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): March 31, 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)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 31, 1997, Headway Corporate Resources, Inc.
("Company"), acquired (through a wholly owned subsidiary formed
for that purpose) substantially all the assets of Advanced
Staffing Solutions, Inc. ("ASS"), a North Carolina corporation
engaged in the business of offering human resource management
services similar to those offered by the Company. The principal
offices of ASS are located in Durham, North Carolina. The assets
of ASS were purchased at a purchase price of up to $7,000,000,
$4,000,000 of which was paid on March 31, 1997, and up to an
additioanl $3,000,000 of which is payable in July 1998 based on
the net operating income over a 12-month period beginning April
1, 1997, derived from the ASS business acquired before taking
into account interest expense, amortization of goodwill arising
from the purchase, income taxes, and other non-cash charges and
credits. The purchase price was paid in cash, and determined
through arms length negotiations between the Company and ASS on
the basis of the tangible assets of ASS and the goodwill
associated with the business. The former shareholders of ASS
(which includes the former executive officers) are H. Wade
Gresham and Mark F. Herron, none of whom (including ASS) 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"), the lender on the Company's acquisitions in 1996. The
financing consists of a term loan in the principal amount of
$6,200,000, of which $4,000,000 was drawn on March 31, 1997, and
the remaining $2,200,000 is available to fund the purchase price.
ING also provided the Company an additioanl acquisition loan
facility of up to $2,550,000, $800,000 of which is reserved to
complete payment of the maximum $7,000,000 purchase price, if
necessary.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Included with this report are the
historical audited financial statements of ASS for the calendar
years ended December 31, 1996 and 1995, consisting of the
following:
Report of Independent Auditors
Balance Sheets
Statements of Shareholders' (Deficiency) Equity
Statements of Cash Flows
Notes to Financial Statements
(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.
(c) Exhibits. Included in this report are the following
exhibits.
Exhibit SEC Ref. Title of Document Pag
No. No. e
1 (10) Asset Purchase Agreement
dated march 31, 1997 E-1
2 (23) Consent of Ernst & Young LLP E-
34
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: April 14, 1997, By: Barry Roseman
(Signature)
President
Audited Financial Statements
Advanced Staffing Solutions, Inc.
(d.b.a. Select Staffing Services)
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
Advanced Staffing Solutions, Inc.
(d.b.a. Select Staffing Services)
Audited Financial Statements
Years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors F-1
Balance Sheets F-2
Statements of Operations F-4
Statements of Shareholders' (Deficiency) Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
Report of Independent Auditors
The Board of Directors and Shareholders
Advanced Staffing Solutions, Inc.
We have audited the accompanying balance sheets of Advanced
Staffing Solutions, Inc. (the "Company") as of December 31,
1996 and 1995, and the related statements of operations,
shareholders' (deficiency) equity, and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform our audits to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Advanced Staffing Solutions, Inc. at December
31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As more fully described in Note 1, the Company has sustained
net losses and has a working capital deficiency at December
31, 1996. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans as to these matters are also described in
Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts
and classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
New York, New York
March 20, 1997
Advanced Staffing Solutions, Inc.
Balance Sheets
December 31
1996 1995
Assets
Current assets:
Cash and cash equivalents $ $ 6,327
66,356
Due from licensor (Note 1) 127,942 121,877
Accounts receivable_other 97,673 86,299
Prepaid expenses and other 24,108 6,503
Note receivable from shareholder (Note 493,815 419,505
3)
Interest receivable from shareholder 48,191 36,312
(Note 3)
Total current assets 858,085 676,823
Property and equipment:
Office furniture and equipment 267,862 211,939
Leasehold improvements 16,937 16,474
284,799 228,413
Less accumulated depreciation and 127,984 78,225
amortization
156,815 150,188
Other assets 46,346 10,585
Total assets $ $837,596
1,061,24
6
See accompanying notes.
Advanced Staffing Solutions, Inc.
Balance Sheets
December 31
1996 1995
Liabilities and shareholders'
(deficiency) equity
Current liabilities:
Accounts payable $ $
111,836 116,567
Termination fee payable 425,000 D
Current portion of notes payable (Note 185,391 67,492
5)
Current portion of capital lease 47,131 23,080
obligations (Note 7)
Accrued payroll and payroll taxes 32,150 27,388
Workers' compensation payable (Note 4) 170,963 110,352
Administrative fee payable D 39,571
Total current liabilities 972,471 384,450
Notes payable, less current portion 72,760 96,403
(Note 5)
Capital lease obligation, less current 87,106 97,498
portion (Note 7)
Workers' compensation payable, less - 170,963
current portion
Shareholders' (deficiency) equity:
Common stock, $1 par value; 100,000
shares authorized; 1,666 and 1,000
shares issued and outstanding at
December 31, 1996 and 1995,
respectively 1,666 1,000
Additional paid-in capital 849,740 D
(Accumulated deficit) retained earnings (922,497) 87,282
Total shareholders' (deficiency) equity (71,091) 88,282
Total liabilities and shareholders'
(deficiency) equity $ $
1,061,246 837,596
Advanced Staffing Solutions, Inc.
Statements of Operations
Year ended December
31
1996 1995
Contract revenue (Note 1) $3,079,262 $
2,434,896
Direct expenses 169,972 363,725
License fee 925,621 735,048
General and administrative (net of
lease expense repaid by affiliate of
$152,342 in 1996 and $100,970 in 1,702,295 1,376,133
1995) (Note 7)
Stock compensation (Note 2) 850,000 -
Termination fee 425,000 -
4,072,888 2,474,906
Operating (loss) (993,626) (40,010)
Other (income) expense:
Interest expense 56,319 39,806
Other income (4,908) (10,901)
Interest income (35,258) (28,392)
16,153 513
Net (loss) $(1,009,77 $
9) (40,523)
See accompanying notes.
Advanced Staffing Solutions, Inc.
Statements of Shareholders' (Deficiency) Equity
(Accumulat
Addition ed
Common al Paid- Deficit)
Stock in Retained Total
Capital Earnings
Balance at December 31, $1,000 $ - $138,960 $139,960
1994
Distribution to D D (11,155) (11,155)
shareholder
Net loss for 1995 D D (40,523) (40,523)
Balance at December 31, 1,000 D 87,282 88,282
1995
Issuance of stock option
and 666 849,740 D 850,406
exercise thereof
Net loss for 1996 D D (1,009,779 (1,009,77
) 9)
Balance at December 31, $1,666 $849,7 $(922,49 $(71,091
1996 40 7) )
See accompanying notes.
Advanced Staffing Solutions, Inc.
