SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) AUGUST 28, 1996
------------------------
CAREER HORIZONS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-23534 22-3038096
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
177 CROSSWAYS PARK DRIVE, WOODBURY, NY 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 682-1400
--------------------
This report, including exhibits, contains ______ pages numbered
sequentially from this page. The index to exhibits can be found on page
______.
<PAGE>
ITEM 7. Financial Statements and Pro Forma Financial Information
--------------------------------------------------------
(a) Financial Statements of Businesses Acquired
Page
----
Consolidated Financial Statements of Daedalian
Group, Inc. and Subsidiaries as of April 30, 1996
and for the three months ended April 30, 1996 and 1995:
Unaudited Condensed Consolidated Balance Sheets as of
April 30, 1996 and 1995 4-5
Unaudited Condensed Consolidated Statements of Income for
the three months ended April 30, 1996 and 1995 6
Unaudited Condensed Consolidated Statements of Cash Flows for
the three months ended April 30, 1996 and 1995 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
Consolidated Financial Statements of Daedalian Group, Inc. and
Subsidiaries as of January 31, 1996 and 1995 and for the years then
ended:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of January 31, 1996 and 1995
Consolidated Statements of Income for the years ended
January 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for
the years ended January 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
January 31, 1996 and 1995
Notes to Consolidated Financial Statements
(b) Pro Forma Information
Unaudited Pro Forma Combined Financial Statements
Introduction to Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996
Notes to Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Combined Statements of Income for the
Year ended June 30, 1995, the six months ended
December 31, 1995 and the six months ended June 30, 1996
Notes to Unaudited Pro Forma Combined Statements of Income
<PAGE>
(a) Financial Statements of Businesses Acquired
------------------------------------------------
DAEDALIAN GROUP, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
APRIL 30,
---------------------------
1996 1995
----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 592,864 $270,580
Accounts receivable, net of
allowance of $45,000 and $18,000 4,357,359 3,647,100
Prepaid expenses 263,032 56,991
Deferred income taxes 50,629 50,629
Other current assets 54,076 55,830
---------- ----------
Total current assets 5,317,960 4,081,130
PROPERTY AND EQUIPMENT, Net 1,150,350 702,620
OTHER ASSETS 40,784 38,528
---------- ----------
$6,509,094 $4,822,278
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
APRIL 30,
1996 1995
---------- ----------
CURRENT LIABILITIES:
Notes payable, maturing within one year $1,930,000 $1,253,041
Accounts payable 282,397 205,242
Accrued wages and other expenses 2,574,782 1,667,643
---------- ----------
Total current liabilities 4,787,179 3,125,926
NOTES PAYABLE, NET OF CURRENT MATURITIES 382,155 391,107
DEFERRED INCOME TAX 16,380 ----
---------- ----------
Total liabilities 5,185,714 3,517,033
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value;
5,000,000 shares
authorized; 2,000,000 shares
issued and outstanding 3,500 3,500
Retained earnings 1,319,880 1,301,745
---------- ----------
Total stockholders' equity 1,323,380 1,305,245
---------- ----------
$6,509,094 $4,822,278
========== ==========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30,
----------------------------
1996 1995
---- ----
Net sales $7,407,245 $6,452,325
Cost of sales 4,832,661 4,251,737
---------- ----------
Gross Profit 2,574,584 2,200,588
Selling, general and administrative expenses 1,772,334 1,206,617
---------- ----------
Income from operations 802,250 993,971
Other income (expenses):
Interest expense (50,684) (47,730)
Other income 100 100
---------- ----------
Net income $ 751,666 $ 946,341
========== ==========
Net Income Per Share $0.38 $0.47
===== =====
Weighted average number of shares outstanding 2,000,000 2,000,000
========= =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED APRIL 30,
---------------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES $691,833 $518,870
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (196,018)
(92,541)
-------- --------
Net cash used by investing activities (196,018)
(92,541)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payables (626,783)
(440,167)
-------- --------
Net cash used by financing activities (626,783)
(440,167)
-------- --------
DECREASE IN CASH AND
CASH EQUIVALENTS (130,968)
(13,838)
CASH AND CASH EQUIVALENTS,
AT BEGINNING OF PERIOD 723,832 284,418
-------- --------
CASH AND CASH EQUIVALENTS,
AT END OF PERIOD $592,864 $270,580
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. and SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Rule 10-01 of Regulation S-X
and, accordingly, do not include all of the information and
disclosures required by generally accepted accounting principles. The
accompanying condensed consolidated financial statements have not been
audited by independent accountants in accordance with generally
accepted auditing standards, but, in the opinion of the Company, such
financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly its financial
position as of April 30, 1996 and 1995, and the results of operations
and changes in cash flows for the three months ended April 30, 1996
and 1995, and are not necessarily indicative of the results to be
expected for the full year.
In reading the interim condensed combined financial statements,
reference should be made to the summary of accounting policies and
notes to the audited financial statements of Daedalian Group, Inc. and
Subsidiary and Affiliate as of January 31, 1996 and 1995 and for the
years then ended, contained herein.
2. COMMON STOCK
On February 1, 1996, the Company and it's stockholders entered into a
Stockholders/Shareholders Agreement (the "Agreement") which provided
for the restatement of the Company's Articles of Incorporation to,
among other things, increase the authorized shares of $0.10 par value
common stock from 50,000 tp 5,000,000 shares and increase the size of
the Board of Directors from three members to four. The Agreement also
provided for the surrender of the existing 35,000 shares outstanding
in exchange for the issuance of 2,000,000 shares of the Company's
$0.10 par value common stock. All share and per share data presented
as of April 30, 1996 and 1995 and for the three-month periods ending
April 30, 1996 and 1995 have been restated to give effect to this
exchange.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
JANUARY 31, 1996 and 1995
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
JANUARY 31, 1996 and 1995
I N D E X
---------
PAGE
----
ACCOUNTANTS' AUDIT REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Stockholders
Daedalian Group, Inc. and Subsidiaries
Denver, Colorado 80202
We have audited the accompanying consolidated balance sheets of Daedalian
Group, Inc. and Subsidiaries as of January 31, 1996 and 1995 and the
related consolidated statements of income, changes in Stockholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Daedalian Group, Inc. and Subsidiaries as of January 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.
Englewood, Colorado
April 18, 1996
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1996 and 1995
ASSETS
------
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 723,832 $ 284,418
Accounts receivable, trade, net of
allowance of $42,000 and $12,000,
respectively 3,854,843 3,357,639
Prepaid expenses 4,216 52,835
Other current assets 24,357 80,393
----------- -----------
TOTAL CURRENT ASSETS 4,607,248 3,775,285
PROPERTY AND EQUIPMENT, NET 1,014,333 655,121
OTHER ASSETS 44,814 38,528
----------- -----------
$ 5,666,395 $ 4,468,934
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable, maturing within-one year $2,709,669 $1,844,044
Accounts payable 361,445 512,007
Accrued wages and other expenses 1,723,326 1,382,062
Deferred income tax 19,625 115,266
----------- -----------
TOTAL CURRENT LIABILITIES 4,814,065 3,853,379
----------- -----------
LONG-TERM LIABILITIES:
Notes payable, net of current maturities 229,269 240,271
Deferred income tax 51,347 16,380
----------- -----------
280,616 256,651
----------- -----------
COMMITMENTS (NOTE 4)
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value; 50,000 shares
authorized; 35,000 shares issued and
outstanding 3,500 3,500
Retained earnings 568,214 355,404
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 571,714 358,904
----------- -----------
$ 5,666,395 $ 4,468,934
=========== ===========
See accountant's audit report and notes to consolidated financial
statements.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED JANUARY 31, 1996 and 1995
1996 1995
----------------------- -----------------------
% of % of
Amount sales Amount sales
------ ----- ------ -----
NET SALES $ 27,650,115 100.0% $ 19,486,533 100.0%
COST OF SALES 19,197,543 69.4 14,054,818 72.1
------------ ----- ------------ -----
GROSS PROFIT 8,452,572 30.6 5,431,715 27.9
SELLING, GENERAL
AND
ADMINISTRATIVE
EXPENSES 8,052,262 29.2 5,335,407 27.4
------------ ----- ------------ -----
INCOME FROM
OPERATIONS 400,310 1.4 96,308 .5
------------ ----- ------------ -----
OTHER INCOME
(EXPENSE):
INTEREST
EXPENSE (151,069) (108,295)
OTHER INCOME 97,791 126,712
------------ ------------
(53,278) (.2) 18,417 .1
------------ ----- ------------ -----
INCOME BEFORE
PROVISION FOR
INCOME TAXES 347,032 1.2 114,725 .6
Provision for
income taxes 134,222 .5 34,419 .2
------------ ----- ------------ -----
NET INCOME $ 212,810 .7% $ 80,306 .4
%
============ ===== ============ =====
NET INCOME PER
SHARE $6.08 $2.29
===== =====
WEIGHTED AVERAGE
SHARES 35,000 35,000
OUTSTANDING ====== ======
See accountant's audit report and notes to consolidated financial
statements.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1996 AND 1995
COMMON STOCK
------------ RETAINED
SHARES AMOUNT EARNINGS
------ ------ --------
Balance, February 1, 1994 35,000 $3,500 $275,098
Net income 80,306
------- ------ --------
Balance 35,000 3,500 355,404
Net income 212,810
------- ------ --------
Balance, January 31, 1996 35,000 $3,500 $568,214
======= ====== ========
See accountant's audit report and notes to consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1996 and 1995
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 212,810 $ 80,306
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 244,971 153,764
Gain on disposal assets (16,746) (6,000)
Deferred taxes (60,674) 26,714
Cash provided (used) due to changes in
assets and liabilities:
Accounts receivable - trade (497,204) (1,699,607)
Prepaid expenses 48,619 32,905
Other assets 56,036 (42,269)
Accounts payable - trade (150,562) 313,702
Accrued wages and payroll taxes (43,641) 415,970
Other accrued expenses 384,906 285,445
---------- -----------
Net cash provided (used) by
operating activities 178,515 (439,070)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, fixtures
and equipment (606,737) (300,640)
Proceeds from sale of fixed assets 19,300 6,000
Increase in cash surrender value of
officers life
insurance (6,286) (2,643)
---------- -----------
Net cash used by investing activities (593,723) (297,283)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 1,205,779 1,345,546
Principal payments on notes payable (351,157) (484,994)
---------- -----------
Net cash provided by
financing activities 854,622 860,552
---------- -----------
Net increase in cash 439,414 124,199
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 284,418 160,219
---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 723,832 $ 284,418
========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $151,069 $108,295
Income Taxes 53,361 54,000
See accountant's audit report and notes to consolidated
financial statements.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
ORGANIZATION AND NATURE OF OPERATIONS:
Daedalian Group, Inc., a Colorado Corporation, was
incorporated September, 1988. The Company is engaged in the
development of management information systems and provides
computer system training, support, and consulting services.
The Company conducts operations through its subsidiaries
with facilities located in Denver, Colorado; Dallas and
Houston, Texas.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts
of Daedalian Group, Inc. and its wholly owned subsidiaries,
Berger & Co. and Berger & Co. Technology Integrators,
(collectively, the "Company"), after elimination of all
material intercompany accounts and transactions.
REVENUE RECOGNITION:
The Company recognizes revenues as services are performed.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, the Company
considers all highly liquid instruments purchased with a
maturity of three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of
periodic cash balances at banks in excess of the Federal
Deposit Insurance Corporation Insurance Limit of $100,000
and accounts receivable. Concentration of credit risk with
respect to accounts receivable is limited due to the
Company's large number of customers and their dispersion
across geographic regions. The Company does not generally
require collateral for its accounts receivable. No customer
accounted for 10% or more of the Company's net revenues in
fiscal years 1996 and 1995. The Company does not believe a
material risk of loss exists with respect to its financial
position at January 31, 1996.
BAD DEBTS:
Bad debts are provided for using the allowance method based
upon the Company's historical experience and evaluation of
outstanding accounts receivable at year end. Bad debt
expense was approximately $186,623 and $343,000 for fiscal
years 1996 and 1995, respectively.
DEPRECIATION AND AMORTIZATION:
Furniture, fixtures and equipment are depreciated over the
estimated useful lives of the assets ranging from three to
seven years using the straight-line method of depreciation.
Depreciation and amortization expense at January 31, 1996
and 1995 was $244,971 and $153,764, respectively.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
(CONTINUED)
DEPRECIATION AND AMORTIZATION (CONTINUED)
Leasehold improvements are amortized over the remaining life
of the lease, using the straight-line method.
Upon disposal of assets, the related cost and accumulated
depreciation are removed from the books and the resulting
gain or loss is recognized in the year of disposition.
DEFERRED TAXES:
Deferred income taxes are recognized for the tax
consequences in future years of temporary differences
between the tax bases of assets and liabilities and their
financial reporting amounts at each year end, based on
enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to effect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense represents the
total amount due for the period and the net change between
periods in deferred tax assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of the Company's long-term debt approximates
the carrying value based upon the borrowing rates currently
available to the Company for bank loans with similar terms
and maturities. Furthermore, the carrying value of all
other financial instruments potentially subject to valuation
risk (principally consisting of cash and cash equivalents,
accounts receivable and accounts payable) also approximated
fair value.
