SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): December 19,
1997
COMPUTER OUTSOURCING SERVICES, INC.
(Exact name of registrant as specified in its charter)
New York 0-20824 13-3252333
(State or other (Commis (IRS Employer
jurisdiction of sion Identification
incorporation) File No.)
No.)
360 West 31st Street 10001
New York, New York (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (212) 564-3730
Item 2. Acquisition or Disposition of Assets.
On December 19, 1997, Computer Outsourcing Services, Inc.
(the "Company") consummated the sale of all of the outstanding
capital stock of Daton Pay USA, Inc., Pay USA of New Jersey,
Inc., NEDS, Inc. and Key-ACA, Inc., all wholly-owned subsidiaries
of the Company comprising its payroll processing division, to
Zurich Payroll Operations Limited (the "Purchaser") for a
purchase price of $14,400,000. The consideration received by the
Company from the Purchaser included a $750,000 promissory note
due July 15, 1999. Additionally, the purchase price is subject
to subsequent adjustment. The Company plans to use the proceeds
from the sale to expand its information processing services
business and to repay outstanding debt.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(b) Pro Forma Financial Information.
To be supplied by Amendment.
(c) Exhibits.
10 - Stock Purchase Agreement, dated as of December 19,
1997, among Zurich Payroll Operations Limited, Computer
Outsourcing Services, Inc., Daton Pay USA, Inc., Pay
USA of New Jersey, Inc., NEDS, Inc. and Key-ACA, Inc.
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 hereunto duly authorized.
Computer Outsourcing Services, Inc.
(Registrant)
January 5, 1998 /s/ Zach Lonstein
Zach Lonstein
Chief Executive Officer
Stock Purchase Agreement
among
Zurich Payroll Operations Limited,
Computer Outsourcing Services, Inc.
Daton Pay USA, Inc.
Pay USA of New Jersey, Inc.
NEDS, Inc.
and
Key-ACA, Inc.
Dated As Of: December 19, 1997
TABLE OF CONTENTS
Article I 4
Definitions 4
1.01. Definitions 4
1.02. Defined Terms 8
Article II 8
Purchase and Sale of Shares 8
2.01. Purchase and Sale of Shares 8
2.02. The Closing 9
2.03. Purchase Price Adjustment Amount 9
Article III 11
Conditions to Closing 11
3.01. Conditions to Buyer's Obligation 11
3.02. Conditions to the Sellers' Obligations 14
Article IV 15
Seller Representations and Warranties 15
4.01. Organization and Corporate Power 15
4.02. Subsidiaries 16
4.03. Authorization; No Breach; Valid and Binding
Agreement 16
4.04. Capital Stock 17
4.05. Financial Statements; No Undisclosed Material
Liabilities 18
4.06. Absence of Certain Developments 18
4.07. Title to Properties 20
4.08. Tax Matters 21
4.09. Contracts and Commitments 22
4.10. Intellectual Property 23
4.11. Litigation 24
4.12. Brokerage 24
4.13. Governmental Consents 24
4.14. Employee Benefit Plans 25
4.15. Insurance 26
4.16. Compliance with Laws 27
4.17. Environmental Compliance 27
4.18. Employee and Labor Relations 27
4.19. Accounts; Safe Deposit Boxes; Powers of
Attorney; Officers and Directors 28
4.20. Effect of Transaction 28
4.21. Transactions with Affiliates 28
4.22. Customers 28
4.23. Year 2000 29
4.24. Software 29
4.25. Customer Accounts Receivable 29
4.26. Salaries of Officers and Directors 29
4.27. Daton Tax Penalty 29
4.28. Disclosure 29
Article V 30
Buyer Representations and Warranties 30
5.01. Organization and Corporate Power 30
5.02. Authorization 30
5.03. No Breach 30
5.04. Governmental Consents 30
5.05. Brokerage 30
5.06. Investment Representation 31
Article VI 31
Covenants of the Companies and Seller 31
6.01. Conduct of the Business 31
6.02. Access to Books and Records 31
6.03. Notification 32
6.04. Regulatory Filings 32
6.05. Conditions 32
6.06. Resignations 32
6.07. Other Transactions 33
6.08. Noncompetition and Confidentiality 33
6.09. Releases; Prior Compensation 34
6.10. Leases 35
6.11. Transition Support 35
6.12. Employee Bonuses 35
6.13. Sublease of Jacom Equipment 35
6.14. Transfer of Tax Trust Accounts to Buyer 35
6.15. Receipt by Seller of Funds Payable to the
Companies 36
Article VII 36
Covenants of Buyer 36
7.01. Access to Books and Records Relating to Taxes 36
7.02. Regulatory Filings 36
7.03. Conditions 36
7.04. Employee Bonuses 36
7.05. Leases 36
Article VIII 37
Termination 37
8.01. Termination 37
8.02. Effect of Termination 37
Article IX 38
Additional Covenants 38
9.01. Survival 38
9.02. Indemnification 38
9.03. Tax Matters 40
9.04. Further Assurances 42
9.05. Records 42
Article XI 43
Miscellaneous 43
10.01. Press Releases and Communications 43
10.02. Expenses 43
10.03. Notices 43
10.04. Assignment 44
10.05. Severability 44
10.06. Amendment and Waiver 44
10.07. Complete Agreement 44
10.08. Counterparts 45
10.09. Governing Law 45
10.10. No Third-Party Beneficiaries 45
10.11. Interpretation 45
10.12. Acknowledgment 45
10.13. Consent to Jurisdiction 45
10.14. Waiver of Jury Trial 46
Exhibit 10
Stock Purchase Agreement, dated as of
December 19, 1997, among Zurich Payroll
Operations Limited, a Delaware corporation
("Buyer"), Computer Outsourcing Services,
Inc., a New York corporation ("Seller"),
Daton Pay USA, Inc., a California
corporation ("Daton"), Pay USA of New
Jersey, Inc., a New York corporation ("Pay
USA"), NEDS, Inc., a New York corporation
("NEDS") and Key-ACA, Inc., a New York
corporation ("Key-ACA," and together with
Daton, Pay USA and NEDS, the "Companies").
Introduction
Daton, Pay USA, NEDS and Key-ACA each own and operate
a payroll service business located in California, New York,
Rhode Island and Massachusetts, respectively. Seller desires
to sell all of the issued and outstanding shares of capital
stock of the Companies (the "Shares"), and Buyer desires to
purchase the Shares, upon the terms and subject to the
conditions set forth herein.
The parties hereto agree as follows:
Article I
Definitions
1.01. Definitions. (a) The following terms, as
used this Agreement, shall have the following meanings:
"Affiliate" means, with respect to any specified
Person, any other Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person.
"Code" means the Internal Revenue Code of 1986.
"Contract" means any agreement, note, bond,
arrangement, understanding, lease, license, option, indenture,
mortgage, deed of trust, plan, commitment or instrument.
"ERISA" means the Employee Retirement Income Security
Act of 1974.
"GAAP" means generally accepted accounting
principles.
"Governmental Entity" means any Federal, state, local
or foreign government or any court of competent jurisdiction,
administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign.
"Intellectual Property" means patents, patent
applications, trademarks (registered or unregistered) and
service marks (and any applications or registrations therefor),
trade secrets, trade names, corporate names, copyrights,
copyright registrations (and any applications therefor), know-
how, inventions and other intellectual property and proprietary
rights, whether or not subject to statutory registration or
protection or other similar type of proprietary intellectual
property right.
"Knowledge of Seller" means the knowledge of any
employee, officer, director or Affiliate of Seller, such
persons having made diligent inquiry as to the representations,
warranties and schedules given to Buyer in this Agreement.
"Material Adverse Effect" means a material adverse
effect upon the business, assets, operations, properties,
financial position, results of operations, prospects or
liabilities of the Companies, taken as a whole, or any adverse
effect upon the consummation of this Agreement or any of the
transactions contemplated hereby.
"Net Interdivisional Payables" means the accounts
payable on the books and records of the Companies in favor of
Seller or any of its Affiliates (other than the Companies), net
of any accounts receivable from Seller or any of its Affiliates
(other than the Companies) on the books and records of the
Companies.
"Person" means an individual, a partnership, a
limited liability company, a limited liability partnership, a
corporation, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or any other
entity or organization, domestic or foreign (including a
Governmental Entity).
"Security Interests" means mortgages, liens, security
interests, encumbrances, leases, assignments, subleases,
easements, covenants, rights-of-way or other similar
restrictions of any nature whatsoever.
"Software" means all electronic data processing
systems, information systems, computer software programs,
program specifications, charts, procedures, source codes, input
data, routines, data bases, report layouts, formats, record
file layouts, diagrams, functional specifications, narrative
descriptions, flow charts and other related material developed
for any of the Companies or used, licensed, leased or owned,
directly or indirectly, by, on behalf of or for the account of
the Companies.
"Tax" or "Taxes" means any Federal, state, local or
foreign income, gross receipts, capital stock, franchise,
profits, estimated, payroll, employment, environmental,
withholding, social security, unemployment, disability, real
property, ad valorem/personal property, stamp, excise,
occupation, sales, use, transfer, value added, alternative
minimum or other tax, assessment, duty or similar charge of any
kind, including any interest, penalty or addition thereto,
whether disputed or not.
"Tax Returns" means any return, report, information
return or other document (including schedules or any related or
supporting information) filed or required to be filed with any
Taxing Authority in connection with the determination,
assessment or collection of any Tax or the administration of
any laws, regulations or administrative requirements relating
to any Tax.
"Taxing Authority" means any governmental or any
quasi-governmental body exercising any taxing authority or any
other authority exercising Tax regulatory authority.
"Transition Support Services Agreement" means the
agreement, dated the date hereof, between Seller and Buyer
substantially in the form of Exhibit A.
(b) Each of the following terms is defined in the Section set
forth opposite such term:
Term Section
Buyer Note 2.01(b)(ii)
Cash Portion of the Initial 2.02(b)(ii)
Purchase Price Amount
Closing 2.02(a)
Closing Date 2.02(a)
Competitive Activities 6.08(a)
Daton Lease 3.01(j)(ix)
Daton Merger Agreement 4.05(c)
Deferred Compensation 3.01(g)
Obligations
Elections 9.03(a)
Employment Agreements 3.01(g)
Estimated Purchase Price Amount 2.01(b)
Indemnified Party 9.02(e)
Indemnifying Party 9.02(e)
Independent Accounting Firm 2.03(b)
Initial Purchase Price Amount 2.01(c)
IRS 4.08
Key-ACA Asset Purchase 3.01(j)(xv)
Agreement
Latest Balance Sheet 4.05(a)
Leases 6.10
Listed Contracts 4.09(a)
Losses 9.02(a)
NEDS Merger Agreement 3.01(j)(xiv
)
Notice 9.02(e)
Notice of Disagreement 2.03(a)
Olympus 3.01(j)(ix)
Payroll Revenues 2.03(f)
Payroll Revenues Adjustment 2.03(e)
Amount
Pension Plan 4.14(b)
Plan 4.14(a)
Purchase Price 2.01(b)
Purchase Price Adjustment 2.03(c)
Amount
Rights 3.01(g)
Section 338 Forms 9.03(a)
Shareholders' Equity 2.03(d)
Statement 2.03(a)
Target Amount 2.03(c)
Tax Trust Accounts 2.03(f)
Third Party Claim 9.02(e)
Total Assets 2.03(d)
Total Liabilities 2.03(d)
1.02. Defined Terms. (a) Unless otherwise
specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be
made and all financial statements required to be delivered
hereunder shall be prepared in accordance with GAAP as in
effect from time to time.
(b) All references in this Agreement to "Articles",
"Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Agreement.
The words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement and not to any
particular Article, Section or other subdivision.
(c) In this Agreement, in the computation of periods
of time from a specified date to a later specified date, the
word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding".
(d) All references to "including" in this Agreement
shall mean including without limitation.
(e) A reference to a law in this Agreement includes
any amendment or modification to such law and any rules or
regulations issued thereunder.
(f) A reference to a Person in this Agreement
includes its successors and permitted assigns (if any).
Article II
Purchase and Sale of Shares
2.01. Purchase and Sale of Shares. (a) At the
Closing, upon the terms and subject to the conditions set forth
in this Agreement, Seller shall sell, assign, transfer and
convey to Buyer, and Buyer shall purchase and acquire from
Seller, all of the Shares.
(b) The purchase price for the Shares, the
noncompetition covenant set forth in Section 6.08 and the
customer lists shall be an amount equal to $14,400,000 (the
"Estimated Purchase Price Amount"), as adjusted in accordance
with Section 2.03(c), which amount, as so adjusted, shall be
referred to herein as the "Purchase Price".
(c) The Purchase Price shall be payable as follows:
(i) $12,900,000 (the "Initial Purchase Price Amount") shall be
payable by Buyer at the Closing as set forth in Section 2.02(b)
and (ii) the balance of the Purchase Price, if any, shall be
payable as set forth in Section 2.03.
(d) The Purchase Price shall be allocated as
follows: $1,440,000 as consideration for the noncompetition
covenant set forth in Section 6.08, $7,200,000 as consideration
for the customer lists and the remainder of the Purchase Price
as consideration for the Shares.
2.02. The Closing. (a) The closing of the
purchase and sale of the Shares (the "Closing") shall take
place at the offices of Howard, Darby & Levin, 1330 Avenue of
the Americas, New York, New York, at 10:00 a.m. on December 19,
1997, or if the conditions to the Closing set forth in Article
III shall not have been satisfied by such date, as soon as
practicable after such conditions shall have been satisfied.
The date and time the Closing occurs is herein referred to as
the "Closing Date".
(b) At the Closing:
(i) Seller shall deliver to Buyer stock certificates
representing all the Shares in each case duly endorsed in blank
or accompanied by duly executed stock powers duly endorsed in
blank in proper form for transfer, with appropriate transfer
stamps, if applicable, affixed.
(ii) Buyer shall deliver to Seller (A) by wire
transfer of immediately available funds to such bank account
designated in writing by Seller to Buyer at least two business
days prior to the Closing Date $12,150,000 (the "Cash Portion
of the Initial Purchase Price Amount"), and (B) a promissory
note, substantially in the form of Exhibit B hereto, bearing a
principal amount of $750,000 (the "Buyer Note").
(iii) Buyer, Seller and the Companies shall make such
other deliveries as are required by and in accordance with
Article III hereof.
2.03. Purchase Price Adjustment Amount.
(a) By May 15, 1998, Buyer shall prepare and deliver
to Seller a statement (the "Statement"), setting forth
Shareholders' Equity, Payroll Revenues for each of the fiscal
quarters ending December 31, 1997 and March 31, 1998 and the
Purchase Price Adjustment Amount; provided, however, that Buyer
shall use its best efforts to provide notice of Shareholders'
Equity to Seller by March 31, 1998. The Statement shall become
final and binding upon the parties on the 60th day following
delivery thereof, unless Seller gives effective written notice
of its disagreement with the Statement (the "Notice of
Disagreement") to Buyer prior to such date. During the 60-day
period following receipt of the Statement by Seller, Seller
shall be permitted to review the working papers of Buyer
relating to the Statement. To be effective, a Notice of
Disagreement must (i) specify in reasonable detail the nature
of any disagreement so asserted and (ii) set forth a single
proposed Purchase Price Adjustment Amount. If a Notice of
Disagreement is received by Buyer in a timely manner, then the
Statement (as revised in accordance with clauses (A) or (B)
below) shall become final and binding upon Seller and Buyer on
the earlier of (A) the date Seller and Buyer resolve in writing
any differences they have with respect to the matters specified
in the Notice of Disagreement or (B) the date any disputed
matters are finally resolved in writing by the Independent
Accounting Firm.