Statements of Cash Flows
Year ended December
31
1996 1995
Operating activities
Net (loss) $(1,009,77 $(40,523)
9)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Stock compensation 850,000 D
Depreciation and amortization 51,923 23,952
Changes in operating assets and
liabilities:
Accounts receivable_licensor (6,065) (18,072)
Accounts receivable_other (11,374) (70,134)
Prepaid expenses and other (17,605) (2,169)
Interest receivable from shareholder (11,879) (28,392)
Other assets (37,925) (259)
Accounts payable (4,731) 32,983
Termination fee payable 425,000 D
Accrued payroll and payroll taxes 4,762 (3,971)
Workers' compensation payable (110,352) 281,315
Administrative fee payable (39,571) (54,726)
Net cash provided by operating activities 82,404 120,004
Investing activities
Purchases of property and equipment (13,753) (18,171)
Loans made to shareholder (74,310) (113,936)
Net cash used in investing activities (88,063) (132,107)
Financing activities
Proceeds from issuing common stock 406 D
Proceeds from notes payable 120,000 45,000
Payment of notes payable (25,744) (25,097)
Payment of capital lease obligations (28,974) (12,553)
Distribution to shareholder D (11,155)
Net cash provided by (used in) financing 65,688 (3,805)
activities
Net increase (decrease) in cash and cash 60,029 (15,908)
equivalents
Cash and cash equivalents at beginning of 6,327 22,235
year
Cash and cash equivalents at end of year $66,356 $ 6,327
Supplemental disclosure of cash flow
information
Cash paid during the year for interest $56,319 $39,806
Noncash investing and financing
activities
Capital lease obligations incurred when
the Company entered into leases for
property and equipment $42,633 $133,000
See accompanying notes.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies
Description of Business
Advanced Staffing Solutions, Inc. (the "Company") operates
an employment staffing agency with the focus on the
contingent workforce or temporary worker.
The Company does business as Select Staffing Services
("Select") pursuant to a licensing agreement with Select
Temporary Services Inc. (the "Licensor") to operate a Select
Temporary Service in certain counties in North Carolina.
Under the terms of the licensing agreement, the Licensor is
responsible for invoicing and collecting from clients and
employing the temporary worker. The Company receives a fee
for temporary personnel assigned to clients which represents
the difference between the amount invoiced to clients and
the payroll costs related to the temporary personnel
assigned. In addition, the Licensor is paid a processing fee
and is reimbursed for certain direct expenses.
On October 17, 1996 the Company gave notice of its election
to terminate the licensing agreement and pursuant to the
terms of the agreement the license will terminate six months
from the date of the notice. In accordance with the terms of
the agreement, the Company accrued a termination charge of
$425,000 payable upon the termination of the license.
The Company has sustained losses in the past two years and
has a working capital and shareholders' deficiency at
December 31, 1996. The Company's election to terminate the
licensing agreement was made in connection with the proposed
sale of the Company's client list and property and equipment
pursuant of a letter of intent. While management believes
that such proposed sale will be consummated, there is no
assurance that such sale will occur or if such sale is not
consummated that adequate financing will be obtained from
other sources for the business to continue as a going
concern.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
Revenue Recognition
Contract revenue from the placement of temporary personnel
is recognized as the related services are provided and
represents the difference between the amounts invoiced to
clients, $32,437,000 and $24,075,000 for the years ended
December 31, 1996 and 1995, respectively, and the payroll
costs related to the temporary personnel assigned,
$29,358,000 and $21,640,000 for the years ended December 31,
1996 and 1995, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method over the estimated
useful lives of the assets beginning when the assets are
placed in service.
Income Taxes
The Company operates under the provisions of Subchapter S of
the Internal Revenue Code and, consequently, is not subject
to federal income tax; rather the shareholders are liable
for individual income taxes on their respective shares of
taxable income.
Advertising Expense
The cost of advertising is expensed when incurred. The
Company incurred advertising expense of $111,385 and
$105,001 in 1996 and 1995, respectively.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.
2. Stockholders' Equity
On February 2, 1996, the Company issued an option to
purchase six hundred and sixty-six shares of common stock at
sixty-one cents per share to an officer. The option which
was exercised on February 2, 1996 was valued, based on an
independent appraisal, at $850,000.
3. Notes Receivable from Shareholders
The Company holds a note from one of its shareholders with a
balance at December 31, 1996 and 1995 of $493,815 and
$419,505, respectively. The note bears interest at 8% and
was due in May 1996, subsequently extended to June 1, 1997.
On January 3, 1997, the shareholders borrowed a total of
$30,000 from the Company in exchange for promissory notes
requiring all principal and accrued interest at 10% be paid
on May 1, 1997.
4. Workers' Compensation Payable
At December 31, 1996 and 1995, the Company owed the Licensor
$170,963 and $281,315, respectively, in back workers'
compensation related to 1995 for its contingent workforce.
This amount is being paid in monthly installments ranging
from $6,600 to $12,500, including interest at 10%.
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
5. Notes Payable
Notes payable consists of the following:
December 31
1996 1995
Notes payable to a bank in monthly
installments of $2,779, including interest
at the bank's index rate plus 1.75%, with a
final payment of all remaining principal
and interest due May 6, 1999. The notes are $97,608 $118,8
collateralized by the Company's accounts 95
receivable and the personal guarantee of a
shareholder.
Note payable to a bank, principal and
interest at the prime rate + 2% due March 100,000 D
31, 1997.
Note payable to a bank, monthly interest
installments at the bank's index rate plus
1.75%, with the total outstanding balance 45,000 45,000
due September 30, 1997, personally
guaranteed by a shareholder.
Note payable to a bank, payable in monthly
installments equal to 5% of the outstanding
balance including interest at the bank's 15,543 D
prime rate plus 3.75%. The note is due on
demand.
Total notes payable 258,151 163,895
Less current portion 185,391 67,492
Total notes payable, less current portion $72,760 $96,403
5. Notes Payable (continued)
Aggregate maturities of notes payable for the years
subsequent to December 31, 1996 are as follows:
1997 $185,391
1998 27,449
1999 45,311
$258,151
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
6. Defined Contribution Plan
The Company sponsors a 401(k) plan for its eligible
employees. Employees can make elective deferral contributions
of up to 15% of their wages. The Company makes discretionary
matching contributions. Contribution expense for 1996 and
1995 was $3,164 and $9,836, respectively.
7. Leases
The Company leases office space and equipment under
noncancelable operating leases that expire from 1997 through
2001. The Company also leases equipment under capital lease
agreements that expire in 1999 and 2000. Certain of these
leases, in the Company's name, relate to equipment used by an
affiliate of the Company. Future minimum lease payments for
noncancelable operating leases and capital leases with
initial terms of one year or more consist of the following at
December 31, 1996:
Capital Operating Total
Payments:
1997 $47,131 $248,965
$296,096
1998 47,131 216,005 263,136
1999 43,130 180,095 223,225
2000 16,721 17,102 33,823
2001 D 18,400 18,400
Total 154,113 680,567 834,680
Amount representing (19,876) D (19,876)
interest
Balance $134,237 $680,567
$814,804
Advanced Staffing Solutions, Inc.
