<PAGE>
UNITED STATES
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, 1999
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, 1999,
was 2,726,397.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
ASSETS: (Unaudited)
- ---------------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,165,952 $ 3,472,990
Trade accounts receivable, less allowance
for doubtful accounts of approximately
$688,000 and $734,000, respectively 7,379,357 6,780,639
Receivables from related parties 28,701 52,756
Prepaid expenses and other current assets 356,346 302,004
Federal income taxes receivable 133,974 48,094
Deferred income taxes 304,325 374,292
----------- -----------
TOTAL CURRENT ASSETS 11,368,655 11,030,775
PROPERTY AND EQUIPMENT, NET 3,303,924 3,114,908
OTHER ASSETS:
Intangibles, net 3,700,826 3,646,925
Investment in and advances to joint venture - 377,127
Deferred income taxes - 123,004
Other 323,642 149,439
----------- -----------
$18,697,047 $18,442,178
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
- -----------------------------------------------
CURRENT LIABILITIES:
Trade accounts payable and accrued expenses $ 3,449,348 $ 3,853,681
Current maturities of capital lease
obligations 24,032 43,824
Current maturities of long-term debt 691,007 665,169
----------- -----------
TOTAL CURRENT LIABILITIES 4,164,387 4,562,674
DEFERRED LEASE RENTS 74,163 59,522
LONG-TERM DEBT:
Capital lease obligations, net of current
maturities 16,469 23,766
Long-term debt, net of current maturities 1,227,487 1,178,924
Deferred income taxes 2,413 -
----------- -----------
TOTAL LONG-TERM DEBT 1,246,369 1,202,690
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, 3,249,946 and 3,177,446
shares issued, respectively 324,995 317,745
Additional paid-in capital 12,125,034 11,927,899
Retained earnings 2,370,378 1,936,736
Common stock held in treasury (523,549 and
483,549 shares, respectively), at cost (1,369,890) (1,349,865)
Receivables from related parties (238,389) (215,223)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 13,212,128 12,617,292
----------- -----------
$18,697,047 $18,442,178
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Service Revenues:
Permanent placement $ 6,734,969 $ 5,751,129 $13,216,272 $10,533,741
Specialty services 1,761,251 1,648,013 3,636,229 3,290,188
Contract placement 3,207,591 2,988,941 6,528,440 5,476,949
Training 395,009 156,108 782,238 210,547
----------- ----------- ----------- -----------
12,098,820 10,544,191 24,163,179 19,511,425
Cost of Services 8,718,427 7,269,208 17,173,463 13,632,471
----------- ----------- ----------- -----------
Gross Margin 3,380,393 3,274,983 6,989,716 5,878,954
----------- ----------- ----------- -----------
Selling, General and
Administrative Expenses:
Selling, general and
administrative expenses,
exclusive of depreciation and
amortization expense (2,987,783) (2,345,002) (5,697,480) (4,395,239)
Depreciation and amortization
expense (300,741) (126,736) (571,667) (219,986)
----------- ----------- ----------- -----------
(3,288,524) (2,471,738) (6,269,147) (4,615,225)
----------- ----------- ----------- -----------
Other Income (Expenses):
Loss from joint venture
operations - (12,586) - (26,209)
Interest income (expense), net (5,773) 92,187 (9,681) 189,924
Other, net - 19 - 6,019
----------- ----------- ----------- -----------
(5,773) 79,620 (9,681) 169,734
----------- ----------- ----------- -----------
Income Before Income Taxes 86,096 882,865 710,888 1,433,463
Income Tax Expense (35,777) (331,861) (277,246) (505,705)
----------- ----------- ----------- -----------
Net Income $ 50,319 $ 551,004 $ 433,642 $ 927,758
=========== =========== =========== ===========
Basic Earnings Per Share $ .02 $ .20 $ .16 $ .34
=========== =========== =========== ===========
Weighted Average Common
Shares Outstanding 2,732,166 2,747,597 2,744,157 2,743,968
=========== =========== =========== ===========
Diluted Earnings Per Share $ .02 $ .19 $ .16 $ .32
=========== =========== =========== ===========
Weighted Average Common and
Common Equivalent Shares
Outstanding 2,764,763 2,912,200 2,777,399 2,885,346
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 433,642 $ 927,758
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 571,667 219,986
Provision for allowances (46,097) 45,719
Income tax effect of options exercised 22,744 28,874
Equity in loss of joint venture - 26,209
Deferred income taxes 195,384 67,482
Deferred lease rents 14,641 20,187
Accretion of interest on deferred payment obligations 73,611 -
Changes in operating assets and liabilities:
Accounts receivable (331,397) (1,184,825)
Refundable federal income taxes (85,880) 201,436
Prepaid expenses and other assets (231,723) (143,153)
Trade accounts payable and accrued expenses (418,750) 37,391
Federal income taxes payable - 156,981
---------- ----------
Cash provided by operating activities 197,842 404,045
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (638,335) (869,163)
Business acquisition costs - (58,873)
Deposits (2,751) (32,915)
Loans and advances to related parties (23,166) (20,000)
Repayment from related parties 24,055 5,024
Net advances to joint venture - (107,805)
---------- ----------
Cash used in investing activities (640,197) (1,083,732)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock under stock options 181,641 22,500
Repurchase of treasury stock (20,025) -
Principal payments under long-term debt obligations (26,299) (6,656)
---------- ----------
Cash provided by financing activities 135,317 15,844
Decrease in cash and cash equivalents (307,038) (663,843)
Cash and cash equivalents at beginning of year 3,472,990 7,500,188
---------- ----------
Cash and cash equivalents at end of period $3,165,952 $6,836,345
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ - $ 3,915
========== ==========
Cash paid for taxes $ 257,077 $ 148,826
========== ==========
NON-CASH FINANCING ACTIVITY:
Receivable for exercise of stock options -
collected in April, 1998 $ - $ 22,500
========== ==========
</TABLE>
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, 1999 and 1998, 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, 1998, 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,
1999, are not necessarily indicative of the results that may be expected for the
entire year ending December 31, 1999.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Computer equipment and software $ 2,950,765 $ 2,466,334
Office equipment and furniture 1,525,859 1,457,109
Leasehold improvements 377,277 292,123
Less accumulated depreciation and amortization (1,549,977) (1,100,658)
----------- -----------
$ 3,303,924 $ 3,114,908
=========== ===========
</TABLE>
Depreciation and amortization expense of property and equipment for the three
months ended June 30, 1999 and 1998 was $240,374 and $125,683, respectively.
Depreciation and amortization expense of property and equipment for the six
months ended June 30, 1999 and 1998 was $449,319 and $218,933, respectively.
3. INCOME TAXES
The income tax provision and the amount computed by applying the federal
statutory income tax rate to income before income taxes differs as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Tax provision (at statutory rate) $ 30,134 $ 309,003 $ 248,811 $ 501,712
Other, principally change of estimate - - - (31,467)
State income tax (net of federal benefit) 5,643 22,858 28,435 35,460
--------- --------- --------- ---------
Total $ 35,777 $ 331,861 $ 277,246 $ 505,705
========= ========= ========= =========
</TABLE>
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. EARNINGS PER SHARE
Basic Earnings Per Share was determined by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
Earnings Per Share included these shares plus common stock equivalents
outstanding during the year (common stock equivalents are excluded if the
effects of inclusion are anti-dilutive.) Following is a reconciliation of the
weighted average number of shares outstanding during the period for basic and
diluted earnings per share.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
June 30, June 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic 2,732,166 2,747,597 2,744,157 2,743,968
Net effect of dilutive stock options 32,597 164,603 33,242 141,378
--------- --------- --------- ---------
Total 2,764,763 2,912,200 2,777,399 2,885,346
========= ========= ========= =========
Total options and warrants outstanding 667,257 826,257 667,257 826,257
Options and warrants not considered
because effects of inclusion would
be anti-dilutive 277,590 82,590 277,590 82,590
</TABLE>
5. CONTINGENCIES
In 1996, the Company was named as a garnishee in a lawsuit against its largest
shareholder. 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 expenses.
Additionally, the Company was named in a lawsuit filed by two former employees
(the "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 had
filed a third party petition against one of these plaintiffs and a counterclaim
against the other plaintiff. All parties involved entered into a settlement on
April 15, 1999. Key terms of the settlement included, among other things, (a)
the former employees transferring 35,000 shares of the Company's common stock to
the Company, (b) the Company paying $20,000 to the former employees and their
attorney, (c) the Company obtaining a $5,000,000 judgment against one of the
former employees which will not be enforced and will expire on January 15, 2000
provided that the former employees abide by the terms of the settlement
agreement, (d) the former employees agreeing not to solicit any of the Company's
employees or customers for a period of two years, and (e) the parties executing
mutual releases of all claims against each of the parties involved. The Company
is also involved in certain other litigation and disputes. With respect to all
the aforementioned matters, management believes the claims 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. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statements of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Preliminary analysis of this new standard by the
Company indicates that the standard will not have a material impact on the
Company's financial statements. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters and fiscal years beginning after June 15,
2000.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. INTANGIBLES
<TABLE>
<CAPTION>
Amortization June 30, December 31,
Period 1999 1998
------------ ----------- -----------
<S> <C> <C> <C>
Non-compete agreements 3 years $ 50,000 $ 50,000
Goodwill 5-20 years 3,824,345 3,648,096
----------- -----------
3,874,345 3,698,096
Accumulated amortization (173,519) (51,171)
----------- -----------
$ 3,700,826 $ 3,646,925
=========== ===========
</TABLE>
Amortization of intangibles for the three months ended June 30, 1999 and 1998
was $60,367 and $1,053, respectively. Amortization of intangibles for the six
months ended June 30, 1999 and 1998 was $122,348 and $1,053, respectively.
8. BUSINESS ACQUISITION
On August 6, 1999, the Company completed the acquisition of all of the
outstanding stock of MOUNTAIN, LTD.-TM- ("Mountain"). The purchase price
consists of approximately $2,430,000 in cash, 75,000 shares of the Company's
Common Stock (subject to a lock-up agreement) and three annual deferred
payments of approximately $1,180,000 each, beginning October 1, 2000. The
deferred payments will be reduced up to 50% each if certain levels of
profitability are not maintained. Mountain is based in the Portland, Maine
area and is engaged in contract placements of technical and professional
specialists, primarily in the telecommunications industry. Mountain had
revenues (unaudited) of approximately $12,700,000 for the twelve months ended
June 30, 1999.
9. LINE OF CREDIT
On July 8, 1999, the Company entered into a revolving line of credit agreement
with Compass Bank. The agreement calls for borrowings of up to $4,500,000. The
borrowings will be collateralized by the Company's accounts receivable and other
assets and will be based upon a borrowing base as defined in the agreement.
Outstanding balances will bear interest at the bank's index rate unless the
Company elects the LIBOR base rate plus 2 1/4% for specific advances under the
agreement. Interest is payable quarterly and all outstanding principal and
interest is due June 30, 2000.
10. SEGMENT INFORMATION
The Company's segment information has been presented in two reportable segments;
staffing services and training. The staffing services segment consists of three
functional lines; permanent placement, specialty services and contract
placement. The training segment provides principally information technology
training to its clients' employees and the Company's applicant pool on a fee
basis. The Company is organized primarily on the basis of these segments with
three operating subsidiaries engaged in the staffing services segment and two
operating subsidiaries engaged in the training segment.
The table on the following page presents information about reported segments for
the quarters ending June 30.
<PAGE>
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Service Revenues:
Staffing Services $ 11,704,761 $ 10,388,083 $ 23,381,891 $ 19,300,878
Training 397,097 155,928 795,553 211,627
------------ ------------ ------------ ------------
Total Segment 12,101,858 10,544,011 24,177,444 19,512,505
Inter-Segment (3,038) 180 (14,265) (1,080)
------------ ------------ ------------ ------------
$ 12,098,820 $ 10,544,191 $ 24,163,179 $ 19,511,425
============ ============ ============ ============
Gross Margin:
Staffing Services $ 3,271,627 $ 3,212,857 $ 6,754,147 $ 5,808,191
Training 111,804 61,946 249,834 71,843
------------ ------------ ------------ ------------
Total Segment 3,383,431 3,274,803 7,003,981 5,880,034
Inter-Segment (3,038) 180 (14,265) (1,080)
------------ ------------ ------------ ------------
$ 3,380,393 $ 3,274,983 $ 6,989,716 $ 5,878,954
============ ============ ============ ============
Selling, General and
Administrative Expenses:
Staffing Services $ 2,945,233 $ 2,356,656 $ 5,597,174 $ 4,433,730
Training 346,329 114,902 686,237 182,575
------------ ------------ ------------ ------------
Total Segment 3,291,562 2,471,558 6,283,411 4,616,305
Inter-Segment (3,038) 180 (14,265) (1,080)
------------ ------------ ------------ ------------
$ 3,288,524 $ 2,471,738 $ 6,269,146 $ 4,615,225
============ ============ ============ ============
Income Before Income Taxes:
Staffing Services $ 319,608 $ 931,796 $ 1,142,735 $ 1,539,792
Training (233,512) (48,931) (431,846) (106,329)
------------ ------------ ------------ ------------
$ 86,096 $ 882,865 $ 710,889 $ 1,433,463
============ ============ ============ ============
Loss from Joint Venture Operations:
Staffing Services $ - $ (12,586) $ - $ (26,209)
Training - - - -
------------ ------------ ------------ ------------
$ - $ (12,586) $ - $ (26,209)
============ ============ ============ ============
Investment In and Advances to
Joint Venture:
Staffing Services $ - $ 308,234 $ - $ 308,234
Training - - - -
------------ ------------ ------------ ------------
$ - $ 308,234 $ - $ 308,234
============ ============ ============ ============
Total Assets:
Staffing Services $ 11,657,522 $ 10,517,515 $ 11,657,522 $ 10,517,515
Training 933,292 70,030 933,292 70,030
------------ ------------ ------------ ------------
Total Segment 12,590,814 10,587,545 12,590,814 10,587,545
Not Allocated to Segments 6,106,233 5,929,327 6,106,233 5,929,327
------------ ------------ ------------ ------------
$ 18,697,047 $ 16,516,872 $ 18,697,047 $ 16,516,872
============ ============ ============ ============
</TABLE>
Corporate expenses (those not directly related to segment operations) are
allocated to the segments based upon net service revenues. Depreciation expense
and interest income and expense are not allocated directly to the segments, but
are included in the allocation of corporate expenses. Property and equipment are
included in the assets not allocated to segments. Net Service Revenues from one
customer represented approximately 12% and 11% of total staffing services
revenues in the second quarter of 1999 and 1998, respectively. Revenues from
that same customer represented approximately 13% of total staffing services
revenues in the six months ended June 30, 1999 and 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net service revenues increased approximately $1.6 million, or 14.7%, to $12.1
million in the second quarter of 1999, compared to $10.5 million for the
comparable 1998 quarter, reflecting the positive contribution of the October
1998 acquisition of Texcel, Inc. and Texcel Technical Services, Inc.
(collectively, "Texcel"). Excluding the operations of Texcel, net service
revenues decreased approximately $448,000, or 4.2%, in the second quarter of
1999. This decrease reflects a softness in certain markets of the Company's
permanent and specialty placement businesses. Net service revenues for the
staffing services segment of the business increased approximately $1.3 million,
or 12.7%, to $11.7 million in the second quarter of 1999, compared to $10.4
million in the second quarter of 1998. Permanent placement revenues increased
approximately $984,000, or 17.1%, to $6.7 million in the second quarter of 1999
compared to $5.8 million in the second quarter of 1998. Specialty service
revenues increased approximately $113,000, or 6.9%, to $1.8 million in the
second quarter of 1999, compared to $1.6 million in the second quarter of 1998.
Contract placement revenues increased approximately $219,000, or 7.3%, to $3.2
million in the second quarter of 1999, compared to $3.0 million in the second
quarter of 1998. Texcel contributed $2.0 million, or 16.5%, of net service
revenues and 17.1% of net staffing services revenues. Additionally, Texcel
contributed $1.6 million, or 24.1%, of permanent placement revenues and
$380,000, or 21.6%, of specialty service revenues. Contract placement and
training revenues were not affected by the Texcel acquisition. Training segment
revenues increased approximately $241,000, or 155%, to approximately $397,000 in
the second quarter of 1999 compared to $156,000 for the comparable 1998 quarter.
In June of 1998, the Company expanded its training operations at its corporate
headquarters and acquired Alliance Training Center. There were inter-segment
revenues (training to staffing services) of approximately $3,000 in the second
quarter of 1999 and were minimal in the second quarter of 1998.
Gross margin increased approximately $105,000, or 3.2%, to $3.4 million in the
second quarter of 1999, compared to $3.3 million in the second quarter of 1998.
Gross margin as a percentage of net service revenues decreased to approximately
27.9% in the second quarter of 1999 compared to approximately 31.1% in the
second quarter of 1998. The decrease in gross margin percentage is primarily the
result of a softening in permanent and specialty placements in some of the
Company's highest margin locations. Gross margin for the staffing services
segment of the business increased approximately $59,000, or 1.8%, to $3.3
million in the second quarter of 1999, compared to $3.2 million in the second
quarter of 1998. A contribution of approximately $600,000, or 18.3%, was the
result of the operations of Texcel. Gross margin as a percentage of net service
revenues for the staffing services segment decreased to approximately 28.0% in
the second quarter of 1999 compared to approximately 30.9% in the comparable
1998 quarter. Gross margin for the training segment of the business was
approximately $112,000 in the second quarter of 1999 compared to approximately
$62,000 in the comparable 1998 quarter. Gross margin as a percentage of net
service revenues for the training segment was 28.2% in the second quarter of
1999 compared to 39.7% in the comparable 1998 quarter.
Selling, general and administrative expenses increased approximately $817,000,
or 33.0%, to $3.3 million in the second quarter of 1999, compared to $2.5
million in the second quarter of 1998. Selling, general and administrative
expenses as a percentage of net service revenues increased to approximately
27.2% in the second quarter of 1999 compared to approximately 23.4% in the
second quarter of 1998. Contributing to the increase in selling, general and
administrative expense, depreciation and amortization expense increased by
approximately $174,000,or 137.3%, to $301,000 in the second quarter of 1999,
compared to $127,000 in the second quarter of 1998. The increase was the result
of depreciation associated with increased capital expenditures to support the
Company's growth and amortization related to the Company's acquisition of Texcel
in October 1998. Selling, general and administrative expenses for the staffing
services segment of the business increased approximately $589,000, or 25.0%, to
$2.9 million in the second quarter of 1999, compared to $2.4 million in the
second quarter of 1998. Approximately $410,000, or 13.9%, was the result of the
operations of Texcel. Selling, general and administrative expenses as a
percentage of net service revenues for the staffing services segment was
approximately 25.2% in the second quarter of 1999 compared to 22.7% in the
comparable 1998 quarter. Selling general and administrative expenses for the
training services segment of the business increased approximately $231,000, or
201%, to $346,000 in the second quarter of 1999, compared to approximately
$115,000 in the second quarter of 1998, as a result of the increased training
capacity. Selling, general and administrative expenses as a percentage of net
service revenues for the training services segment was approximately 87.2% in
the second quarter of 1999 compared to 73.7% in the comparable 1998 quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Other income (expense) resulted in expense of approximately $6,000 in the second
quarter of 1999 compared to income of $80,000 in the comparable 1998 quarter.
The expense in 1999 resulted primarily from interest expense of approximately
$36,000 on deferred payment obligations related to the Company's acquisition of
Texcel in October 1998 offset by interest income on the remaining proceeds from
the Company's October 1997 public offering. The income in 1998 resulted
primarily from interest on the public offering proceeds, partially offset by a
loss of approximately $13,000 from joint venture operations.
As a result of the above, income before income taxes decreased approximately
$797,000, or 90.2%, to approximately $86,000 in the second quarter of 1999
compared to approximately $883,000 in the second quarter of 1998. Income before
income tax for the staffing services segment of the business decreased
approximately $612,000, or 65.7%, to $320,000 in the second quarter of 1999
compared to $932,000 in the second quarter of 1998. As a result of the Company's
continued expansion of its training operation, including its application to
acquire proprietary school status at its Dallas location, income before income
taxes for the training segment of the business resulted in a loss of
approximately $234,000 in the second quarter of 1999 compared to a loss of
approximately $49,000 in the comparable 1998 quarter.
Income tax expense was approximately $36,000 in the second quarter of 1999,
compared to approximately $332,000 in the second quarter of 1998. The Company's
effective tax rate for the second quarter of 1999 and 1998 was approximately 42%
and 38%, respectively.
As a result, net income decreased approximately $501,000, or 90.9%, to $50,000
in the second quarter of 1999, compared to approximately $551,000 in the second
quarter of 1998.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net service revenues increased approximately $4.7 million, or 23.8%, to $24.2
million in the first six months of 1999, compared to $19.5 million for the
comparable 1998 period, reflecting the positive contribution of the October 1998
acquisition of Texcel. Excluding the operations of Texcel, net service revenues
increased approximately $761,000, or 3.9%, in the first six months of 1999. This
slower than expected revenue growth reflects a softness in certain markets of
the Company's permanent and specialty placement businesses. Net service revenues
for the staffing services segment of the business increased approximately $4.1
million, or 21.1%, to $23.4 million in the first six months of 1999, compared to
$19.3 million in the first six months of 1998. Permanent placement revenues
increased approximately $2.7 million, or 25.5%, to $13.2 million in the first
six months of 1999 compared to $10.5 million in the comparable 1998 period.
Specialty service revenues increased approximately $346,000, or 10.5%, to $3.6
million in the first six months of 1999, compared to $3.3 million in the first
six months of 1998. Contract placement revenues increased approximately $1.1
million, or 19.2%, to $6.5 million in the first six months of 1999, compared to
$5.5 million in the first six months of 1998. Texcel contributed $3.9 million,
or 16.1%, of net service revenues and 16.6% of net staffing services revenues.
Additionally, Texcel contributed $3.1 million, or 23.8%, of permanent placement
revenue and $749,000, or 20.6%, of specialty service revenues. Contract
placement and training revenues were not affected by the Texcel acquisition.
Training segment revenues increased approximately $584,000, or 276%, to
approximately $796,000 in the first six months of 1999 compared to $212,000 for
the comparable 1998 period. In June of 1998, the Company expanded its training
operations at its corporate headquarters and acquired Alliance Training Center.
There were inter-segment revenues (training to staffing services) of
approximately $14,000 in the first six months of 1999 compared to $1,000 in the
first six months of 1998.
Gross margin increased approximately $1.1 million, or 18.9%, to $7.0 million in
the first six months of 1999, compared to $5.9 million in the first six months
of 1998. Gross margin as a percentage of net service revenues decreased to
approximately 28.9% in the first six months of 1999 compared to approximately
30.1% in the first six months of 1998. The decrease in gross margin percentage
is primarily the result of a softening in permanent and specialty placements in
some of the Company's highest margin locations. Gross margin for the staffing
services
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
segment of the business increased approximately $946,000, or 16.3%, to $6.8
million in the first six months of 1999, compared to $5.8 million in the second
quarter of 1998. A contribution of approximately $1.1 million, or 16.7%, was the
result of operations of Texcel. Gross margin as a percentage of net service
revenues for the staffing services segment decreased to approximately 28.9% in
the first six months of 1999 compared to approximately 30.1% in the comparable
1998 period. Gross margin for the training segment of the business was
approximately $250,000 in the first six months of 1999 compared to approximately
$72,000 in the comparable 1998 period. Gross margin as a percentage of net
service revenues for the training segment was 31.4% in the first six months of
1999 compared to 33.9% in the comparable 1998 period.
Selling, general and administrative expenses increased approximately $1.7
million, or 35.8%, to $6.3 million in the first six months of 1999, compared to
$4.6 million in the first six months of 1998. Selling, general and
administrative expenses as a percentage of net service revenues increased to
approximately 25.9% in the first six months of 1999 compared to approximately
23.7% in the comparable 1998 period. Contributing to the increase in selling,
general and administrative expense, depreciation and amortization expense
increased by approximately $352,000, or 160%, to $572,000 in the first six
months of 1999, compared to $220,000 in the first six months of 1998. The
increase was the result of depreciation associated with increased capital
expenditures to support the Company's growth and amortization related to the
Company's acquisition of Texcel in October, 1998. Selling, general and
administrative expenses for the staffing services segment of the business
increased approximately $1.2 million, or 26.2%, to $5.6 million in the first six
months of 1999, compared to $4.4 million in the first six months of 1998.
Approximately $774,000, or 13.8%, was the result of the operations of Texcel.
Selling, general and administrative expenses as a percentage of net service
revenues for the staffing services segment was approximately 23.9% in the first
six months of 1999 compared to 23.0% in the comparable 1998 quarter. Selling,
general and administrative expenses for the training services segment of the
business increased approximately $504,000, or 276%, to $686,000 in the first six
months of 1999, compared to approximately $183,000 in the first six months of
1998 as a result of the increased training capacity. Selling, general and
administrative expenses as a percentage of net service revenues for the training
services segment was approximately 86.3% in the first six months of both 1999
and 1998.
Other income (expense) resulted in expense of $10,000 in the first six months of
1999 compared to income of $170,000 in the comparable 1998 period. The expense
in 1999 resulted primarily from interest expense of approximately $74,000 on
deferred payment obligations related to the Company's acquisition of Texcel in
October 1998 offset by interest income on the remaining proceeds from the
Company's October 1997 public offering. The income in 1998 resulted primarily
from interest on the public offering proceeds, partially offset by a loss of
approximately $26,000 from joint venture operations.
As a result of the above, income before income taxes decreased approximately
$723,000, or 50.4%, to approximately $711,000 in the first six months of 1999
compared to approximately $1.4 million in the first six months of 1998. Income
before income tax for the staffing services segment of the business decreased
approximately $397,000, or 25.8%, to $1.1 million in the first six months of
1999 compared to $1.5 million in the first six months of 1998. As a result of
the Company's continued expansion of its training operation, including its
application to acquire proprietary school status at its Dallas location, income
before income taxes for the training segment of the business resulted in a loss
of approximately $432,000 in the first six months of 1999 compared to a loss of
approximately $106,000 in the comparable 1998 period.
Income tax expense was approximately $277,000 in the first six months of 1999,
compared to approximately $506,000 in the first six months of 1998. The
Company's effective tax rate for the first six months of 1999 and 1998 was
approximately 39% and 35%, respectively.
