3
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 event reported): September 29, 1997.
HEADWAY CORPORATE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 0-23170
DELAWARE 75-2134871
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
850 Third Avenue, 11th Floor
New York, NY 10022
(Address of principal executive (Zip Code)
offices)
Registrant's Telephone Number: (212) 508-3560
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 29, 1997, Headway Corporate Resources, Inc.
("Company"), acquired through its wholly owned subsidiary
substantially all the assets of Quality OutSourcing, Inc., a New
Jersey corporation engaged in the business of offering temporary
staffing services ("QOS"). The principal office of QOS is
located in Ramsey, New Jersey. The purchase price for QOS was
$795,000 paid at closing, plus an earnout over the two year
period commencing September 30, 1997, and ending September 30,
1999, equal to a multiple of the earnings before interest taxes
and amortization attributable to the assets acquired. At the
closing, the company also advanced $140,000 to the seller, which
is payable out of the earnout. The purchase price was determined
through arms-length negotiations between the Company and QOS on
the basis of the tangible assets of QOS and the goodwill
associated with the business. The former shareholders of QOS
(which includes the former executive officers) are George J.
Burt, Richard E. Gaudy, and Peter F. Notaro, none of whom
(including QOS) was affiliated or associated with the Company or
its affiliates prior to the acquisition. Funding for the
acquisition was provided by debt financing obtained from ING
(U.S.) Capital Corporation ("ING"), under the acquisition loan
facility previously established between the Company and ING.
On September 30, 1997, the Company acquired through a wholly
owned subsidiary formed for that purpose, all of the capital
stock of E.D.R. Associates, Inc., a Connecticut corporation, and
substantially all the assets of Electronic Data Resources,
L.L.C., a Connecticut limited liability company (collectively
referred to as "EDR"). EDR is engaged in the business of
offering information technology staffing and consulting services.
The principal office of EDR is located in Windsor, Connecticut.
The purchase price for EDR was $7,000,000 paid at closing,
$250,000 of which was deposited into escrow to fund any EDR
indemnification obligations, plus the assumption of liabilities
in the amount of approximately $372,000, and an earnout in
respect of the calendar years 1997 through 2000, equal to a
multiple of the earnings before interest taxes and amortization
attributable to the business acquired. The purchase price was
determined through arms-length negotiations between the Company
and EDR on the basis of the tangible assets of EDR and the
goodwill associated with the business. The equity holders of EDR
(which includes the former executive officers) are Maurice Dusel,
James Roberts, and Michael Russell, none of whom (including EDR)
was affiliated or associated with the Company or its affiliates
prior to the acquisition. Funding for the acquisition was
provided by debt financing obtained from ING (U.S.) Capital
Corporation ("ING"), under the acquisition loan facility
previously established between the Company and ING.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Included with this report are the
historical financial statements of QOS for the calendar years
ended December 31, 1996 and 1995 (audited), and for the periods
ended July 4, 1997, and July 5, 1996 (unaudited), consisting of
the following:
Report of Independent Auditors
Balance Sheets
Statements of Income and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
Based on the application of the significance tests set forth
under Item 7, historical financial statements of EDR are not
required.
(b) Pro Forma Financial Information
It is impracticable for the Company to provide the required pro
forma financial information at the time this report on Form 8-K
is filed. The Company proposes to file the required pro forma
financial information as soon as it is available. The Company
expects that it will file the required financial information no
later than 60 days after the date on which this report on Form 8-
K is required to be filed.
Based on the application of the significance tests set forth
under Item 7, pro forma financial information giving effect to
the acquisition of EDR is not required.
(c) Exhibits. Included in this report are the following
exhibits.
Exhibit SEC Ref. Title of Document Page
No. No.
1 (10) Asset Purchase Agreement dated
September 29, 1997, pertaining to
the purchase of QOS assets E-1
2 (23) Consent of Eichler Bergsman & Co., LLP E-30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly
authorized.
HEADWAY CORPORATE RESOURCES, INC.
DATED: October 14, 1997 By: Barry Roseman (Signature)
President
<PAGE>
QUALITY OUTSOURCING INC.
TABLE OF CONTENTS
PAGE
ACCOUNTANTS' AUDIT REPORT 1
BALANCE SHEET 2-3
STATEMENTS OF INCOME AND RETAINED EARNINGS 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6-8
<PAGE>
To the Board of Directors and Shareholders
Quality OutSourcing Inc.
We have audited the accompanying balance sheet of Quality
OutSourcing Inc. as of December 31, 1996, and the related
statements of income, retained earnings, and cash flows for each
of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Quality OutSourcing Inc. as of December 31, 1996, and the
results of its operations and its cash flows for each of the two
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
EICHLER BERGSMAN & CO., LLP
New York, New York
September 15, 1997
<PAGE>
QUALITY OUTSOURCING INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND
AS OF JULY 4, 1997 (UNAUDITED)
ASSETS
UNAUDITED
December 31, July 4,
1996 1997
Current assets:
Cash $ 36,085 $ 44,246
Accounts receivable and accrued income (Note 6) 1,028,806 690,600
Prepaid expenses 14,230 36,598
Total current assets 1,079,121 771,444
Fixed assets:
Automobile, net of accumulated
depreciation of $10,556
(Notes 1 and 2) 12,476 -
Other assets:
Rent and other deposits 9,391 9,391
Loans receivable - affiliated companies 21,000 39,342
- Other 21,842 -
Employee advances 19,531 2,595
Total other assets 71,764 51,328
Total Assets $1,163,361 $ 822,772
The accompanying notes are an integral part of these financial statements.
<PAGE>
QUALITY OUTSOURCING INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996
AND
AS OF JULY 4, 1997 (UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
UNAUDITED
December 31, July 4,
1996 1997
Current liabilities:
Accounts payable and accrued expenses $ 197,770 $ 37,546
Bank loan - line of credit (Note 6) 200,000 125,000
Bank loan - current portion (Note 6) 50,000 50,000
Other current liabilities 15,287 -
Total current liabilities 463,057 212,546
Long-term debt:
Automobile loan (Note 2) 11,934 -
Other: employee loans without interest - 40,000
Bank loan (Note 6) 100,000 75,000
Total long-term debt 111,934 115,000
Commitments (Notes 3 and 4)
Subordinated notes payable (Note 5) 242,331 350,430
Shareholders' equity:
Common shares - no par value; authorized
100,000 shares, 300 shares issued and
outstanding 9,440 9,440
Retained earnings 336,599 135,356
Total shareholders' equity 346,039 144,796
Total Liabilities and Shareholders' Equity $1,163,361 $ 822,772
The accompanying notes are an integral part of these financial statements.
<PAGE>
QUALITY OUTSOURCING INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the Years Ended UNAUDITED
December 31, For the Six Months Ended
July 4, July 5,
1995 1996 1997 1996
Revenues $ 5,803,685 $ 7,836,413 $ 4,164,223 $ 3,871,023
Less direct costs 4,615,145 6,257,043 3,388,861 3,064,067
Net revenues 1,188,540 1,579,370 775,362 806,956
Operating expenses:
Executive compensation 284,000 389,978 235,002 102,536
Employee salaries 329,413 202,026 89,273 90,121
Rents (Note 3) 60,174 52,624 23,224 26,250
Consulting, marketing,
general and
administrative 338,329 346,737 181,079 132,499
Bad deb 60,304 - - -
Interest 43,389 39,631 37,928 24,453
Total 1,115,609 1,030,996 566,506 375,859
Operating income 72,931 548,374 208,856 431,097
Loss on sale of assets 42,747 - - -
Net income 30,184 548,374 208,856 431,097
Retained earnings,
beginning of year 71,049 30,184 336,599 30,184
Less distribution of Sub-S
income (Note 1) (71,049) (241,959) (410,099) (103,259)
Retained earnings,
end of year $ 30,184 $ 336,599 $ 135,356 $ 358,022
The accompanying notes are an integral part of these financial statements.
<PAGE>
QUALITY OUTSOURCING INC.
STATEMENT OF CASH FLOWS
For the Years Ended UNAUDITED
December 31, For the Six Months Ended
July 4, July 5,
1995 1996 1997 1996
Cash flows from
operating activities:
Net income $ 30,184 $ 548,374 $ 208,856 $ 431,097
Adjustments to reconcile
net income to net cash
provided by operations -
Depreciation and
amortization 4,798 5,758 12,476 3,359
Changes in assets and liabilities:
(Increase) Decrease in accounts
receivables, accrued
income and prepaid
expenses (166,223) (491,023) 315,838 (170,541)
(Increase) Decrease in
other assets 132,639 3,678 20,436 (844)
(Decrease) Increase in
current liabilities 48,534 127,468 (250,511) (111,072)
Net cash provided
from operating
activities 49,932 194,255 307,095 151,999
Cash used in investing activities:
Purchase of fixed assets (23,032) - - -
Cash flows from financing activities:
Distributions of Sub-S income (71,049) (241,959) (410,099) (103,259)
Increase in long-term debt 24,177 98,685 111,165 30,732
Net cash used in
financing activities (46,872) (143,274) (298,934) (72,527)
Net (Decrease) Increase in cash (19,972) 50,981 8,161 79,472
Cash (Overdraft), beginning 5,076 (14,896) 36,085 (14,896)
Cash (Overdraft), end $ (14,896) $ 36,085 $ 44,246 $ 64,576
The accompanying notes are an integral part of these financial statements.
<PAGE>
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1 - The Company and Significant Accounting Policies
Quality OutSourcing Inc.'s (the Company) principal
business is providing managed services in the areas of
finance, administration and consumer banking on a
contract basis for major companies. In 1996, most of the
Company's revenue was from four such customers, each with
revenues ranging from 12.5% to 35.9% of the year's total.
In 1995, most of the Company's revenue was from two such
customers representing 10.6% and 86.5% of the year's
total revenues.
The statements are prepared in conformity with generally
accepted accounting principles, the accrual method of
accounting. Generally accepted accounting principles
require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
Equipment is carried at cost less accumulated
depreciation computed on an accelerated basis over the
estimated useful lives of the assets.
The Company has elected Subchapter S status under
provisions of the Internal Revenue Code and related New
York and New Jersey tax provisions, and therefore is not
subject to income tax, which is paid by the shareholders
on corporate profits.
The interim financial statements as of July 4, 1997 and
July 5, 1996 are unaudited and have been prepared on a
basis substantially consistent with the audited financial
statements. Pursuant to the requirements of the
Securities and Exchange Commission, the unaudited interim
financial statements include all adjustments which, in
the opinion of management, are of a normal and recurring
nature.
Note 2 - Automobile Loan
The Company is obligated on an automobile bank loan to
pay $459 per month for 26 months to amortize the loan
including interest.