Notes to Financial Statements (continued)
7. Leases (continued)
Property and equipment includes the following amounts under
capitalized leases:
Office furniture and $175,764
equipment
Less accumulated 42,785
amortization
$132,979
Rental expense, net of reimbursements, charged to operations
during the years ended December 31, 1996 and 1995 for all
operating leases totaled $105,000 and $118,000,
respectively.
E-1
Exhibit No. 1
Headway Corporate Resources, Inc.
Form 8-K dated March 31, 1997
File No. 0-23170
ASSET PURCHASE AGREEMENT
AGREEMENT, dated as of March 31, 1997, among HEADWAY
CORPORATE RESOURCES, INC., a Delaware corporation ("Headway"),
HEADWAY CORPORATE STAFFING SERVICES OF NORTH CAROLINA, INC., a
Delaware corporation ("Buyer"), ADVANCED STAFFING SOLUTIONS,
INC., a North Carolina corporation ("Seller"), H. WADE GRESHAM
("Gresham") and MARK F. HERRON ("Herron") (Gresham and Herron are
sometimes referred to together 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 deliver to Buyer, and Buyer shall purchase from
Seller, 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 and equipment, computers,
leasehold improvements and vehicles listed in Schedule 1.1.A;
(b) all computer software owned by Seller and Seller's
interest in any computer software licensed by it from others;
(c) all office supplies;
(d) the client agreements and arrangements set forth in
Schedule 1.1.B;
(e) the office leases, equipment leases and other
agreements, contracts and instruments listed in Schedule 1.1.C
(except as otherwise provided therein), including, without
limitation, the Termination Agreement (as defined in Section
3.4), except for such rights and obligations of Seller thereunder
as shall be retained by Seller, as set forth in Schedule 3.4.A;
(f) all prepayments and deposits, including, without
limitation, security deposits under leases;
(g) the corporate name "Advanced Staffing Solutions, Inc.",
all logos, trademarks, service marks, domain names, trade names
(including, without limitation, copyrights and registrations and
applications for registration of any of them), all of Seller's
rights to use the name "Select Staffing" under the Termination
Agreement 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, including customer lists and credit files, and
all those pertaining to Seller's employees who are hired by Buyer
pursuant to Section 10.1;
(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 which
are used by Seller in connection with its businesses of placing
temporary personnel and providing "payrolled employees" (as
defined in Section 1.3(e)), including, without limitation, all
telephone and facsimile numbers used by Seller in connection with
such businesses; 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 (as defined in Section 2), subject only to (i)
normal wear and tear, in the case of assets referred to in
clauses (a) and (c) above, and (ii) changes occurring in the
ordinary course of business of Seller. All such assets to be
acquired are referred to together as the "Acquired Assets". For
the purposes of this Agreement, any references to "Seller's
business" shall include (A) both its temporary personnel and
payrolled employees businesses and (B) Seller's interest under
the Termination Agreement in and to the activities of Reston (as
defined in Section 1.2) with respect to such businesses, but
excluding such rights and obligations of Seller as shall be
retained by Seller as set forth in Schedule 3.4.A.
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 and other cash equivalents owned
by Seller, (c) amounts, other than accounts receivable, owed to
Seller by Select Staffing Services, Inc. ("Reston") pursuant to
the Licensing Agreement, dated August 3, 1992, between Seller and
Reston, as amended, (the "Licensing Agreement") or the
Termination Agreement (the Licensing Agreement and the
Termination Agreement are sometimes referred to together as the
"Reston Agreements"), (d) Seller's accounts receivable, including
those payable to Seller or Reston under the Reston Agreements,
for services rendered to Seller's clients by Seller or Reston
(collectively, the "Receivables"), (e) any amounts accrued by
Seller or Reston (pursuant to the Licensing Agreement) for
services rendered to Seller's clients prior to the Closing Date
which have not been billed as of the Closing Date (collectively,
the "Accruals"), (f) all claims and rights of Seller to any
federal, state or local refunds, credits or benefits of Taxes (as
defined in Section 6.14) with respect to the business of Seller
conducted prior to the Closing Date, (g) any notes receivable of
Seller, (h) any refundable portions of paid insurance premiums
and prepaid federal, state or local income taxes, (i) Seller's
interest in any life insurance policies maintained by Seller on
the life of any employee, (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 items set forth in
Schedule 1.2 and (n) all records and correspondence relating to
the foregoing excluded assets.
1.3 Purchase Price.
(a) As consideration for the sale, conveyance, transfer,
assignment and delivery to Buyer of the Acquired Assets, Buyer
shall, subject to adjustment pursuant to Sections 1.3(b) and (d),
pay to Seller a purchase price of up to $7,000,000 (the "Purchase
Price"), as follows: (i) $4,000,000 payable in cash on the
Closing Date (the "Base Purchase Price"); and (ii) the Earnout on
the Earnout Payment Date (as such terms are defined in Sections
1.3(b) and (d)). All amounts payable by Buyer in cash shall be
paid by wire transfer to an account designated by Seller to Buyer
not later than two business days prior to the date of such
payment.
(b) If, at the end of the twelve-month period commencing on
the Closing Date (the "Earnout Period"), the product of Buyer's
"EBITA" (as defined below) for such period multiplied by 4.5
("Capitalized EBITA"), shall exceed the Base Purchase Price,
Buyer will pay to Seller an amount (the "Earnout") equal to the
amount of such excess; provided, however, that the Earnout shall
not exceed $3,000,000. If Capitalized EBITA for the Earnout
Period is less than or equal to the Base Purchase Price, the
Earnout shall be zero. (For example, if Capitalized EBITA is
$7,200,000, the Earnout would be $3,000,000, if Capitalized EBITA
is $6,300,000, the Earnout would be $2,300,000, and if
Capitalized EBITA is $4,000,000 or less, the Earnout would be
$0.)
(c) For the purposes of this Agreement, "EBITA" means, for
the Earnout Period, "Net Income" (as defined below) plus (to the
extent deducted in determining Net Income) interest expense,
amortization of goodwill resulting of Buyer's purchase of Seller,
provisions for income taxes and other non-cash charges (excluding
depreciation), minus (to the extent included in determining Net
Income) non-cash credits.
