to have been converted at the Effective Time into the
Merger Consideration, subject to adjustment as set forth in Section 2.6(e). The
MFSC Exchange Agent shall direct all negotiations and proceedings with respect
to demands for appraisals under the Delaware Law and shall be responsible for
paying any and all amounts required to be paid to holders of MFSC Dissenting
Shares thereunder and any other amounts due to the MFSC Dissenting Stockholders
as a result of this Agreement and the consummation of the Transactions.
2.5 CSR Dissenting Shares. Notwithstanding anything in this Agreement
to the contrary, CSR Dissenting Shares, if any, shall not be converted into the
Merger Consideration or the right to receive cash in lieu of fractional shares
of MFSC Common Stock, but holders of such Dissenting Shares shall be entitled to
receive payment of the appraised value of such shares (which payment shall be
made from the assets of CSR) in accordance with the provisions of Section 262 of
the Delaware Law, except that any CSR Dissenting Shares held by a stockholder
who shall thereafter withdraw such demand for appraisal of such shares, or shall
lose the right to appraisal as provided in such Section 262, shall thereupon be
deemed to have been converted at the Effective Time into the Merger
Consideration, subject to adjustment as sat forth in Section 2.6(e). The CSR
Exchange Agent shall direct all negotiations and proceedings with respect to
demands for appraisals under the Delaware Law and shall be responsible for
paying any and all amounts required to be paid to holders of CSR Dissenting
Shares thereunder and any other amounts due to the CSR Dissenting Stockholders
as a result of this Agreement and the consummation of the Transactions.
2.6 Surrender and Payment.
(a) Prior to the Effective Time, CSR and MFSC shall appoint (i)
MFSC to act as the MFSC Exchange Agent for the purpose of exchanging
certificates which, prior to the Effective Time, represented shares of MFSC
Non-Voting Common Stock that are not MFSC Dissenting Shares (the "MFSC
Certificates") for the certificates representing the applicable Merger
Consideration (the "New Certificates") and (ii) MFSC to act as the CSR Exchange
Agent for the purpose of exchanging certificates which, prior to the Effective
Time, represented shares of CSR Common Stock and CSR Preferred Stock that are
not CSR Dissenting Shares (the "CSR Certificates") for New Certificates. At the
Effective Time, MFSC shall deposit or cause to be deposited with the CSR
Exchange Agent and the MFSC Exchange Agent such New Certificates and any
requisite cash for payments in lieu of fractional shares of MFSC Common Stock
pursuant to Section 2.6(f). The MFSC Exchange Agent will send to each holder of
shares of MFSC Non-Voting Common Stock a letter of transmittal (or other
appropriate notification and transmittal document) for use in such exchange
(which shall specify
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that the delivery shall be effected, and risk of loss and title shall pass,
only upon proper delivery of the MFSC Certificates to the MFSC Exchange
Agent). The MFSC Exchange Agent shall cancel all such MFSC Certificates. The
CSR Exchange Agent will send to each holder of shares of CSR Common Stock and
CSR Preferred Stock a letter of transmittal (or other appropriate notification
and transmittal document) for use in such exchange (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the CSR Certificates to the CSR Exchange Agent). The CSR
Exchange Agent shall cancel all such CSR Certificates and shall promptly
deliver them to MFSC.
(b) Each holder of shares of MFSC Non-Voting Common Stock, CSR
Common Stock or CSR Preferred Stock that have been converted into the Merger
Consideration, upon surrender to the CSR Exchange Agent or the MFSC Exchange
Agent (as the case may be) of the CSR Certificate or Certificates or MFSC
Certificate or Certificates (as the case may be) which, prior to the Effective
Time, represented such shares of MFSC Non-Voting Common Stock, CSR Common Stock
or CSR Preferred Stock (as the case may be), together with a properly completed
letter of transmittal or other appropriate document covering such shares of MFSC
Non-Voting Common Stock, CSR Common Stock or CSR Preferred Stock (as the case
may be), will be entitled to receive the Merger Consideration exchangeable for
such shares of MFSC Non-Voting Common Stock, CSR Common Stock or CSR Preferred
Stock (as the case may be) in accordance with the provisions of Section 2.3(a)
hereof, subject to adjustment pursuant to Section 2.6(e). Until so surrendered,
each such MFSC Certificate and CSR Certificate shall after the Effective Time
represent for all purposes only the right to receive the applicable Merger
Consideration from the CSR Exchange Agent or the MFSC Exchange Agent (as the
case may be) as provided herein.
(c) If any Merger Consideration is to be paid other than to (i)
the registered holder of the shares of MFSC Non-Voting Common Stock represented
by the MFSC Certificate or Certificates surrendered in exchange therefor or (ii)
the registered holder of the shares of CSR Common Stock or CSR Preferred Stock
represented by the CSR Certificate or Certificates surrendered in exchange
therefor, it shall be a condition to such payment that the MFSC Certificate or
Certificates or CSR Certificate or Certificates (as the case may be) so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Surviving
Corporation any transfer or other taxes required as a result of such payment or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not payable.
(d) After the Effective Time, there shall be no further
registration or transfers of shares of CSR Common Stock or CSR Preferred Stock
on the stock transfer books of CSR or of the MFSC Non-Voting Common Stock on the
transfer books of MFSC. If, after the Effective Time, MFSC Certificate or CSR
Certificates are presented to the Surviving Corporation they shall be cancelled
and exchanged for that amount of Merger Consideration as may be required in
accordance with the procedures set forth in this Article II.
(e) If, on or after the date of this Agreement and prior to the
Effective Time, the outstanding capitalization of MFSC or CSR shall have been
changed into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange or shares or
readjustment, or a stock dividend or other extraordinary dividend or
distribution thereon shall be declared with a record date within said period,
the amount of Merger Consideration into which shares of MFSC Non-Voting Common
Stock or CSR Common Stock or CSR Preferred Stock (as the case may be) are to be
converted shall be correspondingly adjusted.
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(f) No fractional shares of MFSC Common Stock shall be issued as
Merger Consideration, but in lieu thereof each MFSC Stockholder and CSR
Stockholder who would otherwise be entitled to receive a fraction of a share of
MFSC Common Stock shall receive from the MFSC Exchange Agent or the CSR Exchange
Agent an amount of cash equal to the product of (i) the fraction of a MFSC Share
to which such holder would otherwise be entitled multiplied by (ii) Ten Dollars
($10).
2.7 Tax-Free Reorganization. The Merger is intended to be a
reorganization within the meaning of Section 368(a) of the IRC, and this
Agreement is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the IRC.
ARTICLE III
CLOSING
3.1 Closing. Upon the terms and subject to the conditions set forth
herein, the Closing shall be held at 10:00 a.m. local time on the Effective Date
(or as soon thereafter on such date as is practicable) at the offices of Latham
& Watkins, New York, NY unless the Parties hereto otherwise agree.
3.2 Deliveries at Closing. At the Closing the following actions shall
be taken:
(a) Delivery of Merger Consideration. MFSC will deliver to the MFSC
Exchange Agent and the CSR Exchange Agent that amount of Merger Consideration to
be issued in the Merger pursuant to Section 2.3(a) hereof.
(b) Delivery of Certificates. The MFSC Exchange Agent will deliver to
MFSC all of the MFSC Certificates delivered to the MFSC Exchange Agent as
contemplated by Section 2.6. The CSR Exchange Agent will deliver to MFSC all of
the CSR Certificates delivered to the CSR Exchange Agent as contemplated by
Section 2.6.
(c) Certificate of Merger. The Certificate of Merger will have been
filed with the Secretary of State of the State of Delaware.
(d) Registration Rights Agreement. A Registration Rights Agreement in
the form set forth as Exhibit A shall have been entered into by and among MFSC
and its stockholders and shall have become effective in accordance with its
terms.
(e) Stockholders' Agreement. A Stockholders' Agreement in a form
mutually acceptable to the Parties and containing the terms set forth in Exhibit
B shall have been entered into by and among MFSC and its stockholders and shall
have become effective in accordance with its terms.
(f) Employment Agreements. MFSC shall enter into employment agreements
in substantially the form of Exhibit C (collectively, the "Employment
Agreements") with William W. Wilkinson, D. Crawford Gallimore, William J.
Wilkinson, Jerry F. Stone and T. Wayne McCreight.
(g) Stone Documents. MFSC shall (i) enter into a consulting agreement
with H. Ronald Stone, substantially in the form of Exhibit D, (ii) enter into
stock purchase agreements with
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H. Ronald Stone and Jerry F. Stone, substantially in the form of Exhibit E,
(iii) enter into an acknowledgement and consent agreement regarding promissory
notes from H. Ronald Stone and Jerry F. Stone, substantially in the form of
Exhibit F, (iv) enter into a note repayment agreement with H. Ronald Stone,
substantially in the form of Exhibit G, (v) enter into a waiver agreement with
the MFSC Stockholders, substantially in the form of Exhibit H and (vi) enter
into an agreement with Christopher N. Jones, substantially in the form of
Exhibit J (the documents described in clauses (i) through (vi) above are
collectively referred to herein as the "Stone Documents").
(h) CSR Certificates. CSR will deliver the certificates and other
items described in Section 8.4 or as otherwise reasonably required by MFSC and
such other evidence of the performance of all the covenants and the satisfaction
of all conditions required of CSR by this Agreement and as MFSC shall reasonably
require.
(i) MFSC Certificates. MFSC will deliver the certificates and
other items described in Section 7.4 or as otherwise reasonably required by CSR
and such other evidence of the performance of all the covenants and the
satisfaction of all conditions required of MFSC by this Agreement and as CSR
shall reasonably require.
(j) Other Transaction Documents. The Parties shall deliver such
other Transaction Documents as shall be reasonably necessary to consummate the
Transactions.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF CSR
CSR represents and warrants to MFSC that the following
representations and warranties are, as of the date hereof, and will be,
immediately prior to the Effective Time, true and correct:
4.1 Organization and Good Standing.
(a) Each of CSR and each of its Subsidiaries 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 CSR and each of its Subsidiaries 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 conduced 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 CSR or such Subsidiary, as the
case may be. Schedule 4.1 contains a complete and accurate list of jurisdictions
in which CSR or any of its Subsidiaries is authorized to do business.
(b) Subsidiaries. Schedule 4.1 contains a true and complete list of
all Subsidiaries of CSR. Except for the Subsidiaries of CSR set forth on
Schedule 4.1, CSR has no Subsidiaries and, except as otherwise set forth on
Schedule 4.1, CSR does not have 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.
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4.2 Authority; Conflict.
(a) This Agreement and the other Transaction Documents to which
CSR is a party (the "CSR Closing Documents") have been duly executed and
delivered by CSR and constitute the legal, valid, and binding obligations of
CSR, enforceable against CSR 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. CSR has all requisite power,
authority and capacity to execute and deliver this Agreement and the CSR Closing
Documents and to perform its obligations under this Agreement and the CSR
Closing Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and
delivery of this Agreement and the CSR 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 CSR or any of its
Subsidiaries or (B) any resolution adopted by the board of directors
of CSR or any of its Subsidiaries;
(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 CSR or any of its
Subsidiaries, or any of the assets owned or used by CSR or any of its
Subsidiaries, 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 CSR or any of its
Subsidiaries or that otherwise relates to the business of, or any of
the assets owned or used by, CSR or any of its Subsidiaries;
(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 of CSR; or
(v) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by CSR or any
of its Subsidiaries,
except in the case of each of clauses (ii) through (v) above, for such
contravention's, conflicts, violations, Liabilities, reassessments,
reevaluations, breaches or creations of Encumbrances which, individually and in
the aggregate, would not have a Material Adverse Effect on CSR and its
Subsidiaries.
Except as set forth in Schedule 4.2, neither CSR nor any of its
Subsidiaries 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.
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4.3 Capitalization. Schedule 4.3 contains a complete and accurate
description of the capitalization of CSR and each of its Subsidiaries (including
the identity of each shareholder (or holder of other equity interest) of CSR and
each Subsidiary and the number of shares (or other equity interests) held by
each such Person). The holders listed on Schedule 4.3 have, or will have at
Closing, title to all of the outstanding shares of capital stock of CSR, free
and clear of all Encumbrances. All of the outstanding shares of capital stock
and other ownership interests of CSR and its Subsidiaries are and will be, as of
the Effective Date, duly authorized, validly issued, fully paid and
non-assessable. There are no outstanding subscriptions, calls, commitments,
warrants or options for the purchase or issuance of shares of any capital stock
or other securities of CSR or any of its Subsidiaries or any securities
convertible into or exchangeable for shares of capital stock or other securities
issued by CSR or any of its Subsidiaries, or any other commitments of any kind
for the issuance of additional shares of capital stock or other securities
issued by CSR or any of its Subsidiaries. None of the outstanding capital stock
or equity interests or other securities of CSR and its Subsidiaries was issued
in violation of the Securities Act.
4.4 Financial Statements. CSR has delivered to MFSC: (a) audited
consolidated balance sheets of Corporate Staffing Resources, Inc. as of December
31 for each of the fiscal years 1994 and 1995 and the related audited
consolidated statements of income, changes in shareholders' equity, and cash
flow for each of the fiscal years then ended, together with the report thereon
of Crowe Chizek & Company, independent certified public accountants, (b) an
audited consolidated balance sheet of Corporate Staffing Resources, Inc. as of
December 31, 1996 (including the notes thereto, the "CSR Balance Sheet"), and
the related consolidated statements of income, changes in shareholders' equity,
and cash flow for the fiscal year then ended, together with the report thereon
of Crowe Chizek & Company, independent certified public accountants, including
in each case the notes thereto and (c) an unaudited consolidated balance sheet
of CSR as of September 30, 1997 (the "CSR Interim Balance Sheet")
(collectively, clauses (a), (b) and (c) above are referred to herein as 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 and its Subsidiaries as of the respective dates of, and for the periods
referred to in, the CSR 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 and its Subsidiaries are required by GAAP to be included
in the CSR Financial Statements. The CSR Balance Sheet and the income statement
contain adequate accruals. The information and data provided by CSR and its
Representatives in response the due diligence requests of MFSC and its
Representatives, are true, correct, complete and reasonable.
4.5 Books and Records. The books of account, minute books, stock
record books, and other records of CSR and its Subsidiaries, all of which have
been made available to MFSC, 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 CSR or any of its Subsidiaries 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 CSR and its Subsidiaries. The minute books
of CSR and its Subsidiaries 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 CSR and its Subsidiaries, 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.
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4.6 Title to Properties; Encumbrances. Neither CSR nor any of its
Subsidiaries owns, and since its inception has not owned, any real property or
any interest, other than a leasehold interest, in any real property. Schedule
4.6 contains a complete and accurate list of all leasehold interests in real
property owned by CSR or any of its Subsidiaries. Schedule 4.6 lists and
describes all real property leased by CSR or any of its Subsidiaries. CSR has
delivered a copy of all such leases to MFSC 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
in all material respects by MFSC and its Subsidiaries (to the extent that they
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 CSR and
each of its Subsidiaries 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 CSR Balance Sheet
(except for personal property sold since the date of the CSR Balance Sheet in
the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by any of CSR or any of its Subsidiaries since
the date of the CSR Balance Sheet (except for personal property acquired and
sold since the date of the CSR Balance Sheet in the Ordinary Course of
Business), which subsequently purchased or acquired properties and assets are
listed in Schedule 4.6. Except as set forth in Schedule 4.6, all material
properties and assets reflected in the CSR Balance Sheet are free and clear of
all material Encumbrances.
4.7 Condition and Sufficiency of Assets. The buildings, plants,
structures and equipment which comprise the office space of CSR and its
Subsidiaries are structurally sound and are in good operating condition and
repair, except where failure to be in such condition would not have a Material
Adverse Effect on CSR and its Subsidiaries. The building, plants, structures and
equipment which comprise the office space of CSR and its Subsidiaries 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 CSR and its Subsidiaries are sufficient for the continued conduct of
the business of CSR and its Subsidiaries after the Closing in substantially the
same manner as conducted prior to the Closing.
4.8 Accounts Receivable. All accounts receivable of CSR and its
Subsidiaries that are reflected on the accounting records of CSR and its
Subsidiaries as of the Closing and, unless paid prior to Closing, all accounts
receivable of CSR and its Subsidiaries that are reflected on the CSR Balance
Sheet (collectively, the "CSR 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 CSR Accounts Receivable are or will be as of the Closing current and
collectible net of the respective reserves shown on the CSR Balance Sheet or on
the accounting records of CSR and its Subsidiaries 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 CSR Accounts Receivable as of the Closing than the reserve reflected in
the CSR Balance Sheet represented of the CSR Accounts Receivable reflected
therein and will not represent a Material Adverse Change in the composition of
such CSR Accounts Receivable in terms of aging). 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 CSR Accounts Receivable relating to the
amount or validity of such CSR Accounts Receivable.
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4.9 No Undisclosed Liabilities. Except as set forth in Schedule 4.9,
neither CSR nor any of its Subsidiaries has any Liabilities (including any
Liabilities relating to workers compensation or any self-insurance, deductible,
retrospectively rated, profit sharing, dividend plan, guaranteed cost or any
other insurance program with premium development based upon the losses of CSR or
any other participating employers or insureds) except for Liabilities reflected
or reserved against in the CSR Balance Sheet and current Liabilities incurred in
the Ordinary Course of Business since the date thereof.
4.10 Taxes.
(a) Except as set forth in Schedule 4.10, there have been properly
completed and filed on a timely basis and in correct form all Tax Returns
required to be filed by CSR or any of its Subsidiaries 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 4.10, 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 CSR or
any of its Subsidiaries or for which CSR or any of its Subsidiaries 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 CSR or any of
its Subsidiaries 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 CSR or any of
its Subsidiaries. No waiver of statute of limitation with respect to any Tax
Return has been given by or requested from CSR or any of its Subsidiaries.
Schedule 4.10 sets forth (i) the taxable years of CSR and any of its
Subsidiaries 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 4.10,
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 CSR Financial
Statements, or are being contested and an adequate reserve therefor has been
established and is fully reflected in the CSR Financial Statements.
(d) There are no liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of CSR or any of its Subsidiaries.
(e) Except as set forth in Schedule 4.10, neither CSR nor any of its
Subsidiaries is a party to or bound by any Tax indemnity, Tax sharing or Tax
allocation agreement.
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(f) Except as set forth in Schedule 4.10, neither CSR nor any of
its Subsidiaries has ever been a member of an affiliated group of corporations
(other than a group which has CSR as its common parent), within the meaning of
Section 1504 of the IRC.
(g) Neither CSR nor any of its Subsidiaries 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.
(b) None of the assets of CSR or any of its Subsidiaries is property
that CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the IRC.
(k) Neither CSR nor any of its Subsidiaries has agreed to make nor is
CSR or any of its Subsidiaries required to make any adjustment under Section
481(a) of the IRC by reason of a change in accounting method or otherwise.
(l) Neither CSR nor any of its Subsidiaries has participated in or
will participate in an international boycott within the meaning of Section 999
of the IRC.
(m) Neither CSR nor any of its Subsidiaries 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) Neither CSR nor any of its Subsidiaries 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 CSR or any of its Subsidiaries is a Person other
than a United States Person within the meaning of the IRC.
(p) 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, neither CSR nor any of its Subsidiaries 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) Except as set forth in Schedule 4.10, the unpaid Taxes of CSR and
its Subsidiaries 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 CSR Balance Sheet, as adjusted
for the passage of time through the Closing, in accordance with the past custom
and practice of CSR and its Subsidiaries.
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4.11 No Material Adverse Change. Since the date of the CSR Balance
Sheet, there has not been any Material Adverse Change in the business,
operations, properties, prospects, assets or condition of CSR or any of its
Subsidiaries, and no event has occurred or circumstance exists that may result
in such a Material Adverse Change.
4.12 Employee Benefits.
(a) (i) Schedule 4.12 contains a complete and accurate list of all
Plans and Other Benefit Obligations of CSR and its Subsidiaries, and
identifies as such all Plans that are Qualified Plans.
(ii) Schedule 4.12 contains a complete and accurate list of
(A) all ERISA Affiliates of CSR and its Subsidiaries, 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 4.12 sets forth the financial cost of all
obligations owed under any Plan of CSR or any of its Subsidiaries or
Other Benefit Obligation of CSR or any of its Subsidiaries that is not
subject to the disclosure and reporting requirements of ERISA.
(b) CSR has delivered to MFSC:
(i) all documents that set forth the terms of each Plan and
Other Benefit Obligations of CSR and its Subsidiaries and of any
related trust, including (A) all plan descriptions and summary plan
descriptions of the Plans of CSR and its Subsidiaries 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 CSR and its Subsidiaries for which a
plan description or summary plan description is not required;
(ii) all personnel, payroll and employment manuals and
policies of CSR and its Subsidiaries;
(iii) a written description of any Plan or Other Benefit
Obligation of CSR and its Subsidiaries that is not otherwise in
writing;
(iv) all registration statements filed with respect to any
Plan of CSR and its Subsidiaries;
(v) all insurance policies purchased by or to provide benefits
under any Plan of CSR and its Subsidiaries;
(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 CSR and its
Subsidiaries;
(vii) all reports submitted within the four years preceding
the date of this Agreement by third party administrators, actuaries,
investment managers, consultants or other
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independent contractors with respect to any Plan or Other Benefit Obligation of
CSR and its Subsidiaries;
(viii) all notifications to employees of CSR and its Subsidiaries of
their rights under ERISA Section 601 et seq. and IRC Section 4980B;
(ix) the Form 5500 filed with respect to each Plan of CSR and its
Subsidiaries for the most recent three plan years, including all schedules
thereto and the opinions of independent accountants;
(x) all notices that were given by CSR and its Subsidiaries or any
ERISA Affiliate of CSR or any of its Subsidiaries or any Plan of CSR and its
Subsidiaries 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 4.12;
(xi) all notices that were given by the IRS or the Department of Labor
to CSR or any of its Subsidiaries, any of their ERISA Affiliates or any Plan of
CSR and its Subsidiaries 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 CSR and its Subsidiaries.
(c) Except as set forth in Schedule 4.12:
(i) Each of CSR and each of its Subsidiaries has performed all of its
respective obligations under all the Plans and Other Benefit Obligation of CSR
and its Subsidiaries. Each of CSR and each of its Subsidiaries 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 CSR, oral,
has been made by CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries.
(iii) Each of CSR and each of its Subsidiaries, with respect to all the
Plans and the Other Benefit Obligations of CSR and its Subsidiaries, is, and
each Plan and Other Benefit Obligation of CSR and its Subsidiaries is in full
compliance with ERISA, the IRC, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section 4.12.
(A) No transaction prohibited by ERISA Section 406 and no
"prohibited transaction" under IRC Section 4975(c) has occurred with
respect to any Plan of CSR and its Subsidiaries.
(B) Neither CSR nor any of its Subsidiaries has any liability to
the IRS with respect to any Plan, including any liability imposed by
Chapter 43 of the IRC.
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(C) Neither CSR nor any of its Subsidiaries has any
liability under ERISA Section 502.
(D) All filings required by ERISA and the IRC as to each
Plan of CSR and its Subsidiaries have been timely filed, and all
notices and disclosures to participants required by either ERISA or
the IRC have been timely provided.
(E) All contributions and payments made or accrued by CSR
and its Subsidiaries and the ERISA Affiliates of CSR and its
Subsidiaries with respect to all the Plans and Other Benefit
Obligations of CSR and its Subsidiaries are deductible under IRC
Section 162 or Section 404. No amount, nor any asset of any Plan of
CSR and its Subsidiaries is subject to Tax as unrelated business
taxable income.
(iv) Neither CSR nor any of its Subsidiaries nor any ERISA Affiliate of
CSR or any of its Subsidiaries 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 CSR and
its Subsidiaries or any ERISA Affiliate of CSR or any of its Subsidiaries,
except as required under Part 6 of Title I of ERISA and Section 4980B of the
Code.
(v) Each Plan of CSR and its Subsidiaries 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) 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 CSR and its Subsidiaries 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 CSR and its Subsidiaries is pending or, to the
Knowledge of CSR, is Threatened.
(viii) Each Qualified Plan of CSR and its Subsidiaries 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 CSR and its Subsidiaries 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 CSR or any of its Subsidiaries will be non-deductible to
CSR or any of its Subsidiaries or subject to Tax under IRC Section 280G or
Section 4999; nor will CSR or any of its Subsidiaries 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.
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(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.
4.13 Compliance with Legal Requirements; Governmental Authorizations.
(a) Except as set forth in Schedule 4.13:
(i) each of CSR and each of its Subsidiaries is, and at all times
since January 1, 1993 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 CSR, 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 CSR or any of its Subsidiaries of, or a failure on
the part of CSR or any of its Subsidiaries to comply with, any Legal
Requirement or (B) may give rise to any obligation on the part of CSR or any
of its Subsidiaries to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
(iii) neither CSR nor any of its Subsidiaries has received, at any
time since January 1, 1993, any written or, to the Knowledge of CSR, 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 CSR or any of its
Subsidiaries to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
(b) Schedule 4.13 contains a complete and accurate list of each material
Governmental Authorization that is held by CSR or any of its Subsidiaries or
that otherwise relates to the business of, or to any of the assets owned or used
by, CSR or any of its Subsidiaries. Each Governmental Authorization listed or
required to be listed in Schedule 4.13 is valid and in full force and effect.
Except as set forth in Schedule 4.13:
(i) each of CSR and each of its Subsidiaries is, and at all times
since January 1, 1993, 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 4.13;
(ii) 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 4.13 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 4.13;
(iii) neither CSR nor any of its Subsidiaries has received, at any
time since January 1, 1993, any written or, to the Knowledge of CSR, other
notice or communication from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible
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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 listed or required to be listed in
Schedule 4.13 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 4.13 collectively
constitute all of the material Governmental Authorizations necessary to permit
CSR and any of its Subsidiaries to lawfully conduct and operate its business in
the manner it currently conducts and operates such business and to permit CSR
and its Subsidiaries to own and use their assets in the manner in which they
currently own and use such assets.
4.14 Legal Proceedings: Orders.
(a) Except as set forth in Schedule 4.14, there is no pending Proceeding:
(i) that has been commenced by or against CSR or any of its
Subsidiaries or, to the Knowledge of CSR, that otherwise relates to or may
affect the business of, or any of the assets owned or used by, CSR or any of
its Subsidiaries; 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 CSR,(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. CSR has delivered to MFSC
copies of all pleadings, correspondence, and other documents relating to each
Proceeding listed in Schedule 4.14. The Proceedings listed in Schedule 4.14 will
not, individually or in the aggregate, have a Material Adverse Effect on the
business, operations, assets, condition or prospects of CSR or any of its
Subsidiaries.
(b) Except as set forth in Schedule 4.14:
(i) there is no Order to which CSR or any of its Subsidiaries or
any of the assets or used by CSR or any of its Subsidiaries, is subject; and
(ii) to the Knowledge of CSR, no officer, director, agent or
employee of CSR or any of its Subsidiaries 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 any of its Subsidiaries.
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(c) Except as set forth in Schedule 4.14:
(i) each of CSR and its Subsidiaries is, and at all times since
January 1, 1993, 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 CSR, 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 CSR or any of its Subsidiaries or any of
the owned or used by CSR or any of its Subsidiaries, is subject; and
(iii) none of CSR and its Subsidiaries has received, at any time
since January 1, 1993, any written or, to the Knowledge of CSR, 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 any of its
Subsidiaries or any of the assets owned or used by CSR or any of its
Subsidiaries, is or has been subject.
4.15 Absence of Certain Changes and Events.
Except as set forth in Schedule 4.15, since the date of the CSR Balance
Sheet, each of CSR and its Subsidiaries 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; CSR or any of its Subsidiaries; grant of any stock option or right
to purchase shares of capital stock, of or other equity interests in, CSR or any
of its Subsidiaries; 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 CSR or any of its Subsidiaries 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 CSR or any of its
Subsidiaries;
(c) payment or increase by CSR or any of its Subsidiaries 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 CSR or
any of its Subsidiaries;
(e) damage to or destruction or loss of any asset or property of CSR or any
of its Subsidiaries, whether or not covered by insurance, that would have a
Material Adverse Effect on CSR or any of its Subsidiaries;
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(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 CSR or any of its Subsidiaries 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 CSR or any of its
Subsidiaries or mortgage, pledge or imposition of any lien or other Encumbrance
on any material asset or property of CSR or any of its Subsidiaries, including
the sale, lease or other disposition of any of the CSR 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 CSR
or any of its Subsidiaries in excess of $10,000;
(l) any payment, discharge or satisfaction of any Liability by CSR or
any of its Subsidiaries, 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 CSR or any of
its Subsidiaries; or
(o) agreement, whether oral or written, by CSR or any of its
Subsidiaries to do any of the foregoing.
4.16 Contracts; No Defaults.
(a) Schedule 4.16 contains a complete and accurate list, and CSR made
available to MFSC true and complete copies, of:
(i) each written Applicable Contract that involves performance of
services or delivery of goods by CSR or any of its Subsidiaries 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 CSR or any of its subsidiaries
of an amount or value, individually or, for a series of related Applicable
Contracts, in the aggregate, in excess of $20,000;
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(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures of CSR or any of
its Subsidiaries, individually or, for a series of related Applicable
Contracts, in the aggregate, in excess of $10,000, or receipts of CSR or any
of its Subsidiaries, 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
CSR or any of its Subsidiaries 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 CSR
or any of its Subsidiaries 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 CSR Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract of CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries (however named) involving a
sharing of profits, losses, costs or liabilities by CSR or any of its
Subsidiaries with any other Person;
(viii) each Applicable Contract of CSR or any of its Subsidiaries
containing covenants that in any way purport to restrict the business
activity of CSR or any of its Subsidiaries or any Affiliate of CSR or any of
its Subsidiaries or limit the freedom of CSR or any of its Subsidiaries or
any Affiliate of CSR or any of its Subsidiaries to engage in any line of
business or to compete with any Person;
(ix) each Applicable Contract of CSR or any of its Subsidiaries
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 CSR or any of its Subsidiaries to be responsible for
consequential damages;
(xii) each Applicable Contract of CSR or any of its Subsidiaries
for capital expenditures in excess of $10,000;
(xiii) each Applicable Contract which, to the Knowledge of
CSR,will result in a material loss to CSR and its Subsidiaries;
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(xiv) each Applicable Contract between a CSR or any of its
Subsidiaries, on the one hand, and its former or current stockholders,
directors, officers and employees, on the other hand (other than standard
employment agreements previously furnished to or approved by MFSC);
(xv) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by CSR or any of
its Subsidiaries 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 4.16 sets forth reasonably complete details concerning such
Contracts, including the parties to the Contracts, the amount of the remaining
commitment of CSR or any of its Subsidiaries under the Contracts, and the place
where details relating to the Contracts are located.
(b) Except as set forth in Schedule 4.16, no officer, director, agent,
employee, consultant or contractor of CSR or any of its Subsidiaries 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 CSR or any of its
Subsidiaries or (B) assign to CSR or any of its Subsidiaries or to any other
Person any rights to any invention, improvement or discovery.
(c) Except as set forth in Schedule 4.16, each Contract identified or
required to be identified in Schedule 4.16 is in full force and effect and is
valid and enforceable in accordance with its terms.
(d) Except as set forth in Schedule 4.16:
(i) each of CSR and its Subsidiaries is, and at all times since
January 1, 1993, has been, in compliance with all material terms and
requirements of each material Contract under which CSR or any of its
Subsidiaries has or had any obligation or Liability or by which CSR or any of
its Subsidiaries or any of the assets owned or used by CSR or any of its
Subsidiaries is or was bound;
(ii) each other Person that has or had any obligation or
Liability under any material Contract under which CSR or any of its
Subsidiaries has or had any rights is, and at all times since January 1, 1993
has been, in compliance with all material terms and requirements of such
Contract;
(iii) to the Knowledge of CSR, 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 CSR
or any of its Subsidiaries 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 CSR nor any of its Subsidiaries has given to or
received from any other Person, at any time since January 1, 1993, any
written or, to the Knowledge of
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CSR, 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 CSR or
any of its Subsidiaries 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
CSR and its Subsidiaries 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.
4. 17 Insurance.
(a) CSR has delivered to MFSC:
(i) a true and complete list of all policies of insurance to
which CSR or any of its Subsidiaries is a party or under which CSR or any of
its Subsidiaries or any director or officer of CSR or any of its
Subsidiaries, 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 CSR Financial Statements
with regard to the adequacy of such entity's coverage or of the reserves for
claims.
(b) Schedule 4.17 describes:
(i) any self-insurance arrangement by or affecting CSR or any of
its Subsidiaries, 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 CSR or any of its
Subsidiaries.
(c) Schedule 4.17 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 4.17:
(i) All policies to which CSR or any of its Subsidiaries is a
party or that provide coverage to CSR or any of its Subsidiaries or any
director or officer of CSR or any of its Subsidiaries:
(A) are valid, outstanding and enforceable in all material
respects;
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(B) taken together, provide adequate insurance coverage for
the assets and the operations of CSR and its Subsidiaries for all risks
normally insured against by a Person carrying on the same business as CSR
or any of its Subsidiaries;
(C) are sufficient for compliance with all Legal
Requirements and Contracts to which CSR or any of its Subsidiaries is a
party or by which it is bound;
(D) will continue in full force and effect following the
consummation of the Transactions; and
(E) do not provide for any retrospective premium adjustment
or other experienced-based liability on the part of CSR or any of its
Subsidiaries.
(ii) neither CSR nor any of its Subsidiaries 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 CSR, each of CSR and each of its
Subsidiaries has given notice to the insurer of all claims that may be
insured thereby.
4.18 Environmental Matters.
Except as set forth in Schedule 4.18:
(a) Each of CSR and its Subsidiaries 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
CSR or any of its Subsidiaries. To the Knowledge of CSR, none of CSR and its
Subsidiaries has any basis to expect, nor has it or any other Person for whose
conduct CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries 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 CSR, any of its Subsidiaries or any other Person for whose conduct CSR or any
of its Subsidiaries 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 CSR, any of the Facilities or (ii) any
other properties and assets (whether real, personal or mixed) in which CSR or
any of its Subsidiaries has or had an interest.
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(c) Neither CSR and its Subsidiaries nor any other Person for whose
conduct CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries 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 CSR or any of its Subsidiaries or any other Person for whose
conduct CSR or any of its Subsidiaries is or may be held responsible, have been
transported, treated, stored, handled, transferred, disposed, recycled or
received.
(d) Neither CSR and its Subsidiaries nor any other Person for whose
conduct CSR or any of its Subsidiaries is or may be held responsible, has any
Environmental, Health and Safety Liabilities with respect to the Facilities or,
to the Knowledge of CSR, with respect to any other properties and assets
(whether real, personal or mixed) in which CSR or any of its Subsidiaries (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 CSR, 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 CSR, any of its Subsidiaries, any other Person for
whose conduct CSR or any of its Subsidiaries is or may be held responsible, or,
to the Knowledge of CSR, 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 CSR or any
of its Subsidiaries has or had an interest.
(f) To the Knowledge of CSR, 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 CSR or any of its Subsidiaries has or had an interest, or, to the
Knowledge of CSR, any geologically or hydrologically adjoining property, whether
by CSR, any of its Subsidiaries or any other Person.
(g) CSR has delivered to MFSC true and complete copies and results of
any reports, studies, analyses, tests or monitoring possessed or initiated by
CSR or any of its Subsidiaries pertaining to Hazardous Materials or Hazardous
Activities in, on or under the Facilities or concerning compliance by CSR, any
of its Subsidiaries or any other Person for whose conduct it is or may be held
responsible with Environmental Laws.
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4.19 Labor Relations; Compliance; Employees. Except as set forth in Schedule
4.19, since January 1, 1993, neither CSR nor any of its Subsidiaries has been
nor is a party to any collective bargaining or other labor Contract. Except as
set forth in Schedule 4.19, since January 1, 1993, there has not been, there is
not presently pending or existing, and, to the Knowledge of CSR, there is not
Threatened, (a) any strike, slowdown, picketing, work stoppage or employee
grievance process, (b) any Proceeding against or affecting CSR or any of its
Subsidiaries 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 CSR or any of its Subsidiaries 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 CSR or
any of its Subsidiaries, and no such action is contemplated by CSR or any of its
Subsidiaries. Except as set forth in Schedule 4.19, CSR and each of its
Subsidiaries 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 4.19, none of CSR and its Subsidiaries 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 4.19 sets forth the names of all Persons employed by CSR
or any of its Subsidiaries who are expected to receive more than $100,000
annualized cash compensation for the 1997 calendar year from CSR or any of its
Subsidiaries (including without limitation, salary, commission and bonus) and
who are expected to be employed by CSR or any of its Subsidiaries on the
Effective Date. Except as set forth in Schedule 4.19, neither CSR nor any of its
Subsidiaries has entered into any severance or similar arrangement in respect of
any personnel that provides for any obligation (absolute or contingent) of CSR
or any of its Subsidiaries or any other Person to males any payment to any such
personnel following termination of employment.
4.20 CSR Intellectual Property.
(a) CSR Intellectual Property Assets. The term "CSR Intellectual
Property Assets" includes:
(i) the name "Corporate Staffing Resources" and all fictional
business names, trade names, registered and unregistered trademarks, service
marks and applications owned by, used by or licensed to CSR or any of its
Subsidiaries (collectively, "the Marks");
(ii) all of the patents, patent applications and inventions and
discoveries that may be patentable of CSR or any of its Subsidiaries
(collectively, the "Patents");
(iii) all of the copyright rights in both published works and
unpublished works of CSR or any of its Subsidiaries (collectively, "the CSR
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 CSR or any of its
Subsidiaries as licensee or licensor (collectively, "the CSR Trade Secrets").
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(b) Agreements. Schedule 4.20 contains a complete and accurate list
and summary description, including any royalties paid or received by CSR or any
of its Subsidiaries, of all Contracts relating to the CSR Intellectual Property
Assets to which CSR or any of its Subsidiaries is a party or by which CSR or any
of its Subsidiaries 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 CSR or any of its Subsidiaries is
the licensee. There are no outstanding and, to the Knowledge of CSR, no
Threatened disputes or disagreements with respect to any such contract.
(c) Know-How Necessary for the Business. The CSR Intellectual Property
Assets are all those necessary for the operation of the business of CSR or any
of its Subsidiaries as it is currently conducted. CSR (or one or more of its
Subsidiaries) is the owner of such right, title and interest in and to each of
the CSR Intellectual Property Assets as is necessary to conduct the business of
CSR and its Subsidiaries.
(d) Patents. Neither CSR nor any of its Subsidiaries has been issued
any CSR Patents or has any CSR Patents pending and no CSR Patents are necessary
or currently used by CSR or any of its Subsidiaries to conduct its business as
it is presently conducted. No process or know-how used by CSR or any of its
Subsidiaries is known to infringe or is alleged to infringe any patent or other
proprietary right of any other Person.
(e) Trademarks.
(i) Schedule 4.20 contains a complete and accurate list and
summary description of all the Marks of CSR and its Subsidiaries. Except as
set forth in Schedule 4.20, CSR (or one or more of its Subsidiaries) is the
owner of such right, title and interest in and to each of the Marks as is
necessary to conduct the business of CSR and its Subsidiaries, free and clear
of all liens, security interests, charges, Encumbrances, equities and other
adverse claims.
(ii) All the Marks of CSR and its Subsidiaries that have been
registered with the United States Patent and Trademark Office are, to the
Knowledge of CSR, 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) No Mark of CSR and its Subsidiaries has been or is now
involved in any opposition, invalidation or cancellation and, to the
Knowledge of CSR, no such action is Threatened with the respect to any of the
Marks of CSR and its Subsidiaries.
(iv) To the Knowledge of CSR, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark of CSR or any of its Subsidiaries is infringed or, to
the Knowledge of CSR, has been challenged or threatened in any way. None of
the Marks of CSR and its subsidiaries used by CSR or any of its subsidiaries
is known to infringe or is alleged to infringe any trade name, trademark or
service mark of any third party.
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(vi) All products and materials containing a Mark of CSR and its
Subsidiaries bear the proper federal registration notice where required or
permitted by law.
(f) CSR Copyrights.
(i) Schedule 4.20 contains a complete and accurate list and
summary description of all the CSR Copyrights. CSR (or one or more of its
Subsidiaries) is the owner of such right, title and interest in and to each
of the CSR Copyrights as is necessary to conduct the business of CSR and its
Subsidiaries, free and clear of all material liens, security interests,
charges, Encumbrances, equities and other adverse claims.
(ii) All the material CSR Copyrights 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 CSR Copyright is infringed or, to the Knowledge of CSR,
has been challenged or threatened in any way. None of the subject matter of
any of the CSR Copyrights 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) CSR Trade Secrets. Neither CSR nor any of its Subsidiaries has any
CSR Trade Secrets and no CSR Trade Secrets are necessary or currently used by
CSR or any of its Subsidiaries to conduct its business as it is presently
conducted.
4.21 Certain Payments. To the Knowledge of CSR, since January 1, 1993, none
of CSR and its Subsidiaries, nor any director, officer, agent or employee of CSR
or any of its Subsidiaries or any other Person affiliated with or acting for or
on behalf of CSR or any of its Subsidiaries, 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 CSR or any of its Subsidiaries or any Affiliate of CSR or any of
its Subsidiaries 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 CSR or any of its Subsidiaries.
4.22 No Other Agreements to Sell Assets or Capital Stock of CSR or any of
its Subsidiaries. Except as set forth in Schedule 4.22, neither CSR nor any of
its Subsidiaries, nor any officers, directors or Affiliates of CSR and its
Subsidiaries 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 CSR or any of its
Subsidiaries, to effect any merger, consolidation, liquidation, dissolution or
other reorganization of CSR or any of its Subsidiaries, to enter into any
agreement or cause the entering into of an agreement with respect to any of the
foregoing.
4.23 Relationships with Related Persons. Except as set forth in Schedule
4.23, none of CSR and its Subsidiaries, 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)
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had business dealings or a material financial interest in any transaction with
CSR or any of its Subsidiaries other than business dealings or transactions
conducted in the Ordinary Course of Business with CSR or any of its
Subsidiaries at substantially prevailing market prices and on substantially
prevailing market terms or (ii) engaged in a business competing with CSR or any
of its Subsidiaries with respect to any line of the products or services of CSR
or any of its Subsidiaries in any market presently served by CSR or any of its
Subsidiaries, 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
4.23, no Related Person of CSR or any of its Subsidiaries is a party to any
Contract with, or has any claim or right against, CSR or any of its
Subsidiaries.
4.24 Customers and Suppliers. Schedule 4.24 contains a complete and
accurate list of the twenty-five (25) largest suppliers and twenty-five (25)
largest customers of CSR and its Subsidiaries during the first six months of
1997, showing the approximate total purchases by CSR and its Subsidiaries from
each such supplier during such fiscal year and the total sales by CSR and its
Subsidiaries to each such customer during such fiscal year. To the Knowledge of
CSR, since the date of the CSR Balance Sheet, there has been no Material Adverse
Change in the business relationship with any supplier or customer named in
Schedule 4.24 and no threat or indication that any such change is reasonably
foreseeable.
4.25 Bank Accounts, Powers of Attorney. Schedule 4.25 sets forth an
accurate and complete list showing the name and address of each bank in which
CSR or any of its Subsidiaries 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.
4.26 Brokers and Finders; Advisors. Neither CSR nor any of its Subsidiaries
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. CSR agrees to indemnify MFSC against and to hold
MFSC harmless from, any claims for brokerage or similar commission or other
compensation which may be made against MFSC or CSR and its Subsidiaries 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 CSR or any of
its Subsidiaries or any of their respective Affiliates.
4.27 Disclosure. No representation or warranty of CSR 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 V.
REPRESENTATIONS AND WARRANTIES OF MFSC
MFSC represents and warrants to CSR that the following representations and
warranties are, as of the date hereof, and will be, immediately prior to the
Effective Time, true and correct:
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5.1 Organization and Good Standing.
(a) Each of MFSC and each of its Subsidiaries 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 MFSC and each of its Subsidiaries 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 MFSC or
such Subsidiary, as the case may be. Schedule 5.1 contains a complete and
accurate list of jurisdictions in which MFSC or any of its Subsidiaries is
authorized to do business.
(b) Subsidiaries. Schedule 5.1 contains a true and complete list of
all Subsidiaries of MFSC. Except for the Subsidiaries of MFSC set forth on
Schedule 5.1, MFSC has no Subsidiaries and, except as otherwise set forth on
Schedule 5.1, MFSC does not have 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 MFSC
is a party (the "MFSC Closing Documents") have been duly executed and delivered
by MFSC and constitute the legal, valid, and binding obligations of MFSC,
enforceable against MFSC 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. MFSC has all requisite power,
authority and capacity to execute and deliver this Agreement and the MFSC
Closing Documents and to perform its obligations under this Agreement and the
MFSC Closing Documents.
(b) Except as set forth in Schedule 5.2, neither the execution and
delivery of this Agreement and the MFSC 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 MFSC or any of its Subsidiaries
or (B) any resolution adopted by the board of directors of MFSC or any of its
Subsidiaries;
(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 MFSC or any of its Subsidiaries, or any of
the assets owned or used by MFSC or any of its Subsidiaries, 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 MFSC or any of
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its Subsidiaries or that otherwise relates to the business of, or any of the
assets owned or used by, MFSC or any of its Subsidiaries;
(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 of MFSC; or
(v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by MFSC or any of its
Subsidiaries,
except in the case of each of clauses (ii) through(v) above, for such
contraventions, conflicts, violations, Liabilities, reassessments,
reevaluations, breaches or creations of Encumbrances which, individually and in
the aggregate, would not have a Material Adverse Effect on MFSC and its
Subsidiaries.
Except as set forth in Schedule 5.2, neither MFSC nor any of its
Subsidiaries 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 capitalization of MFSC and each of its subsidiaries (including
the identity of each shareholder (or holder of other equity interest) of MFSC
and each Subsidiary and the number of shares (or other equity interest) held by
each such Person). The holders listed on Schedule 5.3 have, or will have at
Closing, title to all of the outstanding shares of capital stock of MFSC, free
an clear of all Encumbrances. All of the outstanding shares of capital stock
and other ownership interests of MFSC paid and non-assessable. Except for the
Creditanstalt Warrants, which will be exercised immediately after the Effective
Time, there are no outstanding subscriptions, calls, commitments, warrants or
options for the purchase or issuance of shares of any capital stock or other
securities of MFSC or any of its Subsidiaries or any securities convertible into
or exchangeable for shares of capital stock or other securities issued by MFSC
or any of its Subsidiaries, or any other commitments of any kind for the
issuance of additional shares of capital stock or other securities issued by
MFSC or any of its Subsidiaries. None of the outstanding capital stock or
equity interests or other securities of MFSC and its Subsidiaries was issued in
violation of the Securities Act.
5.4 Financial Statements. MFSC has delivered to CSR: (a) audited combined
balance sheets of Mega Force Staffing Services, Inc. and the Mega Force
affiliated companies as of December 31 for each of the fiscal years 1994 and
1995 and the related audited consolidated statements of income, changes in
shareholders' equity, and cash flow for each of the fiscal years then ended,
together with the respective reports thereon of Ernst & Young, LLP, independent
certified public accountants, (b) audited combined balance sheets of Mega Force
Staffing Services, Inc. and the Mega Force affiliated companies as of December
31, 1996 and an audited balance sheet of The Hamilton-Ryker Company, LLC as of
December 31, 1996 (in each case, including the notes thereto, the "MFSC Balance
Sheets"), and the related consolidated statements of income, changes in the
shareholders' equity, and cash flow for the fiscal year then ended, together
with the respective reports thereon of Ernst & Young, LLP, independent certified
public accountants, including in each case the notes thereto and (c) an
unaudited consolidated balance sheet of MFSC as of September 30, 1997 (the
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"MFSC Interim Balance Sheet") (collectively, clauses (a), (b) and (c) above are
referred to herein as the "MFSC Financial Statements"). Except as set forth on
Schedule 5.4, the MFSC 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 MFSC and its
Subsidiaries as of the respective dates of, and for the periods referred to in,
the MFSC Financial Statements, all in accordance with GAAP, and the MFSC
Financial Statements reflect the consistent application of such accounting
principles throughout the periods involved. No financial statements of any
Person other than MFSC and its Subsidiaries are required by GAAP to be included
in the MFSC Financial Statements. The MFSC Balance Sheets and the related
consolidated statements of income contain adequate accruals. The information and
data provided by MFSC and its Representatives in response the due diligence
requests of CSR and its Representatives, are true, correct, complete and
reasonable.
5.5 Books and Records. The books of account, minute books, stock record
books, and other records of MFSC and its Subsidiaries, all of which have been
made available to CSR, 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 MFSC or any of its Subsidiaries 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 MFSC and its Subsidiaries. The minute books of MFSC and its
Subsidiaries 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 MFSC and its
Subsidiaries, 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.
5.6 Title to Properties; Encumbrances. Neither MFSC nor any of its
Subsidiaries owns, 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 MFSC or any of its Subsidiaries. Schedule 5.6 lists and
describes all real property leased by MFSC or any of its Subsidiaries. MFSC has
delivered a copy of all such leases to CSR 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 in all
material respects by MFSC and its Subsidiaries (to the extent that they 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 MFSC and
each of its Subsidiaries 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 MFSC Balance Sheets
(except for personal property sold since the date of the MFSC Balance Sheets in
the Ordinary Course of Business), and all of the properties and assets purchased
or otherwise acquired by any of MFSC or any of its Subsidiaries since the date
of the MFSC Balance Sheets (except for personal property acquired and sold since
the date of the MFSC Balance Sheets 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 MFSC Balance Sheets are free and clear of all material
Encumbrances.
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5.7 Condition and Sufficiency of Assets. The buildings, plants, structures
and equipment which comprise the office space of MFSC and its Subsidiaries are
structurally sound and are in good operating condition and repair, except where
failure to be in such condition would not have a Material Adverse Effect on MFSC
and its Subsidiaries. The building, plants, structures and equipment which
comprise the office space of MFSC and its Subsidiaries 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 MFSC and its
Subsidiaries are sufficient for the continued conduct of the business of MFSC
and its Subsidiaries after the Closing in substantially the same manner as
conducted prior to the Closing.
5.8 Accounts Receivable. All accounts receivable of MFSC and its
Subsidiaries that are reflected on the accounting records of MFSC and its
Subsidiaries as of the Closing and, unless paid prior to Closing, all accounts
receivable of MFSC and its Subsidiaries that are reflected on the MFSC Balance
Sheets (collectively, the "MFSC 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 MFSC Accounts Receivable are or will be as of the Closing current
and collectible net of the respective reserves shown on the MFSC Balance Sheets
or on the accounting records of MFSC and its Subsidiaries 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 MFSC Accounts Receivable as of the Closing than the reserve
reflected in the MFSC Balance Sheets represented of the MFSC Accounts Receivable
reflected therein and will not represent a Material Adverse Change in the
composition of such MFSC Accounts Receivable in terms of aging). There is no
contest, claim or right of set-off, other than returns in the Ordinary Course of
Business, under any Contract with any obliger of an MFSC Accounts Receivable
relating to the amount or validity of such MFSC Accounts Receivable.
5.9 No Undisclosed Liabilities. Except as set forth in Schedule 5.9,
neither MFSC nor any of its Subsidiaries has any Liabilities (including any
Liabilities relating to workers compensation or any self-insurance, deductible,
retrospectively rated, profit sharing, dividend plan, guaranteed cost or any
other insurance program with premium development based upon the losses of MFSC
or any other participating employers or insureds) except for Liabilities
reflected or reserved against in the MFSC Balance Sheets 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 MFSC or any of its Subsidiaries 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.
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(b) Except as set forth in Schedule 5.10, with respect to all amounts
in respect of Taxes imposed on MFSC or any of its Subsidiaries or for which MFSC
or any of its Subsidiaries 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 MFSC or any of its Subsidiaries 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 MFSC or any of
its Subsidiaries. No waiver of statute of limitation with respect to any Tax
Return been given by or requested from MFSC or any of its Subsidiaries.
Schedule 5.10 sets forth (i) the taxable years of MFSC and any of its
Subsidiaries 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 MFSC
Financial Statements, or are being contested and an adequate reserve therefor
has been established and is fully reflected in the MFSC Financial Statements.
(d) There are no liens for Taxes (other than for current Taxes not yet
due and payable) on the assets of MFSC or any of its Subsidiaries.
(e) Neither MFSC nor any of its Subsidiaries is a party to or bound by
any Tax indemnity, Tax sharing or Tax allocation agreement.
(f) Except as set forth in Schedule 5.10, neither MFSC nor any of its
Subsidiaries has ever been a member of an affiliated group of corporations
(other than a group which has MFSC as its common parent), within the meaning of
Section 1504 of the IRC.
(g) Neither MFSC nor any of its Subsidiaries 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.
(h) None of the assets of MFSC or any of its Subsidiaries is property
that MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries is
"tax-exempt use property" within the meaning of Section 168(h) of the IRC.
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(k)Except as set forth in Schedule 5.10, neither MFSC nor any of its
Subsidiaries has agreed to make nor is MFSC or any of its Subsidiaries required
to make any adjustment under Section 481(a) of the IRC by reason of a change in
accounting method or otherwise.
(l) Neither MFSC nor any of its Subsidiaries has participated in or
will participate in an international boycott within the meaning of Section 999
of the IRC.
(m) Neither MFSC nor any of its Subsidiaries 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) Neither MFSC nor any of its Subsidiaries 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 MFSC or any of its Subsidiaries is a Person
other than a United States Person within the meaning of the IRC.
(p) Neither MFSC nor any of its Subsidiaries 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) Except as set forth in Schedule 5.10, the unpaid Taxes of MFSC and
its Subsidiaries 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 MFSC Balance Sheets, as
adjusted for the passage of time through the Closing, in accordance with the
past custom and practice of MFSC and its Subsidiaries.
5.11 No Material Adverse Change. Since the date of the MFSC Balance Sheets,
there has not been any Material Adverse Change in the business, operations,
properties, prospects, assets or condition of MFSC or any of its Subsidiaries,
and 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 MFSC and its Subsidiaries, 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 MFSC and its Subsidiaries, 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 MFSC or any of its Subsidiaries or Other
Benefit Obligation of MFSC or any of its Subsidiaries that is not subject to
the disclosure and reporting requirements of ERISA.
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(b) MFSC has delivered to CSR:
(i) all documents that set forth the terms of each Plan and Other
Benefit Obligations of MFSC and its Subsidiaries and of any related trust,
including (A) all plan descriptions and summary plan descriptions of the
Plans of MFSC and its Subsidiaries 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 MFSC and its
Subsidiaries for which a plan description or summary plan description is not
required;
(ii) all personnel, payroll and employment manuals and policies
of MFSC and its Subsidiaries;
(iii) a written description of any Plan or Other Benefit
Obligation of MFSC and its Subsidiaries that is not otherwise in writing;
(iv) all registration statements filed with respect to any Plan
of MFSC and its Subsidiaries;
(v) all insurance policies purchased by or to provide benefits
under any Plan of MFSC and its Subsidiaries;
(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 MFSC and its Subsidiaries;
(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 MFSC and its Subsidiaries;
(viii) all notifications to employees of MFSC and its
Subsidiaries of their rights under ERISA Section 601 et seq. and IRC Section
4980 B;
(ix) the Form 5500 filed with respect to each Plan of MFSC and
its Subsidiaries for the most recent three plan years, including all
schedules thereto and the opinions of independent accountants;
(x) all notices that were given by MFSC and its Subsidiaries or
any ERISA Affiliate of MFSC or any of its Subsidiaries or any Plan of MFSC
and its Subsidiaries to the IRS or any participant or beneficiary, pursuant
to statute, within the four years preceding the date of this Agreement,
including notice 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 MFSC or any of its Subsidiaries, any of their ERISA Affiliates or
any Plan of MFSC and its Subsidiaries within the four years preceding the
date of this Agreement; and
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(xii) the most recent IRS determination letter for each Qualified
Plan which is a Plan of MFSC and its Subsidiaries.
(c) Except as set forth in Schedule 5.12:
(i) Each of MFSC and each of its Subsidiaries has performed all
of its respective obligations under all the Plans and Other Benefit
Obligation of MFSC and its Subsidiaries. Each of MFSC and each of its
Subsidiaries 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 MFSC,
oral, has been made by MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries.
(iii) Each of MFSC and each of its Subsidiaries, with respect to
all the Plans and the Other Benefit Obligation of MFSC and its Subsidiaries,
is, and each Plan and Other Benefit Obligation of MFSC and its Subsidiaries
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.
(A) No transaction prohibited by ERISA Section 406 and no
"prohibited transaction" under IRC Section 4975(c) has occurred with respect
to any Plan of MFSC and its Subsidiaries.
(B) Neither MFSC nor any of its Subsidiaries has any
liability to the IRS with respect to any Plan, including any liability
imposed by Chapter 43 of the IRC.
(C) Neither MFSC nor any of its Subsidiaries has any
liability under ERISA Section 502.
(D) All filings required by ERISA and the IRC as to each
Plan of MFSC and its Subsidiaries have been timely filed, and all notices and
disclosures to participants required by either ERISA or the IRC have been
timely provided.
(E) All contributions and payments made or accrued by MFSC
and its Subsidiaries and the ERISA Affiliates of MFSC and its Subsidiaries
with respect to all the Plans and Other Benefit Obligations of MFSC and its
Subsidiaries are deductible under IRC Section 162 or Section 404. No amount,
nor any asset of any Plan of MFSC and its Subsidiaries is subject to Tax as
unrelated business taxable income.
(iv) Neither MFSC nor any of its Subsidiaries any ERISA Affiliate
of MFSC or any of its Subsidiaries 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 MFSC and its Subsidiaries or any ERISA Affiliate of MFSC or
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any of its Subsidiaries, except as required under Part 6 of Title I of ERISA
and Section 4980B of the Code.
(v) Each Plan of MFSC and its Subsidiaries 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) 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 MFSC and its Subsidiaries 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 MFSC and its Subsidiaries is pending or, to the
Knowledge of MFSC, is Threatened.
(viii) Each Qualified Plan of MFSC and its Subsidiaries 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 MFSC and its Subsidiaries has complied with the
provisions of ERISA Section 601 et seq. and IRC Section 4980B.
(x) With respect to any payment made under any agreement entered into
prior to the Effective Time, no payment that is owed or may become due to any
director, officer, employee or agent of MFSC or any of its Subsidiaries will
be non-deductible to MFSC or any of its Subsidiaries or subject to Tax under
IRC Section 280G or Section 4999; nor will MFSC or any of its Subsidiaries
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 MFSC and each of its Subsidiaries is, and at all
times since January 1, 1993 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 MFSC, 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 MFSC or any of its Subsidiaries of, or
a failure on the part of MFSC or any of its
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Subsidiaries to comply with, any Legal Requirement or (B) may give rise to
any obligation on the part of MFSC or any of its Subsidiaries to undertake,
or to bear all or any portion of the cost of, any remedial action of any
nature; and
(iii) neither MFSC nor any of its Subsidiaries has received, at
any time since January 1, 1993, any written or, to the Knowledge of MFSC,
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 MFSC or any of its
Subsidiaries 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 MFSC or any of its
Subsidiaries or that otherwise relates to the business of, or to any of the
assets owned or used by, MFSC or any of its Subsidiaries. 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 MFSC and each of its Subsidiaries is, and at all
times since January 1, 1993, 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 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 5.13 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 5.13;
(iii) neither MFSC nor any of its Subsidiaries has received, at
any time since January 1, 1993, any written or, to the Knowledge of MFSC,
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 listed or required to be
listed in Schedule 5.13 have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other material filings require 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
MFSC and any of its Subsidiaries to lawfully conduct and operate its business in
the manner it currently conducts and operates such business and to permit MFSC
and its Subsidiaries to own and use their assets in the manner in which they
currently own and use such assets.
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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 MFSC or any of its
Subsidiaries or, to the Knowledge of MFSC, that otherwise relates to or may
affect the business of, or any of the assets owned or used by, MFSC or any of
its Subsidiaries; 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 MFSC, (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. MFSC has delivered to
CSR 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 MFSC or any of its
Subsidiaries.
(b) Except as set forth in Schedule 5.14:
(i) there is no Order to which MFSC or any of its Subsidiaries or
any of the assets owned or used by MFSC or any of its Subsidiaries, is
subject; and
(ii) to the Knowledge of MFSC, no officer, director, agent or
employee of MFSC or any of its Subsidiaries 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 MFSC
or any of its Subsidiaries.
(c) Except as set forth in Schedule 5.14:
(i) each of MFSC and its Subsidiaries is, and at all times since
January 1, 1993, 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 MFSC, 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 MFSC or any of its Subsidiaries or any of
the assets owned or used by MFSC or any of its Subsidiaries, is subject; and
(iii) none of MFSC and its Subsidiaries has received, at any time
since January 1, 1993, any written or, to the Knowledge of MFSC, 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 MFSC or any of its
subsidiaries or any of the assets owned or used by MFSC or any of its
Subsidiaries, is or has been subject.
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5.15 Absence of Certain Changes and Events.
Except as set forth in Schedule 5.15, since the date of the MFSC Balance
Sheets, each of MFSC and its Subsidiaries 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, MFSC or any of its Subsidiaries; grant of any stock option or
right to purchase shares of capital stock, of or other equity interests in, MFSC
or any of its Subsidiaries; 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 MFSC or any of its
Subsidiaries of any shares of any such capital stock or other equity interests;
or declaration or payment of any dividend or other distribution or payment
respect of shares of capital stock or other equity interests;
(b) amendment to the Organizational Documents of MFSC or any of its
Subsidiaries;
(c) payment or increase by MFSC or any of its Subsidiaries 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 MFSC or
any of its Subsidiaries;
(e) damage to or destruction or loss of any asset or property of MFSC
or any of its Subsidiaries, whether or not covered by insurance, that would have
a Material Adverse Effect on MFSC or any of its Subsidiaries;
(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 MFSC or any of its Subsidiaries 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 MFSC or any of its
Subsidiaries or mortgage, pledge or imposition of any lien or other Encumbrance
on any material asset or property of MFSC or any of its Subsidiaries, including
the sale, lease or other disposition of any of the MFSC 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;
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(k) cancellation or waiver of any claims or rights with
a value to MFSC or any of its Subsidiaries in excess of $10,000;
(l) any payment, discharge or satisfaction of any
Liability by MFSC or any of its Subsidiaries, 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
MFSC or any of its Subsidiaries; or
(o) agreement, whether oral or written, by MFSC or any
of its Subsidiaries to do any of the foregoing.
5.16 Contracts; No Defaults.
(a) Schedule 5.16 contains a complete and accurate
list, and MFSC made available to CSR true and complete copies, of:
(i) each written Applicable Contract that involves
performance of services or delivery of goods by MFSC or any
of its Subsidiaries 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
MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries,
individually or, for a series of related Applicable
Contracts, in the aggregate, in excess of $10,000, or
receipts of MFSC or any of its Subsidiaries, 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 MFSC or any of its Subsidiaries
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 sale 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 MFSC or any of its Subsidiaries 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 MFSC
Intellectual Property Assets;
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(vi) each collective bargaining agreement and other
Applicable Contract of MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries
(however named) involving a sharing of profits, losses,
costs or liabilities by MFSC or any of its Subsidiaries with
any other Person;
(viii) each Applicable Contract of MFSC or any of
its Subsidiaries containing covenants that in any way
purport to restrict the business activity of MFSC or any of
its Subsidiaries or any Affiliate of MFSC or any of its
Subsidiaries or limit the freedom of MFSC or any of its
Subsidiaries or any Affiliate of MFSC or any of its
Subsidiaries to engage in any line of business or to compete
with any Person;
(ix) each Applicable Contract of MFSC or any of its
Subsidiaries 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 MFSC or any of its
Subsidiaries to be responsible for consequential damages;
(xii) each Applicable Contract of MFSC or any of
its Subsidiaries for capital expenditures in excess of
$10,000;
(xiii) each Applicable Contract which, to the
Knowledge of MFSC, will result in a material loss to MFSC
and its Subsidiaries;
(xiv) each Applicable Contract between a MFSC or
any of its Subsidiaries, on the one hand, and its former or
current stockholders, directors, officers and employees, on
the other hand (other than standard employment agreements
previously furnished to or approved by CSR);
(xv) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by MFSC or any of its Subsidiaries 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 MFSC or any
of its Subsidiaries under the Contracts, and the place where
details relating to the Contracts are located.
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(b) Except as set forth in Schedule 5.16, no officer,
director, agent, employee, consultant or contractor of MFSC or
any of its Subsidiaries 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 MFSC or
any of its Subsidiaries or (B) assign to MFSC or any of its
Subsidiaries or to any other Person any rights to any invention,
improvement or discovery.
(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 MFSC and its Subsidiaries is, and at
all times since January 1, 1993, has been, in compliance
with all material terms and requirements of each material
Contract under which MFSC or any of its Subsidiaries has or
had any obligation or Liability or by which MFSC or any of
its Subsidiaries or any of the assets owned or used by MFSC
or any of its Subsidiaries is or was bound;
(ii) each other Person that has or had any
obligation or Liability under any material Contract under
which MFSC or any of its Subsidiaries has or had any rights
is, and at all times since January 1, 1993 has been, in
compliance with all material terms and requirements of such
Contract;
(iii) to the Knowledge of MFSC, 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 MFSC or any of
its Subsidiaries 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 MFSC nor any of its Subsidiaries has
given to or received from any other Person, at any time
since January 1, 1993, any written or, to the Knowledge of
MFSC, 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 MFSC or any of its Subsidiaries 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 MFSC and its Subsidiaries 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.
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5.17 Insurance.
(a) MFSC has delivered to CSR:
(i) a true and complete list of all policies of insurance to
which MFSC or any of its Subsidiaries is a party or under which MFSC
or any of its Subsidiaries or any director or officer of MFSC or any
of its Subsidiaries, 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 MFSC 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 MFSC or
any of its Subsidiaries, 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 MFSC or any of
its Subsidiaries.
(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 MFSC or any of its Subsidiaries is
a party or that provide coverage to MFSC or any of its Subsidiaries or
any director or officer of MFSC or any of its Subsidiaries:
(A) are valid, outstanding and enforceable in all
material respects;
(B) taken together, provide adequate insurance coverage
for the assets and the operations of MFSC and its Subsidiaries for all
risks normally insured against by a Person carrying on the same
business as MFSC or any of its Subsidiaries;
(C) are sufficient for compliance with all Legal
Requirements and Contracts to which MFSC or any of its Subsidiaries is
a party or by which it is bound;
(D) will continue in full force and effect following
the consummation of the Transactions; and
(E) do not provide for any retrospective premium
adjustment or the experienced-based liability on the part of MFSC or
any of its Subsidiaries.
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(ii) neither MFSC nor any of its Subsidiaries 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 MFSC, each of MFSC and
each of its Subsidiaries 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 MFSC and its Subsidiaries 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 non
compliance or violations would not, individually or in the aggregate, have
a Material Adverse Effect on MFSC or any of its Subsidiaries. To the
Knowledge of MFSC, none of MFSC and its Subsidiaries has any basis to
expect, nor has it or any other Person for whose conduct MFSC or any of
its Subsidiaries 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 MFSC or any of its Subsidiaries 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 MFSC, any of its Subsidiaries or any other
Person for whose conduct MFSC or any of its Subsidiaries 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 MFSC, any of the Facilities or (ii) any other properties and
assets (whether real, personal or mixed) in which MFSC or any of its
Subsidiaries has or had an interest.
(c) Neither MFSC and its Subsidiaries nor any other Person
for whose conduct MFSC or any of its Subsidiaries 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 MFSC
or any of its Subsidiaries 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 MFSC or any of its
Subsidiaries or any other Person for whose conduct MFSC or any of its
Subsidiaries is or may be held responsible, have been transported, treated,
stored, handled, transferred, disposed, recycled or received.
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(d) Neither MFSC and its Subsidiaries nor any other Person for
whose conduct MFSC or any of its Subsidiaries is or may be held
responsible, has any Environmental, Health and Safety Liabilities with
respect to the Facilities or, to the Knowledge of MFSC, with respect to any
other properties and assets (whether real, personal or mixed) in which MFSC
or any of its Subsidiaries (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 MFSC, 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 MFSC, any of
its Subsidiaries, any other Person for whose conduct MFSC or any of its
Subsidiaries is or may be held responsible, or, to the Knowledge of MFSC,
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 MFSC or any of its
Subsidiaries has or had an interest.
(f) To the Knowledge of MFSC, 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 MFSC or any of its Subsidiaries has or had an
interest, or, to the Knowledge of MFSC, any geologically or hydrologically
adjoining property, whether by MFSC, any of its Subsidiaries or any other
Person.
(g) MFSC has delivered to CSR true and complete copies and
results of any reports, studies, analyses, tests or monitoring possessed or
initiated by MFSC or any of its Subsidiaries pertaining to Hazardous
Materials or Hazardous Activities in, on or under the Facilities or
concerning compliance by MFSC, any of its Subsidiaries 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, 1993, neither MFSC nor any of its
Subsidiaries 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,
1993, there has not been, there is not presently pending or existing, and,
to the Knowledge of MFSC, there is not Threatened, (a) any strike,
slowdown, picketing, work stoppage or employee grievance process, (b) any
Proceeding against or affecting MFSC or any of its Subsidiaries 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 MFSC or any of its Subsidiaries 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 MFSC or any of its subsidiaries, and no such action is
contemplated by MFSC or any of its Subsidiaries. Except as set forth in
Schedule 5.19, MFSC and each of its Subsidiaries have complied in all
respects with all Legal Requirements relating to employment, equal
employment opportunity, nondiscrimination, immigration, wages,
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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 MFSC and its Subsidiaries 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
MFSC or any of its Subsidiaries who are expected to receive more than $100,000
annualized cash compensation for the 1997 calendar year from MFSC or any of its
Subsidiaries (including without limitation, salary, commission and bonus) and
who are expected to be employed by MFSC or any of its Subsidiaries on the
Effective Date. Except as set forth in Schedule 5.19, neither MFSC nor any of
its Subsidiaries has entered into any severance or similar arrangement in
respect of any personnel that provides for any obligation (absolute or
contingent) of MFSC or any of its Subsidiaries or any other Person to make any
payment to any such personnel following termination of employment.
5.20 MFSC Intellectual Property.
(a) MFSC Intellectual Property Assets. The term "MFSC
Intellectual Property Assets" includes:
(i) the name "Mega Force" and all fictional business
names, trade names, registered and unregistered trademarks, service
marks and applications owned by, used by or licensed to MFSC or any of
its Subsidiaries (collectively, "the Marks");
(ii) all of the patents, patent applications and
inventions and discoveries that may be patentable of MFSC or any of
its Subsidiaries (collectively, the "MFSC Patents");
(iii) all of the copyright rights in both published
works and unpublished works of MFSC or any of its Subsidiaries
(collectively, "the MFSC 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 MFSC or any of its Subsidiaries as licensee or licenser
(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 MFSC
or any of its Subsidiaries, of all Contracts relating to the MFSC Intellectual
Property Assets to which MFSC or any of its Subsidiaries is a party or by which
MFSC or any of its Subsidiaries 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 MFSC or any of
its Subsidiaries is the licensee. There are no outstanding and, to the
Knowledge of MFSC, no Threatened disputes or disagreements with respect to any
such contract.
(c) Know-How Necessary for the Business. The MFSC Intellectual
Property Assets are all those necessary for the operation of the business of
MFSC or any of its Subsidiaries as it is currently conducted. MFSC (or one or
more of its Subsidiaries) is the owner of such right, title and interest in and
to each of the MFSC Intellectual Property Assets as is necessary to conduct the
business of MFSC and its Subsidiaries.
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(d) MFSC Patents. Neither MFSC nor any of its Subsidiaries
has been issued any MFSC Patents or has any MFSC Patents pending and
no MFSC Patents are necessary or currently used by MFSC or any of its
Subsidiaries to conduct its business as it is presently conducted. No
process or know-how used by MFSC or any of its Subsidiaries 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 MFSC and its
Subsidiaries. Except as set forth in Schedule 5.20, MFSC (or one
or more of its Subsidiaries) is the owner of such right, title
and interest in and to each of the Marks as is necessary to
conduct the business of MFSC and its Subsidiaries, free and clear
of all liens, security interests, charges, Encumbrances, equities
and other adverse claims.
(ii) All the Marks of MFSC and its Subsidiaries that
have been registered with the United States Patent and Trademark
Office are, to the Knowledge of MFSC, 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
MFSC and its Subsidiaries has been or is now involved in any
opposition, invalidation or cancellation and, to the Knowledge of
MFSC, no such action is Threatened with the respect to any of the
Marks of MFSC and its Subsidiaries.