As a result, net income decreased approximately $494,000, or 53.3%, to $434,000
in the first six months of 1999, compared to approximately $928,000 in the first
six months of 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately $7.2 million at June 30, 1999, compared to
$6.5 million at December 31, 1998. The increase in working capital of
approximately $736,000 was primarily attributable to the profitable operations
of the staffing services segment of the Company.
Cash flow provided by operating activities of approximately $198,000 resulted
primarily from the profitable operations of the Company. The Company made
capital expenditures of approximately $638,000 in the first six months of 1999,
primarily to continue to improve its computer systems, its applicant database,
its training operations, and to support its back office operations.
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 its line of credit and cash flows
from operations will provide adequate liquidity to fund its internal 1999
growth plans and operations for the foreseeable future. The Company's
internal 1999 growth plans include the expansion and improvement of its
applicant database and back office, and the expansion and opening of new
profit centers in cities in which the Company has existing offices. In
addition, the Company continues to pursue avenues for growth including, but
not limited to, possible strategic acquisitions. The Mountain acquisition
(described in Note 8 to the consolidated financial statements) is part of the
Company's strategic acquisition program and planned transition to a business
model more focused on contract placement. The Company will be required to
obtain additional financing through either debt or equity in order to
consummate additional significant 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 an 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 has purchased new accounting and back office software, which is Year
2000 compliant. The cost of the software and implementation to date was
approximately $180,000. Additional implementation costs are estimated to be
$20,000. 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. In addition, the
Company has communicated with the majority of its significant suppliers,
landlords 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 affect on the Company.
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by certain third parties to
complete efforts necessary to achieve Year 2000 compliance on a timely basis.
A contingency plan has not been completed for dealing with the most
reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by October 31, 1999.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net service revenues increased approximately $1.6 million, or 14.7%, to $12.1
million in the second quarter of 1999, compared to $10.5 million for the
comparable 1998 quarter, as a result of $2.0 million revenues generated from
the operations of the Texcel companies ("Texcel") acquired in October, 1998.
Excluding Texcel, the core operations of the Company's staffing business
decreased as a result of challenging market conditions. In particular, one of
the Company's regions experienced a reduction in the number of permanent and
speciality opportunities in certain industries.
Net service revenues for the staffing services segment of the business
increased approximately $1.3 million, or 12.7%, to $11.7 million in the
second quarter of 1999, compared to $10.4 million in the second quarter of
1998. Permanent placement revenues increased approximately $984,000, or
17.1%, to $6.7 million in the second quarter of 1999 compared to $5.8 million
in the second quarter of 1998. Specialty service revenues increased
approximately $113,000, or 6.9%, to $1.8 million in the second quarter of
1999, compared to $1.6 million in the second quarter of 1998. Contract
placement revenues increased approximately $219,000, or 7.3%, to $3.2 million
in the second quarter of 1999, compared to $3.0 million in the second quarter
of 1998. Texcel contributed $1.6 million, or 24.1%, of permanent placement
revenues and $380,000, or 21.6%, of specialty service revenues. Training
segment revenues increased approximately $241,000, or 155%, to approximately
$397,000 in the second quarter of 1999 compared to $156,000 for the
comparable 1998 quarter. In June of 1998, the Company expanded its training
operations at its corporate headquarters and acquired Alliance Training
Center.
Gross margin increased approximately $105,0000, or 3.2%, to $3.4 million in
the second quarter of 1999, compared to $3.3 million in the second quarter of
1998. Gross margin as a percentage of net service revenues decreased to
approximately 27.9% in the second quarter of 1999 compared to approximately
31.1% in the second quarter of 1998. Gross margin for the staffing services
segment of the business increased approximately $59,000, or 1.8%, to $3.3
million in the second quarter of 1999, compared to $3.2 million in the second
quarter of 1998. Gross margin as a percentage of net service revenues for the
staffing services segment decreased to approximately 28.0% in the second
quarter of 1999 compared to approximately 30.9% in the comparable 1998
quarter. Such decrease was attributable to a reduction in higher margin
permanent and specialty placements in certain of the Company's locations,
offset by a $600,000 contribution to gross margin by the Texcel operations.
Gross margin for the training segment of the business was approximately
$112,000 in the second quarter of 1999 compared to approximately $62,000 in
the comparable 1998 quarter. Gross margin as a percentage of net service
revenues for the training segment was 28.2% in the second quarter of 1999
compared to 39.7% in the comparable 1998 quarter.
Selling, general and administrative expenses ("SG&A") increased approximately
$817,000, or 33.0%, to $3.3 million in the second quarter of 1999, compared
to $2.5 million in the second quarter of 1998. SG&A as a percentage of net
service revenues increased to approximately 27.2% in the second quarter of
1999 compared to approximately 23.4% in the second quarter of 1998.
Contributing to the increase in SG&A was approximately $410,000 related to
the Texcel operations, an increase of approximately $174,000 in depreciation
and amortization expense, and approximately $100,000 of legal expenses
related to the resolution of a litigation matter. SG&A for the staffing
services segment of the business increased approximately $589,000, or 25.0%,
to $2.9 million in the second quarter of 1999, compared to $2.4 million in
the second quarter of 1998. SG&A as a percentage of net service revenues for
the staffing services segment was approximately 25.2% in the second quarter
of 1999 compared to 22.7% in the comparable 1998 quarter. SG&A for the
training services segment of the business increased approximately $231,000,
or 201%, to $346,000 in the second quarter of 1999, compared to approximately
$115,000 in the second quarter of 1998, as a result of increased training
operations. SG&A as a percentage of net service revenues for the training
services segment was approximately 87.2% in the second quarter of 1999
compared to 73.7% in the comparable 1998 quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Other income (expense) resulted in expense of approximately $6,000 in the
second quarter of 1999 compared to income of $80,000 in the comparable 1998
quarter. The expense in 1999 resulted primarily from interest expense of
approximately $36,000 on deferred payment obligations related to the
Company's acquisition of Texcel, offset by interest income on the remaining
proceeds from the Company's October 1997 public offering. The income in 1998
resulted primarily from interest income on the public offering proceeds,
partially offset by a loss of approximately $13,000 from joint venture
operations.
As a result of the factors above, income before income taxes decreased
approximately $797,000, or 90.2%, to approximately $86,000 in the second
quarter of 1999 compared to approximately $883,000 in the second quarter of
1998. Income before income tax for the staffing services segment of the
business decreased approximately $612,000, or 65.7%, to $320,000 in the
second quarter of 1999 compared to $932,000 in the second quarter of 1998. As
a result of the Company's continued expansion of its training operation,
including obtaining proprietary school status at its Dallas location in
April, 1999, income before income taxes for the training segment of the
business resulted in a loss of approximately $234,000 in the second quarter
of 1999 compared to a loss of approximately $49,000 in the comparable 1998
quarter.
Income tax expense was approximately $36,000 in the second quarter of 1999,
compared to approximately $332,000 in the second quarter of 1998. The
Company's effective tax rate for the second quarter of 1999 and 1998 was
approximately 42% and 38%, respectively.
As a result, net income decreased approximately $501,000, or 90.9%, to
$50,000 in the second quarter of 1999, compared to approximately $551,000 in
the second quarter of 1998.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net service revenues increased approximately $4.7 million, or 23.8%, to $24.2
million in the first six months of 1999, compared to $19.5 million for the
comparable 1998 period. Excluding Texcel, the core operations of the
Company's staffing business experienced a modest increase as a result of
challenging market conditions. In particular, one of the Company's regions
experienced a significant second quarter reduction in the number of permanent
and specialty opportunities in certain industries.
Net service revenues for the staffing services segment of the business
increased approximately $4.1 million, or 21.1%, to $23.4 million in the first
six months of 1999, compared to $19.3 million in the first six months of
1998. Permanent placement revenues increased approximately $2.7 million, or
25.5%, to $13.2 million in the first six months of 1999 compared to $10.5
million in the comparable 1998 period. Specialty service revenues increased
approximately $346,000, or 10.5%, to $3.6 million in the first six months of
1999, compared to $3.3 million in the first six months of 1998. Contract
placement revenues increased approximately $1.1 million, or 19.2%, to $6.5
million in the first six months of 1999, compared to $5.5 million in the
first six months of 1998. Texcel contributed $3.9 million, or 16.1%, of net
service revenues and 16.6% of net staffing services revenues. Additionally,
Texcel contributed $3.1 million, or 23.8%, of permanent placement revenue and
$749,000, or 20.6%, of specialty service revenues. Training segment revenues
increased approximately $584,000, or 276%, to approximately $796,000 in the
first six months of 1999 compared to $212,000 for the comparable 1998 period.
In June of 1998, the Company expanded its training operations at its
corporate headquarters and acquired Alliance Training Center.
Gross margin increased approximately $1.1 million, or 18.9%, to $7.0 million
in the first six months of 1999, compared to $5.9 million in the first six
months of 1998. Gross margin as a percentage of net service revenues
decreased to approximately 28.9% in the first six months of 1999 compared to
approximately 30.1% in the first six months of 1998. Gross margin for the
staffing services segment of the business increased approximately $946,000,
or 16.3%, to $6.8 million in the first six months of 1999, compared to $5.8
million in the second quarter of 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gross margin as a percentage of net service revenues for the staffing
services segment decreased to approximately 28.9% in the first six months of
1999 compared to approximately 30.1% in the comparable 1998 period. Such
decrease was attributable to a reduction in higher margin permanent and
specialty placements in certain of the Company's locations, offset by a $1.1
million contribution to gross margin by the Texcel operations. Gross margin
for the training segment of the business was approximately $250,000 in the
first six months of 1999 compared to approximately $72,000 in the comparable
1998 period. Gross margin as a percentage of net service revenues for the
training segment was 31.4% in the first six months of 1999 compared to 33.9%
in the comparable 1998 period.
SG&A increased approximately $1.7 million, or 35.8%, to $6.3 million in the
first six months of 1999, compared to $4.6 million in the first six months of
1998. SG&A as a percentage of net service revenues increased to
approximately 25.9% in the first six months of 1999 compared to approximately
23.7% in the comparable 1998 period. Contributing to the increase in SG&A,
was approximately $774,000 related to the Texcel operations, an increase of
approximately $352,000 in depreciation and amortization expense, and
approximately $70,000 of legal expenses related to the resolution of a
litigation matter. SG&A for the staffing services segment of the business
increased approximately $1.2 million, or 26.2% to $5.6 million in the first
six months of 1999, compared to $4.4 million in the first six months of 1998.
SG&A as a percentage of net service revenues for the staffing services
segment was approximately 23.9% in the first six months of 1999 compared to
23.0% in the comparable 1998 quarter. SG&A for the training services segment
of the business increased approximately $504,000, or 276%, to $686,000 in the
first six months of 1999, compared to approximately $183,000 in the first six
months of 1998 as a result of the increased training operations. SG&A as a
percentage of net service revenues for the training services segment was
approximately 86.3% in the first six months of both 1999 and 1998.
Other income (expense) resulted in expense of $10,000 in the first six months
of 1999 compared to income of $170,000 in the comparable 1998 period. The
expense in 1999 resulted primarily from interest expense of approximately
$74,000 on deferred payment obligations related to the Company's acquisition
of Texcel, offset by interest income on the remaining proceeds from the
Company's October 1997 public offering. The income in 1998 resulted primarily
from interest income on the public offering proceeds, partially offset by a
loss of approximately $26,000 from joining venture operations.
As a result of the factors above, income before income taxes decreased
approximately $723,000, or 50.4%, to approximately $711,000 in the first six
months of 1999 compared to approximately $1.4 million in the first six months
of 1998. Income before income tax for the staffing services segment of the
business decreased approximately $397,000, or 25.8%, to $1.1 million in the
first six months of 1999 compared to $1.5 million in the first six months of
1998. As a result of the Company's continued expansion of its training
operation, including obtaining proprietary school status at its Dallas
location in April, 1999, income before income taxes for the training segment
of the business resulted in a loss of approximately $432,000 in the first six
months of 1999 compared to a loss of approximately $106,000 in the comparable
1998 period.
Income tax expense was approximately $277,000 in the first six months of
1999, compared to approximately $506,000 in the first six months of 1998.
The Company's effective tax rate for the first six months of 1999 and 1998
was approximately 39% and 35%, respectively.
As a result, net income decreased approximately $494,000, or 53.3%, to
$434,000 in the first six months of 1999, compared to approximately $928,000
in the first six months of 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statements of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." Preliminary analysis of this new standard by the
Company indicates that the standard will not have a material impact on the
Company's financial statements. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters and fiscal years beginning after June 15,
2000.
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, including the ability to effectively
integrate new acquisitions; the level of litigation expenses; the level of
developmental expenses; the ability of the Company to adequately and
cost-effectively address the Year 2000 issue; 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable.
<PAGE>
PART II: OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
The Company was named in a lawsuit filed by two former employees (the "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 had filed a
third party petition against one of these plaintiffs and a counterclaim against
the other plaintiff. All parties involved entered into a settlement on April 15,
1999. Key terms of the settlement included, among other things, (a) the former
employees transferring 35,000 shares of the Company's common stock to the
Company, (b) the Company paying $20,000 to the former employees and their
attorney, (c) the Company obtaining a $5,000,000 judgment against one of the
former employees which will not be enforced and will expire on January 15, 2000
provided that the former employees abide by the terms of the settlement
agreement, (d) the former employees agreeing not to solicit any of the Company's
employees or customers for a period of two years, and (e) the parties executing
mutual releases of all claims against each of the parties involved.
ITEM 2. CHANGES IN SECURITIES
In connection with the acquisition of Mountain on August 6, 1999, the Company
issued 75,000 shares of its Common Stock to the shareholders of Mountain. See
Item 5 below. These shares were issued in a private placement exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2).
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 was held on June 17, 1999. 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>
<CAPTION>
Abstain / Broker
For Against Withheld Non-Votes
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
J. Michael Moore 2,344,790 - 261,852 -
M. Ted Dillard 2,345,290 - 264,652 -
Samuel E. Hunter 2,329,942 - 280,000 -
Deborah A. Farrington 2,326,442 - 283,500 -
A. Clinton Allen 2,326,440 - 283,502 -
</TABLE>
The shareholders voted to adopt and approve the Company's 1998 Non-employee
Directors Option Plan. The results of the vote were as follows:
<TABLE>
<CAPTION>
Abstain / Broker
For Against Withheld Non-Votes
--------- --------- --------- ---------
<S> <C> <C> <C>
1,713,052 22,067 - -
</TABLE>
<PAGE>
PART II: OTHER INFORMATION (Continued)
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
Business Acquisition
- --------------------
On August 6, 1999, the Company, MAGIC Northeast ("MNE"), a Delaware corporation
and wholly owned subsidiary of the Company, and Joseph H. Hosmer and Sandra
Hosmer (collectively, the "Shareholders"), shareholders of MOUNTAIN, LTD.-TM-
("Mountain"), entered into a purchase agreement (the "Purchase Agreement")
whereby MNE acquired (the "Acquisition") all of the outstanding capital stock of
Mountain. Mountain is based in the Portland, Maine area and is engaged in
contract placements of technical and professional specialists, primarily in the
telecommunications industry. Mountain had revenues (unaudited) of approximately
$12,700,000 for the twelve months ended June 30, 1999.
The purchase price consisted of approximately $2,430,000 in cash, 75,000 shares
("the Shares") of the Company's Common Stock and three annual deferred payments
of approximately $1,180,000 each beginning October 1, 2000. The deferred
payments will be reduced if the level of 1998 adjusted earnings before interest,
taxes, depreciation and amortization, approximately $1,100,000, is not
maintained. The reduction will be on a pro-rata basis up to a maximum of 25%
unless a service contract with a specific customer is not renewed or cancelled;
in which case the maximum reduction will be 50%. Additionally, if Mountain's
net working capital (as defined in the Purchase Agreement) exceeds $1,000,000
as of the closing date of the Acquisition, such excess will be paid to the
Shareholders the later of 45 days after the closing date or when the working
capital is received by Mountain.
The Shares were issued to the Shareholders in a transaction that was exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and are, therefore, restricted securities within the meaning of the
Securities Act. In addition, the Shares are subject to a lock-up agreement
restricting their sale without the consent of the Company as follows: all of the
Shares for one year from the effective date of the acquisition, 50,000 of the
Shares for two years from the effective date of the acquisition, and 25,000 of
the Shares for three years from the effective date of the acquisition.
The Company used proceeds from its 1997 public offering to fund the cash portion
of the purchase price. The Acquisition shall be effective as of August 6, 1999
for accounting purposes and is expected to be accretive to earnings on a
prospective basis beginning in the third quarter of 1999.
In connection with the Acquisition, Mountain entered into an employment
agreement (the "Employment Agreement"), dated August 6, 1999, with Joseph H.
Hosmer. Pursuant to the Employment Agreement, Mr. Hosmer is entitled to annual
compensation during the three-year term of the Employment Agreement based upon
the revenues and net profits of Mountain (subject to specific formulas and
definitions set forth in the Employment Agreement) and to certain fringe
benefits. The Employment Agreement also contains certain noncompetition,
nondisclosure and nonsolicitation provisions.
The description set forth above of the Purchase Agreement and the Employment
Agreement is qualified in its entirety by reference to the exhibits to this Form
10-Q, which contain the full text of these documents.
The information set forth above is intended to satisfy the reporting
requirements set forth in Item 2 of Form 8-K. It is impracticable to provide all
of the financial statements of Mountain and the pro forma financial information
required by Form 8-K at this time. The Company will provide such financial
information as soon as practicable, but no later than October 20, 1999, 60 days
after the Form 8-K describing the Acquisition would have been due.
Amendment to Rights Agreement
- -----------------------------
On March 26, 1999, the Board of Directors approved an amendment (the
"Amendment") to the Company's Rights Agreement to, among other things, grant the
Company greater flexibility with respect to an inadvertent triggering of the
dilutive provisions of the Rights Agreement by permitting the Company to
consider the intentions of an Acquiring Person (as defined in the Amendment)
that acquires less than 25% of the Common Stock of the Company.
The Amendment is attached hereto as Exhibit 10.5.
<PAGE>
PART II: OTHER INFORMATION
DIVERSIFIED CORPORATE RESOURCES, INC. AND SUBSIDIARIES (Continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Revolving Loan and Security Agreement, by and between the Company and
Compass Bank
10.2 Revolving Promissory Note, by and between the Company and Compass Bank
10.3 Purchase Agreement, by and between the Company and the Shareholders of
MOUNTAIN, LTD.-TM- (The schedules have been omitted pursuant to
Regulation S-K 601(b)(2).)
10.4 Employment Agreement, by and between the Company and Joseph H. Hosmer
10.5 First Amendment to Rights Agreement
27 Financial Data Schedule
B. Reports on Form 8-K
Not Applicable.
<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 16, 1999 By: /s/ J. Michael Moore
J. Michael Moore
CHIEF EXECUTIVE OFFICER
(Principal Executive Officer)
Date: August 16, 1999 By: /s/ M. Ted Dillard
M. Ted Dillard
PRESIDENT AND SECRETARY
Date: August 16, 1999 By: /s/ Douglas G. Furra
Douglas G. Furra
CHIEF FINANCIAL OFFICER
(Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
REVOLVING LOAN AND SECURITY AGREEMENT
BETWEEN
COMPASS BANK
as
Lender
and
DIVERSIFIED CORPORATE RESOURCES, INC.,
MANAGEMENT ALLIANCE CORPORATION
INFORMATION SYSTEMS CONSULTING CORP.
TEXCEL SERVICES, INC.
TRAIN INTERNATIONAL, INC.
and
GEIER ASSESSMENT AND PERFORMANCE SYSTEMS, INC.
as
Borrowers
July 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1. Definitions __________________________________________________ 1
SECTION 2. Borrowers' Representations, Warranties
and Covenants ________________________________________________ 5
SECTION 3. Bank's Agreement to Make Loans _______________________________ 9
SECTION 4. Inspection of Records; Further Assurance _____________________ 11
SECTION 5. Security Interest of Bank in Collateral ______________________ 11
SECTION 6. Collection of Accounts _______________________________________ 12
SECTION 7. Affirmative Covenants ________________________________________ 14
SECTION 8. Negative Covenants ___________________________________________ 16
SECTION 9. Events of Default; Acceleration ______________________________ 17
SECTION 10. Power of Sell or Collect Collateral; Remedies
Cumulative ___________________________________________________ 19
SECTION 11. Deposits _____________________________________________________ 20
SECTION 12. Waivers ______________________________________________________ 21
SECTION 13. Expenses; Proceeds of Collateral _____________________________ 21
SECTION 14. Durable; Extension ___________________________________________ 22
SECTION 15. General ______________________________________________________ 22
</TABLE>
EXHIBITS
Exhibit A Offices and Other Locations of Borrowers
Exhibit B Actions, Suits & Proceedings
Exhibit C Schedule of Certain Indebtedness and Leases
(i)
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is executed this 8th
day of July, 1999, by and among DIVERSIFIED CORPORATE RESOURCES, INC.,
MANAGEMENT ALLIANCE CORPORATION, INFORMATION SYSTEMS CONSULTING CORP., TRAIN
INTERNATIONAL, INC. and GEIER ASSESSMENT AND PERFORMANCE SYSTEMS, INC. each a
Texas corporation, and TEXCEL SERVICES, INC., a Pennsylvania corporation
("Borrowers") and COMPASS BANK, a Texas state chartered banking institution
("Bank"). The Borrowers have applied to the Bank for a revolving line of
credit (the "Revolving Line") not to exceed an aggregate principal amount at
any one time outstanding in the sum of Four Million Five Hundred Thousand and
No/100 Dollars ($4,500,000.00) to be evidenced by a Revolving Promissory Note
of even date herewith (the "Note") in such amount, such extension of credit
to be secured by a security interest in all of the Collateral (as hereinafter
defined) now owned or hereafter acquired by the Borrowers on the terms
hereinafter set forth.
The Bank is willing to extend credit under the Revolving Line to the
Borrowers up to aggregate amounts not in excess of the sum set forth above
and upon the security of such Collateral on the terms and subject to the
conditions hereinafter set forth.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises, the credit to be
extended hereunder, the mutual agreements of the parties as set forth herein
and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound
hereby, agree as follows:
SECTION 1. DEFINITIONS.
1.1 "ACCOUNT" and "ACCOUNT RECEIVABLE" shall include accounts,
accounts receivable, notes, notes receivable, rental agreements and other
rights to collect rent, contract rights, drafts, acceptances, instruments,
chattel paper, general intangibles, and other forms of obligation or rights
to payment and receivables, whether or not yet earned by performance,
including state and federal tax refunds.
1.2 "ACCOUNT DEBTOR" shall mean the party who is obligated on
or under any Account or contract right.
1.3 "BORROWERS' LOAN ACCOUNT" shall mean the account on the books of
the Bank with respect to the Borrowers in which the Bank will separately
record advances under the Revolving Line and other advances made by Bank to
Borrowers pursuant to this Agreement, payments received thereon and other
appropriate debits and credits as provided by this Agreement.
LOAN AND SECURITY AGREEMENT-PAGE 1
<PAGE>
1.4 "COLLATERAL" shall mean any and all personal, real or intangible
property of the Borrowers in which the Bank acquired, now has, or by this
Agreement or any other agreement acquires, or hereafter acquires a security
interest or other rights or interests as security for the Borrowers'
Liabilities, including, without limitation, Borrowers' obligations under this
Agreement.
1.5 "COMBINED BASIS" shall mean for accounting purposes,
consolidating certain financial data of the Borrowers and their affiliates in
the manner in which consolidated and consolidating financial statements are
prepared under generally accepted accounting principles.
1.6 "DEBT TO TANGIBLE NET WORTH RATIO" shall be defined as the ratio
of (a) Borrowers' total Liabilities on a Combined Basis to (b) Borrowers'
Tangible Net Worth on a Combined Basis, calculated in accordance with
generally accepted accounting principles consistently applied as of the date
hereof.
1.7 "DEFAULT RATE" shall mean the lesser of the Maximum Rate and
five percentage points (5%) in excess of the Compass Bank Index Rate.
1.8 An "ELIGIBLE ACCOUNT" shall mean an Account which meets each of
the following requirements, together with such other requirements as Bank may
hereafter determine:
(a) it arises from the sale of goods or from services rendered, such
goods have been shipped or delivered to the Account Debtor under
such Account and such services have been fully performed and have
been accepted by the Account Debtor, and the applicable Borrowers'
full right to payment for all sums due from such Account Debtor
with respect to such Account shall have been earned and then be
due and payable;
(b) it is a valid and legally enforceable obligation of the Account
Debtor thereunder according to its express terms, and is not
subject to any offset, counterclaim, cross-claim, or other defense
on the part of such Account Debtor denying liability thereunder
in whole or in part;
(c) it is not subject to any mortgage, lien, security interest, or
similar adverse rights or interests whatsoever other than the
security interest in favor of Bank hereunder;
(d) it is evidenced by an invoice, dated not later than thirty
days following the date of performance by Borrowers of all
requirements for payment and having payment terms acceptable
to the Bank which required payment no later than thirty (30)
days following the invoice date, rendered to such Account
Debtor, and is not evidenced by an instrument or chattel
paper, except with respect to Permanent Placement Accounts,
which shall have a due date no later than ten (10) days
following the employee's commencement date and not later than
forty-five (45) days following the invoice date;
LOAN AND SECURITY AGREEMENT-PAGE 2
<PAGE>
(e) it is not owing by an Account Debtor whose obligations the
Bank, acting in its sole discretion, shall have notified the
applicable Borrowers are not deemed to constitute an Eligible
Account;
(f) it is not due from an affiliated corporation or entity,
subsidiary corporation or entity, parent corporation or entity,
stockholder, officer, director or employee of any Borrowers or
any such affiliate, subsidiary, or parent corporation or entity;
or any individual or entity affiliated or related to any of the
foregoing, whether by blood, marriage, or otherwise;
(g) it does not constitute retainages or deferred payments under a
contract not fully performed;
(h) it does not constitute, in whole or in part, interest or finance
charges on outstanding balances;
(i) it is an Account with respect to which no return, repossession,
rejection, cancellation, or repudiation shall have occurred or
have been threatened;
(j) it is an Account with respect to which the applicable Borrowers
continues to be in full conformity with the representations,
warranties, and covenants of Borrowers made with respect thereto;
(k) it is not subject to any sales terms, trial terms, sales-or-return
terms, consignment terms, guaranteed sales performance or
warranties or representations relating to minimum sales volume,
C.O.D. terms, cash terms, or similar terms or conditions, except
with respect to Permanent Placement Accounts, which shall have
guaranties or warranties that extend no more than ninety (90) days
following the commencement date of the employee;
(l) it is not owed by an Account Debtor that is not an individual
residing in the United States or a corporation or partnership
organized and validly existing under the laws of a state within
the United States, unless payment is secured by a letter of credit
acceptable to Bank;
(m) it is not an Account subject, in whole or in part, to any "bill
and hold" or similar arrangement pursuant to which the invoice is
delivered prior to the actual delivery of the sold or leased goods
or the performance of the services;
(n) it is not an Account with respect to which seventy-five (75)
days or more shall have passed since the invoice date;
LOAN AND SECURITY AGREEMENT-PAGE 3
<PAGE>
(o) it is not owed by any Account Debtor who or which has at any
time account balances with Borrowers on a Combined Basis
equaling or exceeding twenty percent (20%) of its total
accounts receivable at such time unpaid after seventy-five
(75) days from invoice date, excluding retainage;
(p) it is not an Account owed by an Account Debtor whose account
balance exceeds twenty percent (20%) of the total of
Borrowers' (on a Combined Basis) aggregate accounts
receivable, except to the extent of the Eligible Accounts of
such Account Debtor that do not exceed twenty percent (20%) of
the total of Borrowers' aggregate accounts receivable, or
except as expressly permitted from time to time by Bank in its
sole discretion; and
(q) it is not an Account as to which any Borrowers or any other
party to such Account is in default or is likely to become in
default in the performance or observance of any of the terms
thereof.