Further, "Net Income" means the net income (or loss) of
Buyer for the Earnout Period attributable to Buyer's continued
operation of Seller's business, as reasonably determined by
Headway in accordance with generally accepted accounting
principles. Net Income shall include, without limitation, the
following expenses, to the extent incurred in the ordinary course
of Seller's business: (i) reasonable wage, salary and commission
expense of all temporary, payrolled and full-time employees
(including Robert Johnston) of Buyer; (ii) all amounts
attributable to FICA and any other federal, state and local taxes
paid by Buyer on behalf of such employees; (iii) all unemployment
insurance premiums, medical and disability coverage and any other
benefits generally provided by Buyer to such employees; (iv)
reasonable expenses attributable to the in-house processing by
Buyer of the payroll for such employees; (v) Buyer's general and
administrative expenses directly attributable to the operation of
Seller's business in the ordinary course, (vi) reasonable sales
commissions; (vii) any rebates, discounts, offsets or concessions
reasonably granted by Buyer to its clients and any reserves for
bad debts and (viii) 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 (A) licensing from a
third party the system software used by Headway companies for
Buyer's operations and installing and implementing such software,
(B) development and programming services necessary to make
Seller's "vendor on premises"software compatible with the
software systems used by the Headway companies, (C) acquiring
related computer hardware and (D) reasonable travel, food and
lodging expenses of New York-based employees who visit Buyer's
offices in North Carolina. Net Income shall exclude revenues and
expenses attributable to (x) acquisitions by Buyer of at least a
majority of the stock, or substantially all of the assets of,
other entities subsequent to the Closing Date and (y) other
activities outside of the ordinary course of Seller's business.
Prior to the Closing, Buyer shall prepare, with the
participation of Seller, an estimated expense budget for Seller's
business during the Earnout Period, which is set forth in
Schedule 1.3. During the Earnout Period, Buyer shall furnish
Seller with copies of its monthly and quarterly financial
statements and a monthly comparison of actual expenses against
budgeted expenses. Buyer shall have the right to review and
comment on such financial statements and comparisons and to
discuss with Buyer any aspect thereof, including, for example,
any variances between budgeted and actual expenses, the
reasonableness of specific expenses and the whether or not
particular expenses are properly characterized as being in the
ordinary course of Seller's business. If any dispute arises on
such matters, the parties shall, in good faith attempt to resolve
them amicably. Any disputes which cannot be so resolved may be
submitted to arbitration pursuant to Section 14.
(d) The Earnout shall be paid 120 days following the close
of the Earnout Period (the "Earnout Payment Date"), provided that
$100,000 of the Earnout (or, if the Earnout shall be less than
$100,000, the amount of the Earnout) shall be deposited by Buyer
in escrow pursuant to the Escrow Agreement (as defined in Section
3.6). If, as of the close of business on the day prior to the
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. Alternatively, Seller or its nominee may
purchase from Buyer any such uncollected account receivable at
face value (less reserves specifically attributable to such
receivable) and, in such event, Buyer shall assign to Seller or
its nominee any such uncollected account receivable and the
following shall apply:
(i) if the failure to collect such account receivable is
due to a client's bankruptcy, liquidation, closing or similar
event of business termination or the client has indicated that it
will not engage in further business with Buyer, (A) the amount of
such account receivable (less reserves specifically attributable
to such receivable) shall continue to be included as income in
the calculation of Net Income and EBITA, but shall not be
multiplied by 4.5 in the calculation of Capitalized EBITA and (B)
if such account receivable is thereafter collected by Buyer,
Buyer shall pay 100% of the amount collected to Seller, net of
collection costs; or
(ii) if the failure to collect such account receivable is
due to a good faith dispute between Buyer and the client, but
Buyer reasonably believes that the client shall continue to do
business with Buyer and the client has not indicated that it will
cease to do so, (A) the amount of such account receivable shall
continue to be included as income in the calculation of Net
Income, EBITA and the Earnout (that is, it shall be multiplied by
4.5 in the calculation of Capitalized EBITA), (B) if such account
receivable is thereafter collected by Buyer, Buyer shall pay 0%
of the amount collected to Seller and (C) Seller and the
Stockholders shall take no steps to collect such account
receivable.
(e) For the purposes of this Agreement, "payrolled"
employees means (i) those employees of Buyer or Seller, as the
case may be, who are hired by 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 Buyer or Seller or
(ii) those employees of Buyer 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, as they come due,
the following debts, contracts, obligations and liabilities of
Seller (the "Assumed Liabilities"), and no others, as and when
due, and to indemnify and hold Seller, and its officers,
directors, employees, agents, successors and assigns, and the
Stockholders, and their respective heirs, administrators and
legal representatives, harmless therefrom:
(a) all obligations and liabilities of Seller arising on or
after the Closing Date under its office lease for the premises
located at 2003 Highway 54, Durham, North Carolina;
(b) all obligations or liabilities arising on or after the
Closing Date under the client agreements and arrangements set
forth in Schedule 1.1.B and the equipment leases and other
agreements, contracts and instruments set forth in Schedule
1.1.C, except for such obligations of Seller under the
Termination Agreement as shall be retained by Seller, as set
forth in Schedule 3.4.A; and
(c) liabilities for 1997 ad valorem city and county
personal property taxes on Seller's assets and business, pro
rated for the portion of 1997 following the Closing.
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 public or other 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 for federal, state, local
or foreign income or other taxes;
(d) 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 and any obligations or liabilities of Seller to
Reston arising under the Licensing Agreement or otherwise or of
the Stockholders to Reston arising under the Owner's Guarantee
and Assumption of Licensee's Obligations, dated August 3, 1992
(the "Guarantee"), from the Stockholders to Reston, or otherwise;
(e) any obligation or liability to Seller's or Reston's
temporary, payrolled or permanent employees who are providing
services on behalf of Seller pursuant to the Licensing Agreement
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 liabilities of Seller contemplated by Section 10.1;
(f) any liabilities of Seller or Reston with respect to any
pension, retirement, savings, profit-sharing or other benefit
plans;
(g) any obligation or liability which is inconsistent with
any representation or warranty of Seller or the Stockholders;
(h) any liability arising out of, and any expenses relating
to, any claim, action, dispute or litigation involving Seller or
Reston;
(i) any liability of Seller or Reston for fines, penalties,
damages or other amounts payable to any government or
governmental agency or instrumentality; and
(j) any obligation or liability of Seller or the
Stockholders for any expenses incurred in preparing or
negotiating this Agreement or the Termination Agreement and
consummating the transactions contemplated hereunder or
thereunder.
Seller and each Stockholder, jointly and severally, agree to
discharge and indemnify, defend and hold harmless Buyer and
Headway (up to the amount of the Purchase Price) and their
respective officers, directors, employees, agents and
stockholders from all Unassumed Liabilities, whether or not now
known, liquidated or contingent, including any that might
otherwise be deemed to have been assumed by Buyer by virtue of
its purchase of the Acquired Assets or otherwise by operation of
law.
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 and initialed by Buyer and Seller on or
before the Closing Date.
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 rent on
office and 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) utilities, services, service contracts, insurance or other
expenses relating to the Acquired Assets in respect of periods
beginning on or after the Closing Date, (iii) any security
deposits on office leases or equipment leases being transferred
to Buyer hereunder and any security deposits for utility services
for premises covered by such office leases and (iv)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. 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.
