<PAGE>
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-13984
DIVERSIFIED CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1565578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 NORTH CENTRAL EXPRESSWAY
SUITE 350
DALLAS, TEXAS 75243
(Address of principal executive offices)
Registrant's telephone number, including area code: (972) 458-8500
Former name, former address and former fiscal year if changed since last report:
Indicate by check mark whether registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
----- -----
Number of shares of common stock of the registrant outstanding on June 30, 1998,
was 2,747,597.
Total Number of pages for
this 10-Q filing: 15
----
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
June 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . $ 6,836,345 $ 7,500,188
Trade accounts receivable, less allowance for
doubtful accounts of approximately $582,000 and
$536,000, respectively . . . . . . . . . . . . . . . 6,021,894 4,882,788
Notes receivable-related party . . . . . . . . . . . . 30,922 10,387
Prepaid expenses and other current assets. . . . . . . 228,983 106,468
Federal income taxes receivable. . . . . . . . . . . . - 201,436
Deferred income taxes. . . . . . . . . . . . . . . . . 252,012 243,518
------------ ------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 13,370,156 12,944,785
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . . . . . 2,140,839 1,389,761
OTHER ASSETS:
Investment in and advances to joint venture. . . . . . 308,234 226,638
Notes receivable-related party . . . . . . . . . . . . 5,826 11,385
Deferred income taxes. . . . . . . . . . . . . . . . . 352,354 428,330
Other. . . . . . . . . . . . . . . . . . . . . . . . . 339,463 160,657
------------ ------------
$ 16,516,872 $ 15,161,556
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses. . . . . . $ 3,524,861 $ 3,487,470
Current maturities of long-term debt . . . . . . . . . 14,241 2,026
Current maturities of capital lease obligations. . . . 50,620 -
Federal income taxes payable . . . . . . . . . . . . . 156,981 -
------------ ------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . 3,746,703 3,489,496
DEFERRED LEASE RENTS . . . . . . . . . . . . . . . . . . 73,318 53,131
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . 120,361 66,134
CAPITAL LEASE OBLIGATIONS. . . . . . . . . . . . . . . . 44,563 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized, none issued. . . . . . . . . . . . . . . - -
Common stock, $.10 par value; 10,000,000 shares
authorized, 2,993,446 and 2,985,946 shares
issued, respectively . . . . . . . . . . . . . . . . 299,345 298,595
Additional paid-in capital . . . . . . . . . . . . . . 11,131,128 11,080,504
Retained earnings. . . . . . . . . . . . . . . . . . . 1,286,629 358,871
Common stock held in treasury (245,849 shares at
cost). . . . . . . . . . . . . . . . . . . . . . . . (185,175) (185,175)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . 12,531,927 11,552,795
------------ ------------
$ 16,516,872 $ 15,161,556
------------ ------------
------------ ------------
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SERVICE REVENUES:
Permanent placement. . . . . . . . . . . . . $ 5,751,129 $ 4,300,835 $ 10,533,741 $ 7,981,243
Specialty services . . . . . . . . . . . . . 1,648,013 1,994,926 3,290,188 3,870,698
Contract placement . . . . . . . . . . . . . 2,988,941 2,078,175 5,476,949 3,800,593
Training . . . . . . . . . . . . . . . . . . 156,108 - 210,547 -
------------ ------------ ------------ ------------
Total Revenues . . . . . . . . . . . . . 10,544,191 8,373,936 19,511,425 15,652,534
COST OF SERVICES . . . . . . . . . . . . . . . 7,269,208 5,773,844 13,632,471 10,968,514
------------ ------------ ------------ ------------
GROSS MARGIN . . . . . . . . . . . . . . . . . 3,274,983 2,600,092 5,878,954 4,684,020
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES . . . . . . . . . . . . . . . . . . (2,471,738) (1,790,511) (4,615,225) (3,717,190)
OTHER INCOME (EXPENSES):
Loss from joint venture operations . . . . . (12,586) (8,277) (26,209) (19,488)
Interest income (expense), net . . . . . . . 92,187 (43,528) 189,924 (74,131)
Other, net . . . . . . . . . . . . . . . . . 19 21,187 6,019 53,943
------------ ------------ ------------ ------------
79,620 (30,618) 169,734 (39,676)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM . . . . . . . . . . . . . 882,865 778,963 1,433,463 927,154
INCOME TAXES . . . . . . . . . . . . . . . . . 331,861 136,039 505,705 93,358
------------ ------------ ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM. . . . . . 551,004 642,924 927,758 833,796
EXTRAORDINARY ITEM, gain on debt
restructuring, net of income tax . . . . . . - - - 43,083
------------ ------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . $ 551,004 $ 642,924 $ 927,758 $ 876,879
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
BASIC EARNINGS PER SHARE:
Income before extraordinary item . . . . . . $ 0.20 $ 0.37 $ 0.34 $ 0.49
Extraordinary item . . . . . . . . . . . . . - - - 0.03
------------ ------------ ------------ ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . $ 0.20 $ 0.37 $ 0.34 $ 0.52
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . 2,747,597 1,747,812 2,743,968 1,691,562
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
DILUTED EARNINGS PER SHARE:
Income before extraordinary item . . . . . . $ 0.19 $ 0.35 $ 0.32 $ 0.46
Extraordinary item . . . . . . . . . . . . . - - - 0.03
------------ ------------ ------------ ------------
TOTAL. . . . . . . . . . . . . . . . . . . . . $ 0.19 $ 0.35 $ 0.32 $ 0.49
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING. . . . . . . . 2,912,200 1,825,521 2,885,346 1,807,333
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 927,758 $ 876,879
Adjustments to reconcile net income to cash provided
by operating activities: . . . . . . . . . . . . . .
Extraordinary item . . . . . . . . . . . . . . . . . . - (43,083)
Depreciation and amortization. . . . . . . . . . . . . 219,986 136,960
Other. . . . . . . . . . . . . . . . . . . . . . . . . - 6,882
Provision for allowances . . . . . . . . . . . . . . . 45,719 (41,834)
Income tax effect of options exercised . . . . . . . . 28,874 -
Equity in loss of joint venture. . . . . . . . . . . . 26,209 19,488
Deferred income taxes. . . . . . . . . . . . . . . . . 67,482 -
Deferred lease rents . . . . . . . . . . . . . . . . . 20,187 24,946
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . (1,184,825) (933,723)
Federal income taxes receivable. . . . . . . . . . . . 201,436 -
Prepaid expenses and other assets. . . . . . . . . . . (143,153) (61,534)
Trade accounts payable and accrued expenses. . . . . . 37,391 518,075
Federal income taxes payable . . . . . . . . . . . . . 156,981 -
------------ ------------
Cash provided by operating activities. . . . . . . 404,045 503,056
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . (869,163) (509,061)
Business acquisition costs . . . . . . . . . . . . . . . (58,873) -
Deposits . . . . . . . . . . . . . . . . . . . . . . . . (32,915) 500
Loans and advances to related parties. . . . . . . . . . (20,000) (111,940)
Repayment from related parties . . . . . . . . . . . . . 5,024 4,464
Net advances to joint venture. . . . . . . . . . . . . . (107,805) (83,357)
------------ ------------
Cash used in investing activities. . . . . . . . . (1,083,732) (699,394)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock under option agreements. . . . . . . . 22,500 75,000
Borrowing under other short-term debt. . . . . . . . . . - 144,249
Decrease in borrowings under factoring and
loan arrangements. . . . . . . . . . . . . . . . . . . - (39,841)
Principal payments under long-term debt and capital
lease obligations. . . . . . . . . . . . . . . . . . . (6,656) (15,891)
Book overdraft . . . . . . . . . . . . . . . . . . . . . - (69,357)
Deferred offering costs. . . . . . . . . . . . . . . . . - (238,581)
------------ ------------
Cash provided by (used in) financing activities. . 15,844 (144,421)
------------ ------------
Decrease in cash and cash equivalents. . . . . . . . . . (663,843) (340,759)
Cash and cash equivalents at beginning of year . . . . . 7,500,188 612,512
------------ ------------
Cash and cash equivalents at end of period . . . . . . . $ 6,836,345 $ 271,753
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest. . . . . . . . . . . . . . . . $ 3,915 $ 87,094
------------ ------------
------------ ------------
Cash paid for taxes . . . . . . . . . . . . . . . . . $ 148,826 $ 87,830
------------ ------------
------------ ------------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITY:
In connection with the acquisition of certain assets of JCAP, Inc. (dba
Alliance Training Centers) effective June 1, 1998, the Company incurred
deferred payment obligations totaling $75,000, the present value of
which were approximately $67,000. Additionally, the Company assumed
certain capital lease obligations for the lease of computer equipment
with a gross commitment of approximately $110,000, the present value of
which were approximately $101,000.
See notes to Consolidated Financial Statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the operations of Diversified
Corporate Resources, Inc. and its subsidiaries (the "Company"), all of
which are wholly owned. The financial information for the three and six
months ended June 30, 1998 and 1997, is unaudited but includes all
adjustments (consisting only of normal recurring accruals) which the
Company considers necessary for a fair presentation of the results for the
periods. The financial information should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997,
included in the Company's Annual Report on Form 10-K ("Form 10-K").
Operating results for the three and six months ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1998.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
JUNE 30, DECEMBER 31,
1998 1997
---------- -----------
<S> <C> <C>
Computer equipment and software . . . . . . . . . $1,839,786 $1,281,305
Office equipment and furniture. . . . . . . . . . 897,532 536,518
Leasehold improvements. . . . . . . . . . . . . . 207,419 160,124
---------- ----------
2,944,737 1,977,947
Less accumulated depreciation and amortization. . (803,898) (588,186)
---------- ----------
$2,140,839 $1,389,761
---------- ----------
---------- ----------
</TABLE>
Included in computer equipment and software are software development costs
in progress of approximately $207,000 and $93,000 at June 30, 1998 and
December 31, 1997, respectively.
3. INCOME TAXES
The income tax provision (benefit) and the amount computed by applying the
federal statutory income tax rate to income before income taxes differs as
follows:
<TABLE>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ------------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Tax provision (at statutory rate). . . . . . $309,003 $ 272,637 $501,712 $ 324,504
Utilization of net operating loss
carryforwards . . . . . . . . . . . . . . - (272,637) - (324,504)
Alternative minimum tax. . . . . . . . . . . - 10,850 - 10,850
Other, principally change of estimate. . . . - - (31,467) -
State income tax, net of federal
income tax benefit . . . . . . . . . . . 22,858 125,189 35,460 82,508
-------- --------- -------- ---------
Total. . . . . . . . . . . . . . . . . . . . $331,861 $ 136,039 $505,705 $ 93,358
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. EARNINGS PER SHARE
Basic EPS was determined by dividing net income by the weighted average
number of shares of common stock outstanding during the year and diluted
EPS included these shares plus common stock equivalents outstanding during
the year (common stock equivalents are excluded if the effects of inclusion
are antidilutive).
The following is reconciliation of the weighted average number of shares
outstanding during the period for basic and diluted earnings per share.
<TABLE>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic. . . . . . . . . . . . . . . . . . . . 2,747,597 1,747,812 2,743,968 1,691,562
Net effect of dilutive stock options . . . . 164,603 77,709 141,378 115,771
--------- --------- --------- ---------
Diluted. . . . . . . . . . . . . . . . . . . 2,912,200 1,825,521 2,885,346 1,807,333
--------- --------- --------- ---------
--------- --------- --------- ---------
Total options and warrants outstanding . . . 826,257 500,000 826,257 500,000
Options and warrants not considered
because effects of inclusion would be
antidilutive. . . . . . . . . . . . . . . 82,590 92,000 82,590 72,000
</TABLE>
5. CONTINGENCIES
The Company was named as a garnishee in a lawsuit against its largest
shareholder, which the Company believes, is without merit. As the
result of an Agreed Temporary Order dated October 24, 1996, the Company
was non-suited in this matter. The Company has filed a separate lawsuit
against the plaintiff seeking damages and reimbursement of expense,
alleging that plaintiffs interfered with Company business transactions
and proposed financing resulting in delays of certain transactions, lost
opportunities, lost profits and other significant losses. Additionally,
the Company has been named in a lawsuit filed by two former employees
claiming damages for the fair market value of certain shares of common
stock of certain subsidiaries of the Company as well as other damages
for breach of contract and various other allegations. The Company has
filed a third party petition against one of these plaintiffs and a
counterclaim against the other plaintiff. The Company is also involved
in certain other litigation and disputes not previously noted. With
respect to all the aforementioned matters, management believes they are
without merit and has concluded that the ultimate resolution of such
will not have a material effect on the Company's consolidated financial
statements.
6. NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," SFAS No. 132, "Employers' Disclosures
about Pensions and other Post Retirement Benefits," and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Preliminary
analysis of these new standards by the Company indicates that they will not
have a material effect on the Company's financial statements. SFAS No. 131
and 132, are effective for financial statements for fiscal years beginning
after December 15, 1997, and SFAS No. 133 will be effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. ALLIANCE TRAINING CENTER ACQUISITION
Effective June 1, 1998, the Company acquired certain assets of JCAP, Inc.,
dba Alliance Training Centers ("Alliance"), a privately-held information
technology-training center operating in Richardson and Irving, Texas, both
suburbs of Dallas, Texas. The Company paid a purchase price equal to the
fair value of all of Alliance's furniture, computer equipment and software
and certain deposits and other assets, plus an earn-out (goodwill) of eight
percent (8%) of the annual after-tax net income of Train International,
Inc. ("Train"), a subsidiary of the Company, in excess of certain base
amounts through December, 2001, subject to certain minimum annual earn-out
payments aggregating $100,000 ($25,000 at closing and $75,000 deferred) and
overall maximum earn-out payments of $250,000. Additionally, the Company
assumed the real estate leases at the Richardson and Irving locations and
certain computer equipment capital leases. The gross future commitment
under these equipment leases was approximately $110,000 and the present
value of the future minimum lease payments was approximately $101,000.
Following is a summary of the acquisition cost:
<TABLE>
<C> <C>
Costs:
Furniture, computer equipment and software . . . . . . . $192,898
Deposits and other assets. . . . . . . . . . . . . . . . 20,935
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . 126,306
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . $340,139
--------
--------
Source:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $171,858
Present value of minimum deferred earn-out . . . . . . . 67,433
Present value of future minimum lease payments . . . . . 100,848
--------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $340,139
--------
--------
</TABLE>
The Alliance acquisition was accounted for under the purchase method. The
results of the former Alliance operations are included in the Statement of
Operations beginning June 1, 1998. Goodwill is being amortized over ten
years utilizing the straight-line method. The contingent earn-out payments
will be recorded as goodwill when earned. The unaudited revenues of
Alliance for the year ended December 31, 1997, and the five months ended
May 31, 1998 were approximately $850,000 and $427,000, respectively. Pro
forma results of operations have not been presented because they are not
material in relation to the consolidated operations of the Company.
8. RELATED PARTY TRANSACTION
During June 1998, $20,000 was advanced to J. Michael Moore, the Company's
Chairman and Chief Executive Officer. The advance was towards a 1998 bonus
and was evidenced by a note bearing interest at 8% and is due the earlier
of when 1998 executive bonuses are paid or April 1999.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. STOCKHOLDERS EQUITY
On April 29, 1998, the Board of Directors approved the granting of options
to purchase an aggregate of 236,667 shares at $12.75 to certain officers
and directors of the Company. The options vest quarterly in varying
amounts over a three-year period.
On July 17, 1998, the Company's President, M. Ted Dillard (Dillard),
exercised options to purchase 84,000 shares of the Company's Common Stock
for an aggregate purchase price of $257,250. The purchase price was paid
with 7,500 shares of Company common stock valued at $89,500 (based upon
closing price on July 16, 1998, on the American Stock Exchange) and the
remainder in cash. In connection with this transaction the Company loaned
Dillard $148,600 to cover his income tax liability on the transaction.
This loan was approved by the Compensation Committee of the Board of
Directors and was ratified by the Board of Directors. The loan bears
interest at the applicable federal rate, the interest is payable
quarterly, is collateralized by 20,000 shares of the Company's Common
Stock and is due on a pro-rata basis as Dillard sells the stock
collateral, but with a maximum repayment term of five years. The Company
will receive an income tax deduction related to this transaction.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 AND 1997
NET SERVICE REVENUES. Net service revenues increased approximately $2.2 million
or 25.9% to $10.5 million in the second quarter of 1998, compared to $8.4
million for the comparable 1997 quarter. Permanent placement revenues increased
approximately $1.5 million or 33.7% to $5.8 million for the quarter ended June
30, 1998, compared to $4.3 million for the comparable 1997 quarter. As part of
its single-source provider strategy, the Company provides specialty services to
its permanent placement clients. As a result of the increased demand for
permanent placement personnel, specialty service revenues decreased
approximately $347,000 or 17.4% to $1.6 million for the second quarter of 1998,
compared to $2.0 million for the comparable 1997 quarter. Contract placement
revenues increased approximately $911,000 or 43.8% to $3.0 million in the second
quarter of 1998, compared to $2.1 million for the comparable 1997 quarter.
Training revenues were approximately $156,000 for the quarter ended June 30,
1998. The Company reported no training revenues in the comparable 1997 quarter.
The increase in net service revenues was primarily attributable to the Company's
continued focus on high-margin, specialty niche employment markets such as the
information technology and engineering/technical disciplines.
GROSS MARGIN. Gross margin increased approximately $675,000 or 26.0% to $3.3
million in the second quarter of 1998, compared to $2.6 million for the
comparable 1997 quarter. Gross margin as a percentage of net service revenues
increased to approximately 31.1% in the second quarter of 1998 compared to
approximately 31.0% in the comparable period in 1997. The increase in gross
margin was consistent with the increase in net service revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $681,000 or 38.0% to $2.5
million in the second quarter of 1998, compared to $1.8 million for the
comparable 1997 quarter. Selling, general and administrative expenses as a
percentage of net service revenues increased to approximately 23.4% in the
second quarter of 1998 from approximately 21.4% in the comparable 1997 quarter.
The increase was the result of increased expenses associated with opening new
offices, the further development of the Company's training programs, the
expansion of the Company's back office to support the growth in sales and
increased professional fees associated with investor relations and public
reporting.
OTHER INCOME AND EXPENSES. Other income was approximately $80,000 in the
second quarter of 1998 compared to expense of approximately $31,000 in the
comparable 1997 quarter. This was primarily due to interest earnings during the
second quarter of 1998 on the proceeds from the Company's 1997 public offering,
as well as a decrease in interest expense resulting from the retirement of all
short-term debt of the Company during the fourth quarter of 1997.
INCOME TAXES. Income tax expense increased approximately $196,000 to $332,000
for the second quarter of 1998, compared to $136,000 for the comparable 1997
quarter. The Company's effective tax rate increased to 38% in the second
quarter of 1998, compared to 17% in the comparable 1997 quarter. The second
quarter 1997 lower effective tax rate was primarily due to the utilization of
net operating losses to offset taxable income.
NET INCOME. Net income decreased approximately $92,000 or 14.3% to
approximately $551,000 in the second quarter of 1998 as compared to
approximately $643,000 in the comparable 1997 quarter. The decrease was
primarily due to the increase in the Company's effective tax rate as
described above. A more meaningful comparison is income before income tax
and extraordinary item which increased approximately $104,000 or 13.3% to
approximately $883,000 in the second quarter of 1998 as compared to
approximately $779,000 in the comparable 1997 quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
NET SERVICE REVENUES. Net service revenues increased approximately $3.9 million
or 24.7% to $19.5 million for the first six months of 1998, compared to $15.7
million for the comparable period in 1997. Permanent placement revenues
increased approximately $2.6 million or 32.0% to $10.5 million for the first six
months of 1998 compared to $8.0 million for the comparable period in 1997. The
continued increased demand for permanent placement personnel has resulted in a
decrease in specialty service revenues of approximately $581,000 or 15.0% to
$3.3 million for the first six months of 1998, compared to $3.9 million for the
comparable period in 1997. Contract placement revenues increased approximately
$1.7 million or 44.1% to $5.5 million for the first six months of 1998, compared
to $3.8 million for the comparable period in 1997. Training revenues were
approximately $211,000 for the first six months of 1998. The Company reported
no training revenues in the comparable 1997 period. The increase in net service
revenues was primarily attributable to the Company's continued focus on
high-margin, specialty niche employment markets such as the information
technology and engineering/technical disciplines.
GROSS MARGIN. Gross margin increased approximately $1.2 million or 25.5% to
$5.9 million in the first six months of 1998, compared to $4.7 million for the
comparable 1997 period. Gross margin as a percentage of net service revenues
increased to approximately 30.1% in the first six months of 1998 compared to
approximately 29.9% for the comparable 1997 period. The increase in gross
margin was consistent with the increase in net service revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $898,000 or 24.2% to $4.6
million for the first six months of 1998, compared to $3.7 million for the
comparable 1997 period. The increase was the result of increased expenses
associated with opening new offices, the further development of the Company's
training programs, the expansion of the Company's back office to support the
growth in sales and increased professional fees associated with investor
relations and public reporting. Selling, general and administrative expenses as
a percentage of net service revenues was unchanged at approximately 23.7% for
the first six months of 1998 and 1997.
OTHER INCOME AND EXPENSES. Other income was approximately $170,000 for the
first six months of 1998, compared to an expense of $40,000 for the comparable
period in 1997. This was primarily due to interest earnings on the proceeds
from the Company's 1997 public offering and a current year reduction of interest
expense as a result of the retirement of all short-term debt during the fourth
quarter of 1997.
INCOME TAXES. Income tax expense increased approximately $413,000 to $506,000
for the first six months of 1998, compared to $93,000 for the comparable period
in 1997. The Company's effective tax rate increased to 35% in the first six
months of 1998 compared to 10% in the comparable 1997 period. The increase was
primarily due to the utilization of net operating losses in the 1997 period to
offset taxable income.
NET INCOME. Net income increased approximately $51,000 or 5.8% to $928,000 for
the first six months of 1998, compared to $877,000 for the comparable period in
1997. Because of the increase in the effective tax rate described above, a more
meaningful comparison is income before income tax and extraordinary item which
increased approximately $506,000 or 54.6% to approximately $1.4 million in the
first six months of 1998 compared to approximately $927,000 in the comparable
1997 period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $9.6 million at June 30, 1998, compared
to working capital of approximately $9.5 million at December 31, 1997. The
increase in working capital of approximately $168,000 during the first six
months of 1998 was primarily due to the profitable operations of the Company.
Cash flow provided by operating activities of approximately $404,000
resulted primarily from the profitable operations of the Company during the
first six months of 1998. The Company made capital expenditures of
approximately $869,000 during the first six months of 1998 associated with
opening new offices, developing its training programs and enhancing its back
office to support its growth.
The Company continues to evaluate various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
Management of the Company anticipates that funds from the fourth quarter 1997
public offering and cash flow from operations will provide adequate liquidity to
fund its internal growth plans and operations for the next twelve months. The
Company's 1998 internal growth plans include the enhancement and expansion of
its training facilities, the development and expansion of its applicant database
and back office, the opening of new profit centers in existing locations and the
opening of offices in new geographic locations. In addition, the Company
continues to explore avenues for growth, including but not limited to, possible
strategic acquisitions.
Inflation has not had a significant effect on the Company's operating
results.
YEAR 2000 ISSUE
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, any of the Company's computer
programs that have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000 (the "Year 2000 Issue"). This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities.
The Company has made a preliminary assessment of the Year 2000 Issue and
has concluded that it will have to modify or replace its accounting software so
that the Company's computer system will function properly with respect to the
Year 2000 Issue. The Company's accounting software can be brought into
compliance with the Year 2000 Issue through the purchase of an upgrade module
from the software vendor. However, the Company is currently considering the
purchase of new accounting and back office software. One of the requirements of
any software purchase will be compliance with the Year 2000 Issue. Because the
remainder of the Company's systems applications and hardware were built on
up-to-date client server architecture, they should require no modifications
with respect to the Year 2000 Issue. The Company will also initiate
communications with its significant suppliers and large customers to
determine the extent to which the Company is vulnerable to those third
parties to minimize their own Year 2000 Issue. There can be no assurance
that the systems of other companies upon which the Company's systems rely
will be timely converted, or that a failure to convert by another company, or
a conversion that is incompatible with the Company's systems, would not have
a material adverse effect on the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
NEW ACCOUNTING PRONOUNCEMENTS
The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," SFAS No. 132, "Employers' Disclosures about
Pensions and other Post Retirement Benefits," and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Preliminary analysis of these
new standards by the Company indicates that they will not have a material effect
on the Company's financial statements. SFAS No. 131 and 132, are effective for
financial statements for fiscal years beginning after December 15, 1997, and
SFAS No. 133 will be effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999.
ACTUAL RESULTS MAY DIFFER FROM FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q that reflect projections
or expectations of future financial or economic performance of the Company, and
statements of the Company's plans and objectives for future operations are
"forward-looking" statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended. No
assurance can be given that actual results or events will not differ materially
from those projected, estimated, assumed or anticipated in any such forward
looking statements. Important factors (the "Cautionary Disclosures") that could
result in such differences include: general economic conditions in the Company's
markets, including inflation, recession, interest rates and other economic
factors; the availability of qualified personnel; the level of competition
experienced by the Company; the Company's ability to implement its business
strategies and to manage its growth; the level of developmental expenses; those
factors identified in the Company's Prospectus dated September 30, 1997 as risk
factors; and other factors that affect businesses generally. Subsequent written
and oral "forward-looking" statements attributable to the Company or persons
acting on its behalf are expressly qualified by the Cautionary Disclosures.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Effective May 1, 1998, the Company adopted a shareholder rights plan.