(b) During the 60-day period following the delivery
of a Notice of Disagreement, Seller and Buyer shall seek in
good faith to resolve in writing any differences to the matters
specified in the Notice of Disagreement. During such period,
Buyer shall have access to the working papers of Seller
prepared in connection with the Notice of Disagreement. At the
end of such 60-day period, Seller and Buyer shall submit to an
independent accounting firm (the "Independent Accounting Firm")
for review and resolution any and all matters which remain in
dispute and which were properly included in the Notice of
Disagreement. The Independent Accounting Firm shall be a
nationally recognized "Big Four" accounting firm as shall be
agreed upon by Seller and Buyer in writing. Seller and Buyer
shall use all reasonable efforts to cause the Independent
Accounting Firm to render a decision resolving the matters
submitted to the Independent Accounting Firm within 30 days
following submission. Seller and Buyer agree that judgment may
be entered upon the determination of the Independent Accounting
Firm in any court having jurisdiction over the party against
which such determination is to be enforced. The cost of the
process of rendering a decision on the matters submitted to the
Independent Accounting Firm (including the fees and expenses of
the Independent Accounting Firm and reasonable attorney fees
and expenses of the parties) pursuant to this Section 2.03(b)
shall be borne by the party whose Purchase Price Adjustment
Amount, as set forth in the Statement or the Notice of
Disagreement, as the case may be, is furthest from the Purchase
Price Adjustment Amount as determined by the Independent
Accounting Firm.
(c) (i) If Shareholders' Equity exceeds $6,007,127 (the
"Target Amount") by more than ten percent, then the total
amount by which Shareholders' Equity exceeds the Target Amount
shall be deducted from the Payroll Revenues Adjustment Amount.
If the Target Amount exceeds Shareholders' Equity by more than
ten percent, then the total amount by which the Target Amount
exceeds Shareholders' Equity shall be added to the Payroll
Revenues Adjustment Amount. The Payroll Revenues Adjustment
Amount as so adjusted in accordance with this Section 2.03(c)
shall be referred to herein as the "Purchase Price Adjustment
Amount." If the Purchase Price Adjustment Amount is zero or
greater, the excess of the Estimated Purchase Price Amount over
the Purchase Price Adjustment Amount shall be the Purchase
Price. If the Purchase Price Adjustment Amount is less than
zero, the sum of the Estimated Purchase Price Amount and the
Purchase Price Adjustment Amount (expressed as a positive
number) shall be the Purchase Price. Notwithstanding anything
to the contrary in this Article II, in no event shall the
Purchase Price be less than $12,900,000 or more than
$14,500,000.
(ii) If, at any time after the delivery of the Notice
of Disagreement, Seller or Buyer have agreed to an amount
certain owing to Seller pursuant to the provisions of this
Section 2.03(c), Buyer shall pay 90% of such undisputed amount
to Seller by wire transfer of immediately available funds to
the bank account described in Section 2.02(b)(ii). Within 10
business days of the final determination of the Purchase Price
Adjustment Amount in accordance with this Section 2.03(c),
Buyer shall pay the excess of the Purchase Price over the
Initial Purchase Price Amount, if any, less any payments
previously made pursuant to the immediately preceding sentence,
to Seller by wire transfer of immediately available funds to
the bank account described in Section 2.02(b)(ii). Any
payments made pursuant to the two immediately preceding
sentences shall be accompanied with interest thereon at a rate
per annum equal to 6.5% for the period from the Closing Date to
the date of payment of such amount (calculated on the basis of
a year of 365 days and the actual number of days elapsed during
such period).
(d) "Shareholders' Equity" means, as of the Closing
Date, the excess of (i) Total Assets over (ii) Total
Liabilities. The terms "Total Assets" and "Total Liabilities"
mean the combined total assets of the Companies and the
combined total liabilities of the Companies, respectively, in
each case as of the Closing Date, calculated in accordance with
GAAP. It is understood that Total Assets and Total Liabilities
shall be determined without regard to any purchase accounting
adjustments to the accounting books and records for financial
reporting purposes which may be recorded by the Companies or
Buyer as a result of the transactions contemplated by this
Agreement. To the extent GAAP permits alternate treatments of
any item comprising Shareholders' Equity, the particular
treatment used in the Latest Balance Sheet shall also be used
in the calculation of Shareholders' Equity.
(e) The "Payroll Revenues Adjustment Amount" shall
be equal to the product of (i) 1.65 and (ii) the excess of (A)
the product of (I) 0.925 and (II) Payroll Revenues for the
fiscal quarter ending December 31, 1997 over (B) the Payroll
Revenues for the fiscal quarter ending March 31, 1998; provided
that the Payroll Revenues Adjustment Amount shall not be less
than zero.
(f) "Payroll Revenues" means, for any period, the
sum of (i) the revenues billable by the Companies solely from
the provision of payroll processing services and tax filing
services to its customers during such period and (ii) revenues
earned by the Companies solely from tax trust accounts ("Tax
Trust Accounts") during such period, net of (A) allowances for
uncollectible amounts, (B) revenues billable by the Companies
from the provision of payroll processing services relating to
year-end tax information (including W-2 reports), (C) normal
year-end adjustments, (D) revenues billable by the Companies
from the provision of payroll processing services and tax
filing services relating to seasonal bonuses or other seasonal
events, (E) revenues billable by the Companies from the
provision of services relating to general ledger processing,
(F) revenues billable by Pay USA from the provision of payroll
processing services on the Delta Operating System to New Jersey
school boards, municipalities and commercial banks, (G) year-
end file creation fees billable by Companies and (H) revenues
billable by the Companies relating to supplies.
Article III
Conditions to Closing
3.01. Conditions to Buyer's Obligation. The
obligation of Buyer to purchase and pay for the Shares is
subject to the satisfaction (or waiver by Buyer) of the
following conditions as of the Closing Date:
(a) The representations and warranties of Seller
made in this Agreement shall be true and correct in all
respects, as of the date hereof and at and as of the Closing
Date as though then made, except to the extent such
representations and warranties expressly relate to an earlier
date (in which case such representations and warranties shall
be true and correct in all respects on and as of such earlier
date).
(b) The Companies and Seller shall have performed or
complied in all respects with all of the covenants and
agreements required to be performed or complied with by them
under this Agreement at or prior to the Closing.
(c) All consents or other actions that are required
in connection with the transactions contemplated hereunder in
order to prevent any of the effects described in Section
4.03(b) to which any of the Companies or Seller is a party or
by which any of their respective properties or assets are bound
(all of which consents are set forth on the Third-Party
Consents Schedule attached hereto) or with respect to any
license, franchise, permit or other similar authorization held
by any of the Companies or Seller shall have been obtained or
taken.
(d) All permits, consents, approvals, licenses, orders or
authorizations of, and registrations, declarations and filings
with, any Governmental Entity, if any, that are required to be
obtained or made in connection with (i) the execution, delivery
or performance of this Agreement by any of the Companies,
Seller or Buyer or the consummation by any of the Companies,
Seller or Buyer of any of the transactions contemplated hereby
and (ii) the conduct by the Companies of their respective
businesses following the Closing as conducted on the date
hereof shall have been duly obtained or made.
(e) No action or proceeding by or before any
Governmental Entity or any other Person shall be pending or
threatened (i) challenging or seeking to restrain or prohibit
the purchase and sale of any of the Shares or any of the other
transactions contemplated by this Agreement or seeking to
obtain damages from Buyer (or any of its Affiliates) or the
Companies in connection with the purchase and sale of the
Shares or any of the other transactions contemplated by this
Agreement, (ii) seeking to prohibit or limit the ownership or
operation by Buyer (or any of its Affiliates) or the Companies
of, or to compel Buyer (or any of its Affiliates) or the
Companies to dispose of or hold separate, any portion of the
business or assets of Buyer (or any of its Affiliates) or the
Companies, in each case as a result of the purchase and sale of
the Shares or any of the other transactions contemplated by
this Agreement, (iii) seeking to impose limitations on the
ability of Buyer (or any of its Affiliates) to acquire or hold,
or exercise full rights of ownership of, the Shares, including
the full right to vote the Shares on all matters properly
presented to the shareholders of the Company or (iv) seeking to
prohibit Buyer (or any of its Affiliates) from effectively
controlling in any respect the businesses or operations of the
Companies, nor shall any statute, rule, regulation, executive
order, decree, temporary restraining order, preliminary
injunction, permanent injunction or other order enacted,
entered, promulgated, enforced or issued by any Governmental
Entity or other legal restraint or prohibition have the effect
set forth in clauses (i) through (iv) above.
(f) There shall not have been any material adverse
change in the business, assets, operations, properties,
financial position, results of operations, prospects or
contingent liabilities of the Companies, taken as a whole.
(g) All obligations for deferred compensation and
severance payments (collectively, "Deferred Compensation
Obligations") and all employment agreements or arrangements
("Employment Agreements") of each of the Companies shall have
been terminated or assumed by Seller, and all rights, including
stock appreciation rights, "phantom" stock rights, options,
warrants and subscription rights, linked, directly or
indirectly, to the capital stock of any of the Companies and
any right of payment or repayment to any Person by any of the
Companies upon any change of control (collectively, "Rights")
shall have been canceled or terminated, in each case without
any further payment or other obligation on the part of any of
the Companies after the Closing and otherwise on terms
satisfactory to Buyer. Each beneficiary of any Deferred
Compensation Obligations, Employment Agreements or any Rights
shall have signed instruments, satisfactory to Buyer, releasing
Buyer (and its Affiliates) and each of the Companies from any
and all claims or liability, past, present or future, in
connection with or arising out of any Deferred Compensation
Obligations, Employment Agreements or Rights, including the
cancellation or termination of any such Deferred Compensation
Obligations, Employment Agreements or Rights whether at the
Closing or at any time prior to the Closing.
(h) The Companies shall not have declared or paid
any dividends or made any distributions to or at the direction
of its shareholders, whether or not upon or in respect of any
shares of its capital stock or other equity securities at any
time after October 24, 1997.
(i) A confidentiality agreement with Buyer, in form and
substance satisfactory to Buyer, shall have been executed by
each of the employees of the Companies set forth on the
Confidentiality Schedule attached hereto.
(j) Seller or the Companies, as the case may be,
shall have delivered to Buyer each of the following:
(i) a certificate of the chief executive
officer of Seller in the form set forth in Exhibit C attached
hereto, dated the Closing Date, stating that the preconditions
specified in subsections (a) through (i) of this Section 3.01
inclusive, except as they expressly relate to Buyer, have been
satisfied;
(ii) copies of the third party and governmental
consents required by subsections (c) and (d) above;
(iii) all minute books, stock books, ledgers
and registers, corporate seals and other corporate records
relating to the organization, ownership and maintenance of
the Companies;
(iv) a combined balance sheet of the
Companies at October 31, 1997, and a related statement of
income and cash flows for the three months then ended,
certified by the chief executive officer and chief
financial officer of Seller;
(v) evidence, in form and substance
satisfactory to Buyer, of cancellation of the Net
Interdivisional Payables;
(vi) evidence, in form and substance satisfactory to
Buyer, that the obligations of (A) Key-ACA in the
Employment Agreement, dated as of May 1, 1995, between
Key-ACA and Eugene B. Monosson, (B) Key-ACA in the
Employment Agreement, dated as of May 1, 1995, between
Key-ACA and Earle G. Phillips, Jr. and (C) NEDS in the
Employment Agreement, dated as of June 22, 1993, between
NEDS and Norman D. Meyers, have been released;
(vii) evidence, in form and substance
satisfactory to Buyer, that the liens evidenced by the
financing statements attached hereto as Exhibit D have
been released;
(viii) the Transition Support Services Agreement, duly
executed by Seller;
(ix) an assignment to Buyer of Seller's
leasehold interest in the real property evidenced by the
lease, dated May 14, 1997 (the "Daton Lease"), between
Seller and Olympus Brookhollow/Calvest ("Olympus"), duly
executed by Seller;
(x) resignations effective as of the Closing
Date from all of the officers and directors of the
Companies;
(xi) evidence, in form and substance
satisfactory to Buyer, that the Tax Trust Accounts have
been transferred to Buyer;
(xii) an opinion dated the Closing Date of
Robinson & Cole LLP, counsel to the Companies and Seller,
substantially in the form of Exhibit E;
(xiii) all documents that Buyer may
reasonably request relating to the existence of Seller and
each of the Companies and the authority and legal capacity
of Seller and each of the Companies for this Agreement,
all in form and substance satisfactory to Buyer;
(xiv) evidence, in form and substance
satisfactory to Buyer, that the obligations of NEDS under
Sections 2.2 and 2.3 of the Merger Agreement, dated May 4,
1993 (as amended, the "NEDS Merger Agreement"), among
Seller, NEDS, Robert R. Boie, Joseph J. Velleca and Norman
D. Meyers, and all amendments thereto, have been released;
and
(xv) evidence, in form and substance
satisfactory to Buyer, that the obligations of Key-ACA
under Sections 2.2 and 2.3 of the Asset Purchase
Agreement, dated April 7, 1995 (the "Key-ACA Asset
Purchase Agreement"), among Seller, ACA Acquisition Corp.,
a New York corporation, Key-ACA, Inc., a Delaware
corporation, Eugene B. Monosson and Earle G. Phillips,
Jr., have been released.
3.02. Conditions to Seller's Obligations. The
obligations of Seller to sell and deliver the Shares to Buyer
are subject to the satisfaction (or waiver by Seller) of the
following conditions as of the Closing Date:
(a) The representations and warranties of Buyer made
in this Agreement shall be true and correct in all respects as
of the date hereof and at and as of the Closing Date as though
then made.
(b) Buyer shall have performed or complied in all
respects with all of the covenants and agreements required to
be performed or complied with by it under this Agreement at or
prior to the Closing.
(c) All permits, consents, approvals, licenses,
orders or authorizations of, and registrations, declarations
and filings with, any Governmental Entity that are set forth on
the Governmental Consents Schedule or that are required to be
obtained or made in connection with the execution, delivery or
performance of this Agreement by the Companies or Seller or the
consummation by the Companies or Seller of any of the
transactions contemplated hereby shall have been duly obtained
or made.
(d) No action or proceeding by or before any
Governmental Entity shall be pending or threatened challenging
or seeking to restrain or prohibit the purchase and sale of any
of the Shares or any of the transactions contemplated by this
Agreement or seeking to obtain damages from Seller in
connection with the purchase and sale of the Shares or any of
the other transactions contemplated by this Agreement.
(e) No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary injunction,
permanent injunction or other order enacted, entered,
promulgated, enforced or issued by any Governmental Entity or
other legal restraint or prohibition preventing the purchase
and sale of any of the Shares shall be in effect.
(f) Buyer shall have delivered to Seller a
certificate in the form set forth as Exhibit F attached hereto,
dated the Closing Date, stating that the preconditions
specified in subsections (a) through (e) of this Section 3.02
inclusive, except as they expressly relate to any of the
Companies or Seller, have been satisfied.
(g) Buyer shall have delivered to Seller a guarantee by Zurich
Payroll Solutions Limited, in form and substance satisfactory
to Seller, of the obligations of Buyer hereunder and under the
Buyer Note.