1.8 Collection of Accounts Receivable and Accrued Payments.
(a) On or within 15 days after the Closing, Buyer and
Seller shall determine and agree on, as of the close of business
on the business day immediately preceding the Closing Date, the
amount of the Accruals. Promptly after the Closing, Buyer, in
coordination with Seller, shall render invoices to Seller's
clients for the Accruals. Buyer shall remit to Seller all
payments received by it on account of the Accruals and any
Receivables within 15 days after the end of each month in which
such payments are received. While Buyer shall use reasonable
efforts to collect the Accruals and any Receivables outstanding
on the Closing Date commensurate with the efforts it would use to
collect its own accounts receivable, Buyer shall not be required
to institute litigation or other collection proceedings in order
to do so and, in any event, Buyer shall have no liability to
Seller for any Accruals or Receivables that are not collected.
Seller shall have the right to institute collection proceedings
with respect to any Accruals or Receivables that are aged more
than 120 days after the date of the related invoice, but shall
notify Buyer of any such action not less than five business days
before it is instituted.
(b) Seller shall promptly pay to Buyer, if and when
received, any amounts which are received by it after the Closing
Date in respect of any of the Acquired Assets or with respect to
any accounts receivable generated by Buyer with respect to
periods on or after the Closing Date. Similarly, if Buyer
receives after the Closing any payments with respect to any
assets of Seller not included in the Acquired Assets other than
the Accruals and the Receivables (which shall be governed by
Section 1.8(a)), Buyer shall promptly pay such amounts to Seller.
Any amounts received pursuant to this Section 1.8(b) shall be
applied to the receivables specifically identified by the client.
If no such identification is provided, Buyer or Seller, as the
case may be, shall inquire of client for written identification
and apply the amount received accordingly.
1.9 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 11:30
a.m. on March 31, 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").
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 Licensing Agreement Termination. The Licensing
Agreement shall be terminated pursuant to an agreement (the
"Termination Agreement"), dated March 11, 1997, between Seller
and Reston, a copy of which is set forth in Schedule 3.4.A.
3.5 Agreement with Advanced Training Technology, Inc.
Buyer and Advanced Training Technology, Inc. or its nominee shall
have entered into an agreement in a form satisfactory to both
parties as to the sharing of leased premises in Raleigh, North
Carolina, and other facilities and other matters.
3.6 Escrow Agreement. Headway, Buyer, Seller, the
Stockholders and Christy & Viener, as escrow agent (the "Escrow
Agent"), shall have entered into an escrow agreement (the "Escrow
Agreement") in a form satisfactory to all such parties pursuant
to which $100,000 of the Earnout (or if the Earnout is less than
$100,000, the amount of the Earnout) to be deposited in escrow
pursuant to Section 1.3(d) shall be held in escrow until March
31, 1999 for the purposes stated therein.
3.7 Promissory Note. Seller shall have executed and
delivered to Headway a promissory note in a form satisfactory to
both parties pursuant to which Seller will borrow from Headway
$484,438.22 in principal amount (the "Loan") on the Closing Date
(the "Promissory Note") to be applied solely to the payment of
Seller's obligations under the Termination Agreement.
3.8 Security Agreement. Seller and Headway shall have
entered into a security agreement in a form satisfactory to both
parties pursuant to which Seller will grant to Headway a security
interest in its accounts receivable and contracts, including,
without limitation, the Termination Agreement, to secure its
obligations under the Note (the "Security Agreement").
3.9 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.
3.10 Audited Financial Statements. Prior to the Closing
Date, and at Seller's expense, (i) Seller shall have provided
access to its financial statements, books and records for the
fiscal years ended December 31, 1995 and 1996 to, and shall have
otherwise cooperated with, Ernst & Young LLP, Headway's
independent certified public accountants, so as to permit such
accountants to prepared audited financial statements of Seller
for such years in accordance with generally accepted accounting
principles and (ii) such audited financial statements shall have
been delivered to Buyer and Headway and shall not materially and
adversely vary from the Financial Statements (as defined in
Section 6.11(a)) .
3.11 Legal Opinion. Buyer shall have received an opinion of
Messrs. Sandman & Strickland, P.A., 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 and certain other matters
relevant to the Security Agreement.
3.12 Buyer Corporate Action. The respective Boards of
Directors of Headway and Buyer shall have approved the execution
of this Agreement and the consummation of the transactions
contemplated hereby.
3.13 Seller 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.
3.14 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, 1995.
3.15 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.
3.16 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.
3.17 Due Diligence. Buyer shall have completed to its
reasonable satisfaction a diligence review of Seller's business.
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 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 and not collection) of Buyer's obligations
under this Agreement, in such form as shall reasonably be
requested by Seller (the "Headway Guarantee").
4.6 Agreement with Advance Training Technology, Inc. Buyer
and Advance Training Technology, Inc. or its nominee shall have
entered into an agreement in a form satisfactory to both parties
as to the sharing of leased premises in Raleigh, North Carolina
and other facilities and other matters.
4.7 Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by Headway, Buyer and the Escrow Agent.
4.8 The Loan. Seller shall have received the Loan from
Headway.
4.9 Security Agreement. The Security Agreement shall have
been executed and delivered by Buyer.
4.10 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.
4.11 Buyer Corporate Action. Seller 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 and the
consummation of the transactions contemplated hereby.
4.12 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.
4.13 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
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 each of the Stockholders, jointly and
severally, represent and warrant to Buyer and Headway as follows:
6.1 Due Incorporation and Qualification. Seller is a
corporation duly incorporated and validly existing under the laws
of the State of North Carolina. Seller has 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. Seller is qualified to do
business and is in good standing as a foreign corporation 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, the Termination Agreement, the Escrow Agreement, the
Security Agreement and the Promissory Note and to consummate the
transactions contemplated hereby and thereby. Seller has taken
all corporate action necessary for the execution and delivery by
it of this Agreement, the Termination Agreement, the Escrow
Agreement, the Security Agreement and the Promissory Note and for
the consummation of the transactions contemplated hereby and
thereby. 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
the Escrow Agreement and for the consummation of the transactions
contemplated hereby and thereby.
6.3 Valid Obligation. This Agreement and the Escrow
Agreement, when executed and delivered by Seller and the
Stockholders, shall constitute the valid and binding obligation
of Seller and each of the Stockholders, and the Termination
Agreement, the Security Agreement and the Promissory Note, when
executed and delivered by Seller, shall constitute its valid and
binding obligation, in each case enforceable in accordance with
its terms, except as may be limited by principles of equity,
general principles of commercial reasonableness and good faith or
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally.