See Item 5.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company (the "Annual Meeting")
was held on June 10, 1998. At this meeting, the shareholders voted to elect the
following to serve as directors of the Company to hold office until the next
annual meeting of shareholders or until their respective successors are duly
elected and qualified.
<TABLE>
FOR AGAINST ABSTAIN/ BROKER
WITHHELD NON-VOTES
<S> <C> <C> <C> <C>
J. Michael Moore 2,369,315 0 11,624 0
M. Ted Dillard 2,369,315 0 11,624 0
Samuel E. Hunter 2,369,315 0 11,624 0
Deborah A. Farrington 2,369,315 0 11,624 0
A. Clinton Allen 2,365,815 0 15,124 0
</TABLE>
The shareholders voted to approve certain amendments to the Company's
Amended and Restated 1996 Nonqualified Stock Option Plan. The results of the
vote were as follows:
<TABLE>
FOR AGAINST ABSTAIN/ BROKER
WITHHELD NON-VOTES
<S> <C> <C> <C> <C>
1,357,383 169,026 0 854,530
</TABLE>
The shareholders voted to adopt and approve the Company's 1998 Nonqualified
Stock Option Plan. The results of the vote were as follows:
<TABLE>
FOR AGAINST ABSTAIN/ BROKER
WITHHELD NON-VOTES
<S> <C> <C> <C> <C>
1,334,677 186,226 0 860,036
</TABLE>
ITEM 5. OTHER INFORMATION
SHAREHOLDER RIGHTS PLAN
Effective May 1, 1998, the Company adopted a Shareholder Rights Plan (the
"Rights Plan"). Under the Rights Plan, Rights to purchase one one-thousandth
(1/1000th) of a share of a new Series A Junior Participating Preferred Stock of
the Company at a price of $70 per one one-thousandth of a Preferred Share was
distributed as a dividend at the rate of one Right for each share of the
Company's Common Stock held of record on May 11, 1998. The value of each one
one-thousandth of a share of Preferred Stock purchasable upon exercise of each
Right should approximate the value of one (1) share of the Company's Common
Stock.
<PAGE>
PART II OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES - CONTINUED
A description of the Rights Plan (and a copy of the Rights Agreement) is
set forth in the Company's Form 8-K, which was filed with the Securities and
Exchange Commission on May 8, 1998.
The Rights contain provisions that are intended to protect shareholders
from abusive takeover tactics that may be used by an acquirer that the Company's
Board of Directors believes are not in the best interests of the shareholders.
Examples of such transactions include a gradual accumulation of shares in the
open market or a partial or two-tier tender offer that does not treat all
shareholders equally and other acquisition attempts that may unfairly pressure
shareholders by coercing them to relinquish their investment and depriving the
Company's Board and shareholders of any real opportunity to determine the future
of the Company and to realize the full value of the shareholders' investment in
the Company. The Rights are not intended to prevent all takeovers of the
Company and will not do so. The Rights Plan increases the Board's ability to
effectively represent the interests of shareholders and other constituencies of
the Company upon the occurrence of an unfair acquisition proposal. While the
Board is not aware of any present effort to acquire control of the Company, it
believes these Rights represent a sound and reasonable means of safeguarding the
interests of its shareholders.
A summary of the Rights Plan was mailed to each shareholder of record as of
the record date, May 11, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
3.2 Form of Certificate of Designation for Designating Series A Junior
Participating Preferred Stock, $.10 par value. (Incorporated by reference
to Exhibit A of Exhibit 4.1 of the Company's Form 8-K filed on May 8,
1998.)
4.1 Rights Agreement dated as of May 1, 1998, between Diversified Corporate
Resources, Inc., and Harris Trust and Savings Bank which includes the form
of Certificate of Designation for Designating Series A Junior Participating
Preferred Stock, $.10 par value, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase Series A
Junior Participating Preferred Stock as Exhibit C. (Incorporated by
reference to Exhibit 4.1 of the Company's Form 8-K filed on May 8, 1998.)
10.1 Asset Purchase Agreement by and between Diversified Corporate Resources,
Inc., and JCAP, Inc., effective June 1, 1998.*
10.2 Note Receivable dated June 22, 1998, by and between Diversified Corporate
Resources, Inc., and J. Michael Moore.*
27 Financial Data Schedule*
(*Filed herewith)
b. REPORTS ON FORM 8-K
On May 8, 1998, the Company filed with the Securities and Exchange
Commission a Form 8-K with respect to the Shareholder Rights Plan adopted by the
Company, effective May 1, 1998. See "Item 5. Other Information" herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIVERSIFIED CORPORATE RESOURCES, INC.
Registrant
DATE: August 13, 1998 By: /s/ J. Michael Moore
----------------------------------
J. Michael Moore
CHIEF EXECUTIVE OFFICER
DATE: August 13, 1998 By: /s/ M. Ted Dillard
----------------------------------
M. Ted Dillard
PRESIDENT AND SECRETARY
DATE: August 13, 1998 By: /s/ Douglas G. Furra
----------------------------------
Douglas G. Furra
CHIEF FINANCIAL OFFICER
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is executed as of the
____ day of July, 1998, to be effective as of the 1st day of June, 1998, by and
between DIVERSIFIED CORPORATE RESOURCES, INC., a Texas corporation ("BUYER"),
having its principal place of business at 12801 North Central Expressway, Suite
350, Dallas, Texas 75243, and JCAP, INC., a Texas corporation, d/b/a Alliance
Training Center ("SELLER"), having its principal offices at 1401 North Central
Expressway, Suite 370, Richardson, Texas 75080.
WHEREAS, Seller is engaged in the business of employee training (the
"BUSINESS"); and
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller, on the terms and conditions hereinafter set forth, the Business as
a going concern and certain of the properties and assets owned by Seller (the
"TRANSACTION").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Seller and Buyer hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions of this Agreement, Seller agrees to sell, convey, transfer, assign
and deliver to Buyer, free and clear of all liens, claims and encumbrances, and
Buyer agrees to purchase and assume from Seller, (a) the assets and properties
described in SECTION 1.2 (all such assets and properties being herein
collectively referred to as the "ASSETS" and individually referred to as an
"ASSET") and (b) the Assumed Liabilities (as defined in SECTION 2.1). The
Assets shall not include the Excluded Assets (as defined in SECTION 1.3).
1.2 ASSETS TO BE CONVEYED. Subject to SECTION 1.3, the Assets shall
consist of all assets owned by Seller used in connection with the Business and
which are described in the following CLAUSES (A) through (L):
(a) REAL PROPERTY LEASES. The Seller's leasehold interests, as
reflected in (i) that certain Commercial Lease Agreement, dated as of July 10,
1996, as amended, in the real property located at 6309 N. O'Connor Blvd.,
Irving, Texas (the "IRVING LEASED PROPERTY"), and (ii) that certain Lease
Agreement, dated as of April 15, 1994, as amended, in the real property located
at 1401 N. Central Expressway, Richardson, Texas (the "RICHARDSON LEASED
PROPERTY" and together with the Irving Leased Property, collectively, the
"LEASED PROPERTIES"), copies of which are attached hereto as SCHEDULE 1.2(A)
(the "REAL PROPERTY LEASES"), upon terms acceptable to Buyer.
(b) EQUIPMENT. All of Seller's furniture, fixtures, equipment,
machinery, apparatus, appliances, vehicles, implements and all other tangible
personal property of every kind and description (the "EQUIPMENT").
<PAGE>
(c) ASSUMED CONTRACTS. All right, title and interest of Seller
as of the Closing in, to and under the contracts and agreements described on
SCHEDULE 1.2(C) attached hereto (the "ASSUMED CONTRACTS") and all of Seller's
rights (including rights of refund and offset), privileges, claims, causes of
action and options relating or pertaining to the Assumed Contracts or any
thereof.
(d) PERMITS. To the extent transferrable, all right, title and
interest of Seller as of the Closing (as defined below) in, to and under all
permits and licenses relating to the Business or all or any of the Assets.
(e) BOOKS AND RECORDS. All of Seller's books, records, papers
and instruments of whatever nature and wherever located, whether stored in or
readable or accessible by computer or otherwise, relating to the Business and
the Assets, including, without limitation, accounting and financial records,
sales records, customer data and supplier data, but excluding checkbooks, bank
statements, canceled checks, tax returns, articles of organization and
certificates of ownership interest.
(f) PREPAID EXPENSES. All right, title and interest of Seller
in and to all prepaid rentals and other prepaid expenses, bonds, deposits and
financial assurance requirements relating to any of the Assets or the Business.
(g) INSURANCE PROCEEDS. All insurance proceeds and insurance
claims of Seller relating to all or any part of the Assets or the Business.
(h) WARRANTY RIGHTS. To the extent transferrable, the benefit
of and the right to enforce the covenants and warranties, if any, that Seller is
entitled to enforce with respect to the Assets against Seller's predecessors in
title to the Assets.
(i) COMPUTER PROGRAMS. To the extent transferrable, all of
Seller's rights, if any, in computer programs and computer software, along with
license rights pertaining thereto, to the extent relating or pertaining to the
Business and or the Assets.
(j) NAME. All of Seller's rights and interest in the name
"Alliance Training Center" and all related and similar names, logos and trade
names including, without limitation, all of Seller's corporate, copyright,
trademark and service mark rights and interests in such names, logos and trade
names, and goodwill associated therewith.
(k) INTANGIBLE ASSETS. All customer lists, patents,
trademarks, trade names, service marks, copyrights, processes, formulas, trade
secrets, proprietary and technical information, know-how, other trade rights and
other intangible assets, together with all rights to, and applications, licenses
and franchises for, any of the foregoing, relating to the Business, including,
but not limited to, those listed in SCHEDULE 1.2(K).
-2-
<PAGE>
(l) OTHER INTANGIBLES. All right, title and interest of Seller
in, to and under all rights, privileges, claims, causes of action and options
relating or pertaining to the Business and the Assets.
1.3 ASSETS NOT TO BE CONVEYED. Notwithstanding anything to the
contrary contained herein, the Assets shall not include any assets not described
in CLAUSES (A) through (L) of SECTION 1.2. Without limiting the generality of
the foregoing, the Assets shall not include: (a) the company minute books of
Seller; (b) all claims of Seller for refunds of any income taxes (whether
federal, state, local, foreign or other) applicable to periods prior to the
Closing; (c) any rights accruing as a result of, or any proceeds paid or payable
in accordance with, this Agreement; (d) all insurance proceeds and insurance
claims of Seller, except for proceeds and claims relating to any damage, loss or
casualty to all or any part of the Assets or the Business; (e) accounts
receivable and two of Seller's personal pictures; and (f) all of Seller's other
assets not specifically described in SECTION 1.2 (collectively, the "EXCLUDED
ASSETS").
1.4 NON-ASSIGNABLE CONTRACTS. In the case of any contracts or
agreements which by their terms or by virtue of their subject matter are not
assignable without the consent of a third party (collectively, the
"NON-ASSIGNABLE CONTRACTS"), Seller will use its reasonable best efforts to
obtain, prior to the Closing, any written consents necessary to convey to Buyer
the benefit thereof. In the event that any third party to a Non-Assignable
Contract has not consented to an assignment thereof to Buyer for any reason,
then Buyer shall have absolutely no liability or obligation to Seller, such
third party or any other party with respect to such Non-Assignable Contract and
such Non-Assignable Contract shall be deemed to not be an Asset or an Assigned
Contract pursuant to the terms of this Agreement; and, if any Non-Assignable
Contract is not assigned by Buyer for any reason, and Buyer considers in its
sole judgment that such Non-Assignable Contract is material to the business to
be conducted by Buyer after the Closing Date (as defined in SECTION 3.1) then,
at Buyer's option, Buyer shall have no obligation to consummate its purchase
hereunder. In the event that Buyer consummates its purchase hereunder and any
Non-Assignable Contract has not been assigned to Buyer for any reason then
either (a) Buyer and Seller shall negotiate in good faith to adjust the Purchase
Price based on such event and/or (b) Buyer and Seller shall cooperate in good
faith with the other party in any reasonable arrangement necessary or desirable
to provide Buyer the benefits of such Non-Assignable Contract.
ARTICLE 2
PURCHASE PRICE
2.1 PAYMENT OF PURCHASE PRICE.
(a) The total purchase price for the Assets (the "PURCHASE
PRICE") shall be (i) $112,984.57 (the "ASSETS VALUE"), PLUS (ii) the aggregate
Annual Earn-Out Amounts to be paid to Seller pursuant to Section 2.1 hereof,
PLUS (iii) the payment or assumption by Buyer of those liabilities and
obligations of Seller listed on SCHEDULES 1.2(C) AND 2.1 (the liabilities and
obligations listed on SCHEDULES 1.2(C) AND 2.1 being referenced to as the
"ASSUMED LIABILITIES").