(iv) Except as set forth in Schedule 5.20, to the
Knowledge of MFSC, 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
MFSC or any of its Subsidiaries is infringed or, to the Knowledge
of MFSC, has been challenged or threatened in any way. None of
the Marks of MFSC and its Subsidiaries used by MFSC or any of its
Subsidiaries is known to infringe or is alleged to infringe any
trade name, trademark or service mark of any third party.
(vi) All products and materials containing a Mark of
MFSC and its Subsidiaries bear the proper federal registration
notice where required or permitted by law.
(f) MFSC Copyrights.
(i) Schedule 5.20 contains a complete and accurate list
and summary description of all the MFSC Copyrights. MFSC (or one
or more of its Subsidiaries) is the owner of such right, title
and interest in and to each of the MFSC Copyrights as is
necessary to conduct the business of MFSC and its Subsidiaries,
free and clear of all material liens, security interests,
charges, Encumbrances, equities and other adverse claims.
(ii) All the material MFSC Copyrights that have been
registered are currently in compliance with formal legal
requirements, are valid and enforceable and are not
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subject to any maintenance fees or taxes or actions falling due
within ninety days after the date of Closing.
(iii) No MFSC Copyright is infringed or, to the
Knowledge of MFSC, has been challenged or threatened in any way. None
of the subject matter of any of the MFSC Copyrights 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) MFSC Trade Secrets. Neither MFSC nor any of its Subsidiaries
has any MFSC Trade Secrets and no MFSC Trade Secrets are necessary or
currently used by MFSC or any of its Subsidiaries to conduct its business
as it is presently conducted.
5.21 Certain Payments. To the Knowledge of MFSC, since January 1,
1993, none of MFSC and its Subsidiaries, nor any director, officer, agent
or employee of MFSC or any of its Subsidiaries or any other Person
affiliated with or acting for or on behalf of MFSC or any of its
Subsidiaries, 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 MFSC or any of its Subsidiaries or any Affiliate of MFSC or any of its
Subsidiaries 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 MFSC or any of its Subsidiaries.
5.22 No Other Agreements to Sell Assets or Capital Stock of MFSC or
any of its Subsidiaries. Except as set forth in Schedule 5.22, neither
MFSC nor any of its Subsidiaries, nor any officers, directors or Affiliates
of MFSC and its Subsidiaries 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 MFSC or any of its Subsidiaries, to effect any
merger, consolidation, liquidation, dissolution or other reorganization of
MFSC or any of its Subsidiaries, 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 MFSC and its Subsidiaries, 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 MFSC or any of its Subsidiaries other than business
dealings or transactions conducted in the Ordinary Course of Business with
MFSC or any of its Subsidiaries at substantially prevailing market prices
and on substantially prevailing market terms or (ii) engaged in a business
competing with MFSC or any of its Subsidiaries with respect to any line of
the products or services of MFSC or any of its Subsidiaries in any market
presently served by MFSC or any of its Subsidiaries, 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 MFSC or any of its Subsidiaries is a party to any Contract with,
or has any claim or right against, MFSC or any of its Subsidiaries.
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5.24 Customers and Suppliers. Schedule 5.24 contains a complete
and accurate list of the twenty-five (25) largest suppliers and twenty-five
(25) largest customers of MFSC and its Subsidiaries during the first six
months of 1997, showing the approximate total purchases by MFSC and its
Subsidiaries from each such supplier during such fiscal year and the total
sales by MFSC and its Subsidiaries to each such customer during such fiscal
year. To the Knowledge of MFSC, since the date of the MFSC Balance Sheets,
there has been no Material 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, Powers of Attorney. Schedule 5.25 sets forth
an accurate and complete list showing the name and address of each bank in
which MFSC or any of its Subsidiaries 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 MFSC nor any of its
Subsidiaries 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. MFSC agrees to indemnify
CSR against and to hold CSR harmless from, any claims for brokerage or
similar commission or other compensation which may be made against CSR or
MFSC and its Subsidiaries 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 MFSC or any of its Subsidiaries or any of
their respective Affiliates.
5.27 Disclosure. No representation or warranty of MFSC 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.
COVENANTS OF THE PARTIES
6.1 Further Assurances. The Parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver
to each other such other documents, and (c) to do such other acts and
things, all as the other Party may reasonably request for the purpose of
carrying out the intent of this Agreement and the documents referred to in
this Agreement.
6.2 Access and Investigation. Between the date of this Agreement
and the Closing, each Party hereto will (a) afford each other Party and its
Representatives and prospective lenders and their Representatives
(collectively, "Advisors") full and free access to such Party's personnel,
properties (including subsurface testing), contracts, books and records,
and other documents and data, (b) furnish such Party 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 such
Party and its Advisors with such additional financial, operating, and other
data and information as they may reasonably request.
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6.3 Operation of Business. Between the date of this Agreement and
the Closing, each Party will:
(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 other Parties concerning operational
matters of a material nature; and
(d) otherwise report periodically to the other Parties
concerning the status of its business, operations, and finances.
6.4 Negative Covenants.
(a) Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing, CSR
will not, without the prior consent of MFSC, 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 4.15 is
likely to occur.
(b) Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing, MFSC
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.
6.5 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 required 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, (b) cooperate in obtaining an exemption from
registration of the Merger Consideration to be issued to MFSC
Stockholders and CSR Stockholders under the Securities Act and all
applicable state securities laws, and (c) cooperate in obtaining all
consents identified in Schedules 4.2 or 5.2 (including taking all
actions requested to cause early termination of any applicable waiting
period under the HSR Act).
6.6 Notification. Between the date of this Agreement and the
Closing, each Party 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 Disclosure
Schedules were dated prior to the date of the occurrence or discovery
of any such fact or condition, the
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discovering Party will promptly deliver to each other Party a supplement
to the Disclosure Schedules specifying such change. During the same
period, each Party of 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 VI or of the occurrence of any event that
may make the satisfaction of the conditions in Articles VII and VIII
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 shall promptly notify each other Party of any
default, the threat or commencement of any Proceeding or any development
that occurs before the Closing that could in any way materially effect
such Party, the business or assets of such Party or the ability of such
Party to consummate the Transactions.
6.7 Payment of Indebtedness by Related Persons. Each Party will
cause all indebtedness owed to such Party by its shareholders or any
Related Person to be paid in full prior to Closing, except that MFSC and
CSR shall allow the indebtedness of Ronald Stone to MFSC described in the
note extension agreement, substantially in the form of Exhibit F, to remain
outstanding pursuant to the terms set forth therein.
6.8 No Negotiation. Until such time, if any, as this Agreement is
terminated pursuant to Article IX, none of the Parties to this Agreement
nor 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 other
Parties hereto) relating to any transaction involving the sale of all or a
substantial portion of its business or assets (other than in the Ordinary
Course of Business) or any of its capital stock, or any merger,
consolidation, business combination or similar transaction involving such
Party (each such transaction referenced to herein as a "Proposed
Acquisition Transaction"). Each of the Parties to this Agreement will
immediately notify each other Party hereto 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 such other Parties of the terms of any proposal
which it may receive in respect of any such Proposed Acquisition
Transaction, including, without limitation, the identity of the prospective
purchaser or soliciting party. The disclosing Party shall also provide each
other Party hereto with a copy of any offer.
6.9 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 8 and 9 to be satisfied.
6.10 MFSC Stockholders' Approval. MFSC agrees to promptly hold a
meeting of its stockholders, or receive the written consent of its
stockholders in lieu of a meeting, in order for such stockholders to
approve the Transactions (including, without limitation, the issuance of
the Merger Consideration) and the Transaction Documents as required by
applicable law.
6.11 CSR Stockholders' Approval. CSR agrees to promptly hold a
meeting of its stockholders, or receive the written consent of its
stockholders in lieu of a meeting, in order for such stockholders to
approve the Transactions, this Agreement and the other Transaction
Documents.
6.12 Board of Directors; Officers. Effective on the Effective
Date, MFSC agrees to use all reasonable efforts to cause MFSC's Board of
Directors to be increased to ten (10) directors and have nominated and
elected as directors ten (10) individuals nominated in the manner set forth
in the Stockholders Agreement;
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6.13 Certificate of Merger. CSR and MFSC shall take all actions
necessary to cause the Certificate of Merger to be filed with the Secretary
of State of the State of Delaware.
6.14 Purchase of Ronald Stone Stock. Immediately following the
Effective Time and on the Effective Date, MFSC shall purchase Ninety Six
Thousand Five Hundred Sixty Six (96,566) shares of MFSC Common Stock from
H. Ronald Stone and Sixty Four Thousand Three Hundred Seventy Eight
(64,378) shares of MFSC Voting Common Stock from Jerry Stone for the
purchase price and pursuant to the terms set forth in the stock purchase
agreements substantially in the form of Exhibit E.
6.15 Payment to Christopher N. Jones. Immediately following the
Effective Time and on the Effective Date, MFSC shall pay to Christopher N.
Jones the sum of Five Hundred Thousand Dollars ($500,000) pursuant to the
terms set forth in the agreement with Christopher N. Jones substantially in
the form of Exhibit J.
ARTICLE VII.
CONDITIONS PRECEDENT TO CSR'S OBLIGATION TO CLOSE
CSR's obligation to take the actions required to be taken
by CSR 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
CSR, in whole or in part):
7.1 Accuracy of Representations. All of the representations and
warranties of MFSC in this Agreement (considered collectively), and each of
such 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.
7.2 MFSC's Performance.
(a) All of the covenants and obligations that MFSC 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 performed and
complied with in all material respects.
(b) Each document required to be delivered by MFSC pursuant
to Section 3.2. must have been delivered and be in full force and effect.
7.3 Consents. Each of the Consents identified in Schedule 5.2
must have been obtained and must be in full force and effect. This
Agreement, the other Transaction Documents and the Merger and the other
Transactions shall have received the approval of the MFSC Stockholders.
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7.4 Additional Documents. MFSC shall have delivered such
documents as CSR may reasonably request for the purpose of (i) evidencing
the accuracy of any representation or warranty of MFSC, (ii) evidencing the
performance by MFSC of, or the compliance by MFSC with, any covenant or
obligation required to be performed or complied with by MFSC, (iii)
evidencing the satisfaction of any condition referred to in this Article
VII, or(iv) otherwise facilitating the consummation of any of the
Transactions.
7.5 No Injunction. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the
exchange of Merger Consideration and (b) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement.
7.6 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against CSR, or against any Person
affiliated with CSR, 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.
7.7 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 CSR, the Surviving Corporation
or any of their Affiliates to suffer any material adverse consequence under
(a) any applicable Legal Requirement or Order, including the HSR Act and
federal and state securities laws, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise formally proposed by or
before any Governmental Body.
7.8 HSR Act. All applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been terminated.
7.9 Financing. CSR and MFSC shall have secured the financing
required to consummate the Merger and the other Transactions, upon terms
and subject to conditions reasonably satisfactory to them.
7.10 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, MFSC or any of its
Subsidiaries, or (b) is entitled to all or any portion of the Merger
Consideration payable for the MFSC Non-Voting Common Stock.
ARTICLE VIII.
CONDITIONS PRECEDENT TO MFSC'S OBLIGATION TO CLOSE
MFSC's obligation to issue the Merger Consideration and to take
the other actions required to be taken by MFSC 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 MFSC, in whole or in part):
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8.1 Accuracy of Representations. All of the representations and
warranties of CSR in this Agreement (considered collectively), and each of
such 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 CSR's Performance.
(a) All of the covenants and obligations that CSR 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 CSR pursuant
to Section 3.2 must have been delivered and be in full force and effect.
8.3 Consents. Each of the Consents identified in Schedule 4.2
must have been obtained and must be in full force and effect. This
Agreement, the other Transaction Documents and the Merger and the other
Transactions shall have received the approval of the CSR Stockholders.
8.4 Additional Documents. CSR shall have delivered such documents
as MFSC may reasonably request for the purpose of (i) evidencing the
accuracy of any of CSR's representations and warranties, (ii) evidencing
the performance by CSR of, or the compliance by CSR's with, any covenant or
obligation required to be performed or complied with by CSR, (iii)
evidencing the satisfaction of any condition referred to in this Article
VIII, or (iv) otherwise facilitating the consummation or performance of any
of the Transactions.
8.5 No Injunction. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the
exchange of the Merger Consideration and (b) has been adopted or issued, or
has otherwise become effective, since the date of this Agreement.
8.6 No Proceedings. Since the date of this Agreement, there must
not have been commenced or Threatened against MFSC, or against any Person
affiliated with MFSC, 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.
8.7 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 CSR, the Surviving Corporation
or any of their Affiliates to suffer any material adverse consequence
under, (a) any applicable Legal Requirement or Order, including the HSR Act
and federal and state securities laws, or (b) any Legal Requirement or
Order that has been published, introduced or otherwise formally proposed by
or before any Governmental Body.
8.8 HSR Act. All applicable waiting periods (and any extensions
thereof under the HSR Act shall have expired or otherwise been terminated.
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8.9 Financing. CSR and MFSC shall have secured the financing
required to consummate the Merger and the other Transactions, upon terms
and subject to conditions reasonably satisfactory to them.
8.10 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, CSR or any of its
Subsidiaries, or (b) is entitled to all or any portion of the Merger
Consideration payable for the CSR Common Stock or CSR Preferred Stock.
ARTICLE IX.
TERMINATION
9.1 Termination Events.
This Agreement may, by notice given prior to or at the
Closing, be terminated:
(a) by either MFSC or CSR if (i) 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 or (ii) if the CSR
Dissenting Shares account for 10% or more of the CSR Common Stock or if the
MFSC Dissenting Shares account for 10% or more of the MFSC Common Stock;
(b) (i) by MFSC if any of the conditions in Article VIII
have not been satisfied as of the Closing or if satisfaction of such a
condition is or becomes impossible (other than through the failure of MFSC
to comply with its obligations under this Agreement) and MFSC has not
expressly waived such condition in writing on or before the Closing, or
(ii) by CSR, if any of the conditions in Article VII has not been satisfied
of the Closing or if satisfaction of such a condition is or becomes
impossible (other than through the failure of CSR to comply with its
obligations under this Agreement) and CSR has not expressly waived such
condition in writing on or before the Closing;
(c) by mutual consent of MFSC and CSR; or
(d) by either MFSC or CSR 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 December 31, 1997, or such later date as the Parties may agree upon.
9.2 Effect of Termination.
Each Party's right of termination under Section 9.1 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 9.1, all
further obligations of the Parties under this Agreement will terminate,
except that the obligations in Sections 10.2, 11.1 and 11.3 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
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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 X.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATIONS
10.1 Survival Representations, Etc.
All statements contained in the Disclosure Schedules or in
any certificate, schedule, exhibit or instrument or conveyance delivered by
or on behalf of the parties pursuant to this Agreement or in connection
with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Parties hereunder. The
representations and warranties shall survive the Closing for a period of
(a) 60 days following the delivery to MFSC of the consolidated fiscal-year
audit of MFSC for the second full year after the Closing; provided,
however, that the representations and warranties contained in Sections
4.10, 4.12, 4.18, 5.10, 5.12 and 5.18 shall terminate sixty (60) days after
the expiration of the applicable statute of limitations with respect to the
Liabilities in question (giving affect to any extensions or waivers
thereof). The termination of the representations and warranties provided
herein shall not affect the rights of a Party in respect of any Claim made
by such Party in a writing received by the other Party prior to the
expiration of the applicable survival period provided above.
10.2 Indemnification's.
(a) CSR Breach. If the Merger is consummated, the Surviving
Corporation shall indemnify, save and hold harmless the MFSC Stockholders
and their Affiliates (collectively, such indemnified Persons are the "MFSC
Indemnified Parties") in the manner set forth in Section 10.2(e) below,
from and against any and all costs, losses (including, without limitation,
diminution in value), Liabilities, obligations, damages, lawsuits,
deficiencies, claims, demands, and expenses (whether or not arising out of
third-party claims), including, without limitation, interest, penalties,
costs of mitigation, 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 or the
inaccuracy of any representation made by CSR in or pursuant to this
Agreement; (ii) any Breach of any covenant or agreement made by CSR in or
pursuant to this Agreement; or (iii) any Breach of any of the Transaction
Documents by CSR or the CSR Stockholders.
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
seek equitable remedies, including without limitation, specific performance
and injunctions; provided, further, that nothing herein shall preclude a
Party from exercising its rights under this Agreement and applicable law to
seek any Damages in the event that the Merger is not consummated.
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(b) MFSC Breach. If the Merger is consummated, the Surviving
Corporation shall indemnify, save and hold harmless the CSR Stockholders
and their Affiliates (collectively, such indemnified Persons are the "CSR
Indemnified Parties") in the manner set forth in Section 10.2(e) below,
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 or the inaccuracy of any representation made by MFSC in or
pursuant to this Agreement; (ii) any Breach of any covenant or agreement
made by MFSC in or pursuant to this Agreement; or (iii) any Breach of any
of the Transaction Documents by MFSC or the MFSC Stockholders.
(c) Cooperation. The indemnified party shall cooperate in
all reasonable respects with the indemnifying party and its Representatives
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 a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give
written notice (a "Claim Notice") to the indemnifying party as soon as
practicable after the party entitled to indemnification 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 any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the
indemnifying party as promptly as practicable (and in any event within five
(5) 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 demonstrates actual damage caused 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 its indemnity hereunder in connection with such lawsuit or action,
then the indemnifying party shall be entitled, if it so elects at its 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 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 park, 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 written consent of the indemnifying party, the indemnifying
party shall not have any 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
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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) Make Whole Distributions. Notwithstanding anything to
the contrary contained in this Article X, all indemnification for Damages
under this Article X shall be made or paid as set forth in this Section
10.2(e). If either the MFSC Stockholders or the CSR Stockholders incur any
Damages as a result of the incidents described in 10.2(a)(i) through (iii)
or 10.2(b)(i) through (iii), respectively, the sole remedy for all
indemnification claims shall be a claim against MFSC and Damages shall be
paid by means of a Make-Whole Distribution. A "Make-Whole Distribution"
shall be the issuance by MFSC to the MFSC Indemnified Parties or the CSR
Indemnified Parties, as applicable, of such number of shares of common
stock of the Surviving Corporation (the "Distributed Assets") as is
necessary so that the aggregate value of the Distributed Assets issued to
the applicable indemnified parties after the Make-Whole Distribution is
equal to the Damages incurred by the applicable indemnified parties. For
purposes of the Make-Whole Distributions made pursuant to this Section
10.2(e), the Parties specifically agree that each share of common stock of
the Surviving Corporation shall be worth Ten Dollars ($10) (which is the
value used to determine the Merger Consideration). The parties intend that
any Make-Whole Distributions payable hereunder shall be treated as an
adjustment to the Merger Consideration.
(f) Representatives. No individual Representative of any
Party shall be personally liable for any Damages under the provisions
contained in this Section 10.2. Nothing herein shall relieve any Party of
any liability to make any payment expressly required to be made by such
Party pursuant to this Agreement.
(g) Limitation on Indemnity/Commitments.
(i) The indemnification obligation of the Surviving
Corporation with respect to any Breach of any representation or
warranty under Sections 10.2(a)(i) and 10.2(b)(i) hereof shall be
limited to Claims for Damages made prior to the last date of
survival thereof.
(ii) The MFSC Indemnified Parties may not seek
indemnification under Section 10.2(a)(i) or (iii) until the
aggregate amount of Damages relating to such Claims for which the
MFSC Indemnified Parties are seeking indemnification exceeds Five
Hundred Thousand Dollars ($500,000); provided, however, in the
event that the aggregate amount of Damages for which the MFSC
Indemnified Parties are seeking indemnification exceeds such
amount, the MFSC Indemnified Parties may recover the full amount
of such Damages.
(iii) The CSR Indemnified Parties may not seek
indemnification under Section 10.2(b)(i) or (iii) until the
aggregate amount of Damages for which the CSR Indemnified Parties
are seeking indemnification exceeds Five Hundred Thousand Dollars
($500,000); provided, however, in the event that the aggregate
amount of Damages for which the CSR Indemnified Parties are
seeking indemnification exceeds such amount, the CSR Indemnified
Parties may recover the full amount of such Damages.
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(iv) 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
a Person in respect of any Claim made by such Person received by the
indemnifying Party prior to the expiration of the applicable survival
period provided herein.
(h) Arbitration. Notwithstanding anything herein to the contrary,
in the event that there shall be a dispute among the Parties after the
Closing concerning the indemnities provided for hereby, the Parties agree
that such dispute shall be submitted to binding arbitration in New York,
New York, before a single arbitrator selected by and in accordance with the
then rules of Judicial Arbitration & Mediation Services, Inc. ("JAMS"). The
arbitrator shall apply Delaware substantive law and the New York Evidence
Code to the arbitration proceeding. The arbitrator shall have the power to
grant all legal and equitable remedies and award compensatory damages
provided by Delaware law, excluding only the power to award punitive
damages. The arbitrator shall prepare in writing and provide to the parties
an award indicating factual findings and the reasons on which the decision
is based. The fees and costs of JAMS shall be allocated between the parties
hereto as the arbitrator determines in his or her sole discretion.
ARTICLE XI.
GENERAL PROVISIONS
11.1 Expenses.
Except as otherwise expressly provided in this Agreement,
upon consummation of the Merger, MFSC will pay each Party's expenses
incurred in connection with the preparation, execution, and performance of
this Agreement and the Transactions, including all fees and expenses of
agents, representatives, counsel, and accountants. If this Agreement is
terminated without the Merger being consummated, then each Party will bear
its own expenses, provided that the obligation of each Party to pay its own
expenses will be subject to any rights of such Party arising from a Breach
by another Party.
11.2 Public Announcements.
Any public announcement or similar publicity with respect to
this Agreement or the Transactions will be issued, if at all, at such time
and in such manner as MFSC and CSR jointly determine. Unless consented to
by MFSC and CSR in advance or required by Legal Requirements, prior to the
Closing the Parties hereto shall keep this Agreement strictly confidential
and may not make any disclosure of this Agreement to any Person. CSR and
MFSC will consult with each other concerning the means by which the
employees, customers, and suppliers and others having dealings with CSR or
MFSC will be informed of the Transactions, and both MFSC and CSR will have
the right to be present for any such communication.
11.3 Confidentiality.
Between the date of this Agreement and the Closing, MFSC and CSR
will maintain in confidence, and will cause their respective directors,
officers, employees, agents, and advisors to maintain in confidence, any
written, oral or other information obtained in confidence from another
party or in connection with this Agreement or the Transactions, unless (a)
such information is already known to such party or to others not bound by a
duty of confidentiality or such information becomes
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publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining
any consent or approval required for the consummation of the Transactions,
or (c) the furnishing or use of such information is required by legal
proceedings.
If the Transactions are not consummated, each Party will return
or destroy as much of such written information as the other Party may
reasonably request. Whether or not the Closing takes place, each Party
waives any cause of action, right or claim arising out of the access of the
other Parties or their respective Representatives to any trade secrets or
other confidential information of such Party except for the intentional
competitive misuse by any other Party of such trade secrets or confidential
information.
11.4 Notices.
All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to
the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a Party may designate by
notice to the other Parties):
CSR: CSR, Inc.
310 South Street, P.O. Box 1913
Morristown, NJ 07962-1913
Attention: Conor Mullett
Telephone: (973) 898-0290
Telecopy: (973) 829-0840
With a copy to:
Paul D. Tosetti, Esq.
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
MFSC: Mega Force Staffing Companies, Inc.
1001 Hay Street
P.O. Drawer 53449
Fayetteville, NC 28305-3449
Attention: Jerry F. Stone
Telephone: (910) 484-5313
Facsimile No.: (910) 484-5974
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with a copy to: Moore & Van Allen, PLLC
One Hannover Square, Suite 1700
P.O. Box 26507
Raleigh, North Carolina 27611
Attention: Martin H. Brinkley, Esq
Telephone: (919) 828-4481
Facsimile No.: (919) 828-4254
and after the
Effective Time, to: Paul D. Tosetti, Esq.
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
11.5 Jurisdiction; Service of Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of,
this Agreement may be brought against each of the Parties in the courts of
the State of New York, or, if it has or can acquire jurisdiction, in the
United States District Court for the Southern District of New York, and
each of the Parties consents to the jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives
any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any Party anywhere
in the world.
11.6 Waiver. The rights and remedies of the Parties to this
Agreement are cumulative and not alternative. Neither the failure nor any
delay by any Party in exercising any right, power or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power or privilege, and no single or partial exercise
of any such right, power or privilege will preclude any other or further
exercise of such right, power or privilege or the exercise of any other
right, power or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the documents
referred to in this Agreement can be discharged by one Party, in whole or
in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Party; (b) no waiver that may be given by a
Party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one Party will be deemed to be a
waiver of any obligation of such Party or of the right of the Party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
11.7 Entire Agreement and Modification. This Agreement supersedes
all prior agreements between the Parties with respect to its subject matter
and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
Parties with respect to its subject matter. This Agreement may not be
amended except by a written agreement executed by the Party to be charged
with the amendment.
11.8 Assignments, Successors, and No Third Party Rights. Neither
Party may assign any of its rights under this Agreement without the prior
consent of the other Party. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
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benefit of the successors and permitted assigns of the Parties. Nothing
expressed or referred to in this Agreement will be construed to give any
Person other than the Parties to this Agreement any legal or equitable
right, remedy or claim under or with respect to this Agreement or any
provision of this Agreement. This Agreement and all of its provisions and
conditions are for the sole and exclusive benefit of the Parties to this
Agreement and their successors and assigns.
ll.9 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.
ll.10 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid
or unenforceable.
ll.ll Section Headings, Construction. The headings of sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement. All words
used in this Agreement will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
11.12 Time of Essence. With regard to all data and time periods
set forth or referred to in this Agreement, time is of the essence.
11.13 Governing Law. This Agreement will be governed by the laws
of the State of Delaware without regard to conflicts of laws principles.
11.14 Attorneys' Fees. If any proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach or
default in connection with or arising out of any of the provisions of this
Agreement, the prevailing party shall be entitled to recover such party's
reasonable attorneys' fees and other costs incurred in such proceeding in
addition to any other relief to which such party may be entitled.
ll.15 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
(signature page follows)
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<PAGE> 75
IN WITNESS WHEREOF, the Parties have executed and delivered this
Agreement as of the date first written above.
"CSR"
CSR, INC.
By: /s/ CONOR MULLETT
----------------------------
Name: Conor Mullett
Title: Vice President
"MFSC"
MEGA FORCE STAFFING COMPANIES, INC.
By: /s/ H. RONALD STONE
----------------------------
Name: H. Ronald Stone
Title: CEO-PR
S-1
<PAGE> 1
EX. 2.06
===============================================================================
ASSET PURCHASE AGREEMENT
Dated as of May 6, 1998
among
---------------------------------
PURCHASER:
CORPORATE STAFFING RESOURCES LLC
---------------------------------
SELLER:
MONDAY TEMPORARY SERVICES, INC.
AND
---------------------------------
SHAREHOLDERS:
JOHN MONDAY
SUSAN MONDAY
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT dated as of May 6, 1998 (this "Agreement"),
is by and among Corporate Staffing Resources LLC, an Indiana limited liability
company (the "Purchaser"), Monday Temporary Services, Inc., Michigan
corporation (the "Seller") and John Monday and Susan Monday (individually, a
"Shareholder" and, collectively, the "Shareholders").
RECITALS
A. The Purchaser desires to purchase from the Seller and the Seller
desires to sell to the Purchaser certain of the assets of the Seller, 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. The board of directors of the Seller has determined that the
Acquisition is in the best interest of the 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
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 2.3
"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 Securities Exchange
Act of 1934. 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.
<PAGE> 3
"Agreement" shall mean this Asset Purchase Agreement.
"Applicable Contract" shall mean any Contract (a) under which the Seller
has or may acquire any rights, (b) under which the Seller has or may become
subject to any obligation or liability, or (c) by which the Seller or any of
the assets owned or used by it is or may become bound.
"Assumed Liabilities' shall have the meaning set forth in Section 2.1(b).
"Balance Sheet" shall have the meaning set forth in Section 5.5.
"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.
"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).
"Closing" shall have the meaning set forth in Section 4.1.
"Closing Payment" shall have the meaning set forth in Section 2.2.
"Closing Date" shall have the meaning set forth in Section 11.l(d).
"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 2.2.
"Consulting Agreements" shall have the meaning set forth in Section
4.3(a).
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<PAGE> 4
"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.
"Damages" shall have the meaning set forth in Section 10.2(a).
"Disclosure Schedules" shall mean the schedules prepared and delivered by
the Seller and the Shareholders 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.
"Employment Agreements" shall have the meaning set forth in Section
4.3(b).
"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);
(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
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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.
"Financial Statements" shall have the meaning set forth in Section 5.4(a).
"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
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<PAGE> 6
(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.
"Intellectual Property Assets" shall have the meaning set forth in Section
5.14(a).
"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 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, 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.
"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 5.14(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),
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business, results of operations, liabilities or operations and/or assets of any
party taken as a whole 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."
"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.
"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) 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.
"Patents" shall have the meaning set forth in Section 5.14(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.
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<PAGE> 8
"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.
"Purchased Assets" shall have the meaning set forth in Section 2.1(a).
"Purchaser" shall mean Corporate Staffing Resources LLC.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 10.2(b).
"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" shall mean Monday Temporary Services, Inc.
"Seller's 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 John Monday and Susan Monday. "Shareholder"
shall refer to any one of the Shareholders.
"Staffing Services Business" shall have the meaning set forth in Section
3.4.
"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
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<PAGE> 9
taxes, and any premium, including without limitation, interest, penalties and
additions in connection therewith.
"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, or (ii) any notice has been given (orally or in writing) with respect
thereto.
"Trade Secrets" shall have the meaning set forth in Section 5.14(a).
"Transaction Documents" shall mean this Agreement, the Consulting
Agreements, the Employment Agreements, and all instruments executed pursuant to
the requirements of this Agreement.
"Transactions" shall mean the Acquisition and the other transactions
contemplated by the Transaction Documents.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.1 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 the Seller shall sell, convey, transfer, assign and
deliver to the Purchaser, and the Purchaser shall purchase from the Seller,
all of the following assets of the Seller: (a) all equipment, furniture,
supplies, fixtures and other tangible personal property and all warranties
and claims pertaining thereto; (b) all Accounts Receivable; (c) all
Intellectual Property Assets; (d) all Contracts for the provision of Staffing
Services Business; (e) all leasehold interests in real or personal property
listed in the Disclosure Schedules; and (f) all books, records, information
and data, of every type and in whatever form recorded, related to the
Seller's Staffing Services Business, including, but not limited to, all
customer lists and records and purchase and sales information (collectively
the "Purchased Assets") free and clear of all Encumbrances.
(b) On the Closing Date, subject to the Shareholders'
indemnification obligations pursuant to Article X, the Purchaser shall
assume, pay, perform and discharge the following Liabilities of the Seller:
(a) all liabilities of the Seller arising on or after the Closing Date with
respect to each real or personal property lease listed in the Disclosure
Schedules and (b) all liabilities of the Seller arising on or after the
Closing Date under
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Contracts for the provision of Staffing Services Business (collectively, the
"Assumed Liabilities").
2.2 Consideration. Upon the terms and subject to the conditions set forth
herein, in consideration for the transfer of the Purchased Assets subject to
the assumption of the Assumed Liabilities pursuant to Section 2.1 , the
Purchaser shall pay to the Seller, at the time hereafter set forth, the Closing
Payment pursuant to Section 2.3. The Closing Cash Payment as adjusted
pursuant to Section 2.4 is referred to herein as the "Consideration."
2.3 Closing Cash Payment. On the Closing Date, the Purchasers shall pay
to the Seller in cash by wire transfer of immediately available funds to the
account designated by the Seller an amount equal to Two Million Eight Hundred
Forty Thousand Dollars ($2,840,000) plus one hundred twenty five percent (125%)
of the amount of Accounts Receivable less Fifty Thousand Dollars ($50,000) (the
"Closing Payment"). "Accounts Receivable" shall mean the accounts receivable
of the Seller on the Closing Date as set forth in the Seller's Certificate
delivered at Closing pursuant to Section 4.2(f) hereof.
2.4 Post-Closing Accounts Receivable Adjustment. On the first business
day which is ninety (90) days following the Closing Date:
(a) The Purchaser shall pay to the Seller $50,000, unless
uncollected Accounts Receivable exceed 2.5% of Accounts Receivable in which
event the Purchaser shall pay to the Seller the excess, if any, of (a)
$50,000 over (b) the uncollected Accounts Receivable; or
(b) If uncollected Accounts Receivable exceed 2.5% of Accounts
Receivable, the Seller shall pay to the Purchaser the excess, if any, of
(a) uncollected Accounts Receivable over (b) $50,000.
All uncollected Accounts Receivable shall be promptly assigned by the
Purchaser to the Seller.
Any amount payable under the foregoing provisions, if not paid within ten
(10) days after its due date, shall bear interest at the rate of 13% per annum
from its due date until paid in full.
The Purchaser agrees to use reasonable efforts to collect the Accounts
Receivable during the 90-day period in accordance with its customary business
practices (but shall not be required to institute legal proceedings or retain a
collection agency with respect to the Accounts Receivable). The Purchaser
consents to the Shareholders assisting in the collection of the Accounts
Receivable consistent with the past practice of the Seller.
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Each of the Seller and the Shareholders represent and warrant to the
Purchaser that each of the Accounts Receivable will as of the Closing Date
represent valid obligations arising from Staffing Services Business actually
performed by the Seller prior to the Closing Date.
ARTICLE III
SHAREHOLDERS' 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 Shareholders in their management of
the business and affairs of the Seller will be preserved and will not be used
in competition with the Purchaser. It is necessary for the protection of the
Purchaser and its 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 Purchaser to each of the
Shareholders of Twenty-Five Thousand Dollars ($25,000) (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 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 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 Purchaser, 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, solicit, cause or authorize,
directly or indirectly, to be solicited for or on behalf of such
Shareholder, the Seller or third parties, from parties who were customers of
the Seller, any Staffing Services Business transacted by or with such
customer by the Seller; or
(c) during the Noncompetition Period, solicit, cause or authorize,
directly or indirectly, to be solicited for or on behalf of such
Shareholder, the Seller or third parties, from any party who is then or was
during the preceding twelve (12) month period one of the
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fifty (50) largest customers of the Purchaser and its Affiliates
(determined on the basis of total revenues), any Staffing Services Business;
or
(d) during the Noncompetition Period, accept or cause or authorize,
directly or indirectly, to be accepted for or on behalf of such
Shareholder, the Seller or for third parties, any such Staffing Services
Business from any such customers described in (b) or (c) above; or
(e) (i) 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 the Seller
relating to the business or the operations, employees or customers of the
Seller or the Purchaser which constitutes proprietary or confidential
information of the Seller or the Purchaser ("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 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 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 twelve
(12) months was an employee) of the Purchaser or any other person who is
under contract with or rendering services to the Purchaser, 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 Purchaser,
(2) approach any such employee or other person for any of the
foregoing purposes, or
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(3) authorize or approve or assist in the taking of any such actions
by any person other than the Purchaser.
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) Each Shareholder acknowledges 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 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.
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"Territory" shall mean the States of Indiana and Michigan.
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, One
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 Purchaser will deliver the Closing Payment to
the Seller.
(b) Covenant Payment. The Purchaser will deliver the Covenant Payments to
the Shareholders.
(c) Bill of Sale. The Seller will execute and deliver to the Purchaser a
bill of sale for all of the Purchased Assets.
(d) Assumption Undertaking. The Purchaser will execute and deliver to the
Seller an undertaking to assume, pay and perform all of the Assumed
Liabilities.
(e) Purchasers 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 Seller, 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 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 manager,
authorizing the execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby and (C) incumbency
matters.
(f) Seller's Certificates. The Seller will furnish the Purchaser with such
certificates of the Seller 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:
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(i) A certificate executed by the Secretary of the Seller
certifying as of the Closing Date (A) a true and complete copy of the
Organizational Documents of the Seller, including its articles of
incorporation or organization certified as of a recent date by the
appropriate Secretary of State, (B) incumbency matters, and (C) a true and
complete copy of the resolutions of the board of directors and of the
Shareholders authorizing and approving the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
(ii) A certificate of the Seller certifying the amount and
account debtor of each of the Accounts Receivable of the Seller on the
Closing Date.
4.3 Other Closing Transactions.
(a) Consulting Agreements. At the Closing, the Purchaser and the
respective Shareholders shall enter into a Consulting Agreement in the
forms of Exhibits A-1 and A-2 (the "Consulting Agreements").
(b) Employment Agreements. At the Closing, the Purchaser and each of the
Seller's four (4) current placement representatives shall enter into
employment agreements in the form of Exhibit B (the "Employment Agreements").
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders jointly and severally hereby represent and warrant 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 Seller is duly organized, validly existing, and in good standing
under the laws of Michigan, 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. The nature of the Seller's business
does not require qualification by the Seller to transact business in any
other state or jurisdiction.
(b) The Seller has no Subsidiaries and 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.
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(c) Since its organization, the Seller has conducted no business other
than the Staffing Services Business.
5.2 Authority; No Conflict.
(a) This Agreement and the other Transaction Documents to which the
Shareholders or the Seller is a party (the "Seller's Closing Documents") have
been duly authorized, executed and delivered by the Shareholder and the Seller,
to the extent that they are a party thereto, and constitute the legal, valid,
and binding obligations of the Shareholders and/or the Seller, as the case may
be, enforceable against the Shareholder and/or the Seller 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 Shareholders and the Seller have all requisite power, authority
and capacity to execute and deliver this Agreement and the Seller's Closing
Documents and to perform their respective obligations under this Agreement and
the Seller's Closing Documents to which each is a party.
(b) Except as set forth in Schedule 5.2, neither the execution and
delivery of this Agreement and the Seller's 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 Seller or (B) any
resolution adopted by the board of directors of the Seller or the
shareholders or other equity owners of the Seller;
(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 Seller or any of the assets owned or used by the Seller, 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
Seller or that otherwise relates to the business of, or any of the assets
owned or used by, the Subject Company; or
(iv) result in the imposition or creation of any Encumbrance (other
than a Permitted Encumbrance) upon or with respect to any of the Assets
Purchased.
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To the Knowledge of the Shareholders, except as set forth in Schedule 5.2,
the Seller 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 Seller (including the identity of each
shareholder of the Seller and the number of shares held by each such Person).
The Shareholders have, or will have at Closing, title to all of the shares
shown as owned by the Shareholders on Schedule 5.3, in each case, free and
clear of all Encumbrances.
5.4 Financial Statements. The Seller has delivered to the Purchaser
internally prepared balance sheets of the Seller as of December 31 for each
of the years 1996 and 1997 and the related statements of income, for each of
the years then ended, (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 Seller as of the respective dates of, and for the
periods referred to in, the Financial Statements. The Financial Statements were
prepared in accordance with the books and records of the Seller and in
accordance with the past practices of the Seller.
5.5 Title to Properties: Encumbrances. The Seller 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 5.5 lists and
describes all real property currently leased by the Seller. The Seller has
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. There are no
disputes, oral agreements or forbearances in effect as to any such leases. The
Seller 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 December 31, 1997 balance sheet (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 Seller 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 5.5. Except as set forth in Schedule 5.5, all properties and
assets of the Seller are free and clear of all Encumbrances.
5.6 No Material Adverse Change. Since the date of the Balance Sheet
except as set forth in Schedule 5.6, there has not been any Material Adverse
Change in the business, operations, properties, assets or condition of the
Seller, and, to the Knowledge of the Shareholders, no event has occurred or
circumstance exists that may result in such a Material Adverse Change.
5.7 Employee Benefits. The Seller has never sponsored, participated in or
made any contribution to any Pension Plan.
5.8 Compliance with Legal Requirements; Governmental Authorizations.
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(a) Except as set forth in Schedule 5.8:
(i) the Seller is, and at all times since January 1, 1997 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
Seller of, or a failure on the part of the Seller to comply with,
any Legal Requirement or (B) may give rise to any obligation on the
part of the Seller to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature; and
(iii) the Seller has not received, at any time since January
1, 1997, 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 Seller to undertake, or to
bear all or any portion of the cost of, any remedial action of any
nature.
(b) Schedule 5.8 contains a complete and accurate list of each
material Governmental Authorization that is held by the Seller or that
otherwise relates to the business of, or to any of the assets owned or
used by, the Seller. Each Governmental Authorization is valid and in full
force and effect. Except as set forth in Schedule 5.8:
(i) the Seller is, and at all times since January 1, 1997,
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 Seller has not received, at any time since January
1, 1997, 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, possible or potential
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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 5.8 collectively
constitute all of the material Governmental Authorizations necessary to permit
the Seller to lawfully conduct and operate its business in the manner it
currently conducts and operates such business and to permit the Seller to own
and use its assets in the manner in which it currently owns and uses such
assets.
5.9 Legal Proceedings; Orders.
(a) Except as set forth in Schedule 5.9, there is no pending Proceeding:
(i) that has been commenced by or against the Seller or, to the
Knowledge of the Shareholders, that otherwise directly relates to or may
have a Material Adverse Effect on the business of, or any of the assets
owned or used by, the Seller; 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 5.9, to the Knowledge of the Shareholders,
(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 Seller has delivered to the Purchaser
copies of all pleadings, correspondence, and other documents relating to each
Proceeding listed in Schedule 5.9.
(b) Except as set forth in Schedule 5.9:
(i) there is no Order to which the Seller or any of the assets owned
or used by the Seller, is subject;
(ii) neither of the Shareholders is subject to any Order that relates
to the business of, or any of the assets owned or used by, the Seller; and
(iii) to the Knowledge of the Shareholders, no officer, director,
agent or employee of the Seller is subject to any Order that prohibits
such officer, director,
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agent or employee from engaging in or continuing any conduct, activity or
practice relating to the business of the Seller.
5.10 Absence of Certain Changes and Events.
Except as set forth in Schedule 5.10, since the date of the Balance Sheet,
the Seller has conducted its business only in the Ordinary Course of Business
and there has not been any:
(a) sale (other than sales in the Ordinary Course of Business), lease or
other disposition of any material asset or property of the Seller or
mortgage, pledge or imposition of any lien or other Encumbrance on any
material asset or property of the Seller, including the sale, lease or other
disposition of any of the Intellectual Property Assets;
(b) delay or failure to repay when due any obligation, including
without limitation, accounts payable and accrued expenses (except in the
Ordinary Course of Business);
(c) cancellation or waiver of any claims or rights with a value to the
Seller in excess of $10,000; or
(d) material disagreement or dispute with any key employee with respect
to compensation, equity ownership, duties or authority.
5.11 Contracts; No Defaults.
(a) Schedule 5.12 contains a complete and accurate list, and the Seller
has 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 the Seller 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 Seller for a fixed
price in excess of $10,000;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures of the
Seller, individually or, for a series of related Applicable Contracts, in
the aggregate, in excess of $10,000, or receipts of the Seller,
individually or, for a series of related Applicable Contracts, in the
aggregate, in excess of $10,000;
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(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable
Contract of the Seller 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 $5,000 and with terms of less than one year);
(v) each joint venture, partnership and other Applicable Contract
of the Seller (however named) involving a sharing of profits,
losses, costs or liabilities by the Seller with any other Person;
(vi) each Applicable Contract of the Seller containing covenants
that in any way purport to restrict the business activity of the Seller
or limit the freedom of the Seller to engage in the Staffing Services
Business or to compete with any Person;
(vii) each Applicable Contract of the Seller providing for
payments to or by any Person based on sales, purchases or profits, other
than commission or bonus arrangements with employees;
(viii) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express
undertaking by the Seller to be responsible for consequential damages;
(ix) each Applicable Contract of the Seller for capital
expenditures in excess of $10,000;
(x) each Applicable Contract which, to the Knowledge of the
Shareholders, will result in a loss to the Seller;
(xi) each Applicable Contract between the Seller and its former or
current stockholders, directors, officers and employees (other than
standard employment agreements previously furnished to the Purchaser); and
(xii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by the Seller.
(b) To the Knowledge of the Shareholders, except as set forth in
Schedule 5.11, no officer, director, agent, employee, consultant or
contractor of the Seller 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 the Seller.
(c) Except as set forth in Schedule 5.11:
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(i) the Seller is and to the Knowledge of the Shareholders, at
all times since January 1, 1997, has been, in compliance with all
material terms and requirements of each material Contract under which the
Seller has any obligation or Liability or by which the Seller or any of
the assets owned or used by the Seller is or was bound;
(ii) 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 Seller 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
(iii) the Seller has not given to or received from any other Person,
at any time since January 1, 1997, 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.
(d) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to
the Seller under current or completed Contracts with any Person and no such
Person has made written demand for such renegotiation.
(e) The Contracts relating to the provision of services by the Seller
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.
5.12 Environmental Matters .
(a) The Seller is, and, to the Knowledge of the Shareholders, 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.
(b) There are no pending or, to the Knowledge of the Shareholders,
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, to
the Knowledge of the Shareholders, any properties and assets (whether real,
personal or mixed) in which the Seller has or had an interest.
(c) Neither the Seller nor, to the Knowledge of the Shareholders, any
other Person for whose conduct the Seller is or may be held responsible,
has received any citation,
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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.
5.13 Labor Relations; Compliance: Employees. The Seller has not
been nor is a party to any collective bargaining or other similar labor
Contract. Except as set forth in Schedule 5.13, since January 1, 1997, 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 Seller 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 Seller or its premises or (c) any application for
certification of a collective bargaining agent. Except as set forth in Schedule
5.13, the Seller has complied in all material 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 5.13, the Seller 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.
5.14 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 the Seller
(collectively, "the Marks");
(ii) all of the patents, patent applications and inventions
and discoveries that may be patentable of the Seller (collectively,
"the Patents");
(iii) all of the copyright rights in both published works and
unpublished works of the Seller (collectively, "the Copyrights");
and
(iv) all trade secrets and confidential client information in
recorded form (collectively, "the Trade Secrets").
(b) Agreements. Schedule 5.14 contains a complete and accurate list
and summary description, including any royalties paid or received by the
Seller, of all Contracts relating to the Intellectual Property Assets to
which the Seller is a party or by which the Seller 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
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which the Seller is the licensee. There are nooutstanding and, to the
Knowledge of the Shareholders, 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 currently used by the Seller for the operation of the business
of the Seller as it is currently conducted.
(d) Patents. The Seller has not been issued any Patents nor has any
Patents pending No process or know-how used by the Seller is known by
the Shareholders to infringe or is alleged to infringe any patent or
other proprietary right of any other Person.
(e) Trademarks. The Seller has no marks other than its corporate name.
(f) Copyrights. The Seller has no Copyrights.
(g) Trade Secrets. Except as set forth in Schedule 5.14, the Seller has
no Trade Secrets and no Trade Secrets are necessary or currently used by the
Seller to conduct its business as it is presently conducted.
5.15 No Other Agreements to Sell Assets or Capital Stock of the Seller.
Neither the Seller nor the Shareholders 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, to sell or effect a sale of the capital stock or the Seller,
to effect any merger, consolidation, liquidation, dissolution or other
reorganization of the Seller, to enter into any agreement or cause the entering
into of an agreement with respect to any of the foregoing.
5.16 Relationships with Related Persons. Neither the Seller nor the
Shareholders 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
Seller other than business dealings or transactions conducted in the Ordinary
Course of Business with the Seller at substantially prevailing market prices
and on substantially prevailing market terms or (ii) engaged in a business
competing with the Seller with respect to any of the services of the Seller in
any market presently served by the Seller, 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.
5.17 Customers and Suppliers. Schedule 5.17 contains a complete and
accurate list of the five (5) largest suppliers and ten (10) largest customers
of the Seller during the last fiscal year, showing the approximate total
purchases by the Seller from each such supplier during such fiscal year and the
total sales by the Seller to each such customer during such fiscal year. To the
Knowledge of the Seller or the Shareholders, 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 5.17 and no threat or indication that
any such change is reasonably foreseeable.
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5.18 Brokers and Finders; Advisors. Neither the Shareholders nor the
Seller 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 Shareholders agree to indemnify the
Purchaser against and to hold the Purchaser harmless from, any claims for
brokerage or similar commission or other compensation which may be made against
the Purchaser 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 Seller or the Shareholders.
5.19 Disclosure. No representation or warranty of the Shareholders in
this Agreement and no statement in the Disclosure Schedules with respect to the
Seller 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 THE PURCHASER
The Purchaser hereby represents and warrants to the Seller and the
Shareholders as follows:
6.1 Organization. Purchaser 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 Purchased Assets and
to engage in the Staffing Services Business and to enter into and perform its
obligations under this Agreement.
6.2 Company Authority and Ability. All requisite company
authorizations for the execution, delivery and performance by the Purchaser of
this Agreement and the consummation of the Transactions have been obtained. No
further company 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 it 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 it 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
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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
Organizational Documents of the Purchaser; (ii) any resolution adopted by the
members 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. 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 that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the
Transactions. To the Knowledge of the Purchaser, no such Proceeding has been
Threatened.
6.5 Brokers or Finders. Neither the Purchaser nor its 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 Seller and the Shareholders 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 officers or agents.
6.6 Disclosure. No representation or warranty of the Purchaser in this
Agreement 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 VII
ACTIONS OF THE SELLER, THE SHAREHOLDERS AND THE PURCHASER
BEFORE AND AFTER THE CLOSING DATE
Each of the Seller, the Shareholders, 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 Seller and
Shareholders will (a) afford the Purchaser and its Representatives
(collectively, "Purchaser's Advisors") access
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to the Seller's 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 the
Purchaser and Purchaser's 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 Purchaser's 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 Shareholders will cause the Seller 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 the Purchaser's Advisors concerning
operational matters of a material nature; and
(d) otherwise report periodically to each other concerning the status of
its business, operations and finances.
7.3 Negative Covenants.
Except as otherwise expressly permitted by this Agreement, between the
date of this Agreement and the Closing, the Seller and the Shareholders 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 5.11 is likely to occur.
7.4 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, that such disclosure shall not be deemed to cure
any Breach of a representation or warranty unless the Purchaser elects to close
the Transactions in which event any such breaches shall be
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deemed cured. 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 unless the Purchaser
elects to close the Transactions in which event such breaches shall be deemed
cured and such conditions waived. 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.
7.5 No Negotiation.
Until thirty (30) days from the date hereof or unless this Agreement is
earlier terminated pursuant to Article XI, neither the Seller 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 the Purchaser) relating to any transaction involving the sale of all or a
substantial portion of its business or assets of the Seller or any of its
capital stock or other equity interests or any merger, consolidation, business
combination or similar transaction involving the Seller (each such transaction
referred to herein as a "Proposed Acquisition Transaction"). The Seller and the
Shareholders 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.
ARTICLE VIII
CONDITIONS PRECEDENT TO PURCHASERS' 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 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.
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8.2 Shareholders' and Seller's Performance.
(a) All of the covenants and obligations that the Shareholders and the
Seller 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 Seller must have delivered each of the
documents required to be delivered by the Shareholders and the Seller
pursuant to Section 4.2.
8.3 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 pursuant to
Section 8.1, (ii) evidencing the performance by the Seller and the
Shareholders, or the compliance by the Seller and the Shareholders with, any
covenant or obligation required to be performed or complied with by the Seller
and the Shareholders pursuant to Section 8.2(a), (iii) evidencing the
satisfaction of any condition referred to in this Article VIII or (iv)
otherwise facilitating the consummation of any of the Transactions.
8.4 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 Seller, or (b) is entitled to all or any portion of
the Consideration payable for the Purchased Assets.
ARTICLE IX
CONDITIONS PRECEDENT TO SELLER'S
OBLIGATION TO CLOSE
The Seller's obligation to sell the Purchased Assets in exchange for the
Consideration and to take the other actions required to be taken by the Seller
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 Seller, 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 Purchasers' 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 Additional Documents.
The Purchaser must have delivered to the Seller such documents as the
Seller may reasonably request for the purpose of (i) evidencing the accuracy of
any of the Purchaser's representations and warranties pursuant to Section 9.1,
(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 pursuant to Section 9.2(a), (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 the Purchaser contained herein and the
indemnity obligations of the Purchaser set forth in Section 10.2(b)(iii) shall
survive until eighteen (18) months after the Closing. All of said
representations and warranties shall in no respect be limited or diminished by
any past or future investigation on the part of the Shareholders or Purchaser.
10.2 Indemnifications.
(a) By the Shareholders. The Shareholder shall indemnify, save and
hold harmless the Purchaser and its Affiliates and Subsidiaries
(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
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representation or warranty made by the Shareholders in this Agreement;
(ii) any Breach of any covenant or agreement made by the Shareholders in this
Agreement or any certificate delivered by the Seller or the Shareholders at
the Closing; or (iii) any and all Liabilities of the Seller or the
Shareholders except the Assumed Liabilities.
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 the Purchaser. The Purchaser shall indemnify, save and hold
harmless the Shareholders, the Seller and their respective Affiliates (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) any liability of the Seller to Damian
Services Corporation ("Damian") resulting from the Seller's termination of
the Services and Administration Agreement with Damian dated June 9, 1997, up
to a maximum amount of Twenty Thousand Dollars ($20,000).
(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
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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 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 (each of the indemnified parties acknowledges that
either of the law firms identified in the notice provisions of Section 12.2
is acceptable), 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, unless such compromise or settlement involves
only the payment of money damages in which event the indemnified party's
consent will not be required.
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 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.
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(i) The indemnification obligation of the Shareholders and of the
Purchaser with respect to any Breach of any representation or warranty
pursuant to Section 10.2(a)(i) or (b)(i) and of the Purchaser with
respect to Damages arising under Section 10.2(b)(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 Purchaser with respect to any Breach of any covenant
or agreement pursuant to Section 10.2(a)(ii) or (b)(ii) 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 third (3rd)
anniversary of the Closing.
(ii) 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.
(g) Other Limitations. Any provision of this Agreement to the contrary
notwithstanding, the indemnification obligations of the Shareholders
and the Purchaser shall be subject to the following monetary limitations:
(i) Limitations on the Shareholders' Indemnity Obligations.
(A) Threshold. The Shareholders shall have no obligation to
indemnify any of the Shareholder Indemnified Parties that would
otherwise be entitled to indemnification under this Section 10, unless
and until such Shareholder Indemnified Parties have incurred or
suffered, in the aggregate, Damages with respect to or arising from
any Claims totaling more than Forty Thousand Dollars ($40,000) (the
"Threshold"), and in the event such Threshold is exceeded, then the
Shareholders shall be liable to indemnify the Shareholder Indemnified
Parties for only that portion of such Damages in excess of the
Threshold.
(B) Indemnification Ceiling. The maximum aggregate liability of
the Shareholders to the Shareholder Indemnified Parties under this
Section 10 with respect to or arising from any Claims shall not
exceed the Closing Payment.
(ii) Limitations on the Purchaser's Indemnity Obligations.
(A) Threshold. The Purchaser shall have no obligation to
indemnify any of the Purchaser Indemnified Parties that would
otherwise be entitled to indemnification under this Section 10 (but
specifically excluding
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Section 10(b)(iii), unless and until such Purchaser Indemnified
Parties have incurred or suffered, in the aggregate, Damages with
respect to or arising from any Claims totaling more than the
Threshold, and in the event such Threshold is exceeded, then
Purchaser shall be liable to indemnify the Purchaser Indemnified
Parties for only that portion of such Damages in excess of the
Threshold.
(B) Indemnification Ceiling. The maximum aggregate liability
of the Purchaser to the Purchaser Indemnified Parties under this
Section 10 with respect to or arising from any Claims shall not
exceed the Closing Payment.
(iii) Mitigation of Damages. Notwithstanding anything to the
contrary contained in this Agreement, neither the Purchaser nor the
Shareholders shall be liable for any Damages under the indemnification
provisions of this Section 10 or otherwise have any liability to an
indemnified party for any misrepresentation or breach of warranty or
covenant under this Agreement or otherwise have any liability in
connection with the transactions contemplated by this Agreement to the
extent that:
(A) Disclosure. The existence of such liability, the breach
of warranty or covenant, or the falsity of the representation upon
which such liability would be based is disclosed in this
Agreement or in the Schedules attached hereto, or which is disclosed
in a written notice furnished to the Purchaser prior to the Closing,
provided, however, that any such misrepresentation or breach of
warranty or covenant so disclosed to the Purchaser after the
execution and delivery of this Agreement and prior to the Closing
shall not affect the right of the Purchaser to elect not to close
the transactions contemplated by this Agreement (it being understood
and agreed that if, despite such right of the Purchaser to elect not
to close by reason of the misrepresentation or breach so disclosed,
the Purchaser nevertheless elects to close, thereby waiving such
misrepresentation or breach, the Purchaser shall thereafter have no
claim against the Shareholders by reason of, in connection with, or
arising from any such disclosed misrepresentation or breach of
warranty or covenant);
(B) Tax Benefit. The Purchaser or the Shareholders, as the
case may be, realizes any tax benefit by virtue of the payment of
any Damages.
10.3 Tax Indemnification. The Shareholders shall be responsible for and
pay and shall jointly and severally indemnify and hold harmless the Purchaser
from and against all Taxes imposed on the Seller or for which the Seller is
liable, with respect to all periods, whether ending on, prior to or after the
Closing Date.
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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 Seller, 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 its obligations under this Agreement) and the
Purchaser has not expressly waived such condition in writing on or before the
Closing; or (ii) by the Seller, 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 Seller to
comply with its obligations under this Agreement) and the Seller has not
expressly waived such condition in writing on or before the Closing;
(c) by mutual consent of the Purchaser and the Seller; or
(d) by the Purchaser or the Seller 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 15, 1998 (the "Closing Date"), or such later date as the Parties
may agree upon.
11.2 Effect of Termination.
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 12.6, 12.9 and 12.10 will survive. Without limitation,
if this Agreement is terminated pursuant to Section 11.2, neither party shall
have any liability with respect to any representation or warranty made herein
or in any Schedule hereto.
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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. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors.
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 the Purchaser at:
William J. Wilkinson
Corporate Staffing Resources LLC
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, IN 46601
Telephone: (219) 233-8209
Telecopy: (219) 280-2652
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 the Seller or the Shareholders, addressed to the Shareholders at
3267 Brynmawr Drive
Portage, Michigan 49024
With a copy to:
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<PAGE> 37
W. Jack Keiser
Miller Johnson Snell & Cummisky, P.L.C.
425 West Michigan Avenue
Kalamazoo, MI 49007
Telephone: (616) 226-2955
Telecopy: (616) 226-2951
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 Michigan (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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<PAGE> 38
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
Seller 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, until
such time as the parties make a public announcement regarding the
Transactions 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 Seller, 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 Seller or its Representatives, 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
37
<PAGE> 39
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 who
need to know such Confidential Information in connection with the
Transactions and shall not use such Confidential Information except 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 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, the Purchaser covenants and agrees for the benefit of the Seller
that during the 36 month period following the date of this Agreement, neither
the Purchaser nor any of its Affiliates will solicit, entice, persuade or
induce, directly or indirectly, any internal staff (non-billable) employee of
any of the Seller to terminate their employment by or with a Seller or to
refrain from
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<PAGE> 40
rendering services to or for the Seller or to become employed by or enter
into contractual relations with any persons other than the Seller or to enter
into a relationship with a competitor of the Seller, 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.
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 Michigan 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 Western District of Michigan or, if such court does
not have jurisdiction or will not accept jurisdiction, in any court of
general jurisdiction in the County of Kalamazoo, Michigan; (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, 2.4, and in
Article III, Article X and Article XII of this Agreement shall survive the
Closing Date indefinitely.
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<PAGE> 41
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.
Monday Temporary Staffing Services, Inc. Corporate Staffing Resources, LLC
/s/ Susan Monday /s/ William J. Wilkinson
- ----------------------------------- ---------------------------------------
By: Susan Monday By: William J. Wilkinson
Its: President Its: President
/s/ John Monday
- -----------------------------------
John Monday
/s/ Susan Monday
- -----------------------------------
Susan Monday
40
<PAGE> 1
EX-2.07
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of July 2, 1998 (this "Agreement"),
is by and among Corporate Staffing Resources, Inc., a Delaware corporation (the
"Purchaser") and Susan E. Volk and Gary T. Volk, Trustees Under The Susan E.
Volk Living Trust Dated May 11, 1998 and Gerald R. Miller (each, 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
Programming Management & Systems, Inc., a Missouri 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 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 mean any Person that, directly or indirectly, Controls
or is Controlled by, or is under common control with, the Subject Company.
"Control" includes, without limitation, the possession, directly or indirectly,
of the power to direct the management and policies of the Subject Company,
through the ownership of voting securities, as a director, or otherwise.
"Agreement" shall mean this Stock Purchase Agreement.
<PAGE> 2
"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 5.4.
"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 any inaccuracy in or
breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.
"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).
"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 Date" shall have the meaning set forth in Section 11. l(d).
"Closing Month" shall mean the month in which the Closing occurs.
"Closing Payment" shall have the meaning set forth in Section 2.3.
"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 2.2.
"Contingent Amounts" shall have the meaning set forth in Section 2.4.
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<PAGE> 3
"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 Payments" 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 taxes determined
in accordance with GAAP.
"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 (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
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<PAGE> 4
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, 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).
"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.
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<PAGE> 5
"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 of the Subject Company 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 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.
"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:
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<PAGE> 6
(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 any of the Sellers and the actual knowledge of any other executive
officer of the 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 5.19(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."
"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.
6
<PAGE> 7
"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 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).
7
<PAGE> 8
"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).
"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.
"Seller Indemnified Parties" shall have the meaning set forth in
Section 10.2(a).
"Sellers" shall generally have the meaning set forth in the first
paragraph of this Agreement. However, for purposes of Article III "Sellers"
shall mean Susan E. Volk and Gerald R. Miller and for purposes of Articles V and
X "Sellers" shall include Susan E. Volk individually.
"Sellers' Accountant" shall have the meaning set forth in Section
2.4(c).
"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(d).
"Shareholder's Equity Deficiency" shall have the meaning set forth in
Section 2.5(c).
"Stock" shall have the meaning set forth in Section 2.1.
8
<PAGE> 9
"Staffing Services Business" shall have the meaning set forth in Section
3.4.
"Straddle Period" shall have the meaning set forth in Section 10.3(b).
"Subject Company" shall have the meaning set forth in Recital A 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.
"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(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).
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"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." The Consideration shall be allocated among the Sellers as set
forth in Schedule 2.2 hereto.
2.3 Closing Payment. On the Closing Date, the Purchaser shall pay to
the Sellers an aggregate amount of $7,772,284 in cash by wire transfer of
immediately available funds to the account or accounts designated by the
respective Sellers at least two (2) business days prior to the Closing (the
"Closing Payment").
2.4 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 six (6) multiplied by the excess of (A)
Adjusted EBIT for the 12-month period ending May 31, 1999 (the "1999
Adjusted EBIT") over (B) $1,303,714; plus
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(ii) An amount equal to five (5) multiplied by the excess of (A)
Adjusted EBIT for the 12-month period ending May 31, 2000 (the "2000
Adjusted EBIT") over (B) the greater of $1,303,714 or [ii] the 1999
Adjusted EBIT.
(b) "Adjusted EBIT" as used in determining 1999 and 2000 EBIT shall
mean EBIT of the Subject Company for such period adjusted as provided in
Schedule 2.4.
(c) Within sixty (60) days after the end of each of the 12-month
periods for the calculation 1999 and 2000 EBIT, the Purchaser shall cause
the Subject Company to prepare and deliver to the Sellers an Adjusted EBIT
statement for the respective 12-month period (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 and 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 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. The Sellers and a
firm of independent public accountants designated by the Sellers (the
"Sellers' Accountant") will be entitled to access to all 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
purposes of determining the applicable Contingent Amount except to the
extent, if any, that the Sellers or the Sellers' Accountant shall have
delivered within sixty (60) days after the date on which the Adjusted EBIT
Report is delivered to the Sellers (which period shall be tolled and
extended in the event the Sellers do not receive timely all such applicable
relevant records and working papers requested of the Subject Company for the
Sellers' review), a written notice to Purchaser stating each and every item
to which the Sellers take exception as not being in accordance with GAAP or
Schedule 2.4, 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 Purchaser, then 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 Purchaser
notice of any such proposed change, any such proposed change still remains
disputed, then 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 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
Purchaser and the Sellers based on the
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Accounting Firm's Adjusted EBIT determination in relation to the Adjusted
EBIT proposals submitted by the parties. For purposes of illustration, if
Purchaser's submitted Adjusted EBIT is $1,000,000, the Sellers' submitted
Adjusted EBIT is $1,100,000 and the Accounting Firm's determined Adjusted
EBIT is $1,075,000, Purchaser shall pay 75% and the Sellers shall pay 25%.
(d) Subject to the provisions of Section 2.4(f), 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 the date by 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 Purchaser and the Sellers
in accordance with this Section 2.4, then the date on which 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 within ten (10) days after written acknowledgment between the
parties that the amount is undisputed.
(e) Any portion of any Contingent Amounts not paid within 60 days
following the end of the applicable 12-month period shall be payable with
interest at the per annum rate of three percent (3%) in excess of the prime
interest rate published in the Wall Street Journal money rates section
accruing from such date of the year in which the Adjusted EBIT Report is to
be delivered to the date of payment.
(f) Subordination. Each of the Sellers 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 2.4(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 Amended and
Restated Loan Agreement (as at any time amended) dated as of May 14,
1998 among Corporate Staffing Resources, Inc. (the "Purchaser"), as
Borrower, ING (U.S.) Capital Corporation, a Delaware corporation, and
Creditanstalt Corporate Finance, Inc., a Delaware corporation, as
Co-Agents, ING (U.S.) Capital Corporation, Creditanstalt Corporate
Finance, Inc. and Societe Generale, as Lenders, and ING (U.S.) Capital
Corporation, as Administrative Agent (the "Loan Agreement"), or (B)
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any loan or similar credit agreement hereafter entered into by the
Purchaser, as Borrower, evidencing a refinancing of the credit
facilities of the Purchaser 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 Purchaser 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.
"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 the Purchaser under each Debt Agreement, whether for
principal, interest, premium, fees, costs, taxes, indemnification or
otherwise.
(2) The Sellers hereby absolutely and irrevocably subordinate
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 that a Default or Event of Default has
occurred and is continuing, the Sellers shall be entitled to receive and
retain (and the Purchaser 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 the Purchaser or any of its subsidiaries.
The Sellers agree that any written notice of a Default or an Event of
Default which is delivered to the Sellers 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 that such Default or Event of
Default has been cured or waived in accordance with the applicable
provisions of the Debt Agreement, the Sellers 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 the Purchaser or any of its subsidiaries become
debtors in any voluntary or involuntary bankruptcy proceeding, the Sellers
shall have the following rights:
(A) The Sellers may file one or more proofs of claim in
such bankruptcy with respect to the Contingent Amounts, provided that
the Sellers shall
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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 with respect to the Contingent Amounts at a time when any
Senior Obligations remain unpaid, the Sellers 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 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 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.
If the Sellers 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 Purchaser 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. In the event of
any financing of the Purchaser or any of its subsidiaries by the Senior
Creditors during any bankruptcy, arrangement or reorganization proceeding
with respect to the Purchaser or any of its subsidiaries, the Sellers agree
that the Contingent Amounts shall be and continue to remain subordinate and
subject to the subordination provided herein, and the Sellers 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 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 the Purchaser any of
its subsidiaries or the Subject Company, (B) any agreement prohibiting the
granting of any lien or security interest in the property or assets of the
Purchaser or its subsidiaries or (C) any guaranty or other suretyship
arrangement by any affiliate of the Purchaser in their favor. No Seller may
assign or transfer any interest in the Contingent Amounts unless the
assignee or transferee has first assumed the obligations of the Seller under
these Subordination Provisions in a writing in form and substance acceptable
to the Administrative Agent.
(5) The Sellers agree that the Senior Creditors may at any time
and from time to time, without the Sellers' 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 the Purchaser and its
Subsidiaries, of any guarantors of the obligations of the Purchaser or any
of its Subsidiaries, or of any other party at any time directly or
contingently liable for the payment of any of the
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Senior Obligations; (B) grant any other indulgence to the Purchaser 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 the Purchaser, any guarantor, endorser, or cosigner, or
from the disposition of any collateral to any 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 the Purchaser and its Subsidiaries to use
proceeds of the collateral for any purpose; (G) make loans or advances or
other credit accommodations to the Purchaser 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, the Sellers shall not seek to attach any asset of the
Purchaser or any of its subsidiaries and the Sellers 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 the Purchaser or its
subsidiaries;
(B) Seek the appointment of a liquidator, trustee,
conservator, receiver, keeper or custodian for the Purchaser, any of its
subsidiaries or any of its assets;
(C) Commence any involuntary bankruptcy or insolvency
proceedings against the Purchaser or any of its subsidiaries; or
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(D) Take any other enforcement action against the Purchaser
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 the Sellers, suspend Sellers' right to take any of the actions
listed in clauses (A) - (D) 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' 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 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 and the Senior Creditors and their
successors and assigns. Without limiting the generality of the foregoing,
the Sellers acknowledge that the Senior Creditors may freely assign their
interests in the Senior Obligations, or sell participations therein. The
Sellers 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 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.
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(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 sent by express,
certified or registered mail, to the Sellers at the address set forth in
Section 12.2 or to the Senior Creditors at ING (U.S.) Capital Corporation,
333 South Grand Avenue, Suite 4200, Los Angeles, CA 90071, Attn: Brad
Pollard V.P. with a copy of ING (U.S.) Capital Corporation, 135 East 57th
Street, New York, N.Y. 10022, Attn: Pamela Kaye, Loan Dept., or to such
other place and with such other copies as the Senior Creditors may designate
by written notice to the Sellers.
2.5 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), the Purchaser at its
expense shall prepare and deliver to the Sellers a balance sheet of the
Subject Company as of the close of business on 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 access to all
relevant records and working papers of the Subject Company 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 2.5(b) hereof with respect
to the Sellers 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 (which period shall be tolled and
extended in the event the Sellers do not receive timely all such applicable
relevant records and working papers requested of the Subject Company by the
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
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
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 2.5(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
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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 a Shareholders' Equity Deficiency (as
defined below), the Sellers shall pay to the Purchaser, as an adjustment to
the Consideration, an amount equal to the Shareholders Equity Deficiency.
Any payments required to be made by the Sellers pursuant to this Section
2.5(b) shall be made within ten (10) days after the amount of the
Shareholders' Equity Deficiency has been determined pursuant to Section
2.5(a) by wire transfer of immediately available funds to an account
designated by the Purchaser.
(c) The term "Shareholders' Equity Deficiency" shall mean with respect
to the Subject Company the amount, if any, by which the Shareholders' Equity
is less than __________________.
(d) The term "Shareholders' Equity" shall mean, with respect to the
Subject Company, the amount by which the total assets of the Subject Company
exceeds the total liabilities of the Subject Company, 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 the Purchaser and the Sellers in accordance with Section
2.5(a), 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),
then "Shareholders' Equity " shall be calculated after giving effect to any
such change or resolution.
(e) All payments required to be made pursuant to this Section 2.5 shall
be paid with interest thereon at per annum rate of three percent (3%) in
excess of the prime interest rate published in the Wall Street Journal money
rates section and accruing from the Closing Date to the date of payment.
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 each of the Sellers of Twenty-Five Thousand Dollars
($25,000) (the "Covenant Payments").
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3.2 The Sellers' Agreements. Each of the Sellers agrees that the
Seller will not, 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 or her to be or become, or a Seller to himself or
herself be, or be interested in or associated with any other Person, firm or
business engaged in the 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 one percent (1%) of any
class of securities issued by an entity which is subject to the reporting
requirements of the Securities Exchange Act of 1934 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 Staffing
Services Business transacted by or with such customer by the Subject
Company; 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 described in (b) above; 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 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 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
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(e) 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, the Subject Company or to refrain from extending or
renewing the same (upon the same or new terms) or to refrain from
rendering services to or for the Subject Company or to become employed
by or to enter into contractual relations with any Persons other than
the Subject Company 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, 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.
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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.
"Staffing Services Business" shall mean recruiting and/or training
and/or testing employees or independent contractors and assigning them to
clients 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.
"Territory" shall mean the state of Missouri.
3.5 Termination of Sellers' Agreements. If the Purchaser fails to pay
to the Sellers any of the Contingent Amounts within one hundred eighty (180)
days following the date provided in Section 2.4(d), then all of the agreements
of the Sellers set forth in this Article III and all of the agreements of the
Sellers 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 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.
(a) Consideration. The Purchaser will deliver the Closing Payment
(allocated among the Sellers as set forth in Schedule 2.2) to each of the
Sellers.