6.4 No Conflicts or Defaults. The execution and delivery
of this Agreement and the Escrow Agreement by Seller and each of
the Stockholders, and the Termination Agreement, the Security
Agreement and the Promissory Note by Seller, and the consummation
of the transactions contemplated hereby and thereby, do not and
shall not (a) contravene the Articles 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 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 Articles 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 Seller's Capitalization. The Stockholders own 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 to issue or sell any shares of its capital
stock or any other security giving a right to acquire 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. Except with respect
to Seller's relationship with Reston pursuant to the terms of the
Reston Agreements, 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, 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, from or with 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, and no consent of any other party, is required in
connection with the execution, delivery and performance of this
Agreement and the Escrow Agreement by Seller and each of the
Stockholders or the Termination Agreement, the Security Agreement
or the Promissory Note by Seller.
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) The office equipment and furniture, vehicles, computers
and computer software, office supplies and leasehold improvements
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 written client agreements and arrangements and all material
oral contracts and agreements to which Seller or Reston (pursuant
to the Licensing Agreement) is party and pursuant to which
Seller or Reston provides temporary or payrolled employees or any
other services (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 or payrolled employee
services for or with respect to any client. Except as set forth
in Schedule 6.10.A, (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
party thereto other than Seller or Reston, (vi) no event or
action has occurred, is pending or 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 amount over $1,000 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, (i) for its
services under each Client Agreement, Seller or Reston (pursuant
to the Licensing Agreement) 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 and (ii) the
payment history of the clients under the Client Agreements is
good as judged by industry standards. Set forth in Schedule
6.10.B is an aging schedule for all of Seller's accounts
receivable (including accounts receivable billed by Reston for
services performed by Seller pursuant to the Licensing Agreement)
and accounts payable as of February 28, 1997, which list is
accurate in all material respects.
(c) All of the accounts receivable reflected on the books
and records of Seller and Reston (with respect to services
performed for Seller's business pursuant to the Licensing
Agreement) 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 Stockholders and Seller have furnished to Buyer (i)
Seller's internal financial statements for the fiscal years ended
December 31, 1995 and 1996 and (ii) Seller's internal financial
statements for the two months ending February 28, 1997
(collectively, the "Financial Statements").
(b) The Financial Statements have been prepared in
accordance with the income tax (e.g., cash) method of accounting
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.
(c) Except as set forth in Schedule 6.11, as of December
31, 1996, 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 in the Acquired Assets.
(a) Schedule 1.1.C sets forth a true and complete list of
the office leases, 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 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 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 other than Seller or Reston and (iv) no event
or action has occurred, is pending or 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 and 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, other than any such intellectual property
identified in Schedule 1.1.D as belonging to Reston. 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. 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 returns 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 or, to Seller's
best knowledge, Reston, holds all permits, certificates,
licenses, approvals and other authorizations of governmental
authorities as are materially necessary to the conduct of
Seller's business. Seller and, to Seller's and the Stockholder's
best knowledge, Reston, are in material compliance with the terms
of each thereof and have 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
Stockholder has received any notice of any proceeding or
investigation likely to result in the suspension or revocation of
any such authorization. Seller and, to Seller's and the
Stockholders best knowledge, Reston, are conducting their
respective business and affairs in material compliance with all
applicable federal, state and local laws, ordinances, rules,
regulations and court or administrative orders and decrees,
including, without limitation, any respecting wage and hour,
withholding and unemployment compensation requirements.
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 threatened, against Seller or, to
Seller's best knowledge, Reston, 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 (i)
Seller to perform its obligations under the Termination
Agreement, this Agreement, the Escrow Agreement, the Promissory
Note or the Security Agreement or which would challenge the
validity or propriety of the transactions contemplated in the
Termination Agreement, this Agreement, the Escrow Agreement, the
Promissory Note or the Security Agreement or (ii) the
Stockholders to perform their respective obligations under this
Agreement or the Escrow Agreement or which would challenge the
validity or propriety of the transactions contemplated in this
Agreement or the Escrow 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,
Seller's business 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, 1995, 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 Seller's business.
6.18 Employee Benefits and Relations.
(a) Except as set forth in Schedule 6.18, neither Seller
nor Reston, in connection with Seller's business, maintains or
sponsors, or contributes or has 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 6.18 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 or
director of Seller or Reston or to which Seller or Reston 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 or Reston under all
Benefit Plans that are required to be reflected on the balance
sheet of Seller or Reston in accordance with generally accepted
accounting principles are reflected thereon as of the dates
indicated thereon and on the books and records of Seller or
Reston for all periods thereafter. Seller has 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, neither Seller
nor Reston has any liability (contingent or otherwise) with
respect to any terminated Benefit Plan. Neither Seller nor
Reston is 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 or Reston, 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) Neither Seller nor Reston is a party to any union or
collective bargaining contract with respect to any of its
employees and there has not been, nor has Seller, Reston 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 or Reston.
(f) Schedule 6.18 sets forth (i) the name of each director,
officer, employee and sales representative of Seller (other than
temporary 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 personnel).
6.19 Insurance. All of the insurable Acquired Assets are,
in the judgment of Seller, adequately insured for the benefit of
Seller against loss or damage by theft, fire and all other
hazards and risks of a character usually insured against by
persons operating similar properties in the localities where such
properties are located, under valid and enforceable policies
issued by insurance carriers of substantial assets. 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 Stockholder 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. Each of Buyer and
Headway is a corporation duly organized and validly existing
under the laws of the State of Delaware. Each of Buyer and
Headway has all requisite 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 Security Agreement and the Escrow 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 Security Agreement and the Escrow 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 and the Escrow 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 and the Escrow Agreement and for
the consummation of the transactions contemplated hereby and
thereby.
7.3 Valid Obligation. This Agreement and the Escrow
Agreement, when executed and delivered by Buyer and Headway, and
the Guarantee and the Security Agreement, when executed and
delivered by Headway, shall constitute its valid and binding
obligation, 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 and the Escrow Agreement by Buyer and Headway
and the Guarantee and the Security Agreement by Headway, 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 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 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, and no consent of any other
party, is required in connection with the execution, delivery and
performance of this Agreement and the Escrow Agreement by Buyer
and Headway and the Guarantee and the Security Agreement by
Headway, except for the consent or waiver of ING under the Credit
Agreement.
7.7 Litigation. 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 threatened,
against Buyer or Headway which, if adversely determined, would,
singly or in the aggregate, have a material adverse effect on the
ability of (i) Headway to perform its obligations under this
Agreement, the Guarantee, the Security Agreement or the Escrow
Agreement or which would challenge the validity or propriety of
the transactions contemplated in this Agreement, the Guarantee,
the Security Agreement or the Escrow Agreement or (ii) Buyer to
perform its obligations under this Agreement or the Escrow
Agreement or which would challenge the validity or propriety of
the transactions contemplated in this Agreement or the Escrow
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 Financial Statements and Other Public Documents.