1.9 "INSOLVENCY" of any Borrowers or any other person or entity
shall mean that there shall have occurred with respect to that person or
entity one or more of the following events: death, dissolution, termination
of existence, liquidation, insolvency, business failure, appointment of a
receiver, liquidator, fiscal agent, or trustee of any part of the property
of, assignment for the benefit of creditors by or against such person or
entity, or institution of any action or proceeding with respect to such
person or entity under or pursuant to any insolvency laws relating to the
relief of debtors by or against any such person or entity, institution of
proceedings in bankruptcy or with respect to the readjustment of
indebtedness, reorganization, composition, or extension by or against such
person or entity (including, without limitation, under or pursuant to the
United States Bankruptcy Code, as amended, or under any similar law at any
time enacted).
1.10 "INTEREST COVERAGE RATIO" shall mean, for any period, the ratio
of (i) Borrowers' Net Income on a Combined Basis during such period, to (ii)
Borrowers' combined liabilities for interest accruing during such period,
each calculated in accordance with generally accepted accounting principles
consistently applied.
1.11 "LIABILITIES" shall mean any and all liabilities, obligations,
and indebtedness of any Borrowers to the Bank of every kind and description,
direct or indirect, absolute or contingent, matured or unmatured, primary or
secondary, whether as principal borrower or guarantor, liquidated or
unliquidated, due or to become due, now existing or hereafter arising, and
whether arising directly or acquired from others, regardless of how such
Liabilities arise or by what agreement or instrument they may be evidenced or
whether the foregoing Liabilities include obligations to perform acts and
refrain from taking actions as well as obligations to pay money. Without
limiting the foregoing, Liabilities specifically include Borrowers'
obligations evidenced by the Note.
LOAN AND SECURITY AGREEMENT-PAGE 4
<PAGE>
1.12 "LOAN" shall mean the loan from Bank to Borrowers, executed
this date, in the amount of the Note.
1.13 "NET WORTH" shall mean Borrowers' net worth on a Combined
Basis, calculated in accordance with generally accepted accounting principles
consistently applied.
1.14 "NOTE" shall mean the Revolving Promissory Note of even date
herewith in the original principal amount of $4,500,000.00 executed by
Borrowers for the benefit of Bank.
1.15 "PERMANENT PLACEMENT ACCOUNT" shall mean an Account which
arises from the placement of an employee with an employer with the
expectation that the employment will continue indefinitely or until either
the employer or employee wishes to sever the relationship.
1.16 "PROCEEDS" shall mean all forms of payment received by or due
to the applicable Borrowers from the collection of Accounts or performance of
services or sale, lease, exchange, collection, or other disposition of
inventory or other property constituting Collateral hereunder and any and all
claims against any third party for loss or damage to any Collateral,
including insurance claims, and further, without limiting the generality of
the foregoing, Proceeds shall include all Accounts, checks, cash, money
orders, drafts, chattel paper, instruments, notes, or other documents
evidencing payment obligations to the applicable Borrowers for sale or
exchange of Collateral.
1.17 "TANGIBLE NET WORTH" shall mean Borrowers' Net Worth on a
Combined Basis plus all debt of Borrowers on a Combined Basis to its
subordinated creditors that are expressly and validly subordinated to the
Liabilities pursuant to documents in form and substance acceptable to Bank,
LESS (i) any and all loans and other advances to affiliates, subsidiaries,
parent, employees, officers, stockholders, directors, or other related
entities; (ii) notes, notes receivable, accounts, accounts receivable,
inter-company receivable, and other amounts owing from another Borrowers,
affiliates, subsidiaries, parent, employees, officers, stockholders,
directors, or other related entities; (iii) treasury stock, good will,
trademarks, trade names, patents, and deferred charges; and (iv) any and all
other intangible assets; calculated in accordance with generally accepted
accounting principles consistently applied.
1.18 DEFINITIONS. Any terms used to describe Bank's security
interest hereunder not specifically defined herein shall have the meaning and
definition given those terms under the Texas Business and Commerce Code as in
effect from time to time.
SECTION 2. BORROWERS' REPRESENTATIONS, WARRANTIES, AND COVENANTS.
To induce the Bank to enter into this Agreement, the Borrowers
represent, warrant, and covenant as follow:
2.1 Each of Borrowers (a) is a duly organized corporation, which is
validly existing and in good standing under the laws of the state of its
incorporation, (b) is duly qualified and in
LOAN AND SECURITY AGREEMENT-PAGE 5
<PAGE>
good standing (and will remain so qualified and in good standing) in every
state in which it is doing business or in which the failure so to qualify
would or could have an adverse effect on its business or properties or Bank,
and (c) has all necessary corporate power and authority to own its assets and
conduct its business as now conducted or presently proposed to be conducted.
2.2 The execution, delivery, and performance hereof and of all other
agreements or instruments contemplated hereby are within each of Borrowers'
corporate powers, have been duly authorized, and are not in contravention of
the law or the terms of Borrowers' articles of incorporation, bylaws, or
other incorporation papers. The execution, delivery, and performance hereof
and of all other agreements or instruments contemplated hereby are not in
contravention of any indenture, agreement, or undertaking to which each of
the Borrowers is a party or by which they or any of their properties is
bound. This Agreement, the Note, and all other agreements and instruments
executed by each of the Borrowers in connection herewith have been validly
executed and delivered by each, as applicable, and constitute legal, valid,
and binding obligations of Borrowers enforceable against it accordance with
their respective terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws at the time in effect
affecting the rights of creditors generally.
2.3 Except for the security interest granted hereby or by any other
document executed in favor of Bank, the applicable Borrower is and, as to
Accounts, Inventory, and Collateral arising or to be acquired after the date
hereof, shall be the sole and exclusive owner of the Accounts, and each and
every other item of Collateral free from any lien, security interest, or
encumbrance, and each of the Borrowers shall defend its Accounts, and each
and every other item of Collateral and all Proceeds and products thereof
against all claims and demands of all persons at any time claiming the same
or any interest therein adverse to the Bank.
2.4 Each of Borrowers will promptly pay all taxes or charges levied
on or with respect to the Collateral, and will at all times keep the
Accounts, and each and every other item of Collateral free and clear of all
liens, claims, charges, security interests, and encumbrances whatsoever,
other than the security interest granted hereby or by any other document
executed in favor of Bank. Each of Borrowers agrees to take all actions that
the Bank may request to establish and maintain a valid security interest in
the Accounts, and each and every other item of Collateral, free and clear of
all other liens, claims, charges, security interests, and encumbrances
whatsoever. If such taxes or other assessments remain unpaid after the date
fixed for the payment of same, or if any lien, charge, claim, security
interest, or encumbrance shall arise, or be claimed or asserted with respect
to the Accounts, or any other item of Collateral, the Bank may, without
notice to the Borrowers, pay such taxes, assessments, charges, or claims, and
take any and all other actions (including the payment of money) deemed
desirable by the Bank to remove any such lien, charge, claim, security
interest, or encumbrance, and Borrowers agrees that the amounts thereof shall
be charged to the Borrowers' Loan Account created hereby and shall bear
interest at the rate of interest then borne by the Borrowers' obligations
under the Note. Not withstanding the other provisions of this Section 2.4,
nothing herein shall require the payment or discharge of any such taxes or
assessments so long as the applicable Borrowers (a) shall, in good faith, and
at its own expense, contest the same or the validity thereof by appropriate
legal
LOAN AND SECURITY AGREEMENT-PAGE 6
<PAGE>
proceedings diligently pursued; and (b) shall, at the Bank's option, post a
bond or provide other security deemed equivalent by the Bank to cover or
secure payment of such taxes or assessments.
2.5 Each of Borrowers will not sell, transfer, lease, otherwise
dispose of, or suffer to exist any lien, charge, claim, security interest, or
encumbrance (except for those in favor of the Bank) with respect to any of
the Collateral or any interest therein (or any of the Proceeds thereof,
whether money, checks, money orders, drafts, notes, instruments, documents,
chattel paper, Accounts, returns, or repossessions), without the Bank's prior
written consent.
2.6 At the time any Account becomes subject to a security interest
in favor of the Bank, said Account shall be a good and valid Account
representing an undisputed, bona fide indebtedness incurred by the Account
Debtor named therein, for merchandise held subject to delivery instructions
or theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by the applicable Borrower with or for said
Account Debtor; there shall be no set-offs, counterclaims, or disputes
against any such Account except as indicated in some written list, statement,
or invoice furnished to the Bank with reference thereto; and the applicable
Borrower shall be the lawful owner of all such Accounts and shall have good
right to subject the same to a security interest in favor of Bank. No such
Account shall be sold, assigned, or transferred to any person other than the
Bank or in any way encumbered except to the Bank, and the applicable Borrower
shall defend the same against the lawful claims and demands of all persons.
If any Account shall be in violation of any one or more of the warranties
expressed in this section, it shall not be deemed an Eligible Account for
purposes of this Agreement.
2.7 At the time Borrowers pledge, sell, assign, or transfer to the
Bank any instrument, document of title, security, chattel paper, or other
property, or any interest therein, the applicable Borrower shall be the
lawful owner thereof and shall have good right to pledge, sell, assign, or
transfer the same; none of such property shall have been pledged, sold,
assigned, or transferred to any person other than the Bank or in any way
encumbered, and the applicable Borrower shall defend the same against the
lawful claims and demands of all persons.
2.8 Set forth on EXHIBIT A is a list of each office of the Borrowers
at which records of the Borrowers pertaining to Accounts are kept and of
Borrowers' chief executive office. Borrowers shall give sixty (60) days
advance written notice to Bank of any change in any such office or other
location, and, prior to making such change, the Borrowers agree to execute
any additional financing statements or other documents or notices that Bank
may require.
2.9 Subject to any limitations stated therein or in connection
therewith, (a) all balance sheets, earnings statements, and other financial
data which have been or may hereafter be furnished to the Bank to induce it
to enter into this Agreement, or otherwise furnished in connection herewith,
do or shall fairly represent the financial condition and results of
operations of Borrowers (or other entity, as applicable), as of the dates and
for the periods for which the same are furnished, in accordance with
generally accepted accounting principles consistently applied, (b) all
balance sheets, income statements and other financial data of the other
Borrowers which have been or may hereafter be furnished to the Bank do or
shall fairly represent the
LOAN AND SECURITY AGREEMENT-PAGE 7
<PAGE>
financial condition of such Borrowers as of the date and for the period for
which the same are furnished, and (c) all other information, reports, and
other papers and data furnished to the Bank shall be accurate, as of the
relevant date, and correct in all material respects and complete insofar as
completeness may be necessary to give the Bank a true and accurate knowledge
of the subject matter.
2.10 Except as specifically disclosed by the Borrowers to the Bank
in EXHIBIT B, there are no actions, suits, or proceedings pending or, to the
knowledge of the Borrowers, threatened against the Borrowers at law, or in
equity, or by or before any governmental department, commission, board,
bureau, agency, or instrumentality, or any arbitrator, that are not at least
eighty percent (80%) covered by insurance or which involve in the aggregate
as to any one Borrower more than Twenty Five Thousand Dollars ($25,000.00).
2.11 Borrowers are not engaged in the business of extending credit
for the purpose of purchasing or carrying "margin" stock within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System (12
C.F.R. Part 221), as amended from time to time ("Regulation U"). Funds
borrowed pursuant to this Agreement shall not be used for the purpose,
whether immediate, incidental, or ultimate, of purchasing or carrying within
the meaning of Regulation U, any "margin stock" as defined therein, except
with Bank's prior written consent.
2.12 Prior to the execution of this Agreement, each of the Borrowers
is solvent, having assets of a value that exceeds the amount of its or his
respective liabilities. Taking into consideration the considerable value of
the Collateral securing the Liabilities directly incurred by Borrowers, and
the satisfactory value of the rights of subrogation and contribution that
each of Borrowers would enjoy in the event it is required to satisfy the
obligations of another Borrower hereunder, each of Borrowers reasonably
anticipates that it will be able to meet its debts as they mature. Borrowers
have adequate capital to conduct the business in which they are engaged. The
acceptance by Borrowers of advances hereunder shall be deemed to be a
representation and warranty to Bank that each of Borrowers is solvent at the
time of such advance, and otherwise that the representations and warranties
of Borrowers in this Agreement are true and correct as if made again on the
date of such advance.
2.13 Neither this Agreement, nor any document, certificate, or
statement furnished to the Bank by or on behalf of the Borrowers pursuant to
or in connection with this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the
statements contained herein and therein not misleading. There is no fact
known to the Borrowers that materially and adversely affects, or will
materially and adversely affect, the assets, business, operations, or
condition of the Borrowers that has not been specifically set forth in this
Agreement or otherwise disclosed by the Borrowers to the Bank in writing.
2.14 Borrowers will give Bank thirty (30) days prior written notice
of any change of any of Borrowers' name and will execute and deliver to Bank
all financing statement amendments and other documents requested by Bank
prior to such name change becoming effective.
LOAN AND SECURITY AGREEMENT-PAGE 8
<PAGE>
2.15 On or prior to September 30, 1999, Borrowers shall have taken
all action necessary to ensure that the automated systems used by Borrowers
that are material to its operation shall operate properly and process data
accurately, including dates before, as of and after December 31, 1999
(collectively "Year 2000 Compliance"). Borrowers agree that upon the
reasonable request of Lender, Borrowers will make its employees, consultants,
premises, records and documentation available to Lender with respect to
Borrowers' Year 2000 Compliance efforts.
SECTION 3. BANK'S AGREEMENT TO MAKE LOAN.
3.1 Subject to the terms and conditions of this Agreement, and so
long as no Event of Default or event which with notice or the passage of time
would constitute an Event of Default, as defined below or under any other
document or instrument executed in connection herewith shall have occurred or
be continuing:
(a) From the date hereof until June 30, 2000, or such future
date to which the expiration date of the Note may be extended
(the "Revolving Line Termination Date"), the Bank agrees to
extend to Borrowers an open-end credit line on the basis of
the following advance formula (such advance formula being
hereinafter referred to as the "Borrowing Base"):
(i) eighty percent (80%) of the value of Borrowers' Eligible
Accounts, other than Eligible Accounts that are accounts
for permanent placements, plus
(ii) seventy percent (70%) of the value of Borrowers' Eligible
Accounts that are accounts for permanent placements.
provided, however, that in no event shall the aggregate sum
of all advances made by the Bank to Borrowers under the
Revolving Line exceed the Revolving Line Limit as set forth
in Subsection 3.1(b). Within such limits, the Borrowers may
borrow, repay, and reborrow hereunder, from the date of this
Agreement until the Revolving Line Termination Date.
(b) In no event shall the aggregate amount advanced to Borrowers
under the Revolving Line exceed Four Million Five Hundred
Thousand Dollars ($4,500,000.00) at any one time outstanding
(the "Revolving Line Limit").
3.2 All borrowings under the Revolving Line shall be evidenced by
the Note and by entering such advances as debits to Borrowers' Loan Account.
Bank also shall record in Borrowers' Loan Account other charges, expenses,
and items properly chargeable to Borrowers hereunder, all payments made by
such Borrowers on account of its indebtedness hereunder, and other
appropriate debits and credits. The debit balance of Borrowers' Loan Account
shall reflect the amount of Borrowers' indebtedness under the Revolving Line
from time to time hereunder.
LOAN AND SECURITY AGREEMENT-PAGE 9
<PAGE>
Notwithstanding the foregoing, no failure by Bank to properly reflect any
advance actually made or any such charge, expense, or item actually incurred
in Borrowers' Loan Account shall relieve Borrowers from its true and correct
obligations with respect thereto. At least once each month, Bank shall render
a statement of account for Borrowers' Loan Account. Each such statement shall
be considered correct and accepted by the Borrowers and conclusively binding
upon Borrowers except to the extent that Bank receives a written notice of
Borrowers' exceptions within thirty (30) days after such statement has been
mailed by ordinary mail to Borrowers.
3.3 If at any time the sum of the outstanding balance of the
Borrowers' Loan Account exceeds the lesser of (i) its Borrowing Base or (ii)
Revolving Line Limit, then Borrowers shall remit to Bank immediately good
funds sufficient to eliminate such excess. If Borrowers fail to remit to Bank
good funds sufficient to eliminate such excess within such time period, Bank
may, without further notice to or demand on Borrowers, at Bank's option (in
addition to and without waiving any and all other rights and remedies of
Bank) apply against such excess (x) any collections on and Proceeds from
Accounts Receivable forwarded to Bank and/or in Bank's possession; (y) any
other property of Borrowers and the Proceeds thereof now or hereafter held by
Bank (whether for safekeeping, custody, pledge, transmission, collection or
otherwise); and (z) Borrowers' deposit balances (general or special) and
credits with Bank. Borrowers shall repay to the Bank on the Revolving Line
Termination Date the aggregate amount in Borrowers' Loan Account at the close
of business on the Revolving Line Termination Date.
3.4 In the event that the availability of advances expires by the
terms of this Agreement, or by the terms of any agreement extending the
expiration date of this Agreement, Bank may, in its sole discretion, make
requested advances; however, it is expressly acknowledged and agreed that, in
such event, Bank shall have the right, in its sole discretion, to decline to
make any requested advance and may require payment in full of Borrowers' Loan
Account without prior notice to Borrowers and the making of any such advances
shall not be construed as a waiver of such right by Bank.
3.5 The Borrowers shall pay interest on the principal amount of the
Revolving Line from time to time at a per annum interest rate set forth in
the Note, but in no event shall the interest rate exceed the Maximum Rate.
All payments of principal and interest that are past due shall, at the option
of Bank, bear interest at a per annum interest rate equal to the Default Rate.
3.6 All funds borrowed under the Revolving Line shall be used for
working capital and general corporate purposes; however, no more than
$3,000,000.00 may be borrowed on the Revolving Line to fund the cost of
repurchasing registered stock of Diversified Corporate Resources, Inc. or to
fund acquisitions of third parties. Notwithstanding the foregoing, no
borrowings shall be made under the Revolving Line for the purpose of
acquiring a third party, without the prior written consent of the Bank, which
consent may be withheld in Bank's sole discretion.
3.7 In addition to interest accruing on the Revolving Note and to
compensate Bank for maintaining funds available under the Revolving Line,
Borrowers shall pay to Bank on
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July 1, 1999 and on the first (1st) day of each third calendar month
thereafter, through and including the Revolving Line Termination Date, a
commitment fee in the amount of one-quarter percent (1/4%) per annum
calculated on the basis of a year of 360 days on the average daily amount of
the Available Commitment during the preceding three month period (except that
with respect to the fee due on July 1, 1999, such fee shall be calculated for
the period beginning on the date of this Agreement through July 1, 1999, and
with respect to the fee due on the Revolving Line Termination Date, such fee
shall be calculated from the end of the prior period through the Revolving
Line Termination Date. "Available Commitment" shall mean at any time an
amount equal to $4,500,000.00 minus the outstanding principal balance of the
Revolving Note at such time.
Nothing in this Section shall be deemed to extend the duration of
the Loans beyond the times noted in Section 14 hereof.
SECTION 4. INSPECTION OF RECORDS; FURTHER ASSURANCE.
4.1 The Borrowers shall, prior to the funding of the Loan and on a
quarterly basis thereafter, allow the Bank, by or through any of its
officers, agents, employees, attorneys, or accountants (i) to examine,
inspect, or make extracts from the Borrowers' books and records; (ii) to
analyze financial statements; and (iii) to arrange for verification of
Accounts under reasonable procedures, directly with Account Debtors or by
other methods (all the foregoing collectively referred to as "Audits").
Audits by the Bank may be at any time during normal business hours, following
the giving by Bank to Borrowers of five (5) days advance notice, unless an
Event of Default or event which with notice or passage of time would
constitute an Event of Default has occurred, in which event the Audits may be
without prior notice to Borrowers. The Borrowers shall pay Bank an annual
audit fee determined by Bank in its reasonable discretion, which shall not
exceed $1,500.00 per year.
4.2 Each of Borrowers shall do, make, execute and deliver all such
additional and further acts, things, deeds, assurances and instruments which
the Bank may require more completely to vest in and assure to the Bank its
rights hereunder or in any Collateral.
SECTION 5. SECURITY INTEREST OF BANK IN COLLATERAL.
5.1 As security for the payment and performance of all Liabilities,
the Bank shall have and is hereby granted a continuing lien on, a security
interest in and a right of set-off against the following Collateral:
(a) all Accounts of the Borrowers, whether now or hereafter
existing, created, arising or acquired;
(b) all general intangibles of the Borrowers, whether now or
hereafter existing, created, arising, or acquired;
LOAN AND SECURITY AGREEMENT-PAGE 11
<PAGE>
(c) all books and records now owned and hereafter acquired relating
to any other Collateral and all files, correspondence, computer
programs, tapes, disks and related data processing software owned
by any of Borrowers or in which any of Borrowers has an interest
that contains information concerning or relating to any of the
other Collateral or any item thereof; and
(d) all Proceeds and products of all of the foregoing, including,
without limitation, insurance proceeds.
No submission by the Borrowers to the Bank of any schedule or other
particular identification of Collateral shall be necessary to vest in the
Bank a security interest in each and every item of Collateral now existing or
hereafter acquired, but rather, such security interest shall vest in the Bank
immediately upon the creation or acquisition of any item of Collateral,
without the necessity for any other or further action by the Borrowers or the
Bank.
5.2 To the extent applicable, the Texas Business and Commerce Code
governs the security interests provided for herein. In connection therewith,
the Borrowers shall take such steps and execute and deliver such financing
statements and other papers as the Bank may from time to time request.
5.3 If, by reason of location of Collateral or otherwise, the
creation, validity, or perfection of security interests provided for herein
are governed by the law of a jurisdiction other than Texas, the Borrowers
shall take such steps and execute and deliver such papers as the Bank may
from time to time request to comply with the Uniform Commercial Code, the
Uniform Trust Receipts Act, the Factors Lien Act, the Federal Food Security
Act, or other laws of other states or jurisdictions. Borrowers hereby appoint
and empower Bank, or any employee of Bank which Bank may designate for the
purpose, as attorney-in-fact, to execute on its behalf any financing
statements which, in Bank's sole judgment, are necessary to be filed in order
to perfect or preserve the perfection of Bank's security interests granted
hereby.
5.4 The Borrowers shall not sell (except as expressly permitted in
this Agreement), assign, pledge, mortgage, or create or suffer to exist a
security interest in any Accounts, Inventory, other Collateral, or any
Proceeds or products thereof in favor of any person other than the Bank.
SECTION 6. COLLECTION OF ACCOUNTS.
6.1 (a) Until Borrowers are notified by Bank to the contrary,
Borrowers shall have the right to collect Accounts and
deposit proceeds received from Account Debtors in operating
accounts of Borrowers maintained at the Bank.
(b) Following the occurrence of an Event of Default or event
which following notice or the passage of time would constitute
an Event of Default, the Bank may, at its option, notify
Borrowers that Borrowers must immediately establish Remittances
LOAN AND SECURITY AGREEMENT-PAGE 12
<PAGE>
Accounts at the Bank. Thereafter, Borrowers and
the Corporate Borrowers shall notify the Bank of such
collections as are received pursuant to the provisions of
Section 7.1 below and shall hold the proceeds received from
collection in trust for the Bank without commingling the same
with other funds of the Borrowers and shall turn the same over
to the Bank immediately upon receipt in the identical form
received. Proceeds so transmitted to the Bank may be handled
and administered in and through remittance or special
accounts; the maintenance of any such accounts shall be solely
for the convenience of the Bank, and Borrowers shall not have
any right, title, or interest in or to any such accounts or in
the amounts at any time appearing to the credit thereof.
(c) Bank may following notice to Borrowers apply against the
outstanding balance of Borrowers' Loan Account from time to
time any collections on and Proceeds from Accounts Receivable
forwarded to Bank and/or in Bank's possession (including,
without limitation, any such collections and Proceeds in any
lock-box, remittance accounts or any operating or other
account maintained or to be maintained by or for Borrowers at
Bank). Nothing herein shall be deemed to diminish or limit any
of Bank's rights or remedies under applicable law or Section
3.3, Section 10, Section 11, or any other Section of this
Agreement or otherwise. If no Event of Default has occurred or
is continuing hereunder and if there is no excess outstanding
balance in Borrowers' Loan Account required to be paid by
Borrowers under Section 3.3 hereof, Bank may, at its option,
deposit any or all collections on and Proceeds from Accounts
Receivable in Bank's possession into the applicable Borrowers'
operating account maintained and to be maintained at Bank.
Bank shall not be required to credit Borrowers' Loan Account
with the amount of any check or other instrument constituting
provisional payment until the Bank has received final payment
thereof at its office in cash or solvent credits accepted by
the Bank.