<PAGE>
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 3 - Leases
The Company is obligated under a three year lease for
office space as follows:
1997 $46,452
1998 $46,452
1999 $38,710
The Company is also obligated under an automobile lease
as follows:
1997 $6,600
1998 $6,600
Note 4 - Commitment
In the event of the death of any of the three officer/
stockholders, his spouse will receive $50,000 from the
proceeds of an insurance policy currently in place. The
Company will purchase from the decedent's estate his
shares for a total of $800,000 payable in semi-annual
installments over an eight year period providing that the
Company's annual revenues are at least equal to
$6,000,000 in the years of payments. In the event that
the annual revenues decline below the $6,000,000 base,
the total purchase price and accordingly the payments for
that year will be reduced in the same ratio as the
decline in revenue.
Note 5 - Notes Payable -Shareholders
The shareholder notes bear interest at 10% and are
subordinated to the bank loans (see Note 6).
Note 6 - Bank Loans
The Company has an available line of credit in the amount
of $550,000 of which $200,000 was used at December 31,
1996 for working capital needs. Interest is at the rate
of prime plus 1-1/4%.
<PAGE>
QUALITY OUTSOURCING INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 6 - Bank Loans (Cont'd)
In addition, the Company has borrowed on a term loan
basis $150,000 to be repaid at the rate of $4,167 per
month for 36 months plus interest at prime plus 1-1/2%.
The loans are secured by accounts receivable and personal
guarantees. In addition, the loan agreements contain
covenants requiring the Company to maintain certain
minimum capital and subordinated debt levels.
Note 7 - Retirement Plan
In 1996, the Company had sponsored a 401k plan for its
eligible employees. The plan does not require the
Company to make contributions; however, it may do so on a
voluntary basis. There were no contributions made for
1996.
Exhibit No. 1
Headway Corporate Resources, Inc.
Form 8-K dated September 29, 1997
File No. 0-23170
ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of September 29, 1997, among HEADWAY
CORPORATE RESOURCES, INC., a Delaware corporation ("Headway"),
IRENE COHEN TEMPS, INC., a New York corporation ("Buyer"),
QUALITY OUTSOURCING, INC., a New Jersey corporation ("Seller"),
GEORGE J. BURT ("Burt"), RICHARD E. GAUDY ("Gaudy") and PETER F.
NOTARO ("Notaro"; Burt, Gaudy and Notaro are sometimes
collectively referred to as the "Stockholders" and each,
individually, as a "Stockholder").
W I T N E S S E T H:
WHEREAS, Buyer wishes to purchase, and Seller wishes to
sell, the assets and business of Seller specified in this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Purchase and Sale of the Acquired Assets.
1.1 Acquired Assets. Subject to the terms and conditions
of this Agreement, and in reliance on the representations,
warranties and agreements set forth herein, at the Closing (as
defined in Section 2), Seller shall sell, convey, transfer,
assign and put Buyer into possession of, and Buyer shall purchase
from Seller, effective as of the Closing Date (as defined in
Section 2), all of Seller's right, title and interest in and to
all of the assets of Seller of every kind, tangible and
intangible, wherever located, excepting only those assets
specifically excluded in Section 1.2, and including, without
limitation:
(a) the office furniture, equipment and computers of
Seller listed in Schedule 1.1.A;
(b) all computer software, programs and databases owned by
Seller and Seller's interest in any transferable computer
software licensed by it from others;
(c) all office supplies owned by Seller;
(d) the client agreements and arrangements of Seller set
forth in Schedule 1.1.B.;
(e) the equipment leases and other agreements, contracts
and instruments of Seller listed in Schedule 1.1.C;
(f) all rights of Seller with respect to any of Seller's
temporary, permanent or "payrolled" (as that term is defined in
Section 1.3(g)) personnel (including, without limitation, "self-
incorporated" personnel who are placed or provided by Seller
through corporations or other entities of which it is a
shareholder or other owner);
(g) the names "Quality OutSourcing, Inc." and "QOS" , all
assumed names, logos, trademarks, service marks, domain names,
trade names and copyrights and registrations and applications for
registration of any of them, and any other intellectual property
rights of Seller, all of which are listed in Schedule 1.1.D;
(h) originals or true copies of all books and records of
Seller pertaining to the assets referred to in subparagraphs (a)
through (g) above, as appropriate, including customer lists and
credit files, and all those pertaining to Seller's employees who
are hired by Buyer pursuant to Section 9.3;
(i) all permits, licenses, approvals and other governmental
authorizations relating to Seller's business which are
transferable to Buyer, all of which are listed in Schedule 1.1.E;
(j) any other assets not referred to in Section 1.2,
including, without limitation, telephone and facsimile numbers,
internet and e-mail addresses, which are used by Seller in
connection with its business ("Seller's Business") of the
placement or provision of temporary, permanent or payrolled
personnel (including, without limitation, self-incorporated
personnel); and
(k) the good will pertaining to Seller's Business;
all as the same exist on the date hereof and shall exist on the
Closing Date, subject only to changes occurring in the ordinary
course of business of Seller. All such assets to be acquired are
referred to together as the "Acquired Assets".
1.2 Excluded Assets. The following assets of Seller are
excluded from the Acquired Assets: (a) the consideration payable
to Seller by Buyer, (b) any cash, bank deposits, certificates of
deposit, marketable securities, notes, drafts, checks or other
cash equivalents or similar instruments owned by Seller, (c)
Seller's investment in Cartronics and All Star Cards, (d)
Seller's accounts receivable and any amounts accrued by Seller
for services rendered prior to the Closing Date, but which have
not been billed as of the Closing Date (the "Accruals"), (e) all
claims and rights of Seller to any federal, state or local
refunds, credits, rebates, claims, repayments or benefits of
Taxes (as defined in Section 6.14), (f) any loans receivable of
Seller, (g) any refundable portions of paid insurance premiums
and prepaid federal, state or local income taxes, (h) Seller's
interest in any life insurance policies maintained by Seller on
the life of any employee, (i) any security deposits, advance
deposits, prepayments, premium rebates or refunds, (j) any
treasury stock held by Seller, (k) the corporate stock
certificate books, ledger books, minute books and similar
corporate records of Seller, (l)Seller's tax records and any
books and records which Seller shall be required to retain
pursuant to any applicable law, rule or regulation (provided,
that at Buyer's request and expense, Seller shall provide Buyer
with copies of any record or document retained by Seller and,
similarly, Buyer, at Seller's request and expense, shall provide
Seller with copies of any record or document transferred to Buyer
hereunder), (m) all records and correspondence relating to the
foregoing excluded assets, (n) all items of a personal nature,
such as mementos, pictures and plaques, (o) all assets of Seller
relating to Seller's banking business, which Buyer and Headway
acknowledge have been sold to another party and (p) Seller's
telephone system, Sharp copier and facsimile leases and the
agreements and arrangements set forth in Schedule 1.2.
1.3 Purchase Price.
(a) As consideration for the sale, conveyance, transfer,
assignment and delivery to Buyer of the Acquired Assets, Buyer
shall pay to Seller a purchase price (the "Purchase Price")
determined as follows:
(i) $795,000 payable in cash on the Closing Date;
(ii) an advance (the "Advance") in the amount of $140,000
payable in cash on the Closing Date, which shall be used by
Seller for the purposes specified in Section 9.4; and
(iii) the Earnout on the Earnout Payment Dates (as such
terms are defined in Sections 1.3(b) and (d), respectively).
All amounts payable by Buyer pursuant to Sections 1.3(a) and
1.3(b) shall be paid by wire transfer in immediately available
funds to accounts designated by Seller to Buyer not later than
two business days prior to the scheduled date of such payment.
(b) Each of the twelve-month periods ending September 30,
1998 and September 30, 1999 is referred to as an "Earnout
Period". During each Earnout Period, Buyer shall operate
Seller's Business as a separate profit center. Buyer shall pay
to Seller an amount for each Earnout Period (each, an "Earnout")
as follows:
(i) On October 31, 1998, an amount equal to (A) 75% of 1.5
times the EBITA of Seller's Business for the Earnout Period ended
September 30, 1998 (as determined based on the financial
information available as of such payment date) less (B) the
Advance.
(ii) On January 15, 1999, an amount equal to (A) 1.5 times
the EBITA of Seller's Business for the Earnout Period ended
September 30, 1998 (as determined based on the financial
information available as of such payment date) less (B) (I) the
Earnout, if any, paid by Buyer pursuant to clause (i) above and
(II) the Advance.
(iii) On December 31, 1999, an amount equal to 2.0 times
the EBITA of Seller's Business for the Earnout Period ended
September 30, 1999.
The calculation of the Earnout for the second Earnout Period
shall be cumulative. To the extent that the EBITA for the first
Earnout Period is negative (that is, less than zero), the amount
of such negative EBITA shall be subtracted from any positive
EBITA for the second Earnout Period before the Earnout, if any,
for such Earnout Period is calculated. The fact that EBITA is
negative for either Earnout Period shall not result in any
liability by Seller or the Stockholders to Buyer; provided,
however, that Seller and the Stockholders, jointly and severally,
shall be liable for the repayment of the Advance on January 15,
1999 to the extent the Advance has not been repaid pursuant to
the Earnouts set forth in clauses (i) and (ii) above and such
repayment shall reduce any negative EBITA as of such date by the
amount of the Advance repaid. Seller agrees that Chris
DeCristoforo ("DeCristoforo") shall be entitled to receive, for
each Earnout Period, 1% of the EBITA up to $800,000 of EBITA and
2% of the EBITA in excess of such amount, and each of William D.
Finn ("Finn") and Dan Donahue shall be entitled to receive 2% of
the Earnout.
(c) For the purposes of this Agreement, "EBITA" means, for
an Earnout Period, "Net Income" (as defined below) without
deductions for (i) interest expense, (ii) provisions for income
taxes and (iii) amortization of goodwill and other intangible
assets resulting from Buyer's purchase of Seller. Net Income
shall exclude revenues and expenses attributable to acquisitions
by Buyer of at least a majority of the stock, or substantially
all of the assets of, other entities after the Closing Date.