Article IV
Seller Representations and Warranties
Seller represents and warrants to Buyer that:
4.01. Organization and Corporate Power. Seller
is a corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Daton is a
corporation duly organized, validly existing and in good
standing under the laws of California. Pay USA is a
corporation duly organized, validly existing and in good
standing under the laws of the State of New York. NEDS is a
corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Key-ACA is a
corporation duly organized, validly existing and in good
standing under the laws of the State of New York. Each of the
Companies and Seller has all requisite corporate power and
authority and all authorizations, licenses and permits
necessary to own, lease or otherwise hold and operate its
properties and assets and to carry on its businesses as now
conducted and is duly qualified and in good standing to do
business as a foreign corporation in every jurisdiction in
which its ownership, leasing or holding of property or assets
or the conduct or nature of its business requires it to so
qualify, except where the failure to hold such authorizations,
licenses and permits or to be so qualified, individually or in
the aggregate, would not have a Material Adverse Effect. A
list of the jurisdictions in which each of the Companies is
qualified to do business as a foreign corporation is set forth
on the Foreign Jurisdiction Schedule attached hereto.
Seller has prior to the execution of this Agreement
delivered to Buyer true and complete copies of the certificates
of incorporation and by-laws, each as amended to date of each
of the Companies. The stock certificate and transfer books and
the minute books of each of the Companies (which have been made
available for inspection by Buyer prior to the date hereof) are
true and complete.
4.02. Subsidiaries. The Companies do not,
directly or indirectly, own, or hold the right or have the
obligation to acquire, any capital stock, partnership interest
or joint venture interest or other equity ownership interest in
any other Person.
4.03 Authorization; No Breach; Valid and Binding
Agreement. (a) Each of the Companies and Seller has all
requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. All corporate
acts and other proceedings required to be taken by each of the
Companies and Seller to authorize the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly
taken and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance
by each of the Companies and Seller of this Agreement. This
Agreement has been duly executed and delivered by each of the
Companies and Seller, and this Agreement constitutes a legal,
valid and binding obligation of each of the Companies and
Seller, enforceable against each of the Companies and Seller in
accordance with its terms.
(b) Seller has all requisite corporate power and
authority to enter into the Transition Support Services
Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. All
corporate acts and other proceedings required to be taken by
Seller to authorize the execution, delivery and performance of
the Transition Support Services Agreement and the consummation
of the transactions contemplated thereby have been duly and
properly taken and no other corporate proceedings on its part
are necessary to authorize the execution, delivery or
performance by Seller of the Transition Support Services
Agreement. The Transition Support Services Agreement has been
duly executed and delivered by Seller and the Transition
Support Services Agreement constitutes a legal, valid and
binding obligation of Seller, enforceable against Seller in
accordance with its terms.
(c) The execution and delivery of this Agreement by
each of the Companies and Seller, and of the Transition Support
Services Agreement by Seller, does not, and the consummation of
the transactions contemplated hereby and thereby and compliance
with the terms hereof and thereof will not, conflict with, or
result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or
to loss of a material benefit under, or to any increased,
additional, accelerated or guaranteed rights or entitlement of
any Person under, or result in the creation of any Security
Interest on the properties or assets of any of the Companies or
Seller under, any provision of (i) the certificate of
incorporation or by-laws of any of the Companies or Seller,
(ii) any Contract to which any of the Companies or Seller is a
party or by which any of their respective properties or assets
are bound, (iii) any license, franchise, permit or other
similar authorization held by any of the Companies or Seller or
(iv) any judgment, order or decree or statute, law, ordinance,
rule or regulation applicable to any of the Companies or Seller
or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflict, violation,
default, termination, cancellation, acceleration, loss, right,
entitlement or Security Interest that does not have a Material
Adverse Effect.
4.04. Capital Stock.
(a) The Company. The authorized capital stock of
Daton consists of 100 shares of common stock, no par value, of
which 100 shares are the only shares issued and outstanding,
all of which outstanding shares have been duly authorized and
are validly issued, fully paid and non-assessable ("Daton
Shares"). The authorized capital stock of Pay USA consists of
200 shares of common stock, no par value, of which 200 shares
are the only shares issued and outstanding, all of which
outstanding shares have been duly authorized and are validly
issued, fully paid and non-assessable ("Pay USA Shares"). The
authorized capital stock of NEDS consists of 200 shares of
common stock, no par value, of which 200 shares are the only
shares issued and outstanding, all of which outstanding shares
have been duly authorized and are validly issued, fully paid
and non-assessable ("NEDS Shares"). The authorized capital
stock of Key-ACA consists of 200 shares of common stock, no par
value, of which 200 shares are the only shares issued and
outstanding, all of which outstanding shares have been duly
authorized and are validly issued, fully paid and non-
assessable ("Key-ACA Shares"). None of the Companies has any
other capital stock, equity securities or securities containing
any equity features or any Rights authorized, issued or
outstanding. The Share Ownership Schedule attached hereto sets
forth a true and correct list of the shareholders of the
Companies and their respective holdings of each Company's
capital stock.
(b) Ownership of Capital Stock. Seller is the
record and beneficial holder of the Daton Shares, the Pay USA
Shares, the NEDS Shares and the Key-ACA Shares. Seller has
good and valid title to the Shares, free and clear of any
Security Interest. Upon delivery to Buyer at the Closing of
certificates representing the Shares, duly endorsed by Seller
for transfer to Buyer, and upon payment of the Cash Portion of
the Initial Purchase Price Amount and delivery of the Buyer
Note, good and valid title to the Shares will pass to Buyer,
free and clear of any Security Interests.
(c) No Encumbrance on Shares. None of the Shares
have been issued in violation of, and none of the Shares are
subject to, any Contract, including any Contract restricting or
otherwise relating to the voting, dividend rights or
disposition of the Shares, or any purchase option, call, right
of first refusal, preemptive, subscription or similar rights
under any provision of applicable law, the certificate of
incorporation or by-laws of any of the Companies or Seller, or
any voting trust agreement or Contract to which any of the
Companies or Seller is subject, bound or a party or otherwise.
There are no outstanding warrants, options, rights, "phantom"
stock rights, agreements, convertible or exchangeable
securities or other commitments (other than this Agreement) (i)
pursuant to which any of the Companies is or may become
obligated to issue, sell, purchase, return or redeem any share
of capital stock or other securities of such Company or (ii)
that give any Person the right to receive any benefits or
rights similar to any rights enjoyed by or accruing to the
holders of shares of capital stock of any of the Companies.
There are no equity securities of any of the Companies reserved
for issuance for any purpose. The Companies do not have
outstanding bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which shareholders
of any of the Companies may vote. No dividends on any shares
of capital stock of the Companies have been declared but not
yet paid. None of the Companies has liability, under any
Federal or state or foreign securities law or otherwise, in
connection with any prior issuance or repurchase of any shares
of its capital stock.
4.05. Financial Statements; No Undisclosed
Material Liabilities. (a) Seller has furnished Buyer with
true and complete copies of the combined balance sheets of the
Companies as of October 31, 1997 (the "Latest Balance Sheet"),
October 31, 1996 and October 31, 1995 and the related combined
statements of income and cash flows for the calendar years then
ended. Such financial statements have been prepared in
accordance with GAAP consistently applied throughout the
periods indicated, and present fairly the financial position,
results of operations and cash flows of the Companies as of the
respective dates and for the respective periods indicated,
subject to the absence of footnotes and normal year-end
adjustments.
(b) There are no liabilities or obligations of the
Companies of any kind whatsoever (whether accrued, absolute,
contingent, unasserted or otherwise), and there is no existing
condition, situation or set of circumstances which could
reasonably be expected to result in such a liability or
obligation, except (i) as disclosed, reflected or reserved
against on the Latest Balance Sheet, and (ii) for liabilities
and obligations incurred in the ordinary course of business
consistent with past practice since the date of the Latest
Balance Sheet and not in violation of this Agreement which,
individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(c) None of the Companies has any liability of any
kind (including contingent liabilities) under the NEDS Merger
Agreement, the Key-ACA Asset Purchase Agreement or the merger
agreement, dated May 18, 1994, among Seller, Daton Data
Processing Services, Inc., a California corporation, Anton P.
Donde and Anton P. Donde and Detta L. Donde as Trustees of the
Anton & Detta Donde Trust, dated November 21, 1997 (the "Daton
Merger Agreement").
4.06. Absence of Certain Developments. Since the
date of the Latest Balance Sheet, the businesses of the
Companies have been conducted in the ordinary course and in
substantially the same manner as previously conducted and the
Companies have made all reasonable efforts consistent with past
practices to preserve the relationships of the Companies and
Seller with payroll processing customers, suppliers and others
with whom the Companies deal and there has not been:
(i) any material adverse change in the
business, assets, operations, properties, financial position,
results of operations, prospects or contingent liabilities of
the Companies (other than assets disposed of since the date of
the Latest Balance Sheet that have not been included on the
Latest Balance Sheet);
(ii) any declaration or payment of any dividends
or any other distributions to or at the direction of
Seller whether or not upon or in respect of any shares
of capital stock of any of the Companies;
(iii) any recapitalization, reclassification, stock
dividend, stock split or like change in capitalization
with respect to any of the Companies;
(iv) any acquisition on behalf of any of the
Companies by merger or consolidation with, or by
purchase of a substantial portion of assets of, or by
any other manner, any business or any corporation,
partnership, association or other Person or division
thereof or any acquisition on behalf of any of the
Companies of any assets which are material,
individually or in the aggregate, to the Companies,
taken as a whole;
(v) sale, lease or other disposition of any of the
Companies, or assets of any of the Companies, which are
material, individually or in the aggregate, to the
Companies, taken as a whole (other than assets not
included on the Latest Balance Sheet);
(vi) any redemption or other acquisition of any
shares of capital stock or other securities of any of the
Companies;
(vii) any (A) grant of severance or termination pay
to any director, officer or employee of any of the
Companies, (B) execution of any employment, deferred
compensation or other similar agreement (or any
amendment to any such existing agreement) with any
director, officer or employee of any of the Companies,
(C) increase in benefits payable under existing
severance or termination pay policies of any of the
Companies or under Employment Agreements to which any
of the Companies is a party, (D) increase in
compensation, bonus or other benefits payable to
employees of any of the Companies or (E) acceleration
of the time of payment or vesting of compensation of
any director, officer or employee of any of the
Companies, except (I) in the case of clauses (C), (D)
and (E) any such increase as may be required under an
existing agreement, or any increases for which Seller
shall be solely obligated and (II) any such grant,
execution, increase or acceleration involving an
employee (other than an officer or a director) made in
the ordinary course of business, consistent with past
practice;
(viii) any incurrence or assumption by or on behalf
of any of the Companies of any liabilities, obligations
or indebtedness for borrowed money or for the deferred
purchase price of property or services or guarantee of
any such liabilities, obligations or indebtedness,
other than in the ordinary course of business
consistent with past practice; provided that there has
been no incurrence, assumption or guarantee of any long-
term indebtedness for borrowed money or for the
deferred purchase price of property or services;
(ix) any cancellation of any material indebtedness
(individually or in the aggregate) or waiver of any
material claims or material rights owned by any of the
Companies;
(x) any change in any method of accounting or
accounting practice, or policy of any of the Companies
other than those required by GAAP;
(xi) any incurrence or commitment by or on behalf
of any of the Companies of any capital expenditure or
expenditures which, individually, is in excess of
$50,000 or, in the aggregate with all others (since the
date of the Latest Balance Sheet), are in excess of
$100,000;
(xii) any election relating to Taxes on behalf of
any of the Companies or any change in the method of
accounting for Tax purposes for any of the Companies;
or
(xiii) any agreement, whether in writing or
otherwise, to do any of the foregoing.
4.07. Title to Properties. (a) The real
property demised by the leases described on the Leased Real
Property Schedule attached hereto constitutes all of the real
property and interests in real property leased by the
Companies.
(b) The leases described on the Leased Real Property
Schedule are in full force and effect, and one of the Companies
holds good and valid title to the leasehold interest under each
of such leases for the term set forth on the Leased Real
Property Schedule, in each case free and clear of all Security
Interests except for Security Interests which do not,
individually or in the aggregate, materially interfere with the
continued use and operation of such leased property. Seller
has delivered to Buyer complete and accurate copies of each of
the leases described on the Leased Real Property Schedule, and
none of such leases have been modified in any respect, except
to the extent that such modifications are disclosed in the
copies delivered to Buyer. None of the Companies is in default
in any material respect under any of such leases.
(c) None of the Companies owns, or has previously
owned, any real property or interests in real property.
(d) To the Knowledge of Seller, the current use by
the Companies of offices and other facilities located on
property leased by the Companies does not violate any local
zoning or similar land use or government regulation in any
material respect. None of the Companies or Seller has received
any written communication during the past three years from any
Person that alleges that any of the Companies is not in
compliance in any material respect with the Americans with
Disabilities Act.
(e) The Companies have good and marketable title to
all of the assets reflected on the Latest Balance Sheet or
thereafter acquired, in each case, free and clear of all
Security Interests, except for (i) Security Interests set forth
on the Liens Schedule attached hereto and (ii) Security
Interests relating to current Taxes not yet due and payable.
The tangible personal property of the Companies, in the
aggregate, has been maintained in all material respects in
accordance with past practice of the Companies and Seller and
generally accepted industry practice, and is in all material
respects in good operating condition and repair, ordinary wear
and tear excepted. All leased personal property of the
Companies is in all material respects in the condition required
of such property by the terms of the lease applicable thereto
during the term of the lease and upon expiration thereof.
(f) There are no developments affecting any of the
assets or properties of the Companies pending, or to the
Knowledge of Seller, threatened, which might materially detract
from the value of such assets or property, materially interfere
with any present or intended use of any such assets or property
or materially adversely affect the marketability of such assets
or property.
(g) None of the Companies or Seller has disposed of
any of the fixed assets set forth on the Latest Balance Sheet
other than in the ordinary course of business.
4.08. Tax Matters. All Tax Returns for periods
ending on or prior to the Closing Date by the Companies or
Seller have been or will be filed on a timely basis with the
appropriate Taxing Authority in all jurisdictions in which such
Tax Returns are required to be filed. All such Tax Returns are
and will be true, correct and complete in all material
respects. All Taxes due from and payable by any of the
Companies or Seller on or prior to the Closing Date have been
fully paid on a timely basis. None of the Companies or Seller
is currently the beneficiary of any extension of time within
which to file any Tax Return. No written claim has ever been
made by an authority in a jurisdiction where any of the
Companies or Seller does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction, and none of the
Companies or Seller has received any written notice, or written
request for information from any such authority. No issues
have been raised in writing with any of the Companies or Seller
by the Internal Revenue Service (the "IRS") or any other Taxing
Authority in connection with any Tax Return filed by any of the
Companies or Seller, and there are no issues which, either
individually or in the aggregate, could result in any liability
for Tax obligations of any of the Companies or Seller relating
to periods ending on or before Closing Date in excess of the
accrued liability for Taxes shown on the Latest Balance Sheet.