(d) Until the Bank requests that Account Debtors on accounts
of the Borrowers be notified of the Bank's security interest,
the applicable Borrowers shall continue to collect such
Accounts. The Borrowers shall, at the request of the Bank,
notify the Account Debtors of the security interest of the
Bank in any Account and shall instruct Account Debtors to
remit payments directly to Bank, and the Bank may itself, at
any time, so notify Account Debtors.
6.2 Borrowers agree that no court action or other legal proceeding
or garnishment, attachment, repossession of property, or any other attempt to
repossess any merchandise covered by an Account shall be attempted by the
Borrowers except by or under the direction of competent legal counsel.
Borrowers hereby agree to indemnify and hold the Bank harmless for any loss
or liability of any kind or character which may be asserted against the Bank
by virtue of any suit filed, process issued, or any repossession or attempted
repossession done or attempted by the Borrowers or by virtue of any other
endeavors which the Borrowers may make to collect any Accounts or repossess
any such merchandise.
LOAN AND SECURITY AGREEMENT-PAGE 13
<PAGE>
SECTION 7. AFFIRMATIVE COVENANTS.
Until all indebtedness of Borrowers to Bank has been paid and all
Liabilities have been satisfied, Borrowers shall furnish or cause to be
furnished to Bank:
7.1 (a) As soon as available, and in any event within 90 days
following the end of Borrowers' fiscal year, an SEC Form 10-K
and an audited financial statement for Borrowers on a Combined
Basis, prepared by an independent certified public accountant
acceptable to Bank, showing the financial condition of
Borrowers at the close of such fiscal year and the results of
operations during such fiscal year, which financial statements
shall be materially complete and correct, prepared in
accordance with GAAP, and shall include, but shall not be
limited to, an operating statement, an income statement, a
balance sheet, a reconciliation of equity amounts, a source
and application of funds report, and such other matters as
Bank may reasonably request.
(b) As soon as available, and in any event within 30 days after
the filing thereof, a copy of the federal income tax returns
of Borrowers and all requests for extensions to the filing
thereof.
(c) As soon as available, and in any event within 45 days
following the end of each fiscal quarter, an SEC Form 10-Q and
internally prepared financial statements for Borrowers on a
Combined Basis, signed by a duly authorized representative,
and showing the results of operations during such quarter,
which statements shall include, but shall not be limited to,
an operating statement, an income statement, a balance sheet,
profit and loss statement, and such other matters as Bank may
reasonably request.
(d) As soon as available and in any event within 45 days from the
end of each fiscal quarter, a Compliance Certificate in form
approved by Bank for the fiscal quarter having then ended.
(e) As soon as available, and in any event within 30 days
following the end of each calendar month, reports
(including agings) in form acceptable to Bank of the
combined accounts receivable of Borrowers as of the last
day of the immediately preceding calendar month, and the
period of time which has elapsed with respect to such
accounts receivable and accounts payable since the invoice
date with respect thereto; provided however, that reports
required under this subparagraph may be deferred until 30
days following the end of each fiscal quarter if, as of
the due date of such report, no principal is then
outstanding under the Note and all accrued interest and
other charges are then paid in full.
LOAN AND SECURITY AGREEMENT-PAGE 14
<PAGE>
(f) Together with each request for an advance, or if not
previously furnished, within thirty (30) days following the
end of each calendar month, a Borrowing Base Report in form
approved by Bank, and if request by Bank, with copies of
invoice register/sales journal, cash receipts journal and
other supporting documentation, as of the last day of the
immediately preceding calendar month signed by an authorized
officer of Borrowers; provided however, that reports required
under this subparagraph may be deferred until 30 days
following the end of each fiscal quarter if, as of the due
date of such report, no principal is then outstanding under
the Note and all accrued interest and other charges are then
paid in full.
(g) if requested by the Bank, monthly, within thirty (30) days
following the end of each calendar month, a report
reflecting the amount of all deposits to operating
accounts, Remittances Accounts (as defined below), if
applicable, and other accounts of Borrowers, together with
the Accounts and amounts thereof with respect to which
deposits were made; provided however, that the Bank may,
following the occurrence of an Event of Default or event
which following notice or the passage of time would
constitute an Event of Default, at its option, require
Borrowers to establish a remittances account maintained by
and in the name of the Bank (the "Remittances Account")
for the deposit of each and every remittance with respect
to the Accounts, and in such event, the Borrowers shall
provide contemporaneously with each and every remittance
with respect to the Accounts and upon each deposit of
funds to the Remittances Account to the Bank, a report
reflecting the amount of all such remittances, the
Accounts and amounts thereof with respect to which such
remittances were made.
(h) Such other documents, instruments, data, or information of any
type reasonably requested by Bank with respect to the accounts
receivable, collections, remittances and any other Collateral.
7.2 The Borrowers shall (a) maintain insurance in form, amount, and
substance acceptable to Bank including, without limitation, extended
multi-peril hazard, worker's compensation, and general liability insurance
written by companies reasonably acceptable to Bank upon all facets of its
business and its property, of such character and amounts as are usually
maintained by companies engaged in like business; (b) furnish to Bank, upon
request, a statement of the insurance coverage; (c) obtain other or
additional insurance promptly, upon request of Bank, to the extent that such
insurance may be available; and (d) cause Bank to be named as loss payee as
to any property constituting Collateral hereunder, pursuant to a loss payable
endorsement in form acceptable to Bank.
7.3 The Borrowers shall maintain with Bank their primary operating
and depository accounts ("Depository Accounts"), and Bank, at Bank's option,
may make all advances hereunder into Borrowers' Depository Accounts, and
Borrowers expressly agrees that Bank may, at Bank's option, debit against any
such Depository Accounts any and all sums, amounts, charges, and payments due
under or in connection with the Loans and/or the Note.
LOAN AND SECURITY AGREEMENT-PAGE 15
<PAGE>
7.4 The Borrowers do and shall at all times comply with all present
and future laws, ordinances, rules, and regulations (of any governmental
authority or entity) applicable to, governing or affecting the Borrowers,
their operations, their property, the Collateral, or any part of any of the
foregoing, and shall immediately notify Bank of any and all alleged or
asserted violations of any such law, ordinance, or regulation.
7.5 Borrowers shall at the time of their first knowledge or notice
immediately notify Bank in writing of (i) the occurrence of any event or the
existence of any event, circumstance, or condition which constitutes or upon
notice or lapse of time would constitute an Event of Default under the terms
of this Agreement and (ii) any other information that may adversely affect in
any material manner the assets of Borrowers including, but not limited to,
the filing of any lawsuit against or involving Borrowers.
7.6 Borrowers shall defend, indemnify and hold harmless Bank of and
from any and all loss, cost, damage or expense, of every kind and nature,
including reasonable attorneys' fees, which Bank could or might incur by
reason of any violation of any laws by Borrowers or by any predecessors or
successors in title to any property of the Borrowers.
Nothing in this Section shall be deemed to extend the duration of
the Loans beyond the times noted in Section 14 hereof.
SECTION 8. NEGATIVE COVENANTS.
8.1 The Borrowers shall not create or permit the creation or
continuance of any lien, charge, encumbrance, or other interest upon any of
their property, except for liens (collectively, "Permitted Liens") (a) for
taxes, assessments or governmental charges not yet payable; (b) of landlords
and vendors arising in the ordinary course of business for sums not yet due;
(c) for purchase money security interests in vehicles and equipment properly
perfected; and (d) approved in advance in writing by Bank or listed on
EXHIBIT C attached hereto.
8.2 Without Bank's prior written consent, none of the Borrowers
shall borrow any money, or otherwise directly or indirectly incur
indebtedness, in an amount greater than $1 million in the aggregate, other
than for trade credit in the ordinary course of business, the existing
indebtedness listed on EXHIBIT C attached hereto and debt to its subordinated
creditors that is expressly and validly subordinated to the Liabilities
pursuant to documents in form and substance acceptable to Bank, and none of
the Borrowers shall guarantee, endorse, or assume, either directly or
indirectly, any indebtedness of any other corporation, person, or entity.
8.3 None of the Borrowers shall liquidate, or discontinue or
materially reduce its normal operations with intention to liquidate, and
shall not merge or consolidate with or into any corporation, partnership, or
other entity, or sell, lease, transfer, or otherwise dispose of all or any
substantial part of its assets, or any of its Accounts. None of the Borrowers
shall cause, allow, or suffer to occur a material change in the ownership,
nature, or management of the applicable
LOAN AND SECURITY AGREEMENT-PAGE 16
<PAGE>
Borrowers or its business without the Bank's prior written consent. None of
the Borrowers will change its name or identity without notifying Bank of such
change in writing at least thirty (30) days prior to the effective date of
such change, and the applicable Borrowers will take all steps necessary prior
to any such change to maintain at all times the priority and validity of all
liens and security interests contemplated by this Agreement.
8.4 Diversified Corporate Resources, Inc. shall not declare, make or
pay any dividends, bonuses or other distributions to any shareholder or
affiliate upon their outstanding shares in excess of $1,000,000.00 in each
fiscal year.
8.5 Without Bank's prior written consent, Borrowers shall not make
in any calendar year capital expenditures or contracts for capital
expenditures together aggregating in excess of $2,000,000.00.
8.6 Borrowers shall not cause, allow, or suffer to occur their Net
Worth (on a Combined Basis) to be less than $8,900,000.00 at any time.
8.7 Borrowers and the Corporate Borrowers shall not cause, allow or
suffer to occur their Interest Coverage Ratio (on a Combined Basis) to be
less than 2.0 to 1.0.
Nothing in this Section shall be deemed to extend the duration of
the Loans beyond the times noted in Section 14 hereof.
SECTION 9. EVENTS OF DEFAULT; ACCELERATION.
Any or all of the liabilities of Borrowers to the Bank, including,
without limitation, the Note and the Liabilities, shall all be, at the option
of the Bank and notwithstanding any time or credit allowed by any instrument
evidencing a Liability, immediately due and payable without notice or demand,
and the obligation of the Bank to make advances hereunder shall immediately
cease and terminate upon the occurrence of any of the following, which shall
be considered Events of Default:
(a) default in the payment or performance, when due or payable, of
any Liability of Borrowers, or of any Liability or obligation of
any endorser, guarantor, or surety for any Liability of the
Borrowers to the Bank;
(b) failure by any of Borrowers to perform any act or obligation
imposed hereby, or in any other agreement to which Bank and any
Borrowers are parties, or any Borrower's failure to abide by the
terms of this Agreement, or any other document or instrument
executed in connection herewith, or in any other agreement to
which Bank and any Borrowers are parties and such failure
continues for fifteen (15) days following the giving of notice
thereof by Bank to Borrowers;
LOAN AND SECURITY AGREEMENT-PAGE 17
<PAGE>
(c) failure of any of Borrowers to pay when due any taxes, including
without limitation federal income and FICA taxes and state and
local sales and property taxes, each with the appropriate taxing
authorities and as required by law;
(d) if any warranty or representation contained herein shall prove
false or misleading or if any of Borrowers, or any endorser,
guarantor, or surety for any Liability of the Borrowers to the
Bank makes any other misrepresentation to the Bank for the
purpose of obtaining credit or any extension of credit;
(e) failure of any of Borrowers, or any endorser, guarantor, or
surety for any Liability of the Borrowers to the Bank, after
request by the Bank, to furnish financial information or to
permit the inspection of the books or records or Collateral of
Borrowers, endorser, guarantor, or surety for any Liability of
the Borrowers to the Bank;
(f) issuance of an injunction or attachment against property of any
of the Borrowers;
(g) calling of a meeting of creditors, appointment of a committee of
creditors or liquidation agents, or offering of a composition or
extension to creditors by, for or of any of Borrowers, or any
endorser, guarantor, or surety for any Liability of the
Borrowers to the Bank;
(h) bankruptcy or Insolvency of any of Borrowers or of any endorser,
guarantor, or surety for any Liability of the Borrowers to the
Bank;
(i) any material change in the nature or executive management of any
of Borrowers or its business without the prior written consent
of the Bank;
(j) any of Borrowers' failure to maintain any insurance required
hereunder or pay any premium on (i) any insurance policy
assigned to the Bank, or (ii) any insurance covering any
Collateral;
(k) fraud or misrepresentation by or on behalf of any of Borrowers
in its transactions with the Bank;
(l) violation of any affirmative or negative covenant recited in
Section 7 or Section 8 hereof or violation of or failure to
abide by any other provision of this Agreement;
(m) any default or event of default under the Note, or any other
document or agreement executed in connection herewith, or any
other document or agreement to which any of Borrowers and Bank
are parties;
(n) any endorser, guarantor, or surety for any Liability terminates
or attempts to terminate a guaranty or other agreement with
Bank, whether or not such
LOAN AND SECURITY AGREEMENT-PAGE 18
<PAGE>
termination or attempted termination constitutes a breach under
such guaranty or other agreement;
(o) if a judgment against any of Borrowers remains unpaid, unstayed,
or undismissed for a period of more than ten (10) days;
(p) if any of Borrowers discontinues doing business for any reason;
or
(q) if any event occurs that, under any agreement to which any of
Borrowers is a party, grants the option to the holder of
indebtedness of such Borrower to accelerate such indebtedness;
SECTION 10. POWER TO SELL OR COLLECT COLLATERAL; REMEDIES CUMULATIVE.
10.1 Upon the occurrence of any one or more of the above Events of
Default and at any time thereafter (such defaults not having been previously
cured), the Bank shall have, in addition to all other rights and remedies,
the remedies of a secured party under the Texas Business and Commerce Code
(regardless of whether the Uniform Commercial Code has been enacted in the
jurisdiction where rights or remedies are asserted), including, without
limitation, the right to take possession of the Collateral, and for that
purpose the Bank may, so far as the Borrowers can give authority therefor,
enter upon any premises on which the Collateral may be situated and remove
the same therefrom or take possession of same and store same on such premises
pending disposition under the terms of this Agreement or applicable law. The
Bank may require the Borrowers to assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is reasonably
convenient to both parties. Unless the Collateral is perishable or threatens
to decline speedily in value or is to a type customarily sold on a recognized
market, the Bank shall give to the Borrowers at least five (5) days' written
notice of the time and place of any public sale of Collateral or of the time
after which any private sale or any other intended disposition is to be made,
which time period shall be deemed for all purposes to be commercially
reasonable. The Bank may, at any time in its discretion, transfer any
securities or other property constituting Collateral into its own name or
that of its nominee, and receive the income thereon and hold the same as
security for the Liabilities or apply it on principal or interest due on
Liabilities. Insofar as Collateral shall consist of Accounts, insurance
policies, instruments, chattel paper, choices in action, or the like, the
Bank may demand, collect, receipt for, settle, compromise, adjust, sue for,
release, extend the time of payment, make allowances and adjustments,
foreclose, or realize upon Collateral as the Bank may determine, whether or
not Liabilities or Collateral are then due, and for the purpose of realizing
the Bank's rights therein, the Bank may receive, open, and dispose of mail
addressed to the Borrowers and endorse notes, checks, drafts, money orders,
documents of title, or other evidences of payment, shipment, or storage or
any form of Collateral on behalf of and in the name of the Borrowers.
10.2 No right, power, or remedy conferred in this Agreement, the
Note, or any other agreement executed in connection herewith or any other
document or agreement to which any of Borrowers and Bank are parties, or now
or hereafter existing at law, in equity, or admiralty, by
LOAN AND SECURITY AGREEMENT-PAGE 19
<PAGE>
statute or otherwise, shall be exclusive, and each such right, power, or
remedy, shall, to the full extent permitted by law, be cumulative and in
addition to every other such right, power, or remedy.
10.3 The sale by Bank of less than the whole of the Collateral shall
not exhaust the rights of Bank hereunder, and Bank is specifically empowered
to make successive sales hereunder until the whole of the Collateral shall be
sold. If the proceeds of any sale of less than the whole of the Collateral
shall be less than the aggregate of the Liabilities, this Agreement and the
security interests created hereby shall remain in full force and effect as to
the unsold portion of the Collateral just as though no sale had been made,
provided, however, that the Borrowers shall never have any right to require
sale of less than the whole of the Collateral but Bank shall have the right,
at its sole election, to sell less than the whole of the Collateral.
10.4 Bank may resort to any security given by this Agreement or to
any other security now existing or hereafter given to secure the payment of
Borrowers' Liabilities, in whole or in part, and in such portions and in such
order as may seem best to Bank in its sole discretion, and any such action
shall not in any way be considered as a waiver of any of the rights,
benefits, or security interests evidenced by this Agreement.
10.5 Bank may, at all times, proceed directly against any of
Borrowers to enforce payment of Borrowers' Liabilities and shall not be
required first to enforce its rights in the Collateral or any other security
granted to it. Bank shall not be required to take any action of any kind to
preserve, collect, or protect Borrowers' rights in the Collateral or any
other security granted to it.
SECTION 11. DEPOSITS.
Bank, any participant, and any other holder of all or any part of
the Liabilities are hereby given a continuing lien as additional security for
all Liabilities hereunder upon any and all moneys, securities, and other
property of the Borrowers, and the Proceeds thereof, now or hereafter held or
received by or in transit to Bank, such participant, or such holder from or
for the Borrowers, whether for safekeeping, custody, pledge, transmission,
collection, or otherwise, and also upon any and all deposit balances (general
or special) and credits of the Borrowers with, and any and all claims of the
Borrowers against Bank, such participant, or such holder at any time
existing, and upon an event of default hereunder, Bank, such participant, or
such holder may apply or set off the same against the Liabilities and
indebtedness hereby secured, without notice and without liability. The
Borrowers agree that any other person or entity purchasing a participation
from Bank may exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such person or
entity was the direct creditor of the Borrowers in the amount of such
participation.
LOAN AND SECURITY AGREEMENT-PAGE 20
<PAGE>
SECTION 12. WAIVERS.
Borrowers and each guarantor, accommodation party, surety, endorser,
or other person or entity liable for the payment or collection of the
Liabilities expressly waive demand, presentment for payment, notice of
protest, notice of intent to accelerate, notice of acceleration, notice of
acceptance of this Agreement, and notice of loans made, credit extended,
Collateral received or delivered, or other action taken in reliance hereon
and all other demands and notices of any description. With respect both to
the Liabilities and Collateral, the Borrowers consent to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange, or release of any or all of the Collateral, to the
addition or release of any party or person primarily or secondarily liable,
to the acceptance of partial payments thereon and the settlement,
compromising, or adjusting of any thereof, all in such manner and at such
time or times as the Bank may deem advisable. The Bank shall have no duty as
to the collection or protection of any or all of the Collateral or any income
thereon, nor as to the preservation of any rights pertaining thereto beyond
the safe custody of Collateral without resorting or regard to other
collateral or sources of reimbursement for the Liabilities. The Bank shall
not be deemed to have waived any of its rights upon or under any of the
Liabilities or Collateral unless such waiver be in writing and signed by the
Bank. No course of dealing and no delay or omission on the part of the Bank
in exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or
waiver of any right on any further occasion. All rights and remedies of the
Bank with respect to Liabilities or Collateral, whether evidenced hereby or
by any other instrument or paper, shall be cumulative and may be exercised
singly or concurrently.
SECTION 13. EXPENSES; PROCEEDS OF COLLATERAL.
Borrowers shall pay all expenses, including without limitation,
reasonable legal expenses, incurred by Bank from time to time in connection
with the preparation, administration, amendment or modification of this
Agreement, the Note, and other documents executed in connection with the
creation of the Loans and those associated with the perfection and creation
of the security interests granted pursuant hereto. The Borrowers shall pay to
the Bank on demand any and all expenses and costs of collection, including,
without limitation, reasonable counsel fees, incurred or paid by the Bank in
protecting or enforcing its rights upon or with respect to any of the
Liabilities or the Collateral. After deducting all of said expenses, the
residue of any proceeds of collection or sale of Liabilities or Collateral
shall be applied to the payment of principal or interest on Liabilities in
such order or preference as the Bank may determine, proper allowance for
interest on Liabilities not then due being made, and any excess shall be
returned to the Borrowers, and the Borrowers shall remain liable for any
deficiency.
SECTION 14. DURATION; EXTENSION.
The Revolving Line shall terminate on the Revolving Line Termination
Date; however, the parties recognize that they may wish to extend the
expiration date by mutual agreement. The termination or expiration of the
Revolving Line shall in no way affect any transactions entered
LOAN AND SECURITY AGREEMENT-PAGE 21
<PAGE>
into or rights created or obligations incurred prior to such termination or
expiration; rather, such rights and obligations shall be fully operative
until the same are fully disposed of, concluded, and/or liquidated. Without
limiting the generality of the foregoing, such termination or expiration
shall not release nor diminish any of the Borrowers' obligations and
agreements hereunder until payment in full of all of the Liabilities under
this Agreement and all other sums and amounts payable under or pursuant to
this Agreement. This Agreement shall be a continuing agreement in every
respect. No modification or amendment of this Agreement or extension of the
Revolving Line Termination Date shall be effective unless placed in writing
and duly executed by Bank and Borrowers.
SECTION 15. GENERAL.
15.1 Any demand upon or notice to a party shall be effective upon
delivery if such notice is given personally, or upon dispatch if deposited in
the mails or delivered to a telegraph, wireless, or radio company addressed
to the other party at the mailing address shown below or, if a party has
notified the other party in writing of a change of address, to the party's
last address so notified. Demands or notices addressed to the Borrowers'
addresses at which the Bank customarily communicates with the Borrowers also
shall be effective.
IF TO BANK:
Compass Bank
P. O. Box 650561
Dallas, Texas 75265-0561
Attention: Jack F. Roberson
IF TO BORROWERS:
Diversified Corporate Resources, Inc.
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
Management Alliance Corporation
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
Information Systems Consulting Corp.
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
LOAN AND SECURITY AGREEMENT-PAGE 22
<PAGE>
Texcel Services, Inc.
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
Train International, Inc.
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
Geier Assessment and Performance Systems, Inc.
12801 N. Central Exp., Suite 350
Dallas, Texas 75243
Attn: M. Ted Dillard
15.2 If at any time or times by assignment or otherwise the Bank
transfers any of the Liabilities (either separately or together with the
Collateral therefor), such transfer shall carry with it the Bank's powers and
rights under this Agreement with respect to the Liabilities and Collateral
transferred, and the transferee shall become vested with said powers and
rights whether or not they are specifically referred to in the transfer. If
and to the extent the Bank retains any other of the Liabilities or
Collateral, the Bank will continue to have the rights and powers herein set
forth with respect thereto.
15.3 This Agreement and all rights and obligations hereunder,
including matters of construction, validity, and performance, shall be
governed by the laws of the State of Texas, except that Finance Code, Section
346, of Vernon's Texas Codes Annotated, which regulates certain revolving
credit loan accounts and revolving tri-party accounts, shall not apply to
this Agreement, the Note, the Revolving Line, or any transaction contemplated
hereby. Unless changed in accordance with law, the applicable rate under
Texas law shall be the indicated rate ceiling from time to time in effect as
provided in Tex. Rev. Civ. Stat. Ann. art. 5069-1D.001.
15.4 This Agreement is performable in Dallas County, Texas, and any
action brought for the enforcement or construction of any term of this
Agreement or any of the Notes or other instruments executed in connection
herewith shall be brought in a court of appropriate jurisdiction in Dallas
County, Texas.
15.5 It is the intention of the Bank and the Borrowers to conform
strictly to any applicable usury laws. Accordingly, if the transactions
contemplated hereby would be usurious under any applicable law, then, in that
event, notwithstanding anything to the contrary in this Agreement, the Note
or any other agreement or instrument entered into in connection with or as
security for or guaranteeing this Agreement or the Note, it is agreed as
follows: (i) the aggregate of all consideration that constitutes interest
under applicable law that is contracted for, taken, reserved, charged, or
received by the Bank under this Agreement, the Note, or under any other
agreement entered into in connection with or as security for or guaranteeing
this Agreement or
LOAN AND SECURITY AGREEMENT-PAGE 23
<PAGE>
the Note shall under no circumstances exceed the Highest Lawful Rate (as
defined below), and any excess shall be canceled automatically and, if
theretofore paid, shall, at the option of the Bank, be credited by the Bank
on the principal amount of any indebtedness owed to the Bank by the Borrowers
or refunded by the Bank to the Borrowers, and (ii) in the event that the
maturity of the Note or any other of the Liabilities are accelerated or in
the event of any required or permitted prepayment, then such consideration
that constitutes interest under law applicable to the Bank may never include
more than the Highest Lawful Rate and excess interest, if any, provided for
in this Agreement or the Note or otherwise shall be canceled automatically as
of the date of such acceleration or prepayment and, if theretofore paid,
shall, at the option of the Bank, be credited by the Bank on the principal
amount of any indebtedness owed to the Bank by the Borrowers or refunded by
the Bank to the Borrowers.
15.6 Notwithstanding anything herein to the contrary, in no event
will interest payable to the Bank exceed the maximum amount permitted by the
law applicable to the Bank (after taking into account all charges payable to
the Bank that constitute interest under such applicable law), but if any
amount referred to in any of this Agreement, the Note, or any other agreement
or instrument to which Bank and the Borrowers are parties that would be
payable to the Bank but for the applicability of usury or other laws limiting
the consideration payable to the Bank is not paid to the Bank as a result of
the applicability of such laws, then interest on the outstanding principal
balance of the Liabilities payable to the Bank shall, to the extent permitted
by law, accrue at the Highest Lawful Rate (after taking into account all
charges payable to the Bank that constitute interest under applicable law)
until the total amount received by the Bank equals the amount it would have
received had no such laws been applicable.
15.7 "HIGHEST LAWFUL RATE" means the maximum non-usurious interest
rate (computed on the basis of a year of 365 or 366 days, as applicable) that
at any time or from time to time may be contracted for, taken, reserved,
charged or received on amounts due to the Bank, under laws applicable to the
Bank that are presently in effect or, to the extent allowed by law, under
such applicable laws which allow a higher maximum non-usurious rate than
applicable laws now allow.