-3-
<PAGE>
(b) The "ANNUAL EARN-OUT AMOUNTS" shall be determined in
accordance with generally accepted accounting principles as consistently applied
by the Buyer and its subsidiaries in prior years and shall be equal to eight
percent (8%) of the annual after-tax net income of Train International, Inc., a
Texas corporation and wholly-owned subsidiary of Buyer ("TRAIN"), in excess of
the following amounts (each a "BASE AMOUNT") with respect to the calendar year
corresponding thereto:
<TABLE>
CALENDAR YEAR BASE AMOUNT
------------- -----------
<S> <C> <C>
1998 $468,750
1999 $312,500
2000 $312,500
2001 $312,500
</TABLE>
(1) Anything in this Agreement to the contrary notwithstanding,
Seller and Buyer agree that in no event whatsoever shall the total Annual
Earn-Out Amounts paid to Seller be less than $100,000 (the "MINIMUM EARN-
OUT AMOUNT") no matter how long Christine Ploof is employed by Train or
the circumstances of the termination of her employment.
(2) Anything in this Agreement to the contrary notwithstanding,
Seller and Buyer agree that in no event whatsoever shall the Minimum
Earn-Out Amount paid be less than the amounts set forth below with
respect to the calendar year corresponding thereto (each a "MINIMUM
ANNUAL EARN-OUT AMOUNT"), no matter how long Christine Ploof is
employment by Train or the circumstances of the termination of her
employment:
<TABLE>
CALENDAR YEAR BASE AMOUNT
------------- -----------
<S> <C> <C>
1998 $37,500
1999 $25,000
2000 $25,000
2001 $12,500
</TABLE>
(3) Anything in this Agreement to the contrary notwithstanding,
Seller and Buyer agree that in no event whatsoever shall the total Annual
Earn-Out Amounts paid to Seller exceed $250,000 (the "MAXIMUM EARN-OUT
AMOUNT").
(4) If Christine Ploof is employed by Train for less than a
full calendar year in any year in which there is an Earn-Out Balance for
that calendar year, then the excess shall be pro rated and paid based
upon a 365 day year to the date of termination. For purposes of this
Section 2.1, the term "EARN-OUT BALANCE" shall mean the amount, if any,
that the Annual Earn-Out Amount for any particular calendar year exceeds
the Minimum Earn-Out Amount for such calendar year.
(c) The Purchase Price for the Assets shall be payable by Buyer
to Seller in cash, pursuant to a cashier's check, as follows:
-4-
<PAGE>
(1) the Assets Value shall be due and payable at the Closing;
(2) the Minimum Earn-Out Amounts shall be due and payable as
follows:
(A) $25,000 shall be due and payable at the Closing;
(B) $12,500 shall be due and payable on December 31,
1998;
(C) $25,000 shall be due and payable on December 31,
1999;
(D) $25,000 shall be due and payable on December 31,
2000; and
(E) $12,500 shall be due and payable on June 30, 2001;
(3) the Earn-Out Balance shall be due and payable on or before
the 31st day of March in the year following the year such Earn-Out
Balance was determined.
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Assets in the manner set forth in SCHEDULE 2.2, to be
delivered by Buyer to Seller on or prior to the Closing Date; and the parties
agree (a) to comply with all filing, notice and reporting requirements described
in Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE")
and (b) that, without the consent of both parties, neither party will make any
representation to any other party as to such allocation that is at variance with
the allocation set forth on such schedule.
2.3 PRORATIONS. The following matters and items pertaining to the
each of the Assets shall be apportioned (based upon a 365-day year) between
Seller and Buyer, or where applicable, credited in total to Seller or Buyer, as
the case may be, as of the Effective Date. Unless otherwise indicated below,
Buyer shall receive a credit for any of the items in this Section 2.3 to the
extent the same are accrued but unpaid as of the Effective Date (whether or not
due, owing or delinquent as of the Effective Date), and Seller shall receive a
credit to the extent any of the items in this Section 2.3 shall have been paid
prior to the Effective Date to the extent the payment thereof relates to any
period of time after the Effective Date. Net credits in favor of Buyer shall be
deducted from the Purchase Price, and net credits in favor of Seller shall be
added to the Purchase Price. The provisions of this SECTION 2.3 shall survive
the Closing.
(a) TAXES. All taxes (other than federal, state, local and
foreign income, capital stock, windfall profits and franchise taxes) shall be
prorated as of the Effective Date between Buyer and Seller. If the amount of
any such taxes is not ascertainable on the Effective Date, the proration
therefor shall be based on the most recent available bill and adjusted as
necessary on a post-closing basis.
(b) LEASES. Any amounts prepaid, accrued or due and payable
under the Leases with respect to common areas shall be prorated as of the
Effective Date between Buyer and Seller.
-5-
<PAGE>
ARTICLE 3
CLOSING
3.1 TIME AND PLACE OF CLOSING. The sale and purchase of the Assets
pursuant to this Agreement (the "CLOSING") shall take place at the principal
offices of Jenkens & Gilchrist, a Professional Corporation, counsel for Buyer,
located at 1445 Ross Avenue, Suite 3200, Dallas, Texas, or at such other time
and place as the parties may agree; but in no event later than ____________,
1998. The date of Closing is referred to in this Agreement as the "CLOSING
DATE." The parties agree that time is of the essence with respect to the
foregoing and all other time periods set forth herein.
3.2 ACTIONS TAKEN AT CLOSING BY SELLER. At the Closing, Seller shall
take the following actions, all of which shall constitute conditions precedent
to Buyer's obligations to close hereunder:
(a) execute and deliver to Buyer the following:
(1) a lease assignment and assumption (each a "LEASE
ASSIGNMENT" and collectively the "LEASE ASSIGNMENTS") in form and
substance acceptable to Buyer and Seller that transfers, assigns and
conveys to Buyer and Train all of Seller's estates, rights, titles and
interests in, to and under each of the Real Property Leases;
(2) a bill of sale conveying all of the personal property
included in the Assets in the form of EXHIBIT B attached hereto; and
(3) an assignment and assumption respecting all of the Assets
and Assumed Liabilities in the form of EXHIBIT C hereto (the "ASSUMPTION
AGREEMENT").
(b) deliver to Buyer the following:
(1) true, correct and complete copies of Seller's Articles of
Incorporation and all amendments thereto, duly certified as of a recent
date by the Secretary of State of Texas;
(2) certificate(s) of the Secretary of State of Texas, dated as
of a recent date, duly certifying as to the existence and good standing
of Seller as a corporation under the laws of the State of Texas;
(3) written instruments evidencing all consents necessary to
consummate the transaction contemplated hereby, including, without
limitation, consents necessary to transfer the Assumed Contracts;
(4) a certificate duly executed by the Secretary or Assistant
Secretary of Seller pursuant to which such officer shall certify (A) the
due adoption by the Board of Directors and by the shareholders of Seller
of corporate resolutions attached to such certificate authorizing the
transaction and the execution and delivery of this Agreement and the
other agreements and documents contemplated hereby and the taking of all
actions contemplated hereby and thereby; (B) the incumbency and true
signatures of those officers of Seller duly
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authorized to act on its behalf in connection with the Transaction and
this Agreement and to execute and deliver this Agreement and the other
agreements and documents contemplated hereby on behalf of Seller; and
(C) that the copy of the Bylaws of Seller attached to such certificate
is true and correct and such Bylaws have not been amended except as
reflected in such copy;
(5) original copies of all Assumed Contracts and all
amendments, supplements or modifications thereto;
(6) all of Seller's books and records constituting a part of
the Assets;
(7) the certificate of Seller required by SECTION 9.1 and
SECTION 9.2;
(8) possession or constructive possession of the Assets and
access to and keys for any properties related to the Business;
(9) such documents necessary to release the Assets from all
liens, claims and encumbrances, which documents shall be in form and
substance satisfactory to Buyer and to Buyer's counsel;
(10) duly endorsed certificates of title to all motor vehicles
constituting a part of the Assets transferring title thereto to Buyer;
(11) cause Christine Ploof to enter into an employment agreement
with Train (the "EMPLOYMENT AGREEMENT"), effective as of June 1, 1998,
substantially in the form of EXHIBIT A hereto;
(12) evidence in form and substance satisfactory to Buyer of the
payoff of Nationsbank of Texas, N.A. of amounts owing by Seller and all
executed termination statements and releases required by Buyer in
connection with the termination and release of any and all liens and
security interests currently held by Nationsbank of Texas, N.A. with
respect to any of the Assets.
(13) such other agreements, documents and/or instruments,
including such specific assignments, bills of sale and other instruments
of conveyance and transfer, in form and substance acceptable to Buyer,
Seller and their respective counsel, as may be necessary to transfer,
convey and deliver the Assets from Seller to Buyer and to vest in Buyer
title thereto free and clear of all liens, claims and encumbrances;
(14) all other documents required to be executed and delivered
by Seller pursuant to this Agreement; and
(15) perform all other obligations required to be performed at
Closing by Seller pursuant to this Agreement.
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3.3 ACTIONS TAKEN AT CLOSING BY BUYER. At the Closing, Buyer shall
take the following actions, all of which shall constitute conditions precedent
to Seller's obligations to close hereunder:
(a) execute and deliver to Seller the following:
(1) the Lease Assignments; and
(2) the Assumption Agreement.
(b) deliver to Seller the following:
(1) true, correct and complete copies of Buyer's Articles of
Incorporation and all amendments thereto, duly certified as of a recent
date by the Secretary of State of Texas;
(2) certificate(s) of the Secretary of State of Texas, dated as
of a recent date, duly certifying as to the existence and good standing
of Buyer as a corporation under the laws of the State of Texas;
(3) a certificate duly executed by the Secretary or Assistant
Secretary of Buyer pursuant to which such officer shall certify (i) the
due adoption by the Board of Directors of Buyer of corporate resolutions
attached to such certificate authorizing the execution and delivery of
this Agreement and the other agreements and documents contemplated hereby
and the taking of all actions contemplated hereby and thereby, (ii) the
incumbency and true signatures of those officers of Buyer duly authorized
to act on its behalf, in connection with the Transaction and this
Agreement and to execute and deliver this Agreement and the other
agreements and documents contemplated hereby on behalf of Buyer, and
(iii) that the copy of the Bylaws of Buyer attached to such certificate
is true and correct and such Bylaws have not been amended except as
reflected in such copy;
(4) the certificate of Buyer required by SECTION 10.1 and
SECTION 10.2;
(5) cause Train to enter into the Employment Agreement;
(6) documentation evidencing the simultaneous transfer of the
Business and Assets to Train effective as of the Closing;
(7) all other documents required to be executed and delivered
by Buyer pursuant to this Agreement; and
(8) perform all other obligations required to be performed at
Closing by Buyer pursuant to this Agreement.
3.4 EFFECTIVE DATE. Upon the Closing of the transactions contemplated
herein, the exchange and transfer of the Assets and the assumption of the
Assumed Liabilities shall be deemed to have occurred and shall be effective for
accounting and tax purposes as of 12:01 a.m. on June 1,
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1998 (the "EFFECTIVE DATE"); provided that this provision is not intended to
modify any of the representations, warranties, covenants or undertakings given
by any party hereto which relate to the Closing Date.
ARTICLE 4
PERSONNEL AND EMPLOYEE BENEFITS
4.1 PERSONNEL. Buyer may, after the Closing, offer employment on a
temporary or permanent basis to the employees of Seller other than Christine
Ploof (collectively, the "EMPLOYEES"). Seller shall encourage all Employees
offered employment by Buyer to accept employment with Buyer and Seller shall
not, directly or indirectly, solicit the employment of, or seek to retain the
services of, any such Employees without the prior written consent of Buyer.
4.2 EMPLOYEE BENEFITS. Buyer expressly is not required to assume,
adopt or accept any other employee benefit plan, contract, practice, program,
policy or arrangement of any kind of Seller, including, without limitation, any
stock option, bonus, compensation, retirement, profit sharing, vacation,
medical, disability benefit, life insurance or severance pay plan, contract,
practice, program, policy or arrangement and shall have no liability whatsoever
under any such employee benefit plan, contract, practice, program, policy or
arrangement.
ARTICLE 5
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer as follows:
5.1 ORGANIZATION AND STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas, such being the only jurisdiction where Seller conducts business or owns
property.
5.2 AUTHORITY. Seller has full power and authority to own and lease
the Assets and to conduct the Business as it is now being conducted, and to
execute and deliver this Agreement and the other agreements and documents
contemplated hereby and to carry out the terms and obligations hereof and
thereof. Seller has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the other agreements
and documents contemplated hereby.