No waivers of statutes of limitations have been given or
requested with respect to any of the Companies or Seller. No
differences exist between the amounts of the book basis and the
tax basis of assets that are not accounted for by an accrual on
the books of any of the Companies or Seller for Federal income
Tax purposes. None of the Companies or Seller are required to
include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method
initiated by any of the Companies or Seller, and the IRS has
proposed no adjustment or change in accounting method. None of
the Companies or Seller is a party to any Contract that would
result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G
of the Code. None of the Companies or Seller is a party to a
tax sharing or tax agreement or any other agreement of a
similar nature that remains in effect. All transactions or
methods of accounting that could give rise to an understatement
of Federal income Tax (within the meaning of Section 6661 of
the Code for Tax Returns filed on or before December 31, 1990,
and within the meaning of Section 6662 of the Code for Tax
Returns filed after December 31, 1990) have been adequately
disclosed on the Tax Returns in accordance with Section
6661(b)(2)(B) of the Code for Tax Returns filed on or prior to
December 31, 1990, and in accordance with Section 6662(d)(2)(B)
of the Code for Tax Returns filed after December 31, 1990.
None of the Companies or Seller are or have they ever been a
United States real property holding corporation (as defined in
Section 897(c)(2) of the Code) during the applicable period
specified in Section 897(c)(1)(ii) of the Code. Each of the
Companies and Seller have complied (and until the Closing will
comply) with all applicable laws relating to the payment and
withholding of Taxes (including withholding and reporting
requirements under Sections 1441 through 1464, 3401 through
3406, 6041 and 6049 of the Code and similar provisions under
any other laws) and, within the time and in the manner
prescribed by law, have withheld from wages, fees and other
payments and paid over to the proper Taxing Authorities all
amounts required.
4.09. Contracts and Commitments. (a) Except as
set forth on the Contracts Schedule attached hereto, none of
the Companies is a party to or bound by any:
(i) collective bargaining agreement or other
Contract with any labor union;
(ii) bonus, pension, profit sharing, retirement or
other form of deferred compensation plan (or any Deferred
Compensation Obligations whether pursuant to such a plan or
otherwise) not disclosed pursuant to Section 4.14;
(iii) stock purchase, stock option or similar plan;
(iv) Contract for the employment of any officer,
individual employee or other Person on a full-time, part-time
or consulting basis;
(v) agreement, indenture, mortgage, deed of trust or
other instrument relating to the deferred purchase of property
or services from, the borrowing of money from, or the issuance
of any note, bond, debenture or other evidence of indebtedness
to, any Person in excess of $50,000 or to the mortgaging,
pledging or, otherwise placing a Security Interest on any of
the Companies' properties or assets;
(vi) Contract under which (A) any Person has directly
or indirectly guaranteed indebtedness, liabilities or
obligations of the Companies or (B) the Companies have directly
or indirectly guaranteed indebtedness, liabilities or
obligations of any Person (in each case other than endorsements
for the purpose of collection in the ordinary course of
business);
(vii) lease or agreement under which it is lessee or
sublessee of, or holds or operates any machinery, equipment,
vehicle or other personal property owned by any other Person,
for which the annual rental exceeds $50,000;
(viii) lease or agreement under which it is lessor or
sublessor of or permits any other Person to hold or operate any
property or asset, real or personal, for which the annual
rental exceeds $50,000;
(ix) Contract or group of related Contracts with the
same Person for the purchase of products or services, under
which the undelivered balance of such products and services has
a sales price in excess of $50,000;
(x) Contract or group of related Contracts with the
same Person for the sale of products or services, under which
the undelivered balance of such products or services has a
sales price in excess of $50,000;
(xi) noncompete or similar Contract which prohibits
any of the Companies from freely engaging in business anywhere
in the world or restricts the development, manufacture,
marketing or distribution of any product or service by any of
the Companies;
(xii) Contract under which it has, directly or
indirectly, made or committed to make any advance, loan,
extension of credit or capital contribution to, or other
investment in, any Person, except for advances to employees in
the ordinary course of business and not in excess of $5,000 for
any employee;
(xiii) agreement or instrument providing for
indemnification of any Person with respect to liabilities
relating to any current or former business of any of the
Companies or any predecessor Person of any of the Companies;
(xiv) license, option or other agreement relating in
whole or in part to the Intellectual Property of any of the
Companies (including any license or other agreement under which
the Company is licensee or licensor of any such Intellectual
Property) or to trade secrets, confidential information or
proprietary rights and processes of any of the Companies or any
other Person;
(xv) any partnership, joint venture or other similar
Contract; or
(xvi) other Contract which (A) has a future aggregate
liability in excess of $50,000 or (B) is not made in the
ordinary course of business and is material to the Companies,
taken as a whole.
All Contracts listed on the Listed Contracts Schedule
(the "Listed Contracts") are valid, binding and in full force
and effect and are enforceable by the Companies in accordance
with their respective terms and the Companies have performed
all material obligations to be performed by them to date under
the Listed Contracts.
(b) Buyer either has been supplied with, or has been
given access to, a true and correct copy of all Listed
Contracts, together with all amendments, waivers or other
changes thereto.
(c) None of the Companies or Seller is in breach or
default (with or without the lapse of time or the giving of
notice or both) in any material respect under any Listed
Contract, and, to the Knowledge of Seller, neither is any other
party to any such document.
4.10. Intellectual Property. (a) Set forth on
the Intellectual Property Schedule attached hereto is a true
and complete list of Intellectual Property that currently
exists in written form owned or filed by, licensed to or used
in the conduct of the Companies' businesses as now conducted.
With respect to registered trademarks, the Intellectual
Property Schedule sets forth a list of all jurisdictions in
which such trademarks are registered or applied for and all
registration and application numbers. The Companies have all
rights to Intellectual Property as are used or are necessary in
connection with the businesses of the Companies as presently
conducted, and except as set forth on the Intellectual Property
Schedule, the Companies own, and the Companies have the right
to use, execute, reproduce, display, perform, modify, enhance,
distribute, prepare derivative works of and sublicense, without
payment to any other Person, all such Intellectual Property
free and clear of the claims of others and of all Security
Interests. The consummation of the transactions contemplated
hereby will not conflict with, alter or impair any right as
described in the immediately preceding sentence.
(b) None of the Companies or Seller have granted any
options, licenses or agreements of any kind relating to
Intellectual Property or the marketing or distribution thereof.
None of the Companies or Seller are bound by or a party to any
options, licenses or agreements of any kind relating to the
Intellectual Property of any other Person, except as set forth
on the Intellectual Property Schedule. The conduct of the
businesses of the Companies as presently conducted does not, to
the Knowledge of Seller, violate, conflict with or infringe the
Intellectual Property of any other Person. Except as set forth
in the Intellectual Property Schedule, (i) no claims are
pending, or, to the Knowledge of Seller, threatened against any
of the Companies or Seller by any Person with respect to the
ownership, validity, enforceability, effectiveness or use of
any Intellectual Property used in connection with the
businesses of the Companies and (ii) during the past five
years, none of the Companies or Seller has received any
communications alleging that any of the Companies have violated
any rights relating to Intellectual Property of any Person.
4.11. Litigation. Except as set forth on the
Litigation Schedule attached hereto, there are no actions,
suits or proceedings pending or, to the Knowledge of Seller,
threatened against or affecting the Companies or any of their
respective properties, assets, operations or businesses at law
or in equity, or before or by any court or other Governmental
Entity or arbitration tribunal. Except as set forth on the
Litigation Schedule, none of the lawsuits or claims listed on
the Litigation Schedule as to which there is at least a
reasonable possibility of adverse determination would have, if
so determined, individually or in the aggregate, a Material
Adverse Effect. None of the Companies is a party or subject to
or in default under any judgment, order, injunction or decree
of any Governmental Entity or arbitration tribunal applicable
to it or any of its respective properties, assets, operations
or business. Except as set forth in the Litigation Schedule,
there is no lawsuit or claim by the Companies pending, or which
the Companies intend or reasonably expect to initiate, against
any other Person. To the Knowledge of Seller, there is no
pending or threatened investigation of or affecting the
Companies by any Governmental Entity.
4.12. Brokerage. There are no claims for
brokerage commissions, finders', investment banker or financial
advisor fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of the Companies
or Seller other than a brokerage commission payable by Seller
to The Updata Group, Inc.
4.13. Governmental Consents. No permit, consent,
approval, license, order or authorization of, or registration,
declaration or filing with, any court or other Governmental
Entity is required to be obtained or made in connection with
(a) the execution, delivery or performance of this Agreement by
any of the Companies or Seller or of the Transition Support
Services Agreement by Seller or the consummation by any of the
Companies or Seller of any of the transactions contemplated
hereby or thereby or (b) the conduct by the Companies of their
respective businesses following the Closing as conducted on the
date hereof.
4.14. Employee Benefit Plans. (a) The Employee
Benefits Schedule contains a list and a brief, general
description of each pension, retirement, savings, deferred
compensation, and profit-sharing plan and each stock option,
stock appreciation, stock purchase, performance share, bonus or
other incentive plan, severance plan, health, group insurance
or other welfare plan, or other similar plan and any "employee
benefit plan" within the meaning of Section 3(3) of ERISA,
under which the Companies have any current or future obligation
or liability or under which any employee or former employee (or
beneficiary of any employee or former employee) of the
Companies have or may have any current or future right to
benefits (the term "plan" shall include any Contract or policy,
each such plan being hereinafter referred to individually as a
"Plan"). Seller has delivered to Buyer true and complete
copies of (i) each Plan, (ii) the summary plan description for
each Plan for which a summary plan description is required by
law to be furnished to participants, (iii) the latest annual
report, if any, which has been filed with the IRS for each Plan
and (iv) with respect to any Plan intended to comply with
Section 401(k) of the Code, copies of calculations for the most
recent three Plan years showing such Plan's compliance with the
requirements under Section 401(k)(3) and, if applicable,
401(m)(2) of the Code. Each Plan that is required to satisfy
Section 401(a), 401(k), 401(m), 419, 419A, 505, 501(c)(9),
105(h), 125 or 129 of the Code or any other Code provision
concerning discrimination has been tested for compliance with
and has satisfied such applicable requirements for the most
recent six Plan years ending before the Closing Date. Each
Plan intended to be tax qualified under Sections 401(a) and
501(a) of the Code has been determined by the IRS to be tax
qualified under Sections 401(a) and 501(a) of the Code and,
since such determination, no amendment to or failure to amend
any such Plan and no other circumstance adversely affects its
tax qualified status. There has been no prohibited transaction
within the meaning of Section 4975 of the Code and Section 406
of Title I of ERISA with respect to any Plan.
(b) No Plan is subject to the provisions of Section
412 of the Code or Part 3 of Subtitle B of Title I of ERISA.
No Plan is subject to Title IV of ERISA. During the past five
years, neither Seller nor any business or entity controlling,
controlled by, or under common control with Seller contributed
to or was obliged to contribute to a pension plan within the
meaning of Section 3(2) of ERISA (a "Pension Plan") that was or
is subject to Title IV of ERISA. None of the Companies has any
potential or contingent liability with respect to any Person
under Title IV of ERISA.
(c) There are no actions, claims, lawsuits or
arbitrations (other than routine claims for benefits) pending,
or, to the Knowledge of Seller, threatened, with respect to any
Plan or the assets of any Plan, and, to the Knowledge of
Seller, there are no facts which could give rise to any such
actions, claims, lawsuits or arbitrations (other than routine
claims for benefits). The Companies and Seller have timely
satisfied all funding, compliance and reporting requirements
for all Plans and each Plan has been maintained, funded and
administered in compliance with its terms and all applicable
Contracts and laws (including, without limitation, ERISA).
With respect to each Plan, the Companies and Seller have paid
all contributions (including employee salary reduction
contributions) and all insurance premiums that have become due
and any such expense accrued but not yet due has been properly
reflected in the Latest Balance Sheet.
(d) Except as described in the Employee Benefits
Schedule, no Plan provides or is required to provide, now or in
the future, health, medical, dental, accident, disability,
death or survivor benefits to or in respect of any Person
beyond termination of employment, except to the extent required
under any state insurance law or under Part 6 of Subtitle B of
Title I of ERISA and under Section 4980(B) of the Code. No
Plan covers any individual other than an employee of one of the
Companies, other than spouses or dependents of employees under
health and child care policies listed on the Employee Benefit
Schedule and delivered to Buyer.
(e) The consummation of the transactions
contemplated by this Agreement will not (i) entitle any
employee of any of the Companies to severance pay or
termination benefits for which Buyer or any of its Affiliates
(including the Companies) may become liable, (ii) accelerate
the time of payment or vesting or increase the amount of
compensation due to any such employee or former employee for
which Buyer or any of its Affiliates (including the Companies)
may become liable or (iii) obligate Buyer or any of its
Affiliates (including the Companies) to pay or otherwise be
liable for any compensation, vacation days, pension
contribution or other benefits to any employee, consultant or
agent of the Companies or Seller for periods before the Closing
Date (other than any compensation, vacation, pension
contribution or other similar benefit owed or accrued by the
Companies in the ordinary course of business) or for personnel
whom Buyer (and its Affiliates, including the Companies) does
not actually employ.
(f) None of the Companies has made representations
or warranties (whether written or oral, express or implied)
contractually or otherwise to any client or customer of any of
the Companies that the employees of any of the Companies
rendering services to such client or customer are not "leased
employees" (within the meaning of Section 414(n) of the Code)
or that such employees would not be required to participate
under any Pension Plan of such client or customer of any of the
Companies relating either to (i) providing benefits to
employees of any of the Companies under a Pension Plan of any
of the Companies or (ii) making contributions to or reimbursing
such client or customer for any contributions made to a Pension
Plan of such client or customer on behalf of employees of any
of the Companies.
4.15. Insurance. The Insurance Schedule attached
hereto lists each insurance policy maintained with respect to
the Companies or any of their respective assets and properties.
All such policies are in full force and effect, all premiums
due and payable thereon have been paid, and no notice of
cancellation or termination has been received with respect to
any such policy which has not been replaced on substantially
similar terms prior to the date of such cancellation. To the
Knowledge of Seller, the activities and operations of the
Companies and Seller have been conducted in a manner so as to
conform in all material respects to all applicable provisions
of such insurance policies. The insurance policies listed on
the Insurance Schedule have been maintained in such amounts,
with such deductibles against such risks and losses, as are
reasonable for the business and assets of the Companies.
4.16. Compliance with Laws. The Companies have
complied in all material respects with all applicable laws,
statutes, ordinances, rules, orders and regulations of any
Governmental Entity. None of the Companies or Seller has
received any written communication during the past three years
from any Governmental Entity that alleges that any of the
Companies is not in compliance in any material respect with any
applicable laws, statutes, ordinances, rules, orders and
regulations.
4.17. Environmental Compliance There has been no
storage, disposal, generation, manufacture, refinement,
transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the
Companies (or, to the Knowledge of Seller, any of the
Companies' predecessors in interest) at, upon or from any of
the property now or previously owned or leased by the Companies
in violation of any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance,
rule, regulation, order, judgment, decree or permit, except for
any violation or remedial action which would not have, or could
not be reasonably likely to have, individually or in the
aggregate with all such violations and remedial actions, a
Material Adverse Effect; there has been no material spill,
discharge, leak, emission, injection, escape, dumping or
release of any kind onto such property or into the environment
surrounding such property of any toxic wastes, medical wastes,
solid wastes, hazardous wastes or hazardous substances due to
or caused by the Companies or any of their respective
predecessors, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not
have or would not be reasonably likely to have, individually or
in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings and releases, a
Material Adverse Effect; and the terms "hazardous wastes,"
"toxic wastes," "hazardous substances" and "medical wastes"
shall have the meanings specified in any applicable local,
state, Federal and foreign laws or regulations with respect to
environmental protection.