15.8 This Agreement and the documents delivered hereunder or in
connection herewith contain the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements relating to the subject matter hereof and thereof. In the event of
actual conflict in the terms and provisions of this Agreement and any of such
documents or any other instrument or agreement executed in connection with
this Agreement or described or referred to in this Agreement, the terms and
provisions of this Agreement shall control. No modification, consent,
amendment or waiver or any provision of this Agreement, nor consent to any
departure by Borrowers therefrom, shall be effective unless the same shall be
in writing and signed by Bank, and then shall be effectively only in the
specific instance and for the purpose for which given. This Agreement is
binding upon Borrowers, their successors and assigns, and inures to the
benefit of Bank, its successors and assigns. All representations and
warranties of Borrowers herein, and all covenants and agreements herein or in
any document
LOAN AND SECURITY AGREEMENT-PAGE 24
<PAGE>
delivered hereunder or in connection herewith that are not fully performed
before the effective date of this Agreement, shall survive such date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
BORROWERS:
DIVERSIFIED CORPORATE RESOURCES,
INC., a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, President
MANAGEMENT ALLIANCE CORPORATION,
a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
INFORMATION SYSTEMS CONSULTING
CORP., a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
TEXCEL SERVICES, INC.,
a Pennsylvania corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
LOAN AND SECURITY AGREEMENT-PAGE 25
<PAGE>
TRAIN INTERNATIONAL, INC.,
a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
GEIER ASSESSMENT AND PERFORMANCE
SYSTEMS, INC., a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
BANK:
COMPASS BANK
By:
-----------------------------------------
Jack F. Roberson
Its: Senior Vice President
LOAN AND SECURITY AGREEMENT-PAGE 26
<PAGE>
EXHIBIT A
Offices and Other Locations of Borrowers
1. Location(s) at which records regarding Accounts are kept:
2. Chief executive office:
EXHIBIT A TO LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE>
EXHIBIT B
Actions, Suits & Proceedings
EXHIBIT B TO LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE>
EXHIBIT C
Schedule of Certain Indebtedness and Leases
ATTACHED
EXHIBIT C TO LOAN AND SECURITY AGREEMENT - PAGE 1
<PAGE>
REVOLVING PROMISSORY NOTE
$4,500,000.00 Dallas, Texas July 8, 1999
FOR VALUE RECEIVED, the undersigned, DIVERSIFIED CORPORATE RESOURCES,
INC., MANAGEMENT ALLIANCE CORPORATION, INFORMATION SYSTEMS CONSULTING CORP.,
TRAIN INTERNATIONAL, INC., and GEIER ASSESSMENT AND PERFORMANCE SYSTEMS, INC.
each a Texas corporation, and TEXCEL SERVICES, INC., a Pennsylvania corporation,
("Borrowers"), whose addresses for purposes of notice are 12801 N. Central Exp.,
Suite 350, Dallas, Texas, 75243, hereby promise, jointly and severally, to pay
to the order of COMPASS BANK, a Texas state banking corporation (the "Bank";
Bank and any subsequent holder hereof being hereinafter referred to as
"Holder"), without grace at its office at P.O. Box 650561, Dallas, Texas
75265-0561, or such other place as Holder may direct, in lawful money of the
United States of America, with interest, the principal amount of FOUR MILLION
FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($4,500,000.00) (the "Maximum Principal
Amount") or, if less than such principal amount, the aggregate principal amount
(the "Advances") advanced by the Holder from time to time to the Borrowers
pursuant to the Loan Agreement (as defined below). Payment of principal and
interest shall be in accordance with the following provisions:
1. DEFINITIONS.
(a) "APPLICABLE RATE" shall mean the Compass Bank Index Rate,
unless Borrowers give Bank ten (10) days advance notice of Borrowers'
election for interest under this Note to accrue at the LIBOR Rate,
whereupon interest shall be calculated at the LIBOR Rate for the period
selected by Borrowers, which shall not be greater than the time period
prior to Maturity Date.
(b) "BUSINESS DAY" shall mean any day on which all major
departments of Holder are open for business at the address specified
herein.
(c) "COMPASS BANK INDEX RATE" shall mean at any time the
variable rate of interest published in THE WALL STREET JOURNAL's "Money
Rates" table as the prime rate. If multiple prime rates are quoted in
the table, then the highest prime rate will be the Compass Bank Index
Rate. In the event the prime rate is no longer published in the "Money
Rates" table, the Holder will choose a substitute Index Rate which is
based upon comparable information. The term "Compass Bank Index Rate"
is not intended to mean the lowest rate of interest available to the
most creditworthy borrower of Holder.
(d) "DEFAULT RATE" shall mean the lesser of the Maximum Rate
and five percentage points (5%) in excess of the Compass Bank Index
Rate.
Page 1 of 8 Initialed for
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(e) "LIBOR RATE." shall mean a fluctuating per annum rate
equal to two and one-quarter percentage points (2-1/4%) in excess of
the LIBOR Base Rate.
(f) "LIBOR BASE RATE" shall mean the per annum interest rate
calculated by dividing LIBOR (as defined below) by a percentage equal
to one hundred percent (100%) MINUS the Eurodollar Reserve Percentage
(as defined below) in effect for Holder on the first day of the
Eurodollar Interest Period (as defined below). The term "LIBOR" means
the interest rate per annum (rounded upward to the nearest whole
multiple of one-sixteenth of one percent (0.0625%) per annum) quoted on
the Telerate Information System on the Business Day immediately
preceding the first day of the Eurodollar Interest Period as the thirty
(30) day London Interbank Offered Rate. If LIBOR is no longer published
on the Telerate Information System, then LIBOR shall be the interest
rate per annum quoted in THE WALL STREET JOURNAL. If LIBOR is no longer
published in THE WALL STREET JOURNAL, then LIBOR shall be the interest
rate per annum quoted to the Holder by major banks in the London
Interbank Eurodollar market ("LIBOR Banks") as the rate per annum at
which deposits in dollars are offered in London, England to major banks
in the London Interbank market at approximately 11:00 a.m. (New York
time) on the Business Day immediately preceding the first day of the
Eurodollar Interest Period and in an amount substantially equal to the
outstanding principal under this Note for a thirty (30) day period. The
term "Eurodollar Reserve Percentage" means for each Eurodollar Interest
Period the maximum reserve percentage in effect on the first day of
such Eurodollar Interest Period as prescribed by the Board of Governors
of the Federal Reserve System (or any successor) for determining
reserve requirements applicable to "Eurodollar liabilities" pursuant to
Regulation D or any other then applicable regulations of the Board of
Governors (or any successor) which prescribes reserve requirements
applicable to "Eurocurrency liabilities", as presently defined in
Regulation D, or any Eurocurrency funding. The term "Eurodollar
Interest Period" means each successive thirty (30) day period prior to
Maturity Date. Each Eurodollar Interest Period shall commence on the
day on which the next preceding Eurodollar Interest Period expires. If
any Eurodollar Interest Period would otherwise expire on a day which is
not a Business Day such Eurodollar Interest Period shall be extended to
expire on the next succeeding Business Day, if the next succeeding
Business Day occurs in the same calendar month; however, if there will
be no succeeding Business Day in such calendar month, the Eurodollar
Interest Period shall expire on the immediately preceding Business Day.
(g) "MAXIMUM RATE" shall mean, with respect to Holder, the
maximum nonusurious interest rate, if any, that at any time, or from
time to time, may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note, under the laws
which are presently in effect of the United States and the State of
Texas applicable to such Holder and to such indebtedness or, to the
extent permitted by law, and to such indebtedness or, to the extent
permitted by law, under such applicable laws of the United States and
the State of Texas which may hereafter be in effect and which allow a
Page 2 of 8 Initialed for
Identification:
---------------
<PAGE>
higher maximum nonusurious interest rate than applicable laws now
allow. To the extent that Tex. Rev. Civ. Stat. Ann. art. 5069-1D.001
(the "Act"), is relevant to any Holder for the purposes of determining
the Maximum Rate, Holder and each such holder may elect to determine
such applicable legal rate under the Act pursuant to the "interest rate
ceiling", from time to time in effect, as referred to in Article
1D.001(a) of the Act; provided, however, that to the extent permitted
by applicable law, Holder may, in accordance with the Act, from time to
time elect the "weekly ceiling", "monthly ceiling", "quarterly ceiling"
or the "annualized ceiling" as those terms are defined in Subchapter
"A" of the Act, and renew any such election without notice to
Borrowers.
2. PAYMENTS. Borrowers promise to pay interest, on the principal amount
owing hereunder from time to time, computed daily, at a per annum rate equal to
the lesser of the Applicable Rate or the Maximum Rate on September 30, 1999,
December 30, 1999, and March 30, 2000. All outstanding principal and accrued and
unpaid interest on this Revolving Promissory Note (the "Note") and all other
amounts due under the Security Documents (as defined below) shall be due and
payable on June 30, 2000 ("Maturity Date"). Borrowers shall be entitled to
borrow, repay and reborrow principal from the date of this Note until Maturity
Date.
3. UNAVAILABILITY OF LIBOR RATE.
In the event that:
(a) At least one Business Day before the commencement of any
Eurodollar Interest Period the Holder is advised by the LIBOR Banks
that deposits in dollars in the applicable principal amount are not
being offered in the London Interbank Eurodollar market for such
Eurodollar Interest Period; or
(b) The Holder determines that the LIBOR Base Rate plus two
and one-quarter percentage points (2-1/4%) will not adequately reflect
the cost to Holder of obtaining funds in dollars in the London
Interbank market in an amount substantially equal to the outstanding
principal in dollars; or
(c) The period of time remaining prior to the Maturity
Date is less than thirty (30) days;
then and in that event, the Holder shall give written notice thereof to
Borrowers whereupon the right of the Borrowers to have interest
determined with reference to the LIBOR Rate shall be suspended and the
applicable interest rate shall be converted into a floating rate equal
to the Compass Bank Index Rate on the last day of the then current
Eurodollar Period.
Page 3 of 8 Initialed for
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<PAGE>
4. OTHER PAYMENT TERMS.
(a) Should any payment become due and payable on any day other
than a Business Day for Bank, the date of such payment shall be
extended to the next succeeding Business Day, and, in the case of a
payment of principal or past due interest or any installment of either
thereof, interest shall accrue and be payable thereon for the period of
such extension at the applicable interest rate or rates specified
herein.
(b) All payments of principal and interest that are past due
shall, at the option of Bank, bear interest at a per annum interest
rate equal to the Default Rate.
(c) Except for purposes of computing the Maximum Rate,
interest shall be calculated on the basis of a 360-day year applied to
the actual number of days upon which principal is outstanding by
multiplying the principal amount outstanding hereunder by the
applicable interest rate, multiplying the product thereof by the actual
number of days elapsed, and dividing the product so obtained by three
hundred sixty (360).
(d) In lieu of the interest on past due installments provided
for in this Note, Bank may collect a late charge not to exceed five
cents ($.05) for each dollar ($1.00) of each payment of interest,
principal and, if applicable, any other payment due under any of the
Security Documents which is more than ten (10) days in arrears, to
cover the extra expense involved in handling delinquent accounts;
provided however, that should such late charge constitute interest
under any applicable law, such late charge shall not, together with
other interest to be paid, charged, contracted for, received, or
reserved against, or taken on the indebtedness evidenced by this Note,
or indebtedness arising under any of the Security Documents exceed the
Maximum Rate.
5. SECURITY DOCUMENTS. The indebtedness evidenced hereby is secured by
the Revolving Loan and Security Agreement (the "Loan Agreement") dated July 8,
1999 between Borrowers and Bank, along with other documents executed in
connection with the Loan Agreement (the "Security Documents"). This Promissory
Note is included in the indebtedness referred to in the Security Documents and
is entitled to the benefits of those documents, but neither this reference to
those documents nor any provisions thereof shall affect or impair the absolute
and unconditional obligation of the Borrowers to pay the principal of and
interest on this Promissory Note when due.
6. EVENTS OF DEFAULT. The happening of any one or more of the following
events shall constitute an Event of Default:
(a) Borrowers' failure to pay principal or interest due
under this Promissory Note, as and when due and payable;
Page 4 of 8 Initialed for
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<PAGE>
(b) Failure by any of the Borrowers or any other person or
entity to observe any covenant or obligation contained in the Security
Documents or in any other instrument executed in connection with or
securing this Promissory Note, as and when required thereunder and such
failure continues beyond the applicable cure period, if any; or
(c) The occurrence of any event of default specified in any of
the Security Documents or in any other document, agreement or
instrument now or hereafter executed in connection with or securing
this Promissory Note.
Upon the happening of an Event of Default or at any time thereafter during the
continuance of any such event, the Holder may, with or without notice to the
Borrowers, declare this Promissory Note to be forthwith due and payable, both as
to principal and interest, without presentment, demand, protest, or other notice
of any kinds, all of which are hereby expressly waived, anything contained
herein or in any of the Security Documents or in any other instrument executed
in connection with or securing this Promissory Note to the contrary
notwithstanding. Reference is made to the Loan Agreement for a statement of the
terms and conditions under which the line of credit represented by this
Promissory Note is being made available to Borrowers and of additional terms and
conditions under which this Promissory Note may be accelerated.
7. WAIVERS. Borrowers and each guarantor, accommodation party, surety,
endorser or other person or entity liable for the payment or collection of this
Promissory Note expressly waive demand and presentment for payment, notice of
nonpayment, protest, notice of protest, notice of dishonor, notice of intent to
accelerate, notice of acceleration, all other notices, bringing of suit and
diligence in taking any action to collect amounts called for hereunder or
enforcing any security or guaranty, and agree to any substitution, exchange or
release of any security, with our without consideration, now or hereafter given
for this Promissory Note or the release of any party primarily or secondarily
liable hereon. Borrowers and each guarantor, accommodation party, surety,
endorser or any other person or entity liable for the payment or collection of
this Promissory Note further agrees that it will not be necessary for the owner
or Holder hereof, in order to enforce payment of this Promissory Note, to first
institute or exhaust its remedies against any maker or other party liable hereon
or to enforce its rights against any security or guaranty for this Promissory
Note, and hereby consents to the renewal and extension from time to time of this
Promissory Note, and any other indulgence with respect hereto without notice of
any such renewal, extension or indulgence, and without limit as to the number of
such renewals, extensions or indulgences or the period or periods thereof.
8. ATTORNEYS' FEES AND COSTS. Borrowers agree to pay reasonable
attorneys' fees and costs incurred by the Holder in collecting or attempting to
collect this Promissory Note, whether by suit or otherwise.
Page 5 of 8 Initialed for
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<PAGE>
9. LIMITATIONS ON INTEREST.
(a) It is the intention of the Bank and the Borrowers to
conform strictly to any applicable usury laws. Accordingly, if the
transactions contemplated hereby would be usurious under any applicable
law, then, in that event, notwithstanding anything to the contrary in
this Promissory Note, the Security Documents or any other agreement
entered into in connection with or as security for or guaranteeing the
Loan Agreement or this Promissory Note, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under
applicable law that is contracted for, taken, reserved, charged or
received by the Bank under this Promissory Note, the Security Documents
or under any other agreement entered into in connection with or as
security for or guaranteeing the Loan Agreement or this Promissory Note
shall under no circumstances exceed the Maximum Rate, and any excess
shall be canceled automatically and, if theretofore paid, shall, at the
option of the Bank, be credited by the Bank on the principal amount of
any indebtedness owed to the Bank by the Borrowers or refunded by the
Bank to the Borrowers; and (ii) in the event that the maturity of this
Promissory Note is accelerated or in the event of any required or
permitted prepayment, then such consideration that constitutes interest
under law applicable to the Bank may never include more than the
Maximum Rate, and excess interest, if any, provided for in this
Promissory Note, the Security Documents or otherwise shall be canceled
automatically as of the date of such acceleration or prepayment and, if
theretofore paid, shall, at the option of the Bank, be credited by the
Bank on the principal amount of any indebtedness owed to the Bank by
the Borrowers or refunded by the Bank to the Borrowers.
(b) Notwithstanding anything herein to the contrary, in no
event will interest payable to the Bank exceed the Maximum Rate (after
taking into account all charges payable to the Bank which constitute
interest under such applicable law), but if any amount referred to in
this Promissory Note which would be payable to the Bank but for the
applicability of usury or other laws limiting the consideration payable
to the Bank is not paid to the Bank as a result of the applicability of
such laws, then interest on the outstanding principal balance of this
Promissory Note payable to the Bank shall, to the extent permitted by
the law, accrue at the Maximum Rate (after taking into account all
charges payable to the Bank which constitute interest under applicable
law) until the total amount received by the Bank equals the amount it
would have received had no such laws been applicable.
10. APPLICABLE LAW; ASSIGNS. This Note shall be governed by, and
construed in accordance with, the laws of the State of Texas (except that
Finance Code, Chapter 346 of Vernon's Texas Codes Annotated, which regulates
certain revolving credit loan accounts and revolving tri-party accounts, shall
not apply to this Promissory Note or any transaction
Page 6 of 8 Initialed for
Identification:
---------------
<PAGE>
contemplated hereby); subject, however, to the effect of applicable federal law.
Unless changed in accordance with law, the applicable rate under Texas law shall
be the indicated rate ceiling from time to time in effect as provided in Tex.
Rev. Civ. Stat. Ann. art. 5069-1D.001. As used herein, the terms "Borrowers",
"Bank" and "Holder" shall be deemed to include their respective successors,
legal representatives and assigns, whether by voluntary action of the parties or
by operation of law.
IN WITNESS WHEREOF, Borrowers have caused this Promissory Note to be
duly executed and delivered as of effective July 8, 1999.
BORROWERS:
DIVERSIFIED CORPORATE RESOURCES, INC.,
a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, President
MANAGEMENT ALLIANCE CORPORATION,
a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
INFORMATION SYSTEMS CONSULTING
CORP., a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
Page 7 of 8
<PAGE>
TEXCEL SERVICES, INC.,
a Pennsylvania corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
TRAIN INTERNATIONAL, INC.,
a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
GEIER ASSESSMENT AND PERFORMANCE
SYSTEMS, INC., a Texas corporation
By:
-----------------------------------------
M. Ted Dillard, Vice President
Page 8 of 8
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "AGREEMENT") is entered into, by and
among Diversified Corporate Resources, Inc., a Texas corporation ("DCRI"),
MAGIC Northeast, Inc., a Delaware corporation ("Buyer"), Joseph H. Hosmer, an
individual ("Hosmer"), and Sandra Hosmer, an individual (Sandra Hosmer and
Hosmer are sometimes individually referred to herein as the "Shareholder" and
are sometimes collectively referred herein to as the "Shareholders").
WHEREAS, Shareholders own all of the issued and outstanding shares
of capital stock of Mountain, Ltd., a Maine corporation ("Mountain"); and
WHEREAS, Mountain is engaged in the business of providing staffing
services (the "BUSINESS"); and
WHEREAS, DCRI is engaged in the business of providing staffing
services and has formed Buyer as a wholly-owned subsidiary to acquire the
Business; and
WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires
to purchase from the Shareholders, on the terms and conditions hereinafter
set forth, all of the issued shares of the capital stock of Mountain (the
"TRANSACTION"); and
WHEREAS, DCRI has agreed to guarantee all obligations of Buyer
hereunder; and
WHEREAS, the Shareholders have agreed to indemnify DCRI and Buyer
against certain Losses (as hereinafter defined), and to execute certain
related agreements in connection herewith.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, DCRI, Buyer, and the Shareholders hereby agree
as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
1.1 AGREEMENT TO PURCHASE AND SELL. On the terms and subject to the
conditions of this Agreement, Shareholders agree to sell, convey, transfer,
assign and deliver to Buyer, free and clear of all liens, claims and
encumbrances, and Buyer agrees to purchase from Shareholders, all of the
issued and outstanding shares of capital stock of Mountain (the "Mountain
Stock").
1.2 ASSETS. Subject to SECTION 1.3, the assets of Mountain (herein
collectively referred to as the "Assets" or the "Assets of Mountain") shall
consist of all assets owned by Mountain as of the Closing (as defined below)
and used in connection with the Business and that are described as follows:
(a) The real estate leasehold interests of Mountain
(collectively, the "LEASED PROPERTIES"), copies of which leases are attached
hereto as SCHEDULE 1.2(a) (the "REAL PROPERTY LEASES").
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(b) All of the furniture, fixtures, equipment (including but
not by way of limitation, computers, printers, telephones, facsimile machines
and copiers) machinery, apparatus, appliances, vehicles, implements and all
other tangible personal property of every kind and description (the
"EQUIPMENT") of Mountain, including without limitation the assets listed in
SCHEDULE 1.2(b).
(c) All right, title and interest of Mountain in, to and
under the contracts and agreements described on SCHEDULE 1.2(c) attached
hereto (the "ASSUMED CONTRACTS") and all of the rights (including rights of
refund and offset), privileges, claims, causes of action and options of
Mountain relating or pertaining to the Assumed Contracts or any thereof.
(d) All right, title and interest of Mountain in, to and
under all permits and licenses relating to the Business or all or any of the
Assets.
(e) All of the books, records, papers and instruments of
whatever nature and wherever located, whether stored in or readable or
accessible by computer or otherwise of Mountain, relating to the Business and
the Assets, including, without limitation, accounting and financial records,
sales records, customer data, supplier data, sales literature and other sales
aids, salary records, contract forms, technical data, graphic materials,
pricing and information manuals and customer files.
(f) All right, title and interest of Mountain 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) All insurance proceeds and insurance claims of Mountain
relating to all or any part of the Assets or the Business.
(h) The benefit of and the right to enforce the covenants
and warranties, if any, that Mountain is entitled to enforce with respect to
the Assets.
(i) All of the rights, if any, of Mountain, 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) All of the rights, title and interest of Mountain in and
to the name "Mountain, Ltd.", and each of the names listed in Schedule
1.2(j), and all names derived from or bearing a resemblance to such names;
and all related logos and trade names including, without limitation, all of
the corporate, copyright, trademark and service mark rights and interests in
such names, logos and trade names, and goodwill associated therewith.
(k) 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).
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(l) All right, title and interest of Mountain in, to and
under all rights, privileges, claims, causes of action and options relating
or pertaining to the Business and the Assets.
(m) All of Mountain's accounts receivable from customers and
others and in and to any income and payment due to Mountain arising out of
the Business, all as more particularly described in SCHEDULE 1.2(m);
provided, that from the date of SCHEDULE 1.2(m) through the Closing such
accounts receivable may be reasonably increased or decreased in the ordinary
course of business.
(n) All of Mountain 's cash on hand and in its bank
accounts, marketable securities, cash equivalents and short-term investments.
(o) All other assets owned by Mountain and used in
connection with the Business other than Excluded Assets.
1.3 ASSETS NOT TO BE CONVEYED. Notwithstanding anything to the
contrary contained herein, the Assets shall not include (and the following
shall be transferred to the Shareholders): (a) the assets listed on SCHEDULE
1.3 attached hereto, (b) if and to the extent Mountain's net working capital
(current assets of Mountain less current and other monetary obligations of
Mountain) exceeds $1,000,000.00 (the "Minimum Amount of Working Capital") on
the Closing Date (as herein defined), the Shareholders shall be entitled to
retain cash equal to the net working capital (as defined) in excess of the
Minimum Working Capital, (c) all claims of Mountain for refunds of any income
taxes (whether federal, state, local, foreign or other) applicable to periods
prior to the and Closing Date (as herein defined), and (d) any rights
accruing as a result of, or any proceeds paid or payable in accordance with,
this Agreement (collectively, the "EXCLUDED ASSETS").
The parties hereto acknowledge and agree that the amount payable to
Shareholders pursuant Section 1.3 shall be paid to Shareholders within the
later of forty-five (45) days of the Closing Date (as herein defined), or the
date received by Mountain.
1.4 WORKERS COMPENSATION MATTERS. The parties hereto acknowledge and
agree that (a) in the state of Maine workers compensation insurance is
estimated and paid in advance with subsequent obligations to pay, or rights
to receive refunds, once a final determination is made as to actual premiums
owed, (b) if Mountain owes additional premiums for workers compensation
insurance for any period of time prior to the Closing Date, such obligations
shall be the responsibility of the Shareholders, and (c) if Mountain is
entitled to a refund, due to overpayment of workers compensation insurance
during the period of time prior to the Closing Date, upon receipt such refund
shall be paid to the Shareholders.
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ARTICLE 2
PURCHASE PRICE
2.1 PURCHASE PRICE.
(a) The total purchase price (the "PURCHASE PRICE") shall be
the sum of the following: (i) cash payment at the Closing in the amount of
$2,428,769 million, (ii) three (3) installment payments (the "Installment
Payments") each in the amount of $1,178,490 on October 1 of each of the years
2000, 2001, and 2002, subject to adjustment as provided in SECTIONS 2.1(b)
and 2.1(c) hereof, (iii) 75,000 shares (the "DCRI Stock") of Common Stock,
$.10 par value, of DCRI (the "Common Stock") and (iv) the payment by Buyer of
those liabilities and obligations of Mountain listed on SCHEDULES 1.2(c) AND
2.1(A) (the liabilities and obligations listed on SCHEDULES 1.2(c) AND 2.1(a)
being referenced to as the "ASSUMED LIABILITIES").
(b) During any year of the three year period (the
"Installment Period"), from October 1, 1999, to September 30, 2002 (each year
for purposes of this SECTION 2.1(b) shall begin on October 1 and end
September 30), the Installment Payment for that Installment Period shall be
reduced (to the extent and in the manner herein provided) if Mountain's
EBITDA for the Installment Period involved (the "Applicable EBITDA"), is not
equal to at least $1,094,040 ("1998 EBITDA") as below provided. Except as
otherwise provided herein, the amount of the reduction each year (i) shall be
a maximum of twenty-five percent (25%) of the amount of the Installment
Payment payable, and (ii) and if the Applicable EBITDA is less than
$1,094,000, the amount of Installment Payment involved to be payable shall be
determined by multiplying the Installment Payment payable by a percentage
determined by dividing the Applicable EBITDA by the 1998 EBITDA. Provided,
however, if Mountain's contract with Bell Atlantic (the "Bell Atlantic
Contract"), a copy of which is attached hereto as SCHEDULE 2.1(b), is not
renewed by December 31, 1999, or within a reasonable period of time
thereafter, or if Mountain's revenues from services provided to Bell
Atlantic, during any year of the Installment Period, decline by fifty percent
(50%) or more in comparison to the level of Mountain's revenues from services
provided to Bell Atlantic during 1998, the aforesaid maximum amount of
reduction of each Installment Payment shall be increased from twenty-five
percent (25%) to fifty percent (50%).