NOTE 2 NOTES PAYABLE
-------------
Notes payable and long-term obligations consist of the
following at January 31, 1996 and 1995:
1996 1995
-------- --------
Note payable - bank, $3,000,000
revolving line of credit, with
interest at .25% over the Bank's
prime rate (8.5% at January 31,
1996); interest payable monthly,
principal due at maturity July 19,
1996; collateralized by accounts
receivable; chattel paper, general
intangibles, instruments, proceeds
and products. The note is
personally guaranteed by the
officers of the Company. $1,600,000 $1,000,000
Note payable - bank, with interest
at 1.0% over the bank's base rate
(8.5% at January 31, 1996);
payable in monthly installments;
matures September 15, 1997;
collateralized by property and
equipment. The note is personally
guaranteed by the officers if
the Company. 223,025 356,357
Note payable - bank, with interest at
7.65%; payable in monthly
installments; matures
September 8, 1997;
collateralized by vehicle. 17,518 $ 27,956
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES PAYABLE (CONTINUED)
--------------
Unsecured notes payable to officers
due on various maturity dates
through 1997 with interest at 2%
above the Company's bank prime
interest rate, (8.5% at January
31, 1996). The notes are
subordinated to Key Bank of
Colorado bank debt. $ 930,000 $ 700,002
Note payable - installment loan,
with interest at 8.95%; payable
in monthly installments; matures
June 8, 1999; collateralized by
vehicle. 21,072
-
Note payable - bank, with interest
at 8.5%; payable in monthly
installments; matures July 18,
2000; secured by all bank
accounts maintained with the
lender as well as a vehicle. 75,837 -
Note payable - bank, with interest
at 8.5%; payable in monthly
installments; matures August 1,
2000; secured by all bank
accounts maintained with the
lender as well as a vehicle. 44,986 -
Note payable - bank, with interest
at 8.5%; payable in monthly
installments; matures January 16,
2000; secured by all bank
accounts maintained with the
lender as well as a vehicle. 26,500 -
---------- ----------
2,938,938 2,084,315
Less, current maturities 2,709,669 1,844,044
---------- ----------
$ 229,269 $ 240,271
========== ==========
Maturities of long-term debt for each of the next five years
are as follows:
Years ending January 31,
1997 $ 2,709,669
1998 133,533
1999 41,262
2000 38,658
2001 15,816
-----------
$ 2,938,938
===========
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 INCOME TAXES
------------
The components of income tax expense (benefit) are as
follows:
Years ended January 31,
1996 1995
-------- --------
Current
Federal $ 181,931 $ 2,872
State 12,965 4,833
---------- --------
194,896 7,705
---------- --------
Deferred
Federal (52,895) 22,262
State (7,779) 4,452
---------- --------
(60,674) 26,714
---------- --------
Total $ 134,222 $ 34,419
========== ========
The components of the net deferred tax liability recognized
in the accompanying balance sheet for January 31, 1996 and
1995 are as follows:
1996 1995
------------------------ ------------------------
Current Long-term Current Long-term
------- --------- ------- ---------
Deferred tax
liability $ (218,086) $ (51,347) $(165,895) $(16,380)
Deferred tax
asset 198,461 - 50,629 -
Valuation
allowance - - -
---------- --------- --------- --------
$ (19,625) $ (51,347) $(115,266) $(16,380)
========== ========= ========= ========
The types of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts
that give rise to a significant portion of the net deferred
tax liability and their approximate tax effect at January
31, 1996 and 1995 are as follows:
1996 1995
--------------------- ---------------------
Temporary Tax Temporary Tax
Difference Effect Difference Effect
---------- ------ ---------- ------
Accounts
receivable $ 709,783 $ (276,815) $ 921,347 $ (276,404)
Accounts
payable and
accrued
expenses 313,032 122,082 537,127 161,138
Section 481
adjustment
and other
items 346,431 135,108 - -
Net property
and
equipment 131,659 (51,347) 54,600 (16,380)
---------- ---------- ---------- ----------
$1,500,905 $ (70,972) $1,513,074 $ (131,646)
========== ========== ========== ==========
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 COMMITMENTS
-----------
The Company has entered into a number of noncancelable
operating leases associated with its corporate offices in
Denver and other facilities in Dallas and Houston which
expire at varying dates through November, 2002. Lease
expense aggregated $243,587 and $234,534 for fiscal years
1996 and 1995, respectively. The following is a summary of
the future minimum lease payments under the operating leases
in effect at January 31, 1996.
Year ending January 31,
-----------------------
1997 $ 341,483
1998 344,818
1999 354,670
2000 356,398
2001 327,607
-----------
$1,724,976
===========
NOTE 5 PROPERTY AND EQUIPMENT
----------------------
Property and equipment are recorded at cost and are
comprised of the following:
January 31,
-------------------
1996 1995
------- ------
Vehicles $ 289,172 $ 173,166
Office and computer equipment 937,035 649,925
Furniture and fixtures 507,084 395,692
Leasehold improvements 67,698 36,326
----------- ----------
1,800,989 1,255,109
Less, accumulated depreciation
and amortization 786,656 599,988
----------- ----------
$ 1,014,333 $ 655,121
=========== ==========
NOTE 6 USE OF ESTIMATES
----------------
The process of preparing financial statements in conformity
with generally accepted accounting principles requires the
use of estimates and assumptions regarding certain types of
assets, liabilities, revenues and expenses. Such estimates
relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement,
actual results may differ form those estimates.
The Company has accrued approximately $188,000 as the
estimated cost of its limited self-insured employee medical
benefit plan. Additionally, the Company has accrued
approximately $140,000 as the estimate for increased
insurance costs related to workers compensation and business
liability insurance. These estimates are subject to change
based upon the actual costs incurred.
<PAGE>
DAEDALIAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 PROFIT SHARING PLAN
-------------------
The Company maintains a 401(k) profit-sharing plan (the
"Plan") for all full-time employees who have completed at
least one year of service and are twenty-one (21) years of
age or older. The Plan provides for the Company to match an
amount equal to 25% of the employees elective deferrals.
Additionally, the Company in its sole judgement, may
contribute an additional amount to employees as non-
elective contributions. The Company's plan contributions at
January 31, 1996 and 1995 were $73,648 and $27,304,
respectively.
NOTE 8 RELATED PARTY TRANSACTIONS
--------------------------
During fiscal years 1996 and 1995 the Company's shareholders
provided additional funds to the Company in the form of
loans. Generally, these loans are unsecured, with interest
at 2% above the Company's bank prime interest rate. The
loans mature on various dates through 1997 and are
subordinated to the Company's bank debt (See Note 2).
NOTE 9 LITIGATION
----------
No material legal proceedings to which the Company (or any
of its directors and officers in their capacities as such)
is a party or to which property of the Company is subject,
are pending and no such material proceeding is known by
management of the Company to be contemplated.
<PAGE>
(b) Pro Forma Information
-------------------------
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements presented below
reflect the results of operations and financial position of the Company
after giving effect to the transactions described below and in the notes
hereto as if such transactions had occurred at July 1, 1994 for purposes of
the pro forma combined statements of income and as of December 31, 1995 for
purposes of the pro forma combined balance sheet, and give effect to the
two for one split of the Common Stock effective February 22, 1996.
The unaudited pro forma financial statements of the Company and
accompanying notes should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in the Company's Annual
Report on Form 10-K, as filed with the Securities and Exchange Commission
on February 28, 1996.
Management believes that the assumptions used in preparing the unaudited
pro forma financial statements provide a reasonable basis on which to
present the pro forma financial data. The unaudited pro forma financial
statements are provided for informational purposes only and should not be
construed to be indicative of the Company's results of operations or
financial position had the transactions described below been consummated on
or as of the dates assumed, and are not intended to project the Company's
results of operations or its financial position for any future period or as
of any future date.
The unaudited pro forma combined balance sheet as of June 30, 1996 has been
prepared to reflect the financial position of the Company as if the
acquisition of the Daedalian Group, Inc. And Subsidiaries d.b.a. Berger &
Co. ("Berger"), effective August 28, 1996 had occurred on June 30, 1996.
The unaudited pro forma combined statements of income for the year ended
June 30, 1995, the six months ended December 31, 1995 and the six months
ended June 30, 1996 have been prepared to reflect the operations of the
Company as if (I) the acquisition of Programming Enterprises, Inc. d.b.a.
Mini-Systems Associates ("Mini-Systems"), effective January 2, 1996, (ii)
the acquisition of Zeitech Inc. ("Zeitech"), effective January 11, 1996,
(iii) the acquisition of the temporary services business of Management
Search, Inc. and its affiliate Temps & Co. Services, Inc. ("MSI"),
effective March 4, 1996, (iv) the acquisition of American Computer
Professionals, Inc. ("ACP"), effective April 2, 1996, (v) the acquisition
of Century Temporary Services, Inc. d.b.a. CenCor Temporary Services and
its affiliate Grant Management Company d.b.a. Le-Gals ("CenCor"), effective
April 29, 1996, (vi) the acquisition of Richard Michael Temps, Inc. and The
Richard Michael Group, Inc. ("Richard Michael"), effective April 29, 1996,
(collectively the "Acquired Companies"), and, (vii) the acquisition of WHY
Systems, Inc., effective May 15, 1996, (viii) the acquisition of Dial
Temporary, effective June 24, 1996, and (ix) the acquisition of Berger,
effective August 28, 1996 (collectively the "Acquired Companies"), and (x)
the issuance of the 7% Convertible Senior Notes Due 2002 (the "Convertible
Notes") and (xi) the Stock Offering and the application of the net proceeds
therefrom, all had occurred as of July 1, 1994.
The Mini-Systems acquisition was treated as a purchase for financial
reporting purposes. The Company acquired Mini-Systems for $28,500,000 in
cash, financed in part by the proceeds received from the offering in
October 1995 of the Convertible Notes, a portion of which proceeds at
December 31, 1995 was invested in reverse repurchase agreements. The
acquisition agreement provides for additional purchase price consideration
of up to $10,000,000 based upon Mini-Systems' results of operations over a
three-year period. Any additional consideration paid will be reported as
additional purchase price.
The Zeitech acquisition was treated as a purchase for financial reporting
purposes. The Company acquired Zeitech for $17,175,000 in cash, financed
in part by the proceeds received from the offering in October 1995 of the
Convertible Notes, a portion of which proceeds at December 31, 1995 was
invested in reverse repurchase agreements. The acquisition agreement
provides for additional purchase price consideration based upon Zeitech's
results of operations over a three-year period. Any additional
consideration paid will be reported as additional purchase price.
The MSI acquisition was treated as a purchase for financial reporting
purposes. The Company acquired MSI for $13,868,000 in cash, financed in
part by the proceeds received from the Stock Offering, plus a note payable
to the seller in the amount of $1,539,000 due September 1997.
The CenCor acquisition was treated as a purchase for financial reporting
purposes. The Company acquired CenCor for $11,792,000 in cash, financed in
part by the proceeds received from the Stock Offering. The acquisition
agreement provides for additional purchase price consideration based upon
CenCor's results of operations over a five-year period. Any additional
consideration paid will be reported as additional purchase price.
The Berger acquisition was treated as a purchase for financial reporting
purposes. The Company acquired Berger for $30,750,000 in cash, financed in
part by the proceeds received from the Stock Offering. The acquisition
agreement provides for additional purchase price consideration based upon
Berger's results of operations over a three-year period. Any additional
consideration paid will be reported as additional purchase price.
The ACP, Richard Michael, WHY and Dial A Temporary acquisitions were
treated as purchases for financial reporting purposes. The Company
acquired ACP, Richard Michael WHY and Dial A Temporary for an aggregate of
$12,965,000 in cash, financed in part by the proceeds of the Stock
Offering. The acquisition agreements provide for additional purchase price
consideration (up to a maximum of $12,000,000 in the case of Richard
Michael and up to a maximum of $5,000,000 in the case of Dial A Temporary),
based upon the respective companies' results of operations over periods
ranging from one to five years. Any additional consideration paid will be
reported as additional purchase price.
<PAGE>
CAREER HORIZONS, INC.
Pro Forma Combined Balance Sheet
As of June 30, 1996
(unaudited)
($ in Thousands)
ASSETS
Historical
---------------------------
Career
Horizons,
Inc. Berger
----------- ------------
Current Assets:
Cash and cash equivalents
and reverse repurchase
agreements $79,531 $486
Accounts receivable, net 89,041 5,880
Due from Associated Offices,
net 38,442
Other receivables, net 1,799 8
Prepaid expenses and other 2,762 469
Deferred income taxes 4,617
--------- ---------
Total current assets 216,192 6,843
Intangible assets, net 115,687
Furniture, fixtures and 7,602 1,248
equipment, net
Other receivables, net 299
Deferred income taxes 1,197
Other assets 3,298 45
--------- ---------
$344,275 $8,136
========= =========
ASSETS
ProForma Pro
Adjustments Forma
----------- ------------
Current Assets:
Cash and cash equivalents
and reverse repurchase
agreements ($30,750)(a) $49,267
Accounts receivable, net 94,921
Due from Associated Offices,
net 38,442
Other receivables, net 1,807
Prepaid expenses and other 3,231
Deferred income taxes 4,617
--------- ---------
Total current assets (30,750) 192,285
Intangible assets, net 28,649 (b) 144,336
Furniture, fixtures and 8,850
equipment, net
Other receivables, net 299
Deferred income taxes 1,197
Other assets 3,343
--------- ---------
($2,101) $350,310
========= =========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Historical
---------------------------
Career
Horizons,
Inc. Berger
----------- ------------
Current Liabilities:
Bank overdrafts $12,259 $0
Accounts payable and accrued
liabilities 16,062 1,369
Accrued compensation and
related taxes 35,076 1,448
Notes payable 1,539 2,258
Current income taxes payable 1,774
--------- ---------
Total current liabilities 66,710 5,075
7% Convertible Senior Notes Due
2002 86,250
Other liabilities 40 388
--------- ---------
Total liabilities 153,000 5,463
--------- ---------
Stockholders' Equity:
Preferred Stock
Common Stock 177 4
Additional paid-in capital 169,510
Retained Earnings 21,643 2,669
--------- ---------
191,330 2,673
Less-treasury stock, at cost (55)
--------- ---------
Total stockholders' equity 191,275 2,673
--------- ---------
TOTAL LIABILITIES & EQUITY $344,275 $8,136
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Pro Forma Pro
Adjustments Forma
----------- ------------
Current Liabilities:
Bank overdrafts $12,259
Accounts payable and accrued
liabilities 1,500 (a) 18,931
Accrued compensation and
related taxes 36,524
Notes payable (928)(c) 2,869
Current income taxes payable 1,774
--------- ---------
Total current liabilities 572 72,357
7% Convertible Senior Notes 86,250
Due 2002
Other liabilities 428
--------- ---------
Total liabilities 572 159,035
--------- ---------
Stockholders' Equity:
Preferred Stock
Common Stock (4)(a) 177
Additional paid-in capital 169,510
Retained Earnings (2,669)(a) 21,643
--------- ---------
(2,673) 191,330
Less-treasury stock, at cost (55)
--------- ---------
Total stockholders' equity (2,673) 191,275
--------- ---------
TOTAL LIABILITIES & EQUITY ($2,101) $350,310
========= =========
<PAGE>
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
BASIS OF RECORDING
The accompanying pro forma combined balance sheet as of June 30, 1996 gives
effect to the acquisition of Berger as if the transaction occurred on June
30, 1996. The acquisition of Berger has been accounted for using the
purchase method of accounting.