4.18. Employee and Labor Relations. (i) There is
no labor strike, dispute or work stoppage or lockout actually
pending or, to the Knowledge of Seller, threatened, against or
affecting any of the Companies, and during the past five years
there has not been any such action; (ii) none of the Companies
or Seller has received written notice of any union
organizational campaign in progress with respect to the
employees of any of the Companies or of any dispute concerning
representation of such employees; (iii) the Companies are in
compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not
engaged in any unfair labor practice; (iv) there is no unfair
labor practice charge or complaint against the Companies
pending, or, to the Knowledge of Seller, threatened, before the
National Labor Relations Board; (v) there is no pending, or, to
the Knowledge of Seller, threatened, grievance that, if
adversely decided, would have, either individually or in the
aggregate, a Material Adverse Effect; (vi) no charges with
respect to or relating to the Companies are pending before the
Equal Employment Opportunity Commission or any Governmental
Entity responsible for the prevention of unlawful employment
practices; (vii) none of the Companies or Seller has received
notice of the intent of any Governmental Entity responsible for
the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to the Companies, and
to the Knowledge of Seller, no such investigation is in
progress; and (viii) no complaints, lawsuits or other
proceedings are pending, or to the Knowledge of Seller,
threatened in any forum by or on behalf of any present or
former employee of the Companies, any applicant for employment
or classes of the foregoing alleging breach of any express or
implied Contract for employment, breach of any law governing
employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with any employee
relationship.
4.19. Accounts; Safe Deposit Boxes; Powers of
Attorney; Officers and Directors. The Authorized Signatures
Schedule attached hereto sets forth (i) a true and correct list
of all bank and savings accounts, certificates of deposit and
safe deposit boxes of each of the Companies and those persons
authorized to sign thereon, (ii) a true and correct list of all
powers of attorney granted by each of the Companies and those
persons authorized to act thereunder and (iii) a true and
correct list of all officers and directors of each of the
Companies.
4.20. Effect of Transaction. No creditor,
employee, client or customer or other Person having a material
business relationship with any of the Companies has informed
Seller or any officer, director or Affiliate of Seller that
such Person intends to change the relationship because of the
purchase and sale of the Shares or the consummation of any
other transaction contemplated hereby.
4.21. Transactions with Affiliates. Except as
set forth on the Related Party Transactions Schedule attached
hereto, to the Knowledge of Seller, none of (i) Seller or any
of its Affiliates (other than the Companies), (ii) any current
or former partner, director, officer, employee or shareholder
of Seller or any of its Affiliates or (iii) any Person with a
relationship of not more remote than first cousin of any Person
specified in clauses (i) or (ii), is presently, or during the
12-month period ending on the date hereof has been, (A) a party
to any transactions with any of the Companies (including any
Contract providing for the furnishing of services by, or rental
of real or personal property from, or otherwise requiring
payments to, Seller or any such Affiliate, partner, director,
officer, employee or shareholder or relative) or (B) to the
Knowledge of Seller, the direct or indirect owner of an
interest in any Person which is a present (or potential)
competitor, supplier or customer of any of the Companies, nor
does any such Person receive income from any source other than
one of the Companies which relates to the businesses of the
Companies or should properly accrue to one of the Companies.
4.22. Customers. The Customers Schedule attached
hereto contains a true and complete list of the customers of
the Companies who, during the preceding twelve calendar months,
were billed in excess of $20,000 as a result of the provision
of services by the Companies. Since the date of the Latest
Balance Sheet, there has not been (i) any material adverse
change in the business relationship of any of the Companies
with any customer named in the Customers Schedule or (ii) any
change in any material term (including credit terms) of the
agreements with such customers. During the past year, none of
the Companies or Seller has received any customer complaints
concerning its services other than complaints in the ordinary
course of business which have not, and are not reasonably
expected to have, individually or in the aggregate, a Material
Adverse Effect.
4.23. Year 2000. Seller, after conducting appropriate
inquiries and analyses, reasonably believes that, other than
those modifications which are not, individually or in the
aggregate, material to the Companies, taken as a whole, there
are no modifications required to be made to the Intellectual
Property of Daton in order for such property to contain no
deficiencies relating generally to formatting for entering
dates.
4.24. Software. The Software Schedule attached
hereto includes an accurate and correct description of the
Software. The Companies own or have the right to use the
Software used in their respective businesses and do not rely on
data processing by any third party. No proprietary rights in
any Software have been transferred, whether by sale, assignment
or license, or have been lost. The rights of the Companies in
the Software are free and clear of any Security Interests. No
claims are pending, or, to the Knowledge of Seller, threatened
against the Companies or Seller relating to violation of trade
secret rights, copyrights or other proprietary rights with
respect to the Software.
4.25. Customer Accounts Receivable. All customer
accounts receivable of the Companies, whether reflected on the
Latest Balance Sheet or subsequently created, have arisen from
bona fide transactions in the ordinary course of business. The
Companies have good and marketable title to their respective
accounts receivable, free and clear of all Security Interests.
Since the date of the Latest Balance Sheet, there have not been
any write-offs as uncollectible of any accounts receivable of
any of the Companies, except for write-offs in the ordinary
course of business and consistent with past practice which do
not exceed in the aggregate $15,000.
4.26. Salaries of Officers and Directors. The
Officers' and Directors' Salary Schedule attached hereto
contains a true and complete list of the officers and directors
of each of Companies and the salary, Deferred Compensation and
Rights paid or allocated to such Persons, in their respective
capacities as officers and directors of any of the Companies,
during the fiscal year ended October 31, 1997
4.27. Daton Tax Penalty. Daton has no liability
or obligation arising out of the dispute between Daton and
Aerojet-General Corporation, on the one hand, and the IRS, on
the other hand, and there is no existing condition, situation
or set of circumstances which could be reasonably be expected
to result in such a liability or obligation.
4.28. Disclosure. No representation or warranty
of Seller contained in this Agreement, and no statement
contained in any document, certificate or Schedule furnished or
to be furnished to Buyer or any of its representatives pursuant
to this Agreement, contains or will contain any untrue
statement of a material fact, or omits or will omit to state
any material fact necessary in order to fully and fairly
provide the information required to be provided in any such
document, certificate or Schedule.
Article V
Buyer Representations and Warranties
Buyer represents and warrants to Seller that:
5.01. Organization and Corporate Power. Buyer is
a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with all
requisite corporate power and authority to enter into this
Agreement and the Transition Support Services Agreement and
perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
5.02. Authorization. The execution, delivery and
performance of this Agreement and the Transition Support
Services Agreement by Buyer and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by all requisite corporate action on the part of
Buyer, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery or performance
by Buyer of this Agreement or the Transition Support Services
Agreement. This Agreement and the Transition Support Services
Agreement have been duly executed and delivered by Buyer and
constitute legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective
terms.
5.03. No Breach. The execution and delivery of
this Agreement and the Transition Support Services Agreement by
Buyer do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will
not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit
under, or to any increased, additional, accelerated or
guaranteed rights or entitlement of any Person under, or result
in the creation of any Security Interest on the properties or
assets of Buyer under, any provision of (i) the certificate of
incorporation or by-laws of Buyer, (ii) any Contract to which
Buyer is a party or by which any of its properties or assets
are bound or (iii) any judgment, order or decree, or statute,
law, ordinance, rule or regulation applicable to Buyer or its
properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflict, violation, default, termination,
cancellation, acceleration, loss, right, entitlement or
Security Interest that does not have a material adverse effect
upon the business, assets, operations, properties, financial
position, results of operations, prospects or liabilities of
Buyer.
5.04. Governmental Consents. No permit, consent,
approval, license, order or authorization of, or registration,
declaration or filing with, any court or other Governmental
Entity is required to be obtained or made in connection with
the execution, delivery or performance of this Agreement by
Buyer or the consummation by Buyer of any of the transactions
contemplated hereby.
5.05. Brokerage. There are no claims for
brokerage commissions, finders', investment banker or financial
advisor fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any
arrangement or agreement made by or on behalf of Buyer.
5.06. Investment Representation. Buyer is
purchasing the Shares for its own account with the present
intention of holding such securities for investment purposes
and not with a view to or for sale in connection with any
public distribution of such securities in violation of any
applicable Federal or state securities laws.
Article VI
Covenants of the Companies and Seller
Each of the Companies and Seller covenants and agrees
as follows:
6.01. Conduct of the Business. (a) From the date
hereof until earlier of the Closing Date and the termination of
the Agreement in accordance with Section 8.01, the Companies
shall carry on their respective businesses in the ordinary and
usual course of business and substantially in the same manner
as presently conducted (including with respect to research and
development efforts, advertising, promotions, capital, repair
and maintenance expenditures and inventory levels) and the
Companies shall make all reasonable efforts consistent with
past practices to preserve relationships with customers,
suppliers and others with whom they deal.
(b) From the date hereof until the Closing Date,
except as otherwise expressly permitted by this Agreement or
consented to in advance in writing by Buyer, each of the
Companies and Seller shall not:
(i) amend the certificate of incorporation, by-laws
or comparable governing documents of any of the Companies;
(ii) permit or allow any insurance policy listed
on the Insurance Policy Schedule to terminate or be
cancelled unless such policy is replaced on substantially
similar terms prior to the date of such termination or
cancellation; or
(iii) agree, whether in writing or otherwise, to
do any of the foregoing.
The Companies shall not take or agree or commit to
take any action that would, or that could reasonably be
expected to, result in (or omit or agree or commit to omit to
take any action that would prevent, or that could reasonably be
expected to prevent) (i) any of the representations and
warranties set forth in this Agreement becoming untrue at, or
as of any time prior to, the Closing or (ii) any of the
conditions to the purchase and sale of the Shares set forth in
Section 3.01 not being satisfied.
6.02. Access to Books and Records. From the date
of this Agreement until the first to occur of (i) the Closing
Date and (ii) the termination of this Agreement in accordance
with Section 8.01, Seller shall permit Buyer and its
representatives to make such investigation of the businesses,
assets, operations and properties of the Companies as Buyer
deems necessary or desirable in connection with the
transactions contemplated by this Agreement. Such
investigation shall include access to the respective directors,
officers, employees, agents and representatives (including
legal counsel and independent accountants) of the Companies and
the properties, books, records and commitments of the
Companies. Seller shall furnish Buyer and its representatives
with such financial, operating and other data and information,
and copies of documents with respect to the Companies or any of
the transactions contemplated by this Agreement or the
Transition Support Services Agreement, as Buyer shall from time
to time request. Such access and investigation shall be made
upon reasonable notice and at reasonable places and times.
Such access and information shall not in any way affect or
diminish any of the representations or warranties hereunder.
Without limiting the foregoing, during such period, Seller
shall keep Buyer informed as to the businesses and operations
of the Companies and shall consult with Buyer as appropriate.
6.03. Notification. (a) The Companies and Seller
shall have the continuing obligation until the Closing promptly
to supplement or amend the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required
to be set forth or described in such Schedules; provided,
however, that no supplement or amendment to such Schedules
shall have any effect for the purpose of determining the
satisfaction of the conditions set forth in Section 3.01 or for
the purpose of determining whether any Person is entitled to
indemnification pursuant to Section 9.02.
(b) The Companies and Seller shall promptly notify
Buyer of (i) any notice or other communications from any Person
alleging that the consent of such Person is or may be required
in connection with the consummation of the transactions
contemplated hereby and (ii) any notice or other communication
from any Governmental Entity in connection with the
consummation of the transactions contemplated hereby.
6.04. Regulatory Filings. Each of the Companies
and Seller shall make or cause to be made all filings and
submissions under laws or regulations applicable to any of the
Companies or Seller required in connection with the
consummation of the transactions contemplated herein. Each of
the Companies and Seller shall coordinate and cooperate with
Buyer in exchanging such information and assistance as Buyer
may reasonably request and shall keep Buyer apprised of the
status of any inquiries or requests for additional information
made by any Governmental Entity in connection with all of the
foregoing.
6.05. Conditions. Each of the Companies and
Seller shall use reasonable efforts to cause the conditions set
forth in Section 3.01 to be satisfied and to consummate the
transactions contemplated herein as soon as reasonably possible
after the satisfaction of the conditions set forth in Section
3.02.
6.06. Resignations. On the Closing Date, the
Companies and Seller shall cause to be delivered to Buyer duly
signed resignations, effective immediately after the Closing,
of all directors and officers of the Companies and shall take
such other action as is necessary to accomplish the foregoing;
such resignations shall include releases, satisfactory to
Buyer, releasing Buyer, the Companies and their respective
Affiliates from any and all claims, past, present or future,
pursuant to, under or otherwise in connection with rights to
indemnification or reimbursement under applicable law, the
certificates of incorporation or by-laws of the Companies or
otherwise.
6.07. Other Transactions. Prior to the Closing
Date, the Companies and Seller agree not to, and to cause their
respective shareholders, Affiliates, directors, officers,
employees, agents and representatives not to, directly or
indirectly, contact, initiate, solicit or encourage any
inquiries or proposals by, participate in any discussions or
negotiations or enter into any agreement, whether oral or
written, with, or disclose any non-public information
concerning or afford any access to the properties, assets,
books and records of the Companies, to any other Person looking
toward the sale of any capital stock of the Companies or any
merger, consolidation or other business combination or
recapitalization or any sale of any material assets of the
Companies. In the event that any of the Companies or Seller or
any of their respective Affiliates receives a proposal relating
to any such transaction, Seller shall promptly notify Buyer of
such proposal.
6.08. Noncompetition and Confidentiality. (a)
For a period of three years after the Closing, Seller agrees
not to, and to cause its Affiliates (other than the Companies
and their respective officers, directors and employees) not to,
directly or indirectly:
(i) participate or engage, within the United States
of America, in payroll processing services, tax filing
services, human resources services or tax trust fund services
("Competitive Activities"), including (A) selling goods or
rendering services of the type (or similar to the type) sold or
rendered by the Companies; (B) soliciting any, or endeavoring
to entice away, any Person who is a current customer, who has
been a customer within the past 12 months or who is a
prospective customer of any of the Companies to purchase any
goods or services sold by the Companies from anyone other than
the Companies; and (C) assisting any Person in any way to do,
or attempt to do, anything prohibited by clauses (A) or (B)
above; provided, however, that none of (I) the provision of
services relating to general ledger processing services, (II)
the provision of payroll processing services to the New Jersey
school boards, municipalities and commercial banks previously
serviced by Pay USA and (III) the provision of payroll services
by the ESM division of Seller to home health care workers as
part of a comprehensive package of general outsourcing
services, shall not be considered a Competitive Activity.
(ii) perform any action, activity or course of
conduct which is detrimental in any material respect to the
Companies' businesses or business reputation, including (A)
soliciting, recruiting or hiring any employees of the Companies
or Persons who have worked for the same; and (B) soliciting or
encouraging any employee of the Companies to leave the
employment of the same.
(b) Except as required by law or administrative
process and except for information which becomes public other
than as a result of a breach of this Section 6.08(b), for a
period of three years after the Closing, Seller shall not
disclose to any other Person or use any information relating to
or used by the Companies, whether in written, oral or other
form including all product and service designs, trade secrets,
manuals, technical information and plans, Contracts, systems,
procedures, database, disks and printouts, correspondence,
internal reports, personnel files, sales and advertising
material, business plans, marketing plans, financial data
(including the revenues, costs or profits associated with any
of the Companies' services), customer and industry lists,
customer information, customer lists coupled with product or
service pricing, customer contact, supplier contact and other
contact information, pricing policy, supplies, agents, risk
analysis, engineering information and computer reports,
computer software, computer systems, computer formats, computer
screen designs and computer input and output specifications,
inclusive of any pertinent documentation, techniques,
processes, technical information and know-how.