(c) Recognizing that determination of Applicable EBITDA will
extend beyond the dates each Installment Payment is due and payable, DCRI
shall make a reasonable estimate of Mountain's Applicable EBITDA and make an
Installment Payment based upon such estimate; once the actual amount of the
Applicable EBITDA of Mountain is determined, (i) DCRI shall make an
additional payment to the Shareholders if the Installment Payment made was
less than what should have been paid, or (ii) the Shareholders shall pay to
Buyer, within thirty (30) days from the date that Buyer provides the
Shareholders with written notice as to the determined of, and the amount of,
Applicable EBITDA, if and to the extent that any Installment Payment made
exceeds what should have been paid based upon the actual amount of the
Mountain's Applicable EBITDA.
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(d) For purposes of this Agreement, EBITDA shall mean
earnings before interest, taxes, depreciation and amortization as determined
by DCRI in accordance with generally accepted accounting principles as
consistently applied. For purposes of calculating Mountain's EBITDA, such
calculation shall exclude (i) the revenues and profits from any business
operations other than those of Mountain unless and to the extent that DCRI
and Shareholders mutually agree that the revenues and profits from any other
business operations are to be included in determining EBITDA, and (ii) any
corporate overhead allocation from DCRI.
(e) The parties agree that (i) DCRI shall not be deemed to
be in default under the terms of this Agreement if (A) the estimate of
Applicable EBITDA of Mountain is not unreasonable, and (B) if the actual
amount of Applicable EBITDA of Buyer is determined within forty-five (45)
days from the date an Installment Payment is initially due and payable, (ii)
DCRI shall thereafter have the right to make adjustments with respect to the
Applicable EBITDA of Mountain if such adjustments are determined to be
appropriate by DCRI in connection with its annual audit by a firm of
independent public accountants, (iii) DCRI is obligated to provide to the
Shareholders a detailed schedule of information and extraordinary
adjustments, if any, each time (A) DCRI makes an Installment Payment to the
Shareholders, (B) makes a final determination of actual Applicable EBITDA of
Mountain, or (C) makes any adjustments to Applicable EBITDA of Mountain, (iv)
the Shareholders and their designated representatives shall have the right to
review and audit each determination of actual Applicable EBITDA of Mountain
and any subsequent adjustments to actual Applicable EBITDA of Mountain,
provided however, that such review and or audit must be initiated within
sixty (60) days from the date of DCRI providing to the Shareholders a
determination of Applicable EBITDA of Mountain, and must be completed within
a reasonable period of time thereafter, (v) DCRI and Buyer shall cooperate
with the Shareholders and their designated representatives in the connection
with the process of the Shareholders reviewing or auditing a determination by
DCRI related to Applicable EBITDA of Mountain, and (vi) if DCRI and Mountain
are unable to resolve within thirty (30) days any disputes as to actual
Applicable EBITDA of Mountain or adjustments thereto, such disputes shall be
resolved by arbitration pursuant to the arbitration provisions of this
Agreement.
(f) Notwithstanding anything herein to the contrary, up to
fifty percent (50%) of each Installment Payment may be paid, at the exclusive
option of Buyer, in shares of Common Stock (which shall be valued at the
market value of such shares, as herein defined) and the balance of each
Installment Payment shall be in cash. For purposes of determining the portion
of an Installment Payment paid for with shares of Common Stock, the market
value of each share of Common Stock shall be the average closing price of
such stock on the Amex (or the NASDAQ if not then listed on the Amex) during
the first fifteen (15) business days of the month preceding the month in
which the Installment Payment is due and payable.
In the event that Buyer elects to issue to Buyer shares of Common
Stock, one of the following must be applicable: (i) Buyer shall have
delivered to Shareholders an opinion of Buyer's counsel that the holding
period under Rule 144 for such shares of Common Stock, under the applicable
Federal and State securities laws, commenced as of the Closing Date, or (ii)
DCRI shall have agreed to register to resale of such shares registered by
DCRI under the Securities Act of 1933, as amended.
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2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Shareholders and/or the Assets in the manner set forth in
SCHEDULE 2.2; provided that part of the Purchase Price shall be allocated in
the manner set forth in SCHEDULE 2.2 to Hosmer and Sandra Hosmer as
compensation paid to such individuals in consideration of their respective
covenants regarding noncompetition. The parties agree (a) that the
Transaction may be treated by Buyer as a purchase of the Assets pursuant to
Section 338 of the Internal Revenue Code of 1986, as amended (the "CODE"),
(b) Shareholders and Mountain agree to make the Code Section 338 (h)(10)
election, and (c) if the Transaction is treated by Buyer as a purchase of the
Assets, (i) the parties hereto agree to comply with all of the requirements
of Section 1060 of the Code, and (ii) that, without the consent of all
parties, no party will make any representation to any other party as to the
allocation of the Purchase Price to the Assets set forth in SCHEDULE 2.2 that
is at variance with the allocation set forth on such schedule or take any
position on their income tax returns or any other document that is
inconsistent with such allocation.
In the event there is an unfavorable determination by the Internal
Revenue Service ("IRS") that this Transaction cannot be treated by
Shareholders as an installment sale, upon the written request of
Shareholders, Buyer shall advance to Shareholders from the next Installment
Payment(s) payable, an amount equal to the federal income taxes payable by
Shareholders as a result of the transaction not qualifying as an installment
sale. In such event, the amount payable to the Shareholders shall be reduced
by an amount equal to eight percent (8%) of the advance payment requested by
the Shareholders. Buyer shall not be obligated to make any advance pursuant
hereto unless Buyer and DCRI agree in writing to the Shareholders agreeing to
compromise or resolve any tax dispute with the IRS on the installment tax
issue, or agreeing to treat the Transaction other than as an installment sale.
ARTICLE 3
CLOSING
3.1 TIME AND PLACE OF CLOSING. The sale and purchase of the Mountain
Stock pursuant to this Agreement (the "CLOSING") shall take place on August
6, 1999, at the offices of Van Meer & Belanger, located at 25 Long Creek Dr.,
South Portland, ME. 04106, or at such other time and place as the parties may
agree; but in no event later than September 15, 1999. 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 TO BE TAKEN AT CLOSING BY SHAREHOLDERS. At the Closing
and subject to the terms and conditions hereof, the Shareholders agree to
take the following actions, all of which shall constitute conditions
precedent to DCRI's and Buyer's obligations to close hereunder:
(a) Execute and deliver to Buyer the following:
1. Bills of sale or stock power assignments
executed by the Shareholders conveying to Buyer all of the Mountain Stock
(the "BILLS OF SALE").
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2. 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 and to vest in Buyer title thereto free and clear of all liens, claims
and encumbrances.
(b) Deliver to Buyer the following:
1. Certificate of the Secretary of the State
of Maine, dated as of a recent date, duly certifying as to the existence
and good standing of Mountain as a corporation under the laws of the State of
Maine.
2. Certificates duly executed by the Secretary or
Assistant Secretary of Mountain pursuant to which such officer shall certify
(i) the incumbency and true signatures of those officers of Mountain duly
authorized to act on its behalf in connection with the Transaction and this
Agreement and to execute and deliver the other agreements and documents
contemplated hereby on behalf of Mountain, and (ii) that the copy of the
Articles of Incorporation and Bylaws of Mountain attached to such certificate
are true and correct and such Articles of Incorporation and Bylaws have not
been amended except as reflected in such copy.
3. Original copies of all Assumed Contracts and all
amendments, supplements or modifications thereto.
4. All of Mountain's books and records constituting
a part of the Assets.
5. The certificates of Shareholders referred to in
SECTION 9.1 and SECTION 9.2.
6. Possession or constructive possession of the
Assets and access to and keys for any properties related to the Business.
7. Such documents necessary to release the Assets
from those liens, claims and encumbrances, which the parties agree are to be
released; such documents shall be in form and substance satisfactory to Buyer
and to Buyer's counsel.
8. To the extent agreed to by the parties, UCC-3
Termination Statements with respect to all recorded UCC-1 Financing
Statements affecting the Assets.
9. The legal opinion referred to in SECTION 9.5.
10. Cause Hosmer to enter into an employment
agreement with Buyer (the "HOSMER EMPLOYMENT AGREEMENT"), substantially in
the form of SCHEDULE 3.2(a)(10) hereto.
11. A document pursuant to SECTION 9.10 of this
Agreement.
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12. All other documents required to be executed and
delivered by the Shareholders pursuant to this Agreement.
(c) Perform all other obligations required to be performed
at Closing by the Shareholders pursuant to this Agreement.
3.3 ACTIONS TO BE TAKEN AT CLOSING BY HOSMER. At the Closing,
subject to the terms and conditions hereof, Hosmer shall execute and deliver
to Buyer the Hosmer Employment Agreement, which shall constitute conditions
precedent to DCRI's and Buyer's obligations to close hereunder.
3.4 ACTIONS TO BE TAKEN AT CLOSING BY BUYER. At the Closing, subject
to the terms and conditions hereof, DCRI or Buyer shall take the following
actions, all of which shall constitute conditions precedent to the
obligations of each Shareholder to close hereunder:
(a) Deliver to Shareholders the following:
1. A certificate duly executed by the Secretary or Assistant
Secretary of each of DCRI and Buyer pursuant to which such officer shall
certify (i) the due adoption by the Board of Directors of DCRI and 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, and (ii) the incumbency and true signatures of those officers of
DCRI and Buyer duly authorized to act on their respective 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 DCRI and Buyer.
2. The certificate of Buyer referred to in SECTION
10.1 and SECTION 10.2.
3. The legal opinion referred to in SECTION 10.4.
4. To enter into the Hosmer Employment Agreement.
5. All other documents required to be executed and
delivered by DCRI or Buyer pursuant to this Agreement.
(b) Perform all other obligations required to be performed
at Closing by DCRI or Buyer pursuant to this Agreement.
3.5 SCHEDULES. Each of the parties hereto acknowledge that (a) one
or more of the schedules to be attached to this Agreement (collectively
referred to as the "Schedules") have not been completed at the time of
execution of this Agreement, and (b) each of the parties shall use their best
efforts to complete all of the Schedules and to satisfy any of the objections
thereto of any party to this Agreement.
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3.6 AUDIT. Prior to the Closing Date, the Shareholders shall allow
the auditing firm designated by Buyer to perform an audit of the financial
statements of Mountain for the years 1996, 1997 and 1998. The cost of such
audit shall be the responsibility of (a) Buyer if this Agreement is closed
(by Shareholders selling the Mountain Stock to Buyer) as anticipated by the
terms of this Agreement, and (b) the Shareholders and Buyer, in equal amounts
subject to the understanding that the maximum amount to be paid by the
Shareholders shall be $25,000.00, if this Agreement is not closed (by the
Shareholders selling the Mountain Stock to Buyer) on or before September 15,
1999.
ARTICLE 4
PERSONNEL AND EMPLOYEE BENEFITS
4.1 PERSONNEL. Buyer shall, after the Closing, cause Mountain to
continue employment on a temporary or permanent basis certain of the
employees of Mountain (collectively, the "EMPLOYEES"). Shareholders shall
encourage the Employees to continue in the employment of Mountain, and
Shareholders 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 maintain
any other employee benefit plan, contract, practice, program, policy or
arrangement of any kind of Mountain, 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. It is contemplated that those employees who continue to be
employees of Mountain shall be allowed to participate in the 401(k) Plan of
DCRI, and to roll into such plan the contributions previously made by such
employees to the 401 (k) Plan of Mountain.
Notwithstanding the foregoing, Buyer agrees to (a) maintain a cash
bonus plan for the employees of Mountain, (b) assume responsibility for the
accrued vacation time of all employees of Mountain other than the
Shareholders, which is set forth in SCHEDULE 4.2(c) to this Agreement, and
(c) continue in place, until at least December 31, 1999, the group health
plan of Mountain which is described in SCHEDULE 4.2 to this Agreement. Unless
Buyer and Hosmer hereafter agree to the contrary in writing, all bonus
compensation payable by Buyer to Hosmer is as set forth in the Hosmer
Employment Agreement.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder, jointly and severally, represents and warrants to
DCRI and Buyer as follows:
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5.1 ORGANIZATION AND STANDING. Mountain is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Maine, and of each jurisdiction where Mountain owns property or is
required to be authorized to do business.
5.2 AUTHORITY. Mountain has full power and authority to own and
lease its Assets and to conduct the Business as it is now being conducted.
Shareholders have the full power and authority 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. Shareholders have
taken all 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 to be executed by Shareholders
have been, or at Closing will be, duly executed by the Shareholders, and each
constitutes the valid and binding obligation of Shareholders, enforceable in
accordance with their respective terms and conditions.
5.4 CAPITALIZATION. The Shareholders own all of the issued and
outstanding capital stock of Mountain, free and clear of all liens, claims,
encumbrances, equities and proxies. Each outstanding share of capital stock
of Mountain has been legally and validly issued and is fully paid and
nonassessable. There exist no options, warrants, subscriptions or other
rights to purchase, or securities convertible into or exchangeable for, any
of the authorized or outstanding securities of Mountain. No shares of capital
stock of Mountain are owned by Mountain in treasury or otherwise have been
issued or disposed of in violation of the preemptive rights of any of the
Shareholders. SCHEDULE 5.4 reflects the ownership by the Shareholders of the
Mountain Stock.
5.5 CORPORATE RECORDS. The copies of the Articles of Incorporation
and all amendments thereto and the Bylaws of Mountain that have been
delivered to DCRI are true, correct and complete copies thereof. The minute
books of Mountain, copies of which have been delivered to DCRI, contain
accurate minutes of all meetings of, and accurate consents to all actions
taken without a meeting by, the Boards of Directors (and any committees
thereof) and the stockholders of Mountain since the incorporation of Mountain.
5.6 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. Neither
Shareholders nor Mountain are in violation of or default under, and the
execution and delivery of this Agreement and the other agreements and
documents contemplated hereby by Shareholders and Mountain 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 Shareholders or Mountain
is a party or by which any of the Assets are bound, (b) any provision of the
charter or Bylaws of Mountain, (c) any federal, state, foreign or local law,
statute, regulation or ordinance applicable to the Business or any of the
Assets, (d) any provision of the permits or licenses affecting or relating to
the Assets or the Business, or (e) any of the software license agreements
which Mountain have with any third party providers. To the knowledge of the
Shareholders, Mountain is in compliance
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in all material respects with all federal, state or local laws, statutes,
regulations or ordinances governing or applicable to the Business or the
Assets.
5.7 CONSENTS. Except for the consents specified in SCHEDULE 5.7
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 the
Shareholders in connection with (a) the execution, delivery or performance by
the Shareholders of this Agreement or the other agreements and documents
contemplated hereby, or (b) the consummation by the Shareholders of the
Transaction.
5.8 ASSETS; TITLE TO ASSETS; LIENS. Except for the Excluded Assets
described in SECTION 1.3, the Assets described SECTION 1.2 hereof are the
only assets, properties, rights and interests used by the Mountain in
connection with the Business. The Assets constitute all of the assets,
properties, rights and interests necessary to conduct the Business in
substantially the same manner as conducted by Mountain prior to the Closing
Date. Except with respect to the Excluded Assets described in SECTION 1.3, no
officer, director, shareholder or employee of Mountain have retained any
material interest in any property, real or personal, tangible or intangible,
used or pertaining to Business. Mountain 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 5.8 hereto. Except as described in SCHEDULE 5.8 hereto,
no mortgage, financing statement or similar document that names Mountain as
debtor and that covers any of the Assets is on file in any jurisdiction and
Mountain 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
Mountain will not result in the creation or imposition of any Lien on any of
the Assets.
At the time of Closing, Mountain shall have at least the Minimum
Amount of Working Capital.
5.9 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) to the best of the Shareholders' knowledge, 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,
(c) conforms in all material respects with all applicable legal requirements,
and (d) to the knowledge of the Shareholders, is year 2000 compliant (meaning
that, with respect to Mountain's information technology ("IT"), the IT is
designated to be used prior to , during, and after 2000A.D., and the IT used
during each such period will accurately receive, provide and process
date/time data including the calculating, comparing and sequencing from, into
and between the years 1999 and 2000, and will not malfunction, cease to
function or provide invalid or incorrect data).
5.10 PERMITS. To the knowledge of the Shareholders, Mountain possess
all the permits and licenses necessary to own, operate, use and maintain the
Assets in the manner in which they are now
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being maintained and operated and to conduct the Business as now being
conducted. Such permits and licenses are either (a) assignable to DCRI or
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. Mountain is in
compliance in all material respects with the terms of such permits and
licenses.
5.11 Changes. Except as described in SCHEDULE 5.11 hereto, since
December 31, 1998, (a) 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 with respect to the financial
condition, assets, liabilities, business or prospects of Mountain, (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) Mountain 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) Mountain 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) Mountain has not waived any material
rights or forgiven any material claims constituting or which would constitute
an Asset, (g) Mountain has not lost or terminated employees, customers or
suppliers that could or does materially and adversely affect its business or
assets, and (h) Mountain has not entered into any commitment or transaction
or experienced any other event that is material to the Assets, the Business
or this Agreement or to any of the other agreements and documents executed or
to be executed pursuant to this Agreement or to the transaction contemplated
hereby or thereby.
5.12 ASSUMED CONTRACTS. Mountain 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 Mountain is a party and that in
any way relate to the operations or properties of the Business or that 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 Mountain nor, to the best
of the knowledge of the Shareholders, 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.
5.13 REAL PROPERTY LEASES. Mountain has heretofore delivered to
Buyer correct and complete copies of the Real Property Leases and all
amendments thereto; a copy of such Real Property Leases and all amendments
are attached hereto as SCHEDULE 1.2(a). To the knowledge of the Shareholders,
neither Mountain nor 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. Mountain enjoys peaceful and
undisturbed possession under each of the Real Property Leases, and each such
lease is valid and
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subsisting and in full force and effect. Mountain 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.
5.14 TAXES.
(a) Mountain has filed all federal, state, foreign 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 Mountain for the periods covered thereby. Mountain is not delinquent in
the payment of any tax, assessment or governmental charge, there is no tax
deficiency or delinquency asserted against Mountain, and there is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of Mountain that could be asserted by any taxing
authority. No Internal Revenue Service audit of Mountain is pending or, to
the knowledge of the Shareholders, threatened, and the results of any
completed audits are properly reflected in the Financial Statements (as
defined in SECTION 5.18). Mountain has not granted any extension to any
taxing authority of the limitation period during which any tax liability may
be asserted. Mountain has not committed any violation of any federal, state,
local or foreign tax laws. All monies required to be withheld by Mountain
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 Mountain 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 Mountain.
(c) Mountain is and has been an "S corporation," as that
term is defined in Code Section 1361, from the dates of its incorporation
through and including the taxable year ending on the date immediately prior
to the Closing. Shareholders have always treated the Mountain as an S
corporation for federal income tax purposes.
5.15 LITIGATION. Except as disclosed on SCHEDULE 5.15 hereto, no
legal action, suit or proceeding, judicial or administrative, or governmental
investigation is pending or, to the knowledge of the Shareholders, threatened
against Mountain, 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 Mountain pursuant
hereto or seeks to enjoin or otherwise restrain the Transaction. The
Shareholders do not know of any basis for any such action, suit, proceeding
or investigation. Except as disclosed on SCHEDULE 5.15 hereto, there are no
orders, decrees or judgments of any court or governmental body against
Mountain (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 Mountain is in default.
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5.16 EMPLOYEE BENEFIT PLANS AND ERISA. Except as listed on SCHEDULE
5.16 hereto, Mountain does not maintain or sponsor and has not made and is
not required to make contributions to any pension, profit-sharing, stock
bonus, stock option, thrift or other retirement plan, medical,
hospitalization, vision, dental, life, disability, vacation or other
insurance or benefit plan, employee stock ownership plan, deferred
compensation, stock ownership, stock purchase, performance share, bonus,
benefit or other incentive plan, severance plan or other similar plan,
agreement, arrangement or understanding relating to Mountain or respective
employees (the "Employee Benefit Plans"), whether or not such plan is or is
intended to be qualified under Section 401(a), 404A or any other section of
the Code, including without limitation, all employee benefit plans (within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), whether or not subject to the provisions of
ERISA. Except as set forth in SCHEDULE 5.16, each Employee Benefit Plan
maintained or sponsored by Mountain or to which Mountain makes or is required
to make employer contributions (collectively, the "Plans") is in full force
and effect in accordance with its terms and is, and each plan administrator
and fiduciary of each Plan is, in compliance with all applicable requirements
of ERISA and other applicable laws, regulations and rulings. The only Plans
that are "pension benefit plans" (within the meaning of Section 3(2) of
ERISA), other than any such plans that are described in Section 401(a)(1) of
ERISA, maintained or sponsored by Mountain or to which Mountain makes or is
required to make employer contributions, are identified on SCHEDULE 5.16 as
such (the "Pension Benefit Plans"). No Pension Benefit Plan or any trust
created under one of the Pension Benefit Plans or any trustee, administrator
or sponsor thereof, has engaged in a "prohibited transaction" as that term is
defined in Section 4975(c)(1) of the Code, that could subject the Pension
Benefit Plan, trust, trustee, administrator or sponsor thereof, or any party
dealing with the Pension Benefit Plan or any such trust to the tax or penalty
on prohibited transactions imposed by said Section 4975, nor is the fiduciary
(as defined in Section 3 of ERISA) of the Pension Benefit Plan or any
employee benefit plan (as defined in Section 3 of ERISA) maintained by
Mountain acting in a manner that constitutes a breach of its fiduciary duty,
as set forth in ERISA. Except as set forth in SCHEDULE 5.16, the Pension
Benefit Plans have not been terminated, nor have contributions thereto been
discontinued, nor have there been any "reportable events," as that term is
defined in Section 4043 of ERISA, since the effective date of Section 4043 of
ERISA. The Pension Benefit Plans have not incurred any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA (whether or not
waived), since the effective date of Section 302 of ERISA, or prior thereto,
and all contributions required to be made have been made. Mountain does not
have an existing defined benefit pension plan covering its employees. None of
the Pension Benefit Plans identified on SCHEDULE 5.16 are multiemployer plans
as defined in Section 3(37) of ERISA. All appropriate administrative actions
and required compliance with appropriate administrative actions and required
compliance with appropriate Internal Revenue Service and Department of Labor
rules and regulations have been taken or are in process in a timely manner.
No contributions pursuant to the Pension Benefit Plans have been made in such
amounts as would violate Section 404 of the Code so as to disqualify the
accompanying trust. Mountain has in force sufficient bonding for every
fiduciary who is required to be bonded with respect to the Pension Benefit
Plans pursuant to Section 412 of ERISA. There does not exist any pending or,
to the best of the knowledge the Shareholders, threatened litigation against
any fiduciary of any Pension Benefit Plan, nor has any bonding company been
called on to defend any such fiduciary. A true and complete copy of each
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existing Plan has been furnished to DCRI along with the most recent favorable
determination letter issued by the Internal Revenue Service with respect
thereto and the two most recent annual reports (on form 5500 series) required
to be filed with respect thereto.
5.17 GROUP HEALTH PLANS. With respect to the "group health plan(s)"
of Mountain, as defined in Section 4980B(g)(2) of the Code, if any, except as
set forth in SCHEDULE 5.17:
(a) Mountain 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
Mountain) or any "qualified beneficiary" of such employee (as defined in
Section 4980B(g)(1) of the Code) on or prior to the Closing Date.
(b) Except as has been previously disclosed to Buyer,
Mountain does not have any present intention of terminating any group health
plan(s) that Mountain currently maintains.
(c) Mountain 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 Mountain's group health plan(s),
and that Buyer is not a successor employer with respect to Mountain's group
health plan(s), nor is Mountain a predecessor employer with respect to
Buyer's group health plan(s).
5.18 FINANCIAL INFORMATION. The financial statements of Mountain set
forth in SCHEDULE 5.18 hereto (the "FINANCIAL STATEMENTS") were prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP") and are true, correct and complete, and present fairly the financial
position of Mountain as of the dates indicated and the results of their
operations for the periods specified. The Financial Statements consist of (a)
the balance sheet as of December 31, 1998 (audited) of Mountain and June 30,
1999 (unaudited) of Mountain, and (b) the income statement of Mountain for
the twelve (12) month period ended on December 31, 1998 (audited) and the six
month period ended on June 30, 1999 (unaudited). The 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 5.18
hereto, the Financial Statements reflect all liabilities of Mountain 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 5.18 hereto, Mountain 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 Shareholders know of no basis for the assertion of any other
claims or liabilities of any nature or in any amount.
5.19 ACCOUNTS PAYABLE. Attached hereto as SCHEDULE 5.19(a) is a
complete and accurate list of all accounts and notes payable of Mountain as
of June 30, 1999, showing the name of each creditor and
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the amount due to each by invoice number and date. To the knowledge of the
Shareholders, (a) SCHEDULE 5.19(a) reflects the accounts payable of Mountain
except those incurred in the ordinary course of business after to June 30,
1999, and (b) the accounts payable and other obligations were incurred by
Mountain in the ordinary course of business after to June 30, 1999 and are
not unreasonable in amount or extraordinary in nature (both in relationship
to the normal business practices of Mountain).
5.20 BOOKS OF ACCOUNT. The books of account of Mountain 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 Mountain have been properly recorded in such books.
5.21 ENVIRONMENTAL MATTERS; OSHA COMPLIANCE.
(a) Except as described on SCHEDULE 5.21 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 Mountain, the Business or the Assets:
10 Mountain 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 Mountain or any of
its properties or assets (collectively, "ENVIRONMENTAL LAWS"). Neither
Mountain nor either Shareholder is 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 Mountain with any or all Environmental Laws.
20 Mountain has obtained all permits, licenses
and authorizations that are required under Environmental Laws.
30 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 Mountain 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 Mountain 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 Mountain 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.
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40 There is no action, suit, proceeding,
investigation or inquiry before any court, administrative agency or other
governmental authority pending or, to the knowledge of any Shareholder,
threatened, against Mountain relating in any way to any Environmental Law.
Mountain (i) does not have any liability for remedial action under any
Environmental Law, (ii) 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 (iii) 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) No lien or encumbrance arising under any Environmental
Law has attached to any of the properties or assets of Mountain.
5.22 PATENTS, TRADEMARKS AND COPYRIGHTS.
(a) To the knowledge of the Shareholders, Mountain 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. Subsequent to Closing,
Shareholders will execute such documentation as Buyer shall reasonable
request to effectuate the assignment and conveyance of Mountain's Proprietary
Rights (as herein defined) to Buyer. Set forth on SCHEDULE 5.22 hereto is a
true and correct description of the following ("Proprietary Rights"):
10 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 Mountain, and all licenses, royalties,
assignments and other similar agreements relating to the foregoing to which
Mountain is a party (including expiration dates if applicable); and
20 All agreements relating to technology,
know-how or processes that Mountain is licensed or authorized to use by
others, or which it licenses or authorizes others to use.