(b) The Purchaser will deliver the Covenant Payments 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
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Purchaser, certifying, as of the Closing Date, (A) a true and complete copy
of the Organizational Documents of the Purchaser, (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 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, and (B) incumbency matters;
4.3 Other Closing Transactions.
(a) Employment Agreements. At the Closing, the Subject Company shall
enter into Employment Agreements with each of Susan E. Volk and Gerald R.
Miller in the form of Exhibit A hereto (collectively, the "Employment
Agreements").
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.
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(b) Subsidiaries. The Subject Company has no Subsidiaries and 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.
(c) Business. Except as set forth in Schedule 5.1, since its
organization, the Subject Company has not engaged in any business other than
the Staffing Services Business.
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.
(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;
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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 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 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) balance sheets of the Subject Company as of December 31, 1995 and 1996 and
the related statements of income for the years then ended compiled by Philip
Brumbaugh, Certified Public Accountant, (b) an audited balance sheet of the
Subject Company as of December 31, 1997 (the "Balance Sheet") and the related
statements of income, changes in shareholders' equity and cash flow for the year
then ended, together with the report thereon of Stone Carlie, Certified Public
Accountants, (including the notes thereto), and (c) the statement of normalized
EBIT (computed in the manner requested by the Purchaser) for each month of the
12-month period ending April 30, 1998 (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
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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. 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, 1997 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 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 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.
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 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 No Undisclosed Liabilities. Except as set forth in Schedule 5.7,
the Subject Company has no Liabilities required to be disclosed under GAAP
except for Liabilities reflected or
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reserved against in the Balance Sheet and Liabilities incurred in the Ordinary
Course of Business since the date thereof.
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 will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Each of the
Accounts Receivable will be as of the Closing current and collectible, 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, under any Contract
with any obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable.
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 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
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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 Company.
(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 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.
(h) 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.
(i) No stockholder of the Subject Company is a Person other than a
United States Person within the meaning of the IRC.
(j) 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.
(k) 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.
(l) The Subject Company has been properly treated as an S Corporation
(as defined in IRC) since January 1, 1998.
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.
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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.
(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 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 insurance policies purchased by or to provide benefits
under any Plan of the Subject Company;
(v) all reports submitted within the two 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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(vi) all notifications to employees of the Subject Company of
their rights under ERISA Section 601 et seq. and IRC Section 4980B;
(vii) 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;
(viii) 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 two years preceding the date of this Agreement,
including notices that are expressly mentioned elsewhere in this Section
5.11;
(ix) 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
(x) 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.
(3) The Subject Company has no liability under ERISA.
(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) 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.
(x) 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.
(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
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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.
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
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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 the Subject Company, 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 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
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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 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;
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(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:
(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,
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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;
(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;
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(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:
(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;
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(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
(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
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(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.
(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.
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(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.
5.18 Labor Relations; Compliancce: Employees. Since January 1, 1996,
the Subject Company has not been nor is a party to any collective bargaining or
other similar 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. 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.
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.
There is currently in force between the Subject Company and each of its
nonbillable staff employees a written agreement containing the noncompetition
agreements of each such employee set forth in Schedule 5.18.
5.19 Intellectual Property.
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(a) Intellectual Property Assets. The term "Intellectual Property
Assets" includes:
(i) the corporate name of the Subject Company 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 trade secrets and confidential information of the
Subject Company (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.
(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.
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(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 or agent 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 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 Seller of the
Subject Company is a party to any Contract with, or has any claim or right
against, the Subject Company.
5.23 Customers. Schedule 5.23 contains a complete and accurate list of
those customers of the Subject Company which generated revenues in excess of
$100,000 for the Subject Company during the last fiscal year, showing 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 customer named in Schedule 5.23 and no threat or
indication that any such change is reasonably foreseeable.
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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 Geneva Corporate
Finance, Inc., 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
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.
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(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. 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. The Purchaser acknowledges that the
Stock has not been, and as of the Closing will not be, registered under the
Securities Act of 1933 or any applicable state law and that the Stock will not
be resold, absent appropriate registration or unless exemption from registration
is available. The Purchaser has had an opportunity to review the books and
records of the Subject Company and to ask questions of appropriate officers and
directors regarding the business of the Subject Company.
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
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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 Financial Statements. The Purchaser has delivered to the Sellers
(a) an internally prepared balance sheet of the Purchaser as of March 31, 1998
and the related statement of income, for such period, and (b) an audited balance
sheet of the Purchaser as of December 31, 1997 (including the notes thereto) and
the related combined statement of income, changes in the 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 "Purchases Financial Statements"). The
Purchaser 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 Purchaser as of the
respective dates of and for the periods referred to in the Purchaser Financial
Statements, all in accordance with GAAP; the Purchaser Financial Statements
reflect the consistent application of such accounting principles throughout the
periods involved. No financial statements of any person other than the
Purchaser are required by GAAP to be included in the Purchaser Financial
Statements.
6.8 Nonaffiliation. The Purchaser is not an Affiliate of any of the
Senior Creditors or of the Administrative Agent (each as defined in Section
2.4(f) hereof).
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
(collectively, "Advisors") full and free access to the Subject Company's
properties, Contracts (other than personnel 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 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
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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 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. 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
Schedule 5.2.
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 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
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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 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.
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.
7.8 Conduct of Subject Company's Business. From and after the Closing
Date until the calculation and payment of 2000 Adjusted EBIT, the Purchaser:
(a) will
(i) cause the Staffing Services Business of the Subject
Company to be conducted by the Subject Company (and not by the
Purchaser or any of its Affiliates);
(ii) maintain the separate corporate existence of the
Subject Company;
(iii) cause the Subject Company to maintain or provide
for the benefit of the Subject Company working capital and credit
facilities sufficient to pay as and when they become due all
Liabilities of the Subject Company
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incurred in the Ordinary Course of Business other than
Liabilities for capital expenditures and all Liabilities of
the Subject Company for capital expenditures requested by
the Sellers and consented to by the Purchaser (which consent
shall not be unreasonably withheld); and
(b) will not
(i) without the prior written consent of the Sellers
transfer or dispose of any of the assets or business of the
Subject Company, except in the Ordinary Course of Business,
transfer any of the employees or staffing contractors of the
Subject Company; or
(iii) shift in a manner inconsistent with GAAP any
income or expenses of the Subject Company from one year to
another year.
In addition, prior to January 1, 1999, without the prior written
consent of the Sellers, neither the Purchaser nor the Subject Company will
terminate or modify any of the Subject Company's Plans.
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.
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8.2 Sellers' and Subject Company's 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 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 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 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.
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):
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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 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.
9.4 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 (b) that may have the effect of
preventing, delaying, making illegal or otherwise interfering with 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 and the
indemnification obligations of the Sellers pursuant to Section 10.2(a)(iii)
shall survive until two (2) years after the Closing; provided, however, that the
representations and warranties contained in Section 5.3, 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,
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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 Indemnification.
(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 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 Subject Company or the Sellers 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 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
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in this Agreement; or (ii) any Breach of any covenant or agreement made
by the Purchaser in this Agreement.
(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 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 thirty (30) 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) Limitation on Indemnity/Commitments.
(i) The indemnification obligation of the indemnifying party 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) or (b)(ii) shall survive
indefinitely subject to the terms of this Agreement.
(ii) 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 an amount
equal to the Closing Payment. 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 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
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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.
(iv) 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.
(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 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"),
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 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 the 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
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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 the 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
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 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 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 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 of the Subject Company for all taxable periods of the 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 (to the extent not paid
by the Subject Company on or 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 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 on or 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.
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(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. The Sellers shall promptly notify the Purchaser in writing upon receipt
by 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 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.
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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 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 July 2, 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
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 II
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 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.
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) 280-2652
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
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If to the Sellers, addressed to the Sellers at the following
respective addresses:
Susan E. Volk
12977 North Outer Forty
St. Louis, MO 63141
With a copy to:
Frank Susman
Susman, Schermer, Rimmel & Shifrin, L.L.C.
Tenth Floor Aragon Place
7711 Carondelet Avenue
St. Louis, MO 63105
Telephone: (314) 725-7500
Telecopy: (314) 725-7288
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
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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.
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 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.
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 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
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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 (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
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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.
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 except the Senior Creditors as provided in Section 2.4(f); 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) 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 Eastern District of Missouri; (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.
12.13 Attorney's 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, except as provided in Section
2.4.
12.15 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, 12.6, 12.9 and 12.10 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.
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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.
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SELLERS: PURCHASER:
Corporate Staffing Resources, Inc.
_______________________________
Susan E. Volk, individually and
as Trustee of the Susan E. Volk _____________________________________________
Living Trust dated May 11, 1998 By: William W. Wilkinson
Its: Chairman of the Board &
Chief Executive Officer
_______________________________
Gary T. Volk, as Trustee of the
Susan E. Volk Living Trust
Dated May 11, 1998
_______________________________
Gerald R. Miller
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SCHEDULE 2.4
REQUIRED ADJUSTMENTS TO EBIT - 1999 AND 2000
1. All items of expense in the nature of management fees or corporate
overhead of the Purchaser or its Affiliates shall be excluded.
2. The expense of payroll, billing and other administrative services
provided to the Subject Company by the Purchaser or its Affiliate in excess of
the cost for which those services could be performed by the Subject Companies
shall be excluded.
3. Gains and losses from the sale, disposition or destruction of assets
shall be excluded.
4. Debits or credits classified as extraordinary items shall be excluded.
<PAGE> 1
EXHIBIT 2.08
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of June 25, 1998 (this
"Agreement"), is by and among Corporate Staffing Resources, Inc., a Delaware
corporation (the "Purchaser") and Scott M. Herron and Darryl Vidal (each, 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
Networld Solutions, 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 5.8.
"Adjusted Working Capital" shall have the meaning set forth in Section
2.5(d).
"Adjusted Working Capital Deficiency" shall have the meaning set forth in
Section 2.5(c).
"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.
<PAGE> 2
"Agreement" shall mean this Stock Purchase Agreement.
"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 5.4.
"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 any inaccuracy in or
breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.
"Cash and Cash Equivalents" shall have the meaning attributed to such term
under GAAP.
"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).
"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 11. l(d).
"Closing Payment" shall have the meaning set forth in Section 2.3.
"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 2.2.
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<PAGE> 3
"Contingent Amounts" shall have the meaning set forth in Section 2.4.
"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 Payments" 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 taxes determined in
accordance with GAAP.
"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 (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
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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, 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.
"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.
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<PAGE> 5
"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 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 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.
"Information Technology Consulting 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.
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<PAGE> 6
"Knowledge of the Sellers" or other similar phrases shall mean the
Knowledge of any of the Sellers and the actual knowledge of any other
executive officer of the 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 5.19(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."
"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 Company, over (b) all Liabilities of the Subject Company for
indebtedness or evidenced by a note, including indebtedness to
shareholders, in each case as of the Closing Date.
"Net Debt" shall mean the excess of (a) all Liabilities of the
Subject Company for borrowed money or evidenced by a note, including
indebtedness to shareholders, over (b) Cash and Cash Equivalents of the
Subject Company, in each case as of the Closing Date.
"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:
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(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 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).
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<PAGE> 8
"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).
"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.
"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.
"Sellers' Accountant" shall have the meaning set forth in Section 2.4(c).
"Sellers' Closing Documents" shall have the meaning set forth in Section
5.2(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 Recital A 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.
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"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(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
Agreements 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).
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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 shall be owned on the Closing Date 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." The Consideration shall be allocated among the Sellers as set
forth in Schedule 2.2 hereto.
2.3 Closing Payment. On the Closing Date, the Purchaser shall pay to
the Sellers an aggregate amount of $2,067,297 plus Net Cash or less Net Debt, in
cash by wire transfer of immediately available funds to the account or accounts
designated by the respective Sellers at least two (2) business days prior to the
Closing (the "Closing Payment").
2.4 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 seven (7) multiplied by the excess of (A)
Adjusted EBIT for the 12-month period ending December 31, 1998 (the
"1998 Adjusted EBIT") over (B) $302,470.
(ii) An amount equal to six (6) multiplied by the excess of (A)
Adjusted EBIT for the 12-month period ending December 31, 1999 (the
"1999 Adjusted EBIT") over (B) the 1998 Base; plus
(iii) An amount equal to five (5) multiplied by the excess of (A)
Adjusted EBIT for the 12-month period ending December 31, 2000 (the
"2000 Adjusted EBIT") over (B) the greater of [i] the 1998 Base or
[ii] the 1999 Adjusted EBIT.
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(b) "Adjusted EBIT" as used in determining 1998 Adjusted EBIT shall
mean EBIT of the Subject Company for such period adjusted as provided in
Schedule 2.4(A) hereto. "Adjusted EBIT" as used in determining 1999 and
2000 EBIT shall mean EBIT of the Subject Company for such period adjusted
as provided in Schedule 2.4(B). The "1998 Base" shall mean the greater of
(A) 1998 Adjusted EBIT or (B) ($302,470.
(c) Within sixty (60) days after the end of each of the 12-month
periods for the calculation of 1998, 1999 and 2000 EBIT, the Purchaser
shall cause the Subject Company to prepare and deliver to the Sellers an
Adjusted EBIT statement for the respective 12-month period (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(A) or (B), as
applicable and 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 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(A) or (B), as applicable.
The Sellers and a firm of independent public accountants designated by
the Sellers (the "Sellers' Accountant") will be entitled to access to all
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. Absent fraud or material misrepresentation by the
Purchaser, each Adjusted EBIT 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 EBIT Report is delivered to Sellers, a
written notice to Purchaser stating each and every item to which the
Sellers take exception as not being in accordance with GAAP or Schedule
2.4(A) or (B), as applicable, 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
Purchaser, then 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 Purchaser notice of any such
proposed change, any such proposed change still remains disputed, then
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 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 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 Purchaser's submitted Adjusted
EBIT is $1,000,000, the Sellers' submitted Adjusted EBIT
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is $1,100,000 and the Accounting Firm's determined Adjusted EBIT is
$1,075,000, Purchaser shall pay 75% and the Sellers shall pay 25%.
(d) Subject to the provisions of Section 2.4(f), 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 the date by 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
Purchaser and the Sellers in accordance with this Section 2.4, then the
date on which 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 within 60 days
following the end of the applicable 12-month period shall be payable with
interest at the rate of ten percent (10%) per annum accruing from such
date of the year in which the Adjusted EBIT Report is to be delivered to
the date of payment.
(f) Subordination. Each of the Sellers 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
2.4(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 Amended and
Restated Loan Agreement (as at any time amended) dated as of May
14, 1998 among Corporate Staffing Resources, Inc. (the
"Purchaser"), as Borrower, ING (U.S.) Capital Corporation, a
Delaware corporation, and Creditanstalt Corporate Finance, Inc., a
Delaware corporation, as Co-Agents, ING (U.S.) Capital Corporation,
Creditanstalt Corporate Finance, Inc. and Societe Generale, as
Lenders, and ING (U.S.) Capital Corporation, as Administrative
Agent (the "Loan Agreement"), or (B) any loan or similar credit
agreement hereafter entered into by the Purchaser, as Borrower,
evidencing a refinancing of the credit facilities of the Purchaser
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
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conditions of any present or future indebtedness of Purchaser 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.
"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 the Purchaser under each Debt Agreement, whether
for principal, interest, premium, fees, costs, taxes,
indemnification or otherwise.
(2) The Sellers hereby absolutely and irrevocably subordinate 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 that a Default or Event of Default
has occurred and is continuing, the Sellers shall be entitled to receive
and retain (and the Purchaser 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 the Purchaser or
any of its subsidiaries. The Sellers agree that any written notice of a
Default or an Event of Default which is delivered to the Sellers 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 that such Default or Event of Default has been cured or waived in
accordance with the applicable provisions of the Debt Agreement, the
Sellers 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 the Purchaser or any of its subsidiaries become
debtors in any voluntary or involuntary bankruptcy proceeding, the
Sellers shall have the following rights:
(A) The Sellers may file one or more proofs of claim in such
bankruptcy with respect to the Contingent Amounts, provided that
the Sellers 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 with respect to the
Contingent Amounts at a time when any Senior Obligations remain
unpaid, the Sellers shall pay over such distribution to the Senior
Creditors to be applied by the
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Senior Creditors in reduction of the Senior Obligations, and the
Sellers 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 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.
If the Sellers 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 Purchaser 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. In the event of
any financing of the Purchaser or any of its subsidiaries by the Senior
Creditors during any bankruptcy, arrangement or reorganization proceeding
with respect to the Purchaser or any of its subsidiaries, the Sellers agree
that the Contingent Amounts shall be and continue to remain subordinate and
subject to the subordination provided herein, and the Sellers 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 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 the Purchaser any of
its subsidiaries or the Subject Company, (B) any agreement prohibiting the
granting of any lien or security interest in the property or assets of the
Purchaser or its subsidiaries or (C) any guaranty or other suretyship
arrangement by any affiliate of the Purchaser in their favor. No Seller may
assign or transfer any interest in the Contingent Amounts unless the
assignee or transferee has first assumed the obligations of the Seller
under these Subordination Provisions in a writing in form and substance
acceptable to the Administrative Agent.
(5) The Sellers agree that the Senior Creditors may at any time
and from time to time, without the Sellers' 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 the Purchaser and its
Subsidiaries, of any guarantors of the obligations of the Purchaser 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 the Purchaser 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
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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 the Purchaser, any guarantor, endorser, or
cosigner, or from the disposition of any collateral to any 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 the
Purchaser and its Subsidiaries to use proceeds of the collateral for any
purpose; (G) make loans or advances or other credit accommodations to the
Purchaser 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, the Sellers shall not seek to attach any asset of the
Purchaser or any of its subsidiaries and the Sellers 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 the Purchaser
or its subsidiaries;
(B) Seek the appointment of a liquidator, trustee,
conservator, receiver, keeper or custodian for the Purchaser, any
of its subsidiaries or any of its assets;
(C) Commence any involuntary bankruptcy or insolvency
proceedings against the Purchaser or any of its subsidiaries; or
(D) Take any other enforcement action against the Purchaser or
any of its subsidiaries with respect to the Contingent Amounts:
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provided, however, that, notwithstanding the foregoing, if a Default or an
Event of Default shall occur, the Administrative Agent may, by written notice
to the Sellers, suspend Sellers' right to take any of the actions listed in
clauses (A) - (D) 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' 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
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 and the Senior Creditors and their
successors and assigns. Without limiting the generality of the
foregoing, the Sellers acknowledge that the Senior Creditors may freely
assign their interests in the Senior Obligations, or sell participations
therein. The Sellers 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 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
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or sent by telegram, telex, or telecopy, or effective three (3) business
days after mailing if sent by express, certified or registered mail, to
the Sellers at the address set forth in Section 12.2.
2.5 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), the Purchaser
shall prepare and deliver to the Sellers a balance sheet of the Subject
Company 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 access to all relevant records and working papers of the
Subject Company 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 2.5(b) hereof with respect to the Sellers 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 the Purchaser 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 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 2.5(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
Adjusted Working Capital Equity Deficiency bears to the Adjusted Working
Capital 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) In the event that there is an Adjusted Working Capital
Deficiency (as defined below), the Sellers shall pay to the Purchaser, 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 2.5(b) shall be made within ten (10)
days after
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the amount of the Adjusted Working Capital Equity Deficiency has been
determined pursuant to Section 2.5(a) by wire transfer of funds to an
account designated by the Purchaser.
(c) The term "Adjusted Working Capital Deficiency" shall mean the
amount, if any, by which the Adjusted Working Capital of the Subject
Company is less than $160,000.
(d) The term "Adjusted Working Capital" shall mean the amount by
which Accounts Receivable of the Subject Company exceeds the sum of
accounts payable and accrued expenses of the Subject Company, 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
Adjusted Working Capital is agreed to by the Purchaser and the Sellers in
accordance with Section 2.5(a), or any dispute between the Purchaser and
the Sellers with respect to the Adjusted Working Capital is resolved in
accordance with Section 2.5(a), then "Adjusted Working Capital " shall be
calculated after giving effect to any such change or resolution.
(e) All payments required to be made pursuant to Section 2.5(b)
shall bear interest at 10% per annum from the Closing Date to the date of
payment.
(f) In the event there is no Adjusted Working Capital Deficiency,
the Purchaser shall cause the Subject Company to pay to the Sellers as
additional Consideration, at the time hereinafter set forth, the excess,
if any, of (i) the amount of the Closing Balance Sheet accounts
receivable collected within 120 days following the Closing Date, over
(ii) the sum of Closing Balance Sheet accounts payable and accrued
expenses plus $160,000. Such amount, if any, shall be paid to the
Sellers, as provided in Schedule 2.2, within 10 days following the
expiration of the 120 day collection period and shall bear interest
thereafter until paid at 10% per annum.
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 each of the Sellers of Twenty-Five Thousand Dollars
($25,000) (the "Covenant Payments").
3.2 The Sellers' Agreements. Each of the Sellers agrees that the
Seller will not, 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:
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(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 Information Technology Consulting 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
one percent (1%) of any class of securities issued by an entity which is
subject to the reporting requirements of the Securities Exchange Act of
1934 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 or
any of its Affiliates any Information Technology Consulting Business
transacted by or with such customer by the Subject Company, the Purchaser
or any of its Affiliates; or
(c) during the Noncompetition Period, 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 Consulting Business
from any such customers described in (b) above; 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 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 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
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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,
(1) solicit, entice, persuade or induce, directly or
indirectly, any employee or independent contractor (or person who
within the preceding three hundred and sixty-five (365) days was an
employee or independent contractor) of the Subject Company or any
of 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 Company, the Purchaser or any of its
Affiliates;
(2) approach any such employee or independent 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 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 four (4) 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 Consulting Business" shall mean the design,
maintenance or implementation of information technology networks or network
solutions for clients or consulting and advice to clients with respect thereto.
"Territory" shall mean the state of California.
3.5 Termination of Seller's Agreements. If the Purchaser fails to pay to
the Sellers any of the Contingent Amounts within one hundred twenty (120) days
following the date provided in Section 2.4(d), then all of the agreements of the
Sellers set forth in this Article III and all of the agreements of the Sellers
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 the Purchaser, One Michiana
Square, 100 E. Wayne Street, Suite 100, South Bend, Indiana 46601, unless the
parties hereto otherwise agree.
4.2 Deliveries at Closing.
(a) Consideration. The Purchaser will deliver the Closing Payment
(allocated among the Sellers as set forth in Schedule 2.2) to each of the
Sellers.
(b) The Purchaser will deliver the Covenant Payments 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
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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, (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 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, and (B) incumbency matters;
4.3 Other Closing Transactions.
(a) Employment Agreements. At the Closing, the Subject Company
shall enter into Employment Agreements with each of the Sellers in the
form of Exhibit A hereto and employment agreements with such of the other
key employees of the Subject Company identified by the Purchaser and
approved by the Sellers (collectively, the "Employment Agreements").
(b) IRC Section 338(h)(10) Election. At the Closing, the Purchaser
and the Sellers will execute such documents and forms as required for an
effective election under Section 338(h)(10) of the IRC with respect to
the Acquisition. The basis of the assets of the Subject Company shall be
determined in accordance with IRC Reg. Section 1.338(b)-1(c) and shall be
allocated among the assets in accordance with IRC Reg. Section
1.3338(b)-2T and 3T. The fair market value of all tangible assets has
been determined to be equal to their net book value as shown on the
Closing Balance Sheet. The balance of the Consideration shall be
allocated to goodwill.
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.
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(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 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.
(c) Business. Since its organization, the Subject Company has
not engaged in any business other than the Information Technology
Consulting Business.
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.
(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;
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(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 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.
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5.4 Financial Statements. The Sellers have delivered to the Purchaser an
internally prepared interim balance sheet of the Subject Company as of May 26,
1998 (the "Balance Sheet") and the related statement of income for the interim
period then ended ("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
and changes in stockholders' equity 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. No financial statements of any
Person other than the Subject Company are required by GAAP to be included in the
Financial Statements.
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 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.
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 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.
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5.7 No Undisclosed Liabilities. Except as set forth in Schedule 5.7, 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.
5.8 Accounts Receivable. All Accounts Receivable of the Subject Company
that are reflected on the accounting records of the Subject Company as of the
Closing will represent valid obligations arising from sales actually made or
services actually performed in the Ordinary Course of Business. Each of the
Accounts Receivable will be as of the Closing current and collectible, 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, under any Contract
with any obligor of an Accounts Receivable relating to the amount or validity
of such Accounts Receivable.
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 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.
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.
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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 any 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) 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 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.
(h) 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.
(i) No stockholder of the Subject Company is a Person other than a
United States Person within the meaning of the IRC.
(j) 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.
(k) 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.
(l) The Subject Company has been properly treated as an S
Corporation (as defined in the IRC) at all times since its incorporation.
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.
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5.11 Employee Benefits.
(a) The Subject Company has never sponsored, participated in or
made any contribution to any Pension Plan or assumed the
obligations of any other Person with respect to any Pension Plan.
(b) Except as set forth in Schedule 5.11, the Subject Company
maintains no Welfare Plan except for a group health insurance plan.
(c) Except as set forth in Schedule 5.11, the Company has no Other
Benefit Obligations except the Networld Solutions Employee Stock
Option Plan (the "Option Plan"). No person other than Darryl Vidal
has been granted any rights under the Option Plan; all rights of
Darryl Vidal under the Option Plan will be exercised on or before
the Closing Date and the Option Plan will be terminated as of the
Closing Date.
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
incorporation 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
incorporation, 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.
(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
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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
incorporation, 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
incorporation, 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.
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
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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
incorporation, 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 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
incorporation, 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
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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 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;
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(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:
(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,
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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;
(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;
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(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:
(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;
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(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 incorporation, 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
(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
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(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.
(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:
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(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.
(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.
5.18 Labor Relations; Compliance; Employees. Since incorporation, the
Subject Company has not been nor is a party to any collective bargaining or
other similar labor Contract. Since incorporation, 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. 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.
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5.19 Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual Property
Assets" includes:
(i) the corporate name of the Subject Company 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 trade secrets and confidential information of the
Subject Company (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.
(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.
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(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 incorporation, neither the Subject
Company, nor any director, officer or agent 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 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 Seller
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 consulting contractors) during the last fiscal year, and those
customers of the Subject Company which generated revenues in excess of $25,000
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
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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. 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
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.
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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. 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.
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6.7 Subordination Requirements. The Subordination Provisions as set
forth in Section 2.4(f) are required by the Purchaser's Senior Creditors in the
form and content of Section 2.4(f) as a condition of funding the Purchaser's
Closing Payment to the Sellers.
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
(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
(d) otherwise report periodically to the Purchaser concerning the
status of its business, operations and finances.
7.3. Negative Convenants.
(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.
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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. 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 Schedule 5.2.
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 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 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
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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.
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.
7.8 Conduct of Subject Company's Business. From and after the Closing
Date until the end of the period for the calculation of 2000 Adjusted EBIT, the
Purchaser will cause the Information Technology Consulting Business of the
Subject Company to be conducted by the Subject Company (and not by the
Purchaser or any of its Affiliates), will maintain the separate corporate
existence of the Subject Company and will not without the written consent of
the Sellers transfer or dispose of any of the assets or business of the Subject
Company, except in the Ordinary Course of Business, or transfer any of the
employees or staffing contractors of the Subject Company.
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 Company's 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 Closing (considered collectively) and
each of these covenants and obligations (considered individually), must
have been performed and complied with in all material respects.
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(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 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.
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
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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 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.
9.4 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 (b) that may have the effect of
preventing, delaying, making illegal or otherwise interfering with any of the
Transactions.
ARTICLE X
INDEMNIFICATION; REMEDIES
10.1 The representations and warranties of the Sellers and the
Purchaser contained herein and the indemnification obligations of the Sellers
pursuant to Section 10.2(a)(iii) shall survive until two (2) years after the
Closing; provided, however, that the representations and warranties contained in
Section 5.3, 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
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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 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 Subject Company or the
Sellers 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 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.
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(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 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
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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 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) or (b)(ii) shall survive indefinitely subject to the
terms of this Agreement.
(ii) 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 Twenty-Five Thousand Dollars
($25,000) (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 an amount
equal to the Closing Payment. 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(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 Sellers in Section 5.3.
(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
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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 an amount equal to the
Closing Payment. 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.
(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 Date or (B) any
period beginning before the Closing Balance Sheet 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"), 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 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 the Subject Company
that relate to a Tax period beginning on or before the Closing Date and
ending after the Closing Date
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(a "Straddle Period") shall be apportioned between the Pre-Closing Partial
Period and the portion of such Straddle Period beginning on the day
following 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 Date and the portion of such
period beginning on the day following the Closing 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
on or 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 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 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 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
Company 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 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 on or 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 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 on or 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 on or 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.
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(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 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 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.
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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 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 June 30, 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
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 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.
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) 280-2652
with a copy to:
Philip L. Carson
Miller Carson Boxberger & Murphy LLP
1400 One Summit Square
Fort Wayne, IN 46802-3173
Telephone: (219) 423-9411
Telecopy: (219) 423-4329
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If to the Sellers, addressed to the Sellers at the following respective
addresses:
Scott M. Herron
7847 Convoy Court, Suite 101
San Diego, CA 92111
Darryl Vidal
18103 Skypark Circle South, Suite B-2
Irvine, CA 92614
With a copy to:
Andrew M. Glatt
Rudick Platt Glatt & Getz
600 B. Street, Suite 1500
San Diego, CA 92101
Telephone (619) 233-7736
Telecopy (619) 234-7325
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.
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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.
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 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.
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 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
56
<PAGE> 57
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 (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
57
<PAGE> 58
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.
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 except the Senior Creditors as provided in Section 2.4(f); 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) 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 Southern 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.
12.13 Attorney's 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, except as provided in Section
2.4.
12.15 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
58
<PAGE> 59
survive pursuant to the terms of such Section, the obligations of the Sellers
and the Purchaser contained in Sections 4.2, 12.6, 12.9 and 12.10 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.
59
<PAGE> 60
SELLERS: PURCHASER:
Corporate Staffing Resources, Inc.
_______________________________
Scott M. Herron
________________________________________
By: William W. Wilkinson
_______________________________ Its: Chairman of the Board & Chief Executive
Darryl Vidal Officer
60
<PAGE> 61
SCHEDULE 2.4(A)
REQUIRED ADJUSTMENTS TO EBIT - 1998
1. All items of expense in the nature of management fees or corporate
overhead of the Purchaser or its Affiliates shall be excluded.
2. The expense of payroll, billing and other administrative services
provided to the Subject Company by the Purchaser or its Affiliate in excess of
the cost for which those services could be performed by the Subject Company
shall be excluded.
3. Gains and losses from the sale, disposition or destruction of assets
shall be excluded.
4. Debits or credits classified as extraordinary items shall be excluded.
5. One-third of the compensation payable to the Sellers shall be excluded.
6. Depreciation and amortization deductions shall be excluded to the
extent they relate to increased basis in the Subject Company's assets due to
the acquisition of the Subject Company by the Purchaser or the Subject
Company's IRC Section 338(h)(10) election.
For the period from January 1, 1998 thru the Closing Date the following
additional adjustments shall be made to EBIT:
1. Income taxes - Herron in the amount of $15,000 shall be added
back.
2. Personal expenses in the amount of $21,500 shall be added back.
3. Nonrecurring expenses of $19,200 shall be added back.
4. Shareholder salary shortfall of $5,400 shall be deducted.
5. Capitalized lease expense less depreciation, estimated at $4,333
shall be added back.
6. Bonuses paid to key employees in June 1998 prior to the Closing
Date shall be added back.
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<PAGE> 62
SCHEDULE 2.4(B)
REQUIRED ADJUSTMENTS TO EBIT - 1999 AND 2000
1. All items of expense in the nature of management fees or corporate
overhead of the Purchaser or its Affiliates shall be excluded.
2. The expense of payroll, billing and other administrative services
provided to the Subject Company by the Purchaser or its Affiliate in excess of
the cost for which those services could be performed by the Subject Company
shall be excluded.
3. Gains and losses from the sale, disposition or destruction of assets
shall be excluded.
4. Debits or credits classified as extraordinary items shall be excluded.
5. One-third of the compensation payable to the Sellers shall be excluded.
6. Depreciation and amortization deductions shall be excluded to the
extent they relate to increased basis in the Subject Company's assets due to
the acquisition of the Subject Company by the Purchaser or the Subject
Company's IRC Section 338(h)(10) election.
62
<PAGE> 1
EXHIBIT 3.01
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
Corporate Staffing Resources, Inc., a corporation duly organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
I. The amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware and has been consented to
in writing by the stockholders, and written notice has been given in accordance
with Section 228 of the General Corporation Law of the State of Delaware.
II. The Certificate of Incorporation is amended and restated to read in its
entirety as set forth in Exhibit A hereto.
IN WITNESS WHEREOF, Corporate Staffing Resources, Inc. has caused this
Certificate to be executed by _________________, its authorized officer, on this
_______ day of July, 1998.
________________________________
Title:
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CORPORATE STAFFING RESOURCES, INC.
FIRST: The name of the corporation (hereinafter the "Corporation") is:
Corporate Staffing Resources, Inc.
SECOND: The name and address, including street, number, city and county,
of the registered agent of the Corporation in the State of Delaware are:
THE PRENTICE-HALL CORPORATION SYSTEM, INC.
1013 Centre Road
Wilmington, New Castle County, Delaware
THIRD: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH:
1. The Corporation is authorized to issue a total of 55,000,000 shares of
stock (the "Capital Stock") consisting of two classes of shares designated as
"Common Stock" and "Preferred Stock," respectively. The number of shares of
Common Stock authorized to be issued is 50,000,000, par value $0.01 per share
and the number of shares of Preferred Stock authorized to be issued is
5,000,000, par value $0.01 per share.
2. The shares of Preferred Stock may be issued from time to time in one or
more series, as provided for herein or as provided for by the Board of Directors
as permitted hereby. All shares of Preferred Stock shall be of equal rank and
shall be identical, except in respect of the terms fixed by the Board of
Directors for series provided for by the Board of Directors as permitted hereby.
All shares of any one series shall be identical in all respects with all the
other shares of such series, except the shares of any one series issued at
different times may differ as to the dates from which dividends thereon may be
cumulative.
3. The Board of Directors is hereby authorized, by resolution or
resolutions, to establish, out of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock, additional series of Preferred
Stock. Before any shares of any such additional series are issued, the Board of
Directors shall fix and determine, and is hereby expressly empowered to fix and
determine, by resolution or resolutions, the number of shares constituting such
series and the distinguishing characteristics and the relative rights,
preferences, privileges and immunities, if any, and any qualifications,
limitations or restrictions thereof, of the shares thereof, so far as not
inconsistent with the provisions of this
<PAGE> 3
Article FOURTH. Without limiting the generality of the foregoing, the
Board of Directors may fix and determine:
(a) The designation of such series and the number of shares which shall
constitute such series of such shares;
(b) The rate of dividend, if any, payable on shares of such series;
(c) 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;
(d) 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;
(e) 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 Corporation;
(f) The sinking fund provisions, if any, for the redemption of shares
of such series;
(g) The voting rights, if any, of the shares of such series;
(h) The terms and conditions, if any, on which shares of such series
may be converted into shares of Capital Stock of the Corporation of any other
class or series;
(i) Whether the shares of such series are to be preferred over shares
of Capital Stock of the Corporation 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 Corporation, or otherwise; and
(j) Any other characteristics, preferences, limitations, rights,
privileges, immunities or terms not inconsistent with the provisions of this
Article FOURTH.
4. Except as otherwise provided in this Certificate of Incorporation, each
holder of Common Stock shall be entitled to one vote for each share of Common
Stock held by him on all matters submitted to stockholders for a vote and each
holder of Preferred Stock of any series that is voting stock shall be entitled
to such number of votes for each share held by him as may be specified in the
resolutions providing for the issuance of such series.
5. Except as otherwise provided by law, the presence, in person or by
proxy, of the holders of record of issued and outstanding shares of Capital
Stock entitling the holders thereof to cast a majority of the votes entitled to
be cast by the holders of issued and outstanding shares of Capital Stock
entitled to vote shall constitute a quorum at all meetings of the stockholders.
<PAGE> 4
6. No share or shares of Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued, and
all such shares shall be canceled, retired and eliminated from the shares which
the Corporation be authorized to issue.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, which shall consist of not less
than five or more than eleven Directors, the exact number of Directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the entire Board of Directors, subject to any bylaw requiring the
affirmative vote of a larger percentage of the members of the Board of
Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Class I, Class II and Class III
shall each consist of an equal number of Directors to the extent practicable.
Class I Directors shall be initially elected for a term expiring at the first
annual meeting of stockholders of the Corporation following the date hereof,
Class II Directors shall be elected for a term expiring at the second annual
meeting of stockholders of the Corporation following the date hereof, and Class
III Directors shall be elected for a term expiring at the third annual meeting
of stockholders of the Corporation following the date hereof. At each annual
meeting of stockholders following the date hereof, successors to the class of
Directors whose term expires at that annual meeting shall be elected for a three
year term. If the number of Directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain a number of Directors in each
class as nearly equal as possible, and any additional Director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of Directors shorten the term of any
incumbent Director. A Director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any vacancy on the Board of Directors
that results from an increase in the number of Directors and any other vacancy
may only be filled by a majority of the Directors then in office, even if less
than a quorum, or by a sole remaining Director. Any Director elected to fill a
vacancy not resulting from an increase in the number of Directors shall have the
same remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, removal, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto (including the
resolutions of the Board of Directors pursuant to Article FOURTH), and such
Directors so elected shall not be divided into classes pursuant to this Article
SIXTH unless expressly provided by such terms.
SEVENTH: The Board of Directors, as of the date of effectiveness of this
Certificate of Incorporation, is as follows:
<PAGE> 5
Wayne McCreight Class I
David A. Paritz Class I
William J. Wilkinson Class I
Conor T. Mullett Class II
Theodore F. Savastano Class II
John Shoemaker Class II
Richard A. Rosenthal Class III
H. Ronald Stone Class III
William W. Wilkinson Class III
EIGHTH: The personal liability of the Directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
TENTH:
1. The Board of Directors shall have the power to make, adopt, alter,
amend, change or repeal the Bylaws of the Corporation by resolution adopted by
the affirmative vote of a majority of the entire Board of Directors, subject to
any bylaw requiring the affirmative vote of a larger percentage of the members
of the Board of Directors.
2. Stockholders may not make, adopt, alter, amend, change or repeal the
Bylaws of the Corporation except upon the affirmative vote of at least 75% of
the votes entitled to be cast by the holders of all outstanding shares then
entitled to vote generally in the election of directors, voting together as a
single class.
ELEVENTH: Special meetings of the stockholders of the Corporation, for any
purpose or purposes, may only be called at any time by a majority of the entire
Board of Directors or by either the Chairman or the President of the
Corporation.
TWELFTH: No stockholder action may be taken except at an annual or
special meeting of stockholders of the Corporation and stockholders of the
Corporation may not take any action by written consent in lieu of a meeting.
<PAGE> 6
THIRTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision in the Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation; provided, however, that no amendment,
alteration, change or repeal may be made as to Articles SIXTH, SEVENTH, TENTH,
ELEVENTH, TWELFTH and THIRTEENTH, except upon the affirmative vote of at least
75% of the votes entitled to be cast by the holders of all outstanding shares
then entitled to vote generally in the election of directors, voting together as
a single class.
<PAGE> 1
EXHIBIT 3.02
AMENDED AND RESTATED BYLAWS
OF
CORPORATE STAFFING RESOURCES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES..........................................................1
Section 1. REGISTERED OFFICES...............................................1
Section 2. OTHER OFFICES....................................................1
ARTICLE II. MEETINGS OF SHAREHOLDERS.........................................1
Section 1. PLACE OF MEETINGS................................................1
Section 2. ANNUAL MEETINGS OF SHAREHOLDERS..................................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF....................2
Section 4. VOTING...........................................................2
Section 5. PROXIES..........................................................3
Section 6. SPECIAL MEETINGS.................................................3
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS.................................4
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST...................4
Section 9. NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......5
ARTICLE III. DIRECTORS........................................................5
Section 1. NUMBER, ELECTION, TENURE.........................................5
Section 2. VACANCIES........................................................6
Section 3. POWERS...........................................................7
Section 4. PLACE OF DIRECTORS' MEETINGS.....................................7
Section 5. REGULAR MEETINGS.................................................7
Section 6. SPECIAL MEETINGS.................................................7
Section 7. QUORUM...........................................................7
Section 8. ACTION WITHOUT MEETING...........................................8
Section 9. TELEPHONIC MEETINGS..............................................8
Section 10. COMMITTEES OF DIRECTORS..........................................8
Section 11. MINUTES OF COMMITTEE MEETINGS....................................9
Section 12. COMPENSATION OF DIRECTORS........................................9
ARTICLE IV. OFFICERS.........................................................9
Section 1. OFFICERS........................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 2. ELECTION OF OFFICERS............................................10
Section 3. SUBORDINATE OFFICERS............................................10
Section 4. COMPENSATION OF OFFICERS........................................10
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES...........................10
Section 6. CHAIRMAN OF THE BOARD...........................................11
Section 7. PRESIDENT.......................................................11
Section 8. VICE PRESIDENTS.................................................12
Section 9. SECRETARY.......................................................12
Section 10. ASSISTANT SECRETARY.............................................12
Section 11. CHIEF FINANCIAL OFFICER.........................................13
Section 12. ASSISTANT TREASURER.............................................13
ARTICLE V. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................13
ARTICLE VI. INDEMNIFICATION OF EMPLOYEES AND AGENTS.........................19
ARTICLE VII. CERTIFICATES OF STOCK...........................................19
Section 1. CERTIFICATES....................................................19
Section 2. SIGNATURES ON CERTIFICATES......................................19
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES..............20
Section 4. LOST CERTIFICATES...............................................20
Section 5. TRANSFERS OF STOCK..............................................21
Section 6. FIXED RECORD DATE...............................................21
Section 7. REGISTERED STOCKHOLDERS.........................................22
ARTICLE VIII. GENERAL PROVISIONS..............................................22
Section 1. DIVIDENDS.......................................................22
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES.........................22
Section 3. CHECKS..........................................................22
Section 4. FISCAL YEAR.....................................................23
Section 5. CORPORATE SEAL..................................................23
Section 6. MANNER OF GIVING NOTICE.........................................23
Section 7. WAIVER OF NOTICE................................................23
Section 8. ANNUAL STATEMENT................................................24
ARTICLE IX. AMENDMENTS......................................................24
Section 1. AMENDMENT BY DIRECTORS OR SHAREHOLDERS..........................24
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
CORPORATE STAFFING RESOURCES, INC.
ARTICLE I.
OFFICES
Section 1. REGISTERED OFFICES. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings
shall be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETINGS OF SHAREHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.
<PAGE> 5
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of
the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
Section 4. VOTING. When a quorum is present at any meeting, in all matters
other than the election of directors, the vote of the holders of a majority of
the stock having voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one
upon which by express provision of the statutes, or the Certificate of
Incorporation or these Bylaws, a different vote is required in which case such
express provision shall govern and control the decision of such question.
Directors shall be
2
<PAGE> 6
elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors.
Section 5. PROXIES. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period.
All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Each stockholder shall have one vote for each share of stock having voting
power, registered in his name on the books of the corporation on the record
date set by the Board of Directors as provided in Article VII, Section 6
hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribed by statute or the Certificate
of Incorporation may be called by the President and shall be called by the
President or the Secretary at the request in writing of a majority of the Board
of Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding,
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
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meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given
to each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who
has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 9. NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Subject to the rights of the holders of any series of Preferred Stock with
respect to such series of Preferred Stock, any action required or permitted to
be taken by the stockholders of the Corporation must be effected at an annual
or special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
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ARTICLE III.
DIRECTORS
Section 1. NUMBER, ELECTION, TENURE. The total number of persons serving
on the Board of Directors shall be not less than five (5) nor more than eleven
(11), the exact number of directors to be determined from time to time by
resolution adopted by affirmative vote of a majority of the entire Board of
Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Class I, II and III shall each
consist of three directors. Class I directors shall be initially elected for a
term expiring at the first annual meeting of stockholders of the Corporation
following the date of adoption of these Bylaws, Class II directors shall be
initially elected for a term expiring at the second annual meeting of
stockholders of the Corporation following the date of adoption of these Bylaws,
and Class III directors shall be initially elected for a term expiring at the
third annual meeting of stockholders of the Corporation following the date of
adoption of these Bylaws. At each annual meeting of stockholders following
the date hereof, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that
shall coincide with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
The provisions of this Article III, Section 1 may be amended only with the
approval of 75% of the members of the Board of Directors of the Corporation.
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Section 2. VACANCIES. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
The directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery of the State of
Delaware (the "Court of Chancery") may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. POWERS. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to
the powers and authorities by these Bylaws expressly conferred upon them, the
Board may exercise all such powers of the corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these Bylaws directed or required to be exercised or done by the
stockholders.
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Section 4. PLACE OF DIRECTORS' MEETINGS. The directors may hold their
meetings and have one or more offices, and keep the books of the corporation
outside of the State of Delaware.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President on forty-eight hours' notice to each director,
either personally or by mail or by telegram; special meetings shall be called
by the President or the Secretary in like manner and on like notice on the
written request of two directors unless the Board consists of only one
director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 7. QUORUM. At all meetings of the Board of Directors, a majority
of the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote of a majority
of the directors present at any meeting at which there is a quorum, shall be
the act of the Board of Directors, except as may be otherwise specifically
provided by statute, by the Certificate of Incorporation or by these Bylaws.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
If only one director is authorized, such sole director shall constitute a
quorum.
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Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at such meeting.
Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member
of a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may
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authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
ARTICLE IV.
OFFICERS
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Section 1. OFFICERS. The officers of this corporation shall be chosen by
the Board of Directors and shall include a Chairman of the Board of Directors
or a President, or both, and a Secretary. The corporation may also have at the
discretion of the Board of Directors such other officers as are desired,
including a Vice-Chairman of the Board of Directors, a Chief Executive Officer,
a Chief Financial Officer, one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 hereof. In the event
there are two or more Vice Presidents, then one or more may be designated as
Executive Vice President, Senior Vice President, or other similar or dissimilar
title. At the time of the election of officers, the directors may by
resolution determine the order of their rank. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these
Bylaws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the corporation.
Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify in
their stead.
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Any officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. If the
office of any officer or officers becomes vacant for any reason, the vacancy
shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
Bylaws. If there is no President, the Chairman of the Board shall in addition
be the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article IV and all other powers and
duties prescribed in these bylaws.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
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Section 8. VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors,
shall perform all the duties of the President, and when so acting shall have
all the powers of and be subject to all the restrictions upon the President.
The Vice Presidents shall have such other duties as from time to time may be
prescribed for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep
in safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.
Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board
of Directors, or if there be no such determination, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
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Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all moneys, and other valuable effects in the name
and to the credit of the corporation, in such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Chief Financial Officer and of the financial condition of the
corporation. If required by the Board of Directors, he shall give the
corporation a bond, in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
Section 12. ASSISTANT TREASURER. The Assistant Treasurer, or if there
shall be more than one, the Assistant Treasurers in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
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(a) The corporation shall indemnify to the maximum extent permitted by
law any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify to the maximum extent permitted by
law any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and
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reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no such indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which such Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the present or former director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such determination
shall be made, with respect to a person who is a director or officer at the time
of such determination, (1) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(2) by a committee of such
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directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The corporation, acting through its Board of Directors or otherwise, shall cause
such determination to be made if so requested by any person who is indemnifiable
under this Article V.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article V. Such expenses
(including attorneys' fees) incurred by former directors and officers may be so
paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
persons' official capacity and as to action in another capacity while holding
such office.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any
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person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of this Article V.
(h) For the purposes of this Article V, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its
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participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The corporation shall be required to indemnify a person in connection
with an action, suit or proceeding (or part thereof) initiated by such person
only if the action, suit or proceeding (or part thereof) was authorized by the
Board of Directors of the corporation.
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ARTICLE VI.
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may indemnify every person who was or is a party or is or
was threatened to be made a party to any action, suit, or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an employee or agent of the corporation or, while an employee or agent
of the corporation, is or was serving at the request of the corporation as an
employee or agent or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
counsel fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
to the extent permitted by applicable law.
ARTICLE VII.
CERTIFICATES OF STOCK
Section 1. CERTIFICATES. Every holder of stock of the corporation shall
be entitled to have a certificate signed by, or in the name of the corporation
by, the Chairman or Vice Chairman of the Board of Directors, or the President or
a Vice President, and by the Secretary or an Assistant Secretary, or the Chief
Financial Officer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed
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or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its
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discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or the
transfer agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. FIXED RECORD DATE. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
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Section 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VIII.
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment of any
dividend there may be set aside out of any funds of the corporation available
for dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
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Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions of the
statutes or of the Certificate of Incorporation or of these Bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed to be equivalent to notice. Except as otherwise provided in Section
222 of the DGCL, attendance of a person at a meeting shall constitute a waiver
of notice of such meeting, except when the person attends a meeting for the
express purpose of objecting at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
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Section 8. ANNUAL STATEMENT. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation
ARTICLE IX.
AMENDMENTS
Section 1. AMENDMENT BY DIRECTORS OR SHAREHOLDERS. These Bylaws may be
altered, amended or repealed or new Bylaws may be adopted by the stockholders or
by the Board of Directors, when such power is conferred upon the Board of
Directors by the Certificate of Incorporation, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred
upon the Board of Directors by the Certificate of Incorporation it shall not
divest or limit the power of the stockholders to adopt, amend or repeal Bylaws.
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<PAGE> 28
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(a) That I am duly elected and acting Secretary of Corporate Staffing
Resources, Inc., a Delaware corporation; and
(b) That the foregoing amended and restated bylaws constitute the bylaws of
said corporation as duly adopted by the written consent of the Stockholders of
said corporation as of July ___, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day of
July, 1998.
___________________________________
Conor T. Mullett, Secretary
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<PAGE> 1
EXHIBIT 5.01
FORM OF OPINION OF LATHAM & WATKINS
[ LATHAM & WATKINS LETTERHEAD ]
Corporate Staffing Resources, Inc.
One Michiana Square
100 E. Wayne Street, Suite 100
South Bend, Indiana 46601
Re: Registration Statement No. 333-53745
Gentlemen:
We have acted as your special counsel in connection with the registration
under the Securities Act of 1933, as amended (the "Act") by Corporate Staffing
Resources, Inc., a Delaware corporation (the "Company"), on Form S-1, filed
with the Securities and Exchange Commission (the "Commission") on May 28, 1998
(File No. 333-53745) (the "Registration Statement") with respect to the offer
and sale of shares of _____________ common stock of the Company, par value $.01
per share (the "Shares").
In our capacity as such counsel, we are familiar with the proceedings
taken and proposed to be taken by the Company in connection with the
authorization, issuance and sale of the Shares, and for the purposes of this
opinion, have assumed such proceedings will be timely completed in the manner
presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies
certified or otherwise identified to our satisfaction or such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as original documents and the
conformity to authentic original documents of all documents submitted to us as
copies.
<PAGE> 2
LATHAM & WATKINS
Corporate Staffing Resources, Inc.
Page 2
We are opining herein as to the effect on the subject transaction of the
General Corporation Law of the State of Delaware, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of any other
laws.
Subject to the foregoing and the other matters set forth herein, it is our
opinion that the Shares have been duly authorized and, upon issuance, delivery
and payment therefor in the manner contemplated by the Registration Statement,
will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
<PAGE> 1
EMPLOYMENT AGREEMENT Exhibit 10.03
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective November __, 1997, by and between CSR, INC., a Delaware corporation
(hereinafter referred to as "the Company") and THOMAS E. MURPHY (hereinafter
referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company, upon the terms hereinafter set forth;
and
WHEREAS, in the course of building the business of the Company and its
affiliates, including CSR, 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 hereof and terminate on December 31, 2000, 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 Executive Vice President and Chief
Financial 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 Chief Executive Officer of the Company or any other
person designated by the Board of Directors; provided, however, that
without the approval of the Board of Directors of the Company, Employee may
not, on behalf of the Company, (A) enter into term employment arrangements
for the Company's employees, (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
hereof. 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.
<PAGE> 2
(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, 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 $125,000 per annum through the term of this Agreement, as
specified in Section 1 hereof, 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 base salary, Employee
shall be entitled during the term of this Agreement to participate in an
incentive compensation plan 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 1998 will
be determined following final approval of the Company's 1998 budget.
4. BENEFITS.
(a) When eligible under non-discriminatory standards, 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 two (2) weeks vacation
per annum and such holidays as the Company may establish as company policy.
As a senior officer, Employee may receive additional vacation or paid leave
as approved by the Chief Executive Officer in his sole discretion. Nothing
herein, however, is intended or shall be construed to require the Company
to institute or continue all, or any particular, plan or benefits.
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<PAGE> 3
(b) The Company shall provide Employee with an automobile selected by
the Company for business use 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:
(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)
misconduct in the conduct of employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of the
Company's or any of its affiliate's funds, (2) embezzlement, and (3)
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 ninety
(90) 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 (whether written or oral) of the Company relating to
the employment or termination of its employees, or
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<PAGE> 4
(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, 2000; provided, however, the Company and
Employee may elect to extend the term of Employee's employment 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 the date of such 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 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), 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 as of the Date of Termination;
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<PAGE> 5
(iii) pursuant to Section 5(a)(iii) hereof, then 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), 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 as of the Date of Termination;
(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
in violation of Section 6 hereof) and to provide for the continuation
of any Company health insurance benefits for which he would be eligible
but for such termination on the basis in effect at the Date of
Termination, subject to the Company's right to amend, modify or
terminate any such plan, for a period which is equal to the remaining
term of this Agreement, 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 ninetieth (90th) consecutive day of such inability or (B)
the one hundred and twentieth (120th) day in any twelve (12) month period
of such inability, in each case as determined by the Board of Directors,
(iii) if Employee's employment is terminated pursuant to Section 5(a)(iii),
the date of his death, (iv) if
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<PAGE> 6
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) if Employee's employment is
terminated pursuant to Section 5(a)(vi), December 31, 2000.
(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
his 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, Michigan 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
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<PAGE> 7
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 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,
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<PAGE> 8
(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 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 date hereof and ending (i) eighteen
months after the date Employee ceases to be an officer or employee of the
Company, or any of its affiliates or (ii) the date Employee ceases to be an
officer or employee of the Company, or any of its affiliates if Employee is
terminated other than for cause.
(c) For purposes of this Agreement, the term "Staffing Services
Business" shall mean 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.
(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 unenforceable 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
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Company shall be entitled to equitable relief, including by way of
temporary and permanent injunction, in addition to any remedies the Company
may have at law.
(f) The provisions of this Section 6 shall survive termination of this
Agreement.
7. 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: Thomas W. Murphy
53179 Trenton Lane
Bristol, IN 46507
If to the Company: CSR, Inc.
One Michiana Square
100 East Wayne Street, Suite 100
South Bend, IN 46601
Attn: Chief Executive Officer
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.
8. 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.
9. 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 Indiana 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.
10. 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, the parties agree that such dispute
shall be resolved by final and binding arbitration in Chicago, Illinois,
administered by AAA, in accordance with AAA's Commercial Arbitration Rules then
in effect. Depositions may be taken and other discovery may be obtained during
such
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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.
11. 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.
12. 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. 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.
13. 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.
14. 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.
15. 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.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
in multiple counterparts as of the day and year first above written.
________________________________________
Thomas E. Murphy
CSR, INC.
By______________________________________
William W. Wilkinson
Chairman and Chief Executive Officer
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<PAGE> 1
EX-10.04
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective December ___, 1997 (the "Effective Date"), by and between CORPORATE
STAFFING RESOURCES, INC., a Delaware corporation (hereinafter referred to as
"the Company") and JERRY F. STONE (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain the services of the Employee in the
manner hereinafter specified in its business, thereby retaining for the Company
the benefit of the Employee's business knowledge and experience, and also to
make provisions for the payment of reasonable and proper compensation to the
Employee for such services:
WHEREAS, the Employee is willing to be employed by the Company and to
perform the duties incident to such employment upon the terms and conditions
hereinafter set forth; 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
Mega Force Staffing Services, Inc. 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
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
<PAGE> 2
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 for those business entities listed on Schedule 2(b),
without 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 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
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<PAGE> 3
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:
(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;
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<PAGE> 4
(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 (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 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
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<PAGE> 5
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 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
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<PAGE> 6
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)
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, 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
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<PAGE> 7
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 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
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<PAGE> 8
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 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> 9
(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 unenforceable 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.
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: Jerry F. Stone
110 Bee Gee Road
Lumberton, NC 28358
With a copy to: Martin H. Brinkley
Moore & Van Allen PLLC
100 Hanover Square, Suite 1700
Raleigh, NC 27601
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<PAGE> 10
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
North Carolina (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.
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
Louisville, Kentucky 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
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<PAGE> 11
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. 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 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:
________________________________________
Jerry F. Stone
CORPORATE STAFFING RESOURCES, INC.
By______________________________________
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EX-10.05
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective December ___, 1997 (the "Effective Date"), by and between CORPORATE
STAFFING RESOURCES, INC., a Delaware corporation (hereinafter referred to as
"the Company") and T. WAYNE McCREIGHT (hereinafter referred to as "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain the services of the Employee in the
manner hereinafter specified in its business, thereby retaining for the Company
the benefit of the Employee's business knowledge and experience, and also to
make provisions for the payment of reasonable and proper compensation to the
Employee for such services:
WHEREAS, the Employee is willing to be employed by the Company and to
perform the duties incident to such employment upon the terms and conditions
hereinafter set forth; 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
The Hamilton-Ryker Company, Inc. 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
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
<PAGE> 2
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 for those business entities listed on Schedule 2(b),
without 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 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
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<PAGE> 3
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:
(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;
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<PAGE> 4
(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 (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 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
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<PAGE> 5
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 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
5
<PAGE> 6
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)
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, 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
6
<PAGE> 7
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 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
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<PAGE> 8
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 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> 9
(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 unenforceable 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.
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: T. Wayne McCreight
135 Deer Run Drive
Dresden, TN 38225
With a copy to: Martin H. Brinkley
Moore & Van Allen PLLC
100 Hanover Square, Suite 1700
Raleigh, NC 27601
9
<PAGE> 10
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
Tennessee (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.
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 Louisville, Kentucky 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
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<PAGE> 11
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. 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 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:
________________________________________
T. Wayne McCreight
CORPORATE STAFFING RESOURCES, INC.
By______________________________________
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<PAGE> 1
EX-10.06
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
effective December ___, 1997 (the "Effective Date"), by and between CORPORATE
STAFFING RESOURCES, INC., a Delaware corporation (hereinafter referred to as
"the Company") and D. CRAWFORD GALLIMORE (hereinafter referred to as
"Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain the services of the Employee in the
manner hereinafter specified in its business, thereby retaining for the Company
the benefit of the Employee's business knowledge and experience, and also to
make provisions for the payment of reasonable and proper compensation to the
Employee for such services:
WHEREAS, the Employee is willing to be employed by the Company and to
perform the duties incident to such employment upon the terms and conditions
hereinafter set forth; 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 Administrative 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 Chief
Executive Officer of the 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
<PAGE> 2
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 for those business entities listed on Schedule 2(b),
without 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 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
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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:
(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;
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(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 (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 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
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<PAGE> 5
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 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
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<PAGE> 6
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)
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, 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
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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 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
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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 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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(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 unenforceable 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.
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: D. Crawford Gallimore
P.O. Box 1068
Martin, TN 38237
With a copy to: Martin H. Brinkley
Moore & Van Allen PLLC
100 Hanover Square, Suite 1700
Raleigh, NC 27601
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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
Tennessee (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.
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 Louisville, Kentucky 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
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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. 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 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:
________________________________________
D. Crawford Gallimore
CORPORATE STAFFING RESOURCES, INC.
By______________________________________
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EXHIBIT 10.07
CORPORATE STAFFING RESOURCES, INC.
NON-QUALIFIED STOCK OPTION PLAN
Corporate Staffing Resources, Inc., a corporation organized under the
laws of the State of Delaware ("Company"), hereby adopts this Non-Qualified
Stock Option Plan ("Plan") for key employees of the Company and its
Subsidiaries as a part of the compensation and incentive arrangements for such
employees. This Plan is intended to advance the best interests of the Company
by allowing such employees to acquire an ownership interest in the Company,
thereby motivating them to contribute to the success of the Company and to
remain in the employ of the Company and its Subsidiaries. The availability and
offering of options to purchase stock under this Plan will also enhance the
Company's ability to attract and retain individuals of exceptional talent to
contribute to the sustained progress, growth and profitability of the Company.
Pursuant to this Plan, Participants will be granted options to
purchase shares of the Company's Common Stock. The common stock so acquired
will be subject to the transfer and other restrictions contained in this Plan,
in the Stock Option Agreement executed by such Participant, in the Stockholders
Agreement and/or in other similar agreements that may be executed by
Participants.
Each Participant will execute a Stock Option Agreement in connection
with the grant of an Option hereunder. All shares of Common Stock acquired
pursuant to such Option will be held subject to the terms of such Stock Option
Agreement and to the terms of the Stockholders Agreement (or to the terms of
similar agreements that may be executed by Participants).
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates:
1.1 BOARD
"Board" means the Board of Directors of the Company.
1.2. CAUSE
"Cause" means, with respect to any Participant, (a) Participant's
conviction of, or plea of nolo contendere to, any felony or to any crime or
offense causing substantial harm to the Company or its Subsidiaries or any of
their respective affiliates (whether or not for personal gain) or involving
acts of theft, fraud, embezzlement or similar conduct, (b) Participant's
<PAGE> 2
repeated violation of the Company's (or its Subsidiaries') substance abuse
policy, (c) misconduct in the conduct of Participant's duties, including, but
not limited to, (i) willful and intentional misuse of the funds of the
Company, any of its Subsidiaries or any of their respective affiliates, (ii)
embezzlement, and (iii) fraudulent or willful and material misrepresentations
or concealments on any written reports submitted to the Company or any of its
Subsidiaries or any of their respective affiliates, (d) material failure to
perform the duties of Participant's employment or Participant's habitual
neglect thereof, (e) material failure to follow or comply with the reasonable
and lawful written directives of the Chief Executive Officer or Managers of
the Company or its Subsidiaries, or (f) a material breach by the Participant
of the non-compete provisions of Participant's employment agreement, if
applicable; provided, however, that in the case of the foregoing clauses (d),
(e) and (f), Participant 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.
1.3. CODE
"Code" means the Internal Revenue Code of 1986, as amended.
1.4. COMPANY
"Company" means Corporate Staffing Resources, Inc., a Delaware
corporation.
1.5. COMMISSION
"Commission" means the United States Securities and Exchange
Commission.
1.6. COMMON STOCK
"Common Stock" means the Company's common stock, par value $0.01 per
share, or in the event that the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.
1.7. DATE OF GRANT
"Date of Grant" means the date upon which an Option is granted to a
Participant.
1.8. DATE OF TERMINATION
"Date of Termination" means (i) if the Employee's employment with the
Company is terminated by reason of his death, the date of his death, (ii) if
the Employee's employment with the Company is terminated by reason of his
Disability, the date of the opinion of the medical doctor referred to in
Section 1.10 hereof, (iii) if the Employee's employment with the Company is
terminated by the Company, the date specified in the Company's notice of
termination to the Employee, or (iv) if the Employee's employment with the
Company is terminated by the Employee, the date such Employee notifies the
Company of his resignation. The Board, in its absolute discretion, shall
determine the effect of all other matters and questions
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relating to a termination of employment, including, but not by way of
limitation, the question of whether a termination of employment resulted from
a resignation, a discharge for Cause or otherwise, and all questions of
whether particular leaves of absence constitute terminations of employment.
1.9 DIRECTOR
"Director" means a member of the Board.
1.10 DISABILITY
"Disability" means a physical or mental disability or infirmity,
which, in the opinion of the medical doctor selected by the parties, as provided
below, renders the Employee unable to perform his duties for the Company for
more than 120 days during any 180-day period. The medical doctor will be
selected by written agreement of the Company and the Employee's personal
physician upon the request of either party hereto by notice to the other. If
the Company and the Employee's physician cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
Employee has a disability. The determination of the medical doctor selected
under this procedure will be binding on both parties. The Employee must submit
to a reasonable number of examinations by the medical doctor making the
determination of disability and the Employee hereby authorizes the disclosure
and release to the Company of such determination and all supporting medical
records. If the Employee is not legally competent, the Employee's legal
guardian or duly authorized attorney-in-fact will act in the Employee's stead,
for the purposes of requesting the selection of a medical doctor, submitting
the Employee to the examinations, and providing the authorization of
disclosure.
1.11 EMPLOYEE
"Employee" means any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 3401 (c) of the
Code) of the Company, or of any corporation which is then a Parent Corporation
or a Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
1.12 FAIR MARKET VALUE
"Fair Market Value" means the market value per share of a share of
the class of Option Shares to be valued, as determined in good faith by the
Board.
1.13 MERGER AGREEMENT
"Merger Agreement" means the Agreement and Plan of Merger by and
between CSR, Inc. and Mega Force Staffing Companies' Inc. dated December 3,
1997.
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1.14. Officer
"Officer" means an officer of the Company, as defined in Rule
16a-1 (f) under the Securities Exchange Act, as such Rule may be amended in the
future.
1.15. OPTION
"Option" means an option to purchase Common Stock of the Company,
granted under this Plan.
1.16. OPTION SHARES
"Option Shares" means shares of Common Stock acquired pursuant to an
Option granted under this Plan.
1.17. OPTIONEE
"Optionee" means an Employee to whom an Option is granted under this
Plan.
1.18. ORIGINAL COST
"Original Cost" means the Fair Market Value of the consideration
paid or surrendered by a Participant in exchange for an Option Share, adjusted
to give effect to any stock split, stock dividend, share combination or other
recapitalization occurring after such Option Share was issued.
1.19. PARENT CORPORATION
"Parent Corporation" means any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
1.20. PARTICIPANT
"Participant" means any Employee who is eligible to participate in
this Plan as determined by the Board.
1.21. PERSON
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
1.22. PLAN
"Plan" means the Corporate Staffing Resources, Inc. Non-Qualified
Stock Option
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Plan, as set forth herein and as amended from time to time.
1.23. Public Sale
"Public Sale" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act (if and as modified by Rule 701(c) under
the Securities Act) effected through a broker, dealer or market maker.
1.24. RULE 16B-3
"Rule 16b-3" means that certain Rule 16b-3 under the Securities
Exchange Act, as such Rule may be amended in the future.
1.25. SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
1.26. SECURITIES EXCHANGE ACT
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.27. STOCKHOLDERS AGREEMENT
"Stockholders Agreement" means the Stockholders Agreement, by and
between Corporate Staffing Resources, Inc., a Delaware corporation, and the
stockholders of the Corporation, dated December 3, 1997, attached hereto as
Annex II.
1.28. SUBSIDIARY
"Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of the
Company's Common Stock. The aggregate number of such shares which may be issued
upon exercise of Options shall not exceed 250,000 such shares, representing an
amount equal to four and seventy-six one hundredths percent (4.76%) of the
fully diluted shares of Common Stock existing immediately
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after giving effect to the consummation of the transactions contemplated under
the Merger Agreement.
2.2. UNEXERCISED OPTIONS
If any Option expires or is canceled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
ARTICLE III.
GRANTING OF OPTIONS
3.1. ELIGIBILITY
Any key Employee of the Company or of any corporation which is then a
Parent Corporation or a Subsidiary shall be eligible to be granted Options.
3.2. GRANTING OF OPTIONS
(a) The Board shall from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from
among the key Employees (including those to whom Options have been previously
granted under this Plan) such of them as in its opinion should be granted
Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected key Employees; and
(iii) Determine the terms and conditions of such Options,
consistent with this Plan;
provided, however, that any action taken by the Board under this
Section 3.2(a) shall only be made with the approval of the WES&S Directors and
the Mellon Directors (in each case as defined in the Stockholders Agreement.
(b) Upon the selection of a key Employee to be granted an Option, the
Board shall instruct the Secretary of the Company to issue such Option and may
impose such conditions on the grant of such Option as it deems appropriate.
ARTICLE IV.
TERMS OF OPTIONS
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4.1. STOCK OPTION AGREEMENT
Each Option shall be evidenced by a written Stock Option Agreement
(attached hereto as Annex I, which shall be executed by the Optionee and an
authorized Officer of the Company and which shall contain such terms and
conditions as the Board shall determine, consistent with this Plan.
4.2. OPTION PRICE
The price of the shares subject to each Option shall be set by the
Board, in its sole discretion. The Board, in its sole discretion, may issue an
Option under which the Option price is not uniform as to all shares covered
under any such Option provided that the Option price for a specific number of
shares covered by the Option is fixed at the Date of Grant.
4.3. COMMENCEMENT OF EXERCISABILITY
(a) Subject to the provisions of Section 4.3(b), Options shall become
exercisable at such times and in such installments (which may be cumulative)
as the Board shall provide in the terms of each individual Option; provided,
however, that by a resolution adopted after an Option is granted the Board
may, on such terms and conditions as it may determine to be appropriate and
subject to Section 4.3(b), accelerate the time at which such Option or any
portion thereof may be exercised.
(b) No portion of an Option which is unexercisable at a Participant's
Date of Termination shall thereafter become exercisable.
4.4. EXPIRATION OF OPTIONS
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) The expiration of ten years from the Date of Grant; or
(ii) In the case of an Optionee whose employment terminates by
reason of his death or Disability, the expiration of ninety (90) days after his
Date of Termination; or
(ii) In the case of a Optionee whose employment terminates for
any reason other than his death or Disability, his Date of Termination.
(b) Subject to the provisions of Section 4.4(a), the Board may
provide, in the terms of each individual Option, when such individual Option
expires and becomes unexercisable.
4.5. ADJUSTMENTS IN OUTSTANDING OPTIONS
In the event that the outstanding shares of the stock subject to
Options are changed into or exchanged for a different number or kind of shares
of the Company or other
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securities of the Company by reason of merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares, the
Board shall make an appropriate and equitable adjustment in the number and kind
of shares as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable, to the end that after such event the
Optionee's proportionate interest shall be maintained as before the occurrence
of such event. Such adjustment in an outstanding Option shall be made without
change in the total price applicable to the Option or the unexercised portion
of the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary
corresponding adjustment in Option price per share. Any such adjustment made by
the Board shall be final and binding upon all Optionees, the Company and all
other interested persons.
4.6. MERGER, CONSOLIDATION, ACQUISITION, LIQUIDATION, DISSOLUTION OR IPO
Notwithstanding any other provision of this Plan to the contrary,
in the event of the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person 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 in
the event of an IPO (as defined in the Stockholders Agreement), the Board may
determine, in its absolute discretion and on such terms and conditions as it
deems appropriate, by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, liquidation or dissolution or IPO, that,
for some period of time prior to such event, such Option shall be exercisable
as to all shares covered thereby, notwithstanding anything to the contrary in
Section 4.3(a) and/or any installment provisions of such Option, but subject
to Section 4.3(b).
ARTICLE V.
EXERCISE OF OPTIONS
5.1. PERSONS ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise an Option
(or any portion thereof) granted to him. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under the Plan or the applicable Stock Option Agreement,
be exercised by his personal representative or by any person empowered to do
so under the deceased Optionee's will or under the then applicable laws of
descent and distribution.
5.2. PARTIAL EXERCISE
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
this Plan or the applicable Stock Option Agreement, such Option or portion
thereof may be exercised in whole or in part, provided, however, that the
Company shall not be required to issue fractional shares and the Board may, by
the terms of the Option, require any partial exercise to be with respect to a
specified minimum number of shares.
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5.3. MANNER OF EXERCISE
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary of the Company or his office of
all of the following prior to the time when such Option or such portion
becomes unexercisable under this Plan or the applicable Stock Option
Agreement:
(a) Notice in writing signed by the Optionee stating that such Option
or portion is exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment (in cash or by check) for the shares with respect
to which such Option or portion is thereby exercised, or, in the discretion of
the Board, payment, in whole or in part, through the surrender of shares of
Common Stock then issuable upon exercise of the Option having a Fair Market
Value on the date of Option exercise equal to the aggregate exercise price of
the Option or exercised portion thereof; and
(c) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the Option, or, in the discretion of the
Board, payment, in whole or in part, through the surrender of shares of Common
Stock then issuable upon exercise of the Option having a Fair Market Value on
the date of Option exercise equal to the amount of such withholding; and
(d) Such representations and documents as the Board, in its
absolute discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Board may, in its absolute discretion, also
take whatever additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop-transfer orders to transfer agents and registrars.
5.4. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which such class of stock is then listed; and
(b) The completion of any registration or other qualification of
such shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Board shall, in its absolute discretion, deem necessary or
advisable; and
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(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local law in
connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Board may establish from time to time for reasons
of administrative convenience.