5.3 EXECUTION AND DELIVERY. This Agreement has been, and the other
agreements and documents contemplated hereby have been or at Closing will be,
duly executed by Seller and each constitutes the valid and binding obligation of
Seller, enforceable in accordance with their respective terms and conditions,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws and judicial decisions affecting the rights of
creditors generally, and by general principles of equity (whether applied in a
proceeding at law or in equity).
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5.4 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. Seller is not in
violation of or default under, and the execution and delivery of this Agreement
and the other agreements and documents contemplated hereby by Seller will not
violate or be in conflict with or result in the creation or imposition of any
lien, charge or encumbrance under (a) any material provision of any Assumed
Contract or any other contract or agreement to which Seller is a party or by
which any of the Assets are bound, (b) any provision of the charter or Bylaws of
Seller, (c) any federal, state or local law, statute, regulation or ordinance
applicable to the Business or any of the Assets, or (d) any provision of the
Seller's permits or licenses affecting or relating to the Assets or the
Business. To the best of Seller's knowledge, Seller is in compliance in all
material respects with all federal, state or local laws, statutes, regulations
or ordinances governing or applicable to the Business or the Assets.
5.5 CONSENTS. Except for the consents specified in SCHEDULE 5.5
hereto (all of which have been obtained or will have been obtained prior to
Closing), no approval, consent, authorization or action of or filing with any
governmental body or other third party is required on the part of Seller in
connection with (a) the execution, delivery or performance by Seller of this
Agreement or the other agreements and documents contemplated hereby or (b) the
consummation by Seller of the Transaction, including, without limitation, the
assumption by Buyer of the Assumed Contracts.
5.6 ASSETS; TITLE TO ASSETS; LIENS. Except for the Excluded Assets
described in SECTION 1.3, the Assets described in CLAUSES (A) through (L) of
SECTION 1.2 hereof are the only assets, properties, rights and interests used by
the Seller in connection with the Business. The Assets to be conveyed to Buyer
under this Agreement constitute all of the assets, properties, rights and
interests necessary to conduct the Business in substantially the same manner as
conducted by Seller prior to the Closing Date. Except with respect to the
Excluded Assets described in SECTION 1.3, no officer, director, shareholder or
employee of Seller has retained any material interest in any property, real or
personal, tangible or intangible, used or pertaining to Business of Seller.
Seller has good and marketable title to all of the Assets, free and clear of any
mortgages, liens, security interests, pledges, claims and other encumbrances of
any kind or nature whatsoever (collectively, the "LIENS"), except for those
permitted encumbrances described on SCHEDULE 5.6 hereto. Except as described in
SCHEDULE 5.6 hereto, no mortgage, financing statement or similar document that
names Seller as debtor and that covers any of the Assets is on file in any
jurisdiction and Seller has not signed any presently effective security
agreement authorizing any secured party thereunder to file any such financing
statement. The execution, delivery and performance of this Agreement by Seller
will not result in the creation or imposition of any Lien on any of the Assets.
5.7 CONDITION OF ASSETS. The Equipment (other than obsolete equipment
that is neither being used in the Business nor necessary for the conduct of the
Business consistent with past practices): (a) has been properly maintained and
is in good operating condition (except for ordinary wear and tear, which in the
aggregate will not have a material adverse effect on the Business), (b) is
capable of being used in the Business as presently being conducted without
present need for repair or replacement except in the ordinary course of the
Business, and (c) conforms in all material respects with all applicable legal
requirements.
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5.8 PERMITS. Seller possesses all the permits and licenses necessary
to own, operate, use and maintain the Assets in the manner in which they are now
being maintained and operated and to conduct the Business as now being
conducted. Such permits and licenses are either (a) assignable to Buyer without
the consent or approval of any governmental body or third party or (b) of such a
ministerial nature that suitable replacements will be readily obtainable by
Buyer in due course upon proper application therefor without Buyer incurring any
material cost or expense. Seller is in compliance in all material respects with
the terms of such permits and licenses.
5.9 CHANGES. Except as described in SCHEDULE 5.13 hereto, since May
31, 1998, (a) to Seller's actual knowledge, with respect to the Assets and the
Business there has been no material adverse change nor any event or condition
that has had, or has a reasonable possibility of having in the future, a
material adverse change; (b) the Business has been conducted only in the
ordinary course and, except as previously disclosed to Buyer in writing, in
substantially the same manner in which it had been previously conducted;
(c) Seller has not entered into any transactions whatsoever (except this
Agreement) with respect to the Assets or the conduct of the Business other than
in the ordinary course of the Business; (d) Seller has not sold, leased,
mortgaged, pledged or subjected to any lien, security interest or other charge
or otherwise encumbered or disposed of any of the Assets other than in the
ordinary course of the Business; (e) the Assets have been maintained and
repaired in the usual and ordinary course and operated in a good and workmanlike
and prudent manner consistent with past practices; (f) Seller has not waived any
material rights or forgiven any material claims constituting or which would
constitute an Asset; and (g) to the best of Seller's knowledge, Seller has
complied in all respects with all applicable legal requirements.
5.10 ASSUMED CONTRACTS. Seller has previously delivered or made
available to Buyer true, correct and complete copies of all of the Assumed
Contracts described in SCHEDULE 1.2(C). SCHEDULE 1.2(C) contains a complete and
accurate list of all contracts to which Seller is a party and which in any way
relate to the operations or properties of the Business or which are or will be
binding upon the Business or the Assets. All of the Assumed Contracts are valid
and in full force and effect and neither Seller nor, to the best of Seller's
knowledge, any other party to the Assumed Contracts has breached any material
provision of, is in violation or in default in any material respect under the
terms of, and no event has occurred that, with the lapse of time or action by a
third party or both, would result in a violation or a default in any material
respect under the terms of, or in acceleration of any payments due under, any
Assumed Contract.
5.11 REAL PROPERTY LEASES. Seller has heretofore delivered to Buyer
correct and complete copies of the Real Property Leases and all amendments
thereto. Neither Seller nor, to the best of Seller's knowledge, the landlord
under any such lease has breached any material provision of or is in violation
or in default in any material respect under the terms of such lease. Seller
enjoys peaceful and undisturbed possession under each of the Real Property
Leases, and each such lease is valid and subsisting and in full force and
effect. Seller has not received any written notice from the landlord under any
of the Real Property Leases that there exists an event or condition that has not
since been cured or waived and that, with or without the passage of time or the
giving of notice or both, would constitute after the date hereof a default under
such lease.
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5.12 TAXES.
(a) Seller has filed all federal, state and other tax reports
or returns required by applicable legal requirements to be filed by it in
connection with the Assets or the Business and has either discharged or caused
to be discharged, as the same have become due, all taxes attributable or
relating to the Assets or the Business for any period or periods ending on or
before the Closing Date.
(b) All such tax reports or returns fairly reflect the taxes of
Seller for the periods covered thereby. To Seller's actual knowledge, Seller is
not delinquent in the payment of any tax, assessment or governmental charge,
there is no tax deficiency or delinquency asserted against Seller and there is
no unpaid assessment, proposal for additional taxes, deficiency or delinquency
in the payment of any of the taxes of Seller that could be asserted by any
taxing authority. No Internal Revenue Service audit of Seller is pending or
threatened, and the results of any completed audits are properly reflected in
the Financial Statements (as defined in SECTION 5.16). Seller has not granted
any extension to any taxing authority of the limitation period during which any
tax liability may be asserted. Seller has not committed any violation of any
federal, state, local or foreign tax laws. All monies required to be withheld
by Seller from Employees or collected from customers for income taxes, social
security and unemployment insurance taxes and sales, excise and use taxes, and
the portion of any such taxes to be paid by Seller to governmental agencies or
set aside in accounts for such purpose have been so paid or set aside, or such
monies have been approved, reserved against and entered upon the books of
Seller.
5.13 LITIGATION. Except as disclosed on SCHEDULE 5.13 hereto, no legal
action, suit or proceeding, judicial or administrative, or governmental
investigation is to the knowledge of Seller pending or threatened against Seller
or any of the Assets that (a) if adversely determined, has a reasonable
possibility of causing in the future a material adverse effect on the Business
or the Assets or (b) questions or might question the validity of this Agreement
or any actions taken or to be taken by Seller pursuant hereto or seeks to enjoin
or otherwise restrain the Transaction. Seller does not know of any basis for
any such action, suit, proceeding or investigation. Except as disclosed on
SCHEDULE 5.13 hereto, there are no orders, decrees or judgments of any court or
governmental body against Seller (i) that remain undischarged or otherwise are
in effect and that interfere in any respect with, or impose a burden on, the
Business or the operation or use of the Assets in the ordinary conduct of the
Business or (ii) with respect to which Seller is in default.
5.14 GROUP HEALTH PLANS. With respect to Seller's "group health
plan(s)" (as defined in section 4980B(g)(2) of the Internal Revenue Code of
1986, as amended (the "CODE")), if any, except as set forth in SCHEDULE 5.14:
(a) Seller has complied in all material respects with the
continuation health care coverage requirements of section 4980B of the Code, as
such requirements apply with respect to any Employee (or prior employee of
Seller) or any "qualified beneficiary" of such employee (as defined in section
4980B(g)(1) of the Code) on or prior to (i) the Closing Date.
(b) Except as has been previously disclosed to Buyer, Seller
has no present intention of terminating any group health plan(s) that Seller
currently maintains.
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(c) Seller is solely responsible for complying with the
requirements of Section 4980B of the Code with respect to each Employee (and any
qualified beneficiary of such Employee), who does not become an employee of the
Buyer effective immediately after the Closing Date, it being the intention of
the parties that any group health plan(s) maintained by Buyer shall not
constitute a successor plan(s) to the Seller's group health plan(s), and that
Buyer is not a successor employer with respect to Seller's group health plan(s),
nor is Seller a predecessor employer with respect to Buyer's group health
plan(s).
5.15 ERISA. Seller has met its minimum funding requirements under the
Employee Retirement Income Security Act of 1974, as amended, including any rules
and regulations promulgated thereunder ("ERISA"), with respect to all employee
benefit or other plans maintained for employees of Seller, and Seller has not
incurred, nor does Seller know of any basis for, any liability to the Pension
Benefit Guaranty Corporation in connection with any such plan.
5.16 FINANCIAL INFORMATION. The unaudited financial statements of
Seller set forth in SCHEDULE 5.16 hereto (the "FINANCIAL STATEMENTS") were
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP") (other than deviations from GAAP which could not
reasonably be expected to result in material changes to the Financial Statements
if such statements were prepared in accordance with GAAP) and are true, correct
and complete, and present fairly the financial position of Seller as of the
dates indicated and the results of its operations for the periods specified.
The Financial Statements consist of (a) the unaudited balance sheet of Seller as
of May 31, 1998, and (b) the unaudited income statement of Seller for the five
(5) month period ended on that date. The unaudited balance sheets contained in
the Financial Statements are sometimes referred to herein as the "BALANCE
SHEETS." Except as otherwise disclosed in this Agreement or SCHEDULE 5.16
hereto, the Financial Statements reflect all liabilities of Seller, accrued,
contingent, or otherwise (known or unknown, asserted or unasserted), arising out
of transactions effected or events occurring on or prior to the Closing. Except
as set forth in the Financial Statements or as otherwise disclosed in this
Agreement or SCHEDULE 5.16 hereto, Seller is not liable upon or with respect to,
or obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity, and
Seller knows of no basis for the assertion of any other claims or liabilities of
any nature or in any amount.
5.17 ACCOUNTS PAYABLE. Attached hereto as SCHEDULE 5.17 is a complete
and accurate list of all accounts payable of the Business as of May 31, 1998,
showing the name of each account creditor and the amount due to each by invoice
number and date.
5.18 BOOKS OF ACCOUNT. The books of account of Seller have been kept
accurately in the ordinary course of the Business, the transactions entered
therein represent bona fide transactions and the revenues, expenses, assets and
liabilities of Seller have been properly recorded in such books.
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5.19 ENVIRONMENTAL MATTERS; OSHA COMPLIANCE.
(a) Except as described on SCHEDULE 5.19 attached hereto and
except where all of the matters referred to in any of the clauses (i) through
(iv) below in the aggregate could not reasonably be expected to have a material
adverse effect on Seller or the Business or the Assets:
(1) Seller and all of its properties, assets and operations are
in full compliance with all federal, state and local laws, regulations
and requirements pertaining to health, safety or the environment,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Occupational Safety and Health Act, the Clean
Air Act, the Clean Water Act, the Toxic Substances Control Act, and all
amendments thereto, and all similar laws, regulations and requirements of
any governmental authority or agency having jurisdiction over Seller or
any of its properties or assets (collectively, "ENVIRONMENTAL LAWS").