(b) To the knowledge of the Shareholders, Mountain has the
sole and exclusive right to use the Proprietary Rights identified in SCHEDULE
5.22 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 the Shareholders do 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) The Shareholders do not have any knowledge of any claim
that, or inquiry as to whether, any product, activity or operation of
Mountain 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 the Shareholders, are
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threatened that challenge the rights of Mountain with respect thereto.
Mountain has not given nor is Mountain bound by any agreement of
indemnification for any Proprietary Right as to any property manufactured,
used or sold by Mountain.
5.23 BELL ATLANTIC CONTRACT. To the knowledge of the Shareholders,
it is reasonable to assume that the Bell Atlantic Contract will be renewed or
extended for at least one year effective as of January 1, 2000.
5.24 DISCLOSURE. To the knowledge of the Shareholders, no
representation or warranty by the Shareholders in this Agreement, and no
statement respecting Mountain, or any Shareholder 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
will in the future materially adversely affect the Business or the Assets
other than general economic conditions.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF DCRI AND BUYER
DCRI and Buyer, jointly and severally, represent and warrant to the
Shareholders as follows:
6.1 ORGANIZATION AND STANDING. DCRI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
Buyer is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
6.2 AUTHORITY. Each of DCRI and 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. Each of DCRI and 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 DCRI and Buyer and each constitutes the valid and binding
obligation of DCRI and Buyer, enforceable in accordance with their respective
terms and conditions.
6.4 SEC REPORTS AND FINANCIAL STATEMENTS. DCRI has filed with the
SEC and has made available to the Shareholders true and complete copies of
all forms, reports, schedules, statements, and other documents, including all
exhibits thereto, required to be filed by it since January 1, 1998, under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act") (as such documents
have been amended since the time of their filing, collectively, the "SEC
Documents").
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6.5 COMPLIANCE WITH LAWS, PERMITS AND INSTRUMENTS. The execution,
delivery and performance of this Agreement by DCRI or Buyer will not violate
or be in conflict with (a) any material provision of any contract or other
agreement to which DCRI or Buyer is a party or by which any of their
respective assets are bound that is material to DCRI and its subsidiaries
taken as a whole; (b) any provision of the Articles of Incorporation 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 DCRI or Buyer;
or (d) any of DCRI's or Buyer's permits or licenses affecting or relating to
its assets or business.
6.6 CONSENTS. Except as set forth on SCHEDULE 6.6, 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 DCRI or Buyer of this Agreement and the
other agreements and documents contemplated hereby or (b) the consummation by
DCRI or Buyer of the Transaction, including, without limitation, the
assumption by Buyer of the Assumed Contracts.
6.7 LITIGATION. There is no claim, action, suit, proceeding,
investigation or inquiry pending before any federal, state or other court or
governmental or administrative agency, or to Buyer's knowledge threatened
against Buyer or Buyer's assets, operations or businesses that might prevent
or delay the consummation of the transactions contemplated hereby or have a
reasonable possibility of causing in the future a material adverse effect on
the business or assets of Buyer except as disclosed on SCHEDULE 6.7.
ARTICLE 7
COVENANTS OF DCRI AND BUYER
DCRI and Buyer, jointly and severally, agree that, subsequent to the
execution of this Agreement, on or prior to the Closing:
7.1 CONSUMMATION OF TRANSACTION. DCRI and Buyer agree to use all
reasonable efforts to cause the consummation of the Transaction in accordance
with the terms and conditions of this Agreement.
ARTICLE 8
COVENANTS OF SHAREHOLDERS
The Shareholders, jointly and severally, agree that, subsequent to
the execution of this Agreement, on or prior to the Closing:
8.1 CONSUMMATION OF TRANSACTION. The Shareholders agree to use all
reasonable efforts to cause the consummation of the Transaction in accordance
with the terms and conditions of this Agreement.
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8.2 BUSINESS OPERATIONS. Mountain shall operate the Business only in
the ordinary course and will not, without the prior written consent of DCRI,
introduce any new method of management of operation and Mountain shall use
all reasonable efforts to preserve the Business intact and to retain their
respective present customers and suppliers. Mountain 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 DCRI 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
Mountain from making such representations and warranties at the Closing.
Notwithstanding the foregoing, it is agreed and understood by the parties
hereto that, subsequent to June 30, 1999 and prior to the time of Closing,
Mountain shall (a) distribute to the Shareholders, in the form of a
distribution to Shareholders or as bonus compensation, the amount of
Mountain's net working capital, as of the Closing Date, in excess of the
Minimum Amount of Net Working Capital, and (b) distribute to Shareholders an
amount required to pay estimated taxes incurred prior to the Closing Date
(such distribution shall be a factor in determining the amount of the Minimum
Amount of Working Capital).
8.3 ACCESS. Upon reasonable prior notice, Mountain shall permit DCRI
and its authorized representatives reasonable access during normal business
hours to, and make available for inspection, all of the Assets and Business,
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 DCRI and its representatives may
reasonably request, all for the sole purpose of permitting DCRI to become
familiar with the Business and Assets.
8.4 MATERIAL CHANGE. Prior to the Closing, the Shareholders shall
promptly inform DCRI 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 DCRI of any such material
adverse change, the Shareholders shall not be relieved of any liability to
DCRI pursuant to this Agreement for, nor shall the providing of such
information by the Shareholders to DCRI be deemed a waiver by DCRI or Buyer
of, the breach of any representation or warranty of the Shareholders
contained in this Agreement.
8.5 CONTRACTS. Except with DCRI's prior written consent, Mountain
shall not waive any material right or cancel any material contract, debt or
claim that constitutes an Asset or that would constitute an Asset.
8.6 LIENS. Except with DCRI's prior written consent, Mountain shall
not permit any new Lien to attach to any of the Assets, whether now owned or
hereafter acquired.
8.7 MATERIAL CONTRACTS. Mountain shall not, without the consent of
DCRI, 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 Mountain; or otherwise take any action outside the ordinary
course of business.
8.8 NO DISCLOSURE OR NEGOTIATION WITH OTHERS.
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(a) Neither Mountain nor Shareholders shall disclose to the
public or any third party (other than Mountain's advisors) any of the terms
or conditions hereof without the prior written consent of DCRI (except as
otherwise required by applicable law).
(b) The Shareholders will use their best efforts to cause
the officers, directors, employees, and agents of Mountain not to, solicit or
encourage, directly or indirectly, in any manner, any discussions 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 Mountain, all or substantially all of the assets of Mountain, or any
portion or all of the Business, or any business, or any business combination
or merger of Mountain with any other third party. Mountain will promptly
inform DCRI of any inquiries or proposals with respect to any of the matters
set forth in this SECTION 8.9.
8.9 INVESTMENT INTENT. Shareholders are acquiring the shares of DCRI
Stock to be issued pursuant to this Agreement for investment and not with a
view to or resale in connection with any distribution or public offering
thereof, within the meaning of any applicable securities laws and
regulations. Shareholders acknowledge that such shares (and any additional
shares to be issued pursuant to the terms of the Asset Purchase Agreement)
are or, will be, in the case of shares to be issued, "restricted securities"
as that term is defined in Rule 144 promulgated by the Securities and
Exchange Commission and, therefore, the resale of any shares is restricted by
federal and state securities laws and the certificates evidencing such shares
shall bear a legend reflecting these securities law restrictions.
8.10 LOCK-UP LETTER. Shareholders acknowledge that, pursuant to the
terms of the Lock-up Letter Agreement referred to herein, there are certain
restrictions on any conveyance of the DCRI Stock.
ARTICLE 9
CONDITIONS PRECEDENT OF DCRI AND BUYER
Except as may be waived in writing by DCRI and Buyer, the
obligations of DCRI and 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 Shareholders 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, and at Closing,
Shareholders shall certify to that effect.
9.2 COVENANTS. Shareholders 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,
Shareholders shall certify to that effect.
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9.3 ACTIONS AT CLOSING. The Shareholders shall have taken all
actions required of them pursuant to this Agreement.
9.4 AMEX LISTING. The DCRI Shares shall have been authorized for
listing on AMEX upon official notice of issuance.
9.5 LEGAL OPINION. DCRI and Buyer shall have received the opinion of
Van Meer & Belanger, PA, counsel to the Shareholders, substantially in the
form of SCHEDULE 9.5.
9.6 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.
9.7 NO MATERIAL ADVERSE CHANGE. No material adverse changes 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.
9.8 INVESTMENT LETTER. With respect to the DCRI Shares, each of the
Shareholders shall have executed an Investment Letter, in form reasonably
acceptable to Buyer and DCRI.
9.9 LOCK-UP LETTER. With respect to the DCRI Shares, each of the
Shareholders shall have executed a Lock-up Letter Agreement, in form
reasonably satisfactory to Buyer and DCRI, pursuant to which the Shareholders
are restricted in connection with the pledge, sale transfer, conveyance or
other hypothecation of the DCRI Shares.
9.10 RELEASE AGREEMENT. Shareholders shall execute and deliver to
Buyer and DCRI a document, inform reasonably acceptable to Buyer and DCRI,
wherein Shareholders release any and all claims they may have against
Mountain except to the extent otherwise provided in this Agreement.
ARTICLE 10
CONDITIONS PRECEDENT OF SHAREHOLDERS
Except as may be waived in writing by the Shareholders, the
obligations of the Shareholders hereunder are subject to fulfillment at or
prior to the Closing of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of DCRI and 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
Mountain, and at Closing, DCRI and Buyer will certify to that effect.
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10.2 COVENANTS. DCRI and 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 LEGAL OPINION. Shareholders shall have received the opinion of
Dooley & Rucker, P.C., counsel to DCRI and Buyer, substantially in the form
of SCHEDULE 10.4.
10.5 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.
10.6 LISTING. The DCRI Shares shall have been registered for listing
with the American Stock Exchange ("AMEX").
ARTICLE 11
ASSUMED OBLIGATIONS AND DCRI
GUARANTY OF BUYER'S OBLIGATIONS
11.1 ASSUMED OBLIGATIONS. At Closing, DCRI and Buyer agree to assume
obligations of Mountain (a) under the Assumed Contracts listed on SCHEDULE
1.2(c), (b) under the Real Property Leases, as provided in the Lease
Assignments, (c) under the Assumed Liabilities listed on SCHEDULE 2.1, (d)
the accounts payable of Mountain which are not unreasonable in amount or as
to purpose, and which have been incurred by Mountain in the ordinary cause of
business and which are consistent with past practices and policies of
Mountain, and (e) all other unsecured obligations of Mountain which arise in
the ordinary course of business (none of which will be unreasonable in amount
or as to purpose) and which if paid would be consistent with the past
practices and policies of Mountain (an example would be refund of a placement
fee because a candidate terminates during the time period in which the
Mountain is obligated to refund such placement fee).The parties acknowledge
that neither Buyer nor DCRI are assuming any obligations of Mountain except
those hereinbefore set forth, and that the obligations of Mountain not be
assumed include those obligations which should have been disclosed to Buyer
pursuant to the terms of this Agreement. Anything in this Agreement or
elsewhere to the contrary notwithstanding, in no event shall DCRI and 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 Mountain, 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 DCRI and
Buyer; it being expressly acknowledged that it is the intention of the
parties hereto that all duties, obligations, debts and liabilities of
Mountain (other than obligations expressly assumed by DCRI or Buyer herein,
in the Assumption, or in the Lease Assignments) shall be and remain solely
the duties, obligations, debts and liabilities of Mountain. Specifically, and
without implied limitation of the foregoing, DCRI or Buyer shall not assume
or agree to pay, perform or
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discharge any liabilities or obligations of Mountain, 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
Mountain 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 Mountain shall be liable for all such
liabilities and obligations regardless of whether such liabilities and
obligations are initially the liabilities and obligations of Mountain or
Buyer).
11.2 DCRI GUARANTY. DCRI hereby guarantees to the Shareholders all
obligations of Buyer pursuant to this Agreement and other agreements and
documents contemplated hereby (including but not limited to the obligations
under SECTION 1.3).
ARTICLE 12
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
AGREEMENTS AND OBLIGATIONS; INDEMNIFICATION
12.1 SURVIVAL. Except for the covenants contained in Article 11 of
this Agreement and the payments required to be made to Shareholders pursuant
to the terms of this Agreement, which covenants and obligations shall survive
until satisfied, the representations, warranties, obligations, covenants,
indemnities and agreements of the Shareholders, DCRI and Buyer contained in
this Agreement shall survive the Closing Date for a period of two (2) years;
all representations, warranties, obligations, covenants, indemnities and
agreements of Shareholders related to tax matters of any nature involving
Mountain or Shareholders shall survive the Closing Date for a period of five
(5) 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 time periods
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.
12.2 INDEMNIFICATION BY SHAREHOLDERS. The Shareholders, jointly and
severally, hereby agree, effective as of the Closing, to pay, and to
indemnify, save and hold harmless DCRI and Buyer, their 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 the Shareholders,
including, without limitation, any product liability or breach of warranty
claims relating to services or products provided by Mountain any liability
arising from any bulk sale or bulk transfer law, other than obligations
expressly assumed by DCRI or Buyer herein or in the Lease Assignments, the
Assumed Liabilities or the Assumed Contracts, (b) any act or omission of the
Shareholders prior to or at the Closing, (c) the
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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 the
Shareholders or the failure of the Shareholders to perform any obligation of
the Shareholders 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 the Shareholders, contained in this Agreement
or any other agreement or document contemplated hereby, (f) all tax
liabilities of Mountain, or Shareholders, 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 Real
Property Leases, and (ii) all personal property taxes of Mountain 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)
except for those obligations assumed by Buyer pursuant to SECTION 4.2 of this
Agreement, any liability to Employees or former employees of Mountain or its
beneficiaries arising prior to or at the Closing Date from the employment or
severance of such Employees or former employees by Mountain, or their rights
to benefits under the Mountain 's group health or other employee benefit
plans.
Notwithstanding anything herein to the contrary, Shareholders shall
not have any responsibility for liabilities or obligations of Mountain which
are incurred subsequent to the Closing Date.
12.3 INDEMNIFICATION BY BUYER. DCRI and Buyer, jointly and
severally, hereby agree, effective as of the Closing, to pay, and to
indemnify, save and hold harmless the Shareholders 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 DCRI or Buyer hereunder or under the Assumed Contracts,
(b) the breach of any covenant of DCRI or Buyer or the failure of DCRI or
Buyer to perform any of their obligations contained herein or in any other
agreement or document contemplated hereby, and (c) any inaccuracy in or
breach of any representation or warranty of DCRI or Buyer under this
Agreement or any other agreement or document contemplated hereby.
12.4 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 indemnifying party shall assume the defense with respect to such
claim, liability or expense at the indemnifying party's 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
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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 that 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 apprized 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. 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.
12.5 SET-OFF. DCRI and Buyer shall have the right to set-off, upon
written notice to the Shareholders, any undisputed amounts payable by the
Shareholders to DCRI or Buyer pursuant to claims for indemnification
hereunder against any amount at any time payable by DCRI or Buyer or any
assignee to any Shareholder under or pursuant to this Agreement and/or any
other agreements now or hereafter entered into between a Shareholder and DCRI
or Buyer or any assignee of DCRI or Buyer. Notwithstanding anything herein to
the contrary, no right of set-off shall exist with respect to any
compensation payable to Hosmer in connection with his employment by any
entity affiliated with DCRI.
ARTICLE 13
TERMINATION
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13.1 TERMINATION. This Agreement may be terminated prior to the
consummation of the Transaction:
(a) By written consent of DCRI and Shareholders.
(b) By DCRI or the Shareholders if either (i) the Closing
shall not have occurred on or before September 15, 1999; however, the right
to terminate this Agreement under this SECTION 13.1(b)(i) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing
to occur on or before such date, or (ii) there shall be any statute, law,
ordinance, rule, or regulation that makes consummation of the Transaction
illegal or otherwise prohibited or if any court of competent jurisdiction or
governmental entity shall have issued an order, decree, or ruling or taken
any other action restraining, enjoining, or otherwise prohibiting the
Transaction and such order, decree, ruling, or other action shall have become
final and nonappealable;
(c) By DCRI, upon a material breach of any representation,
warranty, or agreement set forth in this Agreement by any of the
Shareholders, such that the condition set forth in SECTION 9.1 or 9.2 would
not be satisfied.
(d) By the Shareholders, upon a material breach of any
representation, warranty, or agreement set forth in this Agreement by DCRI or
Buyer such that the condition set forth in SECTION 10.1 or 10.2 would be not
satisfied.
(e) By DCRI if there has been a materially adverse change in
the business, assets, condition, financial or otherwise, or prospect of
Mountain.
(f) By Shareholders or Buyer pursuant to SECTION 3.6 of this
Agreement.
13.2 NOTICE AND EFFECTS OF TERMINATION. In the event there is a
basis for termination of this Agreement by either DCRI or the Shareholders,
as provided in SECTION 13.1, and such party desires to terminate this
Agreement, it may do so by giving written notice to the other party pursuant
to SECTION 14.1, whereupon this Agreement shall forthwith terminate, and
there shall be no liability or obligation on the party of any part hereto
except (i) with respect to SECTIONS 8.9, 11.2, 12.3, 12.4, AND ALL OF ARTICLE
14, and (ii) to the extent that such termination results from the breach by a
party hereto of any of its representations, warranties, covenants, or
agreements set forth in this Agreement.
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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:
SHAREHOLDERS: Joseph H. Hosmer
1012 Hallowell Road
Durham, Maine 04222
Sandra Hosmer
1012 Hallowell Road
Durham, Maine 04222
WITH A COPY TO: Van Meer & Belanger, P.A.
25 Long Creek Dr.
South Portland, ME. 04106
Attention: Norman R. Belanger, Esq.
DCRI: Diversified Corporate Resources, Inc.
12801 North Central Expressway, Suite 350
Dallas, Texas 75243
Attention: M. Ted Dillard, President
BUYER: MAGIC Northeast, Inc.
12801 North Central Expressway, Suite 350
Dallas, Texas 75243
Attention: M. Ted Dillard, Secretary
WITH A COPY TO: Dooley & Rucker P.C.,
4245 N. Central Expressway
Suite 320
Dallas, Texas 75205
Attention: Jarrell B. Ormand, Esq.
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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. The Shareholders shall not
assign this Agreement, by operation of law or otherwise, in whole or in part,
without the prior written consent of the other parties. Buyer and DCRI shall
have the right to assign this Agreement to any third party including a
subsidiary of DCRI, without the prior written consent of the Shareholders;
provided, however, notwithstanding any such assignment DCRI shall remain
liable with respect to its obligations hereunder. 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 the
Shareholders, DCRI 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. Except as otherwise expressly provided in
SECTION 14.17 hereof, 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
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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. Except as otherwise provided in and this Agreement,
the Shareholders shall pay all of the expenses and costs related to the
Transaction (including, without limitation, all counsel fees and expenses),
and DCRI and Buyer shall pay all of their 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 Shareholder (and
Mountain), on one hand, nor DCRI or 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.
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 parties 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
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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 parties 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 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 CONFIDENTIALITY.
(a0 Except as may be required by law or court order,
Shareholders hereby agree that neither Mountain nor the Shareholders shall
disclose or divulge any DCRI Confidential Information (as defined below), or
any part thereof, to any third party, and shall not use the DCRI Confidential
Information, or any part thereof, in any manner or for any purpose.
(b0 As used in this Agreement, "DCRI Confidential
Information" means any and all information and compilations of data (in any
form whatsoever, tangible or intangible) relating in any way to DCRI
(including its subsidiaries) 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 that are or may be used by or useful to DCRI;
PROVIDED, HOWEVER, that DCRI Confidential Information does not include
information that (i) is or becomes generally available to the public other
than by the Shareholders; (ii) is lawfully obtained by the Shareholders from
a third party; provided that the third party is not, to the Shareholders
knowledge, bound by a nondisclosure agreement with respect to the
information; or (iii) is subsequently developed by the Shareholders from
independent sources.
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 EVENT OF DEFAULT.
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(a) In the event that Buyer shall fail to make any payment
to the Shareholders within fifteen (15) days from the date due pursuant to
the provisions of this Agreement, and such failure to pay shall remain
unremedied for a period of thirty (30) days after receipt of written notice
thereof by Buyer (an "Event of Default"), then upon any such event of
default, fifty percent (50%) the balance of the maximum amounts payable under
this Agreement shall be accelerated and forthwith due and payable. The
parties hereto acknowledge and agree that Buyer shall not be in default of
its obligation hereunder, if, pursuant to the terms of this Agreement, Buyer
does not pay part of an Installment Payment based upon a reasonable
adjustment with respect to EBITDA, or if Buyer applies as a set-off a
reasonable amount related to a claim for indemnification under the terms of
this Agreement.
(b) In the event that Buyer shall fail to make any payment
to the Shareholders within fifteen (15) days from the date due pursuant to
the terms of this Agreement, Buyer shall be obligated to pay interest on all
amounts payable to the Shareholders pursuant to the Purchase Agreement,
inclusive of any amounts accelerated pursuant to Section 14.19 (a), at the
rate of twelve percent (12%) per annum.
(c) No extension of time for payment granted by Shareholders
of all or any part of the amount owing herein at any time shall effect the
liability of the parties, including any surety, accommodation party or
guarantor. Acceptance by the Shareholders of any installment after any
default shall not operate to extend the time for payment of any amount then
remaining unpaid or constitute a waiver of any of the other rights herein. No
delay by Shareholders in exercising any power or right shall operate as a
waiver of any power or right. The waiver of any default by Shareholders shall
not operate as a waiver of any subsequent default or any power or right that
Mountain may have under the terms of this Agreement.
14.20 FURTHER ASSURANCES OF BUYER.
(a) From and after the Closing Date, Buyer shall afford to
Shareholders and their attorneys, accountants and other representatives,
reasonable access, during normal business hours, to such books and records
possessed by Buyer relating to Mountain or the business of Mountain as may
reasonably be required in connection with the preparation of financial
information for any period of time on or prior to the Closing Date. Buyer
shall cooperate in all reasonable respects with Shareholders with respect to
their former interest in the business and in connection with financial
account closing and reporting all claims in litigation asserted by or against
third parties, including, but not limited to, making employees of Buyer
reasonably available to assist with, or provide information in connection
with financial account closing and reporting and claims in litigation,
provided, that Shareholders reimburse Buyer for its reasonable out-of-pocket
expenses (including costs of employees so assisting) in connection therewith.
(b) For a period of not less than seven (7) years after the
Closing Date, Buyer shall preserve and retain the Buyer's corporate
accounting, legal, auditing and other books and records of the business
acquired from Mountain (including, but not limited to any governmental or
non-governmental
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actions, suits, proceedings or investigations arising out of the conduct of
the business and operations of the business acquired from Mountain prior to
the Closing Date); provided, however, that such seven (7) year period shall
be extended in the event that any action, suit, proceeding, or investigation
has been commenced or is pending or threatened at the termination of such
seven (7) year period and such extension shall continue until any such
action, suit proceeding, or investigation has been settled through judgment
or otherwise or is no longer pending or threatened. Notwithstanding the
foregoing, Buyer may discard or destroy any of such books and records prior
to the end of such seven (7) year period or period of extension, if
applicable, if it gives Shareholders at least sixty (60) days prior written
notice of its intent to do so and Shareholders have not taken possession of
such books and records, at its expense, within such sixty (60) day period.
(c) Nothing in SECTION 14.20 shall relieve the Shareholders
of the obligations to indemnify Buyer and DCRI pursuant to the terms of this
Agreement.
14.21 LIQUIDATED DAMAGES. Notwithstanding anything in this Agreement
to the contrary, the parties hereto acknowledge and agree that the
Shareholders shall forfeit the right to receive any portion of the unpaid
Installment Payments (as herein defined) if there has been a determination by
arbitrator(s) involved that (a) Hosmer has violated the nonsolicitation or
noncompetition provisions of the Hosmer Employment Agreement, or (b) Sandra
Hosmer has violated her nonsolicitation or noncompetition agreement with
Buyer and DCRI.
14.22 ARBITRATION. If Shareholders dispute the amount of any
Installment Payment to be made to the Shareholders by Buyer, or any
adjustments thereto based upon Applicable EBITDA, Shareholders must give
Buyer and DCRI written notice thereof, within the time period specified in
SECTION 2.1 specifying the reasons for the dispute and verifying the dollar
amount involved with respect to each dispute and the amount of the
Installment Payment which Shareholders deem to be payable. If such dispute is
not resolved by negotiation within thirty (30) days from the date of receipt
of such notice by Buyer and DCRI, the dispute shall be referred to a firm of
independent certified public accountants jointly selected by the Shareholders
and DCRI and whose decision shall be rendered promptly and shall be binding
on all parties. The costs of the jointly selected independent accounting firm
shall be borne and the Buyer in the manner determined by the arbitrator(s)
involved. In the event that Shareholders and Buyer are unable to agree upon
an independent firm of accountants, the parties agree to use an accounting
firm selected by the outside accounting firm of both Shareholders and Buyer
as the accounting firm to resolve the dispute(s) involved.
Any other controversy between the parties to this Agreement
involving the construction of application of any of the terms, covenants, or
conditions of this Agreement shall be submitted to arbitration in the State
of Texas, if either party to this Agreement shall request arbitration by
notice in writing to the other party. In such event, the parties to this
Agreement shall, within thirty (30) days after this right to arbitration the
Shareholders and the Buyer shall both appoint one person as an arbitrator to
hear and determine the dispute, then the two arbitrators so chosen shall,
within fifteen (15) days, select a third impartial arbitrator; the majority
decision of the arbitrators shall be final and conclusive upon the parties to
this Agreement. Each party to the arbitration proceedings shall bear his
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or its own expenses, except that the expenses of the arbitrators shall be
borne by the Shareholders and/or the Buyer as determined by the arbitrator(s)
involved.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto this 6th day
of August, 1999.
BUYER:
SHAREHOLDERS:
DIVERSIFIED CORPORATE RESOURCES, INC.
- ----------------------------
Joseph H. Hosmer By:
----------------------------------------
M. Ted Dillard
- -----------------------------
Sandra Hosmer MAGIC NORTHEAST, INC.