(c) Notwithstanding anything to the contrary
contained in this Section 6.08, Buyer hereby agrees that the
foregoing covenant in Section 6.08(a) shall not be deemed
breached as a result of the ownership by Seller or any of its
Affiliates of (i) less than an aggregate of five percent of any
class of stock of an entity engaged in Competitive Activities,
provided that such stock is listed on a national securities
exchange or is quoted on the National Market System of the
Nasdaq Stock Market, or (ii) less than five percent in value of
any instrument of indebtedness of an entity engaged in
Competitive Activities.
(d) If the final judgment of a court of competent
jurisdiction declares that any term or provision of this
Section 6.08 is invalid or unenforceable, the parties to this
Agreement agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce
the scope, duration or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that
is valid and enforceable and that comes closest to expressing
the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so
modified.
(e) In the event of a breach or threatened breach by
any party of the provisions of this Section 6.08, Seller
acknowledges that Buyer may not have an adequate remedy at law
and therefore shall be entitled to a temporary restraining
order or a preliminary or permanent injunction restraining such
party from such breach without the necessity of Buyer proving
irreparable harm or injury as a result of such breach or
threatened breach. Nothing contained in this Section 6.08 or
elsewhere in this Agreement shall be construed as prohibiting
Buyer from pursuing any other remedies available at law or
equity for such breach or threatened breach by any party to the
provisions of this Section. Without limiting the generality of
the foregoing, Seller acknowledges that, in the event of a
breach or threatened breach by Seller of any of the provisions
of this Section 6.08, Buyer's damages shall be the profits
earned by Seller or the profits lost by the Companies,
whichever is greater, as liquidated damages in addition to any
other remedy Buyer or the Companies might have.
6.09. Releases; Prior Compensation. (a) Seller
agrees and acknowledges that it has been paid in full for all
services rendered or goods provided to the Companies and has no
outstanding claims against the Companies or Buyer for any
amounts arising because of such services or goods or otherwise.
(b) Seller hereby releases the Companies from all
rights Seller may have to acquire any securities of Companies
and all actions, suits, debts, promises, agreements, damages,
demands or claims of any kind whatsoever arising from any event
or action prior to the Closing Date that Seller had, has or may
in the future have against any of the Companies, except for any
rights that Seller may have pursuant to this Agreement.
(c) Seller hereby releases any accounts payable by
the Companies in favor of Seller or any of its Affiliates
(other than the Companies).
6.10. Leases. (a) Seller agrees to continue as
guarantor and comply in all material respects with each of (i)
the lease dated as of June 22, 1993, among NEDS, Seller and BMV
Properties Ltd., and (ii) the lease, dated as of May 10, 1995,
among Key-ACA, Seller Roger P. Nordblom, Robert W. Nordblom and
Peter C. Nordblom, as trustees of Nordblom Properties
(collectively, the "Leases") for the respective terms thereof.
(b) Seller agrees to use its best efforts to cause
Olympus to consent to the assignment to Buyer of all of
Seller's right, title and interest in the Daton Lease as soon
as practicable after the Closing Date. Seller further agrees
to execute and deliver or cause to be executed and delivered
all such documents and instruments, and such party shall take,
or cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to
evidence and effectuate the transactions contemplated by this
Section 6.10(b).
6.11. Transition Support. Seller agrees, in
addition to its covenants in the Transition Support Services
Agreement, that, for a period of six months after the Closing
Date, it shall, and shall cause its officers and employees to,
use reasonable efforts to assist Buyer in facilitating the
transition of ownership of the Companies contemplated hereby;
provided that such assistance shall not be in excess of 200
hours of employee time in the aggregate nor shall any such
employee be required to devote more than 50% of his time (on a
weekly basis) to providing such assistance.
6.12. Employee Bonuses. Seller agrees that it
shall pay up to $25,000 in bonuses to such employees of the
Companies and at such times as Seller may mutually agree with
Buyer.
6.13. Sublease of Jacom Equipment. Seller
agrees, for the remainder of the term of the lease, dated June
23, 1989, between Seller and Jacom Computer Services, Inc., to
sublease to Buyer, on the same terms and conditions as those
set forth in the Jacom Lease, the computer equipment previously
leased by Seller on behalf of the Companies pursuant to the
such lease.
6.14. Transfer of Tax Trust Accounts to Buyer.
Seller agrees to transfer to Buyer, on the Closing Date, all
cash and securities in the Tax Trust Accounts, less interest
accrued to but excluding the Closing Date.
6.15. Receipt by Seller of Funds Payable to the
Companies. Seller agrees to transfer, within five business
days of the receipt thereof, to Buyer all funds received by
Seller generated by, or relating to, the provision of services
by, or the sale of products by, any of the Companies.
Article VII
Covenants of Buyer
7.01. Access to Books and Records Relating to
Taxes. From and after the Closing, Buyer shall cause the
Companies to provide Seller and its agents with reasonable
access, during normal business hours and upon reasonable
notice, to the books and records of the Companies (for the
purpose of examining and copying) with respect to periods or
occurrences prior to the Closing Date as is reasonably
necessary for the preparation and filing of any Tax Return.
Seller shall reimburse Buyer for reasonable out-of-pocket costs
and expenses incurred in assisting Seller pursuant to this
Section 7.01. Buyer shall not be required by this Section 7.01
to take any action that would unreasonably interfere with the
conduct of the businesses of the Companies or unreasonably
disrupt the normal operations of the Companies. Unless
otherwise consented to in writing by Seller, none of Buyer or
any of the Companies shall, for a period of seven years
following the Closing Date, destroy, alter or otherwise dispose
of any of the books and records of the Companies relating to
Taxes for the period prior to the Closing Date without first
offering to surrender to Seller such books and records or any
portion thereof which Buyer or the Companies may intend to
destroy, alter or dispose of.
7.02. Regulatory Filings. Buyer shall make or
cause to be made all filings and submissions under any laws or
regulations applicable to Buyer required in connection with the
consummation of the transactions contemplated herein. Buyer
shall coordinate and cooperate with each Seller in exchanging
such information and assistance as Seller may reasonably
request and shall keep Seller apprised to the status of any
inquiries or requests for additional information made by any
Governmental Entity in connection with all of the foregoing.
7.03. Conditions. Buyer shall use reasonable
efforts to cause the conditions set forth in Section 3.02 to be
satisfied and to consummate the transactions contemplated
herein as soon as reasonably possible after the satisfaction of
the conditions set forth in Section 3.01.
7.04. Employee Bonuses. Buyer agrees that it
shall pay up to $25,000 in bonuses to such employees of the
Companies and at such times as Buyer may mutually agree with
Seller.
7.05. Leases. Buyer agrees to comply with the
terms and conditions of the Leases in all material respects.
Article VIII
Termination
8.01. Termination. This Agreement may be
terminated and the transactions contemplated hereby abandoned
at any time prior to the Closing:
(a) by the mutual written consent of Seller and
Buyer;
(b) by Buyer, if any of the conditions set forth in
Section 3.01 shall have become incapable of fulfillment;
(c) by Seller if any of the conditions set forth in
Section 3.02 shall have become incapable of fulfillment; or
(d) by either Buyer or Seller if the Closing shall
not have occurred by March 31, 1998; provided, however, that
the party seeking termination pursuant to clause (b), (c) or
(d) (and each of Companies, if Seller is seeking termination)
is not in breach in any respect of any of its representations,
warranties, covenants or agreements contained in this
Agreement.
8.02. Effect of Termination. In the event of
termination of this Agreement by either Buyer or Seller
pursuant to Section 8.01, written notice thereof shall be given
to the other and thereupon the provisions of this Agreement
shall immediately become void and of no further force and
effect (other than this Section 8.02 and Section 10.01, Section
10.02, Section 10.09 and Section 10.13 which shall survive the
termination of this Agreement), and there shall be no liability
on the part of either Buyer, on the one hand, or the Companies
or Seller, on the other hand, to one another, except for
liability for breaches of this Agreement prior to the time of
such termination.
Article IX
Additional Covenants
9.01. Survival. All of the representations and
warranties contained in this Agreement and in any certificate
delivered pursuant hereto shall survive the Closing for
purposes of Section 9.02 and shall survive until the close of
business on June 19, 1999; provided, however, that (i) the
representations and warranties set forth in Section 4.04,
Section 4.08, Section 4.14, and Section 4.17 and (ii) in the
case of fraud, intentional misrepresentation or intentional
breach, any representation or warranty, shall survive until the
expiration of the relevant statute of limitations (taking into
account any extensions thereof) or 30 days after the expiration
of the relevant statute of limitations (taking into account any
extensions thereof) for third party claims made within 30 days
prior to the expiration of the relevant statute of limitations
(taking into account any extensions thereof).
9.02. Indemnification.
(a) Indemnification by Seller. Seller shall
indemnify Buyer and its Affiliates (including, after the
Closing, the Companies) and each of their respective officers,
directors, employees, shareholders, agents, representatives,
successors and assigns against and hold them harmless from any
loss, liability, claim, damage or expense (including reasonable
legal fees and expenses) ("Losses") suffered or incurred by
any such indemnified party arising from, relating to or
otherwise in respect of (i) any breach of any representation or
warranty of Seller contained in this Agreement or in any
certificate delivered pursuant hereto, (ii) any breach of any
covenant of any of the Companies or Seller contained in this
Agreement, (iii) any Tax penalties arising out of Tax filing
services provided by any of the Companies on or prior to
January 31, 1998, which penalties were primarily due to
improper gathering, processing or reporting of information from
customers or remittance of Tax payments to any Governmental
Entity, in each case, prior to the Closing; (iv) any Deferred
Compensation Obligations, Employment Agreements or Rights
arising before or on the Closing Date; (v) Section 2.2 of the
Daton Merger Agreement; (vi) any claim by Anton Donde relating
to, or arising out of, the transactions contemplated hereby;
and (vii) any and all actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to any
of the matters referred to in clauses (i) through (vi) of this
Section 9.02(a).
(b) Indemnification by Buyer. Buyer shall indemnify
Seller and its Affiliates (other than the Companies) against
and hold them harmless from any Loss suffered or incurred by
any such indemnified party arising from, relating to or
otherwise in respect of (i) any breach of any representation or
warranty of Buyer contained in this Agreement or in any
certificate delivered pursuant hereto, (ii) any breach of any
covenant of Buyer contained in this Agreement or (iii) any and
all actions, suits, proceedings, demands, judgments, costs and
legal and other expenses incident to any of the matters
referred to in clauses (i) or (ii) of this Section 9.02(b).
(c) Limitation on Indemnification. Seller shall not
have any liability under Section 9.02(a) unless the aggregate
of all Losses relating thereto for which Seller would, but for
this Section 9.02(c), be liable exceeds $50,000, in which case
Buyer shall be entitled to all Losses in excess of $25,000
regardless of the limitation set forth in this sentence. Buyer
shall not have any liability under Section 9.02(b) unless the
aggregate of all Losses relating thereto for which Buyer would,
but for this Section 9.02(c), be liable exceeds $50,000, in
which case Seller shall be entitled to all Losses in excess of
$25,000 regardless of the limitation set forth in this
sentence. The limitation set forth in this Section 9.02(c)
shall not apply (i) in the event of fraud, intentional
misrepresentation or intentional breach, (ii) in the case of
any representation or warranty set forth in Sections 4.04,
4.05(c), 4.08, 4.14 or 4.17, (iii) in the case of any
representation or warranty set forth in Section 4.01 which
relates to the qualification and good standing of Pay USA to do
business as a foreign corporation in the State of New Jersey,
(iv) in the case of the covenants set forth in Sections
6.09(c), 6.14 and 6.15 or (v) in the case of any of the matters
described in Section 9.02(a)(v) or 9.02(a)(vi) (or Section
9.02(a)(vii) insofar as such Section 9.02(a)(vii) relates to
Section 9.02(a)(v) or 9.02(a)(vi)).
(d) Termination of Indemnification. The obligations
to indemnify and hold harmless any Person (i) pursuant to
Section 9.02(a)(i) and Section 9.02(b)(i), shall terminate when
the applicable representation or warranty terminates pursuant
to Section 9.01 and (ii) pursuant to clauses (ii) through (vii)
of Section 9.02(a), and clauses (ii) and (iii) of Section
9.02(b) shall not terminate.
(e) Procedures Relating to Third Party Claims.
(i) A party seeking indemnification pursuant to
Section 9.02 (a) or 9.02 (b) (an "Indemnified Party") shall
give prompt notice to the party from whom such indemnification
is sought (the "Indemnifying Party") of the assertion of any
claim or assessment, or the commencement of any action, suit or
other proceeding, by a third party in respect of which
indemnity may be sought hereunder (a "Third Party Claim") and
will give the Indemnifying Party such information with respect
thereto as the Indemnifying Party may reasonably request, but
no failure to give such notice shall relieve the Indemnifying
Party of any liability hereunder (except to the extent the
Indemnifying Party has suffered actual and material prejudice
thereby). The Indemnifying Party shall have the right,
exercisable by written notice (the "Notice") to the Indemnified
Party within 14 days of receipt of notice from the Indemnified
Party of commencement of or assertion of any Third Party Claim,
to assume the defense of such Third Party Claim, using counsel
selected by the Indemnifying Party and reasonably acceptable to
the Indemnified Party; provided, that the Indemnified Party
shall not have the right to assume a Third Party Claim if the
Indemnified Party shall have been advised by counsel that under
applicable standards of professional responsibility, a conflict
will arise in the event both the Indemnified Party and the
Indemnifying Party are represented by the same counsel with
respect to the Third Party Claim, in which case such
Indemnified Party shall have the right to control the defense
of such Third Party Claim and all Losses in connection
therewith shall be reimbursed by the Indemnifying Party from
time to time upon demand of the Indemnified Party. In
addition, if the Indemnifying Party fails to give the
Indemnified Party the Notice complying with the provisions
stated above within the stated time period, the Indemnified
Party shall have the right to assume control of the defense of
the Third Party Claim and all Losses in connection therewith
shall be reimbursed by the Indemnifying Party from time to time
upon the demand of the Indemnified Party.
(ii) The Indemnifying Party or the Indemnified Party,
as the case may be, shall in any event have the right to
participate at its own expense, in the defense of any Third
Party Claim which the other is defending.
(iii) The Indemnifying Party, if it shall have
assumed the defense of any Third Party Claim in accordance with
the terms hereof, shall have the right, upon 30-days prior
written notice to the Indemnified Party, to consent to the
entry of judgment with respect to, or otherwise settle, such
Third Party Claim unless (i) the Third Party Claim involves
equitable or other non-monetary damages, (ii) in the reasonable
judgment of the Indemnified Party such settlement would have a
continuing material adverse effect on the business of the
Indemnified Party (and, if such Indemnified Party is Buyer, on
the business or operations of the Companies) (including any
material impairment of relationships with customers or
suppliers) or (iii) the Indemnifying Party is not obligated to
pay the full amount of the liability in connection with such
Third Party Claim, in which cases such settlement only may be
made with the written consent of the Indemnified Party, which
consent shall not be unreasonably withheld. The Indemnified
Party shall have the sole and exclusive right to settle any
Third Party Claim, on such terms and conditions as it deems
reasonably appropriate (A) if the Indemnifying Party fails to
assume the defense in accordance with the terms hereof or (B)
to the extent such Third Party Claim involves equitable or
other non-monetary relief, and shall have the right to settle
any Third Party Claim involving monetary damages with the
consent of the Indemnifying Party, which consent shall not be
unreasonably withheld.