5.5. RIGHTS AS STOCKHOLDER
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option. Once Option Shares
have been acquired, the rights of the Optionee with respect to such Option
Shares shall be governed by the terms of this Plan, the Stock Option Agreement
and the Stockholders Agreement.
ARTICLE VI.
PAYMENT/REPURCHASE/TRANSFER
6.1. PAYMENTS PRIOR TO EXERCISE
(a) In the event a Participant's employment with the Company and its
Subsidiaries is terminated by reason of the Participant's death or Disability
at a time when any portion of the Participant's Option is vested but not yet
exercised, the Board shall pay to such Participant, or his estate, as
applicable, an amount equal to the excess of the Fair Market Value of the
Option Shares covered under such vested portion over the Option Price of the
Option Shares covered under such vested portion, determined as of the Date of
Termination. The Company will deliver a check to such former Participant, or
his estate, as applicable, in an amount equal to such payment no later than
thirty (30) days after such Date of Termination (or within thirty days of
receipt of proof of Participant's death, if later).
(b) In the event a Participant's employment with the Company and its
Subsidiaries is terminated for any reason other than on account of
Participant's death, Disability, resignation or by the Company for Cause, at a
time when any portion of the Participant's Option is vested but not yet
exercised, the Board may determine, in its sole discretion and on a case-by
case basis, to pay to such Participant an amount equal to the excess of the
Fair Market Value of the Option Shares covered under such vested portion over
the Option Price of the Option Shares covered under such vested portion,
determined as of the Date of Termination. In the event the Board determines to
make such payment, the Company will deliver a check to such former Participant
in an amount equal to such payment no later than thirty (30) days after such
Date of Termination.
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6.2. REPURCHASE PROVISIONS APPLICABLE TO OPTION SHARES
(a) Repurchase Right in Case of Termination.
(i) If at any time prior to an IPO (as defined in the
Stockholders Agreement), a Participant's employment with the Company and its
Subsidiaries is terminated for any reason whatsoever, including, without
limitation, death, disability, resignation, retirement or termination with or
without Cause, the Company or its designee(s) (which designee(s) may be any
person or entity that shall have been approved by the Board pursuant to the
terms of the Stockholders Agreement) shall have the exclusive and irrevocable
option (a "Call"), exercisable in its sole discretion, to repurchase, in whole
or in part, the Option Shares that are then owned by such Participant or any
transferee.
(ii) The Company may exercise the Call by delivering written
notice (a "Call Notice") to the Participant within 60 days of Participant's
Date of Termination. The Call Notice will set forth the number of Option Shares
to be acquired from the Participant, the aggregate consideration to be paid for
such Option Shares and the time and place for the closing of the transaction.
The Participant and any transferee of Participant shall be obligated to resell
the Option Shares as provided in this Section 6.2(a)(ii).
(iii) The consummation of the purchase or purchases of such
Option Shares pursuant to the Company's exercise of its Call shall take place
on the date (the "Call Date") and in the manner designated by the Company in
the Call Notice; provided, however, that the Company may consummate its
purchase of such Option Shares pursuant to its exercise of its Call by
delivering payment for such Option Shares being repurchased by it along with
the Call Notice, in which case, the date of the Participant's receipt of the
Call Notice shall be the Call Date. The Company will pay for the Option Shares
to be purchased by it pursuant to the exercise of its Call by delivery of a
check in an amount equal to the applicable repurchase price for the Option
Shares being repurchased within thirty (30) days of the Date of Termination.
The Company or its designee(s) (which designee(s) (collectively, the "Agents")
may be any person or entity that shall have been approved by the Board pursuant
to the terms of the Stockholders Agreement) will, in connection with such
repurchase, be entitled to receive customary representations and warranties
from the Participant regarding such sale and to require that the Participant's
signature be guaranteed.
(iv) The number of Option Shares to be repurchased by the
Company shall first be satisfied to the extent possible from the Option Shares
held by the terminated Participant. If the number of Option Shares then held by
such Participant is less than the total number of Option Shares the Company has
elected to call or the Participant has elected to put, the Company shall
purchase the remaining Option Shares elected to be purchased from such
Participant's transferees, pro rata according to the number of Option Shares
held by such other transferees as of the Participant's Date of Termination
(determined as nearly as practicable to the nearest share).
(v) Notwithstanding anything to the contrary contained herein,
all repurchases of Option Shares by the Company and sales of Option Shares by
the Participant shall
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be subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and its subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the repurchase of
Option Shares hereunder which the Company is otherwise entitled to make, the
Company may make such repurchases as soon as it is permitted to do so under
such restrictions and the time period for exercise of its rights hereunder
shall be tolled during any such period of disability. The Company shall pay
interest on any portion of the Option Shares being repurchased subject to the
restrictions set forth in this paragraph, with such interest accruing at an
annual rate equal to the prime rate of interest announced or published from
time to time by Chase Manhattan Bank as its prime rate, with such interest
being paid on the date such restricted portion of the Option Shares is
repurchased. The Company, at its option, my prepay its obligations under this
paragraph in whole or in part at any time with no penalty.
(b) Repurchase Price and Sale Price.
The repurchase price applicable to the exercise by the Company of its
Call right described in Section 6.2(a)(i) hereof shall be as follows: If the
Participant's employment with the Company is terminated (i) for Cause or (ii)
by reason of the Participant's resignation, then the repurchase price for any
Option Shares subject to any Call shall be equal to the lesser of (i) the
Original Cost of such Option Shares, or (ii) the Fair Market Value of such
Option Shares on the Date of Termination. In the event of Participant's
Termination of Employment for any other reason, the purchase price per share
for any Option Shares subject to any Call shall be equal to the Fair Market
Value of such shares on the Date of Termination.
6.3. TRANSFER RESTRICTIONS
Each Participant acquiring Option Shares shall hold those shares
subject to the terms of the Stockholders Agreement and the terms of the Stock
Option Agreement executed by such Participant. As provided in the Stockholders
Agreement the Option Shares may be transferred in certain limited
circumstances. Any transferee of any Option Shares shall take those shares
subject to the terms of this Plan, including, without limitation, the
repurchase rights set forth in this Article VI, the Stock Option Agreement
executed by the transferor Participant, and the Stockholders Agreement. Any
such transferee must, upon the request of the Company, execute an agreement
agreeing to be bound by this Plan and such restrictions and must agree to such
other waivers, limitations and restrictions as the Company may reasonably
require. The Company shall not, and shall not permit any transfer agent or
registrar for any shares of the Company's capital stock to, transfer upon the
books of the Company any shares of the Company's capital stock originally
issued under or pursuant to this Plan in any manner except in accordance with
this provision, and any purported transfer not in compliance herewith shall be
void.
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ARTICLE VII.
ADMINISTRATION
This Plan shall be administered by the Board upon consultation with
the Chairman and Chief Executive Officer of the Company. Subject to the
requirements and the limitations of this Plan, the Board shall have the sole
and complete responsibility and authority to: (a) select Participants; (b)
grant Options to Participants in such amounts, at such time and pursuant to
such terms as are consistent with this Plan as it shall determine; (c)
interpret this Plan and adopt, amend and rescind administrative guidelines and
other rules and regulations relating to this Plan; (d) correct any defect or
omission or reconcile any inconsistency in this Plan; and (e) make all other
determinations and take all other actions necessary or advisable for the
implementation and administration of this Plan, in its sole discretion. The
Board's determinations on matters within its authority shall be conclusive and
binding upon the Participants, the Company and all other Persons. With respect
to any matter under this Plan that is subject to the exercise of discretion by
the Board, such exercise shall be absolute. Except as otherwise provided
herein, all expenses associated with the administration of this Plan shall be
borne by the Company. The Board may, to the extent permissible by law,
delegate any of its authority hereunder to such Persons or committee as it
deems appropriate, and the use of the term "Board" herein shall be deemed to
include reference to such Person or committee as the context may require,
provided, however, that the grant of an Option pursuant to Section 3.2 of this
Plan to any Person who is subject to Section 16 of the Securities Exchange Act
with respect to the Company as of the Date of Grant may only be made by the
Board.
ARTICLE VIII.
OTHER PROVISIONS
8.1. OPTIONS NOT TRANSFERABLE
No Option or interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 8. l shall prevent transfers by will or by the applicable laws of
descent and distribution.
8.2. AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
This Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board. Neither
the amendment, suspension nor termination of this Plan shall, without the
consent of the holder of the Option, impair any
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rights or obligations under any Option theretofore granted. No Option may be
granted during any period of suspension nor after termination of this Plan,
and in no event may any Option be granted under this Plan after the expiration
of ten years from the date this Plan is adopted by the Board.
8.3. EFFECT OF PLAN UPON OTHER OPTION AND COMPENSATION PLANS
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options otherwise than
under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition by purchase, lease, merger, consolidation or otherwise,
of the business, stock or assets of any corporation, firm or association.
8.4. TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Plan.
8.5. CONFORMITY TO SECURITIES LAWS
This Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Securities Exchange Act and any and
all regulations and rules promulgated by the Securities and Exchange
Commission thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Plan shall be
administered, and Options shall be granted and may be exercised, only in such
a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Plan and Options granted hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
8.6. RIGHTS OF PARTICIPANTS
Nothing in this Plan shall interfere with or limit in any way the
right of the Company or any of its Subsidiaries to terminate any Participant's
employment at any time (with or without cause), nor confer upon any
Participant any right to continued employment by the Company or any of its
Subsidiaries for any period of time or to continue such employee's present (or
any other) rate of compensation. Transfer of an Employee from the Company to a
Subsidiary, from a Subsidiary to the Company and from one Subsidiary to
another shall not be considered a termination of such Employee's employment
for purposes of this Plan. No Employee shall have a right to be selected as a
Participant or, having been so selected, to be selected again as a
Participant.
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8.7. SECURITIES LAWS RESTRICTIONS
Notwithstanding any other provision of this Plan, the Company shall
not be obligated to offer, issue or sell any Option Shares to any Person if, in
the judgment of the Board, such offer, issuance, or sale may violate federal
or applicable state securities laws or regulations or may require the Company
to register or qualify any such securities under any federal or state
securities laws, or require the Company or any of its agents or
representatives to register or qualify with any governmental agency or
regulatory organization, pursuant to such laws or regulations.
8.8. CONSTRUCTION OF PLAN
The validity, construction, interpretation, administration and
effect of this Plan shall be determined in accordance with the local law, and
not the law of conflicts, of the State of Delaware.
8.9. INDEMNIFICATION
In addition to such other rights of indemnification as they may have
as members of the Board, the members of the Board shall be indemnified by the
Company against all costs and expenses reasonably incurred by them in
connection with any action, suit or proceeding to which they or any of them
may be a party by reason of any action taken or failure to act under or in
connection with this Plan or any Option Shares issued hereunder, and against
all amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding;
provided, however, that any such Board member shall be entitled to the
indemnification rights set forth in this Section 8.9 only if such member has
acted in good faith and in a manner that such member reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe that
such conduct was unlawful, and further provided that upon the institution of
any such action, suit or proceeding a Board member shall give the Company
written notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Board member undertakes to handle and defend it on
his own behalf.
8.10. NOTICES
All notices, requests, consents and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given and made and served either by personal delivery to the person for whom
it is intended or if deposited, postage prepaid, registered or certified mail,
return receipt requested, in the United States mail:
If to the Company, addressed to:
William W. Wilkinson
Corporate Staffing Resources, Inc.
100 E. Wayne Street, Suite 100
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One Michiana Square
South Bend, Indiana, 46601
Telephone: (219) 233-8209
Telecopy: (219) 280-2661
With copies to: Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Attention: Paul D. Tosetti, Esq.
Telephone: (213) 485-1234
Telecopy: (213) 891-8763
If to any Participant, addressed to such Participant at the address
shown on the stock records of the Company, or at such other address as such
Participant may specify by written notice to the Company.
8.11. SECURITIES LAWS RESTRICTIONS AND ADDITIONAL RESTRICTIONS ON TRANSFER
OF OPTION SHARES
(a) Each Participant who exercises an Option will be required to
represent to the Company in writing that such Participant is purchasing Option
Shares for his or her own account for investment and not on behalf of others
or otherwise with a view toward distributing them. Each Participant is advised
that federal and state securities laws govern and restrict each Participant's
right to offer, sell or otherwise dispose of any Option Shares unless such
Participant's offer, sale or other disposition thereof is registered under the
Securities Act and state securities laws, or in the opinion of the Company's
counsel, such offer, sale or other disposition is exempt from registration or
qualification thereunder. Any Participant desiring to purchase Option Shares
will be required to agree that such Participant will not offer, sell or
otherwise dispose of any such Option Shares in any manner which would: (i)
require the Company to file any registration statement with the Commission (or
any similar filing under state law) or to amend or supplement any such filing
or (ii) violate or cause the Company to violate the Securities Act, the rules
and regulations promulgated thereunder or any other state or federal law. The
certificates for any Option Shares will bear such legends as the Company deems
necessary or desirable in connection with the Securities Act or other rules,
regulations or laws.
(b) The certificates representing the Option Shares will bear
substantially the same legend as set forth in the Stockholders Agreement.
(c) Notwithstanding any other provision of this Plan, the Company
may refuse to register any transfer of Option Shares if the registration of
such transfer would require the Company to register any class of equity
securities with the Commission under the Securities Exchange Act (except in
connection with an effective registration statement under the Securities
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<PAGE> 17
Act).
(d) No holder of Option Shares may effect any Public Sale or
distribution of any Option Shares or other equity securities of the Company,
or any securities convertible into or exchangeable or exercisable for any of
the Company's equity securities, during the seven days prior to and the 180
days after the effectiveness of any underwritten public offering of any class
of the Company's equity securities, except as part of such underwritten public
offering or if otherwise consented to by the Company in writing prior to such
sale or distribution.
8.12. TERMINATION
Unless earlier terminated as expressly provided herein, this Plan
and all the restrictions and rights contained herein shall terminate on the
tenth anniversary from the date this Plan is adopted by the Board.
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<PAGE> 18
ANNEXES
1. Stock Option Agreement
2. Stockholders Agreement
<PAGE> 19
CORPORATE STAFFING RESOURCES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated ___________ , 19__, is made by and between
Corporate Staffing Resources, Inc., a Delaware corporation hereinafter referred
to as "Company," and ______________________, an employee of the Company or a
Parent Corporation or Subsidiary of the Company, hereinafter referred to as
"Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its $0.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan, a copy of which is
attached hereto and the terms of which are hereby incorporated by reference and
made a part of this Agreement; and
WHEREAS, the Board, appointed to administer the Plan, has determined
that it would be to the advantage and best interest of the Company and its
shareholders to grant the Option provided for herein to the Optionee as an
inducement to enter into or remain in the service of the Company, its Parent
Corporations or its Subsidiaries and as an incentive for increased efforts
during such service, and has advised the Company thereof and instructed the
undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
1.1. BOARD
"Board" means the Board of Directors of the Company.
1.2. CODE
"Code" means the Internal Revenue Code of 1986, as amended.
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1.3 COMPANY
"Company means Corporate Staffing Resources, Inc., a Delaware
corporation.
1.4 DATE OF GRANT
"Date of Grant" means the date upon which an Option is granted to a
Participant.
1.5 DIRECTOR
"Director" means a member of the Board.
1.6 FAIR MARKET VALUE
"Fair Market Value" means the market value per share of a share of
the class of Option Shares to be valued, as determined in good faith by the
Board.
1.7 MERGER AGREEMENT
"Merger Agreement" means the Agreement and Plan of Merger by and
between CSR,Inc. and Mega Force Staffing Companies, Inc., dated December 3,
1997.
1.8 OFFICER
"Officer" means an officer of the Company, as defined in Rule
16a-1(f) under the Exchange Act, as such Rule may be amended in the future.
1.9 OPTION
"Option" means the non-qualified option to purchase Common Stock of
the Company granted under this Agreement.
1.10. OPTION SHARES
"Option Shares" means shares of Common Stock acquired pursuant to an
Option granted under this Agreement.
1.11 OPTIONEE
"Optionee" means an Employee to whom an Option is granted under this
Agreement.
1.12 PARENT CORPORATION
"Parent Corporation" means any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
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<PAGE> 21
1.13. PLAN
"Plan" means the Corporate Staffing Resources, Inc. Non-Qualified
Stock Option Plan, as amended from time to time.
1.14. RULE 16B-3
"Rule 1 6b-3" means that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
1.15. SECRETARY
"Secretary" means the Secretary of the Company.
1.16. SECURITIES ACT
"Securities Act" means the Securities Act of 1933, as amended.
1.17. SECURITIES EXCHANGE ACT
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
1.18. STOCKHOLDERS AGREEMENT
"Stockholders Agreement" means the Stockholders Agreement, by and
between Corporate Staffing Resources, Inc., a Delaware corporation, and the
stockholders of the Corporation, dated December 3, 1997.
1.19. SUBSIDIARY
"Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one (1) of the other corporations in such chain.
ARTICLE II.
GRANT OF OPTION
2.1. GRANT OF OPTION
In consideration of the Optionee's agreement to remain in the
employ of the Company, its Parent Corporations or its Subsidiaries and for
other good and valuable consideration, on the date hereof the Company
irrevocably grants to the Optionee the option to
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<PAGE> 22
purchase any part or all of an aggregate of __________ shares of its $0.01 par
value Common Stock upon the terms and conditions set forth in this Agreement.
2.2 PURCHASE PRICE
The purchase price of the shares of stock covered by the Option
shall be $_________ per share without commission or other charge.
2.3 CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as
the Company shall from time to time prescribe, for a period of at least one
(1) year from the date this Option is granted. Nothing in this Agreement or in
the Plan shall confer upon the Optionee any right to continue in the employ of
the Company, any Parent Corporation or any Subsidiary or shall interfere with
or restrict in any way the rights of the Company, its Parent Corporation and
its subsidiaries, which are hereby expressly reserved, to discharge the
Optionee at any time for any reason whatsoever, with or without Cause.
2.4 ADJUSTMENTS IN OPTION
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Board shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option,
or portions thereof then unexercised, shall be exercisable, to the end that
after such event the Optionee's proportionate interest shall be maintained as
before the occurrence of such event. Such adjustment in the Option shall be
made without change in the total price applicable to the unexercised portion
of the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary
corresponding adjustment in the Option price per share. Any such adjustment
made by the Board shall be final and binding upon the Optionee, the Company
and all other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
3.1 COMMENCEMENT OF EXERCISABILITY
(a) Subject to Section 3.3, the Option shall become exercisable in
three (3) cumulative installments as follows:
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<PAGE> 23
(i) The first installment shall consist of one-third (1/3) of the shares
covered by the Option and shall become exercisable on the first anniversary of
the Date of Grant.
(ii) The second installment shall consist of one-third (1/3) of the shares
covered by the Option and shall become exercisable on the second anniversary
of the Date of Grant.
(iii) The third installment shall consist of one-third (1/3) of the shares
covered by the Option and shall become exercisable on the third anniversary of
the Date of Grant.
(b) The installments provided for in this Section 3.1 are cumulative.
Each such installment which becomes exercisable pursuant to this Section 3.1
shall remain exercisable until it becomes unexercisable under Section 3.2.
(c) No portion of the Option which is unexercisable at Optionee's
Date of Termination shall thereafter become exercisable.
3.2. EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) In the case of an Optionee whose employment terminates by
reason of his death or Disability, the expiration of ninety (90) days after his
Date of Termination; or
(c) In the case of an Optionee whose employment terminates for any
reason other than his death or Disability, his Date of Termination; or
(d) The effective date of either the merger or consolidation of the
Company with or into another corporation, or the acquisition by another
corporation or person of all or substantially all of the Company's assets or
eighty percent (80%) or more of the Company's then outstanding voting stock,
or the liquidation or dissolution of the Company, unless the Board waives this
provision in connection with such transaction. At least ten (10) days prior to
the effective date of such merger, consolidation, acquisition, liquidation or
dissolution, the Board shall give the Optionee notice of such event if the
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<PAGE> 24
Option has then neither been fully exercised nor become unexercisable under
this Section 3.2.
3.3. ACCELERATION OF EXERCISABILITY ON ACCOUNT OF MERGER, CONSOLIDATION,
ACQUISITION, LIQUIDATION, DISSOLUTION OR IPO
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person
of all or substantially all of the Company's assets or eighty percent (80%) or
more of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, or in the event of an IPO (as defined in the
Stockholders Agreement), the Board may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide by resolution,
adopted prior to such event and incorporated in the notice referred to in
Section 3.3(c), that at some time prior to the effective date of such event
this Option shall be exercisable as to all the shares covered hereby,
notwithstanding that this Option may not yet have become fully exercisable
under Section 3.1(a); provided, however, that this acceleration of
exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.2 prior to
said effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation.
The Board may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction.
ARTICLE IV.
EXERCISE OF OPTION
4.1. PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable
under Section 3.2, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
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<PAGE> 25
4.2. PARTIAL EXERCISE
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under
Section 3.2; provided, however, that each partial exercise shall be for not
less than 100 shares and shall be for whole shares only.
4.3. MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or his of lice of all of the following
prior to the time when the Option or such portion becomes unexercisable under
Section 3.2:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Board; and
(b) Full payment (in cash or by check) for the shares with respect
to which such Option or portion is thereby exercised, or payment, in whole or
in part, through the surrender of shares of Common Stock then issuable upon
exercise of the Option having a Fair Market Value on the date of Option
exercise equal to the aggregate exercise price of the Option or exercised
portion thereof; and
(c) The payment to the Company (or other employer corporation) of
all amounts which it is required to withhold under federal, state or local law
in connection with the exercise of the Option, or payment, in whole or in part,
through the surrender of shares of Common Stock then issuable upon exercise of
the Option having a Fair Market Value on the date of Option exercise equal to
the amount of such withholding; and
(d) Delivery to the Board of an executed Optionee's Representations
and Agreement in the form attached hereto as Exhibit A.
4.4. CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such shares
shall be fully paid and nonassessable. The Company shall not be required to
issue or deliver any certificate or certificates for shares of stock purchased
upon the exercise of the Option or portion thereof prior to fulfillment of all
of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and
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<PAGE> 26
Exchange Commission or of any other governmental regulatory body, which the
Board shall, in its absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Board shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Board may from time to time establish for reasons
of administrative convenience.
4.5. RIGHTS AS SHAREHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V.
OTHER PROVISIONS
5.1. ADMINISTRATION
The Board shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. With respect to any matter under the Plan that is subject to
the exercise of discretion by the Board, such exercise shall be absolute. All
actions taken and all interpretations and determinations made by the Board in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Board shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan or the Option.
5.2. OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including
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<PAGE> 27
bankruptcy), and any attempted disposition thereof shall be null and void and
of no effect; provided, however, that this Section 5.2 shall not prevent
transfers by will or by the applicable laws of descent and distribution.
5.3. SHARES TO BE RESERVED
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
5.4. NOTICES
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall,
if the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of
his status and address by written notice under this Section 5.4. Any notice
shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
5.5. TITLES
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
5.6. CONSTRUCTION
This Agreement shall be administered, interpreted and enforced
under the laws of the State of Delaware.
5.7. CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act and the Securities
Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including without limitation
Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall
be administered, and the Option is granted and may be exercised, only in such
a manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the Plan and this Agreement shall be deemed
amended to the extent necessary to conform to such laws, rules and
regulations.
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<PAGE> 28
5.8 REPURCHASE PROVISIONS APPLICABLE TO OPTION SHARES
Option Shares acquired pursuant to this Option shall be subject to
the repurchase rights set forth in Section 6.2 of the Plan.
5.9 RESTRICTIONS ON TRANSFER OF SHARES
(a) Each Participant acquiring Option Shares shall hold those shares
subject to the terms of the Plan and the terms of the Stockholders Agreement.
As provided in the Stockholders Agreement, the Option Shares may be
transferred in certain limited circumstances. Any transferee of any Option
Shares shall take those shares subject to the terms of the Plan, including,
without limitation, the repurchase rights set forth in Article VI thereof,
this Agreement, and the Stockholders Agreement. Any such transferee must, upon
the request of the Company, execute an Agreement agreeing to be bound by the
Plan and such restrictions and must agree to such other waivers, limitations
and restrictions as the Company may reasonably require. The Company shall not,
and shall not permit any transfer agent or registrar for any shares of the
Company's capital stock to, transfer upon the books of the Company any shares
of the Company's capital stock originally issued under or pursuant to the Plan
in any manner except in accordance with this provision, and any purported
transfer not in compliance herewith shall be void.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
CORPORATE STAFFING RESOURCES, INC.
By
-------------------------------------
Chairman
- -------------------------------------
Optionee
- -------------------------------------
- -------------------------------------
Address
Optionee's Taxpayer
Identification Number:
- -------------------------------------
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<PAGE> 29
EXHIBIT A
OPTIONEE'S REPRESENTATIONS AND AGREEMENT
This Agreement (this "Agreement") is made as of the date of its
acceptance set forth on the signature page below by and between Corporate
Staffing Resources, Inc., a Delaware corporation (the "Company"), and the
undersigned individual purchasing shares of Common Stock of the Company
pursuant to the Option granted pursuant to the Stock Option Agreement and the
Corporate Staffing Resources, Inc. Non-Qualified Stock Option Plan ("Plan"),
the terms of which are by this reference incorporated herein. Capitalized
terms used but not defined herein shall have the meanings ascribed to them
under the Plan.
1. PURCHASE AND SALE OF OPTION SHARES.
(a) Upon the execution of this Agreement, Participant will purchase
from the Company, and the Company will sell and issue to Participant, the Option
Shares that Participant elects to purchase hereunder. Participant will deliver
to the Company payment in full of the purchase price for the Option Shares in
accordance with the method of payment elected by the Optionee under Section
4.3 of the Stock Option Agreement. Participant agrees that concurrently with
the purchase of the Option Shares pursuant hereto, by execution of this
Agreement, Participant shall be bound by, and hold the Option Shares subject
to, the terms of the Stock Option Agreement and the Stockholders Agreement,
attached as Annex I and Annex II, respectively, to the Plan.
(b) In connection with the purchase and sale of the Option Shares
hereunder, Participant represents and warrants to the Company that:
(i) Participant understands that (A) the Option Shares have not
been registered under the Securities Act, nor qualified under the securities
laws of any other jurisdiction, (B) the Option Shares cannot be resold unless
they subsequently are registered under the Securities Act and qualified under
applicable state securities laws, unless the Company determines that exemptions
from such registration and qualification requirements are available, and (C)
Participant has no right to require such registration or qualification;
(ii) The Option Shares to be acquired by Participant pursuant
to this Agreement will be acquired for Participant's own account and not with
a view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws, and the Option Shares will not be
disposed of in contravention of the Securities Act or any applicable state
securities laws;
(iii) Participant has substantial knowledge and experience in
financial and business matters, has specific experience making investment
decisions of a similar nature, and is capable, without the use of a financial
advisor, of utilizing and analyzing the information made available in
connection with the acquisition of the Option Shares under the Plan and of
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evaluating the merits and risks of an investment in the Option Shares.
Participant will provide the Company, upon request, with such information
concerning any prior investment experience, business or professional
experience and other information as the Company may deem necessary to further
evaluate the foregoing representations.
(iv) Participant has carefully reviewed and understands the
risks of, and other considerations relating to, an investment in the Option
Shares.
(v) The Participant understands that his investment in the
Option Shares is subject to significant economic risk, including the relative
illiquidity resulting from the fact that the Option Shares (A) have not been
registered under the Securities Act and, therefore, cannot be sold unless they
are subsequently registered under the Securities Act or they are sold pursuant
to an exemption from such registration, and (B) are subject to additional
restrictions as provided herein. The Participant is able to bear such economic
risk of his investment in the Option Shares for an indefinite period of time;
(vi) Participant has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of Option
Shares and has had full access to such other information concerning the Company
as he or she has requested. Without limiting the generality of the foregoing,
Participant has been provided with copies of the Plan, the Stockholders
Agreement and the Stock Option Agreement and has had an opportunity to review
and ask questions and receive satisfactory answers concerning the terms and
conditions of the Plan, the Stockholders Agreement and the Stock Option
Agreement;
(vii) Participant is a resident and domiciliary of the state
or other jurisdiction hereinafter set forth opposite such Participant's
signature and Participant has no present intention of becoming a resident of
any other state or jurisdiction. If Participant is a resident and domiciliary
of a state that requires the Company to ascertain certain other information
regarding the Participant, the Company may attach a page to this Agreement
containing additional representations to be made by Participant in connection
with such Participant's investment in Option Shares, and by signing this
Agreement, Participant shall be deemed to have made such additional
representations to the Company;
(viii) This Agreement (including the Plan, the Stockholders
Agreement and the Stock Option Agreement) constitutes the legal, valid and
binding obligations of Participant, enforceable in accordance with its terms,
and the creation, delivery and performance of this Agreement (including the
Plan, the Stockholders Agreement and the Stock Option Agreement) by Participant
does not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which Participant is a party or any order,
judgment or decree to which Participant is subject; and
(ix) Participant is not relying upon any written offering
literature or prospectus other than the Plan, the Stockholders Agreement and
the Stock Option Agreement, and is not relying upon any oral representations
which are in any manner inconsistent with the written information contained in
such documents.
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<PAGE> 31
(c) Participant further acknowledges and agrees that:
(i) Neither the issuance of the Option Shares to Participant
nor any provision contained herein shall entitle Participant to remain in the
employment of the Company, its Subsidiaries or Affiliates or affect the right
of the Company to terminate Participant's employment at any time for any
reason;
(ii) The Company shall have no duty or obligation to disclose to
Participant and Participant shall have no right to be advised of, any material
information regarding the Company, its Subsidiaries or Affiliates at any time
prior to, upon or in connection with the repurchase of Option Shares upon the
termination of Participant's employment with the Company, its Subsidiaries or
Affiliates or as otherwise provided hereunder;
(iii) The Participant is, or will be, an officer or key
employee of the Company, and as such, has a high degree of familiarity with the
business and assets of the Company and such prospects of such business;
(iv) The Company is entering into this Agreement in reliance
upon Participant's representations and warranties herein;
(v) All information which Participant has provided to the
Company concerning Participant, his or her financial position and knowledge of
and experience with financial and business matters is correct and complete as
of the date set forth at the end of this Agreement; and
(vi) Participant is aware of the provisions of Section 83(b) of
the Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder, has consulted with his or her tax advisor as to the advisability
of filing an election under said Section. Participant acknowledges that
Participant has received independent tax advice with respect to tax
consequences resulting from the transactions contemplated herein.
(d) The Company and Participant acknowledge and agree that this
Agreement has been executed and delivered, and the Option Shares have been
issued hereunder, in connection with and as a part of the compensation and
incentive arrangements between the Company and/or its Subsidiaries and
Participant.
2. AGREEMENT TO THE PLAN, THE STOCKHOLDERS AGREEMENT AND THE STOCK
OPTION AGREEMENT.
(a) The Participant acknowledges and agrees that the Option Shares
being purchased hereunder are being issued pursuant to, and are subject in all
respects to, the Plan, the Stockholders Agreement and the Stock Option
Agreement, the terms and conditions of which are incorporated herein as if set
forth fully herein. Participant acknowledges and agrees to all the terms and
conditions of the Plan, the Stockholders Agreement and the Stock Option
Agreement, including the rights of repurchase, tag-along and drag-along rights
of first refusal, vesting requirements, restrictions on transfer and other
provisions set forth in the Plan, the Stockholders
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Agreement and the Stock Option Agreement. Participant acknowledges that the
certificates evidencing such Option Shares shall be imprinted with a legend
providing notice of such restrictions substantially in the form set forth in
the Stockholders Agreement. Participant is aware that, except as expressly
provided in the Stockholders Agreement, Participant has no right to require
registrations of any of the Option Shares and must bear the economic risk of
illiquid shares. Participant is also aware of and familiar with the provisions
of the Stockholders Agreement relating to the management of the Company and
the provisions regarding the election of members to the Board. In furtherance
of the foregoing, Participant agrees, by execution of this Agreement, that
Participant shall become bound by, and hold the Option Shares subject to, the
Stock Option Agreement and the Stockholders Agreement in the forms attached as
Annex I and Annex II, respectively, to the Plan.
3. MISCELLANEOUS.
(a) Upon its acceptance by the Company, this Agreement shall be
binding upon and inure to the benefit of the Company and its successors and
assigns and Participant and Participant's executors or administrators, personal
representatives, heirs, legatees and distributees.
(b) This Agreement shall be governed by and construed in accordance
with the local law, and not the law of conflicts, of the State of Delaware.
(c) In any conflict between the terms and provisions of this
Agreement and the terms and provisions of the Plan, the terms and provisions
of the Plan shall govern.
(d) No course of dealing or any delay or failure to exercise any
right, power or remedy hereunder on the part of any party hereto shall operate
as a waiver of or otherwise prejudice such party's rights, powers or remedies.
(e) Notwithstanding anything in this Agreement, the Company shall
not be obligated to issue or sell any Option Shares to any Person if, in the
judgment of the Board, such issuance or sale may violate Federal or applicable
state securities laws or regulations or may require the Company to register or
qualify any such Option Shares under any Federal or state securities laws, or
require the Company or any of its agents or representatives to register or
qualify with any governmental agency or organization, pursuant to such laws or
regulations.
4. JOINT SIGNATORIES; SUCCESSORS AND ASSIGNS.
(a) If this Agreement is signed by more than one Person or entity,
then the obligations of the undersigned shall be joint and several, and the
acknowledgments, representations, warranties and agreements herein contained
shall be deemed to be made by and be binding upon each such Person or entity.
This Agreement shall survive the death or disability of the undersigned and
shall be binding upon the undersigned's heirs, executors, administrators,
successors and assigns.
A-4
<PAGE> 33
5. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER AND BACKUP
WITHHOLDING AND NON-FOREIGN STATUS-SUBSTITUTE FORM W-9; SOCIAL
SECURITY OR TAX ID NUMBER.
Under penalties of perjury, Participant certifies by his or her
signature below that (a) the number shown on this form is his or her correct
taxpayer identification number; (b) Participant is not subject to backup
withholding either because (i) Participant is exempt from backup withholding,
(ii) Participant has not been notified that Participant is subject to backup
withholding as a result of a failure to report all interest or dividends, or
(iii) the Internal Revenue Service has notified Participant that Participant is
no longer subject to backup withholding; (c) Participant is not a non-resident
alien for purposes of U.S. income taxation; (d) Participant's home address
(individual) or business address (entity) set forth in this Agreement is
correct; and (e) if Participant becomes a non-resident alien, Participant will
notify the Company within 60 days of doing so.
IF PARTICIPANT HAS BEEN NOTIFIED BY THE IRS THAT PARTICIPANT IS PRESENTLY
SUBJECT TO BACKUP WITHHOLDING, STRIKE OUT THE LANGUAGE UNDER (b) ABOVE BEFORE
SIGNING.
6. TYPE OF OWNERSHIP FOR THE OPTION SHARES TO BE ACQUIRED.
(Check the Appropriate Box)
[ ] INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
[ ] OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE
PROPERTY (if Participant lives in a state which has
community property laws, signatures of both spouses may
be required)
[ ] COMMUNITY PROPERTY (signatures of both spouses are
required)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties
must sign)
[ ] TENANTS-IN-COMMON (both parties must sign)
[ ] TRUST*
[ ] OTHER ENTITY*
* Any Person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or
she is duly authorized to act on behalf of such
corporation, partnership, trust or other entity, (ii)
such corporation, partnership, trust or other entity was
A-5
<PAGE> 34
formed on ___________, 19__, and (iii) he or she will
provide such information as the Company may request
confirming the authority to sign on behalf of such
entity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the latest date written below.
PARTICIPANT:
No. of Shares of Common Stock: _______(@ $______/share)
Aggregate Purchase Price: $__________
- ---------------------------------------- --------------------------------------
Participant (Print or Type Name) Other Investor (Print or Type Name)
- ---------------------------------------- --------------------------------------
Signature Signature
- ---------------------------------------- --------------------------------------
Social Security or Tax ID # Social Security or Tax ID #
- ---------------------------------------- --------------------------------------
Residence Street Address Residence Street Address
- ---------------------------------------- --------------------------------------
City and State Zip City and State Zip
- ---------------------------------------- --------------------------------------
Residence Telephone Residence Telephone
- ---------------------------------------- --------------------------------------
Business Name Business Name
A-6
<PAGE> 35
- ---------------------------------------- --------------------------------------
Business Name Business Name
- ---------------------------------------- --------------------------------------
City and State Zip City and State Zip
- ---------------------------------------- --------------------------------------
Business Telephone Business Telephone
Mail Correspondence to: Mail Correspondence to:
[ ] Residence [ ] Business [ ] Residence [ ] Business
COMPANY:
Accepted this ______ day of _______________, 199_.
CORPORATE STAFFING RESOURCES, INC.
a Delaware corporation
By:
-----------------------------------------------
Its:
-----------------------------------------------
A-7
<PAGE> 1
EX-10.08
FIRST AMENDMENT TO
CORPORATE STAFFING RESOURCES, INC.
NON-QUALIFIED STOCK OPTION PLAN
Pursuant to Article VIII, Section 8.2 of the Corporate Staffing Resources,
Inc. Non-Qualified Stock Option Plan (the "Plan") the Board of Directors of
Corporate Staffing Resources, Inc., (the "Corporation"), by consent dated May
22, 1998 has adopted the following amendments to the Plan.
1. Amendment to Article II, Section 2.1. Article II, Section 2.1 of the
Plan shall be amended to read as follows:
"2.1. SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of the
Company's Common Stock. The aggregate number of such shares which
may be issued upon exercise of Options shall not exceed 1,500,000
such shares, representing an amount equal to ten percent (10%) of
the number of authorized shares of Common Stock."
2. Amendment to Article III, Section 3.2. Article III, Section 3.2(b)
of the Plan shall be amended to read as follows:
"3.2. GRANTING OF OPTIONS
(a) The Board shall from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and
select from among the key Employees (including those to
whom Options have been previously granted under this
Plan) such of them as in its opinion should be granted
Options;
(ii) Determine the number of shares to be subject to such
Options granted to such selected key Employees; and
<PAGE> 2
(iii) Determine the terms and conditions of such Options,
consistent with this Plan."
3. Effective Date of Amendments. The foregoing amendments to the Plan set
forth in this First Amendment to Corporate Staffing Resources, Inc.
Non-Qualified Stock Option Plan are effective as of the consummation of the
initial public offering of the shares of common stock of the Corporation.
<PAGE> 1
EXHIBIT 10.9
EXECUTION
__________________________________________________________
AMENDED AND RESTATED LOAN AGREEMENT
Dated as of May 14, 1998
by and among
CORPORATE STAFFING RESOURCES, INC.
as Borrower,
ING (U.S.) CAPITAL CORPORATION
and
CREDITANSTALT CORPORATE FINANCE, INC.,
as Co-Agents,
ING (U.S.) CAPITAL CORPORATION
CREDITANSTALT CORPORATE FINANCE, INC.,
SOCIETE GENERALE
as Lenders,
and
ING (U.S.) CAPITAL CORPORATION
as Administrative Agent
<PAGE> 2
TABLE OF CONTENTS
____________________________
Page
_____
1. DEFINITIONS, TERMS AND REFERENCES.............................. 1
1.1 Certain Definitions.................................... 1
1.2 Use of Defined Terms.................................. 27
1.3 Accounting Terms; Calculations........................ 27
1.4 Other Terms........................................... 28
1.5 Terminology........................................... 28
1.6 Exhibits.............................................. 28
1.7 Principles of Restatement............................. 28
1.8 Certain Transitional Matters.......................... 28
2. THE LOANS AND LETTERS OF CREDIT............................... 29
2.1 Loans................................................. 29
2.2 Borrowing Procedures.................................. 29
2.3 Loan Account; Statements of Account................... 30
2.4 Use of Proceeds....................................... 31
2.5 Several Obligations of the Lenders;
Remedies Independent.................................. 31
2.6 Letters of Credit..................................... 31
2.7 Term; Termination..................................... 36
2.8 Payments.............................................. 36
2.9 Pro Rata Treatment.................................... 37
2.10 Sharing of Payments, Etc.............................. 38
2.11 Prepayment; Commitment Reduction and Termination...... 39
2.12 Certain Notices; Minimum Amounts...................... 40
2.13 Security and Guarantees............................... 41
3. FEES AND INTEREST............................................. 41
3.1 Interest.............................................. 41
3.2 Interest Period....................................... 42
3.3 Limitations on Interest Periods....................... 43
3.4 Conversions and Continuations......................... 43
3.5 Commitment Fee........................................ 43
3.6 Letter of Credit Fees................................. 43
3.7 Illegality............................................ 44
3.8 Inability to Determine Eurodollar Rate................ 44
3.9 Increased Costs and Reduced Return.................... 44
3.10 Breakage Costs, Etc................................... 45
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<PAGE> 3
3.11 Notice of Amounts Payable to the Lender............... 46
3.12 Interest Savings Clause............................... 46
4. REPRESENTATIONS AND WARRANTIES................................ 47
4.1 Corporate Existence and Qualification................. 47
4.2 Corporate Authority; Valid and Binding Effect......... 47
4.3 No Conflict........................................... 47
4.4 Governmental Action................................... 48
4.5 No Litigation......................................... 48
4.6 Solvency.............................................. 48
4.7 Taxes................................................. 48
4.8 Financial Information................................. 48
4.9 Title to Assets....................................... 49
4.10 Violations of Law..................................... 49
4.11 ERISA................................................. 49
4.12 Environmental Laws.................................... 50
4.13 Margin Stock.......................................... 51
4.14 No Default............................................ 51
4.15 Chief Executive Office; Collateral Locations.......... 51
4.16 Corporate and Trade or Fictitious Names............... 52
4.17 Adequacy of Intangible Assets......................... 52
4.18 Investment Property................................... 52
4.19 Indebtedness.......................................... 52
4.20 Existing Liens........................................ 52
4.21 Broker's or Finder's Fees............................. 53
4.22 Regulatory Matters.................................... 53
4.23 Disclosure............................................ 53
4.24 Employee Matters...................................... 53
4.25 Withholding and Other Taxes........................... 53
4.26 Deposit Accounts...................................... 54
4.27 Material Contracts.................................... 54
5. AFFIRMATIVE COVENANTS........................................... 54
5.1 Records Respecting Collateral; Lockbox or
Blocked Account Arrangements.......................... 54
5.2 Reporting Requirements................................ 54
5.3 Tax Returns........................................... 57
5.4 Compliance With Laws.................................. 57
5.5 Environmental Laws.................................... 57
5.6 ERISA................................................. 57
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<PAGE> 4
5.7 Books and Records..................................... 58
5.8 Notifications to the Administrative Agent,
the Co-Agents and the Lenders......................... 58
5.9 Insurance............................................. 59
5.10 Maintenance of Intellectual Property.................. 60
5.11 Preservation of Corporate Existence................... 60
5.12 Additional Documents.................................. 60
5.13 Inspection Rights..................................... 60
5.14 Additional Collateral and Guarantees.................. 60
5.15 Interest Hedge Agreements............................. 61
6. NEGATIVE COVENANTS............................................ 61
6.1 Liens................................................. 61
6.2 Indebtedness and Earn-Outs............................ 61
6.3 Asset Sales........................................... 62
6.4 Guaranties............................................ 62
6.5 Investments and Acquisitions.......................... 62
6.6 Prohibition of Fundamental Changes.................... 63
6.7 Fiscal Year........................................... 63
6.8 ERISA................................................. 63
6.9 Relocations; Use of Name.............................. 64
6.10 Arm's-Length Transactions............................. 64
6.11 Hostile Tender Offers................................. 65
6.12 Pure Holding Company.................................. 65
6.13 Issuance of Subordinated Obligations and Earn-Outs.... 65
6.14 Earn-Outs............................................. 65
7. FINANCIAL COVENANTS........................................... 66
7.1 Senior Funded Debt to EBITDA.......................... 66
7.2 Total Funded Debt to EBITDA........................... 66
7.3 Interest Coverage Ratio............................... 67
7.4 Dividends and Management Fees......................... 67
7.5 Limitation on Voluntary Payments
and Modifications of Indebtedness..................... 67
8. EVENTS OF DEFAULT............................................. 68
8.1 Obligations........................................... 68
8.2 Misrepresentations.................................... 68
8.3 Certain Covenants..................................... 68
8.4 Other Covenants....................................... 68
iii
<PAGE> 5
8.5 Other Debts........................................... 68
8.6 Tax Lien.............................................. 69
8.7 ERISA................................................. 69
8.8 Voluntary Bankruptcy.................................. 69
8.9 Involuntary Bankruptcy................................ 70
8.10 Suspension of Business................................ 70
8.11 Judgments............................................. 70
8.12 Failure of Security................................... 70
8.13 Guaranty.............................................. 70
8.14 Management............................................ 71
8.15 Change of Control..................................... 71
9. REMEDIES........................................................ 71
9.1 Default Rate.......................................... 71
9.2 Termination; Acceleration of the Obligations.......... 72
9.3 Set-Off............................................... 72
9.4 Rights and Remedies of a Secured Party................ 72
9.5 Take Possession of Collateral......................... 72
9.6 Sale of Collateral.................................... 72
9.7 Judicial Proceedings.................................. 73
9.8 Actions in Respect of the Letters of Credit
Upon Default.......................................... 73
9.9 Notice................................................ 74
9.10 Appointment of the Administrative Agent as
Borrower's Lawful Attorney............................ 74
10. CONDITIONS PRECEDENT............................................ 75
10.1 Conditions Precedent.................................. 75
10.2 All Loans and Letters of Credit....................... 77
11. THE AGENT....................................................... 78
11.1 Appointment, Powers and Immunities.................... 78
11.2 Reliance by Administrative Agent...................... 79
11.3 Defaults.............................................. 81
11.4 Rights as a Lender.................................... 81
11.5 Indemnification....................................... 81
11.6 Non-Reliance on Administrative Agent
and the other Lenders................................. 82
11.7 Failure to Act........................................ 82
11.8 Resignation or Removal of Administrative
Agent; Co- Administrative Agent....................... 82
11.9 Collateral Matters.................................... 83
iv
<PAGE> 6
11.10 Borrower And Its Subsidiaries Not Beneficiaries...... 86
12. MISCELLANEOUS................................................. 86
12.1 Waiver............................................... 86
12.2 Survival............................................. 87
12.3 Assignments; Successors and Assigns.................. 87
12.4 Counterparts......................................... 90
12.5 Expense Reimbursement................................ 90
12.6 Severability......................................... 91
12.7 Notices.............................................. 91
12.8 Entire Agreement; Amendment.......................... 91
12.9 Time of the Essence.................................. 92
12.10 Interpretation....................................... 92
12.11 Lenders Not Joint Venturers.......................... 92
12.12 Cure of Defaults by Lenders.......................... 93
12.13 Indemnity............................................ 93
12.14 Consequential Damages................................ 94
12.15 Attorney-in-Fact..................................... 94
12.16 Termination Statements............................... 94
12.17 Confidentiality...................................... 95
12.18 Termination of Lenders............................... 95
12.19 Governing Law; Jurisdiction.......................... 96
12.20 Waiver of Jury Trial................................. 97
Schedule 1.1 - Existing Creditanstalt Letter of Credit
Schedule 1.2 - Historical EBITDA
Schedule 1.3 - Merger Distributions
Schedule 4.1 - Foreign Qualifications
Schedule 4.5 - Litigation and Related Proceedings
Schedule 4.7 - Taxes
Schedule 4.8 - Projections
Schedule 4.11 - ERISA Matters
Schedule 4.15 - Executive Offices; Business and Collateral
Locations
Schedule 4.16 - Corporate and Trade or Fictitious Names
Schedule 4.17 - Intangible Assets
Schedule 4.19 - Investments
Schedule 4.20 - Existing Liens
Schedule 4.21 - Existing Indebtedness
Schedule 4.26 - Deposit Accounts
Schedule 4.27 - Material Agreements
v
<PAGE> 7
Exhibit A - Form of Promissory Note
Exhibit B - Form of Request for Letter of Credit
Exhibit C - Form of Notice of Borrowing
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Permitted Acquisition Compliance Certificate
Exhibit F - Form of Assignment and Acceptance
Exhibit G - Subordination Provisions
vi
<PAGE> 8
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement") is made and
entered into as of May 14, 1998, by and among CORPORATE STAFFING RESOURCES,
INC., a Delaware corporation formerly known as THE MEGA FORCE STAFFING
COMPANIES, INC. (the "Borrower"), ING (U.S.) CAPITAL CORPORATION, a
Delaware corporation, and CREDITANSTALT CORPORATE FINANCE, INC., a Delaware
corporation, as Co-Agents (in such capacity, together with their respective
successors and assigns, the "Co-Agents") and the LENDERS REFERRED TO HEREIN
(each a "Lender" and collectively, the "Lenders") and ING (U.S.) CAPITAL
CORPORATION, as Administrative Agent (in such capacity as Administrative
Agent for the benefit of the Lenders, together with its successors and
assigns, the "Administrative Agent").
WITNESSETH:
A. Pursuant to the Existing Loan Agreement referred to
herein, ING and Creditanstalt have previously provided a
$50,000,000 revolving credit facility to Borrower.
B. The parties desire to admit Societe Generale as an
additional Lender, with a lending commitment of $25,000,000 (a
Commitment Percentage of 33 1/3%), and to amend and restate the
Existing Loan Agreement as set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt, adequacy and
sufficiency of which are acknowledged by the parties hereto, Borrower, the
Lenders, the Co-Agents and the Administrative Agent hereby agree to amend
and restate the Existing Loan Agreement in its entirety as set forth
herein:
1. DEFINITIONS, TERMS AND REFERENCES
1.1 CERTAIN DEFINITIONS. When used herein, the following terms shall
have the following respective meanings:
"Accounts" means any "account", as such term is defined in Section
9-106 of the UCC, now owned or hereafter acquired by Borrower or any of its
1
<PAGE> 9
Subsidiaries and, in any event, shall include all of the accounts, contract
rights, book debts and other forms of obligations (other than forms of
obligations evidenced by Chattel Paper, Documents or Instruments) of
Borrower or any of its Subsidiaries, whether now existing or hereafter
acquired or arising or in which Borrower or any of its Subsidiaries now
have or hereafter acquires any rights, including, without limitation, all
present and future rights to payments for goods, merchandise or Inventory
sold or leased or for services rendered, whether or not represented by
invoices or other billing, and whether or not earned by performance;
proceeds of any letter of credit on which Borrower or any of its
Subsidiaries is a beneficiary and all forms of obligations whatsoever owing
to Borrower or any of its Subsidiaries, together with all instruments and
documents of title representing any of the foregoing, all rights in any
goods, merchandise or Inventory which any of the foregoing may represent,
all rights in any returned or repossessed goods, merchandise or Inventory,
and all rights, security and guaranties with respect to each of the
foregoing, including, without limitation, any rights of stoppage in
transit.
"Account Debtor" means any "account debtor", as such term is
defined in Section 9-105(l)(a) of the UCC and, in any event, shall include
any Person who is or may become obligated to Borrower or any of its
Subsidiaries on any Account.
"Accrued Earn-Outs" means, as of each date of determination, the
amount of Borrower's and its Subsidiaries' accrued and unpaid obligations
with respect to Earn-Outs as of that date (whether or not such obligations
are then payable). As of each date of determination, Accrued Earn-Outs
shall be calculated by means of application of the related earn-out formula
(as specified in the purchase agreement for the Acquired Business) to
Borrower's and its Subsidiaries' EBITDA, income or other relevant financial
measure for the portion of the relevant period then ended.
"Acquired Business" means any Person, or any business, asset or
division of a Person, which is the subject of an Acquisition, and includes
any Subsidiaries of a Person which are concurrently acquired, in each case
effective only upon the consummation of such Acquisition.
"Acquisition" means any transaction, or any series of related
transactions, consummated after the date hereof, by which (i) Borrower or
any of its Subsidiaries acquires, directly or indirectly, an ownership
interest in a Person or the business or assets of a Person, or a division
of a Person, whether through Investment, purchase of assets, merger,
capital contribution or otherwise, or (ii) any Person that was not
theretofore a Subsidiary of Borrower becomes a Subsidiary of Borrower.
2
<PAGE> 10
"Adjusted Company EBITDA" means, for any period, (a) the EBITDA
of Borrower and its consolidated Subsidiaries, minus (b) that portion of
such EBITDA associated with any Sold Businesses, plus (c) without
duplication, the Adjusted EBITDA of any Acquired Business acquired during
that period by Borrower and its Subsidiaries for that portion of such
period during which the Acquired Business was not owned by Borrower and its
Subsidiaries, plus (d) without duplication of the foregoing or of any
adjustments made pursuant to clause (b) of the definition of Adjusted
EBITDA, any and all charges during the 90 day period following the
acquisition of an Acquired Business that can be eliminated during future
periods through cost savings (by way of elimination of excess owners'
compensation, duplicative overhead, excess compensation, and the like) to
the extent that the same were taken into account in determining EBITDA of
Borrower and its Subsidiaries, to the extent demonstrated by Borrower to
the reasonable satisfaction of the Majority Lenders.
"Adjusted EBITDA" means, with respect to any Acquired Business
for any period, (a) EBITDA of the Acquired Business for that period (or, in
the case of an Acquired Business which consists of the assets or division
of a Person, the EBITDA reasonably associated therewith), plus (b) any and
all charges during such period for costs that can be eliminated during
future periods through cost savings (by way of elimination of excess
owners' compensation, duplicative overhead, excess compensation, and the
like) which are immediately available to Borrower or any of its
Subsidiaries in relation to the Acquired Business or which can be achieved
by them in the 90 day period following the acquisition of such Acquired
Business by Borrower and its Subsidiaries and any historical non-recurring
charges in each case to the extent that the same were taken into account in
determining the EBITDA of such Acquired Business, in each case demonstrated
by Borrower to the reasonable satisfaction of the Majority Lenders and
after reduction for minority interests.
"Administrative Agent" shall have the meaning given to such term
in the preamble of this Agreement.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, owns or controls, on an aggregate basis, including
all beneficial ownership and ownership or control as a trustee, guardian or
other fiduciary, at least ten percent of the outstanding shares of capital
stock having ordinary voting power to elect a majority of the board of
directors or other governing body (irrespective of whether, at the time,
stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) of such
Person or at least ten percent of the partnership or other ownership
interest of such Person; or which
3
<PAGE> 11
controls, is controlled by or is under common control with such Person;
provided, however, that in no event shall Borrower or any of its
Subsidiaries be deemed or regarded to be Affiliates of the Administrative
Agent, the Co-Agents or any Lender. For the purposes of this definition,
"control" means the possession, directly or indirectly, of the power to
direct or cause the direction of management and policies, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Amended and Restated Loan Agreement, as
amended, modified or supplemented from time to time.
"Applicable Law" means all provisions of statutes, rules,
regulations and orders of any Governmental Authority applicable to a
Person, and all orders and decrees of all courts and arbitrators in
proceedings or actions in which the Person in question is a party.
"Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as may
be amended from time to time.
"Base Rate" means an interest rate per annum, fluctuating daily,
equal to the higher of (a) the arithmetic average of the rates publicly
announced by The Chase Manhattan Bank, Citibank and Morgan Guaranty Trust
Company (or their respective successors) from time to time at their
respective principal offices in New York, New York, as their base, prime or
similar rate for domestic (United States) commercial loans in effect on
such day; and (b) the Federal Funds Rate in effect on such day plus
one-half of one percent. The Base Rate is not necessarily intended to be
the lowest rate of interest charged by such institutions in connection with
extensions of credit. Each change in the Base Rate shall result in a
corresponding change in the interest rate hereunder with respect to a Base
Rate Loan and such change shall be effective on the effective date of such
change in the Base Rate.
"Base Rate Loan" means a Loan bearing interest at a rate based on
the Base Rate.
"Base Rate Spread" means, during the Pricing Period immediately
following each Test Date, upon which the Senior Funded Debt to EBITDA Ratio
is (a) equal to or greater than 3.50:1.00, 1.25%, (ii) equal to or greater
than 3.00:1.00 and less than 3.50:1.00, 1.00%, (iii) equal to or greater
than 2.50:1.00 and less than 3.00:1.00, 0.75%, and (iv) less than 2.50 to
1.00, 0.50%.
4
<PAGE> 12
"Borrower" means Corporate Staffing Resources, Inc., its
successors and permitted assigns.
"Business Day" means a day on which banks are not required or
authorized to close in Greenwich, Connecticut and New York, New York and
upon which each of the Lenders is in fact open for business and, if such
day relates to a borrowing of, a payment or prepayment of principal or
interest on, a Continuation or Conversion of or into, or an Interest Period
for, a Eurodollar Loan or a notice by Borrower with respect to any such
borrowing, payment, prepayment, Continuation, Conversion or Interest
Period, which is also a day on which dealings by and between banks in U.S.
dollar deposits are carried out in the interbank Eurodollar market.
"Capital Expenditure" means any expenditure that is considered a
capital expenditure under GAAP, including any amount that is required to be
treated as an asset subject to a capital lease.
"Capital Lease Obligations" means, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal
property which obligations are required to be classified and accounted for
as a capital lease on a balance sheet of such Person under GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board) and, for the purposes of this Agreement, the
amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP (including such Statement No. 13).
"Capital Stock" means, as to any Person, any and all shares,
interests, warrants, participations or other equivalents (however
designated) of corporate stock, partnership or membership interests, or
other equity securities of such Person.
"Cash Equivalents" means, when used in connection with any
Person, that Person's Investments in:
(a) Government securities due within one year after the date of
the making of the Investment entitled to the full faith and
credit of the United States;
(b) readily marketable direct obligations of any State of the
United States of America or any political subdivision of any
such State given on the date of such Investment a credit
rating of at least Aa by Moody's Investors Service, Inc. or
AA by Standard & Poor's
5
<PAGE> 13
Ratings Service, in each case due within one year after the
date of the making of the Investment;
(c) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and
reverse repurchase agreements covering government securities
of the type described in clause (a) executed by, any Lender
or any other bank, savings and loan or savings bank doing
business in and organized under the laws of the United
States of America or any State thereof and having on the
date of such Investment combined capital, surplus and
undivided profits of at least $250,000,000, in each case due
within one year after the date of the making of the
Investment;
(d) certificates of deposit issued by, bank deposits in,
eurodollar deposits through, bankers' acceptances of, and
reverse repurchase agreements covering government securities
of the type described in clause (a) executed by, any branch
or office located in the United States of America of a bank
organized under the laws of any jurisdiction outside the
United States of America having on the date of such
Investment combined capital, surplus and undivided profits
of at least $500,000,000, in each case due within one year
after the date of the making of the Investment; and
(e) readily marketable commercial paper of corporations doing
business in and incorporated under the laws of the United
States of America or any State thereof given on the date of
such Investment the highest credit rating by Moody's
Investors Service, Inc. and Standard & Poor's Ratings
Service, in each case due within 270 days after the date of
the making of the Investment.
"Chattel Paper" means any "chattel paper", as such term is
defined in Section 9-105(l)(b) of the UCC, now owned or hereafter acquired
by Borrower or any of its Subsidiaries.
"Closing Date" means December 3, 1997.
"Co-Agent(s)" shall have the meaning given to such term in the
preamble of this Agreement.
6
<PAGE> 14
"Code" means the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder from time to time.
"Collateral" means the property of Borrower and its Subsidiaries
in which the Administrative Agent has, or is to have, a Lien on or security
interest in pursuant to this Agreement or the Loan Documents, or any of
them, as security for payment of the Obligations.
"Commitment" means the aggregate obligation of the Lenders to
make Loans to and to incur Letter of Credit Obligations in favor of
Borrower, subject to the terms and conditions hereof, in an aggregate
principal amount not to exceed $75,000,000 at any one time outstanding.
"Commitment Fee" means that amount due and payable to the Lenders
by Borrower pursuant to and in the amount specified in Section 3.5 hereof.
"Commitment Percentage" means, as to each Lender, (a) initially,
the amount, expressed as a percentage set forth opposite the name of such
Lender on the signature pages hereto under the heading "Commitment
Percentage", and (b) hereafter, the percentage necessary to reflect any
assignments made by the Lenders pursuant to Section 12.3(c) hereof.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 3.4 hereof of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period.
"Contracts" means all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower or any of its Subsidiaries may now
or hereafter have any right, title or interest, including, without
limitation, with respect to an Account, any agreement relating to the terms
of payment or the terms of performance thereof.
"Convert", "Conversion" and "Converted" shall refer to a
conversion pursuant to Section 3.4 hereof of a Base Rate Loan into a
Eurodollar Loan or of a Eurodollar Loan into a Base Rate Loan.
"Copyrights" means all of the following now or hereafter acquired
by Borrower or any of its Subsidiaries: (a) all copyrights, registrations
and applications therefor, (b) all renewals and extensions thereof, (c) all
income, royalties, damages and payments now and hereafter due or payable or
both with respect thereto, including,
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<PAGE> 15
without limitation, damages and payments for past or future infringements
or misappropriations thereof, (d) all rights to sue for past, present and
future infringements or misappropriations thereof, and (e) all other rights
corresponding thereto throughout the world.
"Default" means the occurrence of any event or condition which,
after satisfaction of any requirement expressly set forth in Article 8 for
the giving of notice or the lapse of time, or both, would become an Event
of Default.
"Default Rate" means (a) with respect to any Loan or portion
thereof, an interest rate per annum equal to two percent (2%) above the
interest rate set forth for such Loan in Section 3.1(a)(i) or (ii) hereof
or (b) with respect to any portion of the Obligations other than Loans, two
percent (2%) above the rate set forth in Section 3.1(a)(ii) hereof.
"Documents" means any "documents", as such term is defined in
Section 9-105(l)(f) of the UCC, now owned or hereafter acquired by Borrower
or any of its Subsidiaries.
"Drop-Down Note Pledge and Security Agreements" means the
Drop-Down Note Pledge and Security Agreements dated as of the Closing Date
(and each thereafter executed pursuant to Section 5.12), as the same may be
amended, restated, supplemented or otherwise modified from time to time,
executed by each of the Guarantors in favor of Borrower, pursuant to which
the Guarantors have granted a Lien in substantially all of their personal
property to secure their respective Drop-Down Notes.
"Drop-Down Notes" means the $75,000,000 promissory note made by
each Subsidiary of Borrower on the date hereof in favor of Borrower,
endorsed in blank by Borrower, and pledged by Borrower to the
Administrative Agent, and any Drop Down Note hereafter executed by any
Subsidiary of Borrower in accordance with Section 5.12 substantially in the
form thereof, either as originally executed or as it may from time to time
be supplemented, modified, amended, restated or extended.
"Earn-Out" means any amount payable to the seller of an Acquired
Business following the Acquisition thereof which is contingent upon the
financial performance of the Acquired Business, including without
limitation by way of any sharing of the income or profits of Borrower or
any of its Subsidiaries or an Acquired Business or any similar "earn-out"
provision.
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<PAGE> 16
"EBITDA" means, as to any Person and for any fiscal period, that
Person's (a) Net Income, plus (b) Interest Expense, plus (c) income taxes
payable or accrued by that Person, plus (d) depreciation and amortization
expense, plus (e) non-cash compensation paid to officers and employees,
plus (f) all other non-cash charges (and minus any non-cash gains), in each
case which are reasonably acceptable to or reasonably specified by the
Majority Lenders, in each case for that fiscal period and to the extent
included in determining Net Income for that fiscal period, all determined
in accordance with GAAP, minus (g) any Management Fees paid in cash during
that period not deducted from Net Income in the calculation thereof, and
plus (h) any Management Fees accrued during that period and deducted in the
calculation of Net Income, but not actually paid in cash, provided that, as
to Borrower and its Subsidiaries, to the extent any such fiscal period
includes any month prior to the Closing Date described on SCHEDULE 1.2,
EBITDA for such months shall be the amount set forth opposite such months
on such Schedule.
"Eligible Assignee" has the meaning set forth in Section 12.3.
"Environmental Laws" means all federal, state, local and foreign
laws relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of any
Hazardous Substance into the environment (including without limitation
ambient air, surface water, ground water or land), or otherwise relating to
the generation, manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of Hazardous Substances and any
and all regulations, codes, standards, plans, orders, decrees, writs,
judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations from time
to time issued or promulgated thereunder.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which, together with Borrower or any of its Subsidiaries is
treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code.
"Eurodollar Loan" means that portion of a Loan bearing interest
at a rate based on the Eurodollar Rate.
"Eurodollar Rate" means, for any Interest Period for any
Eurodollar Loan, a rate per annum (rounded upwards to the nearest 1/100th
of 1%) equal to the
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<PAGE> 17
offered rate for deposits in U.S. dollars (in the same approximate amount
and having approximately the same maturity as the Eurodollar Loan to be
made) in the London interbank eurodollar market at approximately 11:00 a.m.
(London time), quoted by the British Bankers' Association and appearing on
the relevant Bloomberg quotation screen (or, if such a rate is not then
quoted by the British Bankers' Association, the similar rate quoted by
Reuters), two Business Days prior to the first day of such Interest Period.
"Eurodollar Rate Spread" means, during the Pricing Period
immediately following each Test Date, upon which the Senior Funded Debt to
EBITDA Ratio is (a) equal to or greater than 3.50:1.00, 3.25%, (ii) equal
to or greater than 3.00:1.00 and less than 3.50:1.00, 3.00%, (iii) equal to
or greater than 2.50:1.00 and less than 3.00:1.00, 2.75%, and (iv) less
than 2.50 to 1.00, 2.50%.
"Event of Default" means any of the events or conditions
described in Article 8 hereof.
"Existing Loan Agreement" means the Loan Agreement dated as of
December 3, 1997, among the parties hereto (other than Societe Generale) as
amended.
"Federal Funds Rate" means, for any day, the overnight federal
funds rate in New York City, New York, as published for such day (or, if
such day is not a New York Business Day, for the next preceding Business
Day) in the Federal Reserve Statistical Release H.15 (519) or any successor
publication, or if such rate is not so published for any day which is a New
York Business Day, the average of the quotations for such day on overnight
federal funds transactions in New York City received by the Administrative
Agent from three federal funds brokers of recognized standing selected by
the Administrative Agent.
"Fee Letter" means a fee letter dated as of the Closing Date,
executed by Borrower and the Co-Agents.
"Fiscal Quarter" means each fiscal quarter of Borrower and its
Subsidiaries consisting of a three calendar month period ending on the last
day of each March, June, September and December (or, if Borrower changes
its Fiscal Year to another twelve month period in accordance with Section
6.7, the constituent fiscal quarters thereof).
"Fiscal Year" means, subject to Section 6.7, the fiscal year of
Borrower and its Subsidiaries ending each December 31.
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<PAGE> 18
"Funded Debt" means, as of any date of determination, the sum of
(a) all principal Indebtedness of Borrower and its Subsidiaries for
borrowed money (including debt securities issued by Borrower or any of its
Subsidiaries but not including obligations in respect of letters of credit)
on that date, plus (b) without duplication, the aggregate amount of all
Capital Lease Obligations of Borrower and its Subsidiaries on that date,
plus (c) letters of credit and other Guarantees issued by or for the
account of Borrower and its Subsidiaries with respect to any of the
foregoing which are the primary obligation of a Person other than Borrower
or any of its Subsidiaries.
"GAAP" means generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the prior financial practice of Borrower and its
Subsidiaries, as reflected in the financial information referred to in
Section 4.8 hereof.
"General Intangibles" means any "general intangibles," as such
term is defined in Section 9-106 of the UCC, now owned or hereafter
acquired by Borrower or any of its Subsidiaries, and, in any event shall
include all general intangibles of Borrower and its Subsidiaries, whether
now existing or acquired or arising or in which Borrower or any of its
Subsidiaries now has or hereafter acquires any rights, including, without
limitation, all choses in action, causes of action, corporate or other
business records, inventions, designs, Patents, patent applications,
service marks, Trademarks, trade names, Trade Secrets, proprietary or
confidential information, inventions (whether patented or patentable or
not) and technical information, procedures, designs, knowledge, know-how,
software, data bases, data, skill, expertise, experience, processors,
models, drawings, materials, records, goodwill, Copyrights, registrations,
Licenses, franchises, customer lists, agency and other contracts, tax
refund claims, computer programs, all claims under guaranties, Liens or
other security held by or granted to Borrower or any of its Subsidiaries to
secure payment of any of the Accounts by an Account Debtor, all rights to
indemnification, and all other intangible personal property of every kind
and nature (other than Accounts).
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to any government.
"Guarantee" means a guarantee, an endorsement, a contingent
agreement to purchase or to furnish funds for the payment or maintenance
of, or otherwise to be or become contingently liable under or with respect
to, the Indebtedness, other obligations, net worth, working capital or
earnings of any Person, or a guarantee of the
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<PAGE> 19
payment of dividends or other distributions upon the stock or equity
interests of any Person, or an agreement to purchase, sell or lease (as
lessee or lessor) property, products, materials, supplies or services
primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial
institution to issue a letter of credit or other similar instrument for the
benefit of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms "Guarantee" and
"Guaranteed" used as a verb shall have a correlative meaning.
"Guarantors" means, collectively, Corporate Staffing Resources of
Indiana, Inc., an Indiana corporation, Corporate Staffing Resources, LLC,
an Indiana limited liability company ("CSR LLC"), The Hamilton-Ryker
Company, Inc, a North Carolina corporation ("HRC"), Mega Force Staffing
Services, Inc., a North Carolina corporation ("MFSS") and Corporate
Staffing Resources of St. Louis, Inc., a Missouri corporation ("CSRSL"),
Intranational Computer Consultants, Inc., NPS of Atlanta, Inc., and each
other Person which hereafter executes a joinder to the Guarantees executed
in connection herewith by the Guarantors pursuant to Section 5.12.
"Hazardous Substances" means any pollutant, contaminant,
hazardous, toxic or dangerous waste, substance or material, or any other
substance or material regulated or controlled pursuant to any Environmental
Law, including, without limiting the generality of the foregoing, asbestos,
PCB's, petroleum products (including crude oil, natural gas, natural gas
liquids, liquefied natural gas or synthetic gas) or any other substance
defined as a "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste," "hazardous material," "hazardous chemical,"
"hazardous waste," "regulated substance," "toxic chemical," "toxic
substance" or other similar term in any Environmental Law.
"Indebtedness" means, as to any Person, (a) all indebtedness of
such Person for borrowed money, (b) that portion of the Capital Lease
Obligations of such Person which are properly recorded as a liability on a
balance sheet of that Person prepared in accordance with GAAP, (c) any
obligation of such Person that is evidenced by a promissory note or other
instrument representing an extension of credit to such Person, whether or
not for borrowed money, (d) any obligation of such Person for the deferred
purchase price of property or services (excluding trade or other accounts
payable and accrued expenses arising in the ordinary course of business),
including without limitation (in the case of Borrower and its Subsidiaries)
any Accrued Earn-Outs but excluding any Earn-Outs which are not Accrued
Earn-Outs, (e) any obligation of such Person that is secured by a Lien on
assets of such Person (other than Permitted
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<PAGE> 20
Liens), whether or not that Person has assumed such obligation or whether
or not such obligation is non-recourse to the credit of such Person, but
only to the extent of the lesser of such obligation or the fair market
value of the assets so subject to the Lien, (f) obligations of such Person
arising under acceptance facilities or under facilities for the discount of
accounts receivable of such Person, (g) obligations of such Person under
letters of credit issued for the account of such Person, (h) any
obligations of such Person under Interest Hedge Agreements, (i) any Capital
Stock of such Person to the extent that the same is subject to mandatory
redemption prior to the Maturity Date, and (j) Guarantees issued by or for
the account of such Person with respect to any of the foregoing which are
the primary obligation of an unaffiliated third Person.
"Instruments" means any "instrument", as such term is defined in
Section 9-105(l)(i) of the UCC, now owned or hereafter acquired by Borrower
or any of its Subsidiaries, other than instruments that constitute, or are
a part of a group of writings that constitute, Chattel Paper.
"Interest Coverage Ratio" means, as of each date of
determination, the ratio of (a) Adjusted Company EBITDA for the twelve
month fiscal period ending on such date, to (b) Interest Expense for
Borrower and its consolidated Subsidiaries to the extent payable in cash
during the same period, in each case calculated in accordance with GAAP.
"Interest Expense" means, as to any Person and for any period,
the total interest expense, whether paid, accrued or capitalized (including
the interest component of Capital Lease Obligations), of such Person, net
of interest income of such Person, including, but not limited to, all
letter of credit fees and expenses, commitment fees, all amortization of
original issue discount, and the net amount payable under any Interest
Hedge Agreement between such Person and any other Person, computed in each
case on a consolidated basis for such Person and its consolidated
subsidiaries in accordance with GAAP, but in any event excluding the fees
and other expenses payable to the Lenders on the Closing Date.