"Net Income" means the net income (or loss) of Buyer for an
Earnout Period attributable to its operation of Seller's Business
in accordance with generally accepted accounting principles
applied on a basis consistent with the Financial Statements (as
defined in Section 3.7) and on an accrual basis. The calculation
of Net Income shall take into account the following expenses to
the extent incurred in the ordinary course of the Business: (i)
reasonable wage, salary and commission expense of all temporary,
payrolled and full-time employees of Buyer directly associated
with Seller's Business, including salary and other compensation
paid to DeCristoforo; (ii) reasonable travel and entertainment
expenses incurred by the employees directly associated with
Seller's Business; (iii) bonuses paid to the employees directly
associated with Seller's Business and acceptable to DeCristoforo;
(iv) all amounts attributable to FICA and any other federal,
state and local taxes paid by Buyer on behalf of the employees
directly associated with Seller's Business; (v) all unemployment
insurance premiums, medical and disability coverage and any other
benefits provided by Buyer to the employees directly associated
with Seller's Business; (vi) the direct general and
administrative expenses of Seller's Business approved by
DeCristoforo (or his successor), including without limitation,
direct office supplies and equipment, marketing materials,
advertising and other expenses of a similar nature, provided that
Buyer shall consult with the Stockholders prior to hiring any new
marketing, recruiting or development personnel directly
pertaining to Seller's Business and prior to making any single
expenditure greater than $25,000 not included in the operating or
capital expenditure budgets delivered to Headway Corporate
Staffing Services, Inc. ("HCSSI") pursuant to Section 9.2; (vii)
reasonable sales commissions; (viii) any fall-offs, rebates,
discounts, offsets or concessions granted by Buyer to clients of
Seller's Business consistent with the past practice of Seller and
any reserves (excluding general reserves) or write-offs for bad
debts; (ix) any expenses reasonably and necessarily incurred by
Headway, Buyer or any other subsidiary of Headway in connection
with the transition of the operation of Seller's Business to
Buyer as part of the Headway group of companies, including,
without limitation, expenses for the licencing, installation and
implementation of the third party accounting and operating
software used by Headway, development and programming services
necessary to make Seller's software compatible with the software
systems used by the Headway group of companies and acquisition of
related computer hardware, limited to a maximum amount of actual
costs incurred or $15,000, whichever is less, for the Earnout
Period ended September 30, 1998; and (x) the allocation of
overhead by Headway and Buyer to Seller's Business in connection
with the operation of the same, including without limitation,
general and administrative expenses (including administrative
support for DeCristoforo), accounting services, rent (including
rent for billable employees currently located in the Ramsey, New
Jersey office), management oversight, telephone, facsimile,
general office supplies and equipment, insurance, utilities and
other expenses of a similar nature, which overhead allocation
shall be $80,000 for the Earnout Period ended September 30, 1998
and $100,000 for the Earnout Period ended September 30, 1999.
(d) Each of October 31, 1998, January 15, 1999 and December
31, 1999 is referred to as an "Earnout Payment Date". If any
such day is not a business day, the Earnout Payment Date shall be
the next succeeding business day. If, as of the close of
business on the day prior to any Earnout Payment Date other than
the October 31, 1998 Earnout Payment Date, any account receivable
included as income in the calculation of Net Income has not been
fully collected, the uncollected amount of such account
receivable shall be deducted from Net Income and EBITA and the
Earnout shall be reduced accordingly. If such account receivable
is thereafter collected after the Earnout Payment Date, Buyer
shall pay Seller and the Stockholders the amount by which such
Earnout had been reduced in respect of such account receivable,
net of any direct collection costs and net of an interest charge
for any account receivable paid more than 90 days after the date
of invoice (a "Restoration Amount"), with the interest rate
determined by reference to the interest rate then in effect for
Eurodollar Loans under the Credit Agreement (as defined in
Section 3.10), provided that, with respect to the Earnout Payment
Date for the Earnout Period ended September 30, 1999, Buyer shall
be obligated to pay Seller and the Stockholders a Restoration
Amount with respect to any such account receivable only if such
account receivable is collected by June 30, 2000. Seller shall
have the right to institute collection proceedings with respect
to any such account receivable not collected by that date, but
shall notify Buyer of any such action not less that five days
before it is instituted.
(e) Each Earnout payment shall be accompanied by a
certificate from the Chief Operating Officer of Headway setting
forth (i) a detailed itemization of EBITA for the applicable
Earnout Period and (ii) the calculation of the payment due to
Seller. The Chief Operating Officer of Headway shall certify
that such computations are accurate and have been prepared in
accordance with Section 1.3 of this Agreement. Headway and Buyer
shall prepare and maintain, in accordance with generally accepted
accounting principles, complete and accurate records from which
the computation of EBITA shall be made.
(f) If Buyer shall fail to pay to Seller, when due, all or
any part of an Earnout, other than as a result of a set off
pursuant to Section 12.6 which has been deposited into escrow or
as a result of a bona fide dispute between the parties as to the
amount of any such Earnout, interest on any such unpaid amount
shall accrue at the rate of 1% per month until such amount has
been paid in full; provided, however, that, to the extent that
Buyer is required to pay all or part of the amount of an Earnout
that is the subject of a bona fide dispute, such payment shall
bear interest at the rate of 1% per month from the date when
originally due until the date of payment.
(g) For the purposes of this Agreement, "payrolled"
personnel means (i) those employees of Headway, Buyer or Seller,
as the case may be, who are hired by Headway, Buyer or Seller on
behalf of a client and are considered as full-time "permanent"
employees of such client, but whose compensation is paid by
Headway, Buyer or Seller or (ii) those employees of Headway,
Buyer or Seller who are considered to be payrolled employees
under industry practice or understanding prevailing at the time.
1.4 Assumption of Liabilities. As additional consideration
for the purchase of the Acquired Assets, Buyer shall assume and
agree to pay, perform and discharge in full all obligations or
liabilities arising on or after the Closing Date relating to the
Acquired Assets and, more specifically, under Seller's client
agreements and arrangements set forth in Schedule 1.1.B and
Seller's equipment leases and other agreements, contracts and
instruments set forth in Schedule 1.1.C (the "Assumed
Liabilities"), and no others, as and when due, and to indemnify
and hold Seller and the Stockholders harmless therefrom.
1.5 Liabilities Not Assumed. Other than the liabilities
referred to in Section 1.4, Buyer shall not assume or be deemed
to have assumed any of the liabilities or obligations of Seller
of any kind (together, the "Unassumed Liabilities"), including,
without limitation:
(a) any liability claims with respect to the business and
affairs of Seller and the acts and omissions of its officers,
directors, employees and agents, either before or after the
Closing Date;
(b) any obligation or liability of Seller to any of the
Stockholders or any other officer or director of Seller;
(c) any obligation or liability of Seller or any
Stockholder in connection with any real property lease,
including, without limitation, the lease of the premises located
at 6 Arrow Road, Ramsey, New Jersey;
(d) any obligation or liability for federal, state, local
or foreign income or other taxes (including any related
penalties, fines and interest);
(e) any obligation or liability arising out of the
operation of Seller's business prior to the Closing Date,
including any rebates, discounts, offsets or concessions
attributable to amounts invoiced to Seller's clients prior to the
Closing Date;
(f) any obligation or liability to Seller's temporary,
payrolled or full-time employees for salary, wages or other
compensation or benefits, including any with respect to
retirement plans and accrued vacation, sick and holiday time and
pay, incurred prior to the Closing Date, including any such
obligations or liabilities with respect to Finn or as
contemplated by Section 9.3 but excluding any obligations set
forth in Schedule 1.7;
(g) any liabilities of Seller with respect to any pension,
retirement, savings, profit-sharing or other benefit plans;
(h) any obligation or liability which is inconsistent with
any representation or warranty of Seller or the Stockholders;
(i) any liability arising out of, and any expenses relating
to, any claim, action, dispute or litigation involving Seller;
(j) any liability of Seller for fines, penalties, damages
or other amounts payable to any government or governmental agency
or instrumentality; and
(k) any obligation or liability of Seller or the
Stockholders for any expenses incurred in preparing or
negotiating this Agreement and consummating the transactions
contemplated hereunder.
1.6 Allocation of Purchase Price. Buyer and Seller agree
to report this transaction for United States federal income tax
purposes in accordance with a written allocation of Purchase
Price to be prepared, initialed and mutually agreed to by Buyer
and Seller at or before the Closing. Such allocation shall be
prepared by allocating to each identifiable tangible asset a
portion of the Purchase Price equal to such asset's book value
and by allocating the remainder of the Purchase Price to
intangible assets and good will.
1.7 Closing Date Adjustments. On or before the Closing,
Buyer and Seller shall determine and agree on, as of the Closing
Date, (i) any amounts that Seller may have prepaid for equipment
leases included in the Acquired Assets in respect of periods
beginning on or after the Closing Date, (ii) any amounts that
Seller may have prepaid for sales, use or similar taxes, license
fees (exclusive of corporate franchise fees), insurance, services
or other expenses relating to the Acquired Assets in respect of
periods beginning on or after the Closing Date, (iii) any amounts
of the type described in clauses (i) and (ii) in respect of
periods prior to the Closing Date which are expected to be billed
after the Closing Date and (iv) the amount of any accrued
vacation, sick or holiday time or pay as of the Closing Date with
respect to temporary, payrolled or full-time employees of Seller
retained by Buyer pursuant to Section 9.3 and as set forth in
Schedule 1.7. All amounts relating to periods ending prior to
the Closing Date shall be for the account of Seller, and all
amounts relating to periods beginning on or after the Closing
Date shall be for the account of Buyer. The respective amounts
shall be netted against each other at the Closing. If the result
is an amount owing to Seller, Buyer shall pay such amount to
Seller at the Closing. If the result is an amount owing to
Buyer, Seller shall pay such amount to Buyer. In additional to
the foregoing, on the Closing Date, Buyer agrees to reimburse
Seller for all security deposits under leases acquired as part of
the Acquired Assets.
1.8 Nonassignable Contracts. Nothing in this Agreement
shall be construed as an attempt to assign any contract which is
by law nonassignable without the consent of any other party
thereto unless and until such consent is given.
2. Closing. The consummation of the purchase and sale of
the Acquired Assets (the "Closing") shall take place at 10:00
a.m. on September 29, 1997, at the offices of Christy & Viener,
620 Fifth Avenue, New York, New York 10020, or at such other
time, date and place as the parties may agree (the "Closing
Date"). The effective date of this transaction shall be the
close of business on September 26, 1997.
3. Conditions to the Obligations of Buyer. The
obligations of Buyer under Section 1 are subject to the
satisfaction, on or before the Closing Date, of the following
conditions:
3.1 Due Performance. Seller and the Stockholders shall
have in all material respects fully performed and complied with
all agreements and conditions required under this Agreement to be
performed or complied with by it or them on or prior to the
Closing Date.
3.2 Accuracy of Representations and Warranties. All
representations and warranties of Seller and the Stockholders set
forth in Section 6 of this Agreement shall be true and correct in
all material respects on and as of the Closing Date as if made on
and as of such date.
3.3 Certificate. Buyer shall have received a certificate
from each of Seller and the Stockholders to the effect set forth
in Sections 3.1 and 3.2.
3.4 DeCristoforo Employment Agreement. Buyer, Headway and
DeCristoforo shall have entered into an Employment Agreement in a
form satisfactory to all such parties (the "Employment
Agreement").
3.5 Finn Non-Competition Agreement. Buyer, Headway and
Finn shall have entered into a Non-Competition Agreement in a
form satisfactory to all such parties (the "Non-Competition
Agreement").
3.6 Related Instruments. Seller shall have executed and
delivered to Buyer a General Bill of Sale in customary form with
respect to the Acquired Assets, as well as such other instruments
of assignment with respect to specific Acquired Assets as Buyer
shall reasonably request.