(f) Right of Set Off. Buyer shall have the right to
set off amounts owing to Buyer from Seller pursuant to Section
9.02(a)(v) and 9.02(a)(vii), to the extent Section 9.02(a)(vii)
relates to Section 9.02(a)(v).
9.03. Tax Matters. (a) (i) Seller and Buyer
shall join in making timely and irrevocable elections under
Section 338(h)(10) of the Code and, if permissible, similar
elections under any applicable state or local income Tax laws,
with respect to the Companies. In such event, Seller and Buyer
shall report the transaction consistent with such elections
under Section 338(h)(10) of the Code or any similar state or
local Tax provision (the "Elections") and shall take no
position contrary thereto unless and to the extent required to
do so pursuant to a determination (as defined in Section
1313(a) of the Code or any similar state or local Tax
provision). Buyer agrees that it shall pay and indemnify
Seller for any Federal income Taxes resulting from the
Elections, but only to the extent such Taxes exceed the amount
by which (A) Federal, state and local Taxes incurred by Seller
with respect to the gain allocation to Seller on the deemed
asset sales by the Companies resulting from the Elections is
greater than (B) Federal, state and local Taxes which would
have been incurred by Seller if the Elections had not been
made.
(ii) Seller and Buyer shall execute at the Closing
any and all forms necessary to effectuate the Elections
(including IRS Form 8023-A and any similar forms under state
and local income Tax laws that permit an Election similar to
that of Section 338(h)(10) of the Code (the "Section 338
Forms")). Seller and Buyer shall cause the Section 338 Forms
to be duly executed by an authorized person and shall duly and
timely file the Section 338 Forms in accordance with applicable
Tax laws and the terms of this Agreement.
(iii) Seller and Buyer agree to allocate the
Aggregate Deemed Sale Price (as defined under applicable
Treasury Regulations) of the assets of the Companies as set
forth in the schedule attached hereto as Exhibit F in
accordance with the guidelines of the IRS, which shall reflect
an allocation agreed to by the parties. Seller and Buyer will
reflect such allocation in all applicable Tax Returns filed by
any of them, including but not limited to the Section 338
Forms. Seller and Buyer will not take a position before any
Taxing Authority or otherwise (including in any Tax Return)
inconsistent with such allocation unless and to the extent
required to do so pursuant to a determination (as defined in
Section 1313(a) of the Code or any similar state or local law).
(b) Seller shall be responsible for all transfer,
excise, stamp, sales, use, recording or similar taxes or fees
arising out of the sale, transfer, conveyance or assignment of
the Shares by Seller and the transactions contemplated hereby.
Seller shall make any filing required under applicable law.
(c) (i) Seller shall be liable for and shall
indemnify Buyer and the Companies for Taxes of the Companies
for any taxable years or periods that end on or before the
Closing Date and, with respect to any taxable years or periods
beginning before and ending after the Closing Date, the portion
of such taxable years ending on and including the Closing Date.
(ii) Buyer and the Companies shall be liable for and
shall indemnify Seller for Taxes of the Companies for any
taxable years or periods that begin after the Closing Date and,
with respect to any taxable years or periods beginning before
and ending after the Closing, the portion of the taxable years
beginning on the day after the Closing Date.
(iii) Seller shall be liable for and shall indemnify
Buyer and the Companies for any Taxes arising out of or
relating to the Tax Trust Accounts for any taxable years or
periods that end on or before the Closing Date and, with
respect to any taxable years or periods beginning before and
ending after the Closing Date, the portion of such taxable
years ending on and including the Closing Date.
(iv) For purposes of subparagraphs (c)(i) and (ii)
above, whenever it is necessary to determine the liability for
Taxes of the Company for a portion of a taxable year or period
that begins before and ends after the Closing Date, the
determination of such Taxes for the portion of the year or
period ending on, and the portion of the year or period
beginning after, the Closing Date, shall be determined by
assuming that such Company had a taxable year or period which
ended at the close of business on the Closing Date, except that
exemptions, allowances or deductions that are calculated on an
annual basis, such as the deduction for depreciation, shall be
apportioned based on the number of days in the year elapsed to
and including the Closing Date.
(d) Any payment by Buyer under this Section 9.03
will be treated for Tax purposes as an adjustment to the
Purchase Price.
(e) Seller shall cause the Companies to file when
due all Tax Returns that are required to be filed by the
Companies for taxable years or periods ending on or before the
Closing Date, and Buyer shall file or cause to be filed when
due all other Tax Returns that are required to be filed by or
with respect to the Companies.
(f) From the date hereof until the Closing, without
the prior written consent of Buyer, the Companies shall not
make or change any Tax election, change any annual Tax
accounting period, adopt or change any method of Tax
accounting, file any amended Tax Return, enter into any closing
agreement, settle any Tax refund, consent to any extension or
waiver of the limitations period applicable to any Tax claim or
assessment or take or omit to take any other action, if any
such action or omission would have the effect of increasing the
Tax liability of any of the Companies.
(g) After the Closing Date, Seller and Buyer shall:
(i) assist in all reasonable respects (and cause
their respective Affiliates to assist) the other party in
preparing any Tax Returns which such other party is responsible
for preparing and filing in accordance with this Section 9.03;
(ii) cooperate (and cause their respective Affiliates
to cooperate) in all reasonable respects in preparing for any
audits of, or disputes with, Taxing Authorities regarding Tax
Returns of the Companies;
(iii) make available to the other (and cause
their respective Affiliates to make available) as reasonably
requested all information, records and documents relating to
Taxes of the Companies; and
(iv) furnish the other with copies of all
correspondence received from any Taxing Authority in connection
with any Tax audit or information request with respect to any
such taxable period.
(h) (i) Buyer shall notify Seller in writing upon
receipt by Buyer or the Companies of notice of any pending or
threatened Tax audits or assessments which may materially
affect the Tax liabilities of the Companies or Buyer for which
Seller would be required to indemnify Buyer and the Companies.
(ii) Seller shall notify Buyer in writing upon
receipt by Seller of notice of any pending or threatened Tax
audits or assessments which may materially affect the Tax
liabilities of the Companies for which Buyer would be required
to indemnify Seller.
9.04. Further Assurances. From time to time, as
and when requested by any party hereto, any other party shall
execute and deliver or cause to be executed and delivered, all
such documents and instruments and such party shall take, or
cause to be taken, all such further or other actions as such
other party may reasonably deem necessary or desirable to
evidence and effectuate the transactions contemplated by this
Agreement.
9.05. Records. On the Closing Date, Seller shall
cause to be delivered to Buyer all agreements, documents,
books, records and files including records and files stored on
computer disks or tapes or any other storage medium, in the
possession of Seller relating to the business, properties,
assets and operations of the Companies.
Article X
Miscellaneous
10.01. Press Releases and Communications. Prior
to the Closing, no press release or public announcement related
to this Agreement or the transactions contemplated hereby shall
be issued or made without the joint approval of Buyer and
Seller, unless required by applicable law or legal process in
which case Buyer and Seller shall have the right, to the extent
reasonably practicable, to review and comment on such press
release or announcement for a period of 48 hours prior to
publication.
10.02. Expenses. Except as otherwise expressly
provided herein, each of Seller and Buyer shall pay all of
their own respective costs and expenses (including attorneys'
and accountants' fees and expenses) in connection with the
negotiation of this Agreement, the performance of their
respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether
consummated or not).
10.03. Notices. All notices, demands and other
communications to be given or delivered under or by reason of
the provisions of this Agreement shall be in writing and shall
be delivered by hand or sent by telecopy or sent, postage
prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so
delivered by hand or telecopied or, if mailed, upon receipt
(one business day after mailing in the case of express mail or
overnight courier service), as follows:
If to Buyer:
Zurich Payroll Operations Limited
2 Research Way
Princeton, New Jersey 08540
Attention of Anthony J. DePaul
Facsimile No.: (609) 452-2676
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention of John P. Gourary
Facsimile No.: (212) 841-1010
If to Seller or the Companies:
Computer Outsourcing Services, Inc.
360 West 31st Street
New York, New York 10001
Attention of Zach Lonstein
Facsimile: (212) 947-7458
with a copy to:
Robinson & Cole LLP
695 East Main Street
Stamford, Connecticut 06904-2305
Attention of Richard A. Krantz
Facsimile: (203) 462-7599
or to such other address or facsimile number as the party to
whom notice is to be given may have furnished to the other
parties in writing in accordance herewith.
10.04. Assignment. This Agreement and the rights
and obligations hereunder shall not be assignable by Buyer, the
Companies or Seller without the prior written consent of Buyer
and Seller; provided, however, that no assignment shall limit
or affect the assignor's obligations hereunder; and provided,
further, that Buyer may assign this Agreement and any or all of
its rights and obligations to an Affiliate of Buyer provided
that Buyer guarantees such Affiliate's obligations under this
Agreement. Any attempted assignment in violation of this
Section 10.04 shall be void.
10.05. Severability. Whenever possible, each
provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any
provision of this Agreement (or any portion thereof) or the
application of any such provision (or any portion thereof) to
any Person or circumstance is held by a court of competent
jurisdiction to be prohibited by or invalid, illegal or
unenforceable under applicable law, such provision shall be
ineffective only to the extent of such prohibition or
invalidity, illegality or unenforceability, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement or the application of such
provision to any other Person or circumstance.
10.06. Amendment and Waiver. Any provision of
this Agreement or the Schedules or Exhibits hereto may be
amended or waived only in a writing signed by Seller and Buyer.
No waiver of any provision hereunder or any breach or default
thereof shall extend to or affect in any way any other
provision or prior or subsequent breach or default. No failure
or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies
provided by law.
10.07. Complete Agreement. This Agreement
contains the complete agreement between the parties hereto and
supersedes any prior understandings, agreements or
representations by or between the parties, written or oral,
which may have related to the subject matter hereof in any way
(including the letter, dated October 24, 1997, between Seller
and Buyer, and the Non-Disclosure and Confidentiality
Agreement, dated September 16, 1997, between Seller and Buyer,
both of which are hereby terminated). None of the parties
hereto shall be liable or bound to any other party in any
manner by any representations, warranties or covenants relating
to such subject matter, except as specifically set forth
herein.
10.08. Counterparts. This Agreement may be
executed in multiple counterparts, any one of which need not
contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same
instrument, and shall become effective when one or more such
counterparts have been signed by each of the parties hereto and
delivered to Seller and Buyer.
10.09. Governing Law. All matters relating to the
interpretation, construction, validity and enforcement of this
Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State
without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any
other jurisdiction) that would cause the application of laws of
any jurisdiction other than the State of New York.
10.10. No Third-Party Beneficiaries. Except as
provided in Section 9.02, this Agreement is for the sole
benefit of the parties hereto and their permitted assigns and
nothing herein expressed or implied shall give or be construed
to give to any Person, other than the parties hereto and such
assigns, any legal or equitable rights hereunder.
10.11. Interpretation. The headings contained in
this Agreement, in any Exhibit or Schedule attached hereto and
in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.12. Acknowledgment. Buyer hereby acknowledges
that (i) the general ledger processing services previously
provided by Key-ACA and (ii) payroll processing services to the
New Jersey school boards, municipalities and commercial banks
previously serviced by Pay USA shall, in each case, be provided
by Seller after the Closing Date.
10.13. Consent to Jurisdiction. Each of the
Companies, Seller and Buyer irrevocably submits to the
exclusive jurisdiction of (i) the Supreme Court of the State of
New York, New York County and (ii) the United States District
Court for the Southern District of New York, for the purposes
of any suit, action or other proceeding arising out of this
Agreement or any transaction contemplated hereby. Each of the
Companies, Seller and Buyer further agrees that service of any
process, summons, notice or documents by United States
registered mail to such party's respective address for notices
set forth in Section 10.03 shall be effective service of
process for any action, suit or proceeding in New York with
respect to any matters to which it has submitted to
jurisdiction in this Section 10.13. Each of the Companies,
Seller and Buyer irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or
proceeding arising out of this Agreement or the transactions
contemplated hereby in (A) the Supreme Court of the State of
New York, New York County and (B) the United States District
Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not to plead
or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an
inconvenient forum.
10.14. WAIVER OF JURY TRIAL. EACH OF THE
COMPANIES, SELLER AND BUYER HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
Computer Outsourcing Services,
inc.
By:
Zach Lonstein
Chairman of the Board of
Directors
Daton Pay USA, Inc.
By:
Zach Lonstein
President
Pay USA of New Jersey, Inc.
By:
Zach Lonstein
President
NEDS, Inc.
By:
Zach Lonstein
President
Key-ACA, Inc.
By:
Zach Lonstein
President
Zurich Payroll Operations Limited
By:
Anthony J. DePaul
Chief Executive Officer and
President
EXHIBITS
Exhibit A Transition Support Services Agreement
Exhibit B Seller Note
Exhibit C Seller Certificate
Exhibit D Bank Liens
Exhibit E Opinion of Robinson & Cole LLP
Exhibit F Buyer Certificate
Exhibit G Aggregate Deemed Sales Price Allocation
SCHEDULES
Third Party Consents ( 3.01)
Foreign Jurisdiction ( 4.01)
Share Ownership ( 4.04)
Liability ( 4.05)
Leased Real Property ( 4.07)
Liens ( 4.07)
Listed Contracts ( 4.09)
Intellectual Property ( 4.10)
Litigation ( 4.11)
Employee Benefits ( 4.14)
Insurance ( 4.15, 6.01)
Authorized Signatures ( 4.19)
Related Party Transactions ( 4.21)
Customers ( 4.22)
Software ( 4.24)
Officers' and Directors' Salaries ( 4.26)
Exhibit B
Exhibit C
Computer Outsourcing Services, Inc.
Officer's Certificate
I, Zach Lonstein, Chairman of the Board of Directors
of Computer Outsourcing Services, Inc., a New York corporation
("Seller"), do hereby certify that the conditions to the
obligations of Zurich Payroll Operations Limited, a Delaware
corporation ("Buyer"), set forth in Section 3.01 of the Stock
Purchase Agreement, dated as of the date hereof, among Daton
Pay USA, Inc., a California corporation, Key-ACA, Inc., a New
York corporation, NEDS, Inc., a New York corporation, Pay USA
of New Jersey, Inc., a New York corporation, Seller and Buyer
have been satisfied.
In Witness Whereof, I have signed this certificate as
of December __, 1997.
_________________________
Name:
Title:
Exhibit E
[Letterhead of Robinson & Cole LLP]
December 18, 1997
Zurich Payroll Operations Limited
2 Research Way
Princeton, New Jersey 08540
Ladies and Gentlemen:
We have acted as special counsel to Computer
Outsourcing Services Inc., a New York corporation ("Seller"),
and to Daton Pay USA, Inc., a California corporation ("Daton"),
Key-ACA, Inc., a New York corporation ("Key-ACA"), NEDS, Inc.,
a New York corporation ("NEDS") and Pay USA of New Jersey,
Inc., a New York corporation ("Pay USA") (collectively, the
"Companies") in connection with the Stock Purchase Agreement,
dated as of the date hereof (the "Agreement"), between the
Company and Zurich Payroll Operations Limited, a Delaware
corporation ("Buyer"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth
in the Agreement. This opinion is delivered to you pursuant to
Section 3.01(j) (xiii) of the Agreement.