Seller is not aware of and has not received any notice of any past,
present or future conditions, events, activities, practices or incidents
that may interfere with or prevent the compliance or continued compliance
of Seller with any or all Environmental Laws.
(2) Seller has obtained all permits, licenses and
authorizations that are required under Environmental Laws.
(3) No Hazardous Substances (as defined below) exist on, about
or within, or have been used, generated, stored or disposed of on, or
released from any of the properties or assets of Seller other than in
compliance with Environmental Laws, or transported from any of such
properties or assets unless by a duly authorized or licensed disposal
firm, and Seller has retained all documentation required by Environmental
Laws relating to such disposal. For the purposes of this Agreement, the
term "HAZARDOUS SUBSTANCES" shall include any substance, product, waste,
pollutant, material, chemical, contaminant, constituent or other material
that is listed, regulated or addressed under any Environmental Law,
including, without limitation, asbestos, petroleum and polychlorinated
biphenyls. The use that Seller makes of its properties and assets will
not result in the use, generation, storage, transportation, accumulation,
disposal or release of any Hazardous Substance on, in or from any such
properties or assets other than in compliance with Environmental Laws.
(4) There is no action, suit, proceeding, investigation or
inquiry before any court, administrative agency or other governmental
authority pending or, to the knowledge of Seller, threatened against
Seller relating in any way to any Environmental Law. Seller (A) has no
liability for remedial action under any Environmental Law, (B) has not
received any request for information by any governmental or regulatory
authority with respect to the condition, use or operation of any of its
properties or assets and (C) has not received any notice from any
governmental or regulatory authority or other person or entity with
respect to any violation of or liability under any Environmental Law.
(b) To the best of Seller's knowledge, no lien or encumbrance
arising under any Environmental Law has attached to any of the properties or
assets of the Seller.
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5.20 PATENTS, TRADEMARKS AND COPYRIGHTS.
(a) Seller owns all patents, trademarks, service marks and
copyrights, if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others. Set forth on SCHEDULE 5.20 hereto is a true and correct description of
the following ("Proprietary Rights"):
(1) All trademarks, trade names, service marks and other trade
designations, including common-law rights, registrations and applications
therefor, and all patents, copyrights and applications currently owned,
in whole or in part, by Seller, and all licenses, royalties, assignments
and other similar agreements relating to the foregoing to which Seller is
a party (including expiration dates if applicable); and
(2) All agreements relating to technology, know-how or
processes that Seller is licensed or authorized to use by others, or
which it licenses or authorizes others to use.
(b) Seller has the sole and exclusive right to use the
Proprietary Rights identified in SCHEDULE 5.20 without infringing or violating
the rights of any third parties. No consent of third parties will be required
for the use thereof by Buyer upon consummation of the transactions contemplated
by this Agreement. No claim has been asserted by any person to the ownership of
or right to use any Proprietary Right or challenging or questioning the validity
or effectiveness of any such license or agreement, and Seller does not know of
any valid basis for any such claim. Each of the Proprietary Rights is valid and
subsisting, has not been canceled, abandoned or otherwise terminated and, if
applicable, has been duly issued or filed.
(c) Seller has no knowledge of any claim that, or inquiry as to
whether, any product, activity or operation of Seller infringes upon or
involves, or has resulted in the infringement of, any Proprietary Right of any
other person, corporation or other entity; and no proceedings have been
instituted, are pending or, to the best of the knowledge of Seller, are
threatened which challenge the rights of Seller with respect thereto. Seller
has not given nor is Seller bound by any agreement of indemnification for any
Proprietary Right as to any property manufactured, used or sold by Seller.
5.21 DISCLOSURE. No representation or warranty by Seller in this
Agreement, and no statement respecting Seller contained in any other agreement
or document contemplated hereby, contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary to
make the statements herein or therein, in light of the circumstances under which
it was or will be made, not misleading. Except as disclosed herein, there is no
matter that materially adversely affects or to the knowledge of Seller will in
the future materially adversely affect the Business or the Assets other than
general economic conditions.
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ARTICLE 6
BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as follows:
6.1 ORGANIZATION AND STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas.
6.2 AUTHORITY. Buyer has full power and authority (corporate and
otherwise) to conduct its business as now being conducted and to execute and
deliver this Agreement and all of the other agreements and documents
contemplated hereby and to carry out the terms and obligations hereof and
thereof. Buyer has taken all corporate action necessary to authorize the
execution, delivery and performance of this Agreement and all of the other
agreements and documents contemplated hereby.
6.3 EXECUTION AND DELIVERY. This Agreement has been, and the other
agreements and documents contemplated hereby at Closing will be, duly
executed by Buyer and each constitutes the valid and binding obligation of
Buyer, enforceable in accordance with their respective terms and conditions,
except as such enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws and judicial decisions affecting the rights of
creditors generally, and by general principles of equity (whether applied in
a proceeding at law or in equity).
6.4 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. Buyer is not in
violation of or default under, and the execution, delivery and performance of
this Agreement will not violate or be in conflict with (a) any material
provision of any contract or other agreement to which Buyer is a party or by
which any of its assets are bound; (b) any provision of the charter or Bylaws
of Buyer; (c) any federal, state or local law, statute, regulation or
ordinance applicable to the business or any of the assets of Buyer; or (d)
any of Buyer's permits or licenses affecting or relating to its assets or
business. To the best of Buyer's knowledge, Buyer is in compliance with all
federal, state or local law, statute, regulation or ordinance governing or
applicable to its business or assets.
6.5 LITIGATION. No legal action, suit or proceeding or judicial,
administrative or governmental investigation is pending or, to the knowledge
of Buyer, threatened against Buyer that questions or might question the
validity of this Agreement or any actions taken or to be taken by Buyer
pursuant hereto or seeks to enjoin or otherwise restrain the Transaction.
6.6 CONSENTS. No approval, consent, authorization or action of or
filing with, any governmental body or other third party is required on the
part of Buyer in connection with (a) the execution, delivery or performance
by Buyer of this Agreement and the other agreements and documents
contemplated hereby or (b) the consummation by Buyer of the Transaction,
including, without limitation, the assumption by Buyer of the Assumed
Contracts.
6.7 DISCLOSURE. No representation or warranty by Buyer in this
Agreement, and no statement respecting Buyer contained in any other agreement
or document contemplated hereby, contains or will contain any untrue
statement of material fact or omits or will omit to state any
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material fact necessary to make the statements herein or therein, in light of
the circumstances under which it was or will be made, not misleading.
ARTICLE 7
BUYER'S COVENANTS
Buyer agrees that, subsequent to the execution of this Agreement, on
or prior to the Closing:
7.1 CONSUMMATION OF TRANSACTION. Buyer agrees to use all
reasonable efforts to cause the consummation of the Transaction in accordance
with the terms and conditions of this Agreement.
7.2 TRANSFER OF BUSINESS AND ASSETS. On the Closing Date, Buyer
shall have taken all steps reasonably necessary to ensure that the Business
and Assets acquired pursuant to the terms of this Agreement shall be
transferred to Train simultaneously with the Closing.
7.3 NO DISCLOSURE OR NEGOTIATION WITH OTHERS. Buyer shall prevent
the disclosure to the public or any third party of any of the terms or
conditions hereof without the prior written consent of Seller (except as
otherwise required by applicable law).
ARTICLE 8
SELLER'S COVENANTS
Seller agrees that, subsequent to the execution of this Agreement, on
or prior to the Closing:
8.1 CONSUMMATION OF TRANSACTION. Seller agrees to use all
reasonable efforts to cause the consummation of the Transaction in accordance
with the terms and conditions of this Agreement.
8.2 BUSINESS OPERATIONS. Seller shall operate the Business only in
the ordinary course and will not, without the prior written consent of Buyer,
introduce any new method of management of operation and Seller shall use all
reasonable efforts to preserve the Business intact and to retain its present
customers and suppliers. Seller shall not take any action that might
reasonably be expected to have a material adverse effect on the Business or
the Assets without the prior written consent of Buyer or take or fail to take
any action that would cause or permit the representations made in ARTICLE 5
hereof to be inaccurate at the time of Closing or preclude Seller from making
such representations and warranties at the Closing.
8.3 ACCESS. Upon reasonable prior notice, Seller shall permit
Buyer and its authorized representatives reasonable access during normal
business hours to, and make available for inspection, all of the Assets and
Business of Seller, and furnish Buyer all documents, records and information,
including, but not limited to, financial statements, projections and customer
lists, solely with respect to the Business and Assets as Buyer and its
representatives may reasonably request, all for the sole purpose of
permitting Buyer to become familiar with the Business and Assets of Seller.
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8.4 MATERIAL CHANGE. Prior to the Closing, Seller shall promptly
inform Buyer in writing of any material adverse change to the Business or the
Assets, including, without limitation, the updating of any schedules hereto.
Notwithstanding the disclosure to Buyer of any such material adverse change,
Seller shall not be relieved of any liability to Buyer pursuant to this
Agreement for, nor shall the providing of such information by Seller to Buyer
be deemed a waiver by Buyer of, the breach of any representation or warranty
of Seller contained in this Agreement.
8.5 APPROVALS OF THIRD PARTIES. As soon as practicable after the
execution of this Agreement, Seller will use its reasonable good faith
efforts to secure all necessary approvals and consents of third parties,
including, but not limited to, those consents listed on SCHEDULE 5.5 hereto
and consents to the Lease Assignments necessary for the consummation of the
Transaction.
8.6 CONTRACTS. Except with Buyer's prior written consent, Seller
shall not waive any material right or cancel any material contract, debt or
claim that constitutes an Asset or which would constitute an Asset.
8.7 LIENS. Except with Buyer's prior written consent, Seller shall
not permit any new Lien to attach to any of the Assets, whether now owned or
hereafter acquired.
8.8 MATERIAL CONTRACTS. Seller shall not, without the consent of
Buyer, incur any obligation outside of the ordinary course of business; make
any purchases outside of the ordinary course of business in the aggregate;
increase the compensation paid or payable to any officer, director, employee
or agent of Seller; or otherwise take any action outside the ordinary course
of business.
8.9 NO DISCLOSURE OR NEGOTIATION WITH OTHERS.
(a) Seller shall prevent the disclosure to the public or any
third party of any of the terms or conditions hereof without the prior
written consent of Buyer (except as otherwise required by applicable law),
and as long as this Agreement shall remain effective, neither Seller, nor any
officer, director, shareholder, Employee or agent of Seller will negotiate
with any other person with respect to the sale of the Business or any portion
thereof or solicit any interest of any other person with respect to such sale.
(b) Seller will not, and will use its best efforts to cause
its officers, directors, employees, agents and stockholders not to, solicit
or encourage, directly or indirectly, in any manner, any discussion with, or
furnish or cause to be furnished any information to, any third party in
connection with, or negotiate for or otherwise pursue, the sale of the common
stock of the Seller, all or substantially all of the assets of the Seller or
any portion or all of its Business, or any business, or any business
combination or merger of the Seller with any other third party. The Seller
will promptly inform Buyer of any inquiries or proposals with respect to any
of the matters set forth in this SECTION 8.9.
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8.10 NAME CHANGE. As soon as practicable after the execution of
this Agreement, Seller will take all action required by applicable law to
effect an abandonment of the name "Alliance Training Center," effective as of
the Closing Date and to transfer such name to Buyer.
8.11 INSURANCE. Seller shall assist Buyer in making arrangements to
obtain insurance with respect to the Business and Assets substantially
identical to the insurance currently held by Seller.
ARTICLE 9
BUYER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Buyer, the obligations of Buyer
hereunder are subject to the fulfillment at or prior to the Closing of each
of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained herein shall be true and correct as of the
Closing Date with the same force and effect as if such representations and
warranties had made on and as of the Closing Date, except (a) with respect to
those representations and warranties specifically made as of an earlier date
(in which case such representations and warranties shall be true as of such
earlier date) and (b) for changes that occur after the date hereof that are
expressly permitted by the terms of this Agreement or in writing by Buyer,
and at Closing, Seller shall certify to that effect.
9.2 COVENANTS. Seller shall have performed and complied in all
material respects with all covenants or conditions required by this Agreement
to be performed and complied with by it prior to the Closing, and at Closing,
Seller shall certify to that effect.
9.3 ACTIONS AT CLOSING. Seller shall have taken all actions
required of it pursuant to SECTION 3.2 of this Agreement.
9.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing or
otherwise, asserted, instituted or entered to restrain or prohibit the
carrying out of the Transaction.
9.5 NO MATERIAL ADVERSE CHANGE. No material adverse change to the
Business or the Assets shall have occurred, or an event which with the
passage of time might result in such material adverse change, after the date
hereof and prior to the Closing.