Headway has delivered to Seller (i) its annual report on Form 10-
K for the fiscal year ended December 31, 1995 (the "Form 10-K"),
(ii) its quarterly report on Form 10-Q for the three quarters
ended September 30, 1995 (the "Form 10-Q") and (iii) all other
filings made by Headway with the Securities and Exchange
Commission (the "SEC") between January 1, 1996 and the date
hereof. The financial statements set forth in the Form 10-K and
the Form 10-Q have been prepared in accordance with generally
accepted accounting principles consistently applied, are correct
and complete in all material respects and are reconcilable to the
books and records of Headway, except in the case of the interim
financial statements set forth in the Form 10-Q, for the omission
of certain footnotes and for year-end review adjustments that are
not expected to be material.
7.9 Miscellaneous. All representations and warranties of
Buyer and Headway set forth in this Agreement 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 Buyer and Headway, omits
any material fact necessary in order to make such representation
or warranty, in light of the circumstances under which it is
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 13.5.
9. Conduct of Seller's Business Prior to Closing Date.
9.1 Preservation of Representations and Warranties.
Between the date of this Agreement and the Closing Date, Seller
and each of the Stockholders shall refrain from taking, without
the prior written consent of Buyer or Headway, any action which
would render any of the representations or warranties set forth
in Section 6 materially inaccurate as of the Closing Date.
Seller shall notify Buyer and Headway promptly of the occurrence
of any matter, event or change in circumstances after the date
hereof that would render any of such representations and
warranties inaccurate or which would have been required to be
disclosed hereunder if it had occurred on or prior to the date
hereof.
9.2 Preserve Business. Between the date of this Agreement
and the Closing Date, Seller shall preserve substantially intact
its business organization, keep available the services of its
present officers and key employees and preserve its present
relationships with persons having significant business relations
with Seller and conduct its business solely in the ordinary
course. In this regard and without limitation of the foregoing,
Seller shall not (A) make or grant any wage or salary increases
or bonuses other than pursuant to pre-existing commitments, (B)
terminate, amend or waive any substantial rights under any Client
Agreement or Other Agreement, sell, encumber or otherwise
dispose of any of the Acquired Assets or (D) enter into any
material agreement, commitment or understanding other than in the
ordinary course of business.
9.3 Further Investigation. Between the date of this
Agreement and the Closing Date, Seller shall provide Buyer,
Headway and their respective representatives with full access
during normal business hours, on reasonable prior notice, to
Seller's premises, personnel and files, books and records
concerning Seller's business and the Acquired Assets, and Seller
shall cause its officers, employees and representatives to
furnish such financial and operating data and other information
with respect to Seller's business and the Acquired Assets as
Buyer or Headway shall reasonably request; provided, however,
that any such investigation shall be conducted in such manner as
not to interfere unreasonably with the operation of Seller's
business. During such investigation, Buyer, Headway and their
respective representatives shall have the right to make copies
of, or excerpts from, such files, books and records as they may
deem advisable.
If the purchase and sale contemplated in this Agreement are
not consummated, each of the parties shall (i) return all written
information and copies and summaries thereof to the party from
which such information originated and (ii) maintain in
confidence and not disclose to third parties any information
obtained from the other party which the other party designated as
confidential or with respect to which the circumstances of its
disclosure reasonably indicated that the other party treated it
as confidential. The foregoing shall not apply to any
information that is or becomes part of public or industry
knowledge for reasons other than the acts or omissions of the
party to whom such information is disclosed in connection with
the transactions contemplated herein. The provisions of this
Section 9.3 shall survive the termination of this Agreement for
any reason.
9.4 Releases, Consents, Waivers and Filings. The parties
shall use their respective best efforts and cooperate with each
other to do all things reasonably necessary or desirable to
consummate in an expeditious manner the transactions contemplated
by this Agreement. In this regard, the parties shall cooperate
to obtain from all relevant third parties and governmental
authorities all consents, waivers, permits, authorizations and
licenses to or for, such transactions that may be required under
any agreement, lease, financing arrangement, license, permit or
other instrument or under any applicable law, rule or regulation,
and to obtain and file appropriate registrations and transfers of
Seller's intellectual property.
9.5 No Solicitation. Neither Seller nor any Stockholder
shall, directly or through any other party, negotiate or conclude
an agreement with any other party for a merger or sale of the
securities of Seller or for the sale or other disposition of the
business or assets of Seller, or enter into any discussions with
any other party for such purposes or knowingly take any other
action that might materially prejudice the consummation of the
transactions contemplated herein, unless this Agreement is
terminated in accordance with Section 15.1.
10. Post-Closing Matters.
10.1 Seller's Employees. Buyer shall, after conferring
with the Stockholders in such regard, inform Seller in writing
reasonably prior to the Closing Date as to whether it wishes to
employ any of Seller's or Reston'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 its 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, and Seller and each of the
Stockholders, jointly and severally, shall discharge and
indemnify, defend and hold harmless Buyer and Headway and their
respective officers, directors, employees, agents and
shareholders from all such obligations and liabilities.
10.2 Conversion of Reston Employees. Seller and the
Stockholders agree to provide Headway and Buyer with all records,
information and other assistance necessary for Headway and Buyer
to complete the conversion from Reston to Buyer of those
temporary and payrolled employees of Reston who are, as of the
Closing Date, providing services on behalf of Seller pursuant to
the Licensing Agreement.
10.3 Insurance Matters. The parties shall cooperate to
preserve the Seller's existing insurance coverage with respect to
the Acquired Assets and its group term life insurance, long-term
disability insurance, worker's compensation insurance and major
medical insurance through and following the Closing and to effect
an appropriate transition to Buyer's insurance, if requested, at
the time of Closing.
10.4 Further Assurances. Whenever reasonably requested to
do so by a party to this Agreement, on or after the Closing Date,
any other party 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 the requesting party, as shall be
reasonably necessary or advisable to carry out the intent of this
Agreement, including, without limitation, to vest in Buyer all of
the right, title and interest of Seller in and to the Acquired
Assets.
10.5 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, 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.
10.6 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
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.
10.7 Cessation of Use of Name. As promptly as practicable
after the Closing Date, and in any event not later than ten days
thereafter, (a) Seller shall cease the use of its name or any
other name that contains "Advanced" "Staffing" or "Solutions" or
any words including or formed from such words and (b) shall file
a Certificate of Amendment of its Articles of Incorporation to
effect a change of its corporate name to a name consistent with
the intent of this Section 10.7.
10.8 SEC Filings. During the Earnout Period, Headway shall
furnish to Seller and the Stockholders all filings made with the
SEC during such period.
11. Non-Competition.
11.1 General. Each of the Stockholders and Seller agree,
for a period of five years after the Closing Date (the "Term"),
that they shall not, in the State of North Carolina, including,
without limitation, in the "Research Triangle" or in any other
area in the United States in which Headway or Buyer conducts the
business of the placement or provision of temporary, permanent,
payrolled or leased, 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 Seller and each Stockholder), 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, payrolled or
leased 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, payrolled or leased 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, lender or otherwise in, any person or
entity which is engaged in activities which, if performed by
Seller, would violate this Section 11.1.