In connection with this opinion, we have examined
originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Certificate of Incorporation of each
of the Companies and Seller, (ii) the By-Laws of each of the
Companies and Seller, (iii) a Certificate of Good Standing for
Seller, dated December 11, 1997 issued by the Department of
State of the State of New York, (iv) a Certificate of Good
Standing for Daton dated December 12, 1997 issued by the Office
of the Secretary of State of the State of California, (v) a
Certificate of Good Standing for Key-ACA issued by the
Department of State of the State of New York; (vi) a
Certificate of Good Standing for NEDS issued by the Department
of State of the State of New York; (vii) a Certificate of Good
Standing for Pay USA issued by the Department of State of the
State of New York; (viii) a Certificate of an officer of Seller
with respect to certain resolutions adopted by the Board of
Directors of Seller, (ix) the representations and warranties
set forth in the Agreement and (x) such other documents,
corporate records and other instruments as we have deemed
necessary or appropriate for the purposes of this opinion. In
our examination we have assumed the genuineness of signatures
relating to Buyer, the authenticity of all documents submitted
to us as originals and the conformity to authentic original
documents of all documents submitted to as certified, conformed
or photostatic copies.
We have assumed that Buyer has the corporate power
and authority and has taken the necessary corporate action to
enter into and perform all its obligations under the Agreement
and to consummate the transactions contemplated thereby, that
the Agreement constitutes the legal, valid and binding
obligation of Buyer, enforceable against it in accordance with
its terms, and that no consent, approval, license or order of,
authorization of, registration, declaration or filing with any
court or governmental entity is required for the valid
execution, delivery or performance by Buyer of the Agreement
and the Transition Support Services Agreement dated the date
hereof (the "Transition Support Services Agreement"), between
Seller and Buyer. We have also assumed that Buyer is duly
incorporated, validly existing and in good standing under the
laws of Delaware.
References in this opinion to our "knowledge" are
intended to mean only the actual knowledge of the attorneys in
this firm who have devoted substantive attention to the matters
which are the subject of this opinion. The phrases "to our
knowledge," "to the best of our knowledge," "known to us" or
the like, when used to qualify any statement relating to the
absence or lack of certain conditions or circumstances, shall
be understood to mean that we have no actual knowledge of
anything which would contradict the statement in question, but
not to imply either that we know the statement is true and
complete or that we have made any independent investigation of
the matter.
Based on the foregoing and subject to the
qualifications set forth herein, we are of the opinion that:
1. Seller, Key-ACA, NEDS and Pay USA are
corporations duly organized, validly existing and in good
standing under the laws of the State of New York. Daton is a
corporation duly organized, validly existing and in good
standing under the laws of the State of California.
2. Each of the Companies and Seller have all
requisite corporate power and authority to enter into the
Agreement and the Transition Support Services Agreement, to
perform its obligations thereunder and to consummate the
transactions contemplated thereby. All corporate acts and other
proceedings required to be taken by each of the Companies and
Seller to authorize the execution, delivery and performance of
this Agreement and by Seller to authorize the execution,
delivery and performance of the Transition Support Services
Agreement and the consummation of the respective transactions
contemplated thereby have been duly and properly taken and no
other corporate proceedings on its part are necessary to
authorize the execution, delivery or performance by each of the
Companies and Seller of this Agreement and by Seller of the
Transition Support Services Agreement.
3. Each of the Companies and Seller has all
requisite corporate power and authority and, to our knowledge,
has all authorizations, licenses and permits necessary to own,
lease or otherwise hold and operate its properties and assets
and to carry on its business as now conducted and is duly
qualified and in good standing to do business as a foreign
corporation in every jurisdiction in which its ownership,
leasing or holding of property or assets or the conduct or
nature of its business requires it to so qualify, except where
the failure to hold such authorizations, licenses and permits
or to be so qualified, individually or in the aggregate, would
not have a Material Adverse Effect.
4. Except as set forth in the Authorization
Schedule, the execution and delivery of the Agreement by each
the Companies and Seller and the execution and delivery of the
Transition Support Services Agreement by Seller do not, and the
consummation of the respective transactions contemplated
thereby and compliance with the respective terms thereof will
not, conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit
under, or to any increased, additional, accelerated or
guaranteed rights or entitlement of any Person under, or result
in the creation of any Security Interest on the properties or
assets of any of the Companies or Seller under, any provision
of (i) the certificate of incorporation or by-laws of any of
the Companies or Seller, (ii) to our knowledge and except as
set forth in the Agreement, any contract to which any of the
Companies or Seller is a party or by which any of their
respective properties or assets are bound, (iii) to our
knowledge, any license, franchise, permit or other similar
authorization held by any of the Companies or Seller or (iv)
any judgment, order or decree or any statute, law, ordinance,
rule or regulation applicable to any of the Companies or Seller
or any of their respective properties or assets, other than in
the case of clauses (ii) and (iii), any such conflict,
violation, default, termination, cancellation, acceleration,
loss, right, entitlement or Security Interest that does not
have a Material Adverse Effect.
5. The Agreement has been duly executed and
delivered by each of the Companies and Seller, and the
Agreement constitutes a legal, valid and binding obligation of
each of the Companies and Seller enforceable against each of
the Companies and Seller in accordance with its terms. The
Transition Support Services Agreement has been duly executed
and delivered by Seller, and the Transition Support Services
Agreement constitutes a legal, valid and binding obligation of
Seller, enforceable against it in accordance with its terms.
6. The authorized capital stock of Daton consists of 100
shares of common stock, no par value, all of which 100 shares
are, to our knowledge, the only shares issued and outstanding,
and all of which outstanding shares have been duly authorized
and are validly issued, fully paid and non-assessable. The
authorized capital stock of Key-ACA consists of 200 shares of
common stock, no par value, all of which 200 shares are, to our
knowledge, the only shares issued and outstanding, and all of
which outstanding shares have been duly authorized and are
validly issued, fully paid and non-assessable. The authorized
capital stock of NEDS consists of 200 shares of common stock,
no par value, all of which 200 shares are, to our knowledge,
the only shares issued and outstanding, and all of which
outstanding shares have been duly authorized and are validly
issued, fully paid and non-assessable. The authorized capital
stock of Pay USA consists of 200 shares of common stock, no par
value, all of which 200 shares are, to our knowledge, the only
shares issued and outstanding, and all of which outstanding
shares have been duly authorized and are validly issued, fully
paid and non-assessable. Except as set forth on the Share
Ownership Schedule, to our knowledge, none of the Companies
have any other capital stock, equity securities or securities
containing any equity features or any Rights authorized, issued
or outstanding.
7. To our knowledge, none of the Shares has been issued
in violation of, and none of the Shares is subject to, any
Contract, including any Contract restricting or otherwise
relating to the voting, dividend rights or disposition of the
Shares, or any purchase option, call, right of first refusal,
preemptive, subscription or similar rights under any provision
of applicable law, the certificate of incorporation or by-laws
of any of the Companies or Seller, or any voting trust
agreement or Contract to which any of the Companies or Seller
is subject, bound or a party or otherwise. To our knowledge,
there are no outstanding warrants, options, rights, "phantom"
stock rights, agreements, convertible or exchangeable
securities or other commitments (other than the Agreement) (i)
pursuant to which any of the Companies is or may become
obligated to issue, sell, purchase, return or redeem any share
of capital stock or other securities of such Company or (ii)
that give any Person the right to receive from the Companies
any benefits or rights similar to any rights enjoyed by or
accruing to the holders of shares of capital stock of any of
the Companies. There are no equity securities of any of the
Companies reserved for issuance for any purpose. To our
knowledge, the Companies do not have outstanding bonds,
debentures, notes or other indebtedness having the right to
vote on any matters on which shareholders of any of the
Companies may vote.
8. To our knowledge, the Companies do not directly
or indirectly own, or hold the right or have the obligation to
acquire, any capital stock, partnership interest or joint
venture interest or other equity ownership interest in any
other Person.
9. Seller is the record and beneficial holder of
the Daton Shares, the Key-ACA Shares, the NEDS Shares and the
Pay USA Shares. To our knowledge, Seller has good and valid
title to the Shares, free and clear of any Security Interest.
Upon delivery to Buyer at the Closing of certificates
representing the Shares, duly endorsed by Seller for transfer
to Buyer, and upon payment of the Initial Purchase Price
Amount, good and valid title to the Shares will pass to Buyer,
free and clear of any Security Interests.
10. To our knowledge, no permit, consent, approval,
license or order or, authorization of, or registration,
declaration or filing with, any court or other Governmental
Entity is required to be obtained or made in connection with
(a) the execution, delivery or performance of the Agreement by
any of the Companies or Seller (b) the execution, delivery or
performance of the Transition Support Services Agreement by
Seller or (c) the consummation of the transactions contemplated
by the Agreement, or the Transition Support Services Agreement.
11. Except as set forth on the Litigation Schedule,
to our knowledge, there are no actions, suits or proceedings
pending or threatened against or affecting the Companies or any
of their respective properties, assets, operations or
businesses at law or in equity, or before or by any court or
other Governmental Entity or arbitration tribunal.
12. To our knowledge, the Companies have complied in
all material respects with applicable laws, statues,
ordinances, orders and regulations of any Governmental Entity.
Each opinion set forth in Paragraph 5 as to the
enforceability of any agreement is hereby qualified to provide
that any enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance,
and other similar federal or state laws of general
applicability relating to or affecting creditors' rights and
remedies generally; (ii) general principles of equity, whether
considered in an action at law or in equity; (iii) the
unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or
contribution to a party with respect to a liability where such
indemnification or contribution is contrary to public policy;
and (iv) the effect of generally applicable rules of law that
(A) limit or affect the enforcement of provisions of a contract
that purport to require waiver of the obligations of good
faith, fair dealing, diligence and reasonableness, (B) provide
that forum selection clauses in contracts are not necessarily
binding on the courts of the forum selected, (C) limit the
availability of a remedy under certain circumstances where
another remedy has been elected, (D) limit the right of a
creditor to use force or cause a breach of the peace in
enforcing rights, (E) limit the enforceability of provisions
releasing, exculpating or exempting a party from, or requiring
indemnification of a party for, liability for its own action or
inaction, to the extent the action or inaction involves gross
negligence, recklessness, willful misconduct or unlawful
conduct, (F) may, where less than all of a contract may be
unenforceable, limit the enforceability of the balance of the
contract to circumstances in which the unenforceable portion is
not an essential part of the agreed exchange, (G) govern and
afford judicial discretion regarding the determination of
damages and entitlement to attorneys' fees and other costs, or
(H) may permit a party who has failed to render or offer
performance required by the contract to cure that failure
unless (x) permitting a cure would unreasonably hinder the
aggrieved party from making substitute arrangements for
performance or (y) it was important in the circumstance to the
aggrieved party that performance occur by the date started in
the contract.
We are admitted to practice in the state of
Connecticut, and we express no opinion as to matters governed
by any laws other than General Corporation Law of the State of
Delaware, Business Corporation Law of the State of New York and
the Federal laws of the United States.
This opinion is given solely for your benefit and may
not be relied upon by anyone other than you without our written
consent.
Very truly yours,
ROBINSON & COLE L.L.P.
By:_____________________
Richard A. Krantz, a partner
Exhibit F
Zurich Payroll Operations Limited
Secretary's Certificate
I, Anthony P. Bamber, Secretary of Zurich Payroll
Operations Limited, a Delaware corporation ("Buyer"), do hereby
certify as follows:
1. No amendment to Buyer's certificate of
incorporation has been approved by the Board of Directors or
stockholders of Buyer or filed with the Delaware Secretary of
State since December 12, 1997.
2. No proceeding for the dissolution, merger,
consolidation or liquidation of Buyer or for the sale of all or
substantially all of its assets is pending or, to the best of
my knowledge, threatened, and no such proceeding is
contemplated by Buyer.
3. Attached hereto as Exhibit A is a true, correct
and complete copy of the by-laws of the Company as in effect at
the date hereof and at all times since December 12, 1997.
4. Attached hereto as Exhibit B are true, correct
and complete copies of resolutions duly adopted by the Board of
Directors of the Company on December 17, 1997. Such
resolutions have not been amended or modified, are in full
force and effect in the form adopted and are the only
resolutions adopted by the Board of Directors or any committee
of the Board of Directors relating to the purchase of all of
the outstanding shares (the "Shares") of capital stock of Daton
Pay USA, Inc., a California corporation, Key-ACA, Inc., a New
York corporation, NEDS, Inc., a New York corporation and Pay
USA of New Jersey, Inc., a New York corporation (collectively,
the "Companies"),or any of the transactions contemplated by the
Agreement referred to below.
5. The Stock Purchase Agreement (the "Agreement"),
dated as of the date hereof, among the Companies, Computer
Outsourcing Services, Inc., a New York corporation and Buyer,
as executed and delivered by Buyer, is in substantially the
form approved by the Board of Directors in the resolutions
referred to in paragraph 4 above.
6. Each person who, as an officer of Buyer, signed
the Agreement or any other document delivered in connection
with the purchase of the Shares by Buyer and the closing
related thereto was duly elected or appointed, qualified and
acting as such officer at the respective times of the signing
and delivery thereof and was duly authorized to sign such
document on behalf of the Company, and the signature of each
such person appearing on each such document is the genuine
signature of such officer.
In Witness Whereof, I have signed this certificate.
Dated: December 19, 1997
____________________________________
I, Anthony J. DePaul, Chief Executive Officer and
President, do hereby certify that Anthony P. Bamber is on the
date hereof and has been at all times since December 17, 1997
the duly elected or appointed, qualified and acting Secretary
of Buyer, and the signature set forth above is the genuine
signature of such officer.
____________________________________
Exhibit G
Allocation of Aggregate
Deemed Sales Price
Purchase price allocation in accordance with
generally accepted accounting principles requires assets and
liabilities to be recorded at their fair market value with any
excess recorded as goodwill. The allocation for tax purposes
will be made so that cash, accounts receivable, fixed assets,
accounts payable, and accrued expenses will be recorded at the
same value as listed on the balance sheet submitted at the
closing pursuant to the Latest Balance Sheet as defined in the
Stock Purchase Agreement (the "Agreement"), dated as of
December 19, 1997, among Zurich Payroll Operations Limited,
Computer Outsourcing Services, Inc., Daton Pay USA, Inc., Pay
USA of New Jersey, Inc., NEDS, Inc. and Key-ACA, Inc. Given
the nature of the acquired assets and liabilities, it will be
assumed that the general ledger balances are equal to the fair
market value which is the basis for recording purchase price.
For purposes of allocating the intangible assets, the parties
agree that 10% of the Estimated Purchase Price Amount (as such
term is defined in the Agreement) or $1,440,000 will be
allocated to the covenant not to compete referenced in section
2.01(d) of the Agreement, 50% of the Estimated Purchase Price
Amount or $7,200,000 will be allocated to the customer lists,
and the difference between (i) the Estimated Purchase Price
Amount and (ii) the sum of the amounts allocated to the
covenant not to compete, the customer lists and tangible assets
shall be allocated to goodwill.