3.7 Financial Statements. Seller and the Stockholders
shall have prepared and delivered to Buyer and Headway (i)
audited financial statements for the fiscal year ended December
31, 1996 (the "Audited Financial Statements"), (ii) unaudited
financial statements as of and for the nine-month period ended
September 30, 1996 (the "Unaudited Financial Statements"), (iii)
income statements as of and for the three-month periods ended
March 31, 1997 and June 30, 1997 (the "Income Statements") and
(iv) an income statement as of and for the twelve-month period
ended June 30, 1997, as adjusted for non-recurring expense (the
"Adjusted Income Statement"). The Audited Financial Statements,
the Unaudited Financial Statements, the Income Statements and the
Adjusted Income Statements being collectively referred to as the
"Financial Statements". The Income Statements and the Adjusted
Income Statement shall be broken out between the business of
Seller being acquired pursuant to this Agreement and the other
businesses of Seller. The Financial Statements shall be prepared
at the expense of Seller and the Stockholders (except for the
December 31, 1995 Audited Financial Statements, which shall be at
the expense of Buyer and Headway) in accordance with generally
accepted accounting principles applied on a basis consistent
throughout all periods presented and on an accrual basis. The
Financial Statements shall be delivered to Buyer and Headway by
no later than two weeks prior to the Closing Date.
3.8 Legal Opinion. Buyer shall have received an opinion of
Messrs. McBreen, McBreen & Kopko, counsel for Seller and the
Stockholders, dated the Closing Date, reasonably satisfactory in
form and substance to counsel for Buyer and covering the matters
set forth in Sections 6.1 (exclusive of the last sentence
thereof), 6.2, 6.3, 6.4(a) and 6.8.
3.9 Payoff Letter. Buyer shall have received an original,
signed Payoff Letter from Bank of New York ("BONY") to Seller and
original, signed Form UCC-3's releasing all liens held by BONY on
the Acquired Assets (to be held in escrow pending the Closing and
simultaneous payoff of said indebtedness), with respect to
Seller's secured line of credit facility with BONY.
3.10 Corporate Action. Buyer shall have received copies,
certified, by the Secretary of Seller, of resolutions of
Seller's Board of Directors and the Stockholders approving the
execution of this Agreement and the consummation of the
transactions contemplated hereby.
3.11 No Adverse Change. There shall have been no material
adverse change in the business, results of operations or
financial condition of Seller since December 31, 1996.
3.12 Consents and Governmental Approvals. Headway and Buyer
shall have received any material consents of third parties, and
any authorizations, orders, grants, consents, permits and
approvals of all relevant governmental authorities, required in
connection with the consummation of the transactions contemplated
under this Agreement, without the imposition of any materially
burdensome conditions or restrictions, which shall continue to be
in full force and effect on the Closing Date, including the
consent or waiver of International Nederlanden (U.S.) Capital
Corporation ("ING") under the Credit Agreement, dated as of May
31, 1996, as amended (the "Credit Agreement"), by and among
Headway, as Borrower, the various lenders parties thereto, and
ING, as Agent.
3.13 No Claims. No claim, action, suit, investigation or
proceeding shall be pending or threatened against any of the
parties which, if adversely determined, might (i) prevent or
hinder consummation of the transactions contemplated by this
Agreement, (ii) result in the payment of substantial damages by
Buyer or Headway as a result of the transactions contemplated
hereby or (iii) materially and adversely affect the business or
assets of Seller, Buyer or Headway.
4. Conditions to the Obligations of Seller and the
Stockholders. The obligations of Seller and the Stockholders
under Section 1 are subject to the satisfaction, on or before the
Closing Date, of the following conditions:
4.1 Due Performance. Headway and Buyer shall have in all
material respects fully performed and complied with all
agreements and conditions required under this Agreement to be
performed or complied with by them on or prior to the Closing
Date.
4.2 Accuracy of Representations and Warranties. All
representations and warranties of Headway and Buyer set forth in
Section 7 of this Agreement shall be true and correct in all
material respects on and as of the Closing Date as if made on and
as of such date.
4.3 Certificate. Seller and the Stockholders shall have
received a certificate from each of Buyer and Headway to the
effect set forth in Sections 4.1 and 4.2.
4.4 Related Instruments. Buyer shall have executed and
delivered to Seller a General Instrument of Assumption in
customary form with respect to the Assumed Liabilities, as well
as such other instruments of assumption with respect to specific
Assumed Liabilities as Seller shall reasonably request.
4.5 Headway Guarantee. Headway shall have executed and
delivered to Seller and the Stockholders an unconditional
Guarantee (of payment not collection) of Buyer's obligations
under this Agreement, in such form as shall reasonably be
requested by Seller (the "Headway Guarantee").
4.6 Legal Opinion. Seller and the Stockholders shall have
received an opinion of Messrs. Christy & Viener, counsel for
Buyer and Headway, dated the Closing Date, reasonably
satisfactory in form and substance to counsel for Seller and the
Stockholders and covering the matters set forth in Sections 7.1
(exclusive of the last sentence thereof), 7.2, 7.3, 7.4 (a) and
7.6.
4.7 ING Letter. Buyer and Headway shall execute and
deliver a letter to Seller and the Stockholders regarding the
amount of the term loan commitment under the Credit Agreement
required to be reserved for payment of the Earnout.
4.8 Corporate Action. Seller and the Stockholders shall
have received copies, certified by the Secretaries of Buyer and
Headway, of resolutions of Buyer's and Headway's respective
Boards of Directors approving the execution of this Agreement,
the Employment Agreement and the Non-Competition Agreement and
the consummation of the transactions contemplated hereby and
thereby.
4.9 Consents and Governmental Approvals. Seller and the
Stockholders shall have received any material consents of third
parties, and any authorizations, orders, grants, consents,
permits and approvals of all relevant governmental authorities,
required in connection with the consummation of the transactions
contemplated under this Agreement, without the imposition of any
materially burdensome conditions or restrictions, which shall
continue to be in full force and effect on the Closing Date,
including the consent of International Business Machines
Corporation ("IBM") to the assignment by Seller of its rights and
obligations under any agreements between IBM and Seller.
4.10 No Adverse Change. There shall have been no material
adverse change in the business, results of operations or
financial condition of Headway or Buyer since December 31, 1996.
4.11 No Claims. No claim, action, suit, investigation or
proceeding shall be pending or threatened against any of the
parties which, if adversely determined, might (i) prevent or
hinder consummation of the transactions contemplated by this
Agreement, (ii) result in the payment of substantial damages by
Seller or the Stockholders as a result of the transactions
contemplated hereby or (iii) materially and adversely affect the
business or assets of Seller, Buyer or Headway.
5. Waiver of Conditions. Each of the parties shall have
the right to waive, in whole or in part, any of the conditions to
its performance set forth in this Agreement and, on such waiver,
the waiving party may proceed with the consummation of the
transactions contemplated herein, it being understood that such
waiver shall not constitute a waiver of any right which such
party may have by reason of the breach by the other party of any
representation, warranty or agreement contained herein, or by
reason of any misrepresentation made by such other party herein.
6. Representations and Warranties of Seller and the
Stockholders. Seller and, to his best knowledge (except with
respect to the representations and warranties set forth in
Sections 6.2 or 6.3, which representations and warranties shall
be without qualification), each of the Stockholders, jointly and
severally (subject to the limitations set forth in Section
12.5(b)), represents and warrants to Buyer and Headway as
follows:
6.1 Due Organization and Qualification. Seller is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of New Jersey, with full
corporate power and authority to own, lease and operate its
properties and to carry on its business in the places and in the
manner currently conducted or proposed to be conducted. Except
as set forth in Schedule 6.1, Seller is qualified to do business
and is in good standing as a foreign corporation or foreign
limited liability company in each jurisdiction in which the
nature of the activities conducted by it or the character of the
properties owned or leased by it makes such qualification
necessary and the failure to so qualify would have a material
adverse effect on its business or the Acquired Assets.
6.2 Authority; Due Authorization. Seller has all requisite
corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
Seller has taken all corporate necessary for the execution and
delivery by it of this Agreement and for the consummation of the
transactions contemplated hereby. Each of the Stockholders has
the requisite power and authority to execute and deliver, and has
taken all action necessary for the execution and delivery of,
this Agreement and for the consummation of the transactions
contemplated hereby.
6.3 Valid Obligation. Assuming the due execution and
delivery by Buyer and Headway, this Agreement, when executed and
delivered by each of Seller and the Stockholders, shall
constitute the valid and binding obligations of each of Seller
and the Stockholders, enforceable in accordance with its terms,
except as may be limited by principles of equity or by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally.
6.4 No Conflicts or Defaults. Except as set forth in
Schedule 6.4, the execution and delivery of this Agreement by
Seller and each of the Stockholders and the consummation of the
transactions contemplated hereby and thereby, do not and shall
not (a) contravene the Certificate of Incorporation or By-Laws of
Seller or (b) with or without the giving of notice or the passage
of time, (i) materially violate or conflict with, or result in a
material breach of, or a material default or loss of rights
under, any agreement, lease, mortgage, instrument, permit or
license to which Seller is a party and which is included in the
Acquired Assets, or to which any of the Acquired Assets are
subject, or any judgment, order, decree, law, rule or regulation
to which any of the Acquired Assets are subject, (ii) result in
the creation of, or give any party the right to create, any lien,
charge, encumbrance or any other right or adverse interest on or
with respect to any of the Acquired Assets or (iii) terminate or
give any party the right to terminate, abandon or refuse to
perform any material agreement, arrangement or commitment to
which Seller is a party and which is included in the Acquired
Assets or to which any of the Acquired Assets are subject.
6.5 Copies of Charter Documents. Copies of the Certificate
of Incorporation and By-Laws of Seller, in each case as amended
to the date hereof, have been delivered to Buyer or its
representatives and are true and complete copies of such
documents as in effect on the date of this Agreement.
6.6 Capitalization of Seller The Stockholders hold all of
the issued and outstanding capital stock of Seller. There are no
outstanding options, warrants, rights, conversion rights,
preemptive rights, calls, commitments or demands of any character
obligating Seller or the Stockholders to issue, sell, redeem or
repurchase any capital stock or any other security giving a
right to shares of its capital stock, or obligating any of the
Stockholders to sell or otherwise dispose of any of its shares of
capital stock of Seller.
6.7 Subsidiaries and Related Parties. Seller's business is
conducted entirely by and through Seller. Seller has no direct
or indirect subsidiaries, nor are there any other entities which
Seller otherwise directly or indirectly controls or in which it
has any ownership or other interest. Except as set forth in
Schedule 6.7, none of the Stockholders or any director, member,
officer or key employee of Seller or any of their respective
affiliates or relatives has any direct or indirect interest
(other than an ownership interest of up to 5% of the voting
securities of any corporation, the securities of which are
publicly-traded) in any assets used in Seller's business or in
any corporation, partnership or other entity which (a) competes
with Seller, (b) sells or purchases products or services to or
from Seller, (c) leases real or personal property to or from
Seller or (d) otherwise does business with Seller.
6.8 Authorizations. Except as set forth in Schedule 6.8,
no authorization, approval, order, license, permit or consent of,
or filing or registration with, any court or governmental
authority, regulatory entity or official body, and no consent of
any other party, is required in connection with the execution,
delivery and performance of this Agreement by Seller and the
Stockholders.