BALANCE SHEET ADJUSTMENTS
a. To record the purchase price of Berger in part with cash from the
reduction in investment in reverse repurchase agreements, as
follows, and consolidating elimination entries:
Cash paid to seller at closing $30,750
Fees and expenses 1,500
-------
Total $32,250
=======
b. Adjustment to reflect the excess of the purchase price (including
$1,500 of acquisition expenses) over the estimated fair value of
the net assets acquired in the acquisition of Berger, which has
been allocated as follows:
Purchase price $32,250
Estimated fair value of net
assets acquired (3,601)
-------
Goodwill $28,649
=======
c. To record the subtraction of notes payable not assumed from
Berger of $928.
<PAGE>
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the year ended June 30, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
Career Mini-
Horizons, Systems Zeitech,
Inc. Associates Inc.
--------- --------- --------
REVENUES $361,026 $40,364 $31,067
EXPENSES:
Cost of services 276,864 31,403 22,965
Selling, general
and administrative 48,990 5,570 5,542
Remittance to
franchisees 18,747
Other expenses, net 1,276
-------- --------- --------
Total Expenses 345,877 36,973 28,507
-------- -------- --------
Income from operations 15,149 3,391 2,560
Interest (expense)
income, net (1,803) 0 (225)
Income before minority
interest and income
taxes 13,346 3,391 2,335
Minority interest
--------- --------- --------
Income before income
taxes 13,346 3,391 2,335
(Provision) benefit
for income taxes (5,399) 22 (122)
-------- -------- ---------
NET INCOME $7,947 $3,413 $2,213
======== ======== ========
INCOME PER COMMON
SHARE $0.65
========
WEIGHTED AVERAGE
NUMBER OF SHARES 12,304
========
HISTORICAL
MSI/ Cencor/
Temps & Co. LeGals Berger
---------- --------- --------
REVENUES $51,845 $29,177 $23,651
EXPENSES:
Cost of services 34,767 21,765 16,487
Selling, general
and administrative 13,421 6,207 5,828
Remittance to
franchisees 2,926
Other expenses, net 151 (84)
-------- --------- --------
Total Expenses 51,265 27,888 22,315
-------- -------- --------
Income from operations 580 1,289 1,336
Interest (expense)
income, net (315) (218) (139)
Income before minority
interest and income
taxes 265 1,071 1,197
Minority interest (65)
--------- --------- ---------
Income before income
taxes 200 1,071 1,197
(Provision) benefit
for income taxes (104) (34)
-------- -------- ---------
NET INCOME $96 $1,071 $1,163
======== ======== ========
INCOME PER COMMON
SHARE
WEIGHTED AVERAGE
NUMBER OF SHARES
HISTORICAL
----------
Pro
All Forma Pro
Others Adjustments Forma
---------- ----------- ----------
REVENUES $13,204 ($9,810)(a) $540,524
EXPENSES:
Cost of services 7,987 412,238
Selling, general
and administrative 4,083 (4,965)(b) 78,471
3,525 (c)
(9,730)(a)
Remittance to
franchisees 21,673
Other expenses, net 1,343
-------- --------- --------
Total Expenses 12,070 (11,170) 513,725
-------- -------- --------
Income from operations 1,134 1,360 26,799
Interest (expense)
income, net 5 (3,593)(d) (6,288)
Income before minority
interest and income
taxes 1,139 (2,233) 20,511
Minority interest (65)
--------- --------- ---------
Income before income
taxes 1,139 (2,233) 20,446
(Provision) benefit
for income taxes (3,971)(e) (8,715)
893 (f)
-------- -------- --------
NET INCOME $1,139 ($5,311) $11,731
======== ======== ========
INCOME PER COMMON
SHARE (g) $0.66
========
WEIGHTED AVERAGE
NUMBER OF SHARES (g) 17,682
========
<PAGE>
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the year ended December 31, 1995
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
Career Mini-
Horizons, Systems Zeitech,
Inc. Associates Inc.
--------- --------- --------
REVENUES $201,026 $24,386 $18,106
EXPENSES:
Cost of services 153,531 18,644 13,308
Selling, general
and administrative 27,979 3,761 3,535
Remittance to
franchisees 9,254 0 0
Other expenses, net 201
-------- --------- --------
Total Expenses 190,965 22,405 16,843
-------- -------- --------
Income from operations 10,591 1,981 1,263
Interest (expense)
income, net (1,245) 0 (76)
Income before
income taxes 9,346 1,981 1,187
(Provision) benefit
for income taxes (3,662) (3) (221)
--------- --------- --------
NET INCOME $5,684 $1,978 $966
======== ======== ========
INCOME PER COMMON
SHARE $0.44
========
WEIGHTED AVERAGE
NUMBER OF SHARES 14,638
========
HISTORICAL
MSI/ Cencor/
Temps & Co. LeGals Berger
---------- --------- --------
REVENUES $26,100 $14,362 $14,285
EXPENSES:
Cost of services 18,181 10,616 10,077
Selling, general
and administrative 6,523 3,080 3,983
Remittance to
franchisees 1,549
Other expenses, net (353) 20
-------- -------- --------
Total Expenses 25,900 13,716 14,060
-------- -------- --------
Income from operations 200 646 225
Interest (expense)
income, net (193) (85) (69)
-------- -------- --------
Income before
income taxes 7 561 156
(Provision) benefit 0
for income taxes --------- --------- ---------
NET INCOME $7 $561 $156
======== ======== ========
INCOME PER COMMON
SHARE
WEIGHTED AVERAGE
NUMBER OF SHARES
HISTORICAL
----------
Pro
All Forma Pro
Others Adjustments Forma
---------- ----------- ----------
REVENUES $8,386 ($4,136)(a) $303,045
EXPENSES:
Cost of services 5,021 0 229,378
Selling, general
and administrative 2,559 (5,406)(b) 43,676
1,762 (c)
(4,100)(a)
Remittance to
franchisees 0 10,803
Other expenses, net 0 (132)
-------- --------- --------
Total Expenses 7,580 (7,744) 283,725
-------- -------- --------
Income from operations 806 3,608 19,320
Interest (expense)
income, net 4 (886)(d) (2,550)
Income before
income taxes 810 2,722 16,770
(Provision) benefit
for income taxes (2,034)(e) (7,009)
(1,089)(f)
--------- --------- --------
NET INCOME $810 ($401) $9,761
======== ======== ========
INCOME PER COMMON
SHARE (g) $0.50
========
WEIGHTED AVERAGE
NUMBER OF SHARES (g) 23,040
========
<PAGE>
CAREER HORIZONS, INC.
Pro Forma Combined Statements of Income
For the six months ended June 30, 1996
(unaudited)
(data in thousands, except per share amounts)
HISTORICAL
Career Mini-
Horizons, Systems Zeitech,
Inc. Associates Inc.
--------- --------- --------
REVENUES $275,851
EXPENSES:
Cost of services 210,233
Selling, general
and administrative 41,637
Remittance to
franchisees 9,898
Other expenses, net 389
-------- --------- --------
Total Expenses 262,157 0 0
-------- -------- --------
Income from operations 13,694 0 0
Interest (expense)
income, net (1,802)
Income before minority
interest and income
taxes 11,892 0 0
Minority interest
--------- --------- ---------
Income before income
taxes 11,892 0 0
(Provision) benefit
for income taxes (4,578)
--------- -------- --------
NET INCOME $7,314 $0 $0
======== ======== ========
INCOME PER COMMON
SHARE $0.43
========
WEIGHTED AVERAGE
NUMBER OF SHARES 21,452
========
HISTORICAL
MSI/ Cencor/
Temps & Co. LeGals Berger
---------- --------- --------
REVENUES $4,177 $7,361 $16,123
EXPENSES:
Cost of services 3,295 5,646 10,510
Selling, general
and administrative 490 1,841 5,018
Remittance to
franchisees 243
Other expenses, net 0
-------- -------- --------
Total Expenses 4,028 7,487 15,528
-------- -------- --------
Income from operations 149 (126) 595
Interest (expense)
income, net (45) (95)
-------- -------- --------
Income before minority
interest and income
taxes 149 (171) 500
Minority interest
-------- -------- --------
Income before income
taxes 149 (171) 500
(Provision) benefit (134)
for income taxes --------- -------- ---------
NET INCOME $149 ($171) $366
======== ======== ========
INCOME PER COMMON
SHARE
WEIGHTED AVERAGE
NUMBER OF SHARES
HISTORICAL
----------
Pro
All Forma Pro
Others Adjustments Forma
---------- ----------- ----------
REVENUES $11,360 $314,872
EXPENSES:
Cost of services 8,475 238,159
Selling, general
and administrative 2,013 (452)(b) 51,353
806 (c)
Remittance to
franchisees 10,141
Other expenses, net 389
-------- --------- --------
Total Expenses 10,488 354 300,042
-------- -------- --------
Income from operations 872 (354) 14,830
Interest (expense)
income, net 1 44(d) (1,897)
Income before minority
interest and income
taxes 873 (310) 12,933
Minority interest 0
-------- -------- --------
Income before income
taxes 873 (310) 12,933
(Provision) benefit
for income taxes (520)(e) (4,974)
124 (f)
--------- --------- --------
NET INCOME $873 ($706) $7,959
======== ======== ========
INCOME PER COMMON
SHARE (g) $0.42
========
WEIGHTED AVERAGE
NUMBER OF SHARES (g) 23,245
========
<PAGE>
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
BASIS OF RECORDING
The accompanying pro forma combined statements of income for the year ended
June 30, 1995 ("fiscal 1995"), the six months ended December 31, 1995 (the
"1995 interim period") and the six months ended June 30, 1996 give effect
to (i) the acquisitions of the Acquired Companies, (ii) the issuance by
the Company of the Convertible Notes and the application of the net
proceeds therefrom, including the payment of then outstanding indebtedness
under the Company's Senior Credit Facility, and (iii) the Stock Offering
and the application of the net proceeds therefrom, including investment in
cash and cash equivalents as if all such transactions were consummated on
July 1, 1994. The acquisitions of the Acquired Companies have been
accounted for using the purchase method of accounting.
STATEMENTS OF INCOME ADJUSTMENTS
The following pro forma adjustments were made (dollars in thousands):
a. To eliminate the results of operations of the portion of the
business not acquired from MSI consisting of revenues of $9,810 and
$4,136 and general and administrative expenses of $9,730 and $4,100
for fiscal 1995 and the 1995 interim period, respectively.
b. To reflect the elimination and/or reduction of certain non-recurring
general and administrative expenses resulting from the acquisitions
of the Acquired Companies totaling $4,965, $5,406 and $452 for
fiscal 1995, the 1995 interim period and the six months ended June
30, 1996, respectively.
c. To record the increase in amortization expense related to the
goodwill recorded under the purchase method of accounting for the
acquisitions of the Acquired Companies totaling $3,525, $1,762 and
$806 for fiscal 1995, the 1995 interim period and the six months
ended June 30, 1996, respectively.
d. To record interest expense, net, of $5,792, $1,582 and $0 in respect
of the Convertible Notes and to eliminate interest expense, net of
$2,199, $696 and $44 recorded by the Company on indebtedness under
the Senior Credit Facility for fiscal 1995, the 1995 interim period
and for the six months ended June 30, 1996, respectively.
<PAGE>
CAREER HORIZONS, INC. and SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
STATEMENTS OF INCOME ADJUSTMENTS (CONT'D)
e. To increase the provision for income taxes on the historical results
of operations of the Acquired Companies pursuant to the provisions
of FASB #109 "Accounting for Income Taxes."
f. To record the provision for income taxes on the pro forma
adjustments based on the Company's federal and state statutory tax
rate of approximately 40%.
g. Calculation of pro forma income per common share, after giving
effect to the two for one split of the Common Stock effective
February 22, 1996, is as follows:
Six Months Six Months
Year Ended Ended Ended
June 30, 1995 December 31, 1995 June 30, 1996
------------- ----------------- -------------
Pro forma net
income . . . . $11,731 $ 9,761 $7,959
Add: Interest
expense on
Convertible
Notes, net of --(1) 1,869 1,869
tax benefit . . ------- ------- ------
$11,731 $11,630 9,828
======= ======= ======
Weighted average
number of
shares . . . . 12,304 14,638 16,484
Pro forma
adjustment to
include shares
issued in
public offering 5,378 5,378 1,793
Add: Pro forma
deemed
conversion of
Convertible --(1) 3,024 4,968
Notes . . . . . ------- ------- ------
17,682 23,040 23,245
======= ======= ======
Pro Forma Income
Per Common
Share $ .66 $ .50 $ .42
======= ======= ======
(1) Calculation of pro forma income per common share for the year
ended June 30, 1995 using the "if converted" method is
antidilutive.
Note: Assuming the Company had invested the net proceeds of the
Convertible Notes and Stock Offering into interest-bearing
cash equivalents at an interest rate of 5%, pro forma
earnings per share would have been $.80 $.56, and $.48 for
fiscal 1995, the 1995 interim period and the six months
ended December 31, 1995, respectively.