"Interest Hedge Agreement" means, for any Person, an interest
rate swap, cap or collar agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally or under specific
contingencies.
"Interest Period" means, in connection with any Eurodollar Loan,
the period beginning on the date such Eurodollar Loan is made, Continued or
Converted and continuing for one (1), two (2), three (3) or six (6) months
as selected by Borrower
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<PAGE> 21
in the applicable Notice of Borrowing. Notwithstanding the foregoing,
however, (a) any applicable Interest Period which would otherwise end on a
day which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in
which case such Interest Period shall end on the immediately preceding
Business Day; and (b) any applicable Interest Period which begins on a day
for which there is no numerically corresponding day in the calendar month
during which such Interest Period is to end shall (subject to clause (a)
above) end on the last day of such calendar month.
"Inventory" means all "inventory", as such term is defined in
Section 9-109(4) of the UCC, now owned or hereafter acquired by Borrower
and any of its Subsidiaries, and, in any event, shall include all of the
inventory of Borrower and each of its Subsidiaries, whether now existing or
acquired or arising or in which Borrower and any of its Subsidiaries now
has or hereafter acquires any rights, including, without limitation, any
and all goods, merchandise and other personal property, wheresoever located
and whether or not in transit, which is or may at any time be held for sale
or lease or to be furnished under any contract of service or held as raw
materials, work in process, finished goods or materials, and supplies of
any kind, nature or description used or consumed in the business of
Borrower and its Subsidiaries, including, without limitation, all such
property, the sale or other disposition of which has given rise to an
Account and which may have been returned to or repossessed or stopped in
transit by Borrower or any of its Subsidiaries.
"Investment" means, for any Person: (a) the acquisition (whether
for cash, property, services or securities or otherwise) of Capital Stock,
bonds, notes, debentures or other securities of any other Person or any
agreement to make any such acquisition (including, without limitation, any
"short sale" or any sale of any securities at a time when such securities
are now owned by the Person entering into such short sale), (b) any deposit
with, or advance, loan or other extension of credit to, such Person (other
than any such advance, loan or extension of credit representing the
purchase price of goods, intangibles or services sold or supplied in the
ordinary course of business) or Guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of such Person
and (without duplication) any amount committed to be advanced, lent or
extended to such Person, (c) any Acquisition other than the acquisition of
goods, intangibles or services purchased in the ordinary course of business
and accounted for as an expense in accordance with GAAP or as a Capital
Expenditure or (d) the entering into of any Interest Hedge Agreement. The
amount of any Investment shall be the amount actually invested (minus any
return of capital with respect to such Investment which has actually been
received in cash or Cash
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<PAGE> 22
Equivalents or has been converted into cash or Cash Equivalents), without
adjustment for subsequent increases or decreases in the value of such
Investment.
"Investment Property" means all "investment property" as such
term is defined in Section 9-115 of the Uniform Commercial Code, of
Borrower and its Subsidiaries, whether now owned or existing or hereafter
acquired or arising, and, in any event, shall include all of the following:
(a) all securities owned by Borrower or any of its Subsidiaries, whether
certificated or uncertificated; (b) any share, participation or other
interest in a Person or in property or in an enterprise of a Person held
directly or indirectly by Borrower or any of its Subsidiaries which is, or
is of a type, dealt in or traded on financial markets, or which is
recognized in any area in which it is issued or dealt in as a medium for
investment; (c) all commodity futures contracts owned by Borrower or any of
its Subsidiaries, options on any commodity futures contract held by
Borrower or any of its Subsidiaries, all commodity options or other
contracts owned by Borrower or any of its Subsidiaries that are traded on,
or subject to the rules of, a board of trade that has been designated as a
contract market for such contracts pursuant to the federal commodities laws
or which are traded on one or more foreign commodity boards of trade,
exchanges, or markets and are carried on the books of registered futures
commodity merchant or on the books of a Person providing clearance or
settlement services for a board of trade that has been designated as a
contract market for such a contract pursuant to the federal commodities
laws; (d) any of the foregoing held, directly or indirectly, in the name of
any other Person to the extent such other Person has expressly agreed to
treat Borrower or any of its Subsidiaries as the Person entitled to
exercise the rights comprising the foregoing; and (e) all right, title and
interest of Borrower or any of its Subsidiaries in any account to which any
of the foregoing have been credited.
"Issuing Lender" means, as to each Letter of Credit issued
following the date hereof, ING (U.S.) Capital Corporation or a bank
designated by ING (U.S.) Capital Corporation. One of the "Existing
Creditanstalt Letters of Credit" described in the Existing Loan Agreement
(the form of which is attached hereto as Schedule 1.1, remains outstanding,
and Creditanstalt is the issuing lender with respect thereto.
"Lenders" means (a) each Lender listed on the signature pages
hereof as a "Lender," (b) each person that becomes a Lender under Section
12.3(c), and (c) their respective successors.
"Letter of Credit" means any documentary or standby letter of
credit issued at the request and for the account of Borrower or for which
the Lenders have incurred Letter of Credit Obligations under Section 2.6 of
this Agreement.
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"Letter of Credit Documents" means, collectively, such
reimbursement agreements and other instruments, documents or agreements as
shall be executed by Borrower with or in favor of the Administrative Agent
or the Issuing Lender.
"Letter of Credit Obligations" means, as of each date of
determination, the sum of the effective face amount of all outstanding
Letters of Credit and all unpaid reimbursement obligations for amounts
previously paid by the Issuing Lender under any Letter of Credit.
"License" means any Patent License, Trademark License or other
license as to which the Administrative Agent has been granted a security
interest under any of the Loan Documents.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, affecting any property, including any agreement to grant any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and/or the filing of or
agreement to give any financing statement under the Uniform Commercial Code
or comparable law of any jurisdiction with respect to any property (other
than precautionary filings with respect to true leases not prohibited by
this Agreement).
"Loan Account" means account no. 800285523, maintained by
Borrower at Key Bank (Cleveland) ABA No. 041-0001-039, ref: Corporate
Resources, or any other account designated by Borrower and reasonably
acceptable to the Administrative Agent.
"Loan Documents" means this Agreement, the Notes, the Trademark
Collateral Assignment, the Letter of Credit Documents, the Pledge and
Security Agreements, the Drop Down Notes, the Drop Down Note Pledge and
Security Agreements, each Guarantee of the Obligations issued by any
Subsidiary of Borrower, each Subordination Agreement, each lockbox
agreement entered into pursuant to the terms hereof, and the other
instruments, documents or agreements executed by Borrower or any of its
Subsidiaries or their Affiliates pursuant to the terms hereof and in
furtherance of the purposes of this Agreement, any financing statements
covering portions or all of the Collateral and any and all other
instruments, documents, and agreements now or hereafter executed and/or
delivered by Borrower, any of its Subsidiaries or their Affiliates in
connection herewith, and includes without limitation each Interest Hedge
Agreement entered into by any Lender with a Borrower.
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<PAGE> 24
"Loans" means, collectively, the group of advances made by the
Lenders hereunder pursuant to Section 2.1.
"Major Acquisition" means each Permitted Acquisition in which the
aggregate cash consideration to be paid by Borrower and its Subsidiaries
for the Acquired Business at or prior to the closing of the acquisition
thereof is in excess of $10,000,000.
"Majority Lenders" means, at any time, the Lenders holding
Commitment Percentages aggregating at least sixty-six and two-thirds
percent of the Commitment or, if the Commitment has been terminated, the
Lenders holding at least sixty-six and two-thirds percent of the aggregate
outstanding principal amount of the outstanding Loans and risk
participations in the same percentage of the outstanding Letters of Credit.
"Management Agreement" means the Executive Management Agreement
dated of December 3, 1997 among Borrower, William E. Simon & Sons, L.L.C.
and Mellon Ventures, L.P.
"Management Fees" means any and all management fees, consulting
fees or other amounts (other than expense reimbursements) paid or payable
to William E. Simon & Sons LLC, Mellon Ventures, Inc. or any other
Affiliate of Borrower for management, advisory or other related services
for Borrower, or any of its Subsidiaries.
"Margin Stock" means "margin stock" as such term is defined from
time to time in Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
"Material Adverse Effect" means any set of circumstances or
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of the Loan
Documents, (b) is or could reasonably be expected to be material and
adverse to the condition (financial or otherwise) or business operations of
Borrower and its Subsidiaries, taken as a whole, (c) materially impairs or
could reasonably be expected to materially impair the ability of Borrower
and its Subsidiaries, taken as a whole, to perform the Obligations, (d)
materially impairs or could reasonably be expected to impair any portion of
the Collateral having a value in excess of $1,000,000 or the Liens of the
Administrative Agent or the Lenders therein, or (e) materially impairs or
could reasonably be expected
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<PAGE> 25
to materially impair the ability of the Administrative Agent or the Lenders
to enforce their legal remedies pursuant to the Loan Documents.
"Maturity Date" means December 3, 2001.
"Merger Distributions" means the amounts described on Schedule
1.3 paid to the Persons described therein for the purposes therein stated.
"MPPAA" means the Multiemployer Pension Plan Amendments Act of
1980, amending Title V of ERISA.
"Multiemployer Plan" shall have the same meaning as set forth in
Section 4001(a)(3) of ERISA.
"Net Income" means, for any Person and with respect to any fiscal
period, the consolidated net income before extraordinary or non-recurring
items of that Person for that period, determined in accordance with GAAP.
"Note" shall have the meaning given such term in Section 2.1
hereof.
"Notice of Borrowing" shall have the meaning given such term in
Section 2.12(a) hereof.
"Obligations" means the Loans, the Letter of Credit Obligations
and any and all other indebtedness, liabilities and obligations of Borrower
or any of its Subsidiaries to the Administrative Agent, the Co-Agents, the
Issuing Lender or any Lender of any kind and nature (including, without
limitation, principal, interest, charges, expenses, attorneys' fees and
other sums chargeable to Borrower or any of its Subsidiaries by the
Administrative Agent, Co-Agents, Issuing Lender or any Lender and future
advances made to or for the benefit of Borrower), arising under this
Agreement or under any of the other Loan Documents, whether arising by
reason of an extension of credit, opening of a Letter of Credit, Loan,
Guaranty, indemnification, Interest Hedge Agreement or in any other manner,
direct or indirect, absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising.
"Patent License" means all of the following, whether now owned or
existing or hereafter acquired or arising or in which Borrower or any of
its Subsidiaries now has or hereafter acquires any rights: any written
agreement granting any right to
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<PAGE> 26
make, use, sell, sublicense and/or practice any invention on which a Patent
is in existence.
"Patents" means all of the following, whether now owned or
existing or hereafter acquired or arising or in which Borrower or any of
its Subsidiaries now has or hereafter acquires any rights: (a) all patents
and patent applications, (b) all inventions and improvements described and
claimed therein, (c) all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof, (d) all income, royalties,
damages and payments now and hereafter due and/or payable to Borrower or
any of its Subsidiaries with respect thereto, including without limitation,
damages and payments for past, present or future infringements or
misappropriations thereof, (e) all rights to sue for past present and
future infringements or misappropriations thereof, and (f) all other rights
corresponding thereto throughout the world.
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA, or any successor agency or Person performing substantially the
same functions.
"Permitted Acquisition" means each Acquisition by Borrower or any
of its Subsidiaries of an Acquired Business which either (i) is approved by
the Majority Lenders or (ii) satisfies each of the following requirements:
(a) the Acquired Business consists primarily of, or operates in
the business of, staffing, outsourcing, permanent placement,
consulting, professional employer organizations and the like or
activities reasonably related or incidental thereto;
(b) if the Acquisition of a Person, Borrower and its
Subsidiaries shall acquire not less than 80% of the ownership
interests of the Acquired Business;
(c) if the Acquisition of a Person, the Acquired Business's
board of directors or other governing body has approved the
Acquisition of that Person by Borrower and its Subsidiaries;
(d) the EBITDA of the Acquired Business for the most recent
twelve month fiscal period ending on or prior to its Acquisition
shall be in excess of $0;
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(e) Not later than 15 Business Days prior to the proposed
Acquisition, Borrower shall have delivered a Permitted Acquisition
Compliance Certificate demonstrating that, giving effect to the
proposed Acquisition:
(i) no Default or Event of Default will exist;
(ii) Borrower shall be in pro forma compliance with
the financial covenants set forth in Sections 7.1 through
7.3 as of the last month for which such information is
available;
(iii) the Senior Funded Debt to EBITDA Ratio for the
most recent twelve calendar month period ending on or prior
to the date of the proposed Acquisition (calculated for
Borrower and its Subsidiaries and the Acquired Business on
a combined pro forma basis) is not in excess of (A)
4.00:1.00, if such Acquisition occurs during the period
from the Closing Date through and including December 31,
1998, (B), 3.50:1.00 if such Acquisition occurs during
1999, (C), 3.25:1.00, if such Acquisition occurs during
2000, and (D) 3.00:1.00 if such Acquisition occurs during
any remaining term of this Agreement;
(iv) if Borrower issues any Subordinated Obligations
in connection with such Permitted Acquisition which require
cash payments of principal or interest prior to the
Maturity Date, Borrower is in compliance with Section 6.13;
together with such supporting information and calculations as the
Co-Agents or the Majority Lenders may reasonably request; and
(f) if the acquisition of that Acquired Business is a Major
Acquisition then, giving effect to such Major Acquisition, the
Remaining Cash is not less than zero.
"Permitted Acquisition Compliance Certificate" means a
certificate of Borrower substantially in the form of Exhibit E
hereto.
"Permitted Liens" means, collectively:
(a) those Liens existing on the date hereof described on
SCHEDULE 4.20 hereto;
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(b) Liens in favor of the Administrative Agent;
(c) inchoate Liens incident to construction or maintenance of
real property, or Liens incident to construction or maintenance of
real property, now or hereafter filed of record for which adequate
accounting reserves have been set aside and which are being contested
in good faith by appropriate proceedings and have not proceeded to
judgment, provided that, by reason of nonpayment of the obligations
secured by such Liens, no such real property is subject to a material
risk of loss or forfeiture;
(d) Liens for taxes and assessments on real property which are
not yet delinquent, or Liens for taxes and assessments on real
property for which adequate reserves have been set aside and are
being contested in good faith by appropriate proceedings and have not
proceeded to judgment, provided that, by reason of nonpayment of the
obligations secured by such Liens, no such real property is subject
to a material risk of loss or forfeiture;
(e) minor defects and irregularities in title to any property
which in the aggregate do not materially impair the fair market value
or use of the property for the purposes for which it is or may
reasonably be expected to be held;
(f) easements, exceptions, reservations, or other agreements
granted or entered into after the date hereof for the purpose of
pipelines, conduits, cables, wire communication lines, power lines
and substations, streets, trails, walkways, drainage, irrigation,
water, and sewerage purposes, dikes, canals, ditches, the removal of
oil, gas, coal, or other minerals, and other like purposes affecting
real property which in the aggregate do not materially burden or
impair the fair market value or use of such real property for the
purposes for which it is or may reasonably be expected to be held;
(g) rights reserved to or vested in any governmental agency by
Applicable Law to control or regulate, or obligations or duties under
Applicable Law to any governmental agency with respect to, the use of
any real property;
(h) rights reserved to or vested in any governmental agency by
Applicable Law to control or regulate, or obligations or duties under
Applicable Law to any governmental agency with respect to, any right,
power, franchise, grant, license, or permit;
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(i) present or future zoning laws and ordinances or other laws
and ordinances restricting the occupancy, use, or enjoyment of real
property;
(j) statutory Liens, other than those described in clauses (c)
or (d) above, arising in the ordinary course of business with respect
to obligations which are not delinquent or are being contested in
good faith by appropriate proceedings, provided that, if delinquent,
adequate reserves have been established with respect thereto in
accordance with GAAP and, by reason of nonpayment, no property is
subject to a material risk of loss or forfeiture;
(k) Liens consisting of pledges or deposits made in connection
with obligations under workers' compensation laws or similar
legislation, including Liens of judgments thereunder which are not
currently dischargeable;
(l) Liens consisting of pledges or deposits of property to
secure performance in connection with bids, tenders, contracts or
operating leases made in the ordinary course of business to which
Borrower or any of its Subsidiaries is a party as lessee, provided
the aggregate value of all such pledges and deposits in connection
with any such lease does not at any time exceed 20% of the annual
fixed rentals payable under such lease;
(m) Liens consisting of deposits of property to secure statutory
obligations of Borrower or any of its Subsidiaries in the ordinary
course of its business;
(n) Liens consisting of deposits of property to secure (or in
lieu of) surety, appeal or customs bonds in proceedings to which
Borrower or any of its Subsidiaries is a party in the ordinary course
of its business; and
(o) Liens created by or resulting from any litigation or legal
proceeding involving Borrower or any of its Subsidiaries in the
ordinary course of its business which is currently being contested in
good faith by appropriate proceedings, provided that adequate
reserves have been set aside with respect thereto, and such Liens are
discharged or stayed within 30 days of creation and no property is
subject to a material risk of loss or forfeiture.
"Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated
organization, association, corporation, institution, entity, party or
government (whether national, federal, state,
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county, city, municipal, or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" means any "employee pension benefit plan" that is subject
to Title IV of ERISA and which is maintained for employees of Borrower or
any of its ERISA Affiliates, and includes any Multiemployer Plan.
"Pledge and Security Agreements" means the Pledge and Security
Agreements dated as of the Closing Date (and each Pledge and Security
Agreement thereafter executed pursuant to Section 5.12), as the same may be
amended, restated, supplemented or otherwise modified from time to time,
executed by Borrower and each of its Subsidiaries in favor of the
Administrative Agent, pursuant to which Borrower and all Guarantors have
(a) granted a Lien in substantially all of their personal property to
secure their respective Obligations, and (b) pledged to the Administrative
Agent, for the benefit of the Administrative Agent, Co-Agents and Lenders,
all of the issued and outstanding Capital Stock of each of their respective
Subsidiaries and the Drop-Down Notes to secure their respective
Obligations.
"Pricing Period" means (a) the period commencing on the Closing
Date and ending on February 13, 1998, and (b) each subsequent period of
approximately 90 days beginning forty-five days following a Test Date and
ending on the day which is forty-four days following the immediately
succeeding Test Date.
"Proceeds" means "proceeds", as such term is defined in Section
9-306(l) of the UCC and, in any event, shall include, without limitation,
(a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Borrower or any of its Subsidiaries from time to time with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to Borrower or any of its Subsidiaries
from time to time in connection with any requisitions, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by
any Governmental Authority (or any Person acting under color of
Governmental Authority) and (c) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Projected Earn-Outs" means, as of the last day of any Fiscal
Quarter, the amount of the payments which are then projected to be payable
by Borrower and its Subsidiaries with respect to Earn-Outs following that
date pursuant to the most current projections delivered in accordance with
Section 5.2(k).
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"Regulation D" means Regulation D of the Board of Governors of
the Federal Reserve System, as it may be amended from time to time.
"Remaining Cash" means, in respect of each Major Acquisition, and
giving effect thereto, as of each date of determination, (a) the net cash
proceeds received by Borrower or any of its Subsidiaries as of that date
from issuances of its Capital Stock and Subordinated Obligations following
the Closing Date, plus (b) the amount, not to exceed $1,000,000, of the net
cash proceeds received by Borrower and its Subsidiaries from dispositions
of operating assets following the Closing Date under Section 6.3(c) minus
(c) the amount by which (i) the aggregate cash consideration paid at or
prior to the closing of each Major Acquisition which has then occurred
exceeds (ii) the product of $10,000,000 times the number of Major
Acquisitions which have then occurred.
"Reportable Event" shall have the meaning set forth in Section
4043 of ERISA.
"Request for Letter of Credit" shall have the meaning given such
term in Section 2.6(b) hereof.
"Senior Funded Debt to EBITDA Ratio" means, as of each date of
determination, the ratio of (a) the aggregate outstanding principal Funded
Debt of Borrower and its Subsidiaries on that date other than Subordinated
Obligations, to (b) Adjusted Company EBITDA for the most recent twelve
calendar month period ending on or prior to that date.
"Senior Officer" means, with respect to any Person, the (a) chief
executive officer, (b) president, (c) chief financial officer, (d) any vice
president, (e) the controller, or (f) the treasurer of that Person, or any
Person who functions in any such capacity, however designated.
"Sold Business" means any Person, or any business, asset or
division of a Person, which is hereafter the subject of a sale, transfer or
other disposition by Borrower and its Subsidiaries, and includes any
Subsidiaries of a Person which are also the subject of such a sale,
transfer or other disposition, in each case effective only upon the
consummation of such sale, transfer or other disposition.
"Solvent" means, as to any Person, that such Person (a) is able
to pay its debts as they mature, (b) is not engaged in a business or
transaction for which any property or assets remaining with that Person are
"unreasonably small capital" or are
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"unreasonably small in relation to its business" or the transaction, and
(c) does not intend to incur, or believe that it will incur, debts that
would be beyond its ability to pay as such debts mature, in each case as
such quoted terms are used in Section 548 of the Bankruptcy Code of 1978,
the Uniform Fraudulent Conveyances Act and the Uniform Fraudulent Transfer
Act.
"Stockholders Agreement" means the Stockholders Agreement dated
as of the Closing Date among the shareholders of Borrower, as at any time
amended.
"Subordinated Obligations" means, subject to Section 12.18A,
Indebtedness and other liabilities (including any liabilities for Earn-Outs
which are subordinated) incurred by Borrower (and without recourse to any
of the Subsidiaries of Borrower), in each case which (i) are unsecured,
(ii) have been subordinated in right of payment to the payment in full of
the Obligations pursuant to a Subordination Agreement, (iii) provide for
payment of interest on a quarterly basis (and then only to the extent that
no Default or Event of Default has occurred and remains continuing), (iii)
provide for representations, warranties, covenants, defaults and other
terms which are less restrictive than those appertaining to the Obligations
(and in any event containing a cross-acceleration provision rather than a
cross-default provision), and (iv) to the extent that such Indebtedness or
other liabilities require any cash payment of principal or interest prior
to the Maturity Date, such Indebtedness or liabilities are issued in
compliance with Section 6.13.
"Subordination Agreement" means (a) each subordination agreement
hereafter entered into in favor of the Administrative Agent for the benefit
of the Lenders by the holders of Subordinated Obligations, fully
subordinating such Subordinated Obligations to the Obligations in a manner
which is reasonably acceptable to the Majority Lenders, provided that such
form shall not be deemed unacceptable by reason of its provision for the
making of payments (when no Default or Event of Default has occurred and
remains continuing) projected by Borrower to be made in respect of such
Subordinated Obligations in the written projections issued in accordance
with Section 6.13 in connection with the issuance of such Subordinated
Obligations, and (b) as to any Earn-Out, any subordination provisions which
are substantially in the form of Exhibit G hereto and incorporated in the
acquisition agreements governing the purchase of the related Acquired
Business.
"Subsidiary" means, as to any Person, any other Person, of which
more than fifty percent of the outstanding shares of Capital Stock or other
ownership interest having ordinary voting power to elect a majority of the
board of directors of such corporation or similar governing body of such
other Person (irrespective of whether or
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not at the time stock or other ownership interests of any other class or
classes of such other Person shall have or might have voting power by
reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or by one or more
"Subsidiaries" of such Person.
"Tax" means and includes any tax, levy, cost or charge of any
nature imposed following the Closing Date by any Governmental Authority,
excluding taxes on or measured by the net income of the Lenders imposed by
any jurisdiction in which the principal or relevant lending office of that
Lender is located or to which such Lender is otherwise subject.
"Termination Date" means the earliest of (a) the Maturity Date;
(b) the date the Commitment is reduced to zero pursuant to Section 2.11
hereof; and (c) the date the Commitment is terminated pursuant to Section
9.2 hereof.
"Termination Event" means (a) a "reportable event" as defined in
Section 4043 of ERISA (other than a reportable event that is not subject to
the provision for 30 day notice to the PBGC), (b) the withdrawal of
Borrower or any of its ERISA Affiliates from a Plan during any plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA, (c) the filing of a notice of intent to terminate a Plan or the
treatment of an amendment to a Plan as a termination thereof pursuant to
Section 4041 of ERISA, (d) the institution of proceedings to terminate a
Plan by the PBGC or (e) any other event or condition which might reasonably
be expected to constitute grounds under ERISA for the termination of, or
the appointment of a trustee to administer, any Plan.
"Test Date" means the Closing Date and the last day of each
Fiscal Quarter of Borrower thereafter.
"Total Funded Debt to EBITDA Ratio" means, as of each date of
determination, the ratio of (a) the aggregate outstanding principal Funded
Debt of Borrower and its Subsidiaries on that date, to (b) Adjusted Company
EBITDA for the most recent twelve calendar month period ending on or prior
to that date.
"Trade Secrets" means (a) trade secrets, along with any and all
(b) income, royalties, damages and payments now and hereafter due and/or
payable to Borrower or any of its Subsidiaries with respect thereto,
including, without limitation, damages and payments for past or future
infringements or misappropriations thereof, (c) rights to sue for past,
present and future infringements or misappropriations thereof, and (d) all
rights corresponding thereto throughout the world.
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"Trademark Collateral Assignment" means the agreement of the same
name entered into on the Closing Date by each of Borrower's Subsidiaries
which owned any Trademarks, Trademark Licenses, or Trade Secrets as of that
date, as at any time amended.
"Trademark License" means all of the following, whether now owned
or existing or hereafter acquired or arising or in which Borrower or any of
its Subsidiaries now has or hereafter acquires any rights: any written
agreement granting any right to use any Trademark or trademark
registration.
"Trademarks" means all of the following, whether now owned or
existing or hereafter acquired or arising or in which Borrower or any of
its Subsidiaries now has or hereafter acquires any rights: (a) all
trademarks (including service marks and trade names, whether registered or
at common law), registrations and applications therefor, and the entire
product lines and goodwill of the business of Borrower or any of its
Subsidiaries connected therewith and symbolized thereby, (b) all renewals
thereof, (c) all income, royalties, damages and payments now and hereafter
due or payable or both with respect thereto, including, without limitation,
damages and payments for past, present or future infringements or
misappropriations thereof, (d) all rights to sue for past, present and
future infringements or misappropriations thereof, and (e) all other rights
corresponding thereto throughout the world.
"UCC" means the Uniform Commercial Code as in effect in the State
of New York.
1.2 USE OF DEFINED TERMS. All terms defined in this Agreement and
the Exhibits hereto shall have the same defined meanings when used in any
other Loan Document, unless the context shall require otherwise.
1.3 ACCOUNTING TERMS; CALCULATIONS. All accounting terms not
specifically defined herein shall have the meanings generally attributed to
such terms under GAAP. Calculations hereunder shall be made and financial
data required hereby shall be prepared, both as to classification of items
and as to amounts, in accordance with GAAP, consistently applied (except as
otherwise specifically required herein). In the event that GAAP changes
during the term of this Agreement such that the financial covenants
contained in Sections 7.1 through 7.3, inclusive, would then be calculated
in a different manner or with different components, (a) Borrower, the
Administrative Agent, the Co-Agents and the Lenders agree to amend this
Agreement in such respects as are necessary to conform those covenants as
criteria for evaluating the financial condition of Borrower and its
Subsidiaries to substantially the same criteria as were
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effective prior to such change in GAAP and (b) until such amendment,
Borrower (i) shall be deemed to be in compliance with the financial
covenants contained in such Sections following any such change in GAAP if
and to the extent that Borrower would have been in compliance therewith
under GAAP as in effect immediately prior to such change, and (ii) shall
continue to deliver reports required under Article 6 prepared in accordance
with GAAP, as in effect before the relevant changes thereto.
1.4 OTHER TERMS. All other terms used in this Agreement which are
not specifically defined herein but which are defined in the UCC shall have
the meanings set forth therein.
1.5 TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of
this Agreement, and all references in this Agreement to Articles, Sections,
subsections, paragraphs, clauses, subclauses, Exhibits or Schedules shall
refer to the corresponding Article, Section, subsection, paragraph, clause,
subclause of, Exhibit or Schedule attached to, this Agreement, unless
specific reference is made to the articles, sections or other subdivisions
of, exhibits or schedules to, another document or instrument. All
references to any instrument document or agreement shall, unless the
context otherwise requires, refer to such instrument, document or agreement
as the same may be, from time to time, amended, modified, supplemented,
renewed, extended, replaced or restated.
1.6 EXHIBITS. All Exhibits and Schedules attached hereto are by
reference made a part hereof.
1.7 PRINCIPLES OF RESTATEMENT. This Agreement amends and restates
the Existing Loan Agreement in its entirety, and the Existing Loan
Agreement is superseded hereby, provided that the Lenders shall continue to
have the benefit of each of the Loan Documents executed and delivered in
connection with the Existing Loan Agreement, including without limitation
the guarantees, liens and security interests granted therein.
1.8 CERTAIN TRANSITIONAL MATTERS. Concurrently with the
effectiveness of this Agreement, (a) Societe Generale shall become an
additional Lender hereunder, (b) Societe Generale shall pay to the other
Lenders through the Administrative Agent, such amounts as necessary to
result in the outstanding principal amount of the Loans made by each Lender
being equal to its Commitment Percentage
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of the Commitment, and (c) shall be a risk participant in the outstanding
Letter of Credit Obligations to the extent of its Commitment Percentage in
the manner contemplated by Section 2.6.
2. THE LOANS AND LETTERS OF CREDIT
2.1 LOANS. Subject to the terms and conditions hereof and
provided that no Default or Event of Default exists, each Lender severally
agrees to make revolving loans (each a "Loan" and collectively, the
"Loans") to Borrower, upon Borrower's request therefor made in accordance
with the provisions of Section 2.2 hereof, from time to time on any
Business Day during the period from the date hereof and up to, but not
including, the Termination Date, which when aggregated with the outstanding
Letter of Credit Obligations, do not exceed the lesser of the Commitment or
the amount then permitted by Section 10.2(a). The Loans made by each Lender
shall be evidenced by a promissory note, substantially in the form of
Exhibit A hereto, payable to that Lender in the original principal face
amount of such Lender's Commitment Percentage of the Commitment (together
with any and all amendments, modifications and supplements thereto, and any
renewals, replacements or extensions thereof, in whole or in part,
individually, a "Note" and collectively, the "Notes"). Prior to the
Termination Date, Loans may be borrowed, repaid and reborrowed in
accordance with the terms hereof. All Loans shall be payable in full on
the Termination Date.
2.2 BORROWING PROCEDURES.
(a) Borrower shall give the Administrative Agent notice of each
request for a Loan hereunder in accordance with this Section. The
Administrative Agent shall promptly notify each Lender of any Notice
of Borrowing received hereunder. Not later than 1:00 p.m.
(prevailing Eastern time), on the date specified for each borrowing
hereunder, each Lender shall make available to the Administrative
Agent the amount of the Loan to be made by such Lender in accordance
with such Lender's Commitment Percentage of the Loan requested, in
immediately available funds at an account designated by the
Administrative Agent. The Administrative Agent shall, subject to the
terms and conditions of this Agreement, on the Business Day specified
for such borrowing, make such amount available to Borrower in same
day funds to the Loan Account.
(b) Unless the Administrative Agent shall have been notified by
any Lender at least one (1) Business Day prior to the date on which
any
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Eurodollar Loan is to be made and not later than 1:00 p.m. (prevailing
Eastern time) on the date any Base Rate Loan is to be made, that such
Lender does not intend to make available to the Administrative Agent such
Lender's Commitment Percentage of such Loan, the Administrative Agent may
assume that such Lender has made such amount available to the
Administrative Agent on the date of such Loan and the Administrative Agent
may, in reliance upon such assumption, make available to Borrower a
corresponding amount. If such corresponding amount is not in fact made
available to the Administrative Agent by such Lender, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from
such Lender. If such Lender does not pay such a corresponding amount
forthwith upon the Administrative Agent's demand therefor, the
Administrative Agent shall promptly notify Borrower and Borrower shall pay
such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from such Lender interest on such
corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to
Borrower to the date such corresponding amount is recovered by the
Administrative Agent at a rate per annum equal to the Federal Funds Rate,
for the first two Business Days, and thereafter at the rate per annum then
in effect with respect to Base Rate Loans. Nothing herein shall be deemed
to relieve any Lender from its obligation to fulfill its Commitment
Percentage of the Commitment or to prejudice any rights which the
Administrative Agent or Borrower may have against any Lender as a result of
any default by such Lender hereunder.
2.3 LOAN ACCOUNT; STATEMENTS OF ACCOUNT. The Administrative Agent
will maintain one or more loan accounts for Borrower to which the
Administrative Agent will charge all amounts advanced to or for the benefit
of Borrower hereunder or under any of the other Loan Documents and to which
the Administrative Agent will credit all amounts collected from or on
behalf of Borrower. The Administrative Agent will account to Borrower
periodically with a statement of charges and payments made pursuant to this
Agreement. Any such accounting rendered to Borrower shall be deemed to be
an account stated unless Borrower objects thereto by written notice to the
Administrative Agent within 60 days following its receipt thereof. Any
such notice shall only be deemed an objection to those items specifically
objected to therein. The unpaid principal amount of the Loans, the unpaid
interest accrued thereon, the interest rates applicable to such unpaid
principal amount and the accrued and unpaid fees, premiums and other
amounts due hereunder shall at all times be ascertained from the records of
the Administrative Agent and such records shall constitute prima facie
evidence of the amounts so due and payable.
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2.4 USE OF PROCEEDS. The proceeds of the Loans and all Letters of
Credit shall be used for valid and legal corporate purposes of Borrower and
its Subsidiaries, including without limitation, the payment of the Merger
Distributions, the financing of working capital requirements of Borrower
and its Subsidiaries, and financing of Permitted Acquisitions.
2.5 SEVERAL OBLIGATIONS OF THE LENDERS; REMEDIES INDEPENDENT. The
failure of any Lender to advance its Commitment Percentage of any Loan to
be made by it on the date specified therefor shall not relieve any other
Lender of its obligation to advance its Commitment Percentage of any Loan
to be made by it on such date, but neither any Lender nor the
Administrative Agent shall be responsible for the failure of any other
Lender to make a Loan to be made by such other Lender. The amounts payable
by Borrower at any time hereunder and under the Note to each Lender shall
be a separate and independent debt and each Lender shall be entitled to
protect and enforce its rights arising out of this Agreement and its Note,
and it shall not be necessary for any other Lender or the Administrative
Agent to consent to, or be joined as an additional party in, any proceeding
for such purposes, provided that the Liens granted pursuant to the Loan
Documents to the Administrative Agent may only be exercised by the
Administrative Agent in accordance with the terms of the Loan Documents.
2.6 LETTERS OF CREDIT.
(a) As of the date of this Agreement, Letters of Credit with an
aggregate effective face amount of $1,363,000 are outstanding under the
Existing Loan Agreement (including without limitation certain of the
"Existing Creditanstalt Letters of Credit" described therein), and each
such Letter of Credit shall deemed to have been issued hereunder. Subject
to the terms and conditions hereof and provided that there exists no
Default or Event of Default, at any time and from time to time from the
Closing Date to (but not including) the Maturity Date, the Issuing Lender
agrees, in reliance upon the agreement of the Lenders set forth in Section
2.6(c) below, to issue, for the account of Borrower, such Letters of Credit
as Borrower may request by a Request for Letter of Credit (in the manner
described in Section 2.6(b)), each in such form as may be requested from
time to time by Borrower and agreed to by the Administrative Agent;
provided, however, that after giving effect to the issuance of any such
Letter of Credit, (i) the aggregate amount of all outstanding Letter of
Credit Obligations shall not exceed $10,000,000 at any time, and (ii) the
aggregate amount of all outstanding Loans, together with all outstanding
Letter of Credit Obligations will not exceed the lesser of the
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Commitment or the amount then permitted by Section 10.2(a). No Letter of
Credit shall have an expiration date which extends beyond the earliest of
(i) one year from the date of issuance thereof, (ii) the Maturity Date, and
(iii) any date that, at the issuance of such Letter of Credit, has been
fixed for termination of the Commitment pursuant to Section 2.12 hereof.
(b) Each request by Borrower for a Letter of Credit shall be
submitted to the Administrative Agent in writing (which may be by telecopy)
substantially in the form of Exhibit B attached hereto (a "Request for
Letter of Credit") and shall be effective only if received by Issuing
Lender prior to 1:00 p.m. (prevailing Eastern time) at least three Business
Days prior to the date when such Letter of Credit is required, accompanied
by an appropriate letter of credit application on the Issuing Lender's
customary form and such other Letter of Credit Documents (including,
without limitation, a reimbursement agreement) in such form and containing
such terms and conditions as the Issuing Lender requires, executed by a
Senior Officer of Borrower. Promptly upon receipt of a Request for Letter
of Credit, the Administrative Agent will notify the Issuing Lender and each
Lender of such request.
(c) Simultaneously with the issuance by the Issuing Lender of
any Letter of Credit under Section 2.6(a) above, each Lender shall be
deemed to have irrevocably and unconditionally purchased and received from
the Issuing Lender, without recourse or warranty, an undivided interest and
participation in such Letter of Credit (including, without limitation, all
obligations of Borrower with respect thereto) and any security therefor or
guaranty pertaining thereto, equal to such Lender's Commitment Percentage
of such Letter of Credit. Each Lender severally agrees that it shall be
absolutely liable, without regard to the occurrence of any Default or Event
of Default or any other condition precedent whatsoever, to the extent of
such Lender's Commitment Percentage, to reimburse the Issuing Lender on
demand for the amount of each draft paid by the Issuing Lender under such
Letter of Credit to the extent that such amount is not reimbursed by
Borrower. The failure of any Lender to make available to the Issuing
Lender its Commitment Percentage of the unreimbursed amount of any such
payment shall not relieve any other Lender of its obligation hereunder to
make available to the Issuing Lender its Commitment Percentage of the
unreimbursed amount of any payment on the date such payment is to be made.
The obligations of each Lender to make payments to the Issuing Lender with
respect to any Letter of Credit and its participations therein pursuant to
the provisions of this Section or otherwise and the obligations of Borrower
to make payments to the Issuing Lender with respect to any Letter of Credit
shall be
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irrevocable, and shall not be subject to any qualification or exception
whatsoever.
In the event that any payment by Borrower received by the
Issuing Lender with respect to a Letter of Credit and distributed by
the Issuing Lender to the Lenders on account of their participations
is thereafter set aside, avoided or recovered from the Issuing Lender
in connection with any receivership, liquidation, reorganization or
bankruptcy proceeding, or otherwise, each Lender which received such
distribution shall, upon demand by the Issuing Lender, return to the
Issuing Lender such Lender's Commitment Percentage of the amount set
aside, avoided or recovered, together with interest at the rate
required to be paid by the Issuing Lender upon the amount required to
be repaid by it. Each Lender shall share, pro rata, in accordance
with its participating interest, in any interest (but not in the
processing, administration and similar fees charged by the Issuing
Lender, which fees shall be solely for the account of the Issuing
Lender) which accrues to the Issuing Lender pursuant to any
applicable reimbursement agreement.
(d) Borrower agrees to reimburse the Issuing Lender,
immediately upon demand therefor, a principal amount equal to any payment
made by the Issuing Lender in respect of any Letter of Credit in good faith
(which good faith will be presumed to exist in the absence of evidence to
the contrary), together with interest on such amount from the date of any
payment through the date of payment by Borrower at the per annum rate
applicable to Base Rate Loans; provided, however, that subject to the terms
and conditions hereof Borrower may substitute for such payment a request
made within the time permitted hereunder for a Loan in accordance with
Section 2.12. The principal amount of any such payment made by Borrower to
the Issuing Lender shall be used to reimburse the Issuing Lender, for the
payment made by it in respect of such Letter of Credit.
(e) If Borrower fails to make any payment as and when required
by Section 2.6(d), or if Borrower fails to request a Loan in an amount
sufficient to pay the outstanding Letter of Credit Obligations, the Issuing
Lender may, without notice to or the consent of Borrower, deliver a Notice
of Borrowing to the Administrative Agent for a Loan in an aggregate amount
equal to the amount paid by the Issuing Lender in respect of its Letter of
Credit Obligations pursuant to Section 2.6(c) above and, for this purpose,
the conditions precedent to the making of a Loan under this Agreement shall
not apply. The proceeds of such Loan shall be paid to the Issuing Lender
to
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reimburse it for any payments made by it in respect of such Letter of
Credit Obligations in good faith (which good faith shall be presumed to
exist in the absence of evidence to the contrary).
(f) The issuance of any supplement, modification, amendment,
renewal or extension to or of any Letter of Credit shall be treated in all
respects the same as the issuance of a new Letter of Credit, and each such
Letter of Credit, and all Letter of Credit Obligations in respect thereof,
shall in each case remain subject to this Section 2.6.
(g) If any draft shall be presented or other demand for payment
shall be made under any Letter of Credit, the Issuing Lender shall notify
the Administrative Agent and Borrower of the date and amount of the draft
presented or demand for payment and of the date and time when it expects to
pay such draft or honor such demand for payment. If Borrower fails to
reimburse the Issuing Lender pursuant to the applicable reimbursement
agreement as provided in Section 2.6(d) above, the Issuing Lender may at
any time thereafter notify the Administrative Agent and the Lenders of the
amount of any such unpaid reimbursement obligation. No later than 3:00
p.m. (prevailing Eastern time) on the Business Day of its receipt of such
notice, each Lender shall make available to the Issuing Lender at the
Issuing Lender's principal office in New York, New York, in immediately
available funds, such Lender's Commitment Percentage of such unpaid
reimbursement obligation, together with an amount equal to the product of
(i) the average, computed for the period referred to in clause (iii) below,
of the weighted average interest rate paid by the Issuing Lender for
federal funds acquired by the Issuing Lender during each day included in
such period, times (ii) an amount equal to such Lender's Commitment
Percentage of such unpaid reimbursement obligation, times (iii) a fraction,
the numerator of which is the number of days that elapse from and including
the date the Issuing Lender paid the draft presented for honor or otherwise
made payment to the date on which such Lender's Commitment Percentage of
such unpaid reimbursement obligation shall become immediately available to
the Issuing Lender and the denominator of which is 360; provided, however,
that if the Issuing Lender fails to give the Lenders notice of Borrower's
failure to reimburse the Issuing Lender within three (3) Business Days
following such failure, the Lenders shall be required to pay interest only
for the period from and including the date the Issuing Lender made payment
through and including the third Business Day following such failure. The
responsibility of the Issuing Lender to Borrower, the Administrative Agent,
the Co-Agents and the Lenders shall be only to determine that the documents
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(including each draft) delivered under each Letter of Credit in connection
with such presentment shall be in conformity in all material respects with
such Letter of Credit.
(h) Borrower's obligations under this Section 2.6 shall be
absolute and unconditional under any and all circumstances and irrespective
of the occurrence of any Default or Event of Default or any condition
precedent whatsoever or any setoff, counterclaim or defense to payment
which Borrower may have or have had against the Issuing Lender, the
Administrative Agent, the Co-Agents, any Lender or any beneficiary of a
Letter of Credit. Borrower further agrees with the Issuing Lender, the
Administrative Agent, the Co-Agents and the Lenders that the Issuing
Lender, the Administrative Agent, the Co-Agents and the Lenders shall not
be responsible for, and Borrower's reimbursement obligations under Section
2.6(d) shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even if such
documents should in fact prove to be in any or all respects invalid,
fraudulent or forged, or any dispute between or among Borrower, the
beneficiary of any Letter of Credit or any financing institution or other
party to which any Letter of Credit may be transferred or any claims or
defenses whatsoever of Borrower against the beneficiary of any Letter of
Credit or any such transferee. Neither the Issuing Lender, the
Administrative Agent, the Co-Agents nor the Lenders shall be liable for any
error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection with
any Letter of Credit. Borrower agrees that any action taken or omitted by
the Issuing Lender, the Administrative Agent, the Co-Agents or any Lender
under or in connection with each Letter of Credit and the related drafts
and documents, if done in good faith and without gross negligence, shall be
binding upon Borrower and shall not result in any liability on the part of
the Issuing Lender, the Administrative Agent, the Co-Agents or any Lender
to Borrower.
(i) The Issuing Lender shall be entitled to rely, and shall be
fully protected in relying, upon any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Issuing Lender. The Issuing Lender shall be fully
justified in failing or refusing to take any action under this Agreement
unless it shall first have received such advice or
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concurrence of the Majority Lenders as it reasonably deems appropriate or
it shall first be indemnified to its reasonable satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
(j) As between Borrower, on the one hand, and the
Administrative Agent, the Co-Agents and the Lenders, on the other, the
provisions of this Agreement, to the extent in conflict with any provision
of any Letter of Credit Documents, shall control.
2.7 TERM; TERMINATION. This Agreement shall terminate upon the
latest to occur of (a) the Termination Date; (b) the repayment and
satisfaction of all Obligations (other than any unsecured surviving
contingent indemnification obligations which survive the repayment of the
Obligations in accordance with Section 12.2); and (c) the termination or
expiration of all Letters of Credit (or the provision of cash collateral
therefor in a manner which is reasonably acceptable to the Issuing Lender).
2.8 PAYMENTS.
(a) Each payment by Borrower on the Loans shall be made prior
to 1:00 p.m. (prevailing Eastern time) on the date due and shall be made
without set-off or counterclaim to the Administrative Agent's account
No. 9301035763 Ref: Corporate Staffing Resources maintained in the name
of the Administrative Agent at The Chase Manhattan Bank (ABA #021 000
021) or at such other place or places as the Administrative Agent may
designate from time to time in writing to Borrower. Each such payment
shall be in lawful currency of the United States of America and in
immediately available funds. The Administrative Agent shall promptly
remit to each Lender such Lender's share of any payment received by the
Administrative Agent from Borrower.
(b) Each payment made by Borrower hereunder to the Issuing
Lender, the Administrative Agent or any Lender shall either (i) be
exempt from, and be made without reduction by reason of, any Tax or (ii)
to the extent that any such payment shall be subject to any Tax, be
accompanied by an additional payment by Borrower of such amount as may
be necessary so that the net amount received by the Issuing Lender, the
Administrative Agent and each Lender (after deducting all applicable
Taxes) is the same as the Issuing Lender, the Administrative Agent and
each such Lender would have received had such payment not been subject
to such Tax. Upon any payment of Tax by Borrower,
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Borrower shall promptly (and in any event within thirty days) furnish to
the Administrative Agent such tax receipts, certificates and other
evidence of such payment as Borrower may have or the Administrative
Agent, the Issuing Lender or any Lender may reasonably request. Each
Lender hereby certifies to the Borrower that, as of the Closing Date, it
is not subject to any Taxes which would require the making by Borrower
of any payment under this Section.
(c) If the due date of any payment hereunder or under the Notes
would otherwise fall on a day which is not a Business Day, then such
payment shall be due on the next succeeding Business Day and interest
shall be payable on the principal amount of such payment for the period
of such extension. If the Administrative Agent has not received any
payment due hereunder by the close of business on the date such payment
is due, Borrower authorizes the Administrative Agent, at its option, to
charge such payment as a Loan.
2.9 PRO RATA TREATMENT. Except to the extent otherwise provided
herein: (a) each borrowing from the Lenders under Sections 2.1 hereof shall
be made from the Lenders and each payment of its Commitment Fee under
Section 3.5 hereof and of the Letter of Credit fee under Section 3.6 hereof
shall be made to the Administrative Agent for the account of the Lenders
pro rata according to their respective Commitment Percentages; (b) each
termination or reduction of the amount of the Commitments under Section
2.11 hereof shall be applied to the Lenders, pro rata according to their
respective Commitment Percentages; (c) the making, Conversion and
Continuation of Loans of a particular type shall be made pro rata among the
Lenders according to their respective Commitment Percentages; (d) each
payment or prepayment of principal of Loans by Borrower shall be made for
the account of the Lenders pro rata in accordance with their respective
Commitment Percentages; provided, that if immediately prior to giving
effect to any such payment in respect of any Loans the outstanding
principal amount of the Loans shall not be held by the Lenders pro rata in
accordance with their respective Commitment Percentages in effect at the
time such Loans were made (by reason of a failure of a Lender to make a
Loan hereunder in the circumstances described in the last paragraph of
Section 12.8 hereof), then such payment shall be applied to the Loans in
such manner as shall result, as nearly as is practicable in the judgment of
the Administrative Agent, in the outstanding principal amount of the Loans
being held by the Lenders pro rata in accordance with their respective
Commitment Percentages; and (e) each payment of interest on Loans by
Borrower shall be made for the account of the Lenders pro rata in
accordance with the amounts of interest on such Loans then due and payable
to the Lenders.
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2.10 SHARING OF PAYMENTS, ETC.
(a) Borrower agrees that, in addition to (and without
limitation of) any right of set-off, banker's lien or counterclaim a
Lender may otherwise have, each Lender shall be entitled, at its option
(but only when an Event of Default has occurred and remains continuing),
to offset balances held by it for the account of Borrower at any of its
offices, in dollars or in any other currency, against any principal of
or interest on any of such Lender's Loans or any other amount payable to
such Lender hereunder, that is not paid when due (regardless of whether
such balances are then due to Borrower), in which case it shall promptly
notify Borrower and the Administrative Agent thereof, provided that such
Lender's failure to give such notice shall not affect the validity
thereof.
(b) If any Lender shall obtain from Borrower or any of its
Subsidiaries payment of any principal of or interest on any Loan owing
to it or payment of any other amount under this Agreement through the
exercise of any right of set-off, banker's lien or counterclaim or
similar right or otherwise (other than from the Administrative Agent as
provided herein), and, as a result of such payment, such Lender shall
have received more than its Commitment Percentage of the principal of or
interest on the Loans or such other amounts then due hereunder by
Borrower or its Subsidiaries, it shall promptly notify the
Administrative Agent of such payment and promptly purchase from such
other Lenders participations in (or, if and to the extent specified by
such Lender, direct interests in) the Loans or such other amounts,
respectively, owing to such other the Lenders (or in interest due
thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all
the Lenders shall share the benefit of such excess payment (net of any
expenses that may be incurred by such Lender in obtaining or preserving
such excess payment) pro rata in accordance with the unpaid principal of
and/or interest on the Loans or such other amounts, respectively, owing
to each of the Lenders; provided, that if at the time of such payment
the outstanding principal amount of the Loans shall not be held by the
Lenders in accordance with their respective Commitment Percentages in
effect at the time such Loans were made (by reason of a failure of a
Lender to make a Loan hereunder in the circumstances described in the
last paragraph of Section 12.8 hereof), then such purchases of
participations and/or direct interests shall be made in such manner as
will result, as nearly as is practicable in the judgment of the
Administrative Agent, in the outstanding principal amount of the Loans
being held by the Lenders according to each Lender's Commitment
Percentage. To such end all the Lenders shall make appropriate
adjustments among
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themselves (by the resale of participations sold or otherwise) if such
payment is rescinded or must otherwise be restored.
(c) Borrower agrees that any Lender so purchasing such a
participation (or direct interest) may exercise all rights of set-off,
banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans
or other amounts (as the case may be) owing to such Lender in the amount
of such participation.
(d) Nothing contained herein shall require any Lender to
exercise any such right or shall affect the right of any Lender to
exercise and retain the benefits of exercising, any such right with
respect to any other indebtedness or obligation of Borrower or of its
Subsidiaries. If, under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a set-off to
which this Section 2.10 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured claim in a
manner consistent with the rights of the Lenders entitled under this
Section 2.10 to share in the benefits of any recovery on such secured
claim.
2.11 PREPAYMENT; COMMITMENT REDUCTION AND TERMINATION.
(a) If, as of the last day of any calendar month (a "Month End
Test"), Borrower is not in compliance with the terms of Sections 7.1 and
7.2 then Borrower shall, within 45 days following such Month End Test,
prepay the Loans (or shall provide cash collateral for Letters of Credit
acceptable to the Issuing Lender) in the amount necessary to cause
Borrower to be in pro forma compliance with such covenants.
(b) Subject to the other terms and conditions hereof, upon
written notice to the Administrative Agent in accordance with Section
12.7, Borrower may, at any time, at its option and without premium or
penalty, either terminate the Commitment or reduce the Commitment in
integral multiples of $100,000, on the date specified in such notice, by
paying to the Administrative Agent for the benefit of each Lender the
accrued amount of the Commitment Fee applicable to the amount of the
Commitment so reduced or terminated.
(c) In no event may Borrower reduce the Commitment below the sum
of (i) the principal amount of Loans outstanding hereunder and (ii)
the Letter of Credit Obligations (unless, in connection with a
termination of the entire Commitment, cash collateral for such Letter
of Credit Obligations has
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been provided to the Issuing Lender in a manner which is reasonably
acceptable to the Issuing Lender).
(d) The Commitment shall be automatically reduced to zero on
the Maturity Date.
(e) The Commitment, once terminated or reduced, may not be
reinstated or increased without the consent of all of the Lenders.
(f) Borrower may prepay the outstanding Loans, in whole or in
part, as provided in Section 2.12, provided, however, that if Borrower
prepays any Loan which is a Eurodollar Loan prior to the last day of the
Interest Period applicable to such Eurodollar Loan, Borrower shall
concurrently pay to the Lenders all amounts payable to the Lenders
pursuant to Section 3.10 hereof.
2.12 CERTAIN NOTICES; MINIMUM AMOUNTS.
(a) All notices given by Borrower to the Administrative Agent
hereunder of terminations or reductions of the Commitment or of
borrowings, Conversions, Continuations or prepayments of Loans hereunder
shall either be oral, with prompt written confirmation, which may be by
telecopy, or in writing, with such written confirmation or writing, in
the case of a borrowing, to be substantially in the form of Exhibit C
attached hereto (a "Notice of Borrowing"); shall be irrevocable; shall
be effective only if received by the Administrative Agent prior to 11:30
a.m. (prevailing Eastern time) on a Business Day which is: (i) at least
two Business days prior to the termination or any reduction of the
Commitment, (ii) not later than the Business Day on which such Loan is
to be made as, Converted to, or Continued as, a Base Rate Loan, (iii) at
least three Business Days prior to the date such Loan is to be made as,
Converted to, or Continued as, a Eurodollar Loan, or the prepayment of
any Eurodollar Rate Loan, and (iv) not later than the date of any such
prepayment, in the case of a prepayment of a Base Rate Loan. Each such
notice to reduce the Commitment or to prepay the Loans shall specify the
amount of the Commitment to be reduced or of the Loans to be prepaid and
the date of such reduction or prepayment. Each such notice of borrowing,
Conversion or Continuation shall specify: (1) the amount of such
borrowing, Conversion or Continuation; (2) that the amount of the Loan
to be made, Converted or Continued, when aggregated with all other Loans
to be outstanding following the funding, Conversion or Continuation of
such Loan, and all outstanding Letters of Credit, does not exceed the
Commitment, (3) whether such Loan will
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be made, Converted or Continued as a Eurodollar Loan or as a Base Rate
Loan, (4) the date such Loan is to be made, Converted or Continued
(which shall be a Business Day and, if such Loan is to Convert or
Continue a Eurodollar Loan then outstanding, shall not be prior to the
last day of then current Interest Period for such outstanding Loan), and
(5) if such Loan is a Eurodollar Loan, the duration of the Interest
Period with respect thereto. If Borrower fails to specify the duration
of the Interest Period for any Eurodollar Loan, Borrower shall instead
be deemed to have requested that such Loan be made as, Converted to, or
Continued, as a Base Rate Loan. If on the last day of the Interest
Period of any Eurodollar Loan hereunder, the Administrative Agent has
not received a timely notice hereunder to Convert, Continue or prepay
such Loan, such Loan shall be converted to a Base Rate Loan.
(b) Except for mandatory prepayments made pursuant to Section
2.11(a) hereof, each borrowing, Conversion and partial prepayment of
principal of Loans shall be in a minimum principal amount of $100,000
and shall be in an integral multiple of $100,000 (borrowings,
Conversions or prepayments of or into Loans of different types or, in
the case of Eurodollar Loans, having different Interest Periods at the
same time hereunder to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each type of Loan or
Interest Period).
2.13 SECURITY AND GUARANTEES. This Agreement, the Obligations
hereunder and the Obligations under the other Loan Documents shall have the
benefit of the Guarantees and the Pledge and Security Agreements, and shall
be secured by the Liens granted by the other Loan Documents. Each of the
Lenders shall be entitled to the ratable benefit of the Liens created by
the Loan Documents to secure all Obligations under the Loan Documents owed
to that Lender, provided that the Obligations owed to each Lender under
Interest Hedge Agreements shall be entitled to the pari passu benefit of
such Liens (in relation to the other Obligations) only to the extent of the
Administrative Agent's standard risk assessment factor for such Interest
Hedge Agreements, and shall be entitled to the subordinate benefit of such
Liens to the extent of any excess.
3. FEES AND INTEREST
3.1 INTEREST.
(a) Unless the Default Rate applies, the average daily
outstanding principal amount of the Obligations (other than Obligations
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representing the undrawn amount of outstanding Letters of Credit) shall
bear interest from the date thereof until paid in full at the following
rates:
(i) the outstanding principal amount of each
Eurodollar Loan shall bear interest at a fixed rate of interest
per annum equal to the Eurodollar Rate for the then current
Interest Period for such Loan plus the applicable Eurodollar
Spread calculated daily on the basis of a 360-day year and actual
days elapsed;
(ii) the outstanding principal amount of each Base
Rate Loan, Letter of Credit Obligations and all other sums payable
by Borrower hereunder shall bear interest at a fluctuating rate
per annum. equal to the Base Rate plus the applicable Base Rate
Spread, calculated daily on the basis of a 360-day year and actual
days elapsed; and
(iii) the amount of any payment of principal and, to
the extent permitted by Applicable Law, interest or other amount
payable hereunder which is not paid when due, shall bear interest
at the Default Rate.
(b) Accrued interest shall be payable (i) in the case of Base
Rate Loans, monthly on the last day of each month hereafter for the
current month, commencing with the first such date following the Closing
Date; (ii) in the case of a Eurodollar Loan, on the last day of each
Interest Period, provided, however, that if any Interest Period in
respect of a Eurodollar Loan is longer than three months, such interest
prior to maturity shall be paid on the last Business Day of each three
month interval within such Interest Period as well as on the last day of
such Interest Period; (iii) in the case of any Eurodollar Loan, upon the
prepayment thereof, (iv) in the case of any other sum payable hereunder
as set forth elsewhere in this Agreement or, if not so set forth, on
demand; and (v) in the case of interest payable at the Default Rate, on
demand.
3.2 INTEREST PERIOD. The Interest Period for any Eurodollar Loan
shall commence on the date such Loan is made, Converted or Continued as
specified in the notice delivered pursuant to Section 2.12 hereof
applicable thereto and shall continue for a period of one, two, three or
six months, as specified in such notice for such Eurodollar Loan. If
Borrower fails to specify the duration of the Interest Period for any
Eurodollar Loan in the notice therefor delivered pursuant to Section 2.12
hereof, such Loan shall instead be made or Converted, as appropriate, as a
Base Rate Loan.
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3.3 LIMITATIONS ON INTEREST PERIODS. Borrower may not select any
Interest Period for any Eurodollar Loan which extends beyond the Maturity
Date. Notwithstanding any other provision hereof to the contrary, Borrower
shall not have, in the aggregate for all Loans outstanding, more than five
different Interest Periods at any given time during the term of this
Agreement.
3.4 CONVERSIONS AND CONTINUATIONS. So long as there then exists
no Default or Event of Default hereunder, Borrower shall have the right, on
any Business Day, from time to time, upon written notice in accordance with
Section 2.12 hereof, to Convert Loans of one type to Loans of the other
type and to Continue Loans of one type as Loans of the same type; provided
that a Eurodollar Loan may not be Converted to a Base Rate Loan prior to
the end of the Interest Period applicable thereto.
3.5 COMMITMENT FEE. From the Closing Date, Borrower hereby
agrees to pay to the Administrative Agent for the account of each Lender a
commitment fee (the "Commitment Fee"), calculated on the basis of a 360-day
year and actual days elapsed, equal to 0.50% per annum of the average daily
amount of the Commitment not utilized for Loans or Letters of Credit,
payable on the last Business Day of each calendar month following the
Closing Date for that calendar month or portion thereof and on the
Termination Date.
3.6 LETTER OF CREDIT FEES. With respect to each Letter of
Credit, Borrower shall pay the following fees to the Administrative Agent:
(a) a letter of credit fee equal to the then applicable
Eurodollar Rate Spread per annum of the face amount of such Letter of
Credit, payable monthly in arrears on the last Business Day of each
calendar month for the portion of that calendar month in which such
Letter of Credit was outstanding, which fee shall be for the ratable
account of the Lenders in accordance with their Commitment Percentages.
(b) concurrently with the issuance of each Letter of Credit
(and concurrently with each amendment thereto which increases the amount
thereof), a letter of credit fee in an amount equal to the greater of
(i) $500 or .125% of the face amount of such Letter of Credit (or in the
case of any such amendment, of the increased amount thereof), in each
case, for the sole account of the Issuing Lender, as a fronting fee.
Each of the fees payable with respect to Letters of Credit under this
Section is earned when due and is nonrefundable.
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3.7 ILLEGALITY. Notwithstanding any other provision of this
Agreement to the contrary, in the event that it shall become unlawful for
any Lender to obtain funds in the London interbank market or for such
Lender to maintain a Eurodollar Loan, then such Lender shall promptly
notify the Administrative Agent and Borrower whereupon, for the duration of
such condition (a) the portion of that Eurodollar Loan to be made by the
affected Lender shall instead be funded and treated as a Base Rate Loan,
and (b) to the extent that the maintenance by such Lender of its portion of
any outstanding Eurodollar Loan is illegal, then such portion shall
commence to bear interest at the rate applicable to Base Rate Loans on the
last day of the then applicable Interest Period or at such earlier time as
may be required by Applicable Law.
3.8 INABILITY TO DETERMINE EURODOLLAR RATE. In the event that
the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that, by reason of circumstances
affecting the London interbank market, quotation of interest rates for the
relevant deposits referred to in the definition of the "Eurodollar Rate"
herein are not being provided in the relevant amounts or for the relevant
maturities for the purpose of determining rates of interest for a
Eurodollar Loan, the Administrative Agent will give notice of such
determination to Borrower and each Lender at least one day prior to the
date specified in such notice of borrowing, Conversion or Continuation for
such Loan to be made. If any such notice is given, no Lender shall have
any obligation to make available, maintain, Convert or Continue Eurodollar
Loans. Until the earlier of the date any such notice has been withdrawn by
the Administrative Agent or the date when the Administrative Agent, the
Lenders and Borrower have mutually agreed upon an alternate method of
determining the rates of interest payable on a Eurodollar Loan, as the case
may be, Borrower shall not have the right to request any Eurodollar Loan.
3.9 INCREASED COSTS AND REDUCED RETURN.
(a) If following the date hereof any event shall occur (whether
in the form of a reserve requirement, exchange control regulations,
governmental charges, compliance with any guideline or request from any
central bank or other Governmental changes in the interbank eurodollar
market or the position of any Lender in such market or otherwise) and
the result of any such event is, in any Lender's reasonable judgment, to
increase the costs which such Lender determines are attributable to its
making or maintaining any Eurodollar Loan, or its obligation to make
available any Eurodollar Loan or to reduce the amount of any sum
received or receivable by such Lender under this Agreement or the Note
with respect to any Eurodollar Loan, then, within ten
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days after demand by such Lender, Borrower agrees to pay to such Lender
such additional amount or amounts as will compensate such Lender for
such increased cost or reduction.
(b) In addition to any amounts payable pursuant to Section 3.9
(a), if any Lender shall have determined that the adoption following the
date hereof of any law, rule, regulation or guideline regarding capital
adequacy, or any change after the date hereof in any of the foregoing or
in the enforcement or interpretation or administration of any of the
foregoing by any court or any central bank or other Governmental
Authority charged with the enforcement or interpretation or
administration thereof, or compliance by the Issuing Lender or any
Lender (or any lending office of any Lender) or the Issuing Lender's or
such Lender's holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) issued after
the date hereof by any such authority, central bank or comparable
agency, has the effect of reducing the rate of return on the Issuing
Lender's or such Lender's capital or on the capital of the Issuing
Lender's or such Lender's holding company, if any, as a consequence of
its making or maintaining any Loan, its incurring any Letter of Credit
Obligations, or its incurring any obligations under this Agreement to a
level below that which the Issuing Lender or such Lender or the Issuing
Lender's or such Lender's holding company could have achieved but for
such adoption, change or compliance (taking into consideration the
Issuing Lender's or such Lender's policies and the policies of the
Issuing Lender's or such Lender's holding company with respect to
capital adequacy) by an amount deemed by the Issuing Lender or such
Lender to be material, then, upon demand by the Issuing Lender or such
Lender, Borrower agrees to pay to the Issuing Lender or such Lender from
time to time such additional amount or amounts as will compensate the
Issuing Lender or such Lender or the Issuing Lender's or such Lender's
holding company for any such reduction suffered. Borrower's obligations
under this Section shall survive the termination of this Agreement and
the repayment of the Obligations.
3.10 BREAKAGE COSTS, ETC. Borrower hereby agrees to pay to the
Administrative Agent, the Co-Agents and each Lender, and reimburse each
such Person for, all losses or expenses which it may sustain or incur as a
consequence of failure by Borrower to consummate any notice of prepayment,
borrowing, Conversion or Continuation made by Borrower, including, without
limitation, any such loss or expense arising from interest or fees payable
by any Lender to lenders of funds obtained by it in order to maintain any
Eurodollar Loan. Borrower hereby agrees to pay to the Administrative
Agent, the Co-Agents and each Lender, and to reimburse
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each such Person for, any and all losses or expenses which it may sustain
or incur as a consequence of prepayment of any Eurodollar Loan on other
than the last day of the Interest Period for such Loan (including, without
limitation, any prepayment pursuant to Section 2.11 or any Conversion of a
Eurodollar Loan to a Base Rate Loan pursuant to Section 3.7). Borrower's
obligations under this Section shall survive the termination of this
Agreement and the repayment of the Obligations.
3.11 NOTICE OF AMOUNTS PAYABLE TO THE LENDER. If the
Administrative Agent, the Issuing Lender or any Lender shall seek payment
of any amounts from Borrower pursuant to Sections 2.8(b), 3.9 or 3.10
hereof, it shall notify the Administrative Agent and Borrower of the amount
payable by Borrower thereunder within three months following the date upon
which it first becomes aware that any such amount is owing. A certificate
of the Administrative Agent, the Issuing Lender or such Lender seeking
payment pursuant to Sections 2.8(b), 3.9 or 3.10 hereof, setting forth in
reasonable detail the factual basis for and the computation of the amounts
specified, shall be presumptive evidence, absent manifest error, as to the
amounts owed. Borrower's obligations under this Section shall survive the
termination of this Agreement and the repayment of the Obligations.
3.12 INTEREST SAVINGS CLAUSE. Nothing contained in this
Agreement or in the Notes or in any Letter of Credit Documents or in any of
the other Loan Documents shall be construed to permit any Lender to receive
at any time interest, fees or other charges in excess of the amounts which
such Lender is legally entitled to charge and receive under any law to
which such interest, fees or charges are subject. In no contingency or
event whatsoever shall the compensation payable to such Lender by Borrower,
howsoever characterized or computed, hereunder or under the Note or under
any other agreement or instrument evidencing or relating to the
Obligations, exceed the highest rate permissible under any law to which
such compensation is subject. There is no intention that any Lender shall
contract for, charge or receive compensation in excess of the highest
lawful rate, and, in the event it should be determined that any excess has
been charged or received, then, ipso facto, such rate shall be reduced to
the highest lawful rate so that no amounts shall be charged which are in
excess thereof, and such Lender shall apply such excess against the Loans
then outstanding (with such application being made first against the Base
Rate Loans, to the extent thereof, second against the Eurodollar Loans, to
the extent thereof, and then to any other Obligations hereunder) and, to
the extent of any amounts remaining thereafter, refund such excess to
Borrower.
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4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent, the Co-Agents and
the Lenders to enter into this Agreement and to make Loans and issue or
cause the issuance of Letters of Credit hereunder, Borrower hereby makes
the following representations and warranties to the Administrative Agent,
the Co-Agents and the Lenders, which shall be true and correct in all
material respects on the date hereof and (except to the extent that any
such representation or warranty expressly relates to a particular date)
shall continue to be true and correct in all material respects at the time
of the making of each Loan and upon the issuance of each Letter of Credit:
4.1 CORPORATE EXISTENCE AND QUALIFICATION. Borrower and its
Subsidiaries are each corporations duly organized, validly existing and in
good standing under the laws of their respective states of incorporation.
Borrower and each of its Subsidiaries are duly qualified as foreign
corporations and in good standing in each state wherein the conduct of
their business or the ownership of their property requires such
qualification, except where the failure to be so qualified and in good
standing may not reasonably be expected to have a Material Adverse Effect.
As of the Closing Date, SCHEDULE 4.1 is a listing of each state where
Borrower or any of its Subsidiaries are duly qualified as foreign
corporations.
4.2 CORPORATE AUTHORITY; VALID AND BINDING EFFECT. Borrower and
each of its Subsidiaries have the corporate power and authority to execute,
deliver and perform under this Agreement and the other Loan Documents to
which it is a party, and to borrow and incur the other Obligations, and
each such party has taken all necessary and appropriate corporate action to
authorize the execution, delivery and performance of this Agreement and
such other Loan Documents to which it is a party. This Agreement and the
other Loan Documents to which Borrower and its Subsidiaries are a party
constitute the valid and legally binding obligations of each such party,
enforceable against them in accordance with their respective terms; except
that enforceability may be limited by bankruptcy, insolvency and other laws
affecting creditor's rights generally and except that the availability of
certain remedies may be limited by general principles of equity.
4.3 NO CONFLICT. The execution, delivery and performance by
Borrower and its Subsidiaries of this Agreement and the other Loan
Documents to which it is a party (a) are not in contravention of any
provisions of Applicable Law applicable to Borrower or its Subsidiaries;
(b) will not violate or result in a default under any agreement or
indenture to which Borrower or its Subsidiaries is a party or by which
Borrower or its Subsidiaries is bound; (c) do not contravene the Articles
of
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Incorporation or By-laws of Borrower or its Subsidiaries; and (d) will not
result in or require the creation or imposition of any Lien on any of the
property or assets of Borrower or any of its Subsidiaries other than Liens
in favor of the Administrative Agent under the Loan Documents.
4.4 GOVERNMENTAL ACTION. The execution, delivery and performance
of this Agreement and the other Loan Documents by Borrower and its
Subsidiaries do not require any registration with, consent or approval of,
or any notice to, or other action to, with or by any Governmental Authority
except (a) filings, consent or notices which have been obtained and a copy
thereof furnished to each Lender; and (b) filings necessary to perfect the
Liens granted by this Agreement and the Loan Documents.
4.5 NO LITIGATION. Except as set forth on SCHEDULE 4.5 hereto,
as of the Closing Date there are no proceedings pending or threatened
against Borrower or any of its Subsidiaries before or by any court or
administrative agency.
4.6 SOLVENCY. As of the Closing Date and as of the date hereof,
after giving effect to the execution and delivery of this Agreement and the
other Loan Documents, the consummation of the transactions contemplated
hereby and thereby and the making of each Loan and Letter of Credit
hereunder, Borrower and each of its Subsidiaries are Solvent.
4.7 TAXES. Borrower and each of its Subsidiaries have filed all
federal, state, local and foreign tax returns, reports and estimates which
are required to be filed by it and all taxes (including penalties and
interest, if any) shown on such returns, reports and estimates as being due
and payable or which are otherwise due and payable have been fully paid
(other than taxes contested in good faith by appropriate proceedings
diligently pursued and as to which appropriate reserves have been
established and maintained in conformity with GAAP). Such tax returns
properly and correctly reflect, in all material respects, the income and
taxes of Borrower or such Subsidiary for the periods covered thereby. The
federal tax identification number of Borrower and each of its Subsidiaries
is set forth on SCHEDULE 4.7 attached hereto.
4.8 FINANCIAL INFORMATION.
(a) As of the date hereof, Borrower has provided the Lenders
with the audited consolidated financial statements of Borrower and its
consolidated Subsidiaries for the fiscal year ended December 31, 1996,
including consolidated balance sheets, consolidated income statements
and consolidated statements of cash flow. Such financial statements
have been
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prepared in accordance with GAAP and fairly present, as of the date
thereof and for the periods covered thereby the financial position and
results of operations of Borrower and its Subsidiaries. The Lenders
hereby waive the failure of Borrower to deliver its audited annual
financial statements for its 1997 Fiscal Year on a timely basis
pursuant to the terms of the Existing Loan Agreement, provided this
waiver shall not be construed in derogation of Section 5.2(b).