6.9 The Acquired Assets.
(a) Seller has, and on the Closing Date shall have and
shall transfer to Buyer, good and marketable title to all of the
Acquired Assets, free and clear of all claims, liens, security
interests, charges, restrictions and other encumbrances except:
(i) any created pursuant to this Agreement; (ii) any arising
under leases of real or personal property to which Seller is a
party and which have been specifically disclosed to Buyer; (iii)
mechanics' or other liens arising or incurred in the ordinary
course of business and which do not interfere materially with the
possession, ownership or use of any real or personal property
used by Seller; or (iv) as are set forth in Schedule 6.9.
(b) Set forth in Schedule 6.9 is a list of all real
property leased by Seller, with a brief description of the
premises. Seller owns no real property.
(c) To Seller's best knowledge, the office equipment,
furniture, computers, computer software and office supplies
included in the Acquired Assets are, in all material respects, in
good operating condition and repair, reasonable wear and tear
excepted, and are satisfactory for the requirements of Seller's
business.
6.10 Client Agreements.
(a) Schedule 1.1.B sets forth a true and complete list of
all material client agreements and arrangements to which Seller
is party (the "Client Agreements"). Seller has furnished Buyer
with a true copy of each Client Agreement or a written
description of any Client Agreement that has not been reduced to
writing. The Client Agreements constitute all of the contracts,
agreements, understandings and arrangements pursuant to which
Seller provides any temporary, permanent, leased or payrolled
employee services for or with respect to the clients who are
parties to such agreements. Except as set forth in Schedule
6.10, (i) each Client Agreement was entered into in the ordinary
course of Seller's business, (ii) is in full force and effect on
the date of this Agreement and is valid, binding and enforceable
in accordance with its terms, (iii) Seller is not in material
breach or default under any of the Client Agreements and has not
received any notice or claim of any such breach or default from
any party, (iv) the relationship of Seller with the clients that
are parties to the Client Agreements is good and there has been
no expression of any intention to terminate or materially modify
any of such relationships, (v) neither Seller nor any of the
Stockholders has any knowledge of any material breach or default
under any of the Client Agreements by any other party thereto,
(vi) no event or action has occurred, is pending or, to Seller's
best knowledge, is threatened, which, after the giving of notice,
passage of time or otherwise, could constitute or result in any
such material breach or default by Seller or any other party
under any of the Client Agreements and (vii) no material amount
claimed to be payable to Seller under any of the Client
Agreements is being disputed by any client.
(b) Except as set forth in Schedule 6.10.A, for its
services under each Client Agreement, Seller receives the
compensation provided under such Client Agreement, without
discount, offset or concessions of any kind, and Seller has not
proposed or agreed to offer or accept any discount, offset or
concession. Set forth in Schedule 6.10.B is an aging schedule
for all of Seller's accounts receivable and accounts payable as
of August 31, 1997, which list is accurate in all material
respects.
(c) All of the accounts receivable reflected on the books
and records of Seller and on Schedule 6.10.B are the result of
bona fide transactions in the ordinary course of business of
Seller and are fully collectible by Seller, subject to no
defenses, counterclaims, set-offs or recoupments, except to the
extent appropriately reserved for on the books and records of
Seller and except as disclosed in Schedule 6.10.A.
6.11 Financial Statements.
(a) The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied
on a basis consistent throughout all periods presented. Such
statements are correct and complete in all material respects, are
reconcilable to the books and records of Seller, and present
fairly the financial position of Seller as of the dates, and the
results of operations, cash flows and changes in financial
position of Seller for the periods, indicated, except in the case
of interim or unaudited financial statements, for the omission of
footnotes and for year-end review adjustments which are not
expected to be material.
(b) Except as set forth in Schedule 6.11, Seller had no
material liabilities or obligations, whether secured or
unsecured, accrued, determined, absolute or contingent, asserted
or unasserted or otherwise, which are required to be reflected or
reserved in a balance sheet or the notes thereto under generally
accepted accounting principles, but which are not reflected in
the Financial Statements.
6.12 Other Agreements.
(a) Schedule 1.1.C sets forth a true and complete list of
the equipment leases and other agreements, contracts and
instruments included in the Acquired Assets other than the Client
Agreements (the "Other Agreements"). Together with the Client
Agreements, the Other Agreements constitute all of the material
contracts, agreements, understandings and arrangements required
for the operation of Seller's business, as currently conducted by
Seller, or which have a material effect thereon.
(b) Except as set forth in Schedule 6.12, (i) each Other
Agreement was entered into in the ordinary course of Seller's
business, is in full force and effect on the date of this
Agreement and is valid, binding and enforceable in accordance
with its terms, (ii) Seller is not in material breach or default
under any of the Other Agreements and has not received any
written notice or claim of any such breach or default from any
party, (iii) Seller and each of the Stockholders have no
knowledge of any material breach or default under any of the
Other Agreements by any party thereto and (iv) no event or action
has occurred, is pending or, to Seller's best knowledge, is
threatened, which, after the giving of notice, passage of time or
otherwise, could constitute or result in any such material breach
or default by Seller or any other party under any of the Other
Agreements.
6.13 Intellectual Property. Schedule 1.1.D sets forth a
true and complete list of all trademarks, service marks, domain
name, trade names and copyrights, and United States or foreign
registrations and applications for registration of any of them,
and any other intellectual property rights, used by Seller in its
business, all of which intellectual property is included in the
Acquired Assets. Seller owns or has legal right to use, pursuant
to one or more of the Other Agreements, all such intellectual
property without infringing on the rights or intellectual
property of any third party. No royalties or fees are payable by
Seller to any party by reason of the use by Seller of any of such
intellectual property. To Seller's best knowledge, Seller has
not received any claims that it or its products or services have
infringed the rights of others, and Seller and the Stockholders
are not aware of any infringement by others of Seller's
intellectual property.
6.14 Taxes. Except as set forth in Schedule 6.14, Seller
has filed all federal, state, local and foreign 3returns and
reports which were required to be filed prior to the date hereof
in respect of all income, withholding, franchise, payroll,
excise, property, value-added, sales, use or other taxes,
imposts, duties or assessments (together with any related
penalties, fines or interest, "Taxes"). Each such return and
report is complete and accurate in all material respects, and
Seller has paid, or established adequate reserves for payment of,
all Taxes (and any related penalties, fines and interest) shown
to be due on such returns or reports and any assessments received
with respect thereto. Except as set forth in Schedule 6.14,
Seller has received no notice of any claims pending or threatened
for taxes against it for periods prior to the date hereof, in
excess of such reserves.
6.15 Permits; Compliance with Law. Seller holds all
permits, certificates, licenses, approvals and other
authorizations of governmental authorities as are materially
necessary to the conduct of its business. Seller is in material
compliance with the terms of each thereof and has not received
any notice or claim pertaining to the failure to obtain, or the
breach or violation of the terms of, any such authorization.
Neither Seller nor any of the Stockholders has received any
notice of any proceeding or investigation likely to result in the
suspension or revocation of any such authorization. Seller is
conducting its business and affairs in material compliance with
all applicable federal, state and local laws, ordinances, rules,
regulations and court or administrative orders and decrees.
6.16 Litigation. Except as set forth in Schedule 6.16,
there are no claims, actions, suits, proceedings, investigations
or criminal proceedings, at law or in equity, before any court,
tribunal, governmental authority or other forum (collectively,
"Proceedings") pending or, to Seller's best knowledge,
threatened, against Seller which, if adversely determined, would,
singly or in the aggregate, have a material adverse effect on
Seller's Business or the Acquired Assets or the ability of Seller
or any of the Stockholders to perform their obligations under
this Agreement or which would challenge the validity or propriety
of the transactions contemplated in this Agreement. Schedule
6.16 contains a list of all Proceedings to which Seller is a
party or to which it or any of the Acquired Assets are subject.
There is no material outstanding and unsatisfied judgment, order,
writ, ruling, injunction, stipulation or decree of any court,
arbitrator or governmental authority against or materially
affecting Seller or any material portion of the Acquired Assets.
6.17 Ordinary Course; No Material Adverse Effect. Except as
set forth in Schedule 6.17 and for the transactions contemplated
in this Agreement, since December 31, 1996, Seller has conducted
its business and maintained its assets substantially in the same
manner as previously conducted or maintained and solely in the
ordinary course and, since such date, there has not been any
event that has or would, with or without the giving of notice or
the passage of time, result in a material adverse effect on
Seller or its business.
6.18 Employee Benefits and Relations.
(a) Except as set forth in Schedule 6.18, Seller does not
maintain or sponsor, or contribute or have any obligation or
liability to, any "employee pension benefit plan", "employee
welfare benefit plan" or "multi-employer plan" (as such terms are
defined in Sections 3(2), 3(1) and 4001(a)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")).
Set forth in Schedule 6.20 is a list of all bonus, pension,
profit-sharing, deferred compensation, stock ownership, stock
bonus, stock option, phantom stock, retirement, vacation,
disability, death benefit, unemployment, hospitalization,
medical, dental, severance, or other plan, agreement, arrangement
or understanding providing benefits to any current or former
employee, officer, member or director of Seller or to which
Seller has any liability or obligation (all such plans,
agreements, arrangements and understandings are referred to as
"Benefit Plans"). Seller and the Stockholders have delivered to
Buyer and Headway true, complete and correct copies of (i) each
Benefit Plan and all amendments thereto (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (ii) annual
reports on Form 5500 for the past three years (together with
accompanying financial statements) filed with the Internal
Revenue Service or Department of Labor, as applicable, with
respect to each Benefit Plan (if any such report was required),
(iii) all summary plan descriptions for each Benefit Plan for
which such summary plan description is required or otherwise
available and (iv) each trust agreement and group annuity
contract relating to any Benefit Plan. No Benefit Plan provides
for post-retirement medical or life insurance benefits unless the
event giving rise to the benefit entitlement occurs prior to the
employee's retirement (except as required by Title I, Part 6 of
ERISA).
(b) Any accrued obligations of Seller under all Benefit
Plans that are required to be reflected on the balance sheet of
Seller in accordance with generally accepted accounting
principles are reflected thereon as of the dates indicated
thereon and on the books and records of Seller for all periods
thereafter. Seller and the Stockholders have provided Buyer with
copies of all such balance sheets, books and records.
(c) Except as set forth in Schedule 6.18, each Benefit Plan
and any related trust complies currently, and has complied at
all times in the past, both as to form and operation, in all
material respects with the terms of such Benefit Plan and with
the applicable provisions of ERISA, the Code and other applicable
laws. All necessary government approvals for each Benefit Plan
have been obtained on a timely basis.
(d) Except as set forth in Schedule 6.18, Seller has no
liability (contingent or otherwise) with respect to any
terminated Benefit Plan. Seller is not a member of, and has no
liability with respect to, a controlled group of corporations or
a trade or business (whether or not incorporated) under common
control which, together with Seller, is or was at any time
treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b)(1) of ERISA.