<PAGE>
CAREER HORIZONS, INC. and SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Stock Purchase Agreement dated August 28, 1996 by and
among Career Horizons, Inc., Wayne Berger, Juan Solano,
III, Mary Turner, Drew Verret, The Juan Solano, III
Charitable Remainder Trust, the Wayne Berger Charitable
Remainder Trust and the Wayne Berger Charitable
Remainder Trust II.
23.1 Consent of Levine, Hughes & Mithuen, Inc.
99.1 Press Release
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CAREER HORIZONS, INC.
-------------------------
(Registrant)
Date September 11, 1996 By:/s/ Michael T. Druckman
-------------------- ----------------------------------
Michael T. Druckman
Senior Vice President,
Treasurer and Asst. Secretary
(Principal Financial and
Accounting Officer)
EXHIBIT 2.1
STOCK PURCHASE
AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 28th day of August,
1996, by and among CAREER HORIZONS, INC., a Delaware corporation
("Purchaser"), and WAYNE BERGER, an individual resident of Texas
("Berger"), JUAN SOLANO, III, an individual resident of Colorado
("Solano"), MARY TURNER, an individual resident of Texas ("Turner"), DREW
VERRET, an individual resident of Texas ("Verret"), the JUAN SOLANO, III
CHARITABLE REMAINDER TRUST, dated July 16, 1996 (the "Solano Trust"), the
WAYNE BERGER CHARITABLE REMAINDER TRUST, dated July 9, 1996 (the "Berger
Trust"), and the WAYNE BERGER CHARITABLE REMAINDER TRUST II, dated July 9,
1996 (the "Berger II Trust"), (Berger, Solano, Turner, Verret, the Solano
Trust, the Berger Trust and the Berger II Trust are sometimes referred to
herein collectively as "Sellers" or individually as a "Seller").
WITNESSETH:
WHEREAS, Sellers collectively own all of the issued and outstanding
capital stock (the "Stock") of DAEDALIAN GROUP, INC., a Colorado
corporation ("Daedalian") and the parent corporation of Berger & Co., a
Colorado corporation ("Berger & Co.") and Berger & Co. Technology
Integrators, Inc., a Colorado corporation ("BTI" and, together with
Daedalian and/or Berger & Co., the "Companies" and each individually, a
"Company");
WHEREAS, Berger & Co. owns and operates a business providing
information management technical and consulting services and training in
the information technology field, and BTI owns and operates a business
providing network and client/server computer-based integration services and
reselling computer hardware and software (collectively, the "Business");
WHEREAS, Sellers desire to sell and transfer to Purchaser, and
Purchaser desires to purchase and acquire from Sellers, the Stock;
WHEREAS, following the consummation of the transactions contemplated
by this Agreement, Purchaser intends to merge the Companies with and into a
wholly owned subsidiary of Purchaser (the "Subsidiary"), which will own and
operate the Business and the respective assets of the Companies;
WHEREAS, in connection with its acquisition of the Stock, Purchaser
desires to employ Berger as Chief Executive Officer of the Subsidiary and
Berger desires to serve as Chief Executive Officer of the Subsidiary, all
in accordance with the terms and conditions set forth in an employment
agreement in form and substance reasonably satisfactory to Purchaser and
Berger (the "Employment Agreement"), which is being entered into on the
date hereof between Berger & Co. and Berger;
WHEREAS, in connection with its acquisition of the Stock, Purchaser
desires to employ Solano as President of the Subsidiary and Solano desires
to serve as President of the Subsidiary, all in accordance with the terms
and conditions set forth in an employment agreement in form and substance
reasonably satisfactory to Purchaser and Solano (the "Employment
Agreement"), which is being entered into on the date hereof between Berger
& Co. and Solano;
WHEREAS, in connection with its acquisition of the Stock, Purchaser
desires to employ Verret as Vice President and Director of the Houston
Practice of the Subsidiary and Verret desires to serve as Vice President
and Director of the Houston Practice of the Subsidiary, all in accordance
with the terms and conditions set forth in an employment agreement in form
and substance reasonably satisfactory to Purchaser and Verret (the
"Employment Agreement"), which is being entered into on the date hereof
between Berger & Co. and Verret;
WHEREAS, in connection with its acquisition of the Stock, Purchaser
desires to employ Turner as Vice President and Director of the Dallas
Practice of the Subsidiary and Turner desires to serve as Vice President
and Director of the Dallas Practice of the Subsidiary, all in accordance
with the terms and conditions set forth in an employment agreement in form
and substance reasonably satisfactory to Purchaser and Turner (the
"Employment Agreement"), which is being entered into on the date hereof
between Berger & Co. and Turner;
WHEREAS, in connection with its acquisition of the Stock, Purchaser
desires that Sellers not compete with Purchaser and its affiliates with
respect to the Business pursuant to the terms and conditions set forth in
noncompetition and nondisclosure agreements (the "Noncompetition
Agreements") in form and substance reasonably satisfactory to Purchaser and
Berger, Solano, Verret and Turner, respectively, which Noncompetition
Agreements are being entered into on the date hereof between Berger & Co.
and such Sellers.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of Stock. Subject to the terms and conditions
-------- --- ---- -- -----
hereof, Sellers, and each of them, agree to and does hereby assign,
transfer, sell, convey and deliver to Purchaser, and Purchaser agrees to
and does hereby purchase from Sellers, and each of them, free and clear of
all Liens (as defined in Section 2.1(e) hereof) all of each Seller's right,
title and interest in and to the Stock.
1.2 Purchase Price.
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(a) Purchase Price. In consideration of the Stock, Purchaser
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shall pay Sellers an aggregate purchase price (the "Purchase Price")
equal to the sum of: (i) Thirty Million Seven Hundred Fifty Thousand
Dollars ($30,750,000) (the "Closing Payment"); plus (ii) the Earn-Out
Amounts (as defined in Section 1.2(b) hereof), if any. Each portion
of the Purchase Price shall be paid by wire transfer of immediately
available funds to such accounts as are specified by Sellers in
writing at least three (3) days prior to the due date thereof.
(b) Earn-Out Amounts. For purposes of this Agreement, the "Earn
------- --------
Out Amounts" shall mean the respective amounts calculated by
multiplying the EBIT (as defined below) of the Business for each of
the respective calendar years 1997, 1998 and 1999 (collectively, the
"Earn-Out Period"), times fifty percent (50%). For purposes of this
Agreement, "EBIT" shall mean the annual earnings before interest and
taxes of the Business during the given calendar year in the Earn-Out
Period, as set forth in financial statements prepared by Purchaser in
accordance with Section 1.2(c) hereof. Each of the Earn-Out Amounts
shall be paid with respect to the calendar years 1997, 1998 and 1999.
Each payment of the Earn-Out Amounts shall be due and payable within
five (5) days of the Determination (as defined in Section 1.2(c)
hereof) of the EBIT of the Business for the calendar year to which
such payment relates. Any payment of the Earn-Out Amounts that is not
paid when due shall accrue interest from the due date until paid at
the "prime rate" as published in the Money Rates column of The Wall
--------
Street Journal, and incur a late payment charge of five percent (5%)
--------------
of the amount otherwise due as liquidated damages with respect to said
late payment.
(c) Accounting Determinations. The following provisions apply to
---------- --------------
the determination of EBIT:
(i) For purposes of determining the EBIT of the Business
for the Earn-Out Period and calculating the Earn-Out Amounts,
Purchaser shall deliver to Sellers' Representative (as defined in
Section 3.10 hereof) unaudited financial statements within ninety
(90) days following the end of each of calendar years 1997, 1998
and 1999, in each case reporting the results of operations of the
Business for the calendar year then ended, together with its
calculation of EBIT for the given Installment Period (any such
statement, an "EBIT Statement"). Such financial statements and
each EBIT Statement shall be prepared in accordance with
generally accepted accounting principles ("GAAP") consistently
applied, in a manner consistent with the Companies' accounting
practices as reflected in the Financial Statements (as defined in
Section 2.1(t) hereof) and with Section 3.5 hereof, and shall set
forth the EBIT of the Business for the period in question as
determined by GAAP as so applied. The determinations set forth
in the EBIT Statement shall be a final and binding determination
(a "Determination") on the parties hereto unless timely disputed
by Sellers' Representative pursuant to paragraph (ii) below.
(ii) If Sellers' Representative disputes the determinations
made by Purchaser in an EBIT Statement or the financial statement
upon which it is based, Sellers' Representative shall deliver
written notice of such dispute within twenty (20) days of receipt
of the EBIT Statement at issue, setting forth the nature of the
dispute and Sellers' Representative's determination of the proper
calculation (a "Notice of Dispute"). Purchaser shall, within ten
(10) days of receipt of a Notice of Dispute, notify Sellers'
Representative in writing that it challenges the calculation in
the Notice of Dispute, or it will be conclusively deemed to have
accepted such calculations, which shall be the Determination
thereof. If Purchaser so notifies Sellers' Representative, the
dispute shall be submitted within ten (10) days of such
notification to a mutually acceptable nationally recognized "big
six" certified public accounting firm (the "Arbiter") for its
determination of the dispute, which shall be the Determination
thereof. If Purchaser and Sellers' Representative are unable to
mutually agree on such an accounting firm within ten (10) days, a
"big six" accounting firm shall be selected by lot after
eliminating one firm designated as objectionable by each of
Purchaser on the one hand and Sellers' Representative on the
other hand. Purchaser and Sellers' Representative shall cause
the Arbiter to resolve any disputed items as soon as
practicable. The costs and expenses incurred in connection with
a determination by the Arbiter shall be allocated by the
Arbiter, in its discretion, in proportion to the relative
success of the parties as to the dispute.
1.3 Closing. The closing (the "Closing") of the transactions provided
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for herein is taking place at the offices of Minor & Brown, P.C., Cherry
Creek Plaza II, 650 South Cherry Street, Suite 1100, Denver, CO 80222, on
the date hereof, at 9:00 A.M. local time (the "Closing Date"), or on such
later date and other time and place as may be mutually agreed upon by the
parties hereto, to be effective as of 12:01 A.M. local time on the Closing
Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Sellers. To induce Purchaser to
--------------- --- ---------- -- -------
enter into this Agreement, Sellers, jointly and severally, represent and
warrant to Purchaser as follows:
(a) Due Incorporation; Authority; Capitalization.
--- -------------- ---------- --------------
(i) Each Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Colorado, and each Company has all requisite power and authority
to own, lease and operate its properties and to conduct its
business as currently conducted. Except as disclosed in Schedule
2.1(a)(i) hereto, each Company is qualified to do business and is
in good standing in each jurisdiction in which the nature of its
business or its properties require such qualification.
(ii) The total authorized capital stock of Daedalian
consists of Five Million (5,000,000) shares of common stock, par
value $0.10. There are presently issued and outstanding Two
Million (2,000,000) shares of such common stock (the "Daedalian
Common Stock"), all of which are owned of record by Sellers in
the aggregate. All of the outstanding shares of Daedalian Common
Stock are validly authorized, issued and outstanding, fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof, and are owned beneficially and of record by
Sellers free and clear of any Lien. There are no outstanding
options, warrants, subscriptions, calls, unsatisfied preemptive
or contractual rights, voting agreements, registration rights
agreements or other rights for the purchase or receipt of, and no
securities or obligations of any kind convertible into, capital
stock of Daedalian. At closing, Sellers will convey to Purchaser
good title to the Daedalian Common Stock free and clear of all
Liens.
(iii) The total authorized capital stock of Berger & Co.
consists of Fifty Thousand (50,000) shares of common stock, par
value $0.10. There are presently issued and outstanding Thirty-
Five Thousand (35,000) shares of such common stock (the "Berger &
Co. Common Stock"), all of which are owned of record by
Daedalian. All of the outstanding shares of Berger & Co. Common
Stock are validly authorized, issued and outstanding, fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof, and are owned beneficially and of record by
Daedalian free and clear of any Lien. There are no outstanding
options, warrants, subscriptions, calls, unsatisfied preemptive
or contractual rights, voting agreements, registration rights
agreements or other rights for the purchase or receipt of, and no
securities or obligations of any kind convertible into, capital
stock of Berger & Co.. At closing, Daedalian will retain good
title to the Berger & Co. Common Stock free and clear of all
Liens.
(iv) The total authorized capital stock of BTI consists of
Fifty Thousand (50,000) shares of common stock, par value $0.10.
There are presently issued and outstanding Twenty Thousand
(20,000) shares of such common stock (the "BTI Common Stock"),
all of which are owned of record by Daedalian. All of the
outstanding shares of BTI Common Stock are validly authorized,
issued and outstanding, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and are
owned beneficially and of record by Daedalian free and clear of
any Lien. There are no outstanding options, warrants,
subscriptions, calls, unsatisfied preemptive or contractual
rights, voting agreements, registration rights agreements or
other rights for the purchase or receipt of, and no securities or
obligations of any kind convertible into, capital stock of BTI.
At closing, Daedalian will retain good title to the BTI Common
Stock free and clear of all Liens.
(v) The Companies have provided to Purchaser true and
complete copies of the Articles of Incorporation and By-laws of
each of the Companies, including in each case all amendments
thereto. True, correct and complete copies of the minutes of
meetings (or written consents in lieu of meetings) of the Board
of Directors (and all committees thereof) and stockholders of
each Company have heretofore been provided to Purchaser. All
actions taken by the stockholders of each Company is reflected in
the respective minutes and written consents of each so provided.
All material actions taken by the Board of Directors (and all
committees thereof) of each Company is reflected in the
respective minutes and written consents of each so provided.
There are no dissolution, liquidation, or bankruptcy proceedings
pending, contemplated by or, to the best of the Sellers'
knowledge, threatened against any Company.
(vi) Other than Daedalian's ownership of Berger & Co. and
BTI, no Company has a direct or indirect subsidiary, is a partner
in any material partnership or joint venture, or owns any capital
stock interests or other equity interests, or rights or options
to acquire any equity or other interests, in any entities.