(b) As of the date hereof, the forecasted financial statements
of Borrower and its Subsidiaries, consisting of balance sheets,
income statements and cash flow statements for Borrower and its
Subsidiaries, and the projected schedules of excess availability,
giving effect to the consummation of the transactions contemplated by
this Agreement covering the four-year period commencing on the date
hereof, prepared on an annual basis and attached hereto as Schedule
4.8 (the "Projections"): (i) are based on reasonable estimates and
assumptions; and (ii) reflected, as of the date prepared, and
continue to reflect, as of the date of this Agreement, the reasonable
estimate of Borrower of the results of operations and other matters
projected therein for the periods covered thereby, it being
understood that the Projections are subject to the uncertainty
inherent in all financial forecasts, and do not constitute a
representation or warranty that the results and other matters
projected therein will in fact be achieved.
4.9 TITLE TO ASSETS. Borrower and each of its Subsidiaries has
good and marketable title to and ownership of the Collateral and all of its
other assets, free and clear of any and all Liens whatsoever except for
Permitted Liens.
4.10 VIOLATIONS OF LAW. Neither Borrower nor any of its
Subsidiaries is in violation of any applicable statute, rule, regulation or
ordinance of any Governmental Authority, the violation of which may be
reasonably expected to have a Material Adverse Effect.
4.11 ERISA. Except as disclosed on SCHEDULE 4.11 attached hereto
and incorporated herein by reference:
(a) Identification of Plans. Neither Borrower nor any ERISA
Affiliate maintains or contributes to, or has maintained or
contributed to, any Plan or Multiemployer Plan that is subject to
regulation by Title IV of ERISA;
(b) Compliance. Each Plan has at all times been maintained,
by its terms and in operation, in accordance with all Applicable
Laws; except
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for such noncompliance (when taken as a whole) that may not
reasonably be expected to have a Material Adverse Effect;
(c) Liabilities. Neither Borrower nor any ERISA Affiliate is
currently or, to the best knowledge of Borrower or any ERISA
Affiliate, will become subject to any liability (including withdrawal
liability), tax or penalty whatsoever to any person whomsoever with
respect to any Plan, including, but not limited to, any tax, penalty
or liability arising under Title I or Title IV of ERISA or Chapter 43
of the Code, except such liabilities (when taken as a whole) which
may not reasonably be expected to have a Material Adverse Effect;
(d) Funding. Except where the same may not reasonably be
expected to have a Material Adverse Effect, Borrower and each ERISA
Affiliate has made full and timely payment of (i) all amounts
required to be contributed under the terms of each Plan and
Applicable Law and (ii) all material amounts required to be paid as
expenses of each Plan. No Plan has any "amount of unfunded benefit
liabilities" (as defined in Section 4001(a)(18) of ERISA); and
(e) Insolvency; Reorganization. No Plan is insolvent (within
the meaning of Section 4245 of ERISA) or in reorganization (within
the meaning of Section 4241 of ERISA).
4.12 ENVIRONMENTAL LAWS. Except as to any matter which does not
have and may not reasonably be expected to have a Material Adverse Effect:
(a) Borrower and each of its Subsidiaries have obtained all
permits, licenses and other authorizations, if any, which are
required under Environmental Laws for the operation of Borrower's and
its Subsidiaries' business and Borrower and each of its Subsidiaries
are in compliance with all terms and conditions of required permits,
licenses and authorizations, and are also in compliance with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, notifications, schedules and timetables
contained in the Environmental Laws;
(b) Neither Borrower nor any of its Subsidiaries is aware of or
has received notice of, the disposal or release or presence of
Hazardous Substances on any of its properties, or of any past,
present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or
prevent compliance or continued compliance on the part
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of Borrower or any such Subsidiary with Environmental Laws, or may
give rise to any common law or legal liability, or otherwise form the
basis of any claim, action, demand, suit, Lien, proceeding, hearing,
study or investigation, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any Hazardous Substance;
(c) All assets of Borrower and its Subsidiaries are free from
Hazardous Substances except for Hazardous Substances used, maintained
or handled by Borrower or such Subsidiary in the ordinary course of
business and the use and disposal of any and all such Hazardous
Substances is effected by Borrower or such Subsidiary in compliance
with all applicable Environmental Laws; and
(d) There is not pending or threatened against Borrower or any
of its Subsidiaries and neither Borrower nor any of its Subsidiaries
knows of any facts or circumstances that might give rise to, any
civil, criminal or administrative action, suit, demand, claim,
hearing, notice or demand letter, notice of violation, environmental
Lien, investigation, or proceeding relating in any way to
Environmental Laws.
4.13 MARGIN STOCK. Neither Borrower nor any of its Subsidiaries is
engaged principally, or as one of its important activities, in the business of
extending credit for buying or carrying Margin Stock, and no part of the
proceeds of any Loan shall be used, directly or indirectly, to purchase or
carry Margin Stock.
4.14 NO DEFAULT. No Default or Event of Default has occurred and
remains continuing.
4.15 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. As of the date
hereof Borrower's and each of its Subsidiaries' principal place of business,
chief executive office and location of its books and records is set forth on
SCHEDULE 4.15 attached hereto and neither Borrower, any of its Subsidiaries nor
any of their respective predecessors has had any other chief executive office or
principal place of business except as set forth on SCHEDULE 4.15 during the five
(5) years immediately preceding the date hereof. As of the date hereof,
SCHEDULE 4.15 attached hereto and incorporated herein by reference sets forth a
true, correct and complete list of all places of business and all locations at
which any Collateral is located.
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4.16 CORPORATE AND TRADE OR FICTITIOUS NAMES. As of the Closing
Date, except as set forth on SCHEDULE 4.16 hereof, during the five (5) years
immediately preceding the date of this Agreement, neither Borrower, any of its
Subsidiaries, nor any of their respective predecessors has been known as or used
any corporate, trade or fictitious name other than its current corporate or
individual name as such name is set forth in this Agreement.
4.17 ADEQUACY OF INTANGIBLE ASSETS. Borrower and each of its
Subsidiaries possesses all intellectual property licenses, patents, patent
applications, copyrights, Trademarks, Trademark Licenses, trademark
applications, and trade names and, as of the date hereof, all governmental
registrations and licenses reasonably necessary to continue to conduct its
business as heretofore conducted by it, and all such intellectual property
licenses, patents, patent applications, copyrights, Trademarks, Trademark
Licenses, trademark applications, trade names, licenses and registrations which
have been registered with any Governmental Authority are listed on SCHEDULE 4.17
hereto.
4.18 INVESTMENT PROPERTY. As of the date hereof, SCHEDULE 4.18 is
a complete list of all Subsidiaries, Investment Property and other Investments
in any Person, including but not limited to, all interests in any partnership or
joint venture. As of the date hereof, except as otherwise disclosed on SCHEDULE
4.18, all shares of stock in any corporation held by Borrower or any of its
Subsidiaries are evidenced by stock certificates issued in the name of Borrower
or such Subsidiary and all other Investment Property of Borrower or any
Subsidiary is held directly in the name of Borrower or such Subsidiary and is
not held in any brokerage or similar account, in the name of any financial
institution or in any nominee name.
4.19 INDEBTEDNESS. SCHEDULE 4.19 hereto is a complete and correct
list, as of the date hereof, of each credit agreement, loan agreement,
indenture, note purchase agreement, Guarantee, Interest Hedge Agreement or other
arrangement providing for or otherwise relating to any Indebtedness to, or
Guarantee by, Borrower or any of its Subsidiaries (other than Indebtedness
inadvertently omitted from that Schedule in an aggregate principal amount which
does not exceed $100,000) and the aggregate principal or face amount outstanding
as of the date hereof or which may become outstanding under each such
arrangement is correctly described in said SCHEDULE 4.19. Neither Borrower nor
its Subsidiaries has any such Indebtedness other than as set forth on SCHEDULE
4.19 or as permitted by Section 6.2 hereof.
4.20 EXISTING LIENS. SCHEDULE 4.20 hereto is a complete and
correct list, as of the date hereof, of each Lien existing on the date hereof
securing
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Indebtedness of Borrower or any of its Subsidiaries and the aggregate principal
amount of such Indebtedness secured by each such Lien is correctly described in
such SCHEDULE 4.20.
4.21 BROKER'S OR FINDER'S FEES. Except for fees to Hal Bibee in
the amount of $300,000, no broker's or finder's fees or commissions have been
incurred or will be payable by Borrower or any of its Subsidiaries to any Person
in connection with the transactions to occur on the Closing Date or the date
hereof contemplated by this Agreement.
4.22 REGULATORY MATTERS. Neither Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended, the Public Utility Holding Company Act of 1935, as amended, the
Federal Power Act, the Interstate Commerce Act or any other federal or state
statute or regulation which limits its ability to incur Indebtedness or its
ability to consummate the transactions contemplated hereby.
4.23 DISCLOSURE. Neither this Agreement nor any other instrument,
document, agreement, financial statement or certificate furnished to the
Administrative Agent, the Co-Agents or any Lender by or on behalf of Borrower or
any of its Subsidiaries in connection herewith contains an untrue statement of a
material fact or omits to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.24 EMPLOYEE MATTERS. As of the date hereof, there is no strike
or work stoppage in existence or threatened against or by any employees of
Borrower or its Subsidiaries. As of each subsequent date, there is no strike or
work stoppage in existence involving fifteen percent or more of the total
workforce of Borrower and its Subsidiaries.
4.25 WITHHOLDING AND OTHER TAXES. Borrower and its Subsidiaries have
properly withheld and currently paid all applicable federal and state
unemployment taxes and other federal and state taxes payable with respect to
the income of their employees (including without limitation, all taxes and
other amounts withheld pursuant to their employees' IRS form W-4, all social
security, all Federal Insurance Contribution Act ("FICA") contributions and all
Federal Unemployment Tax Act contributions), and have currently paid all
workers compensation insurance, disability and insurance benefits properly
payable with respect to their employees, other than immaterial amounts not paid
through oversight and promptly corrected.
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4.26 DEPOSIT ACCOUNTS. Each deposit, brokerage or similar account
maintained by Borrower or its Subsidiaries is described on SCHEDULE 4.26 or has
been disclosed in writing to the Administrative Agent.
4.27 MATERIAL CONTRACTS. As of the date hereof, SCHEDULE 4.27
lists each material instrument, document and agreement to which Borrower or any
of its Subsidiaries are party to purchase or sell products having a value in
excess of $100,000 or calling for performance of services having a value in
excess of $100,000 per annum, other than routine purchase orders in the ordinary
course of the business of Borrower and its Subsidiaries.
5. AFFIRMATIVE COVENANTS
Borrower hereby covenants to the Administrative Agent, the
Co-Agents, the Issuing Lender and the Lenders that from and after the date
hereof, and until the termination of this Agreement in accordance with Section
2.7 hereof, unless the Majority Lenders otherwise consent in writing, Borrower
shall, and shall cause each of its Subsidiaries to:
5.1 RECORDS RESPECTING COLLATERAL; LOCKBOX OR BLOCKED ACCOUNT
ARRANGEMENTS. Keep all records with respect to the Collateral at its respective
office set forth on SCHEDULE 4.15 hereof and not remove such records from such
addresses without the prior written consent of the Co-Agents and, upon request
of the Co-Agents or the Majority Lenders, enter into such lockbox or blocked
account arrangement with respect to its deposit accounts and the collection of
the Accounts and execute and deliver such documents in connection therewith as
the Co-Agents or the Majority Lenders may reasonably require, provided that such
arrangements shall permit Borrower and its Subsidiaries to withdraw, direct the
disbursement of, and exercise sole dominion and control over, any and all of
their cash and Cash Equivalents except as otherwise directed by the
Administrative Agent (with the consent of the Majority Lenders) at any time when
an Event of Default has occurred and remains continuing, with any notice thereof
by the Administrative Agent to the depositary to be conclusive upon the
depositary.
5.2 REPORTING REQUIREMENTS. Furnish or cause to be furnished to the
Co-Agents and each Lender:
(a) As soon as practicable, and in any event within thirty days
after the end of each month (except in the case of December, with
respect to
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which forty five days shall be allowed), interim unaudited
consolidated and consolidating financial statements of Borrower and
its Subsidiaries, for Borrower and its consolidated Subsidiaries,
including a balance sheet, income statements and statements of cash
flow, for the month and year-to-date period then ended, prepared in
accordance with GAAP (subject to the absence of footnotes and year
end adjustments allowed by GAAP) and certified by the chief financial
officer of Borrower, together with a comparison of such financial
statements to budget and the financial statements for the prior year,
together with a narrative management discussion and analysis of such
financial results;
(b) Not later than May 20, 1998 (with respect to Borrower's
Fiscal Year 1997), and as soon as available, and in any event within
ninety days after the end of each subsequent Fiscal Year, audited
consolidated annual financial statements of Borrower and its
consolidated Subsidiaries, including consolidated balance sheets,
consolidated income statements and consolidated statements of cash
flow for the Fiscal Year then ended, prepared in accordance with
GAAP, in comparative form and accompanied by the unqualified opinion
of a nationally recognized firm of independent certified public
accountants retained by Borrower and its Subsidiaries;
(c) Together with the financial statements referred to in
clauses (a) and (b) above, (i) a compliance certificate of the chief
financial officer of Borrower, in substantially the form of Exhibit D
hereto (the "Compliance Certificate"), setting forth the calculations
for determining compliance with the financial covenants set forth in
Article 7 hereof and certifying that such calculations are true and
accurate and that no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which
is proposed to be taken with respect thereto;
(d) Together with the financial statements described in clause
(a) above, a summary accounts receivable aging as of the date of such
financial statements, showing separately for Borrower and each
Subsidiary, in summary form, the aggregate dollar value of the
Accounts of each and indicating the aggregate value of the Accounts
that are past due and whether such Accounts are thirty, sixty or
ninety or more days past due and containing such other information
regarding such Accounts as the Co-Agents or the Majority Lenders may
request, all as of the last day of the preceding month (and, if
requested by either Co-Agent not more often than once each calendar
quarter, a full aging of accounts receivable by customer);
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(e) As soon as practicable, and in any event within thirty
days after the end of each calendar quarter, a report showing
profitability by each branch office of Borrower and its Subsidiaries;
(f) Within 15 days after the sending or filing thereof, as the
case may be, copies of any definitive proxy statements, financial
statements or reports which Borrower sends to its shareholders and
copies of any regular periodic and special reports or registration
statements which Borrower files with the Securities and Exchange
Commission (or any Governmental Authority substituted therefor),
including, but not limited to, all Form 10-K and Form 10-Q reports,
if any, or any report or registration statement which Borrower files
with any national securities exchange;
(g) At least fifteen Business Days prior to the time any
consent by the Majority Lenders or the Co-Agents will be necessary,
Borrower shall furnish to the Co-Agents and the Lenders all pertinent
information regarding any proposed Acquisition which is reasonably
necessary or appropriate to permit the Lenders to evaluate whether
such proposed is a Permitted Acquisition in a manner consistent with
prudent banking standards;
(h) At least fifteen days prior to the end of each Fiscal
Year, a consolidating budget and projection for the coming Fiscal
Year, in form and detail reasonably satisfactory to the
Administrative Agent;
(i) At least 10 days prior to the beginning of each Pricing
Period, a pricing certificate in a form reasonably acceptable to the
Administrative Agent setting forth the Senior Funded Debt to EBITDA
Ratio as of the immediately preceding Test Date; and
(j) Such other information respecting the condition or
operations, financial or otherwise, of Borrower and its Subsidiaries
as any the Lenders may from time to time reasonably request.
(k) As soon as practicable, and in any event within thirty
days after the end of each Fiscal Quarter, (a) a report of Earn-Out
payments theretofore made in Borrower's Fiscal Year to date, and (b)
updates to the projections delivered pursuant to clause (e) of the
definition of "Permitted Acquisition" showing the amount of Earn-Outs
reasonably projected to be payable by Borrower and its Subsidiaries
with respect to each Acquired Business. Each such projection and
calculation shall be certified by the chief
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financial officer of Borrower and shall be reasonably acceptable to
the Majority Lenders.
5.3 TAX RETURNS. File all federal, state and local tax returns
and other reports that Borrower and its Subsidiaries are required by law to
file, maintain adequate reserves for the payment of all taxes, assessments,
governmental charges and levies imposed upon its income, or its profits, or upon
any property belonging to it, and pay and discharge all such taxes, assessments,
governmental charges and levies prior to the date on which penalties attach
thereto, except where the same may be contested in good faith by appropriate
proceedings and for which adequate reserves have been established to the extent
required by GAAP.
5.4 COMPLIANCE WITH LAWS. Comply with all laws, statutes, rules,
regulations and ordinances of any Governmental Authority applicable to Borrower
or its Subsidiaries, including, without limitation, any such laws, statutes,
rules, regulations or ordinances regarding the collection, payment, and deposit
of employees' income, unemployment, and Social Security taxes and with respect
to pension liabilities, the violation of which may reasonably be expected to
have a Material Adverse Effect.
5.5 ENVIRONMENTAL LAWS. Comply with all Environmental Laws, the
violation of which may reasonably be expected to have a Material Adverse Effect,
and, in the event of any "release" or "threatened release" of any Hazardous
Substance onto, at or under the property of Borrower or any of its Subsidiaries
which requires or may require notification, response, assessment, investigation
or remedial action pursuant to any Environmental Law, notify the Lenders and all
appropriate Governmental Authorities thereof, and proceed with due diligence
and, at the cost and expense of Borrower or such Subsidiary, to respond
appropriately, in material compliance with the requirements of the Environmental
Laws.
5.6 ERISA. Cause itself and each of its ERISA Affiliates to:
(a) At all times make prompt payment of contributions
required to meet the minimum funding standards set forth in Sections
302 and 305 of ERISA with respect to each Plan and otherwise comply
with ERISA and all rules and regulations promulgated thereunder;
(b) Promptly after the occurrence thereof with respect to any
Plan, or any trust established thereunder, notify the Administrative
Agent and the Lenders of (i) a "reportable event" described in
Section 4043 of ERISA and
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the regulations issued from time to time thereunder (other than a
"reportable event" not subject to the provisions for 30-day notice to
the PBGC under such regulations), or (ii) any other event which could
subject Borrower or any ERISA Affiliate to any material tax, penalty
or liability under Title I or Title IV of ERISA or Chapter 43 of the
Code;
(c) At the same time and in the same manner as such notice
must be provided to the PBGC, or to a Plan participant, beneficiary
or alternative payee, give the Administrative Agent and the Lenders
any notice required under Section 101(d), 302(f)(4), 303, 307,
4041(b)(1)(A) or 4041(c)(1)(A) or ERISA or under Section 401(a)(29)
or 412 of the Code with respect to any Plan;
(d) Furnish to the Lenders, promptly upon the request of any
Lender, (i) true and complete copies of any and all documents,
government reports and determination or opinion letters for any Plan;
and (ii) a current statement of withdrawal liability, if any, for
each Multiemployer Plan; and
(e) Furnish to the Lenders, promptly upon the request of any
Lender therefor, such additional information concerning any Plan as
may be reasonably requested.
5.7 BOOKS AND RECORDS. Keep adequate records and books of account
with respect to its business activities in which proper entries are made in
accordance with GAAP reflecting all its financial transactions.
5.8 NOTIFICATIONS TO THE ADMINISTRATIVE AGENT, THE CO-AGENTS AND
THE LENDERS. Notify the Administrative Agent, the Co-Agents and the Lenders
promptly by telephone (with each such notice to be confirmed in writing within
ten Business Days): (a) upon any Senior Officer of Borrower or its Subsidiary
learning of any litigation affecting Borrower or any of its Subsidiaries
claiming damages of $500,000 or more, individually or when aggregated with other
litigation pending against Borrower or any of its Subsidiaries, in excess of the
amount covered by insurance, and of the threat or institution of any suit or
administrative proceeding against Borrower or any of its Subsidiaries which may
reasonably be expected to have a Material Adverse Effect (and, in any such event
Borrower and its Subsidiaries shall establish such reasonable reserves with
respect thereto as are required by GAAP); (b) upon occurrence thereof, of any
Default or Event of Default hereunder; (c) upon any Senior Officer of Borrower
or its Subsidiaries learning of the occurrence thereof, of any event or
condition which may reasonably be expected to have a Material
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Adverse Effect; and (d) upon any Senior Officer of Borrower or its Subsidiaries
learning of the occurrence thereof, of Borrower's or any of its Subsidiaries'
default under (i) any note, indenture, loan agreement, mortgage, lease, deed or
other similar agreement relating to any Indebtedness of Borrower or such
Subsidiary which is in an amount which is in excess of $100,000 or (ii) any
other instrument, document or agreement to which Borrower or any of its
Subsidiaries is a party or by which Borrower or any of its Subsidiaries or any
of their respective properties is bound, the default of which may reasonably be
expected to have a Material Adverse Effect.
5.9 INSURANCE.
(a) Keep all of its property insured by insurance companies
having A.M. Best ratings of not less than A- which are licensed to
do business in all jurisdictions in which the Collateral is located
against loss or damage by fire or other risk usually insured against
under extended coverage endorsement and theft, burglary, and
pilferage, together with such other hazards as the Majority Lenders
may reasonably from time to time request, in amounts satisfactory to
the Majority Lenders and naming the Administrative Agent, for the
benefit of the Administrative Agent, the Co-Agents and the Lenders,
as loss payee thereon pursuant to a loss payee clause satisfactory to
the Co-Agents;
(b) Maintain at all times liability insurance coverage against
such risks and in such amounts as are customarily maintained by
others in similar businesses, such insurance to be carried by
insurance companies having A.M. Best ratings of not less than A-
which are licensed to do business in the states in which Borrower and
its Subsidiaries conduct business, including without limitation
statutory limits of worker's compensation insurance including
employer's liability to the extent required by Applicable Law; and
(c) Deliver certificates of insurance for such policy or
policies to the Administrative Agent, containing endorsements, in
form satisfactory to the Lenders, providing that the insurance shall
not be cancelable, except upon thirty days' prior written notice to
the Administrative Agent. In the event of any termination or notice
of nonpayment by any insurer with respect to any policy or any lapse
in the coverage thereunder, Borrower shall cause such insurer to give
prompt written notice to the Administrative Agent of the occurrence
of such termination, nonpayment or lapse.
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5.10 MAINTENANCE OF INTELLECTUAL PROPERTY. Keep all General
Intangibles in full force and effect except where the failure to do so may not
reasonably be expected to have a Material Adverse Effect.
5.11 PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain
its corporate existence, rights, franchises and privileges in the jurisdiction
of its incorporation, and qualify and remain qualified as a foreign corporation
in each instance to the extent necessary in view of its business and operations
or the ownership of its properties.
5.12 ADDITIONAL DOCUMENTS. Upon formation or Acquisition by
Borrower or any Subsidiary of Borrower of any new Subsidiary, deliver, or cause
to be delivered to the Administrative Agent, for the benefit of the
Administrative Agent, the Issuing Lender and the Lenders, each in form and
substance satisfactory to the Co-Agents, a Guarantee, Pledge and Security
Agreement and Drop-Down Note and Drop Down Note Pledge and Security Agreement
executed by such new Subsidiary, and 100% of the issued and outstanding capital
stock of such new Subsidiary in pledge to the Administrative Agent to secure the
Obligations, together with all other instruments, documents or agreements
reasonably necessary or desirable to create, evidence or perfect a lien on or
security interest in favor of the Administrative Agent, for the benefit of the
Administrative Agent, the Co-Agents, the Issuing Lender and the Lenders, in the
personal property assets of such new Subsidiary (and, where required by Section
5.14, the other assets thereof) and/or to reaffirm the Obligations of Borrower
and its Subsidiaries.
5.13 INSPECTION RIGHTS. Upon reasonable notice, at any time during
regular business hours and as often as requested (but not so as to materially
interfere with the business of Borrower and its Subsidiaries), permit the
Administrative Agent or any Lender, or any authorized employee, agent or
representative thereof (a) to examine, audit and make copies and abstracts from
the records and books of account of Borrower and its Subsidiaries, (b) to visit
and inspect the Properties of Borrower and its Subsidiaries, and (c) to discuss
the affairs, finances and accounts of Borrower and its Subsidiaries with any of
their officers, key employees, accountants and customers; and, upon request,
furnish promptly to the Administrative Agent or any Lender true copies of all
financial information made available to the senior management of Borrower.
5.14 ADDITIONAL COLLATERAL AND GUARANTEES. Upon the acquisition
after the Closing Date by Borrower and its Subsidiaries of any real property or
tangible
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personal property having an aggregate value in excess of $500,000 grant to the
Administrative Agent first priority Liens thereon upon request of the Majority
Lenders.
5.15 INTEREST HEDGE AGREEMENTS. On or prior to September 30, 1998,
Borrower shall enter into Interest Hedge Agreements reasonably acceptable to the
Administrative Agent covering not less than $11,000,000 of the principal
Indebtedness evidenced by this Agreement (as set forth in the Projections) for a
period of three years from such date, and against changes in market interest
rates of 150 basis points or more. Borrower hereby agrees it they shall provide
the Co-Agents with the identity of any proposed provider of any such Interest
Hedge Agreement and the price at which Borrower proposes to enter into such
Interest Hedge Agreement with that provider, and that it shall instead enter
into a similar Interest Hedge Agreement with the Co-Agents (at their option
ratably or with either willing Co-Agent) if the price proposed by the Co-Agents
or willing Co-Agent is not greater than that proposed by the alternative
provider.
6. NEGATIVE COVENANTS
Borrower hereby covenants with the Administrative Agent, the
Co-Agents, the Issuing Lender and the Lenders that from and after the date
hereof and until the termination of this Agreement in accordance with Section
2.7 hereof, without the prior written consent of the Majority Lenders, Borrower
shall not, and shall not permit any of its Subsidiaries to:
6.1 LIENS. Create, incur, assume, or suffer to exist any Lien of
any kind in any of the Collateral or their other assets other than Permitted
Liens, or grant any covenant to any Person prohibiting the granting of any Lien
in favor of the Administrative Agent and the Lenders, except:
(a) Purchase money Liens and Capital Lease Obligations with
respect to tangible personal property securing Indebtedness permitted
under Section 6.2(c); and
(b) Liens outstanding against tangible personal property
acquired in a Permitted Acquisition and not granted in contemplation
of the Acquisition securing Indebtedness permitted under Section
6.2(c).
6.2 INDEBTEDNESS AND EARN-OUTS. Incur, assume, or suffer to
exist any Indebtedness or Earn-Outs except for (a) the Obligations; (b)
Indebtedness existing on the Closing Date and listed on SCHEDULE 4.20 (or not so
listed out of inadvertence
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provided that the aggregate amount thereof does not exceed $100,000) and
refinancings thereof provided that the amount thereof does not exceed the amount
so refinanced; (c) Capital Lease Obligations in an amount which is not in excess
of $2,000,000, in aggregate, the incurrence of which does not cause a pro forma
violation of Sections 7.1 or 7.2, (d) other purchase money Indebtedness or
unsecured Indebtedness (including the amount of Projected Earn-Outs for all
Earn-Outs which are not subject to a Subordination Agreement) in an aggregate
principal amount which does not exceed $2,000,000; (e) Earn-Outs associated with
the acquisition by Borrower of NPS of Atlanta, Inc. and Intranational Computer
Consultants, Inc. (as described in the acquisition agreements therefor in
existence as of February 23, 1998, and March 2, 1998 but without any later
increase to such Earn-Outs), (f) Subordinated Obligations incurred when no
Default or Event of Default exists, and (g) Earn-Outs which are subject to
Subordination Agreements.
6.3 ASSET SALES. Sell, lease, transfer or otherwise dispose of any or
all of the Collateral or any interest therein or any of their other assets other
than (a) the sale of Inventory in the ordinary course of business; (b) the sale
of Cash Equivalents in the ordinary course of business, and (c) the sale of
other assets having an aggregate value in excess of $1,000,000 during any Fiscal
Year.
6.4 GUARANTIES. Guarantee the obligations of any other Person (other
than the obligations of Borrower or any of its wholly-owned Subsidiaries) except
by endorsement of negotiable instruments for deposit or collection and similar
transactions in the ordinary course of business.
6.5 INVESTMENTS AND ACQUISITIONS. Make or suffer to exist any
Investment or Acquisitions except:
(a) Investments existing as of the date hereof and disclosed on
SCHEDULE 4.19;
(b) Investments in Subsidiaries made pursuant to the Drop-Down
Notes;
(c) Permitted Acquisitions;
(d) Interest Hedge Agreements with respect to the Obligations;
(e) other Investments which do not exceed $2,000,000, in the
aggregate, outstanding at any time; and
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(f) Investments in Cash Equivalents.
6.6 PROHIBITION OF FUNDAMENTAL CHANGES. Enter into any transaction of
merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution) or make any substantial change
in the basic type of business conducted by Borrower and its Subsidiaries as of
the date hereof except that:
(a) Borrower or any of its Subsidiaries may merge or consolidate
with any Person to consummate any Permitted Acquisition permitted by
Section 6.5 hereof, provided, however, that (i) Borrower or such Subsidiary
is the corporation surviving such merger or consolidation and (ii) there
then exists no Default or Event of Default nor any event or conditions
which, with the consummation of such merger, would constitute a Default or
Event of Default.
(b) any Subsidiary of Borrower may be merged or consolidated with
or into: (i) Borrower if Borrower shall be the continuing or surviving
corporation; or (ii) any other Person to consummate an Acquisition
permitted by Section 6.5 hereof, provided that, after giving effect to such
merger or consolidation, the Person surviving the merger or consolidation
is a wholly-owned Subsidiary of Borrower; or (iii) any other Subsidiary;
provided that if any such transaction shall be between a Subsidiary and a
wholly-owned Subsidiary, the wholly-owned Subsidiary shall be the
continuing or surviving corporation.
6.7 FISCAL YEAR. Change its fiscal year end from December 31, unless
(a) as promptly as practicable and in any event at least 30 days prior to such
change, Borrower provides written notice of such change to the Lenders, and (b)
Borrower, with the consent of all of the Lenders, enters into such amendments
hereto as the Majority Lenders reasonably request to accommodate such change
prior to the effective date thereof.
6.8 ERISA.
(a) At any time, maintain, or be or become obligated to
contribute on behalf of its employees to, any "employee pension benefit
plan" that is subject to Title IV of ERISA other than those Plans disclosed
in SCHEDULE 4.11 and Multiemployer Plans to which Borrower or any of its
Subsidiaries becomes
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obligated to contribute pursuant to the terms of a collective bargaining
agreement.
(b) At any time, permit any Plan to:
(i) engage in any non-exempt "prohibited transaction", as
such term is defined in Section 4975 of the Code;
(ii) incur any material "accumulated funding deficiency", as
that term is defined in Section 302 of ERISA; or
(iii) suffer a Termination Event to occur which may reasonably
be expected to result in liability of Borrower or any ERISA Affiliate
thereof to the Plan or to the PBGC or the imposition of a Lien on the
property of Borrower or any ERISA Affiliate thereof pursuant to Section
4068 of ERISA.
(c) Fail, upon a Senior Officer of Borrower becoming aware thereof,
promptly to notify the Administrative Agent of the occurrence of any
"reportable event" (as defined in Section 4043 of ERISA) or of any
non-exempt "prohibited transaction" (as defined in Section 4975 of the
Code) with respect to any Plan described in SCHEDULE 4.11 or any trust
created thereunder.
(d) At any time, permit any Plan described in SCHEDULE 4.11 to fail to
comply with ERISA or other Applicable Laws in any respect that could result
in a significant liability to Borrower or any of its Subsidiaries.
6.9 RELOCATIONS; USE OF NAME. Relocate its executive offices, open
new places of business or relocate existing places of business, maintain any
Collateral or records with respect to Collateral at any other locations than
those locations presently kept or maintained, as set forth on SCHEDULE 4.15
hereto, or use any corporate name (other than its own) or any fictitious name
except, in each case, upon thirty days prior written notice to the
Administrative Agent and after the delivery to the Administrative Agent of
financing statements in form satisfactory to the Majority Lenders.
6.10 ARM'S-LENGTH TRANSACTIONS. Enter into any transaction, including,
without limitation, the purchase, sale or exchange of property or the rendering
of any service or the payment of management or other service fees, with any
Affiliate except in the ordinary course of and pursuant to the reasonable
requirements
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of Borrower's or such Subsidiary's business and upon fair and reasonable terms
which are fully disclosed to the Administrative Agent, the Co-Agents and the
Lenders in writing and which are no less favorable to Borrower and its
Subsidiaries than those which would prevail in a comparable arm's-length
transaction with a Person not an Affiliate.
6.11 HOSTILE TENDER OFFERS. Make any offer to purchase or acquire, or
consummate a purchase or acquisition of, 5% or more of the Capital Stock of any
corporation or other business entity if the board of directors or management of
such corporation or business entity has notified Borrower or its Subsidiaries
that it opposes such offer or purchase.
6.12 PURE HOLDING COMPANY. Permit Borrower to own any material Property
other than the Capital Stock of its Subsidiaries, the Drop-Down Notes, other
passive Investments, and other immaterial assets not associated with the conduct
of an operating business.
6.13 ISSUANCE OF SUBORDINATED OBLIGATIONS AND EARN-OUTS. Fail to
provide to the Lenders, not less than 15 Business Days prior to (a) the issuance
of any Subordinated Obligations which will or may require any cash payment of
principal or interest prior to the Maturity Date (including any Earn-Outs which
are contractually subordinated to the Obligations pursuant to a Subordination
Agreement (or in another manner acceptable to the Majority Lenders)), (b) any
amendment to any such Subordinated Obligations providing for any such payments,
and (c) entering into any agreement to acquire an Acquired Business which
provides for an Earn-Out, an analysis and projection demonstrating, to the
reasonable satisfaction of the Majority Lenders that, giving effect to the
acquisition of the Acquired Business and to any cash payments which are
reasonably projected to be made prior to the Maturity Date with respect to such
Subordinated Obligations, Borrower will be projected, as of that date, remain in
compliance with the financial covenants set forth in Sections 7.1, 7.2 and 7.3
for the remaining term of this Agreement. It is understood that any such
projections will be subject to the uncertainty inherent in all financial
forecasts, and will not constitute a representation or warranty that the results
and other matters projected therein will in fact be achieved.
6.14 EARN-OUTS. Enter into any agreement providing for any Earn-Out
with respect to any Acquired Business other than:
(a) the Earn-Outs provided for in the NPS and ICC transactions
referred to in with Section 6.2(e);
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(b) other Earn-Outs, for which the related Projected Earn-Out amount
of which is permitted under Section 6.2(d); and
(c) Earn-Outs which are subject to a Subordination Agreement.
Each agreement providing for the payment of an Earn-Out shall provide for the
payment thereof not more frequently than quarterly.
7. FINANCIAL COVENANTS
Borrower hereby covenants with the Administrative Agent, the Co-Agents,
the Issuing Lender and the Lenders that from and after the date hereof and
until the termination of this Agreement in accordance with Section 2.7 hereof
unless the Majority Lenders otherwise consent in writing, that Borrower shall
not, and shall not permit any of its Subsidiaries to:
7.1 SENIOR FUNDED DEBT TO EBITDA. Permit the Senior Funded Debt to
EBITDA Ratio, as of the last day of any calendar month occurring during a period
set forth below, to be greater than the ratio set forth opposite that period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Closing Date through
December 31, 1998 4.00:1.00
Thereafter 3.50:1.00
</TABLE>
7.2 TOTAL FUNDED DEBT TO EBITDA. Permit the Total Funded Debt to
EBITDA Ratio, as of the last day of any calendar month occurring during a period
set forth below, to be greater than the ratio set forth opposite that period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Closing Date through
December 31, 1998 5.50:1.00
January 1, 1999 through
December 31, 1999 5.00:1.00
January 1, 2000 through
December 31, 2000 4.75:1.00
Thereafter 4.50:1.00
</TABLE>
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7.3 INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio as of
the last day of any calendar month ending during a period set forth below, to be
less than the ratio set forth opposite that period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
Closing Date through
December 31, 1999 2.00:1.00
Thereafter 2.25:1.00
</TABLE>
7.4 DIVIDENDS AND MANAGEMENT FEES.
(a) Declare or pay any dividends on, or make any distribution with respect
to, the shares of any class of their Capital Stock, or purchase, redeem,
acquire, defease or retire any shares of their Capital Stock, or take any action
having an effect equivalent to the foregoing except that any Subsidiary of
Borrower may declare and pay dividends to Borrower, and the Borrower may make
payments on Subordinated Obligations if such payments are permitted at that time
under the governing Subordination Agreement;
(b) Pay any Management Fees, except for Management Fees paid to William E.
Simon & Sons, LLC and Mellon Ventures, Inc. pursuant to the Management Agreement
in equal installments on the last day of each Fiscal Quarter and when no Default
or Event of Default exists in an aggregate amount which do not exceed $500,000
during any twelve month fiscal period, provided that, if so directed by the
Majority Lenders at any time when any Default or Event of Default has occurred
and remains continuing (or would result from the payment thereof), Borrower and
its Subsidiaries shall immediately cease making payments of any Management Fees
(but may resume the making of such payments when no Default or Event of Default
continues to exist); and
(c) The Merger Distributions and repurchases of common stock of Borrower
from employees in connection with the termination of the employment relationship
in an aggregate amount not to exceed $1,000,000 in any Fiscal Year or $3,000,000
during the term of this Agreement.
7.5 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF
INDEBTEDNESS. (a) Make any voluntary or optional payment or prepayment on or
with respect to any Indebtedness permitted by Section 6.2 (other than
Indebtedness
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permitted by Section 6.2(a)) or (b) amend or modify, or permit the amendment or
modification of, any provision of any Indebtedness permitted by Section 6.2
(other than Indebtedness permitted by Section 6.2(a)) or of any agreement
(including, without limitation, any purchase agreement, indenture, loan
agreement or security agreement) relating to any of the foregoing, provided that
this Section shall not prohibit the making of any payments with respect to
Subordinated Obligations which are permitted by the related Subordination
Agreement.
8. EVENTS OF DEFAULT
The occurrence of any of the following events or conditions shall
constitute an Event of Default hereunder:
8.1 OBLIGATIONS. Borrower or any of its Subsidiaries shall fail to
pay (a) any principal amount of the Loans or any amount reimbursable with
respect to any of the Letters of Credit, when due, or (b) any interest, fees or
other amounts due and owing under this Agreement or the other Loan Documents or
with respect to any other Obligation, whether in respect of principal, interest,
fees or otherwise, including without limitation the fees specified in the Fee
Letter, within two Business Days following the date when due.
8.2 MISREPRESENTATIONS. Borrower or any of its Subsidiaries shall
make any representation or warranty in this Agreement or any of the other Loan
Documents or in any certificate or statement furnished at any time hereunder or
in connection with this Agreement or any of the other Loan Documents which
proves to have been untrue or misleading in any material respect when made or
furnished and which continues to be untrue or misleading in any material
respect.
8.3 CERTAIN COVENANTS. Borrower or any of its Subsidiaries shall
default in the observance or performance of any covenant in Article 5 hereof
(other than Section 5.8) applicable to Borrower or such Subsidiary and such
default continues for thirty days after notice thereof.
8.4 OTHER COVENANTS. Borrower or any of its Subsidiaries shall
default in the observance or performance of any other covenant applicable to
Borrower or such Subsidiary under this Agreement or any of the other Loan
Documents.
8.5 OTHER DEBTS. (a) Borrower or any of its Subsidiaries shall fail
to pay any principal of or premium or interest on any of its Indebtedness in an
aggregate amount which is not less than $500,000 when the same becomes due and
payable
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(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace or cure
period, if any, specified in the agreement, mortgage, indenture or instrument
relating to such Indebtedness; or (b) any other event shall occur or condition
shall exist under any agreement, mortgage, indenture or instrument relating to
any such Indebtedness and shall continue after the applicable grace or cure
period, if any, specified in such agreement, mortgage, indenture or instrument,
if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or (c) any such Indebtedness
shall be accelerated or otherwise declared to be due and payable prior to the
stated maturity thereof, or (d) any such Indebtedness shall be required to be
prepaid (other than by a regularly scheduled required prepayment), redeemed,
purchased or defeased, or an offer to repay, redeem, purchase or defease such
Indebtedness shall be required to be made, in each case prior to the stated
maturity thereof.
8.6 TAX LIEN. A notice of Lien, levy or assessment is filed of record
with respect to all or any assets of Borrower or any of its Subsidiaries by the
United States or any other Governmental Authority in an amount exceeding
$100,000, including, without limitation, the PBGC, which adversely affects the
priority of the Liens granted to the Administrative Agent hereunder or under any
of the other Loan Documents.
8.7 ERISA. The occurrence of a Termination Event with respect to any
Plan if the aggregate liability of Borrower or any of its ERISA Affiliates
under ERISA as a result thereof exceeds $100,000; or the complete or partial
withdrawal by Borrower or any of its ERISA Affiliates from any Multiemployer
Plan if the aggregate liability of Borrower or any of its ERISA Affiliates as a
result thereof exceeds $100,000.
8.8 VOLUNTARY BANKRUPTCY. Borrower or any of its Subsidiaries shall:
(a) file a voluntary petition or assignment in bankruptcy or a voluntary
petition or assignment or answer seeking liquidation, reorganization,
arrangement, readjustment of its debts, or any other relief under the Bankruptcy
Code, or under any other act or law pertaining to insolvency or debtor relief,
whether State, Federal, or foreign, now or hereafter existing; (b) enter into
any agreement indicating consent to, approval of, or acquiescence in, any such
petition or proceeding; (c) apply for or permit the appointment, by consent or
acquiescence, of a receiver, custodian or trustee of itself or themselves or for
all or a substantial part of its or their property; (d) make an assignment for
the benefit of creditors; or (e) admit in writing its or their inability or
failure to pay its or their debts generally as such debts become due.
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8.9 INVOLUNTARY BANKRUPTCY. There occurs (a) a filing or issuance
against Borrower or any of its Subsidiaries of an involuntary petition in
bankruptcy or seeking liquidation of Borrower or such Subsidiary,
reorganization, arrangement, readjustment of its or their debts or any other
relief under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether State, Federal or foreign, now or hereafter
existing and either such proceeding shall continue in effect for a period of
sixty days or an order for relief against Borrower or any of its Subsidiaries
shall be entered therein; (b) the involuntary appointment of a receiver,
liquidator, custodian, or trustee of Borrower or any of its Subsidiaries or for
all or a substantial part of its or their property which remains undischarged or
undismissed for a period of sixty days; or (c) the issuance of a warrant of
attachment, execution or similar process against all or any substantial part of
the property of Borrower or any of its Subsidiaries, which is not released,
vacated or fully bonded for a period of sixty days.
8.10 SUSPENSION OF BUSINESS. The suspension of the transaction of the
usual business of Borrower or any of its Subsidiaries or the dissolution of
Borrower or any of its Subsidiaries.
8.11 JUDGMENTS. Any judgment, decree or order for the payment of money
which, when aggregated with all other judgments, decrees or orders for the
payment of money pending against Borrower or any of its Subsidiaries exceeds the
sum of $100,000, shall be rendered against Borrower or any of its Subsidiaries
and remain unsatisfied and in effect for a period of sixty consecutive days or
more without being vacated, discharged, satisfied or stayed or bonded pending
appeal.
8.12 FAILURE OF SECURITY. At any time (a) Liens in favor of the
Administrative Agent contemplated by the Loan Documents shall, at any time, for
any reason (except by reason of an affirmative act or omission of the
Administrative Agent), be invalidated or otherwise cease to be in full force and
effect with respect to any Collateral having an aggregate value in excess of
$500,000; (b) Liens on Collateral having an aggregate value in excess of
$500,000 shall be subordinated or shall not have the priority contemplated by
this Agreement or the other Loan Documents; or (c) Borrower or any other Loan
Party under any such Loan Document asserts in writing that it is not bound by
the terms of the Loan Documents to which it is a party or otherwise repudiates
the same in writing.
8.13 GUARANTY. At any time, for any reason other than the consent of
the Lenders, any guaranty of the Obligations ceases to be in full force and
effect in any
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material respect or the guarantor thereunder repudiates its obligations
thereunder in writing.
8.14 MANAGEMENT. Less than two of William W. Wilkinson, William J.
Wilkinson, Jerry F. Stone, T. Wayne McCreight, D. Crawford Gallimore and Thomas
Murphy (or other persons reasonably acceptable to the Majority Lenders) continue
to be actively involved in a senior management capacity with Borrower and its
Subsidiaries.
8.15 CHANGE OF CONTROL. Any of the following occur: (a) a Person or
"group" (within the meaning of the Securities Exchange Act of 1934), other than
the Persons owning interests in Borrower as of the Closing Date, acquires or
obtains beneficial owners of securities (including options) of Borrower
representing a majority of the ordinary voting power of Borrower, or (b) there
shall occur a change in the composition of the Board of Directors of Borrower
such that the current directors (or directors designated or approved by such
directors or directors approved by such directors) do not constitute a majority
of the Board of Directors of Borrower in office at any time, or (c) William E.
Simon & Sons, LLC and Mellon Ventures, Inc. (or their Affiliates), shall fail to
collectively own, directly or indirectly, beneficially and of record, and
control the power to vote, at least 50% of the Capital Stock of Borrower owned
by them as of the Closing Date (and any shares of Capital Stock issued to them
by reason of such ownership), unless Borrower has previously consummated an
initial public offering of its stock which yields net proceeds to Borrower or
not less than $20,000,000.
9. REMEDIES
Upon the occurrence or existence of any Event of Default, and during
the continuation thereof, without prejudice to the rights of the Administrative
Agent, the Issuing Lender, the Co-Agents or the Lenders to enforce their claims
against Borrower for damages for failure by Borrower to fulfill any of the
Obligations hereunder, the Administrative Agent, the Co-Agents, the Issuing
Lender and the Lenders shall have the following rights and remedies, in addition
to any other rights and remedies available to the Administrative Agent, the
Issuing Lender, the Co-Agents and the Lenders at law, in equity or otherwise:
9.1 DEFAULT RATE. At the election of the Majority Lenders, evidenced
by written notice to Borrower, the outstanding principal balance of the
Obligations, and to the extent permitted by Applicable Law, accrued and unpaid
interest thereon, shall bear interest at the Default Rate until paid in full.
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9.2 TERMINATION; ACCELERATION OF THE OBLIGATIONS. In the event of an
Event of Default set forth in Sections 8.8 or 8.9 hereof, the Commitment shall
automatically and immediately terminate and in the event of any other Event of
Default, the Majority Lenders, at their option, may terminate the Commitment,
whereupon in either case all of the Obligations shall become immediately due and
payable, without presentment, demand, protest, notice of non-payment or any
other notice required by law relative thereto, all of which are hereby expressly
waived by Borrower, anything contained herein to the contrary notwithstanding.
9.3 SET-OFF. The right of each Lender to set-off, without notice to
Borrower or any of its Subsidiaries, any and all deposits at any time credited
by or due from such Lender to Borrower or any of its Subsidiaries, whether in a
general or special, time or demand, final or provisional account or any other
account or represented by a certificate of deposit and whether or not unmatured
or contingent against any or all of the Obligations of Borrower or such
Subsidiary, now existing or hereafter arising, whether or not such Lender shall
have made any demand under this Agreement or any of the Loan Documents.
9.4 RIGHTS AND REMEDIES OF A SECURED PARTY. All of the rights and
remedies of a secured party under the UCC or under other Applicable Law, all of
which rights and remedies shall be cumulative and none of which shall be
exclusive, to the extent permitted by law, in addition to any other rights and
remedies contained in this Agreement, and in any of the other Loan Documents.
9.5 TAKE POSSESSION OF COLLATERAL. The right of the Administrative
Agent to (a) enter upon the premises of Borrower or any of its Subsidiaries, or
any other place or places where the Collateral is located and kept through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower or its Subsidiaries notice and opportunity for a hearing on
the validity of the Administrative Agent's, the Issuing Lender's the Co-Agents'
or the Lenders' claim and without any obligation to pay rent to Borrower or any
of its Subsidiaries, and remove the Collateral therefrom to the premises of the
Administrative Agent or any agent of the Administrative Agent, for such time as
the Administrative Agent may desire, in order to effectively collect or
liquidate the Collateral; and/or (b) require Borrower and its Subsidiaries to
assemble the Collateral and make it available to the Administrative Agent at a
place to be designated by the Administrative Agent, in its sole discretion.
9.6 SALE OF COLLATERAL. The right of the Administrative Agent to sell
or to otherwise dispose of all or any of the Collateral, at public or private
sale or sales,
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with such notice as may be required by Applicable Law, in lots or in bulk, for
cash or on credit, all as the Administrative Agent (acting with the approval of
the Majority Lenders), in its sole discretion, may deem advisable, and subject
to Applicable Law. Such sales may be adjourned from time to time with or
without notice. The Administrative Agent shall have the right to conduct such
sales on the premises of Borrower or any of its Subsidiaries or elsewhere and
shall have the right to use the premises of Borrower or any of its Subsidiaries,
without charge for such sales for such time or times as the Administrative Agent
may see fit. The Administrative Agent is hereby granted a license or other
right to use, without charge, the labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks and advertising
matter, or any property of a similar nature, whether owned by Borrower and its
Subsidiaries or with respect to which Borrower or any of its Subsidiaries has
rights under license, sublicense or other agreements, as it pertains to the
Collateral, in preparing for sale (including, without limitation, finishing any
unfinished Inventory), advertising for sale and selling any Collateral and the
rights of Borrower and its Subsidiaries under all licenses and all franchise
agreements shall inure to the benefit of the Administrative Agent, the Issuing
Lender, the Co-Agents and the Lenders. The Administrative Agent shall have the
right to sell, lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and the Administrative
Agent may purchase all or any part of the Collateral at public or, if permitted
by law, private sale and, if permitted by law in lieu of actual payment of such
purchase price, may set off the amount of such price against the Obligations.
The proceeds realized from the sale of any Collateral shall be applied first to
the reasonable costs and expenses and reasonable attorneys' fees and expenses
incurred by the Administrative Agent and the Co-Agents, to the extent not
duplicative, for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to interest due
upon any of the Obligations; and third to the principal of the Obligations. Any
remaining proceeds shall be remitted to Borrower or other Person legally
entitled thereto. If any deficiency shall arise, Borrower shall remain liable
to the Issuing Lender and the Lenders therefor.
9.7 JUDICIAL PROCEEDINGS. The right to proceed by an action or
actions at law or in equity to obtain possession of the Collateral, to recover
the Obligations and amounts secured hereunder or to foreclose under this
Agreement and the other Loan Documents and sell the Collateral or any portion
thereof, pursuant to a judgment or decree of a court or courts of competent
jurisdiction, all without the necessity of posting any bond.
9.8 ACTIONS IN RESPECT OF THE LETTERS OF CREDIT UPON DEFAULT. If any
Event of Default shall have occurred and be continuing, the Issuing Lender may,
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irrespective of whether the Administrative Agent, the Co-Agents or the Lenders
are taking any of the other actions described in this Article 9 or otherwise,
make demand upon Borrower to, and forthwith upon such demand Borrower will, pay
to the Issuing Lender in accordance with Section 2.8, for deposit in a cash
collateral account, an amount equal to the aggregate face amount of all Letters
of Credit then outstanding. If at any time the Issuing Lender determines that
any funds held in any such cash collateral account are subject to any right or
claim of any Person other than the Issuing Lender in a manner which may
reasonably be expected to require the Issuing Lender to release any such funds
to such a Person or that the total amount of such funds is less than the
aggregate face amount of all Letters of Credit, Borrower will, forthwith upon
demand by the Issuing Lender, pay to the Issuing Lender, as additional funds to
be deposited and held in such cash collateral account, an amount equal to the
excess of (a) such aggregate face amount of all outstanding Letters of Credit
over (b) the total amount of funds, if any, then held in such cash collateral
account that the Issuing Lender determines to be free and clear of any such
right and claim. The Issuing Lender shall promptly account to Borrower for any
excess cash collateral provided under this Section, but shall in no account be
obligated to return funds to Borrower while any of the Obligations (other than
contingent obligations as to which no enforceable demand for payment has been
issued) have not been fully and finally paid in cash.
9.9 NOTICE. Any notice required to be given by the Administrative
Agent of a sale, lease, or other disposition of the Collateral or any other
intended action by the Administrative Agent, the Issuing Lender, the Co-Agents,
or a Lender, given to Borrower in the manner set forth in Section 12.7 below, at
least ten (10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to Borrower.
9.10 APPOINTMENT OF THE ADMINISTRATIVE AGENT AS BORROWER'S LAWFUL
ATTORNEY. Borrower irrevocably designates, makes, constitutes and appoints the
Administrative Agent (and all Persons designated by the Administrative Agent) as
the true and lawful attorney of Borrower and the Administrative Agent or the
Administrative Agent's agent, may, without notice to Borrower and at such time
or times following an Event of Default as the Administrative Agent or said
agent, in its sole discretion, may determine, in the name of Borrower or in the
Administrative Agent's name: (a) demand payment of the Accounts; (b) enforce
payment of the Accounts, by legal proceedings or otherwise; (c) exercise all of
the rights and remedies of Borrower with respect to the collection of the
Accounts; (d) settle, adjust, compromise, extend or renew the Accounts; (e)
settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (f) notify the postal authorities to change
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the address and delivery of mail addressed to Borrower to such address as the
Administrative Agent may designate; (g) if permitted by Applicable Law, sell or
assign the Accounts upon such terms, for such amounts and at such time or times
as the Administrative Agent deems advisable; (h) discharge and release the
Accounts; (i) take control, in any manner, of any item of payment or proceeds on
the Accounts; (j) prepare, file and sign the names of Borrower on a Proof of
Claim in Bankruptcy or similar document against any Account Debtor; (k) prepare,
file and sign the names of Borrower on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Accounts; (l) do
all acts and things necessary, in the Administrative Agent's sole discretion, to
fulfill the obligations of Borrower under this Agreement; (m) endorse the name
of Borrower upon any of the items of payment or proceeds on any Account, and
deposit the same to the account of the Lenders on account of the Obligations;
(n) endorse the name of Borrower upon any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement relating
to the Accounts or Inventory; (o) use the stationery of Borrower and sign the
name of Borrower to verifications of the Accounts and notices thereof to Account
Debtors; and (p) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the Accounts
and Inventory to which Borrower or its Subsidiaries have access.
10. CONDITIONS PRECEDENT
10.1 CONDITIONS PRECEDENT. The effectiveness of this Agreement shall
be subject to the fulfillment of each of the following conditions precedent:
(a) Litigation. No action, suit, litigation, proceeding,
investigation, regulation or legislation, including, but not limited to,
any arising under the Environmental Laws, shall have been instituted,
threatened or proposed before any court, governmental agency or legislative
body which seeks to enjoin, restrain, or prohibit, or to obtain substantial
damages in respect of, or which is related to or arises out of this
Agreement or the making of any Loan hereunder; or if decided adversely to
Borrower or any of its Subsidiaries may reasonably be expected to result in
a Material Adverse Effect.
(b) Fees to Societe Generale. Borrower shall have paid to
Societe Generale a fee in the amount set forth in a letter agreement with
Societe Generale;
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(c) Default; Material Adverse Effect. No Default or Event of
Default shall have occurred and remain continuing, and no Material Adverse
Effect shall have occurred since December 31, 1997.
(d) Documentation. The Administrative Agent, the Co-Agents and
the Lenders shall have received the following documents, each dated the
date hereof (unless otherwise specified), each duly executed and delivered
to the Administrative Agent, the Co-Agents and the Lenders, and each to be
satisfactory in form and substance to the Lenders and their respective
counsel:
(i) this Agreement;
(ii) replacement Notes in favor of each Lender;
(iii) Drop Down Notes in the principal amount of $75,000,000
and amendments to the Drop-Down Note Security Agreements in a form
acceptable to the Lenders;
(iv) written consents hereto executed by (a) William E. Simon
& Sons LLC and Mellon Ventures, Inc., (b) D. Crawford Gallimore and T.
Wayne McCreight, and (c) each Subsidiary of Borrower;
(v) Borrower, each of the Subsidiaries of Borrower, and each
Lender shall have entered into an Omnibus Amendment Agreement to the
Loan Documents entered into by the Subsidiaries of Borrower;
(vi) deposit account agreements among Borrower, each of its
Subsidiaries and each of the depositary banks described on SCHEDULE
4.26 in form and substance acceptable to the Co-Agents, but in any
event in conformity with Section 5.1 (provided that it is understood
that any not delivered as of the date hereof shall be obtained by
Borrower within 30 days following the date hereof);
(vii) a certificate signed by the President or chief financial
officer of Borrower certifying that (A) the representations and
warranties set forth in Article 4 hereof are true and correct in all
respects on and as of such date with the same effect as though made on
and as of such date; (B) Borrower is are on such date in compliance
with all the terms and conditions set forth in this Agreement on its
part to be
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observed and performed; and (C) on the date hereof, after giving effect
to the making of the initial Loan, no Default or Event of Default has
occurred or is continuing;
(viii) legal opinions acceptable to the Lenders from counsel to
Borrower;
(ix) Certificates of the Secretary of Borrower and each of
its Subsidiaries certifying that attached thereto is a true and
complete copy of Resolutions adopted by the Board of Directors of such
Person authorizing the execution, delivery and performance of this
Agreement and the other Loan Documents to which that Person is party;
and
(x) such other documents, instruments and agreements with
respect to the transactions contemplated by this Agreement, in each
case in such form and containing such additional terms and conditions
as may be satisfactory to the Lenders, containing, without limitation,
representations and warranties which are customary and usual in such
documents.
10.2 ALL LOANS AND LETTERS OF CREDIT. The obligation of each Lender to
make any Loan hereunder (including the initial Loan) and the obligation of the
Issuing Lender to issue any Letter of Credit (including the initial Letter of
Credit) shall be subject to fulfillment of the following conditions:
(a) Leverage Limitations. Giving pro forma effect to the
outstanding Obligations (including the requested Loan or Letter of Credit)
in the numerator thereof, the Senior Funded Debt to EBITDA Ratio and the
Total Funded Debt to EBITDA Ratio (determined on the basis of Adjusted
Company EBITDA for the most recent twelve month fiscal period for which
financial information is then required to have been delivered to the
Lenders) shall not be in excess of the applicable limits therefor set forth
in Section 7.1 and 7.2, respectively.
(b) No Injunction. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any Governmental Authority to enjoin, restrain, or
prohibit, or to obtain substantial damages in respect of, or which is
related to or arises out of this Agreement, the other Loan Documents, such
Loan or such Letter of Credit
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which in the sole discretion of the Majority Lenders, would make it
inadvisable to make such Loan or such Letter of Credit;
(c) No Material Adverse Effect. Since the date hereof, no
Material Adverse Effect shall have occurred.
(d) Solvency. The Lenders and the Co-Agents shall be satisfied
that, giving effect to the making of such Loan, or the issuance of such
Letter of Credit, Borrower and each of its Subsidiaries will be Solvent.
(e) No Default or Event of Default. There shall exist no
Default or Event of Default or any event or condition which, with the making
of such Loan or the issuance of such Letter of Credit, would constitute a
Default or Event of Default.
(f) Representations and Warranties. All representations and
warranties hereunder and under the other Loan Documents shall be true and
correct in all respects as of the date of such Loan or Letter of Credit
with the same force and effect as if made on and as of such date, with the
exception of those which expressly relate to a specific date.
11. THE AGENT
11.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder with such powers as are specifically delegated to the Administrative
Agent by the terms of this Agreement and the Loan Documents, together with such
other powers as are reasonably incidental thereto. The Administrative Agent
(which term as used in this sentence and in Section 11.5 hereof and the first
sentence of Section 11.6 hereof shall include reference to its Affiliates and
its own and its Affiliates' officers, directors, employees and agents): (a)
shall have no duties or responsibilities except those expressly set forth in
this Agreement, and shall not by reason of this Agreement be a trustee for any
Lender; (b) shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this Agreement or any of
the other Loan Documents, or in any certificate or other instrument, document or
agreement referred to or provided for in, or received by any of them under, this
Agreement or any of the other Loan Documents, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, any
Note or any of the other Loan Documents or for any failure by Borrower or any
other Person to perform any of its obligations hereunder or thereunder; (c)
subject to Section 11.3
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hereof, shall not be required to initiate or conduct any litigation or
collection proceedings hereunder; and (d) shall not be responsible for any
action taken or omitted to be taken by it hereunder or under any other
agreement, document or instrument referred to or provided for herein or in
connection herewith, except for its own gross negligence or willful misconduct.
The Administrative Agent may employ agents and attorneys-in-fact selected by it
in good faith. The Administrative Agent may deem and treat the payee of any
Note as the holder thereof for all purposes hereof unless and until the
Administrative Agent receives a written notice of the assignment or transfer
complying with the terms and conditions of Section 12.3 hereof.
11.2 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall
be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, facsimile, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by the
Administrative Agent. As to any matters not expressly provided for by this
Agreement, the Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Majority Lenders (unless the instructions of or consent of all of
the Lenders is required hereunder), and such instructions and any action taken
or failure to act pursuant thereto shall be binding on all of the Lenders;
provided, however, the Administrative Agent shall not be required to take any
action which (a) the Administrative Agent reasonably believes will expose it to
personal liability unless the Administrative Agent receives an indemnification
satisfactory to it from the Lenders with respect to such action or (b) is
contrary to this Agreement, the Notes, the other Loan Documents or Applicable
Law.
Without limitation on the foregoing, the Administrative Agent and its
directors, officers, agents, employees and attorneys:
(a) May treat the payee of any Note as the holder thereof until the
Administrative Agent receives notice of the assignment or transfer thereof,
in form satisfactory to the Administrative Agent, signed by the payee, and
may treat each Lender as the owner of that Lender's interest in the
Obligations for all purposes of this Agreement until the Administrative
Agent receives notice of the assignment or transfer thereof, in form
satisfactory to the Administrative Agent, signed by that Lender.
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(b) May consult with legal counsel (including in-house legal counsel),
accountants (including in-house accountants) and other professionals or
experts selected by it, or with legal counsel, accountants or other
professionals or experts for Borrower or the Lenders, and shall not be
liable for any action taken or not taken by it in good faith in accordance
with any advice of such legal counsel, accountants or other professionals
or experts.
(c) Shall not be responsible to any Lender for any statement, warranty
or representation made by a Person other than Administrative Agent in any
of the Loan Documents or in any notice, certificate, report, request or
other statement (written or oral) given or made by a Person other than
Administrative Agent in connection with any of the Loan Documents.
(d) Except to the extent expressly set forth in the Loan Documents,
shall have no duty to ask or inquire as to the performance or observance by
any party of any of the terms, conditions or covenants of any of the Loan
Documents or to inspect any collateral or the Property, books or records of
Borrower or its Subsidiaries.
(e) Will not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, effectiveness, sufficiency
or value of any Loan Document, any other instrument or writing furnished
pursuant thereto or in connection therewith, or any Collateral.
(f) Will not incur any liability by acting or not acting in reliance
upon any Loan Document, notice, consent, certificate, statement, request or
other instrument or writing believed by it to be genuine and signed or sent
by the proper party or parties.
(g) Will not incur any liability for any arithmetical error in
computing any amount paid or payable by Borrower or any Affiliate thereof
or paid or payable to or received or receivable from any Lender under any
Loan Document, including, without limitation, principal, interest,
commitment fees, Loans and other amounts; provided that, promptly upon
discovery of such an error in computation, the Administrative Agent, the
Lenders and (to the extent applicable) Borrower and/or its Affiliates shall
make such adjustments as are necessary to correct such error and to restore
the parties to the position that they would have occupied had the error not
occurred.
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11.3 DEFAULTS. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default or Event of Default (other
than the non-payment of principal of or interest on Loans or of Commitment Fees)
unless the Administrative Agent has received notice from a Lender or Borrower
specifying such Default or Event of Default and stating that such notice is a
"Notice of Default." In the event that the Administrative Agent receives such a
notice of the occurrence of a Default or Event of Default, the Administrative
Agent shall give prompt notice thereof to the Lenders (and shall give each
Lender prompt notice of each such non-payment). The Administrative Agent shall
(subject to Section 11.7 hereof) take such action with respect to such Default
or Event of Default as shall be directed by the Majority Lenders (unless the
directions of or consent of all of the Lenders is required hereunder), provided
that, unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interest of the Lenders.
11.4 RIGHTS AS A LENDER. With respect to its Commitment and the Loans
made by it, ING (U.S.) Capital Corporation (and any successor acting as
Administrative Agent) in its capacity as a Lender hereunder shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not acting as the Administrative Agent, and the term "the Lender"
or "the Lenders" shall, unless the context otherwise indicates, include the
Administrative Agent in its individual capacity. ING (U.S.) Capital Corporation
(and any successor acting as Administrative Agent) and its Affiliates may
(without having to account therefor to any Lender) accept deposits from, lend
money to and generally engage in any kind of banking, trust or other business
with Borrower (and any of its Affiliates) as if it were not acting as the
Administrative Agent, and ING (U.S.) Capital Corporation and its Affiliates may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to the
Lenders.
11.5 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent and the Issuing Lender (to the extent not reimbursed under
Sections 12.5 or 12.13 hereof, but without limiting the obligations of Borrower
under said Sections 12.5 and 12.13), for their respective Commitment Percentages
of any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent or the Issuing Lender in any way relating to or arising out
of this Agreement or any other instruments, documents or agreements contemplated
by or referred to herein or the transactions contemplated hereby (including,
without limitation, the costs and expenses which
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Borrower is obligated to pay under Section 12.5 hereof but excluding, unless an
Event of Default has occurred and is continuing, normal administrative costs and
expenses of the Administrative Agent incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or of any such
other instruments, documents or agreements, provided that no Lender shall be
liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the party to be indemnified. The
obligations of the Lenders under this Section 11.5 shall survive the termination
of this Agreement.
11.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND THE OTHER LENDERS. Each
Lender agrees that it has, independently and without reliance on the
Administrative Agent, the Issuing Lender or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and its Subsidiaries and its own decision to enter into
this Agreement and that it will, independently and without reliance upon the
Administrative Agent, the Issuing Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking action under this
Agreement. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by Borrower and its Subsidiaries of
this Agreement or any other instrument, document or agreement referred to or
provided for herein or to inspect the properties or books of Borrower and its
Subsidiaries. Except for notice, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of Borrower or any of its Affiliates which may
come into the possession of the Administrative Agent or any of its Affiliates.
11.7 FAILURE TO ACT. Except for action expressly required of the
Administrative Agent hereunder, the Administrative Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it shall receive
further assurances to its satisfaction from the Lenders of their indemnification
obligations under Section 11.5 hereof against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any such
action.
11.8 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT; CO-ADMINISTRATIVE
AGENT.
(a) Subject to the appointment and acceptance of a successor
Administrative Agent as provided below, the Administrative Agent may resign
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at any time by giving notice thereof to the Lenders, the Co-Agents and
Borrower, and the Administrative Agent may be removed at any time with
cause by the Majority Lenders. Upon any such resignation or removal, the
Majority Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed
by the Majority Lenders and shall have accepted such appointment with
thirty (30) days after the retiring Administrative Agent's giving of notice
of resignation or the Majority Lender's removal of the retiring
Administrative Agent, the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
bank which has a combined capital and surplus of at least $300,000,000.
Upon the acceptance of any appointment as Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Administrative Agent's resignation or removal hereunder as Administrative
Agent, the provisions of this Article 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while
it was acting as the Administrative Agent.
(b) In the event that Applicable Law imposes any restrictions on
the identity of an agent such as the Administrative Agent or requires the
appointment of any co-agent in connection therewith, the Administrative
Agent may, in its discretion, for the purpose of complying with such
restrictions, appoint one or more co- agents hereunder. Any such
Co-Administrative Agent(s) shall have the same rights, powers, privileges
and obligations as the Administrative Agent and shall be subject to and
entitled to the benefits of all provisions of this Agreement and the Loan
Documents relative to the Administrative Agent. In addition to any rights
of the Majority Lenders set forth in subsection (a) above, any such
Co-Administrative Agent may be removed at any time by the Administrative
Agent.
11.9 COLLATERAL MATTERS.
(a) Authority. Each Lender authorizes and directs the
Administrative Agent to enter into the Loan Documents relating to the
Collateral for the benefit of the Lenders. Each Lender agrees that any
action taken by the Administrative Agent or the Majority Lenders (or, where
required by the express terms of this Agreement and the Loan Documents, a
greater proportion of the Lenders) in accordance with the provisions of
this Agreement
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or the other Loan Documents, and the exercise by the Administrative Agent
or the Majority Lenders (or, where so required, such greater proportion) of
the powers as are reasonably incidental thereto, shall be authorized and
binding upon all of the Lenders. Without limiting the generality of the
foregoing, the Administrative Agent shall have the sole and exclusive right
and authority to (i) act as the disbursing and collecting agent for the
Lenders with respect to all payments and collections arising in connection
with this Agreement and the Loan Documents relating to the Collateral; (ii)
execute and deliver each Loan Document relating to the Collateral and
accept delivery of each such agreement delivered by Borrower or any of its
Subsidiaries; (iii) act as collateral agent for the Lenders for purposes of
the perfection of all security interests and Liens created by such
agreements and all other purposes stated therein, provided, however, the
Administrative Agent hereby appoints, authorizes and directs the Lenders to
act as collateral sub-agents for the Administrative Agent and the Lenders
for purposes of the perfection of all security interests and Liens with
respect to Borrower's and its Subsidiaries' respective deposit accounts
maintained with, and cash and other property held by, such Lender; (iv)
manage, supervise and otherwise deal with the Collateral; (v) take such
action as is necessary or desirable to maintain the perfection and priority
of the security interest and Liens created or purported to be created by
the Loan Documents, and (vi) except as may be otherwise specifically
restricted by the terms of this Agreement and the Loan Documents or any
other Loan Document, exercise all remedies given to the Administrative
Agent or the Lenders with respect to the Collateral under the Loan
Documents, Applicable Law or otherwise.
(b) Each Lender hereby directs the Administrative Agent to
release any Lien held by the Administrative Agent for the benefit of the
Lenders (and the Administrative Agent shall promptly release):
(i) against all of the Collateral, upon final payment in
full of the Obligations and termination of this Agreement (other than
any contingent obligations described in Section 12.2);
(ii) against any part of the Collateral sold or disposed of
by Borrower or any of its Subsidiaries, if such sale or disposition is
permitted by Section 6.3 hereof or is otherwise consented to by the
Majority Lenders, as certified to the Administrative Agent by such
Person in an Officer's Certificate;
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(iii) against any part of the Collateral constituting
property in which Borrower and its Subsidiaries owned no interest at
the time the Lien was granted or at any time thereafter;
(iv) on the Capital Stock of any Subsidiary which is the
subject of a sale, transfer or other disposition not prohibited by the
terms of the Loan Documents (and the Administrative Agent shall
concurrently release any such Subsidiary from its Guaranty of the
Obligations); and
(v) if approved, authorized or ratified in writing by the
Administrative Agent at the direction of Majority Lenders (or, to the
extent required by Section 12.8, all of the Lenders).
Each Lender hereby directs the Administrative Agent (and the Administrative
Agent agrees) to execute and deliver or file such termination and partial
release statements and do such other things as are necessary to release
Liens to be released pursuant to Section 11.9(b) hereof promptly upon the
effectiveness of any such release.
(c) Without in any manner limiting the Administrative Agent's
authority to act without any specific or further authorization or consent
by Majority Lenders or by all of the Lenders (as set forth in Section
11.9(b) hereof), each Lender agrees to confirm in writing, upon request by
Borrower, the authority to release Collateral and Guaranties conferred upon
the Administrative Agent under Section 11.9(b) hereof. So long as no
Default or Event of Default is then continuing, upon receipt by the
Administrative Agent of any such written confirmation from the required
Lenders of its authority to release any particular items or types of
Collateral or any Guaranty, and in any event upon any sale and transfer of
Collateral which is expressly permitted pursuant to the terms of this
Agreement, and upon at least five Business Days prior written request by
Borrower, the Administrative Agent shall (and is hereby irrevocably
authorized by the Lenders to) execute such documents as may be necessary to
evidence the release of the Liens granted to the Administrative Agent for
the benefit of the Lenders herein or pursuant hereto upon such Collateral;
provided, that (i) the Administrative Agent shall not be required to
execute any such document on terms which, in the Administrative Agent's
opinion, would expose the Administrative Agent to liability or create any
obligation or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or
obligations of
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Borrower and its Subsidiaries in respect of) all interests retained by
Borrower and its Subsidiaries, including without limitation the proceeds of
any sale, all of which shall continue to constitute part of the Collateral.
(d) The Administrative Agent shall have no obligation whatsoever
to the Lenders or to any other Person to assure that the Collateral exists
or is owned by Borrower and its Subsidiaries or is cared for, protected or
insured or has been encumbered or that the Liens granted to the
Administrative Agent pursuant to this Agreement or any of the Loan
Documents have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any
duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to the Administrative
Agent in this Section 11.9 or in any of the Loan Documents, it being
understood and agreed that in respect of the Collateral, or in respect of
any act, omission or event related thereto, the Administrative Agent may
act in any manner it may deem appropriate, in its sole discretion, given
its own interest in the Collateral as one of the Lenders and that the
Administrative Agent shall have no duty or liability whatsoever to any
Lender.