(e) Seller is not a party to any union or collective
bargaining contract with respect to any of its employees and
there has not been, nor has Seller or any Stockholder received
written notice threatening, any representational or
organizational activity, strike, slowdown, picketing or work
stoppage by any union or other group of employees against Seller.
(f) Schedule 6.18 sets forth (i) the name of each
director, officer, employee and sales representative of Seller
(other than temporary or payrolled personnel), together with the
annual compensation rate for each such person and (ii) each oral
or written contract, commitment or understanding between Seller
and any current or former director, officer, sales person,
employee, agent or stockholder of Seller or any associate or
relative of such persons (other than temporary or payrolled
personnel).
6.19 Insurance. A list of all of insurance policies of
Seller, indicating carriers, coverage and applicable limits of
liability, is set forth in Schedule 6.19. All such policies of
insurance are in full force and effect on the date hereof, and
shall remain in full force and effect through the Closing Date in
accordance with their terms. Neither Seller nor any of
Stockholders has received notice of termination of any such
policies.
6.20 Miscellaneous. All representations and warranties of
Seller and each of the Stockholders set forth in this Agreement
and all information set forth in the Schedules are true and
complete in all material respects and no such representation,
warranty or information contains any untrue statement of a
material fact or, to the knowledge of Seller and each of the
Stockholders, omits to state any material fact necessary in order
to make such representation, warranty or information, in light of
the circumstances under which it is made, not false or
misleading. Any disclosure made pursuant to any of the
representations and warranties in this Section 6 shall be deemed
to have been made for purposes of any other such representations
and warranties.
7. Representations and Warranties of Buyer and Headway.
Buyer and Headway, jointly and severally, represent and warrant
to Seller and each of the Stockholders as follows:
7.1 Due Organization and Qualification. Buyer is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of New York. Headway is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Each of Buyer
and Headway has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its
business in the places and in the manner currently conducted or
proposed to be conducted. Each of Buyer and Headway is qualified
to do business and is in good standing as a foreign corporation
in which the nature of the activities conducted by it or the
character of the properties owned or leased by it makes such
qualification necessary and the failure to so qualify would have
a material adverse effect on its business.
7.2 Authority; Due Authorization. Headway has all
requisite power and authority to execute and deliver this
Agreement, the Guarantee, the Employment Agreement and the Non-
Competition Agreement and to consummate the transactions
contemplated hereby and thereby. Headway has taken all corporate
action necessary for the execution and delivery by it of this
Agreement, the Guarantee, the Employment Agreement and the Non-
Competition Employment Agreement and for the consummation of the
transactions contemplated hereby and thereby. Buyer has all
requisite power and authority to execute and deliver this
Agreement, the Employment Agreement and the Non-Competition
Agreement and to consummate the transactions contemplated hereby
and thereby. Buyer has taken all corporate action necessary for
the execution and delivery by it of this Agreement, the
Employment Agreement and the Non-Competition Employment
Agreement and for the consummation of the transactions
contemplated hereby and thereby.
7.3 Valid Obligation. Assuming the due execution and
delivery by the parties thereto other than Buyer and Headway,
this Agreement, the Employment Agreement and the Non-Competition
Agreement, when executed and delivered by each of Buyer and
Headway, and the Guarantee, when executed and delivered by
Headway, shall constitute its valid and binding obligations, in
each case enforceable in accordance with its terms, except as may
be limited by principles of equity or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
7.4 No Conflicts or Defaults. The execution and delivery
of this Agreement, the Employment Agreement and the Non-
Competition Agreement by each of Buyer and Headway, and the
Guarantee by Headway, and the consummation of the transactions
contemplated hereby and thereby, do not and shall not (a)
contravene the Certificate of Incorporation or the By-Laws of
Buyer or Headway or (b) with or without the giving of notice or
the passage of time, materially violate or conflict with, or
result in a material breach of, or a material default or loss of
rights under, any agreement, lease, mortgage, instrument, permit
or license to which Buyer or Headway is a party or by which Buyer
or Headway are bound, other than the Credit Agreement, or any
judgment, order, decree, law, rule or regulation to which Buyer
or Headway are subject.
7.5 Copies of Charter Documents. Copies of the Certificate
of Incorporation and By-Laws of each of Buyer and Headway, in
each case as amended to the date hereof, have been delivered to
Seller and the Stockholders and are true and complete copies of
such documents as in effect on the date of this Agreement.
7.6 Authorizations. No authorization, approval, order,
license, permit or consent of, or filing or registration with,
any court or governmental authority, regulatory entity or
official body, and no consent of any other party, is required in
connection with the execution, delivery and performance of this
Agreement, the Employment Agreement or the Non-Competition
Agreement by Buyer and Headway, and the Guarantee by Headway,
except for the consent or waiver of ING under the Credit
Agreement.
7.7 Litigation. There are no Proceedings, pending or
threatened, against Buyer or Headway which, if adversely
determined, would, singly or in the aggregate, have a material
adverse effect on the ability of Buyer or Headway to perform its
obligations under this Agreement or which would challenge the
validity or propriety of the transactions contemplated in this
Agreement. There is no material outstanding and unsatisfied
judgment, order, writ, ruling, injunction, stipulation or decree
of any court, arbitrator or governmental authority against or
materially affecting Buyer or Headway or any material portion of
their respective assets.
7.8 Miscellaneous. All representations and warranties of
Buyer and Headway set forth in this Agreement were, as of the
date on which they were made or given, true and complete in all
material respects and no such representation, warranty or
information contains or contained any untrue statement of a
material fact or, to the knowledge of Buyer and Headway, omits or
omitted to state any material fact necessary in order to make
such representation or warranty, in light of the circumstances
under which it is or was made, not false or misleading. Any
disclosure made pursuant to any of the representations in this
Section 7 shall be deemed to have been made for purposes of any
other such representations.
8. Survival of Representations and Warranties. All
representations and warranties made by any party in this
Agreement or in any document or certificate delivered pursuant to
this Agreement shall survive the Closing for a period of two
years (except that the representations and warranties set forth
in Sections 6.14 and 6.18 relating to Taxes and Benefit Plans
shall survive for a period equal to the statute of limitations
applicable to any claims and liabilities which may result from a
breach thereof) and shall be unaffected by any investigation made
by or on behalf of any party or by any notice of breach of, or
failure to perform under, this Agreement which is not effectively
waived pursuant to Section 5, subject, however, to the
limitations on indemnification set forth in Section 12.5.
9. Post-Closing Matters.
9.1 Cessation of Use of Name. As promptly as practicable
after the Closing Date, and in any event not later than fifteen
days thereafter, Seller (a) shall cease the use of its name in
any material manner or any other name that contains "QOS",
"Quality OutSourcing", or any words including or formed from such
words and (b) shall file a Certificate of Amendment to its
Certificate of Incorporation to effect a change of its respective
corporate name to a name consistent with the intent of this
Section 9.1.
9.2 Operation of Seller's Business During Earnout Periods.
For each Earnout Period, Buyer shall prepare and submit to the
Board of Directors of HCSSI (the "HCSSI Board") annual operating
and capital expenditure budgets with respect to Seller's
Business, as well as interim budget reports, at such times as the
HCSSI Board of Directors reasonably establishes, which budgets
shall be approved in the reasonable discretion of the HCSSI
Board. Such budgets shall be promptly delivered to Seller and
the Stockholders. After a budget is approved by the HCSSI Board,
Buyer's management shall be authorized to act and to operate
Seller's Business in accordance with such budget. Headway and
HCSSI shall at all times have access to the books and records of
Buyer pertaining to Seller's Business and to such other
information pertaining to such business as they request from time
to time and shall have the right at any time to audit the books
of Buyer pertaining to Seller's Business. Seller and the
Stockholders acknowledge that Buyer shall, in connection with the
operation of Seller's Business, be required to implement the
accounting and operating systems and procedures of the Headway
group of companies. To the extent that Seller's Business is not
meeting the annual operating or capital expenditure budgets then
in effect, or its accounts receivable collection experience is
materially less favorable than that of other HCSSI subsidiaries,
the HCSSI Board shall have the right to require Buyer to make
such changes in the operations and personnel of Seller's Business
as the HCSSI Board deems reasonably necessary.
9.3 Seller's Employees. Buyer shall, after conferring with
the Stockholders in such regard, inform Seller reasonably prior
to the Closing Date as to whether it wishes to employ any of
Seller's employees, and if it wishes to do so, the names of such
employees and the positions and compensation Buyer proposes to
offer them. Seller shall permit Buyer to offer employment to
such employees on the terms proposed by Buyer prior to the
Closing Date. Immediately prior to the Closing Date, Seller
shall inform any of Seller's employees to whom Buyer does not
offer employment, or who do not accept Buyer's offer of
employment if made, that they shall be relieved of their duties
with respect to the business of Seller being acquired by Buyer
hereunder, effective on the Closing Date. All liabilities and
obligations associated with the termination of employment by
Seller of any of Seller's employees to whom Buyer does not offer
employment or who do not accept Buyer's offer of employment under
contract or applicable law or otherwise shall be the sole
responsibility of Seller.
9.4 Conduct of Seller Post-Closing. To facilitate the
transition of Seller's business from Seller to Buyer, Seller
agrees, at its expense, for a period of 90 days from the Closing
Date, (i) to maintain Seller's office lease for the premises
located at 6 Arrow Road, Suite 203, Ramsey, New Jersey, (ii) to
keep such office open and staffed during normal business hours
and (iii) to make Finn available to Buyer and Headway at such
office during normal business hours.
9.5 Financial Statements. On or prior to two weeks from
the Closing Date, Seller shall, at Buyer's expense, deliver to
Buyer audited financial statements for the fiscal year ended
December 31, 1995. On or prior to the date thirty days from the
Closing Date, Seller shall, at its expense, deliver to Buyer (i)
the unaudited balance sheet, income statement and statement of
cash flow for Seller as of and for the nine-month period ended
September 30, 1997 and (ii) the three-month period ended
September 30, 1997, in each case prepared in accordance with
generally accepted accounting principles (except footnotes shall
not be included) and broken out between the business of Seller
acquired pursuant to this Agreement and all other businesses of
Seller.
9.6 Audit of Buyer's Books and Records. Seller and the
Stockholders shall have the right, no more than two times during
the period commencing on the first Earnout Payment Date and
ending on March 31, 2000, to have the books and records of Buyer
audited by an independent public accountant or authorized
representative chosen by Seller and the Stockholders. Any such
audit shall be conducted during Buyer's normal business hours,
shall be conducted in such a manner so as not to unduly interfere
with Buyer's business operations and shall be at the sole expense
of Seller and the Stockholders.
9.7 Financial and Management Reports to be Provided to
Seller and the Stockholders. Commencing October 31, 1997 and
ending on December 31, 1999, Buyer shall provide Seller and the
Stockholders with monthly and year-to-date income statements with
respect to Seller's Business along with any other monthly or
quarterly financial statements or management reports prepared by
Buyer or Headway with respect thereto. From the Closing Date
until March 31, 2000, the Stockholders shall have the right,
during normal business hours but no more than once per calendar
quarter, to meet with representatives of Buyer and Headway to
discuss the operation and performance of Seller's Business.