(b) No Restrictions Against Performance. Except as set forth on
-- ------------ ------- -----------
Schedule 2.l(b) hereto, neither the execution and delivery, nor the
performance of this Agreement or the other agreements and documents
contemplated by this Agreement (the "Related Agreements"), nor the
consummation of the transactions contemplated in this Agreement or in
the Related Agreements by any Seller will violate any provision of or
conflict with any Company's Articles of Incorporation or By-Laws or
will, with or without the giving of notice or the passage of time, or
both, violate any provisions of, conflict with, result in a breach of,
constitute a default under, or result in the creation or imposition of
any Lien or condition under, (i) any federal, state or local law,
statute, ordinance, regulation or rule, that is or may be applicable
to a Seller or a Company, the Business or any of their respective
assets or properties; (ii) any contract, indenture, instrument,
agreement, mortgage, lease, right or other obligation or restriction
to which a Seller or a Company is a party or by which a Seller or a
Company, the Business or any of their respective assets or properties
is or may be bound; or (iii) any order, judgment, writ, injunction,
decree, license, franchise, permit or other authorization of any
federal, state or local court, arbitration tribunal or governmental
agency (collectively, a "Governmental Authority") by which such a
Seller or a Company, the Business or any of their respective assets or
properties is or may be bound; except, in each such case, as would not
have an effect on the Business, a Seller or a Company that is
materially adverse to the value of the Business as currently conducted
or such Seller or Company as a whole following the Closing, or would
materially adversely affect any Seller's performance of his or her
obligations under this Agreement or operation of the Business after
the Closing Date (a "Material Adverse Effect"). The execution and
delivery of this Agreement and the Related Agreements by each Seller
and the performance by each Seller of the transactions contemplated
herein and therein will not constitute an act of bankruptcy,
preference, insolvency or fraudulent conveyance under any bankruptcy
act or other law for the protection of debtors or creditors.
(c) Governmental Consents. No approval, consent, waiver, order or
------------ --------
authorization of, or registration, qualification, declaration, or
filing with, or notice to, any Governmental Authority is required on
the part of Sellers or the Companies in connection with the execution
of this Agreement or the Related Agreements, or the consummation of
the transactions contemplated hereby or thereby, except (i) as set
forth on Schedule 2.1(c) hereto, or (ii) as would not have a Material
Adverse Effect. None of Sellers or the Companies meet the
jurisdictional requirements of the Hart-Scott-Rodino Antitrust
Improvement Act ("HSR").
(d) Contracts. Set forth on Schedule 2.1(d) hereto is a list
---------
identifying the relationships between the Companies and their
customers and clients to the extent set forth in writing and a
description of all other oral contracts between the Companies and
their customers and clients which, in each case, involves
consideration of more than Four Hundred Thousand Dollars ($400,000) or
is not subject to termination by either party on less than thirty (30)
days' notice (the "Contracts"). To the best of Sellers' knowledge,
such relationships have not been terminated, cancelled or expired,
except as would not have a Material Adverse Effect, and such list is
true, correct and complete in all material respects. Except as set
forth on Schedule 2.1(d) hereto, each of the Contracts is valid and in
full force and effect and constitutes the legal, valid and binding
obligation of the parties thereto, enforceable against the given
Company and, to the best of Sellers' knowledge, the other parties
thereto in accordance with its terms, and there are no existing
violations or defaults by the Companies or, to the best of Sellers'
knowledge, by any other party thereto and no event, act or omission
has occurred which (with or without notice, lapse of time and/or the
happening or occurrence of any other event) would result in a
violation or default thereunder. No other party to any Contract has
in writing or otherwise asserted the right, and, to the best of
Sellers' knowledge, no basis exists for the assertion of any
enforceable right, to renegotiate, or cancel or terminate prior to the
full term thereof, any of the terms or conditions of any Contract, nor
do Sellers have any knowledge that any party to any Contract intends
to not renew upon termination of its current term. Except as set
forth on Schedule 2.1(d) hereto, no consent of any party to any
Contract is required for the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated
hereby.
(e) Title. Except as set forth on Schedule 2.1(e) hereto, each
-----
Company has good, valid, legal and beneficial title to the assets and
properties used in the Business (the "Business Assets"), free and
clear of all liens, liabilities, claims, security interests,
mortgages, pledges, agreements, obligations, restrictions, or other
encumbrances of any nature whatsoever, whether absolute, legal,
equitable, accrued, contingent or otherwise, including, without
limitation, any Tax Liens (as defined in Section 2.1(k) hereof) or
rights of first refusal as to any of the Stock (collectively,
"Liens"). There are no outstanding options, warrants, commitments,
agreements or any other rights of any character, entitling any person
or entity other than Purchaser to acquire any interest in all, or any
part of, the Business Assets.
(f) Trademark Rights; Proprietary Information. Schedule 2.l(f)
-----------------------------------------
hereto is a true, correct and complete list of all trademarks, trade
names, service marks and names, copyrights (including any
registrations of or pending applications for any of the foregoing),
computer software, licenses (other than licenses for retail software),
permits, and all other intangible assets, proprietary information,
properties and rights owned by any Company or used in the Business
(collectively, the "Intellectual Property"). Except as disclosed on
Schedule 2.1(f) hereto:
(i) all of the Intellectual Property is owned by the
Companies free and clear of any Liens, and is not subject to any
license, royalty or other agreement;
(ii) none of the Intellectual Property has been or is the
subject of any pending or, to the best of Sellers' knowledge,
threatened litigation or claim of infringement;
(iii) no license or royalty agreement to which a Company is
a party is in material breach or default by a Company or, to the
best of Sellers' knowledge, any other party thereto or the
subject of any notice of termination received by a Company;
(iv) to the best of Sellers' knowledge, the Business Assets
do not infringe any trademark, trade name, service mark or name,
copyright, trade secret, or confidential or proprietary rights of
another, and no Company has received any notice contesting a
Company's rights to use any Intellectual Property;
(v) the Companies have not granted any license or agreed to
pay or receive any royalty in respect of any Intellectual
Property; and
(vi) the Companies own or possess adequate rights in and to
all Intellectual Property necessary to conduct the Business as it
is currently being conducted.
(g) Solvency and Payment of Liabilities. No Seller or Company is
-------- --- ------- -- -----------
on the date hereof, either as a result of the transactions
contemplated by this Agreement or otherwise, insolvent, as such term
is defined in Title 11 (Bankruptcy Code) of the United States Code or
any applicable state statute relating to insolvency; the sum of each
Seller's and Company's debts is not greater than all of his, her or
its property on the date hereof, either as a result of the
transactions contemplated herein or otherwise; and each Seller and
Company is on the date hereof, and will be after the Closing Date,
able to pay its debts as they mature.
(h) Litigation. Except as set forth on Schedule 2.1(h), there is
----------
no judicial or administrative action, suit or proceeding pending or,
to the best of Sellers' knowledge, threatened against or relating to
the Companies, Sellers, the Business, the Business Assets or the
transactions contemplated hereby, before any Governmental Authority
which, if adversely determined, would have a Material Adverse Effect
or would delay the transactions contemplated hereby, and none of the
Sellers is aware of any facts or circumstances that may give rise to
any of the foregoing. There are no claims, actions, suits,
proceedings or investigations pending or, to the best of Sellers'
knowledge, threatened by or against Sellers or the Companies with
respect to this Agreement or the Related Agreements or in connection
with the transactions contemplated hereby or thereby which, if
adversely determined, would have a Material Adverse Effect, and none
of Sellers has reason to believe there is a valid basis for any such
claim, action, suit, proceeding or investigation. No Seller or
Company is the subject of any order, judgment, decree, injunction or
stipulation of any Governmental Authority that has a Material Adverse
Effect.
(i) Compliance with Laws; Permits. The Companies have complied,
---------- ---- ----- -------
during the last three (3) years, with all applicable federal and state
domestic and foreign laws, rules, regulations, judgments, orders and
other legal requirements (including, but not limited to, those
relating to environmental, safety and labor matters) affecting the
Business, except for such instances of noncompliance as would not have
a Material Adverse Effect. Schedule 2.l(i) hereto sets forth a true,
correct and complete list of all jurisdictions in which the Companies
are registered to do business and all material permits, licenses,
franchises, orders, certificates and approvals (collectively, the
"Permits") of any Governmental Authority relating to the Business
Assets or the Business. The Permits constitute all material permits,
licenses, franchises, orders, certificates and approvals which are
required for the lawful operation of the Business and the operation of
the Business Assets, except for such permits, licenses, franchises,
orders, certificates or approvals, the omission of which would not
cause a Material Adverse Effect. The Companies are in compliance with
all Permits, except for such instances of noncompliance as would not
have a Material Adverse Effect. Except as set forth on Schedule
2.1(i), all such Permits will continue as valid Permits following the
Closing.
(j) Insurance.
---------
(i) Schedule 2.1(j)(i) contains a true, correct and
complete list of all policies of fire, liability, workers'
compensation, title and other forms of insurance owned or held by
the Companies applicable to the Business or the Business Assets.
All such policies are in full force and effect and no notice of
cancellation or termination has been received with respect to any
such policy. To the best of Sellers' knowledge, such policies
are sufficient for compliance with all requirements of law and
all material contracts to which the Company is a party, and are
valid, outstanding and enforceable policies applicable to the
Business.
(ii) Set forth on Schedule 2.1(j)(ii) is a list of all
claims that have been made against the Companies in the last
three (3) years for workers' compensation, general liability or
property damage, whether insured under insurance policies or
otherwise, applicable to the Companies, the Business or any of
the Business Assets. Except as set forth on said list, there are
no pending or, to the best of Sellers' knowledge, threatened
claims under any such insurance policy or otherwise. Such claim
information includes the following information with respect to
each accident, loss or other event: (a) the identity of the
claimant; (b) the date of the occurrence; (c) the status as of
the report date; and (d) the amounts paid or expected to be paid
or recovered.
(k) Taxes.
-----
(i) Except as set forth on Schedule 2.1(k) hereof, (A) all
Tax returns, statements, reports and forms by or on behalf of any
Company with any Taxing Authority (as defined in Section 8.1
hereof) with respect to any Pre-Closing Tax Period (as defined in
Section 8.1 hereof) (collectively, "Returns") have been filed
when due in accordance with all applicable laws; (B) as of the
time of filing, the Returns correctly reflected (and, as to
Returns not yet filed as of the date hereof, will correctly
reflect) the facts regarding the income, business, assets,
operations, activities and status of each Company and any other
information required to be shown therein; (C) each Company has
timely paid, withheld or made provision for all Taxes shown as
due and payable on the Returns; (D) each Company has made or will
make provision for all Taxes payable by such Company for any Pre-
Closing Tax Period for which no Return has yet been filed; (E)
the charges, accruals and reserves for Taxes with respect to each
Company for any Pre-Closing Tax Period (excluding any provision
for deferred income taxes) reflected on the books of such Company
are adequate to cover such Taxes; (F) all Returns filed with
respect to Taxable years of each Company through the Taxable year
ended January 31, 1992, either have been examined and such
examination has closed, or are Returns with respect to which the
applicable period for assessment under the applicable law, after
giving effect to extensions or waivers, has expired; (G) there is
no claim, audit, action, suit, proceeding, or investigation now
pending or, to the best of Sellers' knowledge, threatened against
or with respect to any Company in respect of any Tax; (H) there
are no requests for rulings in respect of any Tax pending between
any Company and any Taxing Authority; (I) there are no liens for
Taxes upon the assets of any Company; (J) the Companies have,
commencing with fiscal year beginning September 1, 1988, and
ending January 31, 1989, filed consolidated federal income Tax
Returns; (K) no Company is currently under any contractual
obligation to indemnify any other person or entity with respect
to Taxes; and (L) no Company is a party to any agreement
providing for payments with respect to Taxable income or Tax
benefits.
(ii) Schedule 2.1(k) contains a list of states, territories
and jurisdictions (whether foreign or domestic) to which any
material Tax is properly payable by any Company or to which any
Company has paid any material Tax within the last five (5) fiscal
years.
(l) Condition and Sufficiency of Assets. Except as disclosed on
--------- --- ----------- -- ------
Schedule 2.l(l) hereto, all of the tangible assets and properties
included in the Business Assets, whether owned or leased, have been
maintained in good operating condition and repair (with the exception
of normal wear and tear), and are free from defects other than such
minor defects as do not interfere with the intended use thereof in the
conduct of normal operations or materially adversely affect the resale
value thereof. The Business Assets constitute all of the tangible and
intangible assets which are required for the operation of the Business
as it is presently conducted.
(m) Employee Benefit Plans.
-------- ------- -----
(i) During the sixty (60) month period ending on the
Closing Date, except as set forth on Schedule 2.1(m) hereto, no
Company nor any other entity included with the Companies in a
controlled group of corporations or other organizations (within
the meaning of Sections 414(b), (c), (m) or (o) of the Code) at
any time within the sixty (60) month period ending on the Closing
Date (the "Controlled Group"), (x) has (or will have) at any time
maintained, contributed to or participated in, (y) had (or will
have) any obligation to maintain, contribute to or participate
in, or (z) had (or will have) any liability or contingent
liability, direct or indirect, with respect to any of the
following (an "Employee Benefit Plan"):
(A) any "Employee Welfare Benefit Plan" or "Employee
Pension Benefit Plan" as those terms are respectively
defined in Sections 3(l) and 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA");
(B) any oral or written retirement or deferred
compensation plan, incentive compensation plan, stock plan,
consulting agreement, unemployment compensation plan,
vacation pay, severance pay, bonus or benefit arrangement,
insurance or hospitalization program or any other
compensation or fringe benefit arrangements or any other
type of employee-related program or policy for any current
or former employee, director, consultant or agent, whether
pursuant to contract arrangement, custom or informal
understanding, which does not constitute an "employee
benefit plan" (as defined in Section 3(3) of ERISA);
(C) any other plans, programs or arrangements of any
kind relating to employee benefits sponsored or maintained
by a Company, whether or not specifically identified; or
(d) any employment agreement not terminable on thirty
(30) days (or less) written notice, without further
liability to the Companies.