The foregoing shall not prevent Seller 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 engaged in the business of the placement
or provision of temporary, permanent, payrolled or leased
personnel. Each of Seller and the Stockholders agree during the
Term to direct any business opportunities in the temporary,
permanent, payrolled or leased personnel business that may come
to its or their attention to Buyer and Headway. References to
Headway and Buyer in this Section 11 shall also be deemed to
refer to their respective divisions and subsidiaries.
11.2 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 11.1, Buyer and Headway
shall be entitled, in the event of such a breach or threatened
breach thereof by Seller or 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 11
shall survive the Closing Date.
12. 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
the each Stockholder, jointly and severally, 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.
13. Indemnification.
13.1 Obligations of Seller and the Stockholders. Seller and
each Stockholder, jointly and severally, shall indemnify, defend
and hold harmless Buyer and Headway and their respective
officers, directors, employees, agents and shareholders from and
against any Damages (as defined in Section 13.3) 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) any liabilities or obligations of Seller or Reston
arising out of or in connection with the Licensing Agreement or
the Stockholders arising out of or in connection with the
Guarantee;
(d) the termination of the employment of any of Seller's
employees, as contemplated in Section 10.1, or certain Reston
employees pursuant to the Termination Agreement;
(e) any liabilities or obligations of Buyer or Headway to
Reston arising under the Agreement, dated as of March 11, 1997,
among such parties, Seller and the Stockholders, pursuant to
which Buyer and Headway agreed to indemnify Reston under certain
circumstances; and
(f) any claim, action, suit or proceeding asserted or
instituted on the basis of any matter described in clauses (a),
(b), (c), (d) or (e) of this Section 13.1; provided, however,
that: (i) except in connection with liabilities under clauses
(c), (d) and (e) 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 11 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 $50,000;
and (ii) Seller and the Stockholders shall not be required to
make payments hereunder in excess of the Purchase Price.
13.2 Obligations of Buyer and Headway. 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, and
shareholders, as applicable, from and against any Damages in
connection with:
(a) any breach of any representation, warranty or covenant
of either Buyer or Headway 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 13.2; provided, however, that 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 $50,000 and Buyer and
Headway shall not be required to make payments hereunder in
excess of the Purchase Price.
13.3 Damages. For purposes of this Section 13, "Damages"
means any loss, liability, damage or expense suffered or incurred
by a party in connection with the matters described in Sections
13.1 or 13.2, as the case may be, including, without limitation,
assessments, fines, penalties, judgments, settlements, costs,
reasonable attorneys' fees and disbursements and other 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 13.
13.4 Proceedings. Any party seeking indemnification
pursuant to this Section 13 (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 13. 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 Period, 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
13 coming to Buyer's attention during the Earnout Period will 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, 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.
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 by either of them.
13.5 Limitations on Indemnification. No right to
indemnification may be asserted under this Section 13 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 11 or (c) any claim as to which the notice required by
Section 13.4 has been given on or prior to the second anniversary
of the Closing Date.
13.6 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 to Seller pursuant to
Section 1.3(b) the amount of any Damages for which they are
entitled to indemnification under this Section 13. In order to
set off any such indemnity claim against any amount payable to
Seller pursuant to Section 1.3(b), Buyer must, in each instance,
provide a certificate to Seller and the Stockholders setting
forth the claim and certifying that (i) such claim is valid and
can be substantiated by Buyer and (ii) substantiation of such
claim had been provided to Seller and the Stockholders at least
10 days prior to the delivery of such certificate. If Seller
and the Stockholders do not agree to such claim in writing within
10 days after delivery of such notice, 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,
with the costs of 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.
14. Arbitration.
14.1 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. Any such arbitration shall
take place in Raleigh, North Carolina, before three arbitrators,
one of which shall be appointed by Buyer or Headway, one by
Seller or 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 award of the arbitrators shall be limited to
actual damages, (ii) the arbitrators shall be empowered to
include arbitration costs and attorneys' fees in the award to the
prevailing party in such proceedings and (iii) 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.
14.2 Consent to Jurisdiction; Service of Process. Each
party irrevocably submits to the jurisdiction and venue of the
arbitration described in Section 14.1 and to the jurisdiction and
venue of the federal and state courts sitting in Raleigh, North
Carolina, 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 Sandman & Strickland, P.A., 7200 Stonehenge
Drive, Suite 201, Raleigh, North Carolina 27163, Attention:
Michael Strickland, 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.
15. Miscellaneous.
15.1 Termination. This Agreement may be terminated at any
time prior to the Closing Date by the mutual written consent of
all of the parties.
15.2 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.
15.3 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 upon receipt.
If to Buyer or Headway:
Headway Corporate Resources, Inc.
850 Third Avenue
New York, New York 10022
Attention: Barry S. Roseman, President
Telecopier Number: (212) 508-3540
with a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attention: Laurence S. Markowitz, Esq.
Telecopier No.: (212) 632-5555
If to Seller and Stockholders:
Cirrus Financial Corporation, Inc.
f/k/a Advanced Staffing Solutions, Inc.
3629 Hathaway Road
Durham, North Carolina 27707
Attention: H. Wade Gresham
H. Wade Gresham
3629 Hathaway Road
Durham, North Carolina 27707
Mark F. Herron
1128 Berwin Way
Raleigh, North Carolina 27615
with a copy to:
Sandman & Strickland, P.A.
7200 Stonehenge Drive
Suite 201
Raleigh, North Carolina 27613
Attention: Michael Strickland, Esq.
Telecopier No.: (919) 847-7335
15.4 Successors and Assigns. This Agreement shall be
binding on, enforceable against and inure to the benefit of, the
parties and their respective successors and permitted assigns,
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 Buyer may assign its rights or delegate its obligations
hereunder, either before or after the Closing, to any other
wholly-owned subsidiary of Headway (subject to the continuing
validity of the Headway Guarantee).
15.5 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.
15.6 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 a broker retained by Headway, the fees and expenses of
which shall be borne entirely by Headway. 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.
15.7 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.
15.8 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.
15.9 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 11, 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 11 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.
15.10 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.
15.11 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.
By Barry S. Roseman
President
HEADWAY CORPORATE STAFFING
SERVICES OF NORTH CAROLINA, INC.
By Barry S. Roseman
Treasurer
ADVANCED STAFFING SOLUTIONS, INC.
By (Signature
H. WADE GRESHAM
MARK F. HERRON
Exhibit No. 2
Headway Corporate Resources, Inc.
Form 8-K dated March 31, 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 March 20,
1997, with respect to the financial statements of Advanced
Staffing Solutions, Inc., included in Headway Corporate
Resources, Inc.'s, Form 8-K dated march 31, 1997, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 14, 1997