9.8 Insurance Matters. The parties shall cooperate to
preserve the existing insurance coverage of Seller with respect
to the Acquired Assets through the Closing and to effect an
appropriate transition to Buyer's insurance, if requested, at the
time of Closing.
9.9 Further Assurances.
(a) Whenever reasonably requested to do so by Buyer, on or
after the Closing Date, Seller and each of the Stockholders shall
do, execute, acknowledge and deliver all such acts, bills of
sale, assignments, confirmations, consents and any and all such
further instruments and documents, in form reasonably
satisfactory to Buyer, as shall be reasonably necessary or
advisable to carry out the intent of this Agreement and to vest
in Buyer all of the right, title and interest of Seller in and to
the Acquired Assets.
(b) Whenever reasonably requested to do so by Seller or the
Stockholders, on or after the Closing Date, Buyer and Headway
shall do, execute, acknowledge and deliver all such acts,
assignments, confirmations, consents and any and all such further
instruments and documents, in form reasonably satisfactory to
Seller and the Stockholders, as shall be reasonably necessary or
advisable to carry out the intent of this Agreement .
9.10 Authorization to Buyer. Without limiting in any
respect the right, title and interest in and to the Acquired
Assets to be acquired by Buyer hereunder, Seller irrevocably
authorizes, effective upon the Closing, Buyer and its successors
and assigns, to demand and receive, from time to time, any and
all of the Acquired Assets, to give receipts and releases for or
in respect of the same, to collect, assert or enforce any claim,
right or title of any kind therein or thereto and, for such
purpose, from time to time, to institute and prosecute in the
name of Seller (but only if Seller consents to such use of its
name), or otherwise, any and all proceedings at law, in equity or
otherwise, which Buyer shall deem expedient or desirable.
9.11 Correspondence. Seller authorizes Buyer, on and after
the Closing Date, to receive and open mail addressed to Seller
and to deal with the contents thereof in a responsible manner,
provided that such mail relates to the Acquired Assets or to the
business of Seller to be carried on by Buyer. Buyer shall
promptly deliver to Seller all other mail addressed to Seller
which is received by Buyer. Seller shall have the right, on its
request and its expense, to inspect any such mail addressed to it
and retained by Buyer and to make copies thereof.
10. Non-Competition.
10.1 General. Each of Seller and the Stockholders agrees,
for a period of three years after the Closing Date (the "Term"),
that it shall not, in the State of New Jersey or in any other
area in which Headway or Buyer conducts the business of the
placement or provision of temporary, permanent, leased or
payrolled personnel (including self-incorporated personnel)
during the Term (or for such lesser area or such lesser period as
may be determined by a court of competent jurisdiction to be a
reasonable limitation on the competitive activity of each of
Seller and the Stockholders), directly or indirectly:
(a) engage, for or on behalf of itself or any person or
entity other than Buyer or Headway, in the business of the
placement or provision of temporary, permanent, leased or
payrolled personnel (including self-incorporated personnel);
(b) solicit or attempt to solicit business for services
offered by Seller, Buyer or Headway from any parties who (i) are
clients of Seller on the Closing Date or at any time during the
12 months prior to the Closing Date or to whom Seller has made or
makes proposals for services during the 12 months preceding the
Closing Date or (ii) are clients of Buyer or Headway during the
Term or to whom Buyer or Headway makes proposals for services
during the Term;
(c) otherwise divert or attempt to divert from Buyer or
Headway any business involving the placement or provision of
temporary, permanent, leased or payrolled personnel (including
self-incorporated personnel) of the type now or during the Term
conducted by Seller, Buyer or Headway;
(d) solicit or attempt to solicit for any business endeavor
any employee of Buyer or Headway, including any employee of
Seller who is employed by Buyer after the Closing Date; or
(e) render any services as a joint venturer, partner,
consultant or otherwise to, or have any interest as a
stockholder, partner, member, lender or otherwise in, any person
or entity which is engaged in activities which, if performed by
Seller, would violate this Section .
The foregoing shall not prevent Seller or any of the Stockholders
from purchasing or owning (i) up to 5% of the voting securities
of any corporation, the securities of which are publicly-traded,
or (ii) any interest in any entity which is not also engaged in
the business of the placement or provision of temporary,
permanent, leased or payrolled personnel (including self-
incorporated personnel). References to Headway and Buyer in this
Section 10 shall also be deemed to refer to their respective
divisions and subsidiaries.
10.2 Injunctive Relief. Because Buyer and Headway would not
have an adequate remedy at law to protect their businesses from
any breach of the provisions of Section 10.1, Buyer and Headway
shall be entitled, in the event of such a breach or threatened
breach thereof by Seller or any of the Stockholders, to
injunctive relief, in addition to such other remedies and relief
that would be available to Buyer. In the event of such a breach,
in addition to any other remedies, Buyer and Headway shall be
entitled to receive from Seller and the Stockholders, jointly and
severally, payment of, or reimbursement for, their reasonable
attorneys' fees and disbursements incurred in successfully
enforcing any such provision. The provisions of this Section 10
shall survive the Closing Date.
11. Bulk Sales. Buyer waives compliance by Seller with the
provisions of any applicable bulk sales law. Seller shall
promptly pay or otherwise discharge all valid claims of its
creditors (as defined by the applicable bulk sales law), as and
when they become due and payable (in accordance with Seller's
customary and commercially reasonable practices), and Seller and
each Stockholder, jointly and severally (subject to Section
12.5(b)), shall indemnify and hold harmless Buyer and Headway
from any and all liabilities, costs and expenses (including,
without limitation, reasonable attorneys' fees and disbursements)
incurred by Buyer and arising from the failure of Seller to
satisfy the claims of such creditors.
12. Indemnification.
12.1 Obligations of Seller and the Stockholders. Subject to
the limitations set forth in this Section 12, Seller and each
Stockholder, jointly and severally (subject to Section 12.5(b)),
shall indemnify, defend and hold harmless Buyer and Headway and
their respective officers, directors, employees, agents,
shareholders, successors and assigns from and against any Damages
(as defined in Section 12.3) in connection with:
(a) any breach of any representation, warranty or agreement
of either Seller or the Stockholders contained in this Agreement
or in any certificate, instrument or other agreement delivered by
either of them in connection with this Agreement;
(b) all Unassumed Liabilities and the operation of Seller's
business at any time prior to the Closing Date;
(c) the termination of the employment of any of Seller's
employees, as contemplated in Section 10.3; and
(d) any claim, action, suit or proceeding asserted or
instituted on the basis of any matter described in clauses (a),
(b) or (c) of this Section 12.1;
provided, however, that, except in connection with liabilities
under clauses (c) or (d) above, the breach of the representations
and warranties set forth in Sections 6.14 and 6.18 relating to
Taxes and Benefit Plans or the breach of the provisions set forth
in Section 10 relating to non-competition (as to which the
limitations of these provisos shall not apply), no payment
hereunder shall be required to be made by Seller or the
Stockholders unless and until the aggregate amount of any such
losses, damages, liabilities, costs and expenses exceeds $45,000
(and then only in excess of such amount) and Seller and the
Stockholders shall not be required to make payments hereunder in
excess of the Purchase Price.
12.2 Obligations of Buyer and Headway. Subject to the
limitations set forth in this Section 12, Buyer and Headway,
jointly and severally, shall indemnify, defend and hold harmless
Seller and each of the Stockholders and their respective heirs,
executors, officers, directors, employees, agents, shareholders,
successors and assigns, as applicable, from and against any
Damages in connection with:
(a) any breach of any representation, warranty or covenant
of either Buyer or Headway (and their respective successors and
assigns) contained in this Agreement or in any certificate,
instrument or other agreement delivered by either of them in
connection with this Agreement;
(b) all Assumed Liabilities and the operation by Buyer of
the business of Seller being acquired by Buyer hereunder at any
time on or after the Closing Date; and
(c) any claim, action, suit or proceeding asserted or
instituted on the basis of any matter described in clauses (a) or
(b) of this Section 12.2;
provided, however, that, except in connection with clause (b)
above, no payment hereunder shall be required to be made by Buyer
or Headway unless and until the aggregate amount of any such
losses, damages, liabilities, costs and expenses exceeds $45,000
(and then only in excess of such amount) and Buyer and Headway
shall not be required to make payments hereunder in excess of the
Purchase Price.
12.3 Damages. For purposes of this Section 12, "Damages"
means any loss, liability, damage or expense suffered or incurred
by a party in connection with the matters described in Sections
12.1 or 12.2, as the case may be, including, without limitation,
assessments, fines, penalties, judgments, settlements, costs,
reasonable attorneys' fees and reasonable disbursements and other
reasonable out of pocket expenses of the party incident to any
matter as to which the party is entitled to indemnification under
such Sections, or incident to any allegations or claims which, if
true, would give rise to Damages subject to indemnification
hereunder, or incident to the enforcement by the party of its
rights and remedies under this Section 12.
12.4 Proceedings. Any party seeking indemnification
pursuant to this Section 12 (the "Indemnified Party") shall give
the party from which indemnification is sought (the "Indemnifying
Party") prompt notice of any claim, allegation, action, suit or
proceeding which it believes might give rise to indemnification
under this Section 12, stating the nature and extent of any such
claim, allegation, suit or proceeding with reasonable
specificity, and the amount thereof, if known. Any failure to
give such notice shall not affect the indemnification provided
hereunder except to the extent that the Indemnifying Party is
actually prejudiced as a result of such failure. Buyer
acknowledges that the failure to give, during the Earnout
Periods, prompt notice to Seller and the Stockholders of any
claim, allegation, suit or proceeding which it believes might
give rise to indemnification under this Section 12 coming to
Buyer's attention during the Earnout Periods shall be deemed to
be prejudicial to Seller and the Stockholders. The Indemnifying
Party shall have the right to participate in, and, with the
consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed, to control, the defense of any
such claim, allegation, action, suit or proceeding, at the
Indemnifying Party's expense, and with counsel of its own
choosing reasonably acceptable to the Indemnified Party;
provided, however, that if Buyer and Headway are the Indemnified
Parties, they shall have the right to withhold such consent and
to retain control of such defense in the case of any claim,
action, suit or proceeding with respect to which an adverse
outcome could have a material adverse effect on Buyer or Headway,
with the expense of any counsel retained by Buyer and Headway in
any such instance to be at Buyer's and Headway's expense. No
settlement or compromise of any such claim, action, suit or
proceeding shall be made without the prior consent of the
Indemnified Party and the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed by either of them.