(ii) With respect to each Employee Benefit Plan: (A) each
such Plan which is an Employee Pension Benefit Plan intended to
qualify under the Code so qualifies and has received a favorable
determination letter as to its qualification under the Code; (B)
the Companies and each member of the Controlled Group have
complied in all respects with all provisions of ERISA; (C) all
administrative and trustee fees and insurance and annuity
premiums relating to all periods up to and including the Closing
Date have been paid or otherwise provided for; (D) the beneficial
tax benefits of any Employee Benefit Plans have not been
adversely affected by the Companies' leased employees (as such
term is defined in Code Section 414(n)), if any; (E) no Employee
Benefit Plan provides for any post-retirement life, medical,
dental or other welfare benefits (whether or not insured) for any
individual except as required under Section 4980B of the Code or
Part 6 of Title I of ERISA; (F) all benefit payments under, and
contributions required to have been made to, any such Plan
pursuant to the requirements of law or under the terms of any
contract, agreement or Employee Benefit Plan for the plan year
during which the Closing Date occurs and all prior plan years
have been made; (G) no breach of fiduciary duty set forth under
Part 4 of Title I of ERISA has occurred which would subject a
Company to any penalty or liability; (H) there are no matters
pending before the Internal Revenue Service or the Department of
Labor; (I) there have been no claims or notice of claims filed
under any fiduciary liability insurance policy covering any
Employee Benefit Plan; (J) except as set forth in Schedule
2.1(m), there are no Qualified Domestic Relations Orders (as
defined under Section 414(p) of the Code or 203 of ERISA)
relating to any Employee Benefit Plan; (K) to the extent
applicable, each such Employee Benefit Plan complies, and at all
times has complied, with the "secondary payor" requirement of
Section 1862(b)(1) of the Social Security Act; (L) each and every
such Employee Benefit Plan which is a group health plan complies,
and in each and every case has complied, with the applicable
requirements of Code Section 4980B, Part 6 of Title I of ERISA,
and all other federal or state laws requiring the provision or
continuance of health or medical benefits; and (M) there are no
actions, suits or claims (other than routine claims for benefits
in the ordinary course) pending or, to the best of Sellers'
knowledge, threatened, and Sellers have no knowledge of any facts
which could give rise to any such actions, suits or claims (other
than routine claims for benefits in the ordinary course), which
could subject the Companies or Purchaser to any liability, except
in each case or in the aggregate as would not have a Material
Adverse Effect.
(iii) (A) The Companies are not subject to any legal,
contractual, equitable, or other obligation to (I) establish as
of any date any employee benefit plan of any nature, including,
without limitation, any pension, profit sharing, welfare, post-
retirement welfare, stock option, stock or cash award, non-
qualified deferred compensation or executive compensation plan,
policy or practice, or (II) continue any employee benefit plan of
any nature, including, without limitation any Employee Benefit
Plan or any other pension, profit sharing, welfare, or post-
retirement welfare plan, or any stock option, stock or cash
award, non-qualified deferred compensation or executive
compensation plan, policy or practice (or to continue their
participation in any such benefit plan, policy or practice) on or
after the Closing Date; and (B) except as disclosed in Schedule
2.1(m), the Companies may, in any manner, and without the consent
of any employee, beneficiary or other person, terminate, modify
or amend any such Employee Benefit Plan or any other plan,
program or practice (or its participation in such Employee
Benefit Plan or any other plan, program or practice) effective as
of any date before, on or after Closing Date.
(iv) Prior to the Closing Date, the Companies will, with
respect to each Employee Pension Benefit Plan under which any of
the Companies' employees participate: (A) contribute or make
provisions for contribution to the trust related to such plans
all pre-tax and post-tax (if applicable) employee salary
deferrals and contributions made with respect to all periods
ending on or before the Closing, (B) contribute or make
provisions for contribution to the trust related to such plans,
all matching and non-matching employer contributions (if any)
which a Company is obligated to make for all plan years of such
plans ending on or before the Closing Date, and (C) with respect
to the plan year during which the Closing Date occurs (the
"Current Plan Year"), contribute or make provisions for
contribution to the trusts related to such plans matching and
non-matching employer contributions (if any) equal to the greater
of (x) an amount determined in accordance with past funding and
accrual practices (as adjusted to include proportional accrual or
contribution obligations for the period beginning on the first
day of such Current Plan Year and ending on the Closing Date), or
(y) the amount which a Company is under any obligation (legal or
otherwise) to contribute for such period.
(n) Accounts Receivable.
-------------------
(i) Schedule 2.1(n)(i) hereto contains a description of all
of the accounts receivable of the Companies as of August 27, 1996
(the "Accounts Receivable"), and a true and accurate aging
Schedule thereof. Each Account Receivable arose, and each
account receivable generated by the Business between August 27,
1996, and the date hereof has arisen, from business in the
ordinary course and, to the best of Seller's knowledge, is or
will be fully collectible in the face amount thereof, subject to
any bad debt reserve reflected in the Closing Date Financial
Statements.
(ii) Except as set forth on Schedule 2.1(n)(ii), to the
best of Sellers' knowledge, no Account Receivable is subject to
any claim for reduction, set-off, counterclaim, recoupment or
other claim for credit, allowances or adjustments by the obligor
thereof in excess of Five Thousand Dollars ($5,000).
(o) Real Property. No Company owns real property relating to the
---- --------
Business. All leases of real property to which any Company is a party
are identified in Schedule 2.1(o) hereto (the "Real Property
Leases"). Each of the Real Property Leases is in full force and
effect and has not been amended or modified and is enforceable in
accordance with its respective terms; the lessee thereunder enjoys
peaceful and undisturbed possession under all Real Property Leases
under which it is operating; the Companies have received no notice of
any existing arrearage or default or event or condition which with
notice or lapse of time, or both, would constitute an event of
default by a Company as it would relate to the Companies and, to
the best of Sellers' knowledge, there exists no such arrearage or
default by any other party thereto, under any of the Real Property
Leases; and no party to any of the Real Property Leases has given
any notice of default or termination. Except as set forth in
Schedule 2.1(o), no Real Property Lease will be terminable by reason
of any of the transactions contemplated by this Agreement and no
consents are required in connection with the assignment thereof,
except as will be provided at or prior to Closing. No landlord with
respect to any Real Property Lease has notified a Company that the
landlord would refuse to renew such lease upon expiration of the
period thereof upon substantially the same terms, except for rent
increases which would not have a Material Adverse Effect.
(p) Personal Property. Schedule 2.1(p) sets forth a true and
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complete list of all of the tangible personal property used by the
Companies in the Business having an original acquisition cost of Five
Thousand Dollars ($5,000) or more. Schedule 2.1(p) also sets forth
all leases of personal property binding upon the Companies or any of
their assets or properties, and all items of personal property covered
thereby. All of such tangible personal property is presently utilized
by a Company in the ordinary course of the Business. The Companies
have delivered to Purchaser true and complete copies of all such
personal property leases.
(q) Other Contracts. Except with respect to the Contracts and
----- ---------
contracts or arrangements, the cancellation of which would not have a
Material Adverse Effect, Schedule 2.l(q) lists all contracts and
arrangements (collectively, the "Other Contracts") of the following
types, whether oral or written, to which a Company is a party or by
which it is bound, or to which any of the Business Assets is subject:
(i) any collective bargaining agreement;
(ii) any contract or arrangement of any kind with any
employee, officer or director of a Company or any of its
affiliates;
(iii) any contract or arrangement with a sales
representative, dealer, broker, marketing, sales agency,
advertising agency or other person engaged in sales,
distributing, marketing or promotional activities, or any
contract to act as one of the foregoing on behalf of any person;
(iv) any contract or arrangement of any nature which
involves the payment or receipt of cash or other property, an
unperformed commitment, or goods or services, having a value in
excess of Ten Thousand Dollars ($10,000);
(v) any contract or arrangement pursuant to which a Company
has made or will make loans or advances, or has or will have
incurred debts or become a guarantor or surety or pledged its
credit on or otherwise become responsible with respect to any
undertaking of another (except for the negotiation or collection
of negotiable instruments in transactions in the ordinary course
of business);
(vi) any indenture, credit agreement, loan agreement, note,
mortgage, security agreement, lease of real property or personal
property or agreement for financing;
(vii) any contract or arrangement intending to create or
form a partnership, joint venture or other cooperative
undertaking;
(viii) any contract or arrangement involving any
restrictions with respect to the geographical area of operations
or scope or type of business of the Companies;
(ix) any power of attorney or agency agreement or
arrangement with any person pursuant to which such person is
granted the authority to act for or on behalf of a Company, or a
Company is granted the authority to act for or on behalf of any
person;
(x) any contract for which the full performance thereof may
extend beyond sixty (60) days from the date of this Agreement;
(xi) any contract not made in the ordinary course of
business which is to be performed at or after the date of this
Agreement;
(xii) any contract relating to any acquisition or
disposition of a Company or any material amount of Business
Assets or any acquisition or disposition of any subsidiary or
division of a Company during the six (6) years prior to the date
of this Agreement; and
(xiii) any contract or arrangement relating to Berger & Co.
Foundation or any other charitable or benevolent foundation or
organization.
The Companies have delivered or made available to Purchaser true and
complete copies of each document listed on Schedule 2.1(q), and a
written description of each oral arrangement so listed. The Companies
have delivered to Purchaser accurate copies of each form which has
been used in the Business and is in effect with respect to any third
party on the date hereof. Except as set forth on Schedule 2.1(q)
hereto, each of the Other Contracts is valid and in full force and
effect and constitutes the legal, valid and binding obligation of a
Company and the other parties thereto, enforceable against such
Company and, to the best of Sellers' knowledge, the other parties
thereto in accordance with its terms, and there are no existing
violations or defaults by such Company or, to the best of Sellers'
knowledge, by any other party thereto and no event, act or omission
has occurred which (with or without notice, lapse of time and/or the
happening or occurrence of any other event) would result in a
violation or default thereunder. No other party to any Other Contract
has in writing or otherwise asserted the right, and to the best of
Sellers' knowledge, no basis exists for the assertion of any
enforceable right, to renegotiate, or cancel or terminate prior to the
full term thereof, any of the terms or conditions of any Other
Contract, nor does any Seller have any knowledge that any party to any
Other Contract intends to not renew any Other Contract upon
termination of its current term. No consent of any party to any Other
Contract is required for the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated
hereby.
(r) Labor Matters. To the best of Sellers' knowledge, the
----- -------
Companies have and currently are conducting the Business in full
compliance with all laws relating to employment and employment
practices, terms and conditions of employment, wages and hours, and
nondiscrimination in employment, except for such instances of
noncompliance as would not have a Material Adverse Effect. Except as
disclosed on Schedule 2.1(r), there is, and during the past three (3)
years there has been, no material labor strike, dispute, slowdown,
work stoppage or other labor difficulty actually pending or, to the
best of Sellers' knowledge, threatened against or involving a
Company. None of the employees of the Companies is covered by any
collective bargaining agreement, no collective bargaining agreement
is currently being negotiated and, to the best of Sellers' knowledge,
no attempt is currently being made or during the past three (3) years
has been made to organize any employees of a Company to form or enter
a labor union or similar organization.
(s) Customers.
---------
(i) Schedule 2.1(s)(i) sets forth a list of the twenty (20)
largest customers of the Companies, in terms of revenue, during
each of the 1995 and 1996 fiscal years, and through June 30 of
fiscal year 1997 (collectively, the "Major Customers"), showing
the approximate total revenue received in each such period from
each such customer.
(ii) Except as set forth on Schedule 2.1(s)(ii), no
customer represented in excess of five percent (5%) of the
Companies' combined total revenue during the 1996 fiscal year and
through June 30 of fiscal year 1997.
(iii) Except to the extent set forth in Schedule
2.1(s)(iii), since January 31, 1996, there has not been any
material adverse change in the business relationship, and there
has been no material dispute, between the Companies and any Major
Customer, and Sellers have no knowledge that any Major Customer
intends to reduce its purchases from a Company, except for
customary project variations.
(t) Historical Financial Information. The Companies' audited
---------- --------- -----------
financial statements for each of the fiscal years ended in 1995 and
1996 and the unaudited financial statements for the period ended June
30, 1996 (collectively, the "Financial Statements"), are annexed
hereto as Schedule 2.1(t). The Closing Date Financial Statements will
be prepared in a manner consistent with that used in the Financial
Statements. The Financial Statements present, and the Closing Date
Financial Statements will present, fairly, in all material respects,
the financial position of the Companies as of the dates thereof and
the results of operations and cash flows of the Companies for the
periods covered thereby, and have been or will be prepared in
accordance with GAAP applied on a consistent basis, except that said
unaudited Financial Statements lack footnotes and other presentation
items. The Financial Statements are, and the Closing Date Financial
Statements will be, in accordance with the books and records of the
Companies, and do and will not reflect any material transactions which
are not bona fide transactions. The Financial Statements make, and
the Closing Date Financial Statements will make, full and adequate
disclosure of, and provision for, all material obligations and
liabilities of the Companies as of the dates thereof, in each case as
required to be disclosed or provided for by GAAP, including in the
case of the Closing Date Financial Statements an accrual and reserve
for the employee bonuses described in Section 3.8(a) hereof. The
books and records of the Companies have been maintained, in all
material respects, in accordance with applicable laws, rules and
regulations, and in the ordinary course of business.