11.10 BORROWER AND ITS SUBSIDIARIES NOT BENEFICIARIES. The provisions
of this Article 11 (other than Sections 11.9(b) and (c)) are solely for the
benefit of the Administrative Agent, the Issuing Lender and the Lenders and
neither Borrower nor any of its Subsidiaries shall have any right to rely on or
enforce any of the provisions hereof. In performing its functions and duties
under this Agreement, the Administrative Agent shall act solely as the agent of
the Lenders and does not assume and shall not be deemed to have assumed any
obligations or relationship of agency, trustee or fiduciary with or for Borrower
or any of its Subsidiaries.
12. MISCELLANEOUS
12.1 WAIVER. Each and every right and remedy granted to the
Administrative Agent, the Co-Agents, the Issuing Lender and the Lenders under
this Agreement, the other Loan Documents or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
the Administrative Agent, the Co-Agents, the Issuing Lender or any Lender to
exercise, and no delay in exercising, any right or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by the Administrative
Agent, the Co-Agents, the Issuing Lender, or any Lender of any right or remedy
preclude any other or future exercise thereof or the
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exercise of any other right or remedy. No waiver by the Administrative Agent,
the Co-Agents, the Issuing Lender or the Lenders of any Default or Event of
Default shall constitute a waiver of any subsequent Default or Event of Default.
12.2 SURVIVAL. All representations, warranties and covenants made
herein shall survive the execution and delivery of all of the Loan Documents.
The terms and provisions of this Agreement shall continue in full force and
effect until the termination of this Agreement in accordance with Section 2.7
hereof, provided, further, that Borrower's obligations under Sections 2.8(b),
3.9, 3.10 12.5 and 12.13 shall survive the repayment of the other Obligations
and the termination of this Agreement but, unless an enforceable demand for
payment with respect thereto has been made, shall thereafter be unsecured.
12.3 ASSIGNMENTS; SUCCESSORS AND ASSIGNS.
(a) This Agreement is a continuing obligation and binds, and the
benefits hereof shall inure to, Borrower, the Agents, the Co-Agents, the
Issuing Lender and each Lender and their respective successors and assigns;
provided, that Borrower may not transfer or assign any or all of its rights
or obligations hereunder without the prior written consent of all of the
Lenders, with any purported assignment being void ab initio.
(b) Any Lender may, in accordance with Applicable Law, at any
time sell to one or more banks or other financial institutions
("Participants") participating interests in any Loans owing to such Lender,
any of the Notes held by such Lender, any Commitment held by such Lender
hereunder or any other interests of such Lender hereunder. Borrower agrees
that each Participant shall be entitled to the benefits of Sections 2.8(b),
3.9, 3.10, 3.12 and 12.13 hereof with respect to its participation;
provided, however, that (i) such Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely responsible to
the other parties hereto for the performance of such obligations, (iii) the
participating banks or other financial institutions shall not be a Lender
hereunder for any purpose except, if the participation agreement so
provides, for the purposes of Sections 2.8(b), 3.9 and 3.10 hereof (and
then only to the extent that the relevant Lender would have rights under
such Sections), (iv) the Borrower, the Administrative Agent, the Co-Agents,
the Issuing Lender and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, (v) the participation interest shall be
expressed as an undivided portion of the granting Lender's Commitment
Percentage as it then exists and
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shall not restrict an increase in the Commitment, or in the granting
Lender's share of the Commitment, so long as the amount of the
participation interest is not affected thereby and (vi) the consent of the
holder of such participation interest shall not be required for amendments
or waivers of provisions of the Loan Documents other than those which (A)
extend any Maturity Date or any date upon which any payment of money is due
to the Lenders, (B) reduce the rate of interest on the Notes, any fee or
any other monetary amount payable to the Lenders, (C) reduce the amount of
any installment of principal due under the Notes, or (D) release any
Collateral having a value in excess of $1,000,000.
(c) Each Lender may, with the Co-Agents' consent and in
accordance with Applicable Law, at any time assign, pursuant to an
Assignment and Acceptance substantially in the form of Exhibit F attached
hereto and incorporated herein by reference, with Borrower's consent
(unless a Default or Event of Default has occurred and remains continuing,
and in any event such consent shall not be unreasonably withheld or
delayed) to one or more banks having unimpaired capital and surplus of
$250,000,000 or more or may assign to any other financial institution (in
either case, "Eligible Assignees") all or any part of any Loans owing to
such Lender, any of the Notes held by such Lender, such Lender's
reimbursement and other rights and obligations in connection with any
Letter of Credit issued hereunder, the portion of the Commitment held by
such Lender or any other interest of such Lender hereunder; provided,
however, that (i) unless Borrower and the Co-Agents consent otherwise, and
except in the case of an assignment to another Lender, any such partial
assignment shall be in a minimum principal amount equal to the lesser of
(1) the assigning Lender's total Commitment Percentage of the Commitment
and (2) $5,000,000, (ii) each such assignment by a Lender of its Loans,
Note, Commitment Percentage, or Letter of Credit Obligations shall be made
in such manner so that the same portion of its Loans, Note, Commitment
Percentage, and Letter of Credit Obligations is assigned to the respective
assignee, and (iii) in connection with each such assignment, the assignee
Lender shall certify to Borrower that, as of the date of the assignment, it
is not subject to any Taxes which would require the making by Borrower of
any payment under Section 2.8(b). Borrower and the Lenders agree that to
the extent of any assignment the Assignee shall be a Lender and shall be
deemed to have the same rights and benefits with respect to Borrower under
this Agreement and any of the Notes and any Letter of Credit (but shall
have no greater rights under Section 2.8(b) than the Lenders party to this
Agreement on the date hereof) as it would have had if it were a Lender
hereunder on the date hereof and the assigning Lender shall be released
from its Commitment and other obligations hereunder, to the
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extent of such assignment. Upon the making of an assignment, the assigning
Lender shall pay to the Administrative Agent an assignment fee of $3,000.
(d) In addition to the assignments and participations permitted
under the foregoing provisions of this Section 12.3, any Lender may assign
and pledge all or any portion of its Loans and its Note to any Federal
Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Lender from its obligations hereunder.
(e) Subject to Section 12.17, Borrower authorizes each Lender to
disclose to any Participant or Eligible Assignee ("Transferee") and any
prospective Transferee any and all financial information in such Lender's
possession concerning Borrower and its Subsidiaries which has been
delivered to such Lender by Borrower and its Subsidiaries or the
Administrative Agent pursuant to this Agreement or which has been delivered
to such Lender by Borrower or its Subsidiaries in connection with such
Lender's credit evaluation of Borrower and its Subsidiaries prior to
entering into this Agreement.
(f) Any Lender shall be entitled to have any Note held by it
subdivided in connection with a permitted assignment of all or any portion
of such Note and the respective Loans evidenced thereby pursuant to Section
12.3(c) above. In the case of any such subdivision, the new Note (the "New
Note") issued in exchange for a Note (the "Old Note") previously issued
hereunder (i) shall be substantially in the form of Exhibit A hereto, as
appropriate, (ii) shall be dated the date of such assignment, (iii) shall
be otherwise duly completed and (iv) shall bear a legend, to the effect
that such New Note is issued in exchange for such Old Note and that the
indebtedness represented by such Old Note shall not have been extinguished
by reason of such exchange. Without limiting the obligations of Borrower
under Section 12.5 hereof, the Lenders shall use reasonable best efforts to
ensure that any such assignment does not result in the imposition of any
intangibles, documentary stamp and other taxes, if any, which may be
payable in connection with the execution and delivery of any such New Note.
(g) Anything in this Section 12.3 to the contrary
notwithstanding, no Lender may assign or participate any interest in any
Loan held by it hereunder to Borrower or any of its Affiliates or
Subsidiaries without the prior written consent of each Lender.
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(h) Borrower shall assist the Co-Agents in any manner reasonably
requested by the Co-Agents to effectuate any resale or syndication of the
credit facilities contemplated by this Agreement, including but not limited
to the participation of relevant management in any meetings with potential
Lenders or participants.
12.4 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which when fully executed shall be an original, and all of
said counterparts taken together shall be deemed to constitute one and the same
agreement.
12.5 EXPENSE REIMBURSEMENT. Borrower agrees to reimburse (i) the
Administrative Agent, the Issuing Lender and each Co-Agent for all of each such
Person's reasonable and documented expenses incurred in connection with the
negotiation, preparation, execution, delivery and modification of this
Agreement, the Notes and the other Loan Documents, and reasonable out-of-pocket
expenses in connection with the administration and monitoring of this Agreement
and the Loan Documents, including reasonable travel, legal and other expenses
associated therewith, and (ii) the Administrative Agent's, the Issuing Lender's,
Co-Agents' and each Lender's reasonable expenses incurred in connection with the
enforcement of this Agreement, the Notes and the other Loan Documents,
including, without limitation, audit costs, appraisal costs, the cost of
searches, filings and filing fees, taxes and the reasonable fees and
disbursements of the Administrative Agent's, the Issuing Lender's and each
Co-Agent's attorneys, and any counsel retained by them. Borrower further agrees
to reimburse the Administrative Agent, the Issuing Lender, each Co-Agent and
each Lender for all costs and expenses reasonably incurred by the Administrative
Agent, the Issuing Lender, the Co-Agents and the Lenders (including, without
limitation, reasonable attorneys' fees and disbursements) to: (a) commence,
defend or intervene in any court proceeding; (b) file a petition, complaint,
answer, motion or other pleading, or to take any other action in or with respect
to any suit or proceeding (bankruptcy or otherwise) relating to the Collateral,
any Letter of Credit or this Agreement, the Notes or any of the other Loan
Documents; (c) protect, collect, lease, sell, take possession of, or liquidate
any of the Collateral; (d) attempt to enforce any Lien in any of the Collateral
or to seek any advice with respect to such enforcement; and (e) enforce any of
the Administrative Agent's, the Issuing Lender's, the Co-Agents' and the
Lenders' rights to collect any of the Obligations. Borrower also agrees to pay,
and to save harmless the Administrative Agent, the Issuing Lender, the Co-Agents
and the Lenders from any delay in paying, any intangibles, documentary stamp and
other taxes, if any, which may be payable in connection with the execution and
delivery of this Agreement, the Notes, or any of the other Loan Documents, or
the recording of
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any thereof, the issuance of any Letter of Credit or in any modification hereof
or thereof. All fees, costs and expenses provided for in this Section 12.5 may,
at the option of the Majority Lenders, be charged as Loans to the loan account
of Borrower with the Administrative Agent provided for in Section 2.3 hereof.
Borrower's obligations under this Section 12.5 shall survive the termination of
this Agreement and the repayment of the Obligations.
12.6 SEVERABILITY. If any provision of this Agreement or any of the
other Loan Documents or the application thereof to any party thereto or
circumstances shall be invalid, illegal or unenforceable to any extent, the
remainder of this Agreement or such Loan Document and the application of such
provisions to any other party thereto or circumstance shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
12.7 NOTICES. Except as otherwise provided herein, all notices,
requests, demands and other communications under this Agreement shall be in
writing and shall be deemed to have been given or made when (a) delivered by
hand, (b) sent by telex or facsimile transmitter (with receipt confirmed),
provided that a copy is mailed by certified mail, return receipt requested, or
(c) when received by the addressee, if sent by Express Mail, Federal Express or
other overnight delivery service (receipt requested), in each case to the
appropriate addresses, telex numbers, facsimile numbers designated for a party
at the "Address for Notices" specified below its name on the signature pages
hereto or to such other addresses as may be designated hereafter in writing by
the respective parties hereto.
12.8 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan
Documents constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
understandings and agreements between such parties in respect of such subject
matter. Neither this Agreement nor any provision hereof may be changed, waived,
discharged, modified or terminated except pursuant to a written instrument
signed by Borrower, the Administrative Agent, the Co-Agents and the Majority
Lenders or by Borrower and the Administrative Agent acting with the consent of
the Majority Lenders and the Co-Agents; provided, however, that no such
amendment, waiver, discharge, modification or termination shall, except pursuant
to an instrument signed by Borrower, the Administrative Agent, the Co-Agents and
all of the Lenders or by Borrower and the Administrative Agent acting with the
consent of all of the Lenders and the Co-Agents, (a) increase the amount of,
extend the term of, or extend the time or waive any requirement for the
termination of the Commitment or increase any Lender's Commitment Percentage;
(b) extend the date fixed for the scheduled payment of
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principal of, or interest on, any Loan or Letter of Credit; (c) reduce the
amount of any scheduled payment of principal of, or the rate of interest on, any
Loan; (d) reduce any Letter of Credit fee, Commitment Fee or other fee payable
hereunder; (e) alter the terms of this Section 12.8; (f) release any guarantor
of the Obligations or any Collateral having a value in excess of $500,000,
except to the extent expressly required hereunder; (g) reduce the Commitment of
any Lender in any manner which would change such Lender's Commitment Percentage;
or (h) amend the definitions of the term "Majority Lenders," or "Permitted
Acquisition" set forth in Section 1.1 hereof; provided, further, that any
amendment, waiver, discharge, modification or termination of any provision of
Article 10 hereof, or which increases the obligations of the Administrative
Agent or the Co-Agents hereunder and under the Loan Documents, shall require the
written consent of the Administrative Agent or the Co-Agents, as the case may
be.
Anything in this Agreement to the contrary notwithstanding, if any
Lender shall fail to fulfill its obligations to make any Loan hereunder then,
for so long as such failure shall continue, such Lender shall (unless the
Majority Lenders, determined as if such Lender were not a "Lender" hereunder,
shall otherwise consent in writing) be deemed for all purposes relating to
amendments, modifications, waivers or consents under this Agreement or the Notes
(including, without limitation, under this Section 12.8) to have no Loans and no
Commitment, shall not be treated as a "Lender" hereunder when performing the
computation of Majority Lenders, and shall have no rights under the preceding
paragraph of this Section 12.8; provided that any action taken by the other
Lenders with respect to the matters referred to in clauses (a) through (h) of
the preceding paragraph shall not be effective as against such Lender.
12.9 TIME OF THE ESSENCE. Time is of the essence in this Agreement
and the other Loan Documents.
12.10 INTERPRETATION. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other Governmental Authority by reason of such party having or being
deemed to have structured or dictated such provision.
12.11 LENDERS NOT JOINT VENTURERS. Neither this Agreement, the other
Loan Documents, any agreements, instruments and documents executed and delivered
pursuant hereto or thereto or in connection herewith or therewith, nor any of
the transactions contemplated hereby or thereby shall in any respect be
interpreted, deemed or construed as making the Administrative Agent, the
Co-Agents or any Lender a partner or joint venturer with Borrower or any of its
Subsidiaries or as creating any
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similar relationship or entity, and Borrower agrees that it will not make, and
will not permit any of its Subsidiaries to make, any assertion, contention,
claim or counterclaim to the contrary in any action, suit or other legal
proceeding involving the Administrative Agent, the Co-Agents or the Lenders and
Borrower or any of its Subsidiaries.
12.12 CURE OF DEFAULTS BY LENDERS. If, hereafter, Borrower or any of
its Subsidiaries defaults in the performance of any duty or obligation to any
third party, the Administrative Agent may, at the direction of the Majority
Lenders, but without obligation, cure such default and any reasonable costs,
fees and expenses incurred by the Administrative Agent in connection therewith
including, without limitation, for payment on mortgage or note obligations, for
the purchase of insurance, the payment of taxes and the removal or settlement of
Liens and claims, and such costs, fees and expenses shall be included in the
Obligations and be secured by the Collateral.
12.13 INDEMNITY. In addition to any other indemnity provided for
herein, Borrower hereby indemnifies the Administrative Agent, the Co-Agents, the
Issuing Lender and each Lender from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including, without
limitation, reasonable fees and disbursements of counsel which may be imposed
on, incurred by, or asserted against the Administrative Agent, the Co-Agents,
the Issuing Lender or such Lender in any litigation, proceeding or investigation
instituted or conducted by any Governmental Authority or any other Person (other
than Borrower or its Subsidiaries or a Person entitled to the benefits of the
indemnity provided by this Section) with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the other Loan Documents, whether or not the Administrative Agent,
the Co-Agents, the Issuing Lender or such Lender is a party thereto, except to
the extent that any of the foregoing arises out of gross negligence, willful
misconduct or a breach of this Agreement by the Administrative Agent, the
Co-Agents, the Issuing Lender or such Lender, as the case may be. Additionally,
Borrower hereby indemnifies and holds the Administrative Agent, the Co-Agents,
the Issuing Lender and each Lender harmless from all loss, cost (including,
without limitation, fees and disbursements of counsel), liability and damage
whatsoever incurred by the Administrative Agent, the Co-Agents, the Issuing
Lender or such Lender by reason of any violation of any applicable Environmental
Laws for which Borrower, any of its Subsidiaries or any of their respective
predecessors has any liability or which occurs upon any real estate owned by or
under the control of Borrower or any of its Subsidiaries, or by reason of the
imposition of any governmental Lien for the recovery of environmental cleanup
costs expended by reason of such violation. Borrower's
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obligations under this Section shall survive the termination of this Agreement
and the repayment of the Obligations.
12.14 CONSEQUENTIAL DAMAGES. NEITHER THE ADMINISTRATIVE AGENT, THE
CO-AGENTS, THE ISSUING LENDER NOR ANY LENDER SHALL BE RESPONSIBLE OR LIABLE TO
BORROWER, ANY OF ITS SUBSIDIARIES, OR ANY OTHER PERSON OR ENTITY FOR ANY
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
12.15 ATTORNEY-IN-FACT. Borrower hereby designates, appoints and
empowers the Administrative Agent, with such appointment effective upon the
occurrence and during the continuance of any Event of Default, as its
attorney-in-fact, at Borrower's cost and expense, to do in the name of that
Borrower any and all actions which the Administrative Agent may deem necessary
or advisable to carry out the terms hereof upon the failure, refusal or
inability of Borrower to do so, and Borrower hereby agrees to indemnify and hold
the Administrative Agent harmless from any costs, damages, expenses or
liabilities arising against or incurred by the Administrative Agent in
connection therewith except to the extent that any of such costs, damages,
expenses or liabilities arise out of the Administrative Agent's gross negligence
or willful misconduct. This appointment is coupled with an interest and is
irrevocable.
12.16 TERMINATION STATEMENTS. Borrower acknowledges and agrees that it
is intended that all financing statements filed hereunder against Borrower or
any of its Subsidiaries shall remain in full force and effect until the
Commitment shall have been terminated in accordance with the provisions hereof,
even if, at any time or times prior to such termination, no Loans or Letters of
Credit shall be outstanding hereunder. Accordingly, Borrower waives any right
which it may have under Section 9-404(l) of the UCC to demand the filing of
termination statements with respect to the Collateral, and agrees that the
Administrative Agent shall not be required to send such termination statements
to Borrower or any of its Subsidiaries, or to file them with any filing office,
unless and until the Commitment shall have been terminated in accordance with
the terms of this Agreement and (except as provided in Section 12.2) all
Obligations paid in full in immediately available funds and until the
termination or expiration of all Letters of Credit (or the provision of cash
collateral therefor in accordance with the terms of this Agreement). Upon such
termination and payment in full, the Administrative Agent shall execute
appropriate termination statements and deliver the same to Borrower.
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12.17 CONFIDENTIALITY. Each Lender and the Administrative Agent agrees
to hold any confidential information that it may receive from Borrower pursuant
to this Agreement in confidence, except for disclosure: (a) to other Lenders
and Affiliates of that Lender; (b) to legal counsel, accountants and other
professional advisors to Borrower or any Lender; (c) to regulatory officials
having jurisdiction over that Lender; (d) as required by Applicable Law or legal
process or in connection with any legal proceeding to which that Lender and
Borrower are adverse parties; (e) to another financial institution in connection
with a disposition or proposed disposition to that financial institution of all
or part of that Lender's interests hereunder or a participation interest in its
Note, provided that such disclosure is made subject to an appropriate
confidentiality agreement on terms substantially similar to this Section; and
(f) to prospective purchasers of any Collateral in connection with any
disposition thereof. For purposes of the foregoing, "confidential information"
shall mean all information respecting Borrower and its Subsidiaries, other than
(i) information previously filed with any governmental agency and available to
the public, (ii) information previously published in any public medium from a
source other than, directly or indirectly, that Lender, and (iii) information
previously disclosed by Borrower and its Subsidiaries to any Person not
associated with Borrower without a written confidentiality agreement. Nothing
in this Section shall be construed to create or give rise to any fiduciary duty
on the part of the Administrative Agent or the Lenders to Borrower.
12.18 TERMINATION OF LENDERS. In the event that any Lender requests
the making of any payment under Section 2.8(b), Section 3.7, 3.8 or 3.9, then
Borrower shall, during the 180 day period following such request, have the right
to remove that Lender as a party to this Agreement; provided that no Default or
Event of Default exists as of the date of removal. If Borrower elects to remove
a Lender pursuant to this Section, then upon notice from Borrower, the Lender
being removed shall execute and deliver an Assignment and Acceptance covering
that Lender's Commitment Percentage of the Commitment in favor of one or more
Eligible Assignees designated by Borrower (and acceptable to the Co-Agents or
remaining Co-Agent which acceptance shall not be unreasonably delayed or
withheld), subject to (i) payment of a purchase price by such Eligible Assignee
equal to all principal and accrued interest, fees and other amounts payable to
the assigning Lender under this Agreement through the date of assignment.
12.18A TREATMENT OF CMS SUBORDINATED DEBT. The parties hereto
acknowledge that in connection with Borrower's Acquisition of CMS Services, Inc.
and certain of its affiliates, CMS Management Services LLC has issued certain
Promissory Notes dated as of May 1, 1998 in the aggregate principal amount of
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<PAGE> 103
$5,000,000 (the "CMS Indebtedness"). The parties hereby agree that (a) Borrower
shall cause the holders of the CMS Indebtedness to accept notes issued by
Borrower (without recourse to any of its Subsidiaries), which are substantially
identical to the notes issued by CMS Management Services LLC and in any event
acceptable to the Agent and its counsel within the 30 day period following the
effective date of this Agreement, in lieu of the CMS Indebtedness, (b) during
such period, the CMS Indebtedness shall be treated as Subordinated Obligations
for all purposes of this Agreement, and (c) the Lenders waive any Default or
Event of Default arising out of the incurrence of the CMS Indebtedness by CMS
Management Services LLC (rather than by Borrower).
12.19 GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
BORROWER, THE ADMINISTRATIVE AGENT, THE CO-AGENTS, THE ISSUING LENDER AND EACH
LENDER HEREBY (A) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE LETTERS OF CREDIT, THE NOTES, OR THE
OTHER LOAN DOCUMENTS; (B) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THIS AGREEMENT AND THE
LOAN DOCUMENTS; AND (C) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING HEREIN SHALL LIMIT THE
RIGHT OF THE ADMINISTRATIVE AGENT, THE ISSUING LENDER OR ANY LENDER TO BRING
PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
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<PAGE> 104
12.20 WAIVER OF JURY TRIAL. AFTER REVIEWING THIS PROVISION
SPECIFICALLY WITH ITS RESPECTIVE COUNSEL, BORROWER, THE ADMINISTRATIVE AGENT,
THE CO-AGENTS, THE ISSUING LENDER AND EACH LENDER HEREBY KNOWINGLY,
INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED ON OR ARISING OUT OF, UNDER, IN
CONNECTION WITH, OR RELATING TO THIS AGREEMENT, THE LETTERS OF CREDIT, ANY OF
THE NOTES, ANY OF THE OTHER LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED
HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN), OR ACTIONS OF BORROWER, THE ADMINISTRATIVE AGENT, THE CO-AGENTS OR ANY
LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS TO MAKE THE
LOANS TO AND ISSUE LETTERS OF CREDIT FOR THE ACCOUNT OF BORROWER.
IN WITNESS WHEREOF, Borrower, the Administrative Agent, the Co-Agents the
Issuing Lender and the Lenders have caused their duly authorized officers to set
their hands and seals as of the day and year first above written.
CORPORATE STAFFING RESOURCES, INC.
By: /s/
-------------------------------
Title: CHRM CEO
----------------------------
Address for Notices:
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, Indiana 46601
Telephone: 219 233 8209
Telecopier 219 280 2661
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<PAGE> 105
ING (U.S.) CAPITAL CORPORATION, as
Administrative Agent, Co-Agent and a Lender
Commitment Percentage: 33 1/3%
By: /s/ Brad Pollard
-----------------------------
Brad Pollard, Vice President
Address for Notices:
ING (U.S.) Capital Corporation
333 South Grand Avenue, Suite 4200
Los Angeles, California 90071
Attn.: Brad Pollard, Vice President
Telephone: (213) 346-3900
Telecopier: (213) 346-3991
With a copy to:
ING (U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022
Attn.: Pamela Kaye
Loan Department
Telephone: (212) 409-1743
Telecopier: (212) 486-6341
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CREDITANSTALT CORPORATE FINANCE, INC.,
as Co-Agent and as a Lender
Commitment Percentage: 33 1/3%
By: /s/ Robert M. Biringer
------------------------------------------------
Robert M. Biringer, Executive Vice President
By: /s/ John Taylor
------------------------------------------------
John Taylor, Senior Associate
Address for Notices:
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Attn.: Lisa Bruno
Facsimile No: (203) 861-6594
with copies to:
Creditanstalt Corporate Finance, Inc.
Two Ravinia Drive, Suite 1680
Atlanta, Georgia 30346
Attn.: Robert M. Biringer
John Taylor
Facsimile No: (770) 390-1851
and
Troutman Sanders LLP
600 Peachtree Street, N.W.
Suite 5200
Atlanta, Georgia 30308-2216
Attn.: Hazen H. Dempster, Esq.
Facsimile No: (404) 885-3900
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<PAGE> 107
SOCIETE GENERALE, as a Lender
Commitment Percentage: 33 1/3%
By: /s/ Ralph Saheb
---------------------------------
Ralph Saheb, Vice President
Address for Notices:
SG
2001 Ross Avenue
Suite 4800
Dallas, Texas 75201
Attn.: Ralph Saheb
Facsimile No. (214) 979-1104
with copies to:
Societe Generale
303 Peachtree Street, NE
Suite 3840
Atlanta, Georgia 30308
Attn.: Craig Stamm
Facsimile No. (404) 865-7419
and
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attn.: John Hays Mershon
Facsimile No. (404) 572-5100
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<PAGE> 1
EXHIBIT 10.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into
as of December 3, 1997 by and among Corporate Staffing Resources, Inc., a
Delaware corporation (the "Company"), and the equity securityholders of the
Company as identified from time to time on Schedule A hereto.
RECITALS:
A. CSR, Inc., a Delaware corporation ("CSR"), has merged (the
"Merger") with and into The Mega Force Staffing Companies, Inc., a Delaware
corporation ("Mega Force"), pursuant to the terms and subject to the conditions
of that certain Agreement and Plan of Merger, dated December 3, 1997, by and
between CSR and Mega Force (the "Merger Agreement"), whereby Mega Force remained
as the surviving corporation and changed its name to "Corporate Staffing
Resources, Inc."
B. In connection with the Merger, each shareholder of CSR received
shares of common stock of the Company as merger consideration.
C. A material inducement for the parties to consummate the
transactions contemplated by the Merger Agreement is that the Company and its
equity security-holders shall enter into this Agreement.
D. The Holders (as defined herein) desire to enter into this Agreement
for the purpose of providing a single, comprehensive, agreement governing the
registration of Common Stock by the Company for the benefit of its Holders.
AGREEMENT:
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties contained herein, the parties agree as
follows:
1. Definitions. As used herein, the terms below shall have the
following meanings. Any such term, unless the context otherwise requires, may be
used in the singular or plural, depending upon the reference.
"Affiliate" shall have the meaning provided in the Exchange Act and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"Demand Holder" means any Holder who on the date hereof is the record
or beneficial owner of at least 600,000 shares of Registrable Securities.
<PAGE> 2
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-3" shall mean such form under the Securities Act as in effect on
the date hereof or any registration form under the Securities Act subsequently
adopted by the SEC which permits inclusion or incorporation of comparable
information by reference to other documents filed by the Company with the SEC.
"Holder" shall mean any Person who is the record or beneficial owner of (i)
Registrable Securities or (ii) other securities of the Company convertible into,
or exercisable for, Registrable Securities, or any assignee thereof in
accordance with Sections 13 and 25 hereof. The identity of the Holders shall be
set forth on Schedule A which shall be revised from time to time as appropriate.
"Mellon" shall mean Mellon Ventures, L.P., a Delaware limited partnership,
and its Affiliates.
"Person" shall be construed broadly and shall include, without limitation,
an individual, a partnership, an investment fund, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department agency,
or political subdivision thereof.
"Qualified IPO," shall mean the sale, in an Underwritten Offering, of
Registrable Securities resulting in net proceeds to the Company of not less
than $20,000,000, other than any offering made in connection with a
compensatory benefit plan, with such Registrable Securities being listed on a
national securities exchange or the Nasdaq National Market (or any successor
thereto).
"Register," "registered," and "registration" shall refer to a registration
effected by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document by the SEC.
"Registrable Securities" shall mean (a) shares of Common Stock owned
beneficially or of record by any Holder, (b) shares of Common Stock issuable
upon conversion or exercise of any warrants or options or (c) any Common Stock
of the Company issued to a Holder as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
any of the securities described in (a) or (b) above; provided, however, that
shares of Common Stock or other securities shall only be treated as Registrable
Securities if and so long as (i) they have not been sold to or through a broker
or dealer or underwriter in a public distribution or otherwise pursuant to an
effective Registration Statement under the Securities Act, (ii) they have not
been sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof (including any
sale pursuant to Rule 144 of the Securities Act or any similar provision) so
that all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale, or (iii) they may not immediately be
resold by the Holder pursuant to Rule 144 (other than subsection (k) thereof),
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<PAGE> 3
or Rule 701 under the Securities Act or pursuant to a Registration Statement on
Form S-8 (or comparable successor form). In no event shall any securities of
the Company other than Common Stock (or any successor security) constitute
Registrable Securities. Common Stock issuable upon conversion or exercise of any
warrants or options will be registered for resale only.
The number of shares of "Registrable Securities then outstanding" shall be
determined by the number of shares of Common Stock outstanding which are, and
the number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities which are, Registrable Securities. The number of shares
of Registrable Securities owned by any Holder shall be deemed to include the
number of shares of Common Stock issuable pursuant to equity securities
convertible into, or exercisable for, Common Stock (regardless of whether such
securities are then convertible or exercisable, except for compensatory stock
options which shall not be deemed outstanding unless they have vested).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" shall mean the United States Securities and Exchange Commission
and any successor commission or agency having similar powers.
"Stockholders Agreement" shall mean that certain Stockholders Agreement
dated even herewith.
"Underwritten Registration" or "Underwritten Offering" shall mean a
registration under the Securities Act in which securities of the Company are
sold to an underwriter on a firm commitment basis for reoffering to the public
or affirm commitment basis.
"WES&S" shall mean IPP 97 Private Equity, L.L.C., a Delaware limited
liability company and its Affiliates.
2. Request for Registration.
(a) Demand Rights: General. Subject to the limitations set forth in
Section 2(c) hereof, if the Company shall receive at any time after the date 180
days after the effective date of the first Qualified IPO, a written request from
a Demand Holder of at least the lesser of (1) 250,000 shares of Registrable
Securities (adjusted for all stock splits or similar transactions) or (2)
Registrable Securities with a fair market value, based on the closing market
price on the trading day immediately prior to the date of notice (as reported in
The Wall Street Journal), of not less than $10,000,000, that the Company file a
registration statement under the Securities Act covering the registration of
such Registrable Securities as shall be identified in the notice, then the
Company shall, within ten (10) days of the receipt thereof, give written notice
of such request to all Holders and shall, subject to the limitations of Sections
2(c), 2(d) and 2(e), use all reasonable commercial efforts to effect as soon as
practicable, and in any event within ninety (90) days of the receipt of such
request, the registration under the Securities Act for resale of all Registrable
Securities which the Holders request to be registered within twenty (20) days of
the mailing of such notice by the Company in accordance with Section 22 hereof
(each such registration being a "Demand Registration").
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<PAGE> 4
(b) Underwriter: Cut-back. If the Holders initiating the registration
request under Section 2(a) (the "initiating Holders") intend to distribute the
Registrable Securities covered by their request by means of an Underwritten
Offering, they shall so advise the Company as a part of their request made
pursuant to this Agreement and the Company shall include such information in the
written notice to the other Holders referred to in such Section. The selection
of the managing underwriter in any registration under this Section 2 shall
require the consent of a majority of the Company's Board of Directors, such
consent not to be unreasonably withheld. In the case of an Underwritten
Offering, the right of any Holder to include Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting on customary terms. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in Section 4(e)) enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each such Holder, provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities proposed to be included in such
registration, except for securities to be offered by the Company for its own
account (which shall have priority), are first entirely excluded from the
underwriting.
(c) Limit on Demand Registrations. Each Demand Holder shall have two
(2) rights to cause the Company to effect a Demand Registration in accordance
with Section 2(a), provided, however, that (i) the Company shall not be
obligated to effect more than three (3) Demand Registrations in any twelve month
period; (ii) no Demand Holder shall exercise more than one (1) of its demand
rights in any twelve month period; and (iii) all Demand Rights granted under
this Section 2 shall expire thirty months following the effectiveness of the
Company's Qualified IPO. The Company is obligated to effect a Demand
Registration pursuant to Section 2(a) as long as the Registrable Securities
subject to such Demand Registration have a fair market value (based on the
closing market price on the trading day immediately prior to the date of the
written request referred to in Section 2(a) (as reported in The Wall Street
Journal), of not less than $5,000,000). For purposes of this Section 2(c), no
such Demand Registration shall be deemed to have taken place unless (i) the
registration statement filed pursuant to such Demand Registration has been
declared effective by the SEC and sales of the securities have been permitted
consistent with the plan of distribution described in the Registration
Statement, the Initiating Holder(s) shall have had the opportunity to dispose of
at least sixty-six percent (66%) of the Registrable Securities identified in the
related notice and the registration shall not have been interfered with in any
material respect by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, or (ii) a Demand Registration
shall be forfeited by operation of Section 6.
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<PAGE> 5
(d) Right to Defer; General. Notwithstanding the foregoing, if the
Company shall furnish to the Holders requesting a registration statement
pursuant to this Agreement a certificate signed by the Secretary of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company as set forth a duly adopted written resolution, it would be detrimental
to the Company and its stockholders for such registration statement to be filed
and it is therefore necessary to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a period of
not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once per Initiating Holder in any twelve month period.
3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company pursuant to Section 2 of this Agreement) any of its Common Stock
under the Securities Act in connection with the public offering of such
securities solely for cash (other than (i) a registration relating to the sale
of securities to participants in a Company stock or other compensation plan,
(ii) a registration on any form which does not include or incorporate by
reference substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or
(iii) a SEC Rule 145 transaction), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 22 hereof, the Company shall cause to be
registered under the Securities Act all of the Registrable Securities that each
such Holder has requested to be registered subject to the underwriter cutback
and other provisions of Section 8 hereof. Notwithstanding the foregoing, the
Company will not be required to give notice to the Holders in connection with
the first Qualified IPO if the underwriters managing the proposed offering have
advised the Company in writing that in their judgment market conditions will not
allow the inclusion of any secondary shares in such initial public offering
provided all Holders are similarly excluded. In the event the managing
underwriters and the Company subsequently determine to add any secondary shares
in the initial public offering, such notice shall be provided and all rights
granted by this Section 3 shall apply to all Holders.
4. Obligations of the Company. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) SEC Filing. Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use all reasonable commercial
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days or until all of the shares of Common Stock registered thereunder are sold,
whichever occurs sooner.
(b) Amendments. Prepare and file with the SEC such amendments
supplements and post-effective amendments to such registration statement and the
prospectus
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<PAGE> 6
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement, and furnish such
copies thereof to the Holders and any underwriters as they may reasonably
request. Upon the occurrence of any event that would cause any such registration
statement or the prospectus contained therein (i) to contain a material
misstatement or omission or (ii) not to be effective and usable for resale of
Registrable Securities during the period required by this Agreement, the Company
shall file promptly an appropriate amendment to such registration statement, (1)
in the case of clause (i), correcting any such misstatement or omission, and
(2) in the case of clauses (i) and (ii), use its reasonable commercial efforts
to cause such amendment to be declared effective and such registration statement
and the related prospectus to become usable for their intended purpose(s) as
soon thereafter as reasonably practicable.
(c) Filings. Advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, confirm such advice in writing, (i)
when the prospectus or any prospectus supplement or post-effective amendment has
been filed, and, with respect to any registration statement or any
post-effective amendment thereto, when the sale has become effective, (ii) of
any request by the SEC for amendments to the registration statement or
amendments or supplements to the prospectus or for additional information
relating thereto, and (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement under the Securities
Act or of the suspension by any state securities commission of the qualification
of any Registrable Securities for offering or sale in any jurisdiction, or the
initiation in writing of any proceeding for any of the preceding purposes. If at
any time the SEC shall issue any stop order suspending the effectiveness of the
registration statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of any Registrable Securities under state securities or blue sky
laws, the Company shall use its reasonable commercial efforts to obtain the
withdrawal or lifting of such order at the earliest practicable time.
(d) Furnish Information. Upon the request of any such Person, furnish
to any selling Holder expressly named in any registration statement or
prospectus as a selling securityholder and any underwriter(s) participating in
any disposition pursuant to a registration statement, before filing with the
SEC, copies of any registration statement or any prospectus included therein or
any amendments or supplements to any such registration statement or prospectus,
which documents will be subject to the review and comment of such Holders and
underwriter(s) in connection with such sale, if any, for a period of at least
three (3) business days, and the Company will not file any such registration
statement or prospectus or any amendment or supplement to any such registration
statement or prospectus (including all such documents incorporated by reference)
to which the selling Holders of the Registrable Securities covered by such
registration statement or the underwriter(s) in connection with such sale, if
any shall reasonably object within three (3) business days after the receipt
thereof, provided, however, that no such review period shall apply to periodic
reports that the Company is required to file or believes advisable under the
Exchange Act. Any such review and comments shall be provided through the single
counsel for all such Persons contemplated by Section 6 hereof and the three
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<PAGE> 7
(3) business day period shall terminate upon completion of such review and
comment with that counsel.
(e) Company Officials. Promptly after the filing of any document that
is incorporated by reference into a registration statement or prospectus and
upon the request of any selling Holder expressly named in such registration
statement or underwriter participating in any disposition pursuant to such
registration statement, make a responsible official of the Company available, at
reasonable times during normal business hours after appropriate advance notice,
for discussion of such document and other customary due diligence matters, which
discussions shall be coordinated by the single counsel for all selling Holders
contemplated by Section hereof. The Company may require that a confidentiality
agreement in customary form and otherwise reasonably satisfactory to it be
entered into prior to any such discussion and such official shall not be
obligated to disclose any information that he is not legally permitted to
disclose.
(f) Inspection of Documents. Make available at reasonable times for
inspection by the selling Holders, any managing underwriter participating in any
disposition pursuant to such registration statement and any attorney or
accountant retained by such selling Holders or any of such underwriter(s),
information reasonably requested by any such Holder, underwriter, attorney or
accountant solely in connection with the establishment of a "due diligence"
defense for such persons in connection with such registration statement or any
post effective amendment thereto subsequent to the filing thereof and prior to
its effectiveness (collectively, "Company Information"); provided, however, that
such Company Information shall not be disclosed unless the requesting party
signs a confidentiality agreement in customary form and otherwise reasonably
satisfactory to the Company; and provided, further, that the Company shall not
be obligated to disclose any Company Information that it is not legally
permitted to disclose by operation of government regulation or similar
requirement.
(g) Plan of Distribution. If requested by any selling Holders or the
underwriter(s) in connection with such sale, if any, promptly include in any
registration statement or prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein relating
to the "Plan of Distribution" of the Registrable Securities, information with
respect to the principal amount of Registrable Securities being sold to such
underwriter(s), the purchase price being paid therefor and any other terms of
the offering of the Registrable Securities to be sold in such offering; and make
all required filings of such prospectus supplement or post-effective amendment
as soon as reasonably practicable after the Company is notified of the matters
to be included in such prospectus supplement or post-effective amendment.
(h) DOCUMENT COPIES. Furnish to each selling Holder and each of the
underwriter(s) in connection with such sale, if any, without charge, at least
one conformed copy of the registration statement, as first filed with the
Commission, and of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits incorporated there by
reference).
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<PAGE> 8
(i) Prospectus. Furnish to the Holders and any underwriters such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them, and cause all related filings to be made
with the SEC as required by Rule 424. The Company hereby consents to the use (in
accordance with law and the "Plan of Distribution" provided by the selling
Holder and any underwriters) of the prospectus and any amendment or supplement
thereto by each of the selling Holders and each of the underwriter(s), if any,
in connection with the offering and the sale of the Registrable Securities
covered by the prospectus or any amendment or supplement thereto.
(j) Blue Sky Qualification. Use all reasonable commercial efforts to
register and qualify the securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions as shall be
reasonably requested by the Holders and any underwriters, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(k) Underwriting Agreement. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriters of such
offering, provided that such managing underwriter has been selected consistent
with the provisions of Section 2(b). Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(l) Prospectus Delivery. Promptly notify each Holder of Registrable
Securities covered by the registration statement at any time when the Company
becomes aware of the happening of any event as a result of which the
registration statement or the prospectus included in such registration statement
or any supplement to the prospectus (as then in effect) contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading or, if for any other
reason it shall be necessary during such time period to amend or supplement the
registration statement or the prospectus in order to comply with the Securities
Act, whereupon, in either case, each Holder shall immediately cease to use such
registration statement or prospectus for any purpose and, as promptly as
practicable thereafter, the Company shall prepare and file with the SEC, and
furnish without charge to the appropriate Holders and managing underwriters, if
any, a supplement or amendment to such registration statement or prospectus
which will correct such statement or mission or effect such compliance and such
copies thereof as the Holders and any underwriters may reasonably request.
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be reasonably required to effect the registration of such Holder's
Registrable Securities.
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<PAGE> 9
6. Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions and stock transfer taxes incurred in connection with
the registration and sale of Registrable Securities pursuant to Section 2,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and expenses of compliance with state
securities or blue sky laws and related fees and disbursements of underwriters
(not to exceed $2,000), fees and expenses of other Persons retained by the
Company, (if any), filing fees payable to the National Association of Securities
Dealers, Inc., reasonable fees and disbursements of counsel for the Company, and
the reasonable fees and disbursements of one counsel for the selling Holders
shall be borne by the Company, which counsel the Company may request be the
Company's counsel if such counsel is reasonably acceptable to the Initiating
Holders and, if not, shall be selected by the Initiating Holders; provided,
however, that in the event the Holders retain separate counsel, the reasonable
fees and expenses to be reimbursed shall not exceed $50,000 on the first
Qualified IPO or $25,000 in a subsequent registration without the prior consent
of the Company. Notwithstanding the foregoing, however, in the event a
registration request is subsequently withdrawn at the request of the Initiating
Holders, then such expenses shall be borne solely by the Initiating Holders and
not by the Company (in which case all Holders participating in such registration
shall bear such expenses pro rata based on the Registrable Securities to be
registered).
7. Expenses of Company Registration. All expenses other than underwriting
discounts and commissions and stock transfer taxes incurred in connection with
the registration and sale of Registrable Securities pursuant to Section 3,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and expenses of compliance with state
securities or blue sky laws and related fees and disbursements of underwriters
fees and expenses of other Persons retained by the Company, (if any), reasonable
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company, which counsel the Company may request be the Company's counsel if such
counsel is reasonably acceptable to the selling Holders and, if not, shall be
selected by the selling Holders; provided, however, that in the event the
Holders retain separate counsel, the reasonable fees and expenses to be
reimbursed shall not exceed $50,000 on the first Qualified IPO or $25,000 in a
subsequent registration without the prior consent of the Company.
8. Underwriting Requirements. In connection with any offering contemplated
by this Agreement which constitutes an Underwritten Offering, the Company shall
not be required under Section 3 to include any of the Holders' Registrable
Securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by the
person(s) entitled to select the underwriters, and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Company, such determination to be confirmed in
writing upon the request of any Holder. If the total amount of Registrable
Securities requested by Holders to be included in such offering exceeds the
amount of securities sold other than by the Company that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then the company shall be required to include in the offering only
that number of Registrable Securities which the underwriters determine in their
sole discretion will
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<PAGE> 10
not jeopardize the success of the offering (the securities so included shall be
allocated in the following manner: (i) first, 100% of the securities that the
Company proposes to sell; and (ii) second. the number of securities that each
other Holder proposes to sell, in proportion (as nearly as practicable) to the
amount of Registrable Securities of the Company owned by each such Holder).
9. Delay Registration. No Holder shall have any right to obtain or seek an
injunction or other similar remedy restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
10. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Agreement:
(a) Indemnification by the Company. To the fullest extent permitted by
law, the Company will indemnify and hold harmless each Holder, any underwriter
(as defined in the Securities Act) for such Holder, each of its officers,
directors, employees and agents of any Holder or underwriter and each person, if
any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act, or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, or any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act, or any state securities law; and the Company will pay to each
such Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by one law firm retained by them, plus appropriate
local counsel in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to which any holder,
underwriter or controlling person may become subject to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration by such Holder, underwriter or controlling
person. In the case of any Underwritten Offering, the Company will also
indemnify the underwriters participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of the
Securities Act or the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities, subject
to cross-indemnification substantially as set forth in Section 10(b).
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<PAGE> 11
(b) Indemnification by Selling Holder. To the fullest extent permitted
by law, each selling Holder severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
Section 10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this Section 10(b) exceed the net proceeds from the offering
received by such Holder.
(c) Procedures. Promptly after receipt by an indemnified party under
this Section 10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel
(plus appropriate local counsel), with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial in any material respect to its ability to defend
such action, shall to such extent relieve such indemnifying party of any
liability to the indemnified party under this Section 10, but the omission so to
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 10.
(d) Contribution. If the indemnification provided for in this Section
10 from the indemnifying party is unavailable to an indemnified party hereunder
with respect to any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or
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<PAGE> 12
payable by such indemnified party as a result of such losses, claims, damages,
liabilities expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
parties on the other in connection with the actions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or related to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that, except with respect to Holders guilty of fraudulent
misrepresentations, in no event shall the liability of any selling Holder
hereunder be greater in amount than the difference between the dollar amount of
the proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such contribution obligation and all amounts previously
contributed by such Holder with respect to such losses, claims, damages,
liabilities and expenses. The amount paid or payable to a party as a result of
the losses, claims damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(e) Survival. The obligations of the Company and Holders under this
Section 10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
11. Reports Under Exchange Act. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration generally or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after the first
Qualified IPO;
(b) use all reasonable commercial efforts, including voluntarily
registering its Common Stock under Section 12 of the Exchange Act, to qualify
for registration on Form S-3 for the sale of their Registrable Securities as
soon as it becomes eligible to file such resale registration statement;
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<PAGE> 13
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, promptly upon request (i) a written statement by the Company as
to whether or not it has complied with the reporting requirements of SEC
Rule 144 (at any time after ninety (90) days after the effective date of
the first Qualified IPO), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), or that
it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most
recent annual and/or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as
may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
12. Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of at least the lesser of (x) 250,000 shares of Registrable
Securities (adjusted for all stock splits of similar transactions) or (y)
Registrable Securities with a fair market value, based on the closing market
price on the trading day immediately prior to the date of notice (as reported in
The Wall Street Journal, if the class of securities comprising the Registrable
Securities is then listed on a national securities exchange, Nasdaq or other
public securities market reported in The Wall Street Journal) of not less than
$5,000,000, a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to such
Registrable Securities, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliance as may be so requested and as would permit or
facilitate the sale and distribution of all or a portion of each such
Holder's Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder
joining in such request as are specified in a written request given within
fifteen (15) business days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 12: (i) if FORM S-3 is not available for such offering by the
Holders; (ii) if the Company shall furnish to the Holders a certificate
signed by the Secretary of the Company stating that in the good faith
judgment of the Board of Directors of the Company as set forth in a duly
adopted written resolution, it would be detrimental to the Company and its
shareholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the
Form S-3 registration
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<PAGE> 14
statement for a period of not more than ninety (90) days after receipt of
the request of the Holders under this Section 12; provided, however, that
the Company shall not utilize this right more than once in any twelve month
period; (iii) if the Company has, within the nine (9) month period
preceding the date of such request, already effected a registration for the
Holders pursuant to Sections 2.3 and/or this Section 12; (iv) if the
Company has already effected a registration for the Holders requesting
registration more than once pursuant to this Section 12. (v) if the Company
has already effected more than five (5) registrations pursuant to this
Section 12 or (vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so
requested to be registered as soon as reasonably practicable after receipt
of the request or requests of the Holders. All expenses incurred in
connection with the first six (6) registrations requested by the Holders,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees, the reasonable fees and disbursements of
counsel for the Company and the reasonable fees and expenses of one counsel
for the selling Holders, which counsel the Company may request be the
Company's counsel if such counsel is reasonably acceptable to such selling
Holders and, if not, shall be selected by the Initiating Holders; provided,
however, that (i) the underwriters' discounts or commissions and stock
transfer taxes associated with Registrable Securities shall not be borne by
the Company, but shall be borne by the applicable Holders of such
Registrable Securities and (ii) in the event the Selling Holders retain
separate counsel, the reasonable fees and expenses reimbursed shall not
exceed $25,000 ($ 10,000 if the registration is not underwritten) without
the prior consent of the Company. Registrations effected pursuant to this
Section 12 shall not be counted as demands for registration effected
pursuant to Section 2.
(d) For purposes of this Section 12, the provisions of Section 4
applicable to Form S-3 offerings shall apply and, if any such registration
is to be an underwritten offering, such registration shall be subject to
underwriter cut-back and other provisions as provided in Section 8.
13. Assignment of Registration Rights. Except as otherwise provided herein,
the rights to cause the Company to register Registrable Securities pursuant to
this Agreement may only be assigned to a purchaser, assignee or transferee of
the underlying Registrable Securities in a transaction permitted by, and
otherwise in compliance with, the Stockholders Agreement dated even herewith (if
then in effect) and, then, only if the transferee has executed a joinder
agreement substantially in the form of Exhibit I hereto and Schedule I thereto.
The Company may, at is election, require that this covenant be enforced by
requiring all Holders to legend their share certificates in a manner similar to
that required by Section 12 of the Stockholders Agreement.
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<PAGE> 15
14. Limitations on Subsequent Registration Rights. From and after the date
of this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the Registrable Securities then outstanding, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Sections 2.3 or 12 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of its securities will not reduce the amount of the Registrable
Securities of the Holders which is included or, (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the first Qualified IPO; provided, however, that clause (a)
of this Section 14 shall not apply to (i) issuances to employees, directors or
consultants approved by the Board of Directors or (ii) issuances in respect of
which the rights provided in Section 5 of the Stockholders Agreement apply, each
of whom may be granted registration rights on parity with those provided herein.
15. "Market Stand-Off" Agreement.
Each Holder hereby agrees that for a period of (i) 180 days following the
effective date of the first Qualified IPO filed on Form S-I or similar form
under the Securities Act and (ii) ninety (90) days following any registration
effected subsequent to the first Qualified IPO pursuant to Sections 2, 3 or 12
(provided the Holders are given written notice of the offering and the right to
participate therein as provided for in this Agreement), each Holder shall not,
unless otherwise agreed to by the managing underwriters, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to those who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that all executive officers and directors of
the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements. In addition, each
Holder agrees to acknowledge the undertaking provided for in this Section 15 by
entering into customary written "lock-up" agreements with the managers of the
relevant underwriting. The requirement of clause (ii) shall not apply to a
Holder that, at the time of receipt of the referenced notice from the Company,
(a) beneficially owned less than 5% of the outstanding shares of each class of
the capital stock of the Company, (b) is not an Affiliate or an employee of the
Company and (c) waives any further benefits of this Agreement for it or any
subsequent assignee or transferee of its Registrable Securities. In order to
enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
16. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities then outstanding; provided, however, that if any amendment proposed
hereunder would reasonably be expected to materially and disproportionately
affect any rights granted to a specific Holder herein, such amendment shall
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<PAGE> 16
require the consent of such Holder. Any amendment or waiver effected in
accordance with this Section 16 shall be binding upon each Holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities and the Company.
17. Termination. The rights provided in this Agreement shall terminate on
the tenth anniversary of the closing of the Company's initial public offering
pursuant to which the Company registers shares of Common Stock under the
Securities Act and following shortly after or concurrently with which the
Company registers its Common Stock under the Exchange Act.
18. Governing Law: Dispute Resolution. THIS AGREEMENT SHALL BE CONSTRUED,
INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF DELAWARE (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF).
The parties hereby agree that, in order to obtain prompt and expeditious
resolution of any disputes under this Agreement, each claim, dispute or
controversy of whatever nature, arising out of, in connection with, or in
relation to the interpretation, performance or breach of this Agreement (or any
other agreement contemplated by or related to this Agreement), including without
limitation any claim based on contract, tort or statute, or the arbitrability of
any claim hereunder (an "Arbitrable Claim"), shall be settled, at the request of
any party of this Agreement, exclusively by final and binding arbitration
conducted in New York, New York. All such Arbitrable Claims shall be settled by
one arbitrator in accordance with the Commercial Arbitration Rules then in
effect of the American Arbitration Association. Such arbitrator shall be
provided through the CPR Institute for Dispute Resolution ("CPR") by mutual
agreement of the parties; provided that, absent such agreement, the arbitrator
shall be appointed by CPR. In either event, such arbitrator may not have any
preexisting direct or indirect relationship with any party to the dispute. EACH
PARTY HERETO EXPRESSLY CONSENTS TO, AND WAIVES ANY FUTURE OBJECTION TO, SUCH
FORUM AND ARBITRATION RULES. Judgment upon any award may be entered by any state
or federal court having jurisdiction thereof. Except as required by law
(including, without limitation, the rules and regulations of the SEC, the New
York Stock Exchange or the Nasdaq Stock Market), no party nor the arbitrator
shall disclose the existence, content, or results of any arbitration hereunder
without the prior written consent of all parties. Except as provided herein, the
Federal Arbitration Act shall govern the interpretation, enforcement and all
proceedings pursuant to this Section 18.
Adherence to this dispute resolution process shall not limit the right of
the parties hereto to obtain any provisional remedy, including without
limitation, injunctive or similar relief, from any court of competent
jurisdiction as may be necessary to protect their respective rights and
interests pending arbitration. NOTWITHSTANDING THE FOREGOING SENTENCE, THIS
DISPUTE RESOLUTION PROCEDURE IS INTENDED TO BE THE EXCLUSIVE METHOD OF RESOLVING
ANY ARBITRABLE CLAIMS ARISING OUT OF OR RELATING TO THIS AGREEMENT. The
arbitration procedures shall follow the substantive law of the State of
Delaware, including the provision of statutory law dealing with arbitration, as
it may exist at the time of the demand for arbitration, insofar as said
provisions are not in conflict with this-Agreement and specifically excepting
therefrom sections of any such statute dealing with discovery and sections
requiring notice of the hearing date by
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<PAGE> 17
registered or certified mail. The Arbitrators shall determine the prevailing
party and shall include in their award that party's reasonable attorneys' fees
and costs.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
20. Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
21. Negotiation of Agreement. Each of the parties acknowledges that it has
been represented by independent counsel of its choice throughout all
negotiations that have preceded the execution of this Agreement and that it has
executed the same with consent and upon the advice of said independent counsel.
Each party and its counsel cooperated in the drafting and preparation of this
Agreement and the documents referred to herein, and any and all drafts relating
thereto shall be deemed the work product of the parties and may not be construed
against any party by reason of its preparation. Accordingly, any rule of law or
any legal decision that would require interpretation of any ambiguities in this
Agreement against the party that drafted it is of no application and is hereby
expressly waived. The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intentions of the parties and this Agreement.
22. Notices. Any notice, request, instruction or other document to be given
hereunder by any party hereto to another party hereto shall be in writing, shall
be deemed to have been duly given or delivered when delivered personally or
telecopied (receipt confirmed, with a copy sent by reputable overnight courier),
or one business day after delivery to a reputable overnight courier, postage
prepaid, to the address of the party set forth in the stock records of the
Company or to such address as the party to whom notice is to be given may
provide in a written notice to each of the other parties to this Agreement, a
copy of which written notice shall be on file with the Secretary of the Company.
23. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its terms
to the fullest extent permitted by law.
24. Further Assurances. Each of the parties shall, without further
consideration, use reasonable efforts to execute and deliver such additional
documents and take such other action as the other parties, or any of them may
reasonably request to carry out the intent of this Agreement and the
transactions contemplated hereby.
25. Successors and Assigns. This Agreement shall be binding upon and all
rights hereto shall inure to the benefit of the Company, its successors and
permitted assigns, and shall be binding upon and all rights hereto shall inure
to the benefit of the other parties hereto and
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<PAGE> 18
their respective heirs, successors and permitted assigns, including permitted
transferees of any Registrable Securities who have complied with the
restrictions referred to in Section 13 hereof
26. Entire Agreement. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the actions and transactions
contemplated by this Agreement. There are no restrictions, promises,
inducements, representations, warranties, covenants or undertakings with regard
to the registration of the Company's capital stock pursuant to the Securities
Act, other than those expressly set forth or referred to in this Agreement.
27. Recapitalizations. etc. The provisions of this Agreement (including any
calculation of share ownership) shall apply, to the full extent set forth herein
with respect to the Registrable Securities, to any and all shares of capital
stock of the Company or any capital stock, partnership units or any other
security evidencing ownership interests in any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) that may
be issued in respect of, in exchange for, or in substitution of the Common Stock
by reason of any stock dividend, split, combination, recapitalization,
liquidation, reclassification, merger, consolidation or otherwise.
(Signature Pages Follow)
18
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORPORATE STAFFING RESOURCES, INC.
By:_____[SIGNATURE]________________
Name: Connor Mullett
Title: Vice President
WILLIAM W. WILKINSON
___________________________________
WILLIAM J. WILKINSON
___________________________________
JACQUELINE CAMACHO
___________________________________
DIANE FENNEL
___________________________________
SHARON KEANE
___________________________________
S-1
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORPORATE STAFFING RESOURCES, INC.
By: __________________________________
Name:
Title:
WILLIAM W. WILKINSON
__[SIGNATURE]_________________________
WILLIAM J. WILKINSON
__[SIGNATURE]_________________________
JACQUELINE CAMACHO
______________________________________
DIANE FENNEL
______________________________________
SHARON KEANE
______________________________________
S-1
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORPORATE STAFFING RESOURCES, INC.
By: _____________________________________
Name:
Title:
WILLIAM W. WILKINSON
____[SIGNATURE]__________________________
WILLIAM J. WILKINSON
____[SIGNATURE]__________________________
JACQUELINE CAMACHO-BARTON
____[SIGNATURE]__________________________
DIANE FENNEL
_________________________________________
SHARON KEANE
_________________________________________
S-1
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORPORATE STAFFING RESOURCES, INC.
By: ___________________________________
Name:
Title:
WILLIAM W. WILKINSON
____[SIGNATURE]________________________
WILLIAM J. WILKINSON
____[SIGNATURE]________________________
JACQUELINE CAMACHO
_______________________________________
DIANE FENNEL
____[SIGNATURE]________________________
SHARON KEANE
_______________________________________
S-1
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
CORPORATE STAFFING RESOURCES, INC.
By: ____________________________________
Name:
Title:
WILLIAM W. WILKINSON
_____[SIGNATURE]________________________
WILLIAM J. WILKINSON
_____[SIGNATURE]________________________
JACQUELINE CAMACHO
________________________________________
DIANE FENNEL
________________________________________
SHARON KEANE
_____[SIGNATURE]________________________
S-1
<PAGE> 24
TOM MURPHY
__[SIGNATURE]___________________
PATTI PISCIONE
_______________________________
KELLI PURSLEY
________________________________
D. CRAWFORD GALLIMORE
________________________________
T. WAYNE MCCREIGHT
_________________________________
HAL. H. BIBEE
__[SIGNATURE]____________________
S-2
<PAGE> 25
TOM MURPHY
________________________________
PATTI PISCIONE
____[SIGNATURE]_________________
KELLI PURSLEY
________________________________
D. CRAWFORD GALLIMORE
________________________________
T. WAYNE MCCREIGHT
________________________________
HAL. H. BIBEE
___[SIGNATURE]__________________
S-2
<PAGE> 26
TOM MURPHY
________________________________
PATTI PISCIONE
_______________________________
KELLI PURSLEY
____[SIGNATURE]_________________
D. CRAWFORD GALLIMORE
________________________________
T. WAYNE MCCREIGHT
________________________________
HAL. H. BIBEE
________________________________
S-2
<PAGE> 27
TOM MURPHY
_______________________________
PATTI PISCIONE
_______________________________
KELLI PURSLEY
_______________________________
D. CRAWFORD GALLIMORE D. CRAWFORD GALLIMORE,
as General Partner of
The D. Crawford Gallimore Family Limited
Partnership.
___[SIGNATURE]_____________________________
T. WAYNE MCCREIGHT T. WAYNE MCCREIGHT
as General Partner of
The T. Wayne McCreight Family Limited
Partnership.
___[SIGNATURE]_____________________________
HAL. H. BIBEE
S-2
<PAGE> 28
TOM MURPHY
______[SIGNATURE]_________________
PATTI PISCIONE
_______________________________
KELLI PURSLEY
_______________________________
D. CRAWFORD GALLIMORE
_______________________________
T. WAYNE MCCREIGHT
_______________________________
HAL. H. BIBEE
______[SIGNATURE]_________________
S-2
<PAGE> 29
H. RONALD STONE
____[SIGNATURE]____________________________
JERRY F. STONE
__________________________________________
IPP 97 PRIVATE EQUITY, LLC
By: Weskids. L.P., its Managing Member
By: Weskids. Inc., its General Partner
By:______________________________________
Name:
Title:
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:_____[SIGNATURE]______________________
Name: John Shoemaker
Title: Vice President
ING (U.S.) CAPITAL CORPORATION
By:______________________________________
Name:
Title:
S-3
<PAGE> 30
H. RONALD STONE
_______[SIGNATURE]______________________
JERRY F. STONE
_______[SIGNATURE]______________________
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
By: Weskids, Inc., its General Partner
By:_____________________________________
Name:
Title:
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:______[SIGNATURE]____________________
Name: John Shoemaker
Title: Vice President
ING (U.S.) CAPITAL CORPORATION
By:_____________________________________
Name:
Title:
S-3
<PAGE> 31
H. RONALD STONE
_________________________________________
JERRY F. STONE
_________________________________________
IPP 97 PRIVATE EQUITY. LLC
By: Weskids, L.P., its Managing Member
By: Weskids, Inc., its General Partner
By:___[SIGNATURE]________________________
Name:
Title:
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:______________________________________
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By:______________________________________
Name:
Title:
S-3
<PAGE> 32
H. RONALD STONE
_______________________________________
JERRY F. STONE
_______________________________________
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
By: Weskids, Inc., its General Partner
By:____________________________________
Name:
Title:
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:____________________________________
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By:_____[SIGNATURE]____________________
Name:
Title:
S-3
<PAGE> 33
CREDITANSTALT CORPORATE FINANCE, INC.
By: __________________________________
Name: W. Craig Stamm
Title: Vice President
By: __[SIGNATURE]_____________________
Name: Robert M. Biringer
Title: Executive Vice President
CARMEN NICHOLE STONE TRUST
By: __________________________________
Name:
Title:
SARAH KATHERINE STONE TRUST
By: __________________________________
Name:
Title:
GINGER S. MCDONALD TRUST
By: __________________________________
Name:
Title:
HEATH SHEPHERD STONE TRUST
By: __________________________________
Name:
Title:
S-4
<PAGE> 34
CREDITANSTALT BANKVEREIN
(CAYMAN ISLANDS BRANCH)
By: _______________________________
Name:
Title
CARMEN NICHOLE STONE TRUST
By: ____[Signature]________________
Name: Jerry F. Stone
Title: Trustee
SARAH KATHERINE STONE TRUST
By: ____[Signature]________________
Name: Jerry F. Stone
Title: Trustee
GINGER S. MCDONALD TRUST
By: ____[Signature]________________
Name: Jerry F. Stone
Title: Trustee
HEATH SHEPHERD STONE TRUST
By: ____[Signature]________________
Name:
Title:
S-4
<PAGE> 35
CREDITANSTALT BANKVEREIN
(CAYMAN ISLANDS BRANCH)
By: ____________________________________
Name:
Title
CARMEN NICHOLE STONE TRUST
By: ____________________________________
Name:
Title:
SARAH KATHERINE STONE TRUST
By: ____________________________________
Name:
Title:
GINGER S. MCDONALD TRUST
By: ____________________________________
Name:
Title:
HEATH SHEPHERD STONE TRUST
By: ______[SIGNATURE]___________________
Name: H. Ronald Stone
Title: Trustee
S-4
<PAGE> 36
SARAH ASHLEY STONE TRUST
By:_____[SIGNATURE]_____________
Name: H. Ronald Stone
Title: Trustee
S-5
<PAGE> 37
SCHEDULE A
STOCKHOLDERS:
Sch. A-1
<PAGE> 38
EXHIBIT 1
Form of:
REGISTRATION RIGHTS AGREEMENT JOINDER
As of the date set forth below, the undersigned is acquiring from
__________________ shares of the Common Stock (the "Shares"), of Corporate
Staffing Resources, Inc. (the "Company"). By execution of this Registration
Rights Agreement Joinder, the undersigned, as successor to ______________ in
respect of the Shares, shall be deemed to be a party to that certain
Registration Rights Agreement, dated as of _____________ 1997, by and between
the Company and the "Holders" identified on the signature pages thereof (the
"Registration Rights Agreement"). Pursuant to Sections 13 and 25 of the
Registration Rights Agreement, the undersigned, as successor to ________________
in respect of the Shares, shall have all rights, and shall observe all the
obligations, applicable to a "Holder" under such Registration Rights Agreement.
In order to give effect to this transaction, please add the undersigned to the
list of "Holders" as set forth in Schedule A to the Registration Rights
Agreement.
Name:
Address for with copies
Notices: to:
___________________________
By:________________________
Name:
Title:
Date:
By:_____________________
Name:
Title:
Date:
Exh. 1-1
<PAGE> 1
EXHIBIT 10.11
CORPORATE STAFFING RESOURCES, INC.
----------------------------------
STOCKHOLDERS AGREEMENT
----------------------------------
Dated as of December 3, 1997
===============================================================================
<PAGE> 2
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT, dated as of December 3, 1997, is by and
among Corporate Staffing Resources, Inc., a Delaware corporation (the
"Corporation"), and the stockholders of the Corporation (each a "Stockholder"
and, collectively, the "Stockholders") as listed from time to time on Schedule 1
hereto.
Each Stockholder owns that number of Securities (as hereinafter
defined) set forth opposite such Stockholder's name on Schedule 1 hereto. It is
deemed to be in the best interest of the Corporation and the Stockholders that
provision be made for the continuity and stability of the business and policies
of the Corporation, and, to that end, the Corporation and the Stockholders
hereby set forth their agreement with respect to the Securities owned by them.
AGREEMENT
ACCORDINGLY, in consideration of the mutual covenants and agreements
contained in this Agreement, the parties agree as follows:
1. Definitions; Rules of Construction.
(a) Capitalized terms used in this Agreement have the meanings
ascribed to them below:
"Accredited Investor" shall have the meaning set forth for such term
in Regulation D.
"Accredited Offeree" shall have the meaning ascribed to it in Section
5(a).
"Affiliate" means (i) with respect to any individual, (A) a spouse
or descendant, through blood or adoption, of such individual, (B) any trust or
family partnership whose beneficiaries shall primarily be such individual and/or
such individual's spouse and/or any Person related by blood or adoption to such
individual or such individual's spouse, and (C) the estate or heirs of such
individual, (ii) with respect to any Person which is not an individual, any
other Person that, directly or indirectly through one or more intermediaries
Controls (as hereinafter defined), is Controlled by, or is under common Control
with, such Person and/or one or more Affiliates thereof. Without limiting the
foregoing, (i) with respect to WES&S, an "Affiliate" shall mean the managing
member of WES&S or any Person that directly or indirectly, through one or more
intermediaries, Controls, or is Controlled by, or is under common Control with
the managing member of WES&S or any partnership or limited liability company in
which the managing member of WES&S is a general partner or managing member,
respectively and (ii) with respect to Mellon, an
<PAGE> 3
"Affiliate" shall mean (A) any bank holding company that Controls Mellon, (B)
the general partner of Mellon, (C) any Person that directly or indirectly,
through one or more intermediaries, Controls, or is Controlled by, or is under
common Control with the general partner of Mellon or (D) any partnership or
limited liability company in which the general partner of Mellon is a general
partner or managing member, respectively. The term "Control" includes, without
limitation, the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Applicable Law" means, as to any Person, all provisions of laws,
statutes, ordinances, rules, regulations, permits, certificates or orders of any
Governmental Authority applicable to such Person or any of its assets or
property and all judgments applicable to such Person.
"Applicable Offerees" means every Stockholder, other than an Outside
Stockholder, who owns at least 1% of the Common Stock of the Corporation on the
date hereof, but only if the Selling Stockholder is a Stockholder other than an
Outside Stockholder or its Affiliates.
"Approved Sale" shall have the meaning ascribed to it in Section 12.
"Board" means the Board of Directors of the Corporation.
"By-laws" means the by-laws of the Corporation as amended from time
to time.
"Capital Lease" means any lease obligation required to be accounted
for as a capital lease under GAAP.
"Cash Value" shall have the meaning ascribed to it in Section 9(a).
"Certificate" means the Second Amended and Restated Certificate of
Incorporation of the Corporation as filed with the Secretary of State of
Delaware on December 3, 1997, as the same may hereafter be further amended,
modified, supplemented and restated from time to time.
"Co-Sale Acceptance" shall have the meaning ascribed to it in Section
7(a).
"Co-Sale Notice" shall have the meaning ascribed to it in Section
7(a).
"Co-Sale Offer" shall have the meaning ascribed to it in Section
7(a).
"Co-Sale Offeree" shall have the meaning ascribed to it in Section
7(a).
"Co-Sale Offeror" shall have the meaning ascribed to it in Section
7(a).
2
<PAGE> 4
"Common Stock" means the common stock, par value $.01 per share, of
the Corporation.
"Common Stock Equivalent" means a share of Common Stock or the right
to acquire, whether or not immediately exercisable, a share of Common Stock,
whether evidenced by an option, warrant, convertible security or other
instrument or agreement.
"Company" means, collectively, the Corporation and its Subsidiaries
and, individually, the Corporation and each Subsidiary of the Corporation.
"Competitor" means any Person who actively engages in any business or
organization in any part of the United States or any other jurisdiction in which
the Company sells products or provides services which, directly or indirectly,
Competes (as hereinafter defined) with the Company. A business or organization
shall be deemed to "Compete" with the Company if such business or organization,
in the reasonable opinion of the Board, competes in a significant manner with
the business of the Company as it is conducted as of the date hereof or at any
time while this Agreement is in effect.
"Corporation" shall have the meaning ascribed to it in the Preamble.
"Electing Party" shall have the meaning ascribed to it in Section
9(a).
"Encumbrance" means any lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, right of way, encumbrance, right of
first refusal or other right or adverse claim of any third party of any sort
whatsoever.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"Excluded Securities" shall have the meaning ascribed to it in
Section 5(b).
"Existing Indebtedness" means any Indebtedness incurred or permitted
to be incurred under any Loan Agreement.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any domestic or foreign government or
political subdivision thereof, whether on a federal, state or local level and
whether executive, legislative or judicial in nature, including any agency,
authority, board, bureau, commission, court, department or other instrumentality
thereof.
"Guaranty" means any obligation, contingent or otherwise, of any
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other obligation of any other Person in any manner, whether
directly or indirectly, including any obligation of such Person, direct or
indirect, (i) to purchase or pay (or advance or supply
3
<PAGE> 5
funds for the purchase or payment of) such Indebtedness or other obligation or
to purchase (or to advance or supply funds for the purchase of) any security for
the payment of such Indebtedness or other obligation, (ii) to purchase
property, securities or services for the purpose of assuring the owner of such
Indebtedness or other obligation of the payment thereof, (iii) to purchase or
otherwise pay for merchandise, materials, supplies, services or other property
under an arrangement which provides that payment for such merchandise,
materials, supplies, services or other property shall be made regardless of
whether delivery of such merchandise, materials, supplies, services or other
property is ever made or tendered, or (iv) to maintain the working capital,
equity capital or other financial statement condition of any primary obligor;
provided, however, that the term Guaranty shall not include endorsement of
instruments for deposit and collection in the ordinary course of business.