By:
----------------------------------------
M. Ted Dillard
35
<PAGE>
EMPLOYMENT AGREEMENT RE: HOSMER
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into by and
between Mountain Ltd., a Maine corporation (herein referred to as the
"Company"), Joseph H. Hosmer (herein referred to as the "Executive"), MAGIC
Northeast, Inc., a Delaware corporation ("Buyer"), and Diversified Corporate
Resources, Inc., a Texas corporation ("DCRI").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Executive and the
Executive desires to be employed by the Company; and
WHEREAS, this Agreement is being entered into in connection with the
Buyer acquiring all of the capital stock of the Company pursuant to that
certain Purchase Agreement which is effective as of August 6, 1999, between
Buyer, DCRI, Executive, and Sandra Hosmer (herein referred to as the
"Purchase Agreement"); and
WHEREAS, the purpose of this document is to set forth the terms and
conditions of Executive's employment transactions contemplated by the
Purchase Agreement.
NOW THEREFORE, for and in consideration of the mutual advantages and
benefits accruing respectively to the parties hereto, the mutual promises
hereinafter made and the acts to be performed by the respective parties
hereto, the Company and the Executive do hereby contract and agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as the
President of the Company and the Executive hereby accepts such employment, to
perform the duties and render services as herein set forth. Such employment
shall continue during the term of this Agreement.
2. TERM. Except in the case of earlier termination as herein
specifically provided, the Executive's employment with the Company pursuant
to this Agreement shall be for a three (3) year period beginning on August 6,
1999, and ending September 30, 2002 (such date being the "Initial Termination
Date"). This Agreement shall thereafter continue until (a) this Agreement is
terminated prior to the Initial Termination Date for some reason permitted
hereunder, or (b) one of the parties shall give written notice to the other
at least ninety (90) days in advance of termination at any time after June
30, 2002.
<PAGE>
3. COMPENSATION. As compensation for the services of Executive during
the initial term hereof, the Company shall pay the Executive a base salary as
below provided plus such additional compensation as herein set forth. The
base salary to be paid to the Executive shall be an amount equal to one
percent (1%) of revenues of the operations of the Company during each
calendar year, or portion thereof involved, during the term of this
Agreement, plus ten percent (10%) of the net, after tax profits (the "Net
Profits" as below defined) of the operations of the Company during each
calendar year, or portion thereof involved, during the term of this
Agreement. For purposes hereof, (a) the Company's revenues shall be
determined by DCRI pursuant to generally accepted accounting principles
consistently applied, and (b) the Net Profits of the operations of the
Company (as herein defined) shall be determined by DCRI pursuant to generally
accepted accounting principles consistently applied (based upon the
assumption, for tax computation purposes, that the Company is not part of a
consolidated group), and adjusted pursuant to DCRI's normal intercompany,
affiliate and overhead allocations which in no event shall exceed the
following percentages of the annual revenues of the operations of the
Company: three percent (3%) in the year ended September 30, 2000, four and
one-half percent (4-1/2%) in the year ended September 30, 2001, and six
percent (6%) in the year ended September 30, 2002. Notwithstanding anything
herein to the contrary, it is agreed that, during the term of this Agreement,
revenues of the Company shall include (i) all revenues attributable to the
operations of the Company which have been diverted to an affiliate of the
Company without the prior written consent of the Executive; (the foregoing
does not cover split fees earned by an affiliate of the Company or an
employee of an affiliate of the Company) and (ii) all revenues attributable
to Alpine Overland & Wireless Company, a unlimited liability company under
the laws of the Providence of Nova Scotia, Canada, if Buyer purchases the
capital stock of Alpine Overland & Wireless Limited, a Maine corporation (the
"Parent"), pursuant to the Option Agreement being executed simultaneous with
execution of this Agreement.
The Executive's estimated base salary and bonus shall be paid in
equal semi-monthly installments (subject to reduction for such payroll and
withholding deductions as may be required by law).
In addition to the Executive's base salary and bonus, the Executive
shall be entitled to each of the following during the term of this Agreement
(at the Company's expenses unless otherwise
2
<PAGE>
indicated): (a) health insurance coverage which shall provide for payment of
health, dental and related expenses incurred during the term of this
Agreement with respect to the Executive, the Executive's spouse and the
Executive's children, and which shall contain such benefits and options as
shall be made available to other employees of the Company (the parties
acknowledge that the portion of such health insurance to be paid for by the
Executive shall be consistent with Company's policy for its employees in
general until at least December 31, 1999 and thereafter shall be consistent
with DCRI's policy for other key executives); such coverage terms shall not
be revised until at least January 2, 2000, (b) the right to participate in
any and all 401(k) plans and Section 125 plans now in effect or hereafter
adopted by the Company or DCRI, (c) the right to participate in any other
benefit plans of the Company in which other key employees of the Company have
the right to participate, (d) the right to all fringe benefits generally made
available to other key employees of the Company (including, but not by way of
limitation, disability benefits if and to the extent available), and (e) such
vacation and sick leave as shall be permitted by the Company's standard
policies; subject to the understanding that the amount of vacation time shall
not exceed six (6) weeks per annum unless approved in advance by Buyer.
4. DUTIES AND SERVICES. During the term of this Agreement, the
Executive agrees to (a) do his utmost to enhance and develop the best
interests and welfare of the Company, (b) give his best efforts and skill to
advancing and promoting the growth and success of the Company, and (c)
perform such duties or render such services as the Board of Directors of the
Company may, from time to time, reasonably confer upon or impose on the
Executive. It is understood that the duties of the Executive shall be
comparable to his prior duties with the Company.
5. TERMINATION.
1. The Company may terminate the Executive's employment pursuant
to this Agreement at any time for "cause" as herein defined. The term "cause"
shall mean any of the following events: (i) any act or omission constituting
fraud under the laws of the States of Maine or the United States of America,
or (ii) a finding of probable cause, or a plea of NOLO CONTENDERE to, a
felony or other crime involving moral turpitude, or (iii) the grossly
negligent performance by the Executive of the responsibilities of his
position, or (iv) the material failure by the Executive to adhere to the
policies or directives of the Company and DCRI, including those set forth in
DCRI's
3
<PAGE>
Employee Handbook and Company policy statement relating to trading in DCRI's
securities by the DCRI personnel (the "Insider Trading Policy"), or (v) the
Executive's engagement in any act of dishonesty or theft within the scope of
his employment that, in the opinion of the Board of Directors of DCRI, is
detrimental to the best interests of the Company, or (vi) the Executive's
excessive use and/or distribution of alcohol or illegal substances during
business hours and at the Company's premises, or (vii) the breach of any of
the substantive terms of this Agreement, or (viii) the failure of the
Executive to meet the budget and performance goals for the operations for
which the Executive is responsible. The determination by the Board of
Directors of DCRI, as to the matters covered by (iii), (iv), (v) or (viii)
above shall be conclusive; provided, however, that the Company will not be
entitled to terminate this Agreement for cause pursuant to (iii), (iv) or
(viii) above unless, prior to such termination, the Executive has received a
written reprimand detailing the acts or omissions constituting such failure
to perform the responsibilities of his position, to adhere to the Company's
policies or to meet his performance goals, and the Executive has had at least
thirty (30) days to cure the act or omission involved; provided, however, no
prior reprimand is required with respect to violations of DCRI's Insider
Trading Policy.
2. The Executive may terminate this Agreement by giving the
Company and DCRI written notice at least ninety (90) days in advance of the
termination date if (i) the Company expands (subject to the market conditions
at the time) or restricts the Executive's duties, without the consent of the
Executive, to an extent inconsistent with the terms of this Agreement and the
market conditions at the time, or (ii) the Company or DCRI materially breach
(following expiration of the applicable cure periods) their obligations under
the terms of the Purchase Agreement.
3. Subject to the exceptions set forth in Paragraphs 5(a) and 5(b)
of this Agreement, neither the Company nor the Executive may terminate the
Executive's employment with the Company at any time during the term of this
Agreement.
4. The Executive's employment by the Company shall automatically
terminate on the date of the Executive's death if the Executive dies during
the term of this Agreement.
5. If the Executive is incapacitated by an accident, sickness or
otherwise, so as to render him mentally or physically incapable of performing
the services required of him pursuant to this Agreement, Executive's
employment by the Company shall terminate thirty (30) days after
4
<PAGE>
the day on which the Board determines that the Executive is so disabled and
that this Agreement should be terminated by reason of such disability.
Notwithstanding the foregoing, the Executive shall be notified in writing if
the Company determines that the Executive is disabled due to mental or
physical health; in such event, the Executive shall have the right to contest
any determination of disability by the Company. In the event that the
Executive does contest such determination, such matter shall be resolved by
arbitration pursuant to this Agreement.
6. WORKING CONDITIONS. The Company will provide the Executive with a
private office and secretarial services, which shall be comparable to the
office and secretarial services provided to him by the Company. Unless the
parties mutually agree to the contrary, the office of the Executive will be
in Yarmouth, Maine.
7. TRAVEL AND ENTERTAINMENT. The Executive is authorized to incur
reasonable business expenses on behalf of the Company, including, but not by
way of limitation, expenditures of entertainment, gifts and travel; if any
expenses are of a kind or a cost in excess of the written policies
established by DCRI, such expenses must be expressly authorized by an
executive officer of DCRI. The Company agrees to reimburse the Executive for
all such expenses upon the Executive's presentation of an itemized account of
such expenditures.
8. NON-SOLICITATION AGREEMENT. In the event that the termination of
employment of the Executive pursuant to this Agreement is effectuated by the
Executive electing to terminate his employment pursuant to this Agreement, or
by the Company for any reason, the Executive agrees that the Executive shall
not, during the term of this Agreement, and for a two (2) year period of time
commencing September 30, 2002, unless Buyer shall default, without curing
during the applicable curative period, in paying the purchase price under the
Purchase Agreement in which event the two (2) year period shall commence with
the date of termination of this Agreement, (a) solicit for employment or hire
any individual who was an executive or employee of the Company, or any of its
affiliates, on the date of termination of this Agreement or at any time
within the twelve (12) months preceding the date of termination of his
employment with the Company, or (b) solicit the staffing related business of
any person or entity who is or was a customer, client, agent or
representative of the Company, or any of its affiliates, at the date of
termination of his employment with the Company, or at any time during the
twelve (12) months preceding the date of termination
5
<PAGE>
of this Agreement. The covenants and agreements set forth in this Paragraph 8
shall survive the termination of this Agreement.
9. NONCOMPETITION AGREEMENT. The Executive acknowledges that the
special relationship of trust and confidence between himself, the Company,
and its clients, customers, vendors and suppliers creates a high risk and
opportunity for the Executive to misappropriate the relationship and goodwill
existing between the Company and its clients, customers, vendors and
suppliers. The Executive further acknowledges and agrees that it is fair and
reasonable for the Company to take steps to protect itself from the risk of
such misappropriation. The Executive further acknowledges that, prior to and
during his employment with the Company, he will be provided with access to
the Company's confidential and proprietary information that will enable him
to benefit from the Company's goodwill and know-how.
The Executive acknowledges that it would be inherent in the
performance of his duties as a director, officer, employee, agent, or
consultant, owner or stockholder of any person, association, entity or
organization that competes with the Company to disclose or use such
information, as well as to misappropriate the Company's goodwill and know-how
for the benefit of such other person, association, entity or company.
Ancillary to the enforceable promises set forth in this Agreement,
the Executive agrees that during the term of this Agreement and for a period
of two (2) years after the date of termination of his employment with the
Company, for whatever reason, the Executive shall not, without the prior
written consent of the Company, directly or indirectly, whether as a
director, officer, employee, agent, consultant or otherwise, engage in any
activities in competition with the Company in the metropolitan areas (as
defined by the United Sates Census Bureau) of any city in which the Buyer
maintains a place of business as of the date of termination of the
Executive's employment with the Company.
10. CONSIDERATION AND ENFORCEMENT. The Executive acknowledges that,
in exchange for the execution of the nonsolicitation and noncompetition
restrictions set forth in Paragraphs 8 and 9 of this Agreement, the Executive
has received or will receive substantial and valuable consideration in
connection with this Agreement and as a result of the Buyer purchasing the
Company. The Executive agrees that such consideration constitutes fair and
adequate consideration for the
6
<PAGE>
nonsolicitation and noncompetition restrictions set forth in this Agreement.
The Executive further agrees that the limitations as to time, geographical
area and scope of activity to be restrained by these restrictions are
reasonable and acceptable and do not impose any greater restraint than is
reasonably necessary to protect the goodwill and other business interests of
the Company. The Executive further agrees that if, at some later date, a
court of competent jurisdiction determines that any one or more of the
restrictions set forth in Paragraphs 8 and 9 of this Agreement are
unenforceable by reason of extending for too great a period of time or over
too great a geographical area, such provisions shall be reformed by the court
and enforced to extend over the period of time for which it may be
enforceable and over the maximum geographical area to which it may be
enforceable.
If the Executive is found to have violated any of the provisions of
Paragraphs 8 or 9 of this Agreement, the Executive agrees that the
restrictive period of each covenant so violated shall be extended by a period
of time equal to the period of such violation by him. It is the intent of the
parties that the running of the restrictive period of any covenant shall be
tolled during any period of violation of such covenant so that the Company
may obtain the full and reasonable protection for which it contracted and so
that Executive may not profit by his breach.
The Executive acknowledges and agrees that the Company's remedies at
law may be inadequate in the event of a breach or threatened breach of the
covenants set forth in Paragraphs 8, 9 and 11 of this Agreement, and in such
event, Buyer shall be entitled to have an injunction issued by any court of
competent jurisdiction, enjoining and restraining each and every party
concerned therewith from the creation or continuation of such breach.
Notwithstanding anything herein to the contrary, the restrictions set
forth in Paragraphs 8 and 9 shall not be revised as herein provided if the
Buyer is in default as to its monetary obligations under the terms of the
Purchase Agreement and the Buyer has not cured such default within the
applicable curative period following written notice from the Executive. Such
restrictions shall be revised so that the two (2) year period of time shall
be reduced by such number of months which shall be proportionate to the
amount of Purchase Price (as defined in the Purchase Agreement) not paid to
the Executive and Sandra Hosmer. Example: if half of the Purchase Price has
not been paid, the restrictions for the two (2) year time periods in
Paragraphs 8 and 9 would be reduced to a one (1) year period of time.
7
<PAGE>
The Executive's obligations under Paragraphs 8 and 9 of the Agreement
shall survive the termination of this Agreement.
11. NONDISCLOSURE AGREEMENT. During the term of this Agreement, the
Company will provide to the Executive certain confidential and proprietary
information owned by the Company, Buyer or DCRI. The Executive acknowledges
that he occupies or will occupy a position of trust and confidence with the
Company, and that the Company would be irreparably damaged if Executive were
to breach the covenants set forth in this Paragraph. Accordingly, the
Executive agrees that he will not, without the prior written consent of the
Company, at any time during the term of this Agreement or any time
thereafter, except as may be required by competent legal authority or as
required by the Company to be disclosed in the course of performing the
Executive's duties under this Agreement for the Company, use or disclose to
any person, firm or other legal entity, any confidential records, secrets or
information related to the Company or any parent, subsidiary or affiliated
person or entity (collectively, "Confidential Information"). Confidential
Information shall include, without limitation, information about the customer
lists, product pricing, data, know-how, processes, ideas, product
development, market studies, computer software and programs, database
technologies, strategic planning, and risk management of each of the Company,
Buyer and DCRI. The Executive acknowledges and agrees that all Confidential
Information of the Company and/or its affiliates that he has acquired, or may
acquire, were received, or will be received in confidence and as a fiduciary
of the Company. The Executive will exercise utmost diligence to protect and
guard such Confidential Information. The Executive agrees that he will not,
without the express written consent of Buyer and DCRI, take with him upon the
termination of this Agreement any document or paper, or any photocopy or
reproduction or duplication thereof, relating to any Confidential Information.
The parties hereto acknowledge that the definition of Confidential
Information does not include information which (a) is a matter of public record
or is provided in other sources available to the industry other than as a result
of disclosure by the Executive, (b) was available to the Executive on a
non-confidential basis, (c) becomes available to the Executive from a source not
known to the Executive to have a duty of confidentiality with regard to the
information, or (d) was or is independently developed by the Executive from
non-confidential sources.
8
<PAGE>
12. NOTICES. All notices or other instruments or communications
provided for in this Agreement shall be in writing and signed by the party
giving same and shall be deemed properly given if delivered in person,
including delivery by overnight courier, or if sent by registered or
certified United States mail, postage pre-paid, addressed to such party at
the address listed below. Each party may, by notice to the other party,
specify any other address for the receipt of such notices, instruments or
communications. Any notice, instrument or communication sent by (a) mail
shall be deemed to be given upon the earlier of actual receipt or three (3)
business days after deposit in the United States Postal Service, and (b)
telegram shall be deemed properly given only when received by the person to
whom it is sent.
13. DCRI GUARANTY. DCRI shall and does hereby guarantee the
performance by the Company of all of the obligations and commitments of the
Company as set forth in this Agreement.
14. MISCELLANEOUS.
1. Subject to the condition that this Agreement is not assignable
by either party without the prior written consent of the other party (except
that the Company may assign this Agreement to an affiliate or to a third
party purchaser of the Company or its assets), the terms and provisions of
this Agreement shall inure to the benefit of, and shall be binding on, the
parties hereto and their respective heirs, representatives, successors and
assigns.
2. This Agreement supersedes all other agreements, either oral or
in writing, between the parties to this Agreement, with respect to the
employment of the Executive by the Company. This Agreement contains the
entire understanding of the parties and all of the covenants and agreement
between the parties with respect to such employment. Any such prior
agreements are hereby terminated without obligation for any payments
otherwise due thereunder. No waiver or modification of this Agreement or of
any covenant, condition or limitation herein contained shall be valid, unless
in writing and duly executed by the party to be charged therewith, and no
evidence of any waiver or modification shall be offered or received in
evidence of any proceeding, arbitration, or litigation between the parties
hereto arising out of or affecting this Agreement, or the rights or
obligations of the parties hereunder, unless such waiver or modification is
in writing, duly executed as aforesaid, and the parties further agree that
the provisions of this Paragraph may not be waived except as herein set forth.
9
<PAGE>
3. All agreements and covenants contained herein are severable
and in the event any of them, with the exception of those contained in
Paragraph 1 hereof, shall be held to be invalid, as written pursuant to the
arbitration or judicial proceedings provided for in this Agreement, this
Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein.
4. Except as otherwise provided in Paragraph 10 of this
Agreement, any controversy between the parties to this Agreement involving a
dispute with respect to any of the terms, covenants, or conditions of this
Agreement shall be submitted to arbitration in the state of Maine, if either
party to this Agreement shall request arbitration by notice in writing to the
other party. In such event, the parties to this Agreement shall, within
thirty (30) days after this Paragraph 14(d) is invoked, both appoint one
person as an arbitrator to hear and determine the dispute, then the two
arbitrators so chosen shall, within fifteen (15) days, select a third
impartial arbitrator; the majority decision of the arbitrators shall be final
and conclusive upon the parties to this Agreement. Each party to the
arbitration proceedings shall bear his or its own expenses, except that the
expenses of the arbitrators shall be borne by the Company and/or the
Executive as determined by the arbitrator(s) involved. In the event of any
litigation between the parties related to the compliance with the terms and
conditions of this Agreement, the parties hereto acknowledge and agree that
the prevailing party in such litigation proceedings shall be entitled to
recover, from the nonprevailing party, reasonable attorneys' fees and
expenses incurred in connection with the dispute involved.
5. This Agreement has been made under and shall be governed by
the laws of the State of Maine.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this 6th day of August, 1999.
MOUNTAIN LTD., INC.
By:
-------------------------------------
M. Ted Dillard, Secretary
Address: 12801 North Central Expressway
10
<PAGE>
Suite 350
Dallas, TX 75243
----------------------------------------
Joseph H. Hosmer
Address: 1012 Hallowell Road
Durham, Maine 04222
DIVERSIFIED CORPORATE RESOURCES, INC.
By:
-------------------------------------
M. Ted Dillard, President
Address: 12801 North Central Expressway
Suite 350
Dallas, TX 75243
MAGIC Northeast, Inc.
By:
-------------------------------------
M. Ted Dillard, Secretary
Address: 12801 North Central Expressway
Suite 350
Dallas, TX 75243
11
<PAGE>
FIRST AMENDMENT TO RIGHTS AGREEMENT
This FIRST AMENDMENT TO RIGHTS AGREEMENT (this "Amendment"), dated as of
May 14, 1999 (the "Amendment"), is by and between DIVERSIFIED CORPORATE
RESOURCES, INC., a Texas corporation (the "Company"), and, at the request of the
Company, HARRIS TRUST AND SAVINGS BANK, a national banking association, as
Rights Agent (the "Rights Agent").
RECITALS
1. The Company and the Rights Agent executed that certain Rights
Agreement dated as of May 1, 1998 (the "Rights Agreement").
2. The Board of Directors of the Company (the "Directors") believes it to
be in the best interest of the Company to amend the Rights Agreement so as to
provide additional protection with respect to accidental triggering of the
dilutive provisions of the Rights Agreement.
3. The Directors, pursuant to resolutions adopted on March 26, 1999,
authorized an officer of the Company to execute the Amendment and direct the
Rights Agent to execute the Amendment.
AGREEMENT
Accordingly, in consideration of the premises and the mutual agreement
herein set forth the parties hereby agree as follows:
1. The Rights Agreement is hereby amended by deleting Section 1(a) in its
entirety and substituting the following in lieu thereof:
"(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such
term is hereinafter defined) of 15% or more of the shares of Common Stock
then outstanding, but shall not include (i) an Exempt Person (as such term
is hereinafter defined) or (ii) any such Person who has reported or is
required to report such ownership (but less than 25%) on Schedule 13G under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or
any comparable or successor report) or on Schedule 13D under the Exchange
Act (or any comparable or successor report), which Schedule 13D (including
an amendment to Schedule 13D) does not state any intention to or reserve
the right to control or influence the management or policies of the Company
or engage in any of the actions specified in Item 4 of such Schedule 13D
(other than the disposition of the Common Stock) and, within 10 Business
Days (as such term is hereinafter defined) of being requested by the
Company to advise it regarding the same, certifies to the Company that such
Person acquired shares of Common Stock in excess of 14.99% inadvertently or
without knowledge of the effect of the terms of the Rights and
<PAGE>
who, together with all Affiliates and Associates, thereafter does not
acquire additional shares of Common Stock while the Beneficial Owner of
15% or more of the shares of Common Stock then outstanding; PROVIDED,
HOWEVER, that (A) if the Person requested to so certify fails to do so
within 10 Business Days or (B) if such Person thereafter becomes
obligated to file a Schedule 13D (including an amendment to a Schedule
13D) that would state any intention to or reserve the right to control
or influence the management or policies of the Company or engage in any
of the actions specified in Item 4 of such Schedule 13D (other than the
disposition of the Common Stock), then such Person shall become an
Acquiring Person immediately thereafter. Notwithstanding the foregoing,
(x) if, as of the date hereof, any Person is the Beneficial Owner of 15%
or more of the shares of Common Stock outstanding, such Person shall not
be or become an "Acquiring Person" unless and until such time as such
Person shall become the Beneficial Owner of an additional 1% of the
shares of Common Stock (other than pursuant to a dividend or distribution
paid or made by the Company on the outstanding Common Stock in shares of
Common Stock or pursuant to a split or subdivision of the outstanding
Common Stock), unless, upon becoming the Beneficial Owner of such
additional shares of Common Stock, either such Person is not then the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding or such Person is exempted from the definition of "Acquiring
Person" pursuant to Section 1(a)(ii) hereof and (y) no Person shall
become an "Acquiring Person" as the result of an acquisition of shares
of Common Stock by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares of Common
Stock beneficially owned by such Person to 15% or more of the shares of
Common Stock then outstanding; PROVIDED, HOWEVER, that if a Person shall
become the Beneficial Owner of 15% or more of the shares of Common Stock
then outstanding by reason of such share acquisitions by the Company and
shall thereafter become the Beneficial Owner of any additional shares of
Common Stock (other than pursuant to a dividend or distribution paid or
made by the Company on the outstanding Common Stock in shares of Common
Stock or pursuant to a split or subdivision of the outstanding Common
Stock), then such Person shall be deemed to be an "Acquiring Person"
unless, upon becoming the Beneficial Owner of such additional shares of
Common Stock, either such Person is not then the Beneficial Owner of 15%
or more of the shares of Common Stock then outstanding or such Person is
exempted from the definition of "Acquiring Person" pursuant to Section
1(a)(ii) hereof. For all purposes of this Agreement, any calculation of
the number of shares of Common Stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof."
2. The Rights Agreement is hereby amended by deleting Section 1(l) in its
entirety and substituting the following in lieu thereof:
"(l) "Exempt Person" shall mean the Company or any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including,
without limitation, in its
2
<PAGE>
fiduciary capacity, or any employee benefit plan of the Company or of
any Subsidiary of the Company, J. Michael Moore and his Affiliates or
any entity or trustee holding Common Stock for or pursuant to the terms
of any such plan or for the purpose of funding any such plan or funding
other employee benefits for employees of the Company or of any
Subsidiary of the Company."
3. The Rights Agreement, as amended hereby, shall remain in full force
and effect.
4. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
[INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed, all as of the day and year first above written.
DIVERSIFIED CORPORATE RESOURCES, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
HARRIS TRUST AND SAVINGS BANK, as Rights
Agent
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 3,165,952 3,165,952
<SECURITIES> 0 0
<RECEIVABLES> 8,067,357 8,067,357
<ALLOWANCES> 688,000 688,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,368,655 11,368,655
<PP&E> 3,303,924 3,303,924
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 18,697,047 18,697,047
<CURRENT-LIABILITIES> 4,164,387 4,164,387
<BONDS> 1,246,369 1,246,369
0 0
0 0
<COMMON> 324,995 324,995
<OTHER-SE> 12,887,133 12,887,133
<TOTAL-LIABILITY-AND-EQUITY> 18,697,047 18,697,047
<SALES> 0 0
<TOTAL-REVENUES> 24,163,179 12,098,820
<CGS> 0 0
<TOTAL-COSTS> 23,442,610 12,006,951
<OTHER-EXPENSES> 9,681 5,773
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 710,888 86,096
<INCOME-TAX> 277,246 35,777
<INCOME-CONTINUING> 433,642 50,319
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 433,642 50,319
<EPS-BASIC> .16 .02
<EPS-DILUTED> .16 .02
</TABLE>