(u) No Adverse Effects or Changes. Except as listed on Schedule
-- ------- ------- -- -------
2.1(u), since June 30, 1996, no Company has:
(i) taken any action, or entered into or authorized any
contract or transaction other than in the ordinary course of
business and consistent with past practice;
(ii) sold, transferred, conveyed, assigned or otherwise
disposed of any of the Companies' material assets other than in
the ordinary course of business;
(iii) made any material changes in its accounting systems,
policies, principles or practices;
(iv) entered into, adopted, amended or terminated any
bonus, profit-sharing, compensation, termination, stock option,
stock appreciation right, restricted stock, performance unit,
pension, retirement, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements
for the benefit or welfare of any director, officer or employee,
or increased in any manner the compensation or fringe benefits of
any director, officer or employee, or pay any benefit not
required by any existing plan and arrangement or entered into any
contract, agreement, commitment or arrangement to do any of the
foregoing;
(v) acquired, leased or encumbered any assets outside the
ordinary course of business or any assets which are material to
the Companies;
(vi) terminated, modified, amended or otherwise altered or
changed any of the terms or provisions of any Contract or Other
Contract, or breached the terms of any Contract or Other
Contract.
(vii) made any payments or distributions of any kind to any
Seller other than base salary at a rate consistent with the
payments of base salary reflected in the Financial Statements; or
(vii) taken any other action that would have a Material
Adverse Effect.
(v)Employees and Independent Contractors. Schedule 2.1(v) hereto
--------- --- ----------- -----------
sets forth a correct and complete schedule containing (i) the name,
job designation, salary, last salary adjustment and the date thereof,
job function and date of hiring of all employees of each Company other
than "temporary" employees who perform the supplemental staffing
services of the Companies; (ii) the name of each independent
contractor, consultant, agent or other person or company whose
compensation from the Company for the twelve (12) month period ended
January 31, 1996, exceeded Ten Thousand Dollars ($10,000), together
with a statement of the full amount paid, or payable, to each such
person or entity, and a summary of the basis on which each such person
or entity is compensated, if such basis is other than a fixed salary
rate and (iii) a complete listing, by calendar month for the months of
February, March, April, May, June and July of 1996, of consultants on
assignment, together with the bill rate and hours provided per
consultant. Except as disclosed on the January 31, 1996, balance
sheet and as will be disclosed on the Closing Date balance sheet, each
as included in the Financial Statements, no Company has liability for
any retirement benefits, disability or other insurance benefits or
severance pay attributable to services rendered prior to January 31,
1996, or the date hereof, respectively.
(w)Bank Accounts. Schedule 2.1(w) hereto sets forth the name and
---- --------
location of each bank in which any Company has an account, lock box or
safe deposit box, and the number and name of each such account or box
and the names of the authorized signatories thereto.
(x) Improper and Other Payments. To the best of Sellers'
-------- --- ----- --------
knowledge, (i) no Company has made, paid or received any bribes,
kickbacks or other similar payments to or from any person, whether
lawful or unlawful, (ii) no contributions have been made by or on
behalf of any Company, directly or indirectly, to a domestic or
foreign political party or candidate, and (iii) no improper foreign
payment (as defined in the Foreign Corrupt Practices Act) has been
made by or on behalf of any Company.
(y) Broker's Fees. Other than Hanifen, Imhoff Inc., no agent,
-------- ----
broker or other person acting pursuant to the express or implied
authority of the Companies or Sellers is or may be entitled to a
commission or finder's fee in connection with the transactions
contemplated by this Agreement, or is or may be entitled to make any
claim against the Companies or Purchaser as a result of any actions by
the Companies or Sellers, for a commission or finder's fee. The
commission or finder's fee payable to Hanifen, Imhoff Inc. shall be
paid by Sellers, and Sellers agree to indemnify Purchaser against any
claim for any commission or finder's fee made by any agent, broker or
other person acting pursuant to the express or implied authority of
the Companies or Sellers.
(z) No Misstatements or Omissions. No representation or warranty
-- ------------- -- ---------
made in this Agreement or on any Schedule hereto by the Companies is
false or misleading as to any material fact, or omits to state a
material fact required to make any of the statements made herein or
therein not misleading in any material respect. All of the Schedules
hereto applicable to the Companies will constitute representations and
warranties by the Companies herein. All representations, covenants
and warranties made by or on behalf of the Companies in this Agreement
will be deemed to have been relied upon by Purchaser (not withstanding
any investigation by Purchaser).
2.2 Representations and Warranties of Purchaser. In order to induce
--------------- --- ---------- -- ---------
Sellers to enter into this Agreement, Purchaser represents and warrants to
Sellers as of the date of this Agreement and as of the Closing Date (as if
each such representation and warranty was remade on the Closing Date), as
follows:
(a)Due Incorporation; Authority. Purchaser is a corporation duly
--- ------------- ---------
organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite power and authority to
own its properties and to conduct its business as currently conducted,
and to execute, deliver and perform this Agreement and the Related
Agreements to which it is a party. Purchaser's execution, delivery,
and performance of this Agreement and the Related Agreements to which
it is a party have been duly and validly authorized by all necessary
corporate action on the part of Purchaser. This Agreement has been
duly executed and delivered by Purchaser and this Agreement
constitutes, and when executed and delivered by Purchaser, each of the
Related Agreements to which it is a party will constitute, the legal,
valid and binding obligation of Purchaser enforceable in accordance
with its terms against Purchaser, except to the extent that such
validity, binding effect and enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors' rights generally from time to time in
effect and by general equitable principles.
(b) No Restrictions Against Performance. Neither the execution
-- ------------ ------- -----------
and delivery, nor the performance of this Agreement, nor the
consummation of the transactions contemplated hereby will violate any
provision of or conflict with Purchaser's Certificate of
Incorporation or By-Laws or will, with or without the giving of notice
or the passage of time, or both, violate any provisions of, conflict
with, result in a breach of, constitute a default under, or result in
the creation or imposition of any Lien or condition under, (i) any
federal, state or local law, statute, ordinance, regulation or rule,
which is applicable to Purchaser; (ii) any contract, indenture,
instrument, agreement, mortgage, lease, right or other obligation or
restriction to which Purchaser is a party or by which Purchaser is
bound; or (iii) any order, judgment, writ, injunction, decree,
license, franchise, permit or other authorization of any Governmental
Authority by which Purchaser is bound, except, in each such case, as
would not materially adversely affect Purchaser's performance of its
obligations under this Agreement (a "Purchaser Material Adverse
Effect").
(c) Third-Party and Governmental Consents. Based on Sellers'
----------- --- ------------ --------
representation that none of Sellers or the Companies meet the
jurisdictional requirements of HSR, no approval, consent, waiver,
order or authorization of, or registration, qualification,
declaration, or filing with, or notice to, any Governmental Authority
or other third party is required on the part of Purchaser in
connection with the execution of this Agreement or the Related
Agreements, or the consummation of the transactions contemplated
hereby or thereby, except as would not have a Purchaser Material
Adverse Effect.
(d) Historical Financial Information. The consolidated audited
---------- --------- -----------
financial statements of Purchaser for the fiscal period ended December
31, 1995, and the unaudited financial statements of Purchaser for the
fiscal period ended June 30, 1996, copies of which have been provided
to Sellers, (collectively the "Purchaser Financial Statements") have
been prepared in a manner consistent with that used in prior years'
reporting. The Purchaser Financial Statements present fairly, in all
material respects, the financial position, assets and liabilities of
Purchaser on a consolidated basis as of the dates thereof and the
revenues, expenses, results of operations and cash flows of Purchaser
on a consolidated basis for the periods covered thereby, all in
accordance with prior reporting methods of Purchaser and have been
prepared in accordance with GAAP. The Purchaser Financial Statements
are in accordance with the books and records of Purchaser on a
consolidated basis and do not reflect any material transactions which
are not bona fide transactions. The Purchaser Financial Statements
make full and adequate disclosure of, and provision for, all material
obligations and liabilities of Purchaser on a consolidated basis as of
the dates thereof, in each case as required to be disclosed or
provided for by GAAP. The books and records of Purchaser on a
consolidated basis have been maintained, in all material respects, in
accordance with applicable laws, rules and regulations, and in the
ordinary course of business.
(e) Broker's Fees. Other than Broadview Associates, LLC, no
-------- ----
agent, broker or other person acting pursuant to the express or
implied authority of Purchaser is or may be entitled to a commission
or finder's fee in connection with the transactions contemplated by
this Agreement, or is or may be entitled to make any claim against the
Companies, Sellers, or Purchaser as a result of any actions by
Purchaser, for a commission or finder's fee. Purchaser agrees to
indemnify the Companies and Sellers against any claim for any such
commission or finder's fee made by any agent, broker or other person
acting pursuant to the express or implied authority of Purchaser.
(f) Litigation. There is no judicial or administrative action,
----------
suit or proceeding pending or, to the best of Purchaser's knowledge,
threatened against or relating to Purchaser or the transactions
contemplated hereby, before any Governmental Authority which, if
adversely determined would have a Purchaser Material Adverse Effect or
would materially delay the transactions contemplated hereby.
(g) Investment. Purchaser is acquiring the Stock for the purpose
----------
of investment and not with a view to or for sale in connection with
any distribution thereof within the meaning of the Securities Act of
1933, as amended.
(h) Solvency and Payment of Liabilities. Purchaser is not on the
-------- --- ------- -- -----------
date hereof, either as a result of the transactions contemplated by
this Agreement or otherwise, insolvent, as such term is defined in
Title 11 (Bankruptcy Code) of the United States Code or any state
statute relating to insolvency; the sum of Purchaser's debts is not
greater than all of its property on the date hereof, either as a
result of the transactions contemplated herein or otherwise; and
Purchaser is on the date hereof, and will be after the Closing Date,
able to pay its debts as they mature.
(i) Disclosure. Purchaser has disclosed to Sellers all material
----------
facts discovered by it in its investigation of the Companies in
anticipation of the transactions contemplated by this Agreement that
are not otherwise disclosed on any schedule hereto, but that, if known
by Sellers, would be required to be so disclosed.
(j) No Misstatements or Omissions. No representation or warranty
-- ------------- -- ---------
made in this Agreement or on any Schedule hereto by Purchaser is false
or misleading as to any material fact, or omits to state a material
fact required to make any of the statements made herein or therein not
misleading in any material respect. All of the Schedules hereto
applicable to Purchaser will constitute representations and warranties
by Purchaser herein. All representations, covenants and warranties
made by or on behalf of Purchaser in this Agreement will be deemed to
have been relied upon by Sellers (notwithstanding any investigation by
Sellers).
ARTICLE 3
COVENANTS SUBSEQUENT TO CLOSING
3.1 Closing Date Financial Statements. Sellers shall deliver to
------- ---- --------- ----------
Purchaser within one hundred twenty (120) days after the Closing Date
unaudited financial statements, prepared in accordance with GAAP applied in
a manner consistent with the accounting practices reflected in the
Financial Statements, for the Companies for the fiscal period ending August
31, 1996 (the "Closing Date Financial Statements"), together with original
signatures of the Companies' accountants and a consent to the use thereof
in filings required under the securities laws of the United States and the
markets in which Purchaser's stock is traded, if requested by Purchaser.
If the Closing Date Financial Statements reflect stockholders' equity on a
consolidated basis of less than Two Million Five Hundred Fifty Thousand
Dollars ($2,550,000), the amount by which such stockholders' equity is
exceeded by Two Million Five Hundred Fifty Thousand Dollars ($2,550,000)
shall be deducted and withheld from the Earn-Out Amounts otherwise due
pursuant to Section 1.2(b) hereof.
3.2 Further Assurances. Sellers severally agree, without further
------- ----------
consideration, to execute and deliver following the Closing such other
instruments of transfer and take such other action as Purchaser may
reasonably request in order to put Purchaser in possession of, and to vest
in Purchaser, good, and title to the Stock free and clear of any Liens in
accordance with this Agreement and to consummate the transactions
contemplated by this Agreement.
3.3 Change of Name. From and after the Closing Date, and other than
------ -- ----
in connection with the preparation and filing of tax returns and
amendments, Sellers shall discontinue all further use, directly or
indirectly, of the name "Daedalian," "Berger," or "BTI" or any variation
thereof, and of any trademark, trade name, service mark or name, or logo
used by the Companies or any word or logo that is similar in sound or
appearance. Notwithstanding the forgoing provisions of this Section 3.3,
Berger may continue to utilize of his name in a manner consistent with his
Noncompetition Agreement, and Berger & Co. Foundation may continue to
utilize its name, provided that it does not engage in any activities
reflecting adversely on the goodwill of the Companies, the Business or the
Subsidiary.
3.4 Records.
-------
(a) Tax Purposes. Purchaser shall allow Sellers access for all
--- --------
Tax purposes for six (6) years from the Closing Date to existing
records of the Business that are in Purchaser's possession, and
Purchaser shall use its good faith efforts to maintain such records
for six (6) years unless specifically authorized by Sellers to the
contrary.
(b) Access. After the Closing, upon reasonable notice to
------
Purchaser, Purchaser shall (i) permit Sellers, their counsel,
accountants and other representatives to have full access during
regular business hours to the offices, properties, books and records
of Purchaser relating to the Business Assets and the Business, (ii)
furnish Sellers, their counsel, accountants, and other representatives
such additional financial and other information regarding the Business
Assets and the Business as Sellers may from time to time reasonably
request, and (iii) make available to Sellers, their counsel,
accountants and other representatives, the employees of Purchaser
whose assistance, testimony or presence is necessary to assist Sellers
in evaluating any claims and defending any claims; provided, however,
-------- -------
that such investigation and access shall not unreasonably interfere
with any of the businesses or operations of Purchaser or the Companies
and shall have a legitimate purpose.