"Indebtedness" shall mean for the Corporation and its Subsidiaries on
a consolidated basis, without duplication, the aggregate amount (including the
current portions thereof) of all (i) indebtedness for money borrowed from
others, purchase money indebtedness and Capital Lease obligations; (ii)
indebtedness of the type described in clause (i) above guaranteed, directly or
indirectly, in any manner by the Corporation or any Subsidiary or in effect
guaranteed, directly or indirectly, in any manner by the Corporation or any
Subsidiary through any agreement, contingent or otherwise, to supply funds to,
or in any other manner invest in, the debtor, or to purchase indebtedness, or to
purchase and pay for property if not delivered or pay for services if not
performed, primarily for the purpose of enabling the debtor to make payment of
the indebtedness or to assure the owners of the indebtedness against loss, but
excluding endorsements of checks and other instruments in the ordinary course;
(iii) indebtedness of the type described in clause (i) above secured by any
Encumbrance upon property owned by the Corporation or any Subsidiary even though
the Corporation or such Subsidiary has not in any manner become liable for the
payment of such indebtedness; and (iv) interest expense accrued but unpaid, all
prepayment premiums, and all fees, expenses and other penalties payable on or
relating to any of such indebtedness.
"Issuance" shall have the meaning ascribed to it in Section 5(a).
"Loan Agreement" means (i) the Loan Agreement, dated as of December
3, 1997, by and among Corporate Staffing Resources, Inc., ING (US) Capital
Corporation and Creditanstalt Corporate Finance, Inc. and certain other parties
named therein and (ii) any credit agreement documenting Indebtedness used to
refinance or incurred to supplement the Indebtedness outstanding under the Loan
Agreement.
"Mega Force Directors" shall have the meaning ascribed to it in
Section 2(a).
"Mega Force Stockholders" means, collectively, H. Ronald Stone, Jerry
F. Stone, The D. Crawford Gallimore Family Limited Partnership and The T. Wayne
McCreight Family Limited Partnership.
"Mellon" means Mellon Ventures, L.P., a Delaware limited partnership.
4
<PAGE> 6
"Mellon Directors" shall have the meaning ascribed to it in Section
2(a).
"Notice of Issuance" shall have the meaning ascribed to it in Section
5(a).
"Offer Price" shall have the meaning ascribed to it in Section 9(a).
"Offered Securities" shall have the meaning ascribed to it in Section
5(a).
"Other Stockholders" shall have the meaning ascribed to it in Section
7(a).
"Per Share Consideration" shall have the meaning ascribed to it in
Section 9(a)
"Permitted Transfer" means a Transfer to (i) an Affiliate, (ii) the
Corporation, (iii) any Subsidiary of the Corporation, (iv) in the case of
Transfers by Co-Agents under the Loan Agreement, a lender party to the Loan
Agreement or (v) such other Person as may be permitted by the Board and approved
by the Requisite Stockholders in compliance with Section 6(b).
"Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability company, a corporation, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a governmental entity
or any department, agency or political subdivision thereof.
"Proportionate Percentage" means, with respect to a Stockholder, a
fraction (expressed as a percentage) the numerator of which is the number of
shares of Common Stock Equivalents held by such Person and the denominator of
which is (i) in a situation where the Proportionate Percentage is being
calculated with respect to all Stockholders, the total number of shares of
Common Stock Equivalents outstanding at the time in question and (ii) in a
situation where the Proportionate Percentage is being calculated with respect to
a group of Stockholders, the total number of shares of Common Stock Equivalents
held by the members of such group.
"Public Sale" means any sale effected after the first Qualified
Public Offering by the Corporation pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144 under
the Securities Act or any successor rule.
"Qualified Holder" shall have the meaning ascribed to it in Section
3(a).
"Qualified Public Offering" means the sale, in an underwritten public
offering registered under the Securities Act, of shares of Common Stock
resulting in net proceeds to the Corporation of not less than $20,000,000, other
than any offering made in connection with a compensatory benefit plan, with such
shares being listed on a national securities exchange or the Nasdaq National
Market (or any successor thereto).
5
<PAGE> 7
"Registration Rights Agreement" means the Registration Rights
Agreement, dated even herewith, among the Corporation and the parties named
therein, as amended or modified from time to time.
"Requisite Stockholders" means the Stockholders who hold in the
aggregate seventy-five percent (75%) or more of the outstanding shares of Common
Stock.
"Restricted Securities" means, at any point in time, any Securities
issued by the Corporation which have not theretofore been transferred in a
Public Sale.
"Securities" means, with respect to any Person, such Person's
"securities" as defined in Section 2(1) of the Securities Act, and includes such
Person's capital stock or other equity interests or any options, warrants or
other securities that are directly or indirectly convertible into, or
exercisable or exchangeable for, such Person's capital stock or other equity or
equity-linked interests, including phantom stock and stock appreciation rights.
Whenever a reference herein to Securities is referring to any derivative
Securities, the rights of a Stockholder shall apply to such derivative
Securities and all underlying Securities directly or indirectly issuable upon
conversion, exchange or exercise of such derivative securities.
"Securities Act" means the Securities Act of 1933, as amended, and
any successor statute.
"Securities and Exchange Commission" includes any governmental body
or agency succeeding to the functions thereof.
"Selling Stockholder" shall have the meaning ascribed to it in
Section 9(a).
"Service Date" shall have the meaning ascribed to it in Section 9(a).
"Shares" shall have the meaning ascribed to it in Section 9(a).
"Stock" means the Common Stock and any and all other capital stock or
equity Securities (including derivative Securities therefor) of the Corporation.
"Stockholder Sale Notice" shall have the meaning ascribed to it in
Section 9(a).
"Stockholders" shall have the meaning ascribed to it on the first
page hereof and shall include any Person who hereafter becomes a party to this
Agreement pursuant to Section 6.
"Subsidiary" means any other Person (i) whose Securities having a
majority of the general voting power in electing the board of directors or
equivalent governing body of such other Person (excluding Securities entitled
to vote only upon the failure to pay dividends thereon or the occurrence of
other contingencies) are, at the time as of which any
6
<PAGE> 8
determination is being made, owned by such Person either directly or indirectly
through one or more other entities constituting Subsidiaries or (ii) more than a
50% interest in the profits or capital of whom is, at the time as of which any
determination is being made, owned by such Person either directly or indirectly
through one or more other entities constituting Subsidiaries.
"Third Party Offer" shall have the meaning ascribed to it in Section
9(a).
"Transfer" shall be construed broadly and shall include any transfer
(whether voluntary, involuntary or by operation of law) of securities or any
interest therein, including without limitation, by way of issuance, sale,
participation, pledge, hypothecation, gift, bequeath, intestate transfer,
distribution, liquidation, merger or consolidation in each case, to any Person
other than the Company.
"WES&S" means IPP 97 Private Equity, L.L.C., a Delaware limited
liability company.
"WES&S Directors" shall have the meaning in Section 2(a).
"WJW Director" shall have the meaning in Section 2(a).
"WWW Director" shall have the meaning in Section 2(a).
(b) Rules of Construction.
(i) The use in this Agreement of the term "including" means
"including, without limitation." The words "herein," "hereof," "hereunder"
and other words of similar import refer to this Agreement as a whole,
including the schedules and exhibits, as the same may from time to time be
amended or supplemented, and not to any particular section, subsection,
paragraph, subparagraph or clause contained in this Agreement. All
references to sections, schedules and exhibits mean the sections of this
Agreement and the schedules and exhibits attached to this Agreement.
(ii) The title of and the section and paragraph headings in
this Agreement are for convenience of reference only and shall not govern
the interpretation of any of the terms or provisions of this Agreement.
(iii) The use herein of the masculine, feminine or neuter forms
shall also denote the other forms, as in each case the context may
require.
(iv) Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be
deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement
has been chosen by the parties to express their mutual intent. If an
ambiguity or question of intent or interpretation
7
<PAGE> 9
arises, then this Agreement will be construed as if drafted jointly by the
parties to this Agreement, and no presumption or burden of proof will arise
favoring or disfavoring any party to this Agreement by virtue of the
authorship of any of the provisions of this Agreement.
2. Board of Directors.
(a) Election of Directors Generally. Each Stockholder shall from time
to time take such action, in his capacity as a stockholder of the Corporation,
including the voting of all Stock owned or controlled by such Stockholder, as
may be necessary to cause the Corporation to be managed at all times by a Board
composed, subject to the remainder of this Section 2(a), of ten (10) directors,
designated as follows:
(i) two (2) directors shall be designated by WES&S (the "WES&S
Directors");
(ii) two (2) directors shall be designated by Mellon (the
"Mellon Directors");
(iii) one (1) director shall be designated by William W.
Wilkinson (the "WWW Director");
(iv) one (1) director shall be designated by William J. Wilkinson
(the "WJW Director"); and
(v) four (4) directors shall be designated by the Mega Force
Stockholders (the "Mega Force Directors");
provided, however, that if after the date hereof, (A) the Corporation raises at
least Ten Million Dollars ($10,000,000) in the aggregate through the issuance of
additional Securities to WES&S and/or Mellon or (B) the percentage of shares of
Common Stock (on a fully diluted basis) owned by the Mega Force Stockholders
ever falls under forty percent (40%), each Stockholder shall take such action,
in his capacity as a stockholder of the Corporation, including the voting of all
Stock owned or controlled by such Stockholder, as may be necessary to cause the
Corporation to be managed at all times by a Board composed, subject to the
remainder of this Section 2(a), of seven (7) directors, designated as set forth
in clauses (i) through (v) above, except that only two (2) directors shall be
designated by the Mega Force Stockholders and no director shall be designated by
William J. Wilkinson; provided, further that in the event the Board approves a
Qualified Public Offering, each Stockholder shall take such action in his
capacity as a stockholder of the Corporation, including (x) the voting of all
Stock owned or controlled by such Stockholder and (y) entering into an amendment
of this Agreement, as may be necessary to cause the Corporation to be managed
following consummation of the Qualified Public Offering by a Board composed of
seven (7) directors, designated as follows: (i) one (1) director shall be
designated by WES&S; (ii) one (1) director shall be designated by Mellon; (iii)
one (1) director shall be the Chairman of the Board at the time of the
consummation of the Qualified Public Offering; (iv) one (1) director
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shall be designated by the current Mega Force Stockholders; and (v) three (3)
directors shall be independent directors. In the event that a director loses
his/her Board seat as a result of a reduction in the number of Board seats
pursuant to the foregoing provisos, such person shall have the right, for as
long as the Corporation is a private company, to receive minutes of meetings of
the Board and to have visitation rights (at such person's sole expense) with
respect to Board meetings, provided, however, if such person is an employee of
the Company, then any time that such person takes off from work to exercise such
visitation rights will be deducted from such person's vacation allowance.
(b) Expenses. The Corporation shall pay the reasonable out-of-pocket
expenses incurred by each Board member designated pursuant to Section 2(a) in
connection with attending the meetings of the Board and any committees thereof.
(c) Covenant to Vote. Each of the Stockholders agrees to vote, in
person or by proxy, all of the Securities owned by such Stockholder and entitled
to vote at any annual or special meeting of the stockholders of the Corporation
called for the purpose of voting on the election of directors, or to execute a
written consent in lieu thereof, in favor of the election of the directors to be
selected in accordance with Section 2(a).
(d) Removal of Directors.
(i) At all times (A) WES&S shall have the right to require the
removal, without cause, of any or all of the WES&S Directors, (B) Mellon
shall have the right to require the removal, without cause, of any or all
of the Mellon Directors, (C) William W. Wilkinson shall have the right to
require the removal, without cause, of the WWW Director, (D) William J.
Wilkinson shall have the right to require the removal, without cause, of
the WJW Director and (E) the Mega Force Stockholders (by vote of a majority
of the stock held by the Mega Force Stockholders) shall have the right to
require the removal, without cause, of any or all of the Mega Force
Directors.
(ii) In the event that any Stockholder(s) acting as described in
Section 2(d)(i) shall, in accordance with their rights specified herein,
require the removal of any director or directors with respect to whom they
have such right, then each of the other Stockholders hereby agrees to join
with such acting Stockholder(s) in recommending such removal as described
above, and in causing the Corporation either to promptly hold a special
meeting of stockholders and to vote, in person or by proxy, all of the
Securities owned by such Stockholder and entitled to vote at such meeting
or to execute a written consent in lieu thereof, as the case may be,
effecting such removal.
(e) Quorum. For purposes of meetings of the Board, the By-laws shall
provide for a quorum to consist of at least 60% of the full Board; provided,
however, that no quorum shall exist unless the WES&S Directors, the Mellon
Directors and at least two (2) Mega Force Directors have received reasonable
notice of such meeting; provided, further, that each of the following actions
shall require the approval of at least seventy percent (70%)
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of the directors on the Board: (i) consummation of a Qualified Public Offering;
(ii) issuance of any Securities in excess of two and one-half percent (2.5%) (on
a fully diluted basis) of the then existing Common Stock; (iii) sale of
substantially all of the assets of the Corporation or the merger or
consolidation with or into another entity (other than (x) mergers of
wholly-owned Subsidiaries and mergers of a wholly-owned Subsidiary with and into
the Corporation where the Corporation is the surviving corporation or (y) as
required by Section 8 hereof); (iv) acquisition of any business from, or capital
stock of, any Person, with a purchase price in excess of Five Million Dollars
($5,000,000), so long as such acquisition does not involve any Affiliate or
other related party; (v) redemption of any Securities in excess of Five Hundred
Thousand Dollars ($500,000) in any one case or Two and One Half Million Dollars
($2,500,000) in the aggregate; (vi) amendment to the Certificate; (vii)
amendment to the By-laws; (viii) liquidation, dissolution or otherwise effecting
a recapitalization or reorganization in any form of transaction; (ix) incurrence
or creation of any Indebtedness other than the Existing Indebtedness in excess
of One Million Dollars ($1,000,000) in any one case or Five Million Dollars
($5,000,000) in the aggregate, or modification, in any significant respect, of
the terms of the Existing Indebtedness; (x) declaration of or paying any
dividends upon the Stock; (xi) appointment of a chief executive officer of the
Corporation other than William W. Wilkinson; or (xii) appointment of a chief
operating officer of the Corporation; provided, further, that the Executive
Committee (as defined in Section 2(h)) shall be authorized to take any action on
behalf of the Board (other than the actions listed in clauses (i) through (xii)
in the immediately preceding proviso, which may only be taken in the manner set
forth in the immediately preceding proviso) upon the unanimous approval of such
Executive Committee.
(f) Vacancies. In the event a vacancy is created on the Board by
reason of the death, disability, removal or resignation of any director or
otherwise, (i) such vacancy may be filled by the remaining directors in
accordance with the selection procedures of Section 2(a), (ii) if not so filled,
each of the Stockholders hereby agrees, in its capacity as a stockholder of the
Corporation, to elect a director to fill such vacancy in accordance with the
selection procedures set forth in Section 2(a). Upon the designation of a
successor director, each of the Stockholders hereby agrees, in his capacity as a
stockholder of the Corporation, to use his best efforts to cause the Corporation
either to promptly hold a special meeting of stockholders or to execute a
written consent in lieu thereof, and each of the Stockholders hereby agrees to
vote all of the Securities owned by such Stockholder and entitled to vote at
such meeting, in person or by proxy, or pursuant to such written consent of
stockholders, in favor of the person or persons selected in accordance with
Section 2(a) to fill such vacancy and, if necessary, in favor of removing any
director elected to fill such vacancy other than in accordance with the
selection procedures of Section 2(a).
(g) No Inconsistent Agreements. Each Stockholder represents that he
has not granted and is not a party to any proxy, voting trust or other agreement
which is inconsistent with or conflicts with the provisions of this Agreement,
and no Stockholder shall grant any proxy or become party to any voting trust or
other agreement which is inconsistent with or conflicts with the provisions of
this Agreement.
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(h) Committees of the Board of Directors and Subsidiaries. The rights
to designate directors provided in Section 2(a) shall also apply,
proportionally, to any committees of the Board and to any board of directors of
any Subsidiary of the Corporation, except as determined otherwise by the Board
on a unanimous basis, provided, however, that each Stockholder expressly agrees
that the Board shall have (i) a compensation committee composed of two (2)
directors, with one member being a WES&S Director and the other member being a
Mellon Director, (ii) an audit committee composed of three (3) directors, with
one member being a WES&S Director, one member being a Mellon Director and one
member being a Mega Force Director and (iii) an executive committee (the
"Executive Committee"), with one member being a WES&S Director, one member
being a Mellon Director, one member being a Mega Force Director and one member
being the Chairman of the Board.
(i) Insurance. The Corporation may acquire directors' and officers'
insurance from time to time on terms approved by the Board. Promptly upon the
execution of this Agreement, the Board will investigate the feasibility and the
terms of directors' and officers' insurance.
(j) Indemnification Provisions. The Corporation shall enter into an
indemnification agreement with each of its executive officers and directors,
substantially in the form of Exhibit A hereto.
(k) Ineligible Directors. Notwithstanding anything to the contrary in
this Agreement (and not in derogation of the rights of designation provided in
paragraphs 2(a) and 2(h) above), (i) no Stockholder shall designate a person to
be a director pursuant to Section 2(a) if such person was previously an
employee of the Company whose employment relationship was terminated for any
reason other than without cause; and (ii) if a director of the Corporation is
also an employee of the Company and such director's employment is terminated
for any reason other than without cause, the Stockholders shall use their best
efforts to remove such director from the Board.
3. Financial Statements and Other Information, Inspections.
(a) Prior to the consummation of a Qualified Public Offering, the
Corporation shall furnish to each Stockholder who (i) holds, together with its
Affiliates, at least 10% of the outstanding shares of Common Stock or (ii) is a
Co-Agent under the Loan Agreement (each a "Qualified Holder"):
(i) Monthly Statements. As soon as available, but not later than
30 days after the end of each monthly accounting period, an unaudited
internal financial report of the Corporation and its Subsidiaries, which
report shall be prepared in a manner consistent with GAAP, and otherwise be
in the form provided to the Corporation's senior management, and which
shall include the following:
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(A) a profit and loss statement for such monthly accounting
period, together with a cumulative profit and loss statement from the
first day of the current fiscal year to the last day of such monthly
accounting period:
(B) a balance sheet as at the last day of such monthly
accounting period;
(C) a cash flow analysis for such monthly accounting period
on a cumulative basis for the current fiscal year to date;
(D) a narrative summary (including a comparison to budget
and to prior accounting periods) of the Corporation's operating and
financial performance for such monthly accounting period; and
(E) a comparison between the actual figures for such monthly
accounting period and the comparable figures for the prior year for
such monthly accounting period, with an explanation of any material
differences between them and compared to the budget for such period.
(ii) Quarterly Reports. As soon as available, but not later than
45 days after the end of each quarterly accounting period (other than the
last quarterly period of each fiscal year), (A) an unaudited consolidated
financial report of the Corporation and its Subsidiaries, prepared in
accordance with GAAP, except that such financial statements shall not
include footnotes and shall be subject to normal year-end audit
adjustments, including, with respect to such quarterly accounting period,
the statements and comparisons referred to in clause (i)(D) above and a
statement of cash flows and statement of operations for such quarterly
accounting period, (B) a report by management of the Corporation of the
operating and financial highlights of the Corporation and its Subsidiaries
for the three prior monthly accounting periods, which shall include a
comparison between operating and financial results and the corresponding
plan or budget and (C) a summary of any material litigation involving the
Corporation or any other events that management is aware of which could
have a material adverse effect on the Corporation.
(iii) Annual Audit. As soon as available, but not later than 120
days after the end of each fiscal year of the Corporation, audited
consolidated financial statements of the Corporation and its Subsidiaries,
which shall include a statement of cash flows and statement of operations
for such fiscal year and a balance sheet as at the last day thereof, each
prepared in accordance with GAAP (except as set forth in the notes
thereto), and accompanied by the report of a firm of independent certified
public accountants of recognized international standing selected by the
Board. The Corporation and its Subsidiaries shall maintain a system of
accounting sufficient to enable its independent certified public
accountants to render the report referred to in this clause.
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(iv) Budget. Within 45 days prior to the end of each fiscal year
of the Corporation, an annual updated consolidated business and strategic
budget and plan, including cash flow and other financial projections
(setting forth in detail the assumptions therefor) on a monthly basis for
the Corporation and its Subsidiaries for the immediately following fiscal
year of the Corporation, approved by the Board.
(v) Subsidiaries. If for any period the Corporation shall have
any Subsidiary or Subsidiaries whose accounts are consolidated with those
of the Corporation, then in respect of such period the financial statements
delivered pursuant to the foregoing clauses shall be consolidated (and
consolidating if normally prepared by the Corporation) financial statements
of the Corporation and all such consolidated Subsidiaries.
(vi) GAAP Reporting. The financial statements and reports
delivered under this subsection shall fairly present in all material
respects the financial position and results of operations of the
Corporation at the dates thereof and for the periods then ended and shall
have been prepared in accordance with GAAP, in the case of unaudited
financial statements, subject to normal year-end audit adjustments and the
absence of footnotes.
(vii) Accountants Reports. Promptly upon becoming available,
copies of all reports prepared for or delivered to the management of the
Corporation by its outside accountants.
(viii) Miscellaneous. Promptly, from time to time, such other
information (in writing if so requested) regarding the assets and
properties and operations, business affairs and financial condition of the
Corporation as any Qualified Holder may reasonably request.
(b) Inspection Rights. The Corporation and its Subsidiaries shall
afford to any Qualified Holder and its employees, counsel and other authorized
representatives, during normal business hours, access, upon reasonable advance
notice, to all of the books, records and properties of the Corporation or its
Subsidiaries, as applicable, and to make copies of such records and permit such
Persons to discuss all aspects of the Corporation or its Subsidiaries, as
applicable, with any officers, employees or accountants of the Corporation, and
the Corporation and its Subsidiaries shall provide to any Qualified Holder
responses to all reasonable written requests from a Qualified Holder for
information relating to the Corporation, its Subsidiaries and their respective
operations; provided, however, that such investigation and preparation of
responses shall not unreasonably interfere with the operations of the
Corporation or its Subsidiaries, as applicable. The Corporation and its
Subsidiaries will instruct its independent public accountants to discuss such
aspects of the financial condition of the Corporation or its Subsidiaries, as
applicable, with any such Qualified Holder and its representatives as such
Qualified Holder may reasonably request, and to permit such Qualified Holder and
its representatives to inspect, copy and make extracts from such financial
statements, analyses, work papers and other documents and information
(including electronically stored documents and information) prepared by such
accountants
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with respect to the Corporation or its Subsidiaries, as applicable, as such
Qualified Holder may reasonably request. All costs and expenses incurred by such
Qualified Holder and its representatives in connection with exercising such
rights of access shall be borne by such Persons, and all out-of-pocket costs and
expenses incurred by the Corporation or its Subsidiaries, as applicable, in
complying with any extraordinary requests by such Qualified Holder and its
representatives in connection with exercising such access rights shall be borne
by such Qualified Holder.
(c) Confidentiality. Each Stockholder shall use its commercially
reasonable best efforts to maintain the confidentiality of any confidential and
proprietary information so obtained by it; provided, however, that the foregoing
shall in no way limit or otherwise restrict the ability of such Stockholder or
its authorized representatives to disclose such information concerning the
Corporation and its Subsidiaries which it may be required to disclose (i) to its
partners or limited partners to the extent required to satisfy its fiduciary
obligations to such Persons, in each case accompanied by appropriate notice of
the confidential nature of such information, or (ii) otherwise pursuant to or as
required by law.
4. Covenants. The Corporation shall, and shall cause its Subsidiaries to,
take or cause to be taken the following actions, unless otherwise consented to
in writing by the Requisite Stockholders:
(a) cause to be done all things necessary to maintain, preserve and
renew its corporate existence and all material licenses, authorizations and
permits necessary to the conduct of its businesses;
(b) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable repairs,
renewals and replacements, so that its businesses may be properly and
advantageously conducted at all times;
(c) maintain customary insurance on its business and properties to
such extent and against such risks, including fire and other risks insured
against by extended coverage, and workers' compensation insurance and public and
professional liability insurance against claims for personal injury or death or
property damage or malpractice occurring upon, in, about or in connection with,
the use of any properties owned, occupied or controlled by, or the business
conducted by, such Company in each case as is customary with companies similarly
situated and in the same or similar businesses;
(d) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies which if unpaid
might by law become a lien upon any of its property, unless and to the extent
that the same are being contested in good faith and by appropriate proceedings
and adequate
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<PAGE> 17
reserves (as determined in accordance with GAAP) have been established on its
books with respect thereto;
(e) comply with all other material obligations which it incurs
pursuant to any contract or agreement, whether oral or written, express or
implied, as such obligations become due, unless and to the extent that the same
are being contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP) have been established on its
books with respect thereto;
(f) perform in all material respects all of its obligations under
this Agreement and the Related Agreements to which it is a party and under each
indenture or other material agreement or instrument to which it is a party or
subject;
(g) maintain financial records in accordance with accounting
practices and controls sufficient to prepare the financial statements,
certificates and reports required by this Agreement and the other agreements,
indentures and commitments to which it is bound;
(h) diligently defend itself and its properties from and against any
lawsuits or claims;
(i) comply in all material respects with all Applicable Laws
(including ERISA laws and environmental and safety requirements); and
(j) if neither an Approved Sale nor a Qualified Public Offering has
been consummated prior to December 31, 2001, the Corporation shall retain an
investment bank of national repute for the purpose of consummating an Approved
Sale at the then existing fair market value of the Corporation, and the
Corporation shall use its best efforts to cause such an Approved Sale to be
consummated within 90 days.
5. First Refusal Rights for Common Stock Issued by the Corporation.
(a) General. If the Corporation proposes to issue, sell, or grant
(collectively, an "Issuance") any Stock (collectively, the "Offered
Securities"), then the Corporation shall, no later than 45 calendar days prior
to the consummation of such Issuance, give written notice to each of the
Stockholders of such Issuance (the "Notice of Issuance"). Such Notice of
Issuance shall describe such Issuance, and, except in the case of Excluded
Securities (as hereinafter defined), contain an offer to each such Stockholder
(other than the proposed purchasers) that in the reasonable judgment of the
Corporation is an Accredited Stockholder, or who can provide the Corporation
with an opinion of counsel, reasonably satisfactory in form and substance to the
Corporation, that the Offered Securities may be sold to such Stockholder without
registration under the Act (each an "Accredited Offeree") to sell to such
Accredited Offeree, at the same price and for the same consideration to be paid
by the proposed purchasers, such Accredited Offeree's Proportionate Percentage
of the Offered Securities to be sold. Subject to the foregoing, if Stock is
being issued with other debt or equity securities as a unit, each Accredited
Offeree who desires to accept such
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offer must purchase such unit in order for such acceptance to be valid. If any
such Accredited Offeree fails to accept such offer by written notice within 30
calendar days after its receipt of the Notice of Issuance, the Corporation shall
proceed with such issuance, free of any right on the part of such Accredited
Offeree under this Section 5(a) in respect thereof.
(b) Excluded Securities. The rights of the Stockholders under this
Section 5 shall not apply to the following Securities (the "Excluded
Securities"):
(i) Common Stock Equivalents issued to, or upon exercise of
options granted to, officers, employees or directors of, or consultants to,
the Corporation or its Subsidiaries pursuant to any option plans of the
Corporation;
(ii) Common Stock Equivalents issued as consideration to sellers
in connection with an acquisition approved by the Board;
(iii) Common Stock issued upon the exercise or conversion in
accordance with their terms of any Common Stock Equivalents issued in
compliance with this Section 5;
(iv) Common Stock Equivalents issued in a registered public
offering under the Securities Act or a Rule 144A transaction approved by
the Board; and
(v) Common Stock Equivalents issued as a stock dividend or upon
any stock split or other pro-rata subdivision or combination of the Common
Stock.
6. Limitations on Transfers of Stock.
(a) Application of Section. The provisions regarding Transfers of
Stock contained herein shall apply to all shares of Stock now owned or hereafter
acquired by a Stockholder, including shares of Stock acquired by reason of any
dividend, distribution, exchange or conversion, additional issuances of shares
of Stock, and acquisitions of outstanding shares of Stock from another Person,
and such provisions shall apply to any shares of Stock obtained by a Stockholder
upon the exercise, exchange or conversion of any option, warrant or other
Security.
(b) Joinder of Transferee Required. No Stockholder shall Transfer any
shares of Stock (including, without limitation, pursuant to a Permitted
Transfer) to a Person (other than the Corporation or any Subsidiary of the
Corporation) not already a party to this Agreement as a Stockholder unless and
until such Person executes and delivers to the Corporation a written agreement
substantially in the form of Exhibit B hereto, pursuant to which such Person
shall agree to become a party to, and to be bound by and to comply with the
provisions of, this Agreement in the same capacity as the Stockholder
Transferring such Security. Any purported Transfer of shares of Common Stock
that is not made in compliance with the provisions hereof shall be void.
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(c) Certain Restrictions. Any provision of this Agreement to the
contrary notwithstanding, no Stockholder shall (i) Transfer any shares of Stock
to a Person which is a Competitor or (ii) effect any Transfer which would
subject the Corporation to the reporting requirements of the Exchange Act. A
Stockholder may rely on a representation from a potential Transferee (such
representation to be made for the benefit of such Investor and the Corporation)
that such Transferee is not a Competitor, and unless such Stockholder is
informed by the Board that it reasonably believes such transferee is a
Competitor or has actual knowledge that such representation was untrue, such
Transfer shall be valid. Subject to compliance with the provisions of this
subsection (c) and the other provisions of this Section 6, a Stockholder may
make a Permitted Transfer.
(d) Required Compliance with Other Agreement Provisions. Any
provision of this Agreement to the contrary notwithstanding, no Stockholder
shall Transfer any shares of Stock at any time except pursuant to (i) the
provisions of this Section 6 and Sections 7 and 9 (as applicable), (ii) the
provisions of Section 8, (iii) a Public Sale or (iv) a Permitted Transfer;
provided, however, that, all Transfers must in any event comply with Section 11.
7. Rights of Co-Sale.
(a) General. In the event that either WES&S, Mellon or Ronald Stone
or any of their Affiliates (each hereinafter in this Section 7 referred to in
such capacity as a "Co-Sale Offeree") receives a bona fide offer (the "Co-Sale
Offer") from a third party which is not an Affiliate of such Co-Sale Offeree
(the "Co-Sale Offeror") to purchase from such Co-Sale Offeree any number of
shares of Common Stock held by such Co-Sale Offeree or its Affiliates
continuously from the date hereof or any shares arising from stock splits or
stock dividends as a result of such shares, for a specified price payable in
cash or otherwise and on specified terms and conditions, such Co-Sale Offeree
shall promptly forward a notice (the "Co-Sale Notice") complying with Section
7(b) to the Corporation and to the other Stockholders (the Stockholders
receiving a Co-Sale Notice are collectively referred to herein as the "Other
Stockholders"). Such Co-Sale Offeree shall not Transfer any shares of Stock
prior to the expiration of the 10-day period referred to below to the Co-Sale
Offeror unless the terms of the Co-Sale Offer are extended to each of the other
Stockholders with respect to its Proportionate Percentage of the aggregate
number of shares of Stock to which the Co-Sale Offer relates, whereupon each
Other Stockholder shall be entitled to Transfer such Other Stockholder's
Proportionate Percentage of the aggregate number of shares of Stock to which the
Co-Sale Offer relates upon the same terms and subject to the same conditions as
such Co-Sale Offeree. Each Other Stockholder shall have a period of ten days to
deliver a written notice (the "Co-Sale Acceptance") to such Co-Sale Offeree
evidencing its acceptance of the Co-Sale Offer. The Corporation and all
Stockholders shall take any necessary action (including in the case of the
Stockholders the voting of all Stock owned by each such Stockholder at any
annual or special meeting of the stockholders or the execution of a written
consent in lieu thereof) reasonably required to facilitate and otherwise effect
such exchange of shares.
(b) Notice. The Co-Sale Notice shall set forth (i) the number of
shares of Stock to which the Co-Sale Offer relates, (ii) the name and address of
the Co-Sale Offeror,
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(iii) the proposed amount and type of consideration payable for each class of
Stock (including, if the consideration consists in whole or in part of non-cash
consideration, such information that was provided to the Co-Sale Offeree by the
Co-Sale Offeror to analyze the economic value and investment risk of such
non-cash consideration) and the terms and conditions of payment offered by the
Co-Sale Offeror and (iv) that the Co-Sale Offeror has been informed of the
co-sale rights provided for in this Section 7, and has agreed to purchase
shares of Stock held by the Other Stockholders in accordance with the terms of
this Section 7 (which agreement may contain the Co-Sale Offeror's obligation to
purchase all of the shares of Stock held by the Other Stockholders subject to
the Co-Sale Offer from the Co-Sale Offeree so long as such Co-Sale Offeree
agrees to purchase simultaneously with such sale from the Other Stockholders if
they deliver a Co-Sale Acceptance the Stock held by the Other Stockholders
subject to such Co-Sale Notice of Acceptance).
(c) Excluded Transfers. The restrictions on Transfer contained in
Section 7 shall not apply to (i) any Permitted Transfers, (ii) any Transfer of
shares of Stock made pursuant to Section 8, (iii) any Public Sales, (v) any
Transfers by WES&S or Mellon to each other or to any of their Affiliates or by
any of their Affiliates to any of their other Affiliates; or (vii) any other
sales of shares of Stock by WES&S, Mellon or H. Ronald Stone or any of their
respective Affiliates consisting of 10% or less (after taking into account stock
splits and dividends with respect to such shares) of the Stock held by WES&S,
Mellon or H. Ronald Stone (including in each case, their respective Affiliates),
as the case may be, on the date hereof.
8. Bring-Along Rights
(a) General. If each of WES&S, Mellon and H. Ronald Stone
(collectively, the "Outside Stockholders"), elects to sell at least sixty-five
percent (65%) (taking into account stock splits and dividends with respect to
such shares) of his or its shares of Common Stock (the "Sale Shares") to a third
party or parties who is not or are not Affiliates of any of the Outside
Stockholders (a "Third Party"), then the Outside Stockholders shall have the
right, subject to the provisions of this Section 8 (and without regard to the
provisions of Section 9), to require each Stockholder (the "Brought-Along
Stockholders") to sell the same percentage of Common Stock (a "Required Sale"),
held by such Brought-Along Stockholder (the "Required Shares"). The Required
Shares shall be sold at the Sale Price (as defined in Section 8(c) below), and
on the same terms and conditions of payment offered by the Third Party to the
Outside Stockholders for the Sale Shares. In the event this Section 8(a) is
invoked, the Outside Stockholders shall deliver written notice (the "Required
Sale Notice") to the Brought-Along Stockholders; provided, however, that no
Brought-Along Stockholder: (i) shall be obligated to participate in any Required
Sale unless it is provided an opinion of counsel, which opinion of counsel shall
be reasonably satisfactory to it, to the effect that the Required Sale is not in
violation of applicable federal or state securities laws and does not require
any consent or approval of any governmental authority or agency that has not
been obtained or waived or will not be obtained or waived prior to the closing;
(ii) will be required to make any representation, covenant or warranty in
connection with a Required Sale other than as to its ownership of and authority
to sell, free of liens, claims and
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encumbrances, the shares of Common Stock proposed to be sold by it, or such
other representation, covenant or warranty as the Third Party may reasonably
require; or (iii) will be required to participate in a Required Sale if the
terms of the Required Sale require such Brought-Along Stockholder to indemnify
any Third Party in excess of an amount in proportion to and limited to the
consideration received by such Brought-Along Stockholder for the Common Stock
sold by such Brought-Along Stockholder, as a percentage of all consideration
received by all Stockholders for all Common Stock sold pursuant to this Section
8.
(b) Notice. The Required Sale Notice shall set forth: (i) the date of
such notice (the "Notice Date"), (ii) the name and address of the Third Party,
(iii) the proposed amount of consideration to be paid per share for the Sale
Shares (the "Sale Price"), and the terms and conditions of payment offered by
the Third Party in reasonable detail, together with written proposals or
agreements, if any, with respect thereto, (iv) the aggregate number of Sale
Shares, (v) confirmation that the Outside Stockholders are selling more than 65%
of the aggregate number of outstanding shares of Common Stock, (vi) the proposed
date of the Required Sale (the "Required Sale Date"), which shall be not less
than 30 nor more than 120 calendar days after the date of the Notice Date.
(c) Cooperation. The Brought-Along Stockholders shall cooperate in
good faith with the Outside Stockholders in connection with consummating the
Required Sales. On the Required Sale Date, each Stockholder shall deliver
certificates for its Common Stock (to the extent necessary to effect the
consummation of the bring-along transaction in accordance with this Section 8),
duly endorsed for transfer, to such Third Party in the manner and at the address
indicated in the Required Sale Notice and the Outside Stockholders shall cause
the share of the purchase price of each Stockholder to be paid to such
Stockholder.
9. Right of First Refusal on Transfer.
(a) Notice of Intention. If at any time any of the Stockholders shall
have received a bona fide offer from a third party (the "Third Party Offer") to
purchase any of the shares of Stock owned by them, other than pursuant to a
Permitted Transfer, such Stockholder (the "Selling Stockholder") shall give
written notice of its desire to so Transfer such Stock (the "Stockholder Sale
Notice") to the Corporation and the Outside Stockholders (the date of the
service of the Stockholder Sale Notice referred to as the "Service Date"). The
Stockholder Sale Notice shall include a copy of the written commitment of the
purchaser to purchase such Stock and shall include, in reasonable detail, the
number of shares of Stock proposed to be Transferred (the "Shares"), the price
at which the Selling Stockholder proposes to effect the Transfer (the "Offer
Price") and the other terms and conditions upon which such offer is conditioned.
The Stockholder Sale Notice shall constitute the offer by the Selling
Stockholder to sell the Shares to the Corporation and the Outside Stockholders
on the same economic terms as the Third Party Offer, which offer shall be
irrevocable for at least 50 days from the Service Date. The Corporation and the
Outside Stockholders shall, collectively, have the right to purchase all, but
not less than all, of the Shares. Any purchase made by the Corporation or the
Outside Stockholders pursuant to this Section 9 shall be subject to the rights
of Co-Sale set forth in Section 7. The Corporation may initially elect to
19
<PAGE> 22
purchase all, or any portion, of the Shares at a price per Share equal to the
Offer Price divided by the total number of Shares the Selling Stockholder has
committed to Transfer (the "Per Share Consideration") by delivering a written
notice of such election to the Selling Stockholder and the Outside Stockholders
within 15 days after the Service Date. If the Corporation has elected not to
purchase all of the Shares proposed to be Transferred, each Outside Stockholder
may elect to purchase its respective Proportionate Percentages of any remaining
Shares from the Selling Stockholder, at a price per Share equal to the Per Share
Consideration by giving written notice to the Selling Stockholder, the
Corporation and the other Outside Stockholders within 30 days after the Service
Date. If any Outside Stockholder has elected to purchase its Proportionate
Percentage of the remaining Shares (each, an "Electing Party"), and one or more
Outside Stockholders have not elected to purchase their respective Proportionate
Percentages of the remaining Shares, then the Electing Party may elect to
purchase from the Selling Stockholder any remaining Shares that the non-Electing
Party has not elected to purchase (it being understood that if more than one
Electing Party elects to purchase such remaining shares, then each Electing
Party shall purchase its Proportionate Percentage of such remaining shares), at
a price per Share equal to the Per Share Consideration by giving written notice
to the Selling Stockholder, the Corporation and any other Electing Parties
within 45 days after the Service Date. If the Offer Price, or a portion of the
Offer Price, involves consideration other than cash, the Applicable Offerees
shall have the right to purchase the Shares for a cash amount equal to the sum
of the portion of such consideration which is cash plus the Cash Value of the
non-cash consideration. For purposes of this Section 9(a), "Cash Value" shall
mean, (i) in the case of Securities which are quoted on Nasdaq or any securities
exchange, an amount equal to the last reported sales price on such exchange for
such Securities on the date of the Stockholder Sale Notice and, (ii) in the case
of Securities or other property for which there is no such readily available
market price, an amount equal to the fair market value of such Securities or
property as determined in good faith by the Board, provided, however, that if
greater than 20% of the Offer Price involves consideration other than cash, then
such good faith determination of the Board shall be supported by an appraisal
conducted by a nationally recognized appraiser selected by the Board in good
faith. The Corporation and all Stockholders shall take any necessary action
(including (i) the voting of all Stock owned by each Stockholder at any annual
or special meetings of the Stockholders or the execution of a written consent in
lieu thereof and (ii) the waiving of any rights Stockholders may have pursuant
to Section 5 hereof) reasonably required to facilitate and otherwise effect the
purchase of the Shares by the Applicable Offeres. The failure by the Applicable
Offerees to serve notice of election in accordance with the foregoing provisions
shall be deemed a rejection of the offer constituted by the service of the
Stockholder Sale Notice. If the Applicable Offerees elect to purchase all of the
Shares, the closing of such purchase shall occur upon the later to occur of (i)
the expiration of 50 days from the Service Date and (ii) 2 days following the
satisfaction of any anti-trust, or other applicable Governmental Authority
conditions, to the consummation of the Transfer. Notwithstanding anything to the
contrary in this Section 9, the provisions of this Section 9 shall not apply to
any sale made by the Outside Stockholders in accordance with Section 8.
(b) Transfers to Third Parties. If the Corporation and the Outside
Stockholders elect not to purchase, in the aggregate, all of the Shares, then
none of the
20
<PAGE> 23
Applicable Offerees shall have the right to purchase any of the Shares and the
Selling Stockholder may Transfer, subject to the provisions of Section 6, all
(but not less than all) of the Shares, at the Offer Price and otherwise on
terms and conditions (including price) no more favorable to the transferee(s)
thereof than specified in the Stockholder Sale Notice for a 80-day period
immediately following the Service Date. Any Stockholder shares not Transferred
within such 80-day period shall thereupon again be subject to the provisions of
this Section 9.
(c) Outside Stockholder Offer to Applicable Offerees. To the extent
that any Outside Stockholder purchases Shares from the Selling Stockholder
pursuant to this Section 9, such Outside Stockholder shall within 30 days of its
purchase of the Shares provide a written offer to sell to each Applicable
Offeree such Applicable Offeree's Proportionate Percentage of the Shares
purchased by such Outside Stockholder. The written notice shall constitute an
offer by the Outside Stockholder to sell to each Applicable Offeree (on the same
economic terms as the purchase of Shares by the Outside Stockholder) such
Applicable Offeree's Proportionate Percentage of the Shares purchased by the
Outside Stockholder. An Applicable Offeree may elect to purchase its
Proportionate Percentage of the Shares purchased by the Outside Stockholder by
delivering a written notice of such election (together with a certified check
for payment of the purchase price for such Shares) to the Outside Stockholders
within 15 days after the date of service of notice by the Outside Stockholder.
Any purchase made by the Applicable Offerees pursuant to this Section 9 shall
not be subject to the rights of Co-Sale set forth in Section 7.
10. Qualified Public Offering. In the event that the Board approves a
Qualified Public Offering, the Stockholders will take all necessary or desirable
actions in connection with the consummation of the Qualified Public Offering.
11. Securities Law Compliance: Legends.
(a) Restriction on Transfer. No Stockholder shall Transfer any Stock
except in compliance with the conditions specified in this Agreement.
(b) Restrictive Legends. Each certificate for Stock that constitutes
Restricted Securities shall (unless otherwise provided by the provisions of
Section ll(d)) be stamped or otherwise imprinted with a legend in substantially
the following terms:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933 OR ANY STATE SECURITIES OR BLUE SKY
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT OR LAWS.
(c) Notice of Transfer. The holder of any Stock by its acceptance or
purchase thereof, agrees, prior to any Transfer of such Stock (except pursuant
to an effective
21
<PAGE> 24
registration statement), to give written notice to the Corporation of such
holder's intention to effect such Transfer and agrees to comply in all other
respects with the provisions of this Section 11 and any other applicable
provision of this Agreement. Each such notice shall describe the manner and
circumstances of the proposed Transfer and, unless waived by the Corporation,
shall be accompanied by the written opinion, addressed to the Corporation, of
counsel for the holder of such Restricted Securities (which counsel shall be
reasonably satisfactory to the Corporation), stating that in the opinion of such
counsel in a form reasonably satisfactory to the Corporation that such proposed
Transfer does not involve a transaction requiring registration or qualification
of such Restricted Securities under the Securities Act or the securities laws of
any state of the United States. Subject to complying with the other applicable
provisions hereof, such holder of Stock shall be entitled to consummate such
Transfer in accordance with the terms of the notice delivered by it to the
Corporation if the Corporation does not object (on the basis that such Transfer
violates the provisions of this Section 11) to such Transfer within five days
after the delivery of such notice. Each certificate or other instrument
evidencing the securities issued upon the Transfer of any Stock (and each
certificate or other instrument evidencing any untransferred balance of such
Securities) shall bear the legend set forth in Section 11(b) unless the
Corporation shall have determined in its reasonable discretion that such legend
is no longer required by applicable law.
(d) Removal of Legends, Etc. Whenever the restrictions imposed by
Sections 11(a), (b) and (c) shall terminate, as herein provided, the holder of
any Stock shall be entitled to receive from the Corporation, without expense, a
new certificate not bearing the restrictive legend set forth in Section 11(b)
and not containing any other reference to the restrictions imposed by Sections
11(a), (b) and (c).
(e) Additional Legend. Each certificate evidencing Stock and each
certificate issued in exchange for or upon the Stock (if such shares remain
subject to this Agreement after such Transfer) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO A STOCKHOLDERS AGREEMENT DATED AS OF DECEMBER 3, 1997 AMONG
THE ISSUER OF SUCH SECURITIES (THE "COMPANY") AND CERTAIN OF THE
COMPANY'S STOCKHOLDERS. THE TERMS OF SUCH STOCKHOLDERS' AGREEMENT
INCLUDE, AMONG OTHER THINGS, VOTING AGREEMENTS AND RESTRICTIONS
ON TRANSFERS. A COPY OF SUCH STOCKHOLDERS AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
The Corporation shall imprint such legends on certificates evidencing shares
outstanding prior to the date hereof or issued hereafter upon the exercise of
any Common Stock
22
<PAGE> 25
Equivalent. The legend set forth above shall be removed from the certificates
evidencing any shares which cease to be Securities subject to this Agreement.
12. Duration of Agreement.
This Agreement shall terminate upon the earlier of (i) the consummation of
a sale of all the capital stock of the Corporation or all or substantially all
of the assets of the Corporation, determined on a consolidated basis (an
"Approved Sale"), (ii) the completion of a Qualified Public Offering or (iii)
ten (10) years from the date hereof. The rights and obligations of each
Stockholder under this Agreement shall terminate as to such Stockholder upon the
Transfer of all shares of Stock owned by such Stockholder in compliance with the
terms and conditions of this Agreement (but nothing shall relieve such
Stockholder from a claim for damages for a breach prior to such Transfer).
Notwithstanding the termination of this Agreement upon a Qualified Public
Offering, the Corporation may nonetheless continue to enforce policies to the
effect of Sections 11(a) (to the extent required to secure treatment as a
Section "4(1 1/2)" transaction under the Securities Act), (b) and (c) with
respect to transfers of Restricted Securities.
13. 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, and such invalid, void or otherwise unenforceable
provisions shall be null and void. It is the intent of the parties, however,
that any invalid, void or otherwise unenforceable provisions be automatically
replaced by other provisions which are as similar as possible in terms to such
invalid, void or otherwise unenforceable provisions but are valid and
enforceable to the fullest extent permitted by law.
14. Regulatory Matters.
(a) Cooperation of Other Stockholders. Each Stockholder agrees to
cooperate with the Corporation in all reasonable respects in complying with the
terms and provisions of the letter agreement between the Corporation and Mellon,
a copy of which is attached hereto as Exhibit C, regarding small business
matters (the "Small Business Sideletter"), including, without limitation, voting
to approve amending the Certificate, the By-laws or this Agreement in a manner
reasonably requested by Mellon or any Regulated Holder (as defined in the Small
Business Sideletter) entitled to make such request pursuant to the Small
Business Sideletter. Anything contained in this Section 14 to the contrary
notwithstanding, no Stockholder shall be required under this Section 14 to take
any action that would adversely affect in any material respect such
Stockholder's rights under this Agreement or as a stockholder of the
Corporation.
(b) Covenant Not to Amend. The Corporation and each Stockholder agree
not to amend or waive the voting or other provisions of the Certificate, the
By-laws or this
23
<PAGE> 26
Agreement if such amendment or waiver would cause any Regulated Holder to have a
Regulatory Problem (as defined in the Small Business Sideletter), provided that
any such Stockholder notifies the Corporation that it would have a Regulatory
Problem promptly after it has notice of such amendment or waiver.
15. Entire Agreement.
This document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
16. Successors and Assigns.
Except as otherwise provided herein, this Agreement will bind and inure to
the benefit of and be enforceable by the Corporation and its successors and
assigns and the Stockholders and any subsequent holders of Stock and the
respective successors and permitted assigns of each of them, so long as they
hold Securities. None of the provisions hereof shall create, or be construed or
deemed to create, any right to employment in favor of any Person by the
Corporation or any of its Subsidiaries. This Agreement is not intended to create
any third party beneficiaries.
17. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
any one of which need not contain the signatures of more than one party, but all
such counterparts taken together will constitute one and the same agreement. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart. The failure of any Stockholder to execute
this Agreement does not make it invalid as against any other Stockholder.
l8. Remedies.
(a) Stockholder Enforcement. Each Stockholder shall have all rights
and remedies reserved for such Stockholder pursuant to this Agreement and the
Certificate and By-laws and all rights and remedies which such holder has been
granted at any time under any other agreement or contract and all of the rights
which such holder has under any law or equity. Any person having any rights
under any provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of any provision of
this Agreement and to exercise all other rights granted by law or equity.
(b) Fees and Expenses. The parties hereto agree that if any parties
seek to resolve any dispute arising under this Agreement pursuant to a legal
proceeding, the prevailing parties to such proceeding shall be entitled to
receive reasonable fees and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with such proceedings.
24
<PAGE> 27
(c) Specific Performance. It is acknowledged that it will be
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved Person will be irreparably damaged
and will not have an adequate remedy at law. Any such person shall, therefore,
in addition to all remedies at law, be entitled to injunctive relief, including
specific performance, to enforce such obligations, and if any action should be
brought in equity to enforce any of the provisions of this Agreement, none of
the parties hereto shall raise the defense that there is an adequate remedy at
law. Notwithstanding the foregoing, the parties hereto agree and acknowledge
that the remedy for any breach by the Company of its obligations under Section 4
shall be limited to injunctive relief (including, but not limited to, specific
performance).
19. Notices.
All notices, demands or other communications to be given or delivered under
or by reason of the provisions of this Agreement shall be in writing and shall
be deemed to have been given (a) when delivered personally to the recipient, (b)
one business day after being sent by reputable overnight courier (charges
prepaid) (regardless of whether the recipient refuses to accept delivery), (c)
five business days after being sent to the recipient by certified or registered
mail, return receipt requested and postage prepaid (regardless of whether the
recipient refuses to accept delivery) or (d) when sent to the recipient by
facsimile (followed promptly by personal, courier or certified or registered
mail delivery). The Corporation's address is:
Corporate Staffing Resources, Inc.
100 E. Wayne Street, Suite 100
One Michiana Square
South Bend, IN 46601
Attention: Board of Directors
Telecopy: (219) 280-2661
The address for each Stockholder shall be as set forth in the stock records
of the Corporation or shall be such other address that such Stockholder may
provide by written notice to the Corporation.
20. Governing Law.
ALL QUESTIONS CONCERNING THE CONSTRUCTION, INTERPRETATION AND VALIDITY OF
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE.
25
<PAGE> 28
21. Further Assurances.
Each party hereto shall do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments, and documents as any other party hereto
reasonably may request in order to carry out the provisions of this Agreement
and the consummation of the transactions contemplated hereby.
22. Jurisdiction; Venue; Process.
The parties to this Agreement agree that jurisdiction and venue in any
action brought by any party hereto pursuant to this Agreement shall properly
(but not exclusively) lie in any federal or state court located in the borough
of Manhattan, New York, New York. By execution and delivery of this Agreement,
the parties hereto irrevocably submit to the jurisdiction of such courts for
himself and in respect of his property with respect to such action. The parties
hereto irrevocably agree that venue would be proper in such court, and hereby
waive any objection that such court is an improper or inconvenient forum for
the resolution of such action. The parties further agree that the mailing by
certified or registered mail, return receipt requested, of any process required
by any such court shall constitute valid and lawful service of process against
them, without necessity for service by any other means provided by statute or
rule of court.
23. Representation by Counsel.
EACH PARTY HERETO REPRESENTS AND AGREES WITH EACH OTHER THAT IT HAS BEEN
REPRESENTED BY OR HAD THE OPPORTUNITY TO BE REPRESENTED BY, INDEPENDENT COUNSEL
OF ITS OWN CHOOSING, AND THAT IT HAS HAD THE FULL RIGHT AND OPPORTUNITY TO
CONSULT WITH ITS RESPECTIVE ATTORNEY(S), THAT TO THE EXTENT, IF ANY, THAT IT
DESIRED, IT AVAILED ITSELF OF THIS RIGHT AND OPPORTUNITY, THAT IT OR ITS
AUTHORIZED OFFICERS (AS THE CASE MAY BE) HAVE CAREFULLY READ AND FULLY
UNDERSTAND THIS AGREEMENT IN ITS ENTIRETY AND HAVE HAD IT FULLY EXPLAINED TO
THEM BY SUCH PARTY'S RESPECTIVE COUNSEL, THAT EACH IS FULLY AWARE OF THE
CONTENTS THEREOF AND ITS MEANING, INTENT AND LEGAL EFFECT, AND THAT IT OR ITS
AUTHORIZED OFFICER (AS THE CASE MAY BE) IS COMPETENT TO EXECUTE THIS AGREEMENT
FREE FROM COERCION, DURESS OR UNDUE INFLUENCE. THE PARTIES-TO THIS AGREEMENT
PARTICIPATED JOINTLY IN THE NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IF AN
AMBIGUITY OR QUESTION OF INTENT OR INTERPRETATION ARISES, THEN THIS AGREEMENT
WILL BE CONSTRUED AS IF DRAFTED JOINTLY BY THE PARTIES TO THIS AGREEMENT, AND NO
PRESUMPTION OR BURDEN OF PROOF WILL ARISE FAVORING OR DISFAVORING ANY PARTY TO
THIS AGREEMENT BY VIRTUE OF THE AUTHORSHIP OF ANY OF THE PROVISIONS OF THIS
AGREEMENT.
24. Conflicting Agreements.
No Stockholder shall enter into any stockholder agreements or arrangements
of any kind with any Person with respect to any Securities on terms inconsistent
with the provisions of this Agreement (whether or not such agreements or
arrangements are with other Stockholders or with Persons that are not parties to
this Agreement), including but not
26
<PAGE> 29
limited to, agreements or arrangements with respect to the acquisition or
disposition of securities of the Corporation in a manner which is inconsistent
with this Agreement.
25. Amendment.
Except as expressly set forth herein, the provisions of this Agreement may
only be amended, waived or terminated with the prior written consent of 85% of
the number of shares of Common Stock then outstanding and held by the
Stockholders; provided, however, that Schedule 1 to this Agreement shall be
deemed to be automatically amended from time to time to reflect Transfers of
Stock made in compliance with this Agreement without requiring the consent of
any party, and the Corporation will, from time to time, distribute to the
Stockholders a revised Schedule 1 to reflect any such changes.
26. Mutual Waiver of Jury Trial.
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS
ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON
AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
27. Waiver
No course of dealing between the Corporation, its Subsidiaries and the
Stockholders (or any of them) or any delay in exercising any rights hereunder
will operate as a waiver of any rights of any party to this Agreement. The
failure of any party to enforce any of the provisions of this Agreement will in
no way be construed as a waiver of such provisions and will not affect the right
of such party thereafter to enforce each and every provision of this Agreement
in accordance with its terms.
28. Voting Conventions.
Any action required by this Agreement to be taken by the Stockholders may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken shall be
signed by the holders of shares of Common Stock having the minimum number of
votes required to authorize or take such action.
27
<PAGE> 30
29. Spousal Consent.
If any Stockholder is a natural person and married, such Stockholder must
also, in addition to delivery of a counterpart signature page hereto or joinder
agreement, also deliver a spousal consent to such action in customary form and
otherwise reasonably acceptable to the Corporation.
* * * * *
28
<PAGE> 31
IN WITNESS WHEREOF, the undersigned have duly executed this Stockholders'
Agreement as of the date first written above.
CORPORATE STAFFING RESOURCES, INC.
By: /s/ CONOR MULLETT
-----------------------------
Name: Conor Mullett
Title: Vice President
WILLIAM W. WILKINSON
--------------------------------
WILLIAM J. WILKINSON
--------------------------------
JACQUELINE CAMACHO-BARTOW
--------------------------------
DIANE FENNEL
--------------------------------
SHARON E. KEANE
--------------------------------
THOMAS E. MURPHY
/s/ THOMAS E. MURPHY
--------------------------------
PATTI G. PISCIONE
--------------------------------
Stockholders Agreement S-1
<PAGE> 32
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
CORPORATE STAFFING RESOURCES, INC.
By:
-----------------------------
Name:
Title:
WILLIAM W. WILKINSON
/s/ WILLIAM W. WILKINSON
--------------------------------
WILLIAM J. WILKINSON
/s/ WILLIAM J. WILKINSON
--------------------------------
JACQUELINE CAMACHO-BARTOW
--------------------------------
DIANE FENNEL
--------------------------------
SHARON E. KEANE
--------------------------------
THOMAS E. MURPHY
--------------------------------
PATTI G. PISCIONE
/s/ PATTI G. PISCIONE
--------------------------------
Stockholders Agreement S-1
<PAGE> 33
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
CORPORATE STAFFING RESOURCES, INC.
By:
-----------------------------
Name:
Title:
WILLIAM W. WILKINSON
/s/ WILLIAM W. WILKINSON
--------------------------------
WILLIAM J. WILKINSON
/s/ WILLIAM J. WILKINSON
--------------------------------
JACQUELINE CAMACHO-BARTOW
/s/ JACQUELINE CAMACHO-BARTOW
--------------------------------
DIANE FENNEL
--------------------------------
SHARON E. KEANE
--------------------------------
THOMAS E. MURPHY
--------------------------------
PATTI G. PISCIONE
--------------------------------
Stockholders Agreement S-1
<PAGE> 34
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
CORPORATE STAFFING RESOURCES, INC.
By:
-----------------------------
Name:
Title:
WILLIAM W. WILKINSON
/s/ WILLIAM W. WILKINSON
--------------------------------
WILLIAM J. WILKINSON
/s/ WILLIAM J. WILKINSON
--------------------------------
JACQUELINE CAMACHO-BARTOW
--------------------------------
DIANE FENNEL
/s/ DIANE FENNEL
--------------------------------
SHARON E. KEANE
--------------------------------
THOMAS E. MURPHY
--------------------------------
PATTI G. PISCIONE
--------------------------------
Stockholders Agreement S-1
<PAGE> 35
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
CORPORATE STAFFING RESOURCES, INC.
By:
-----------------------------
Name:
Title:
WILLIAM W. WILKINSON
/s/ WILLIAM W. WILKINSON
--------------------------------
WILLIAM J. WILKINSON
/s/ WILLIAM J. WILKINSON
--------------------------------
JACQUELINE CAMACHO-BARTOW
--------------------------------
DIANE FENNEL
--------------------------------
SHARON E. KEANE
/s/ SHARON E. KEANE
--------------------------------
THOMAS E. MURPHY
--------------------------------
PATTI G. PISCIONE
--------------------------------
Stockholders Agreement S-1
<PAGE> 36
KELLI PURSLEY
/s/ KELLI PURSLEY
------------------------------
D. CRAWFORD GALLIMORE
------------------------------
T. WAYNE MCCREIGHT
------------------------------
HAL. H. BIBEE
------------------------------
H. RONALD STONE
------------------------------
JERRY F. STONE
------------------------------
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
BY: Weskids, INC., its General Partner
By:
-------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT S-2
<PAGE> 37
KELLI PURSLEY
/s/ KELLI PURSLEY
------------------------------
D. CRAWFORD GALLIMORE
D. CRAWFORD GALLIMORE, as General
Partner of the D. Crawford Gallimore
Family Limited Partnership.
/s/ D. CRAWFORD GALLIMORE
------------------------------
T. WAYNE MCCREIGHT
T. WAYNE MCCREIGHT, as General
Partner of the T. Wayne McCreight
Family Limited Partnership.
/s/ T. WAYNE MCCREIGHT
------------------------------
HAL. H. BIBEE
------------------------------
H. RONALD STONE
------------------------------
JERRY F. STONE
------------------------------
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
BY: Weskids, INC., its General Partner
By:
--------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT S-2
<PAGE> 38
KELLI PURSLEY
------------------------------
D. CRAWFORD GALLIMORE
------------------------------
T. WAYNE MCCREIGHT
------------------------------
HAL. H. BIBEE
/s/ HAL. H. BIBEE
------------------------------
H. RONALD STONE
/s/ H. RONALD STONE
------------------------------
JERRY F. STONE
------------------------------
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
BY: Weskids, INC., its General Partner
By:
---------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT S-2
<PAGE> 39
KELLI PURSLEY
------------------------------
D. CRAWFORD GALLIMORE
------------------------------
T. WAYNE MCCREIGHT
------------------------------
HAL. H. BIBEE
------------------------------
H. RONALD STONE
------------------------------
JERRY F. STONE
/s/ JERRY F. STONE
------------------------------
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
BY: Weskids, INC., its General Partner
By:
--------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT S-2
<PAGE> 40
KELLI PURSLEY
------------------------------
D. CRAWFORD GALLIMORE
------------------------------
T. WAYNE MCCREIGHT
------------------------------
HAL. H. BIBEE
------------------------------
H. RONALD STONE
------------------------------
JERRY F. STONE
------------------------------
IPP 97 PRIVATE EQUITY, LLC
By: Weskids, L.P., its Managing Member
BY: Weskids, INC., its General Partner
By: [SIGNATURE]
---------------------------
Name:
Title:
STOCKHOLDERS AGREEMENT S-2
<PAGE> 41
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By: /s/ JOHN SHOEMAKER
---------------------------------
Name: John Shoemaker
Title: VP
ING (U.S.) CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
CREDITANSTALT BANKVEREIN
CAYMAN ISLANDS BRANCH
By:
---------------------------------
Name:
Title:
CARMEN NICHOLE STONE TRUST
By:
---------------------------------
Name:
Title:
SARAH KATHERINE STONE TRUST
By:
---------------------------------
Name:
Title:
GINGER S. MCDONALD TRUST
By:
---------------------------------
Name:
Title:
Stockholders Agreement S-3
<PAGE> 42
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:
---------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By: [SIGNATURE]
---------------------------------
Name:
Title:
CREDITANSTALT CORPORATE FINANCE, INC.
By:
---------------------------------
Name:
Title:
CARMEN NICHOLE STONE TRUST
By:
---------------------------------
Name:
Title:
SARAH KATHERINE STONE TRUST
By:
---------------------------------
Name:
Title:
GINGER S. MCDONALD TRUST
By:
---------------------------------
Name:
Title:
Stockholders Agreement S-3
<PAGE> 43
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:
---------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By: [SIGNATURE]
---------------------------------
Name:
Title:
By: /s/ ROBERT M. BIRINGER CREDITANSTALT CORPORATE FINANCE, INC.
---------------------------------
Name: Robert M. Biringer
Title: Executive Vice President
By: /s/ W. CRAIG STAMM
---------------------------------
Name: W. Craig Stamm
Title: Vice President
CARMEN NICHOLE STONE TRUST
By:
---------------------------------
Name:
Title:
SARAH KATHERINE STONE TRUST
By:
---------------------------------
Name:
Title:
GINGER S. MCDONALD TRUST
By:
---------------------------------
Name:
Title:
Stockholders Agreement S-3
<PAGE> 44
MELLON VENTURES, L.P.
By: MVMA, L.P., its General Partner
By: MVMA, Inc., its General Partner
By:
---------------------------------
Name:
Title:
ING (U.S.) CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
CREDITANSTALT BANKVEREIN
CAYMAN ISLANDS BRANCH
By:
---------------------------------
Name:
Title:
CARMEN NICHOLE STONE TRUST
By: /s/ JERRY F. STONE
---------------------------------
Name: Jerry F. Stone
Title: Trustee
SARAH KATHERINE STONE TRUST
By: /s/ JERRY F. STONE
---------------------------------
Name: Jerry F. Stone
Title: Trustee
GINGER S. MCDONALD TRUST
By: /s/ JERRY F. STONE
---------------------------------
Name: Jerry F. Stone
Title: Trustee
Stockholders Agreement S-3
<PAGE> 45
HEATH SHEPHERD STONE TRUST
By: /s/ H. RONALD STONE
----------------------------
Name: H. Ronald Stone
Title: Trustee
SARAH ASHLEY STONE TRUST
By: /s/ H. RONALD STONE
----------------------------
Name: H. Ronald Stone
Title: Trustee
Stockholders Agreement S-4
<PAGE> 1
EX-22.01
First Tier Subsidiaries (all 100% owned)
-----------------------
1. Corporate Staffing Resources of Indiana, Inc., an Indiana corporation.
Corporate Staffing Resources of Indiana, Inc. has done business under the
names of:
Corporate Staffing Resources, Inc.
Corporate Staffing Resources of Indiana, Inc.
Corporate Staffing Resources, LLC.
Corporate Staffing Resources
Corporate Staffing Resources of St. Louis, Inc.
CSR, Inc.
CSR
2. Mega Force Staffing Services, Inc., a North Carolina corporation.
Mega Force Staffing Services, Inc. has done business under the names of:
Carolina Personnel Staffing, Inc.
Data Resources, Inc.
Mega Force Staffing Services, Inc.
Mega Force Technical Services, Inc.
Mega Force Temporaries, Inc.
Mega Force Temporaries of Asheboro, Inc.
Mega Force Temporaries of Fayetteville
Mega Force Temporaries of Goldsboro, Inc.
Mega Force Temporaries of Lumberton, Inc.
Mega Force Temporaries of Rock Hill
Mega Force Temporary Services of Myrtle Beach, Inc.
Mega Force of Tennessee, Inc.
Nationwide Personnel Services, Inc.
Staff Resources, Inc.
Staffing Management Services, Inc.
Staffing Resources
Staffing Resources of the Triad
3. The Hamilton-Ryker Company, Inc., a North Carolina corporation.
The Hamilton-Ryker Company, Inc. has done business under the names of:
Career Management, Inc.
Career Management Services, Inc.
CM Management
CM Management Services
HamRyk Services, Inc.
Myron Services, Inc.
Temp Team, Inc.
The Hamilton-Ryker Company
The Hamilton-Ryker Company, Inc.
The Hamilton-Ryker Company, LLC
4. Intranational Computer Consultants, a California corporation.
5. NPS of Atlanta, Inc., a Georgia corporation.
NPS of Atlanta, Inc. has done business under the names of:
NPS of Atlanta, Inc.
NPS of Atlanta The Staffing Specialists
6. CSR Manager, Inc., an Indiana corporation.
CSR Manager, Inc. has done business under the names of:
CSR Manager LLC
7. Networld Solutions, a California corporation.
8. Programming Management & Systems, Inc., a Missouri corporation
Second Tier Subsidiaries
------------------------
1. Corporate Staffing Resources, LLC, an Indiana limited liability company.
2. CMS Management Services LLC, an Indiana limited liability company.
CMS Management Services LLC has done business under the names of:
CMS Management Services LLC
CMS Management Services
TemPro Resources
CMT/TemPro Resources of Indianapolis, Inc.
CMS Services
CMS/TemPro Resources of Nashville
<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 Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-53745) and related Prospectus of Corporate Staffing
Resources, Inc. for the registration of __________ shares of its common stock.
/s/ Ernst & Young LLP
Raleigh, NC
September 24, 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 Amendment No. 1 to the Registration Statement (Form S-1, File
333-53745) and related Prospectus of Corporate Staffing Resources, Inc.
/s/ Crowe, Chizek and Company LLP
Elkhart, Indiana
September 24, 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 Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-53745) and related Prospectus of Corporate Staffing
Resources, Inc. for the registration of __________ shares of its common stock.
/s/ Ernst & Young LLP
Raleigh, NC
September 24, 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 Amendment No. 1 to the Registration Statement (Form S-1, File 333-53745) and
related Prospectus of Corporate Staffing Resources, Inc.
/s/ McGladrey & Pullen, LLP
South Bend, Indiana
September 24, 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
Amendment No. 1 to the Registration Statement (Form S-1, File 333-53745) and
related Prospectus of Corporate Staffing Resources, Inc.
/s/ Moss-Adams LLP
Santa Rosa, California
September 24, 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 Amendment
No. 1 to the Registration Statement (Form S-1, File 333-53745) and related
Prospectus of Corporate Staffing Resources, Inc.
/s/ Brooks, Holmes,
Williams & Cook, LLC
Atlanta, Georgia
September 24, 1998
<PAGE> 1
Exhibit 23.01(g)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 16, 1998, with respect to the financial statements
of Programming Management & Systems, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-53745) and related Prospectus of
Corporate Staffing Resources, Inc. for the registration of 5,500,000 shares of
its common stock.
/s/ Stone Carlie & Company L.L.C.
St. Louis, Missouri
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND
FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 19
<SECURITIES> 0
<RECEIVABLES> 26,645
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,300
<PP&E> 3,407
<DEPRECIATION> 0
<TOTAL-ASSETS> 104,061
<CURRENT-LIABILITIES> 15,515
<BONDS> 58,024
97
0
<COMMON> 0
<OTHER-SE> 29,764
<TOTAL-LIABILITY-AND-EQUITY> 104,061
<SALES> 0
<TOTAL-REVENUES> 117,055
<CGS> 0
<TOTAL-COSTS> 93,227
<OTHER-EXPENSES> 19,612
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,780
<INCOME-PRETAX> 2,573
<INCOME-TAX> 1,158
<INCOME-CONTINUING> 1,415
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,415
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM (A) THE UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 43,643
<CGS> 0
<TOTAL-COSTS> 35,798
<OTHER-EXPENSES> 6,115
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 518
<INCOME-PRETAX> 1,233
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<INCOME-CONTINUING> 428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 428
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM (A) THE
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,996
<SECURITIES> 0
<RECEIVABLES> 18,644
<ALLOWANCES> 220
<INVENTORY> 0
<CURRENT-ASSETS> 22,877
<PP&E> 3,577
<DEPRECIATION> 1,399
<TOTAL-ASSETS> 66,266
<CURRENT-LIABILITIES> 8,344
<BONDS> 29,310
97
0
<COMMON> 0
<OTHER-SE> 28,348
<TOTAL-LIABILITY-AND-EQUITY> 66,266
<SALES> 0
<TOTAL-REVENUES> 114,564
<CGS> 0
<TOTAL-COSTS> 93,557
<OTHER-EXPENSES> 15,674
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 1,571
<INCOME-PRETAX> 3,706
<INCOME-TAX> 1,904
<INCOME-CONTINUING> 1,802
<DISCONTINUED> 0
<EXTRAORDINARY> 1,672
<CHANGES> 0
<NET-INCOME> 130
<EPS-PRIMARY> .03
<EPS-DILUTED> .02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM (A) THE AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-01-1996
<EXCHANGE-RATE> 1
<CASH> 237
<SECURITIES> 0
<RECEIVABLES> 5,429
<ALLOWANCES> 122
<INVENTORY> 0
<CURRENT-ASSETS> 5,746
<PP&E> 1,518
<DEPRECIATION> 948
<TOTAL-ASSETS> 7,882
<CURRENT-LIABILITIES> 7,361
<BONDS> 78
181
0
<COMMON> 0
<OTHER-SE> 263
<TOTAL-LIABILITY-AND-EQUITY> 7,882
<SALES> 0
<TOTAL-REVENUES> 65,549
<CGS> 0
<TOTAL-COSTS> 54,724
<OTHER-EXPENSES> 9,668
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 266
<INCOME-PRETAX> 896
<INCOME-TAX> 0
<INCOME-CONTINUING> 896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 896
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 67,349
<CGS> 0
<TOTAL-COSTS> 57,173
<OTHER-EXPENSES> 9,755
<LOSS-PROVISION> 195,000
<INTEREST-EXPENSE> 276,000
<INCOME-PRETAX> (38)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