ARTICLE 10
SELLER'S CONDITIONS PRECEDENT
Except as may be waived in writing by Seller, the obligations of
Seller hereunder are subject to fulfillment at or prior to the Closing of
each of the following conditions:
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10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained herein shall be true and correct as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date, except (a) with
respect to those representations and warranties specifically made as of an
earlier date (in which case such representations and warranties shall be true
as of such earlier date) and (b) for changes that occur after the date hereof
that are expressly permitted by the terms of this Agreement or by Seller, and
at Closing, Buyer will certify to that effect.
10.2 COVENANTS. Buyer shall have performed and complied in all
material respects with all covenants or conditions required by this Agreement
to be performed and complied with by it prior to the Closing, and at Closing,
Buyer shall certify to that effect.
10.3 ACTIONS AT CLOSING. Buyer shall have taken all actions
required of it pursuant to SECTION 3.3 of this Agreement.
10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
Transactions.
ARTICLE 11
ASSUMED OBLIGATIONS
At Closing, Buyer agrees to assume Seller's obligations (a) under the
Assumed Contracts listed on SCHEDULE 1.2(c), (b) under the Real Property
Leases, as provided in the Lease Assignments, and (c) under the Assumed
Liabilities listed on SCHEDULE 2.1 and only such obligations. Anything in
this Agreement or elsewhere to the contrary notwithstanding, in no event
shall Buyer be required to assume or in any way become responsible or liable
for, or be deemed to have assumed or become liable or responsible for, any
duty, obligation, debt or liability of Seller, whether or not related to the
Business or the Assets, except as specifically provided herein and in the
Lease Assignments, or otherwise expressly assumed in writing by Buyer; it
being expressly acknowledged that it is the intention of the parties hereto
that all duties, obligations, debts and liabilities of Seller (other than
obligations expressly assumed by Buyer herein, in the Assumption, or in the
Lease Assignments) shall be and remain solely the duties, obligations, debts
and liabilities of Seller. Specifically, and without implied limitation of
the foregoing, Buyer shall not assume or agree to pay, perform or discharge
any liabilities or obligations of Seller, whether accrued, absolute,
contingent or otherwise, based on or arising out of or in connection with (i)
any defects in products sold, rented or distributed by Seller prior to the
Closing, (ii) any implied or express warranties relating to such products, or
(iii) any bulk sales or bulk transfer laws (it being the intent of the
parties that Seller shall be liable for all such liabilities and obligations
regardless of whether such liabilities and obligations are initially the
liabilities and obligations of Seller or Buyer).
ARTICLE 12
ACCESS AND INFORMATION AFTER CLOSING
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For the time period of two years following the Closing, Buyer shall
give Seller reasonable access, including the right to make copies thereof,
during normal business hours to the books and records described in SECTION
1.2(e), the originals of which have been transferred to Buyer. Buyer shall
keep such books and records in accordance with its normal document retention
practices. In the event Buyer wishes to destroy any of such books and
records within five (5) years after the Closing Date, it shall first give 45
days' prior written notice to Seller, and Seller shall thereupon have the
right, at its option, upon prior written notice to Buyer within such 45-day
period, to take possession of said books and records within 30 days after the
date of Seller's notice to Buyer.
ARTICLE 13
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND OBLIGATIONS; INDEMNIFICATION
13.1 SURVIVAL. The representations, warranties, obligations,
covenants, indemnities and agreements of Seller and Buyer contained in this
Agreement shall survive the Closing Date for a period of two (2) years. Said
representations, warranties, obligations, covenants, indemnities and
agreements shall not be affected by, and shall remain in full force and
effect notwithstanding, any investigation during such two-year period made by
or on behalf of any party hereto or any information any party may have with
respect thereto. If written notice of a claim has been given in good faith
prior to the expiration of the applicable representations and warranties by a
party in whose favor such representations and warranties have been made to
the party that made such representations and warranties, the relevant
representations and warranties shall survive as to such claim until the claim
has been finally resolved.
13.2 INDEMNIFICATION BY SELLER. Seller hereby agrees, effective as
of the Closing, to pay, and to indemnify, save and hold harmless Buyer, its
affiliates, and their respective officers, directors, stockholders and
employees from and against, any and all damages, liabilities, losses, claims,
deficiencies, penalties, interest, expenses, clean-up costs, fines,
assessments, charges and costs (including, without limitation, reasonable
attorneys' fees, costs of investigation and court costs) (collectively,
"LOSSES") imposed on, incurred by or asserted against such person or entity
(or any of them) in any way relating to or arising from or out of (a) any
liability, obligation, contract, debt, lien, litigation, dispute or
commitment of Seller, including, without limitation, any product liability or
breach of warranty claims relating to products sold by Seller or any
liability arising from any bulk sale or bulk transfer law, other than
obligations expressly assumed by Buyer herein or in the Lease Assignments,
the Assumed Liabilities or the Assumed Contracts; (b) any act or omission of
Seller prior to or at the Closing; (c) the use, ownership or operation of the
Assets or the conduct of the Business prior to or at the Closing; (d) the
breach of any covenant of Seller or the failure of Seller to perform any
obligation of Seller contained in this Agreement or in the other agreements
and documents contemplated hereby; (e) any inaccuracy in or breach of any
representation or warranty of Seller contained in this Agreement or any other
agreement or document contemplated hereby; (f) all tax liabilities of Seller,
other than (i) all real property taxes for the Leased Properties that are
attributable to periods subsequent to the Closing and for which the tenant is
responsible under the
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Real Property Leases, and (ii) all personal property taxes of Seller that are
attributable to periods subsequent to the Closing; (g) any failure to comply
with applicable bulk sales laws in connection with the Transaction and (h)
any liability to Employees or former employees of Seller or their
beneficiaries arising prior to or at the Closing Date from the employment or
severance of such Employees or former employees by Seller or their rights to
benefits under the Seller's group health or other employee benefit plans.
13.3 INDEMNIFICATION BY BUYER. Buyer hereby agrees, effective as of
the Closing, to pay, and to indemnify, save and hold harmless Seller and its
officers, managers, members and Employees from and against, any Losses
imposed, incurred by or asserted against such person or entity (or any of
them) in any way relating to or arising from or out of (a) the obligations
expressly assumed by Buyer hereunder or under the Assumed Contracts, the
Assumed Liabilities or under the Lease Assignments; (b) any act or omission
of Buyer after the Closing; (c) the use, ownership or operation of the Assets
or the conduct of the Business by Buyer after the Closing; (d) the breach of
any covenant of Buyer or the failure of Buyer to perform any obligation of
Buyer contained herein or in any other agreement or document contemplated
hereby; and (e) any inaccuracy in or breach of any representation or warranty
of Buyer under this Agreement or any other agreement or document contemplated
hereby.
13.4 NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an
indemnified party of notice of any claim, liability or expense to which the
indemnification obligations in this Agreement would apply, the indemnified
party shall give notice thereof in writing to the indemnifying party, but the
omission to so notify the indemnifying party promptly will not relieve the
indemnifying party from any liability except to the extent that the
indemnifying party shall have been prejudiced as a result of the failure or
delay in giving such notice. Such notice shall state the information then
available regarding the amount and nature of such claim, liability or expense
and shall specify the provision or provisions of this Agreement under which
the liability or obligation is asserted. If within twenty (20) days after
receiving such notice the indemnifying party gives written notice to the
indemnified party stating that: (a) it would be liable under the provisions
hereof for indemnity in the amount of such claim if such claim were
successful; and (b) that it disputes and intends to defend against such
claim, liability or expense at its own cost and expense, then counsel for the
defense shall be selected by the indemnifying party (subject to the consent
of the indemnified party which consent shall not be unreasonably withheld)
and the indemnified party shall not be required to make any payment with
respect to such claim, liability or expense as long as the indemnifying party
is conducting a good faith and diligent defense at its own expense; provided,
however, that the assumption of defense of any such matters by the
indemnifying party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification. The indemnifying
party shall have the right, with the consent of the indemnified party, which
consent shall not be unreasonably withheld, to settle all indemnifiable
matters related to the claims by third parties which are susceptible to being
settled provided its obligation to indemnify the indemnifying party therefor
will be fully satisfied. As reasonably requested by the indemnified party,
the indemnifying party shall keep the indemnified party apprised of the
status of the claim, liability or expense and any resulting suit, proceeding
or enforcement action, shall furnish the indemnified party with all documents
and information that the indemnified party shall reasonably request and shall
consult with the indemnified party prior to acting on major matters,
including settlement discussions.
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Notwithstanding anything herein stated to the contrary, the indemnified party
shall at all times have the right to fully participate in such defense at its
own expense directly or through counsel; provided, however, if the named
parties to the action or proceeding include both the indemnifying party and
the indemnified party and representation of both parties by the same counsel
would be inappropriate under applicable standards of professional conduct,
the expense of separate counsel for the indemnified party shall be paid by
the indemnifying party, provided, however, that the separate counsel selected
by the indemnified party shall be approved by the indemnifying party, which
approval shall not be unreasonably withheld. If no such notice of intent to
dispute and defend is given by the indemnifying party, or if such diligent
good faith defense is not being or ceases to be conducted, the indemnified
party shall, at the expense of the indemnifying party, undertake the defense
of (with counsel selected by the indemnified party), and shall have the right
to compromise or settle (exercising reasonable business judgment), such
claim, liability or expense. Provided however, before settling the
indemnified party shall first use reasonable efforts to obtain the consent to
that settlement from the indemnifying party, which consent shall not be
unreasonably withheld. After using reasonable efforts without success the
indemnified party may settle without the consent of the indemnifying party
without any prejudice to its claim for indemnity. If such claim, liability
or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
13.5 SET-OFF. Buyer shall have the right to set-off, upon written
notice to Seller, for any undisputed amounts payable by Seller to Buyer
pursuant to claims for indemnification hereunder against, (a) any amount at
any time payable by Buyer or any assignee of Buyer to Seller or any creditor
of Seller under or pursuant to this Agreement and/or any other agreements now
or hereafter entered into between Seller or any creditor of Seller and Buyer
or any assignee of Buyer, and (b) for any amounts owing to Christina Ploof
pursuant to the Employment Agreement.
ARTICLE 14
MISCELLANEOUS
14.1 NOTICES. Any and all notices, requests, instructions and other
communications required or permitted to be given under this Agreement after
the date hereof by any party hereto to any other party may be delivered
personally or by nationally recognized overnight courier service or sent by
mail or facsimile transmission, at the respective addresses or transmission
numbers set forth below and shall be effective (a) in the use of personal
delivery or facsimile transmission, when received; (b) in the case of mail,
upon the earlier of actual receipt or three (3) business days after deposit
in the United States Postal Service, first class certified or registered
mail, postage prepaid, return receipt requested; and (c) in the case of
nationally recognized overnight courier service, one (1) business day after
delivery to such courier service together with all appropriate fees or
charges for such delivery. The parties may change their respective addresses
and transmission numbers by written notice to all other parties, sent as
provided in this Section 14.1. All communications must be in writing and
addressed as follows:
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SELLER: JCAP, Inc., d/b/a Alliance Training Center
1401 North Central Expressway, Suite 370
Richardson, Texas 75080
Attention: Ms. Christine Ploof
WITH A COPY TO: Fischer & Sanger
5956 Sherry Lane, Suite 1204
Dallas, Texas 75225
Attention: Laurence S. Sanger, Esq.
AND: EBJ International Consultants, Inc.
7229 South Janmar Circle
Dallas, Texas 75230
Attention: Mr. Eugene B. Jacobson
BUYER: Diversified Corporate Resources, Inc.
12801 North Central Expressway, Suite 350
Dallas, Texas 75243
Attention: Mr. M. Ted Dillard, President
WITH A COPY TO: Train International, Inc.
12801 North Central Expressway, Suite 500
Dallas, Texas 75243
Attention: Mr. John Wilson, President
WITH A COPY TO: Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Mark D. Wigder, Esq.
14.2 FURTHER COOPERATION. The parties agree that they will, at any
time and from time to time after the Closing, upon request by the other and
without further consideration, do, perform, execute, acknowledge and deliver
all such further acts, deeds, assignments, assumptions, transfers,
conveyances, powers of attorney, certificates and assurances as may be
reasonably required in order to fully consummate the Transaction in
accordance with this Agreement or to carry out and perform any undertaking
made by the parties hereunder.
14.3 AMENDMENT. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by the party against
which enforcement of the amendment, modification or supplement is sought.
14.4 ASSIGNABILITY; BINDING EFFECT. Neither party shall assign this
Agreement, by operation of law or otherwise, in whole or in part, without the
prior written consent of the other
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party; PROVIDED, HOWEVER, Buyer shall have the right to assign this Agreement
to any subsidiary of Buyer, including, but not limited to, Train, without the
prior written consent of Seller. Any assignment made or attempted in
violation of this SECTION 14.4 shall be void and of no effect. This
Agreement shall be binding upon, and shall inure to the benefit of Seller and
Buyer and their respective successors and permitted assigns. Except as
expressly provided herein, this Agreement shall not be deemed to create or
confer any rights, benefits or interests in any other persons, except through
the parties hereto, nor shall anything in this Agreement act to relieve or
discharge the obligation or liability of any third party to any party to this
Agreement, nor shall any provision give any third party any right of
subrogation or action over or against any party to this Agreement.