12.5 Additional Limitations on Indemnification.
(a) No right to indemnification may be asserted under this
Section 12 after the second anniversary of the Closing Date,
except any such rights to indemnification arising in connection
with (a) any matter referred to in Sections 6.14 or 6.18, none of
which shall be subject to any time limitation other than any
statutes of limitation applicable to such matters, (b) any matter
covered by Section 10 or (c) any claim as to which the notice
required by Section 12.4 has been given on or prior to the second
anniversary of the Closing Date. The provisions of this Section
12 shall control over any general indemnification provisions set
forth elsewhere in this Agreement.
(b) The maximum obligation of each Stockholder shall be
limited to 33 1/3% of the amount of each claim for
indemnification by Buyer and Headway pursuant to this Section 12,
which percentage represents each Stockholder's ownership interest
in the issued and outstanding capital stock of Seller.
(c) An Indemnifying Party shall not be liable under this
Section 12 for Damages resulting from any event relating to a
breach of any representation or warranty contained in this
Agreement if such Indemnifying Party can establish that the
Indemnified Party had actual knowledge on or before the Closing
Date of such event.
(d) The amount of Damages to which an Indemnified Party
shall be entitled with respect to a claim for indemnification
under this Section 13 shall be reduced by the amount of insurance
proceeds, if any, received by the Indemnified Party with respect
to such claim. The rights and remedies of the insurance carrier,
including any subrogation rights, making any such payment shall
not be affected by this Section 12.5(d).
12.6 Offset. It is agreed that, without limiting any other
rights of Buyer and Headway, they shall have the right to set off
against and deduct from any amounts payable pursuant to the
provisions of Section 1.3 the amount of any Damages for which
they are entitled to indemnification under this Section 12. In
order to set off any such indemnity claim against any amount
payable to Seller pursuant to Sections 1.3(a)(ii), 1.3(a) (iii)
and 1.3(b), Buyer must, in each instance, at least 10 days prior
to the date of any such payment, provide a certificate to Seller
and the Stockholders setting forth the claim. If, by any such
payment date, Seller and the Stockholders do not agree to such
claim in writing or the parties cannot otherwise mutually agree
in writing as to the amount of such claim, Buyer agrees (i) to
deposit into escrow, in an interest bearing account, the amount
of such claim, with Christy & Viener as escrow agent, under a
form of escrow agreement to be mutually agreed by the parties or,
if such agreement cannot be reached, then with a nationally
recognized financial institution located in New York City
mutually agreeable to both parties, with the costs of any such
escrow arrangement to be borne equally by the parties, and (ii)
to utilize the arbitration procedures set forth in Section 14 to
resolve such claim.
13. Arbitration.
13.1 General. Any controversy or claim arising out of or
relating to this Agreement shall be finally resolved by
arbitration pursuant to the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that this
Section 13.1 shall not in any way affect the right of Buyer and
Headway to seek injunctive relief or any other remedies pursuant
to Section 10.2. Any such arbitration shall take place in New
York, New York, before three arbitrators, one of which shall be
appointed by Buyer or Headway, one by Seller and the
Stockholders, and the third by the arbitrators so appointed;
provided, however, that the parties may by mutual agreement
designate a single arbitrator. The parties further agree that
(i) the arbitrators shall be empowered to include arbitration
costs and attorney fees in the award to the prevailing party in
such proceedings and (ii) the award in such proceedings shall be
final and binding on the parties. The arbitrators shall apply
the law of the State of New York, exclusive of conflict of laws
principles, to any dispute. Judgment on the arbitrators' award
may be entered in any court having the requisite jurisdiction.
Nothing in this Agreement shall require the arbitration of
disputes between the parties that arise from actions, suits or
proceedings instituted by third parties.
13.2 Consent to Jurisdiction; Service of Process. Each
party irrevocably submits to the jurisdiction and venue of the
arbitration described in Section 13.1 and to the jurisdiction and
venue of the federal and state courts sitting in New York County,
New York, for the enforcement of any judgment on the arbitrators'
award, and waives any objection it may have with respect to the
jurisdiction of such arbitrations or courts or the inconvenience
of such forums or venues. Buyer and Headway appoint Messrs.
Christy & Viener, 620 Fifth Avenue, New York, New York 10020,
Attention: Laurence S. Markowitz, Esq., and Seller and the
Stockholders appoint Messrs. McBreen, McBreen & Kopko, 110 Summit
Avenue, Montvale, New Jersey 07645, Attention: Robert S. Moran,
Jr., Esq., as their respective attorneys-in-fact and authorized
agents solely to receive on their behalf, service of any demands
for, or any notice with respect to, arbitration hereunder or any
service of process. Service on either of such attorneys-in-fact
may be made by registered or certified mail or by personal
delivery, in any case return receipt requested, and shall be
effective as service on Buyer and Headway or Seller and the
Stockholders, as the case may be. Nothing herein shall be deemed
to affect any right to serve any such demand, notice or process
in any other manner permitted under applicable law.
14. Miscellaneous.
14.1 Entire Agreement; Amendments; No Waivers. This
Agreement, together with the Schedules, sets forth the entire
understanding of the parties with respect to its subject matter
and merges and supersedes all prior and contemporaneous
understandings of the parties with respect to its subject matter.
No provision of this Agreement may be waived or modified, in
whole or in part, except by a writing signed by each of the
parties. Failure of any party to enforce any provision of this
Agreement shall not be construed as a waiver of its rights under
such or any other provision. No waiver of any provision of this
Agreement in any instance shall be deemed to be a waiver of the
same or any other provision in any other instance.
14.2 Communications. All notices, consents and other
communications given under this Agreement shall be in writing and
shall be deemed to have been duly given (a) when delivered by
hand or by Federal Express or a similar overnight courier to, (b)
five days after being deposited in any United States post office
enclosed in a postage prepaid registered or certified mail
envelope addressed to, or (c) when successfully transmitted by
facsimile (with a confirming copy of such communication to be
sent as provided in (a) or (b) above) to, the party for whom
intended, at the address or facsimile number for such party set
forth below, or to such other address or facsimile number as may
be furnished by such party by notice in the manner provided
herein; provided, however, that any notice of change of address
or facsimile number shall be effective only on receipt.
If to Buyer or Headway: with a copy to:
Headway Corporate Resources, Inc. Christy & Viener
850 Third Avenue 620 Fifth Avenue
New York, New York 10022 New York, New York 10020
Attention: Barry S. Roseman, President Attention: Laurence S. Markowitz, Esq.
Fax No.: (212) 508-3540 Fax No.: (212) 632-5555
If to Seller or the Stockholders:
Mr. George J. Burt Mr. Peter Notaro
386 Annette Court 7 Candlelight Drive
Wyckoff, New Jersey 07481 Montvale, New Jersey 07645
Richard E. Gaudy
51 Bluebird Drive with a copy to:
Congers, New York 10920
McBreen, McBreen & Kopko
110 Summit Avenue
Montvale, New Jersey 07645
Attention: Robert S. Moran, Jr., Esq.
Fax No.: (201) 573-0574
14.3 Successors and Assigns. This Agreement shall be
binding on, enforceable against and inure to the benefit of, the
parties and their respective heirs, successors and permitted
assigns (whether by merger, consolidation, acquisition or
otherwise), and nothing herein is intended to confer any right,
remedy or benefit upon any other person. No party may assign its
rights or delegate its obligations under this Agreement without
the express written consent of all of the other parties;
provided, however, that (i) Seller may assign, in whole or in
part, its right to receive payments under Section 1.3(b),
provided that any such assignee, as a condition to such
assignment, shall agree to be subject to the terms and conditions
of this Agreement and (ii) Buyer may assign its rights or
delegate its obligations hereunder, either before or after the
Closing, to any other wholly-owned subsidiary of Headway.
14.4 Expenses. Each of the parties shall bear and pay,
without any right of reimbursement from any other party, all
costs, expenses and fees incurred by it or on its or his behalf
incident to the preparation, execution and delivery of this
Agreement and the performance of such party's obligations
hereunder, whether or not the transactions contemplated in this
Agreement are consummated, including, without limitation, the
fees and disbursements of attorneys, accountants and consultants
employed by such party, and shall indemnify and hold harmless the
other parties from and against all such fees, costs and expenses.
14.5 Forecasts. Buyer acknowledges that it did not receive,
and is not relying upon, any financial projections or forecasts
from Seller, the Stockholders or their representatives in
connection with the consummation of the transactions contemplated
by this Agreement.
14.6 Brokers and Finders. Each party represents to the
others that no agent, broker, investment banker, financial
advisor or other person or entity is or shall be entitled to any
broker's or finder's fee or other commission or similar fee in
connection with the transactions contemplated by this Agreement,
except for Elite Investment Group, L.L.C., a broker retained by
Seller and the Stockholders, the fees and expenses of which shall
be borne entirely by them. Each party shall indemnify and hold
harmless the others from and against any claim, liability or
obligation with respect to any fees, commissions or expenses
asserted by any person or entity on the basis of any act or
statement alleged to have been committed or made by such
indemnifying party or any of its affiliates.
14.7 Public Announcements. No oral or written public
announcement or disclosure with respect to this Agreement and the
transactions contemplated herein prior to the Closing Date shall
be made by or on behalf of any party without the prior approval
of the other parties, except to the extent required by applicable
securities laws or the rules and regulations of any stock
exchange, by court order or as otherwise required by law.
14.8 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and fully to be
performed in such state, without giving effect to conflicts of
law principles.
14.9 Severability and Savings Clause. If any provision of
this Agreement is held to be invalid or unenforceable by any
court or tribunal of competent jurisdiction, the remainder of
this Agreement shall not be affected thereby, and such provision
shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or
unenforceability. In this regard, the parties agree that the
provisions of Section 10, including, without limitation, the
scope of the territorial and time restrictions, are reasonable
and necessary to protect and preserve Buyer's legitimate
interests. If the provisions of Section 10 are held by a court
of competent jurisdiction to be in any respect unreasonable, then
such court may reduce the territory or time to which it pertains
or otherwise modify such provisions to the extent necessary to
render such provisions reasonable and enforceable.
14.10 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
14.11 Construction. Headings used in this Agreement are
for convenience only and shall not be used in the interpretation
of this Agreement. References to Sections and Schedules are to
the sections and schedules of this Agreement. As used herein,
the singular includes the plural and the masculine, feminine and
neuter gender each includes the others where the context so
indicates.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
HEADWAY CORPORATE RESOURCES, INC. IRENE COHEN TEMPS, INC.
(Signature) (Signature)
QUALITY OUTSOURCING, INC.
(Signature)
GEORGE J. BURT (Signature)
PETER F. NOTARO (Signature) RICHARD E. GAUDY
(Signature)
Exhibit No. 2
Headway Corporate Resources, Inc.
Form 8-K dated September 29, 1997
File No. 0-23170
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-08615) and related Prospectus of
Headway Corporate Resources, Inc., of our report dated September
15, 1997, with respect to the financial statements of Quality
OutSourcing, Inc. included in Headway Corporate Resources,
Inc.'s, Form 8-K dated September 29, 1997, filed with the
Securities and Exchange Commission.
EICHLER BERGSMAN & CO., LLP
New York, New York
October 8, 1997