14.5 EXHIBITS AND SCHEDULES. The exhibits and schedules to this
Agreement (and any appendices thereto) referred to in this Agreement and
attached hereto are and shall be incorporated herein and made a part hereof
for all purposes as though set forth herein verbatim.
14.6 SECTIONS AND ARTICLES. All sections and articles referred to
herein are sections and articles of this Agreement. Descriptive headings as
to the contents of particular articles and sections are for convenience only
and shall not control or affect the meaning or construction of any provision
of this Agreement.
14.7 ENTIRE AGREEMENT. This Agreement and the other agreements,
documents and instruments executed and delivered by the parties to each other
at the Closing constitute the full understanding of the parties, a complete
allocation of risks between them and a complete and exclusive statement of
the terms and conditions of their agreement relating to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
that may exist between the parties with respect thereto. Except as otherwise
specifically provided in this Agreement, no conditions, usage of trade,
course of dealing or performance, understanding or agreement purporting to
modify, vary, explain or supplement the terms or conditions of this Agreement
shall be binding unless hereafter or contemporaneously herewith made in
writing and signed by the party to be bound, and no modification shall be
effected by the acknowledgment or acceptance of documents containing terms or
conditions at variance with or in addition to those set forth in this
Agreement.
14.8 GENDER; PLURALS. Each use herein of the masculine, neuter or
feminine gender shall be deemed to include the other genders and each use
herein of the plural shall include the singular and vice versa, in each case
as the context requires or as it is otherwise appropriate.
14.9 EXPENSES. Seller shall pay all of its expenses and costs
(including, without limitation, all counsel fees and expenses), and Buyer
shall pay all of its expenses and costs (including, without limitation, all
counsel fees and expenses), in connection with this Agreement and the
consummation of the Transaction.
14.10 BROKERAGE FEES AND COMMISSIONS. Neither Seller, on one hand,
nor Buyer, on the other, shall have any responsibility or liability for any
fees, expenses or commissions payable to any agent, representative or broker
of the other.
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14.11 WAIVER. Any of the terms or conditions of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof.
Such action shall be evidenced by a signed written notice given in the manner
provided in SECTION 14.1 hereof. No party to this Agreement shall by any act
(except by a written instrument given pursuant to SECTION 14.1 hereof) be
deemed to have waived any right or remedy hereunder or to have acquiesced in
any breach of any of the terms and conditions hereof. No failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
by any party hereto shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by any party of any right or remedy on any one occasion
shall not be construed as a bar to any right or remedy that such party would
otherwise have on any future occasion or to any right or remedy that any
other party may have hereunder.
14.12 MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original, and all
counterparts hereof so executed by the parties hereto, whether or not such
counterpart shall bear the execution of each of the parties hereto, shall be
deemed to be, and shall be construed as, one and the same Agreement. A
telecopy or facsimile transmission of a signed counterpart of this Agreement
shall be sufficient to bind the party or parties whose signature(s) appear
thereon.
14.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS, WITHOUT REGARD
FOR THE PROVISIONS THEREOF REGARDING CHOICE OF LAW.
14.14 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
that the other party would be irreparably damaged and would not have an
adequate remedy at law for money damages in the event that any of the
covenants contained in this Agreement were not performed in accordance with
its terms or otherwise were materially breached. Each of the parties hereto
therefore agrees that, without the necessity of proving actual damages or
posting bond or other security, the other party shall be entitled to
temporary and/or permanent injunction or injunctions to prevent breaches of
such performance and to specific enforcement of such covenants in addition to
any other remedy to which it may be entitled, at law or in equity.
14.15 ATTORNEYS' FEES AND COSTS. In the event attorneys' fees or
other costs are incurred to enforce, through legal action, any of the
obligations herein provided for, or to establish damages for the breach
thereof, or to obtain any other appropriate relief, whether by way of
prosecution or defense, the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs incurred therein.
14.16 SEVERABILITY. In the event that any provision of this
Agreement is held to be illegal, invalid or unenforceable under present or
future laws, then (a) such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision were not a part hereof; (b) the remaining provisions
of this Agreement shall remain in full force and effect and shall not be
affected by such illegal, invalid or unenforceable provision or by its
severance from this Agreement; and (c) there shall be added automatically as
a part of this
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Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and still be legal, valid and
enforceable.
14.17 PUBLIC ANNOUNCEMENTS; DISCLOSURE. The parties shall mutually
review and approve the text and timing of any and all public or private
disclosures or announcements and press releases with respect to the
Transaction. Neither party shall have the right to make any disclosure of
this Agreement and related agreements or announcement without the prior
consent of the other, unless otherwise required by applicable legal
requirements, for purposes of consummating the Transaction, for financial
accounting purposes, or to enforce its rights under this Agreement.
14.18 ADVICE OF COUNSEL. Each of the undersigned has read this
Agreement, has had the opportunity to consult with legal counsel concerning
the matters contained herein, and has either obtained legal counsel with
respect to such matters and the execution of this Agreement, or has
voluntarily waived such right.
14.19 CONFIDENTIALITY.
(a) Except as may be required by law or court order, Buyer
agrees, and shall use its best efforts to cause its officers, directors,
employees, agents and stockholders, not to disclose or divulge any Seller
Confidential Information (as defined below), or any part thereof, to any
third party, and not to use the Seller Confidential Information, or any part
thereof, in any manner or for any purpose other than in determining its
interest in entering into the transactions contemplated by this Agreement.
(b) Except as may be required by law or court order, Seller
agrees, and shall use its best efforts to cause its officers, directors,
employees, agents and stockholders, not to disclose or divulge any Buyer
Confidential Information (as defined below), or any part thereof, to any
third party, and not to use the Buyer Confidential Information, or any part
thereof, in any manner or for any purpose other than in determining its
interest in entering into the transactions contemplated by this Agreement.
(c) As used in this Agreement, "SELLER CONFIDENTIAL
INFORMATION" means any and all information and compilations of data (in any
form whatsoever, tangible or intangible) relating in any way to Seller and
its business, assets and customers, including, without limitation, all
accounting, financial and business information, employment and personnel
information, contracts, marketing plans, price lists and information,
customer lists and information, and all other data and records which are or
may be used by or useful to Seller; PROVIDED, HOWEVER, Seller Confidential
Information does not include information that (i) is or becomes generally
available to the public other than by the Buyer; (ii) is lawfully obtained by
the Buyer from a third party; provided that the third party is not, to the
Buyer's knowledge, bound by a nondisclosure agreement with respect to the
information, or (iii) is subsequently developed by the Buyer from
independent sources.
(d) As used in this Agreement, "BUYER CONFIDENTIAL
INFORMATION" means any and all information and compilations of data (in any
form whatsoever, tangible or intangible) relating in any way to the Buyer or
its affiliates, and their respective businesses, assets and customers,
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including, without limitation, all accounting, financial and business
information, employment and personnel information, contracts, marketing
plans, price lists and information, customer lists and information, and all
other data and records which are or may be used by or useful to the Buyer or
its affiliates; PROVIDED, HOWEVER, Buyer Confidential Information does not
include information that (i) is or becomes generally available to the public
other than by the Seller; (ii) is lawfully obtained by the Seller from a
third party; provided that the third party is not, to the Seller's
knowledge, bound by a nondisclosure agreement with respect to the
information, or (iii) is subsequently developed by the Seller from
independent sources.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-28-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto effective as
of the date first hereinabove written.
SELLER: BUYER:
JCAP, INC., d/b/a ALLIANCE DIVERSIFIED CORPORATE
TRAINING CENTER, RESOURCES, INC.,
a Texas corporation a Texas corporation
By: By:
-------------------------- --------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
FOR PURPOSES OF SECTION 13.5
ONLY:
- -----------------------------
Christine Ploof
-29-
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT B
BILL OF SALE
<PAGE>
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE>
SCHEDULE 1.1(k)
INTANGIBLE ASSETS
<PAGE>
SCHEDULE 1.2(a)
REAL PROPERTY LEASES
<PAGE>
SCHEDULE 1.2(c)
ASSUMED CONTRACTS
<PAGE>
SCHEDULE 1.3
EXCLUDED ASSETS
<PAGE>
SCHEDULE 2.1
ASSUMED LIABILITIES
<PAGE>
SCHEDULE 5.5
CONSENTS
<PAGE>
SCHEDULE 5.6
PERMITTED ENCUMBRANCES
<PAGE>
SCHEDULE 5.13
LITIGATION
<PAGE>
SCHEDULE 5.14
EXCEPTIONS TO GROUP HEALTH PLANS
<PAGE>
SCHEDULE 5.16
UNAUDITED FINANCIAL STATEMENTS
<PAGE>
SCHEDULE 5.17
ACCOUNTS PAYABLE
<PAGE>
SCHEDULE 5.19
ENVIRONMENTAL MATTERS; OSHA COMPLIANCE
<PAGE>
SCHEDULE 5.20
PATENTS, TRADEMARKS AND COPYRIGHTS
<PAGE>
SCHEDULE 2.2
PURCHASE PRICE ALLOCATION
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C>
$ 20,000.00 Dallas , Texas June 22 A.D. 1998
------------- ------------------------------- -------------------------------- --
No later than Two Hundred Ninety Seven (297) days after date, for value received,
- ----------------------------------------------------------------------
I, we, or either of us, promise to pay to the order of Diversified Corporate Resources, Inc.
-----------------------------------------------
the sum of
- -------------------------------------------------------------------------------------------
Twenty Thousand and no/100 -------------------------------------------------------Dollars ($20,000.00)
- ------------------------------------------------------------------------------------------------------
with interest from the date to maturity at the rate of eight per cent (8%) per annum, payable at
----------- --
Dallas , Texas.
- ---------------
WE THE MAKERS, SURETIES, ENDORSERS, AND GUARANTORS OF THIS NOTE HEREBY SEVERALLY WAIVE
PRESENTATION FOR PAYMENT, NOTICE OF NON-PAYMENT, PROTEST AND NOTICE OF PROTEST AND DILIGENCE IN
BRINGING SUIT AGAINST ANY PARTY THERETO, AND CONSENT THAT THE TIME OF PAYMENT MAY BE EXTENDED WITHOUT
NOTICE FROM TIME TO TIME. IT IS FURTHER EXPRESSLY AGREED THAT IN THE EVENT THIS NOTE IS PLACED IN THE
HANDS OF AN ATTORNEY FOR COLLECTION, OR SUIT IS BROUGHT ON SAME, OR IF COLLECTED THROUGH BANKRUPTCY OR
PROBATE THEN, AND IN THAT EVENT, TO PAY THE ADDITIONAL AMOUNT OF FIFTEEN PER CENT (15%) ADDITIONAL ON
THE PRINCIPAL AND INTEREST THEN DUE AS ATTORNEY'S FEES.
See Note below.
The earlier of the date the bonus is
DUE: payable or April 15, 1999. J. Michael Moore
------------------------------------------ ------------------------------------------
ADDRESS: 12801 N. Central Expressway, Suite 350 /s/ J. Michael Moore
-------------------------------------- ------------------------------------------
Authorized & Witnessed by:
PHONE: (972) 458-8500 /s/ M. Ted Dillard, President
---------------------------------------- ------------------------------------------
M. Ted Dillard
- ------------------------------------------------------------------------------------------------------
</TABLE>
Note: The principal and all interest earned through date of repayment are to
be deducted from the net proceeds, after taxes, of the 1998 Diversified
Corporate Resources Executive Profit Bonus for fiscal year 1998, or, in lieu
of sufficient funds, will be repaid directly from the promissor.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 APR-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 6,836,345 6,836,345
<SECURITIES> 0 0
<RECEIVABLES> 6,021,894 6,021,894
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,370,156 13,370,156
<PP&E> 2,140,839 2,140,839
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 16,516,872 16,516,872
<CURRENT-LIABILITIES> 3,746,703 3,746,703
<BONDS> 120,361 120,361
0 0
0 0
<COMMON> 299,345 299,345
<OTHER-SE> 12,232,582 12,232,582
<TOTAL-LIABILITY-AND-EQUITY> 16,516,872 16,516,872
<SALES> 0 0
<TOTAL-REVENUES> 19,511,425 10,544,191
<CGS> 0 0
<TOTAL-COSTS> 18,247,696 9,740,946
<OTHER-EXPENSES> (169,734) (79,620)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,433,463 822,865
<INCOME-TAX> 505,705 331,861
<INCOME-CONTINUING> 927,758 551,004
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 927,758 551,004
<EPS-PRIMARY> .34 .20
<EPS-DILUTED> .32 .19
</TABLE>