3.5 Operations of Business. From the Closing Date through the end of
---------- -- --------
the Earn-Out Period, Parent and the Subsidiary shall conduct the operations
of the Business in accordance with the following provisions of this Section
3.5:
(a) Business. Parent shall maintain the integrity of the
--------
Subsidiary for accounting purposes, so as to make the calculation of
EBIT feasible and easily verifiable, and shall not combine the
Business or its operations with any other business or activity carried
on by Parent or its affiliates other than the Subsidiary
("Affiliates") without first reasonably agreeing with Sellers as to
the effect thereof on the Earn-Out Amounts. Parent may merge the
Companies with and into the Subsidiary at any time after the Closing
Date. Parent shall provide the Business with accounting, financial,
front office and back office support services only on such basis as
Sellers' Representative and Parent mutually agree, the charge for
which shall be Parent's actual cost in the provision of such
services. The Subsidiary shall be entitled to open new or
additional offices on such terms and conditions as are mutually
agreed by Parent and Sellers' Representative. Prior to opening
any such office, Parent and Sellers' Representative shall agree
on a budget with respect thereto, which will include a credit
that will not be charged against EBIT of the Subsidiary.
(b) Governance. The Board of Directors of the Subsidiary shall
----------
consist of five (5) members. Purchaser agrees to vote its shares of
stock in the Subsidiary to elect the two (2) persons designated by the
Sellers' Representative to the Board of Directors of the Subsidiary.
Berger shall be appointed as Chief Executive Officer, Solano as
President, Verret as Vice President and Turner as Vice President of
the Subsidiary, in each case to serve until the termination of his or
her employment by the Subsidiary or until otherwise requested by the
Sellers' Representative.
(c) Officers. The Chief Executive Officer and the President of
--------
the Subsidiary shall have all of the power and authority of a chief
executive officer and president of a corporation, respectively,
including the authority to operate the Business and manage the affairs
of the Subsidiary, except that neither shall take any of the following
actions without the consent or approval of the Board of Directors of
the Subsidiary:
(i) any function or duty which is by statue or by the
Subsidiary's Certificate of Incorporation expressly reserved or
assigned to the Board of Directors of the Subsidiary or subject
to approval by the shareholder of the Subsidiary;
(ii) enter any transaction not in the ordinary course of
the Subsidiary's business as then conducted;
(iii) alter or amend the Employment Agreement,
Noncompetition Agreement, compensation or benefits of any Seller
or other officer of the Subsidiary; provided, however, that the
-------- -------
Chief Executive Officer of the Subsidiary shall have the
authority from time to time to (A) award and pay officers,
including himself, bonuses from the bonus pool described in
Section 3.8(b) hereof and (B) create, modify or terminate
benefits generally available to employees of the Subsidiary,
except to the extent provided by Purchaser;
(iv) change auditors or, in any material fashion, the
accounting principals used by Subsidiary;
(v) make capital expenditures or charitable contributions
in a manner materially inconsistent with the Subsidiary's budget,
as proposed by the Chief Executive Officer or President of the
Subsidiary and as adopted by its Board of Directors;
(vi) create or incur any debt, excluding trade payables
incurred in the ordinary course of business;
(vii) make any loan or extend any credit, except for (A)
notes and accounts receivable arising in the ordinary course of
business and (B) advances to employees other than officers of the
Subsidiary;
(viii) adopt any qualified plan or any other employee
benefit plan inconsistent with a plan provided by Purchaser;
(ix) change the fundamental nature or direction of the
Business; or
(x) enter into any transaction with a Seller or Sellers or
a party related to or controlled by a Seller or Sellers.
3.6 Preservation of Business. From the Closing Date through the end of
------------ -- --------
the Earn-Out Period, Parent agrees not to permit any Company or the
Subsidiary to sell, transfer, convey, assign or otherwise dispose of any
material portion of such Company's or the Subsidiary's assets or any
material part of the Business (provided, however, that the Companies may
transfer ownership of their respective intangibles to an Affiliate of
Parent and the Companies may be merged into the Subsidiary if such transfer
and merger will have no effect on EBIT during the Earn-Out Period); or(ii)
take any other action that would have a material adverse effect on the
Business or such Company or the Subsidiary.
3.7 Operations by Parent. Nothing in this Agreement shall be
---------- -- ------
interpreted as a restriction or limitation on Parent's right and ability to
acquire by purchase, exchange or otherwise any other entity, organization,
business or other enterprise, whether or not engaged in a business similar
or related to the Business (an "Acquired Business"). Unless a Company
operates an Acquired Business, as determined by Parent in its sole
discretion and agreed to by Sellers' Representative as to the effect
thereof on the Earn-Out Amounts, Sellers shall have no rights or interests
in or relating to any Acquired Business.
3.8 Bonuses.
-------
(a) To Employees. The Subsidiary shall pay to each of the
-- ---------
employees of the Subsidiary who are identified on Schedule 3.8 hereto,
as amended from time to time by the mutual agreement of the Chief
Executive Officer of the Subsidiary and the Chief Executive Officer of
Purchaser, and who are still employed in the Business as of December
31, 1999, the amount determined in accordance with such Schedule (the
"Employee Bonuses"). Nothing in this Agreement shall be construed as
giving any such employee third-party rights under this Agreement, and
this Agreement shall not be interpreted as a contract of employment
for any such employee.
(b) To the Executives. During the Earn-Out Period, the
Subsidiary
-- --- ----------
shall make available with respect to each calendar year in which the
Subsidiary's EBIT equals at least Three Million Five Hundred Thousand
Dollars ($3,500,000) a bonus pool of Two Hundred Seventy Thousand
Dollars ($270,000) to be payable, at the discretion of the Chief
Executive Officer of the Subsidiary, to the executive officers of the
Subsidiary.
3.9 Stock Options. Purchaser shall grant, pursuant to its 1993 Stock
----- -------
Option and Performance Award Plan (the "Plan"), "non-qualified stock
options" (as defined in the Plan) to acquire an aggregate of Fifty Thousand
(50,000) shares of its common stock, $.01 par value, to the employees of
the Companies identified in Schedule 3.9 hereto in accordance with the
allocation therein provided.
3.10 Sellers' Representative. Sellers shall appoint a representative
-------- --------------
(the "Sellers' Representative"), who shall have the power and authority to
exercise any and all of the rights and powers of Sellers in all matters
relating to this Agreement and the transactions contemplated hereby.
Purchaser, the Subsidiary and the Companies shall be entitled to rely on
the acts and documents of the Sellers' Representative without further
inquiry as to any underlying facts represented by the Sellers'
Representative or as to the authority of the Sellers' Representative.
Sellers' Representative shall initially be Berger unless and until
Purchaser is given written notice of Berger's replacement signed by all
Sellers or their respective successors or assigns.
3.11 Guaranteed Indebtedness. As soon as practicable following
---------- ------------
Closing, Purchaser shall satisfy all indebtedness of the Companies
identified in Schedule 2.1(q) hereof that any of the Sellers has personally
guaranteed or secured with personal assets.
3.12 Director and Officer Liability and Indemnification. No
amendment,
-------- --- ------- --------- --- ---------------
repeal or modification of any provision in any Companies' articles of
incorporation or by-laws relating to the exculpation, indemnification or
personal liability of officers and directors or former officers and
directors (unless required by law) shall be effective as to any of the
Sellers up to and through the Closing Date, it being the intent of the
parties that the Sellers who are officers or directors of a Company either
prior to Closing shall continue to be entitled to such exculpation and
indemnification to the fullest extent permitted under applicable law;
provided, however, that this Section 3.12 shall not be interpreted to
-------- -------
abrogate Sellers' obligations and liabilities under this Agreement and the
Related Agreements to which they are parties.
ARTICLE 4
DELIVERIES
4.1 Sellers' Deliveries. At the Closing, in addition to any other
-------- ----------
documents or agreements required under this Agreement, Sellers shall
deliver or cause to be delivered to Purchaser the following:
(a) Stock Certificates. The certificates representing the Stock,
----- ------------
duly endorsed in blank or accompanied by duly and properly executed
stock powers with all required transfer taxes, if any, paid and stamps
affixed, assigning to Purchaser all of Sellers' rights and interests
in and to the Stock, free and clear of any and all Liens;
(b) Books and Records. Each Company's corporate books and
----- --- -------
records, including, without limitation, its minute books and stock
transfer records.
(c) Certified Corporate Records. A copy of the Articles of
--------- --------- -------
Incorporation of each Company, certified by the Secretary of State of
the State of Colorado and a copy of the By-laws of each Company,
certified by the secretary or assistant secretary of such Company.
(d) Legal Opinion. The legal opinion of Minor & Brown, P.C.,
----- -------
Sellers' counsel, containing opinions reasonably satisfactory to
Purchaser.
(e) Business Documents. Constructive possession of all manuals,
-------- ---------
including employee manuals, customer lists, books and other records
and files, computer programs, computer software and master disk of
source codes relating to, or associated with, the Business, or the
Business Assets.
(f) Consents and Approvals. Copies of all consents, approvals,
-------- --- ---------
certificates and other documents required in connection with the
performance by Sellers of this Agreement and the consummation of the
transactions contemplated hereby listed in Schedule 2.1(c).
(g) Noncompetition Agreements. The Noncompetition Agreements as
-------------- ----------
executed by the respective Sellers.
(h) Employment Agreement. The Employment Agreements as executed
---------- ---------
by the respective Sellers.
(i) Corporate Certificate. A Certificate of Good Standing for
--------- -----------
each Company from the State of Colorado as of a date within thirty
(30) days before the Closing Date.
(j) Payoff Letter. A letter from Key Bank certifying as to the
------ ------
payoff figure for the Companies' indebtedness to be paid pursuant to
Section 3.11 hereof.
(k) General Releases. A general release and waiver from each
------- --------
Seller to the Companies, in form reasonably satisfactory to Purchaser.
(l) Resignations. Resignations from the officers and directors
------------
identified by Purchaser.
4.2 Purchaser's Deliveries. At the Closing, in addition to any other
----------- ----------
documents or agreements required under this Agreement, Purchaser shall
deliver to Sellers the following:
(a) Cash. The Closing Payment as provided in Section 1.2(a)
----
hereof.
(b) Corporate Authorization. A certificate, dated the Closing
--------- -------------
Date, executed by the secretary or assistant secretary of Purchaser,
certifying resolutions of the Board of Directors of Purchaser
approving and authorizing the execution, delivery and performance by
Purchaser of this Agreement and each of the Related Agreements to
which Purchaser is a party and the consummation of the transactions
contemplated hereby and thereby (together with an incumbency and
signature certificate regarding the officer(s) signing any document or
instrument on behalf of Purchaser).
(c) Consents and Approvals. All consents, approvals, certificates
-------- --- ---------
and other documents required in connection with the performance by
Purchaser of this Agreement and the consummation of the transactions
contemplated hereby.
(d) Corporate Certificate. A Certificate of Good Standing for
--------- -----------
Purchaser from the State of Delaware.
(f) Legal Opinion. The legal opinion of Mike G. Reinecke, General
----- -------
Counsel to Purchaser, containing opinions reasonably satisfactory to
Sellers.
(g) Daedalian, Berger & Co. and BTI Minutes. Consent minutes by
---------- ------ - --- --- --- -------
Parent as the sole shareholder of Daedalian electing the directors of
that Company; consent minutes of Daedalian's newly elected directors
appointing its officers; consent minutes by Daedalian as the sole
shareholder of Berger & Co. and BTI electing the directors of each;
and consent minutes of the boards of Berger & Co. and BTI appointing
their respective officers.
(h) Noncompetition Agreements. The Noncompetition Agreements as
-------------- ----------
executed by Berger & Co.
(i) Employment Agreements. The Employment Agreements as executed
---------- ----------
by Berger & Co.
ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION
5.1 Survival of Representations and Warranties of the Companies and
-------- -- --------------- --- ---------- -- --- --------- ---
Sellers.
-------
All representations, warranties, agreements, covenants and obligations made
or undertaken by the Companies and Sellers in this Agreement or in any
document or instrument executed and delivered pursuant to Section 4.1
hereof are material, have been relied upon by Purchaser and shall survive
the Closing hereunder and shall not merge in the performance of any
obligation by any party hereto, and will remain in full force and effect,
but in all events subject to the provisions of Section 5.3 hereof. Sellers
(without any right of contribution from the Companies) hereby jointly and
severally release, discharge, and agree to indemnify, defend and hold
Purchaser, the Subsidiary and the Companies harmless from and against any
and all liability, loss, actual, punitive or exemplary damages, fines,
penalties, obligations, payments, costs and expenses or injury and all
reasonable costs and expenses (including reasonable counsel and expert fees
and costs of any suit, action, claim, demand, investigation, assessment,
judgment, remediation, settlement or compromise related thereto by any
person or entity) suffered or incurred by Purchaser, the Subsidiary or the
Companies arising from any misrepresentation or breach of any covenant,
representation or warranty of Sellers contained in this Agreement or in any
certificate or other instrument furnished or to be furnished by Sellers
hereunder, provided, however, that for purposes of this Section 5.1,
-------- -------
all representations and warranties of Sellers shall be shall be deemed to
have been made unconditionally and without regard to knowledge.
5.2 Survival of Representations and Warranties of Purchaser. All
-------- -- --------------- --- ---------- -- ---------
representations, warranties, agreements, covenants and obligations made or
undertaken by Purchaser in this Agreement or in any document or instrument
executed and delivered pursuant hereto are material, have been relied upon
by Sellers and shall survive the Closing hereunder and shall not merge in
the performance of any obligation by any party hereto, and will remain in
full force and effect, but in all events subject to the provisions of
Section 5.3 hereof, if applicable. Purchaser hereby releases, discharges
and agrees to indemnify, defend and hold Sellers harmless from and against
all liability, loss, damage or injury and all reasonable costs and expenses
(including reasonable counsel and expert fees and costs of any suit,
action, claim, demand, investigation, assessment, judgement, remediation,
settlement or compromise related thereto by any person or entity) suffered
or incurred by Sellers arising from any misrepresentation or breach of any
covenant, representation or warranty of Purchaser contained in this
Agreement or any certificate or other instrument furnished or to be
furnished by Purchaser hereunder.
5.3 Limitations on Indemnification.
----------- -- ---------------
(a) Sellers' Limitation. Except with respect to intentional
-------- ----------
misrepresentations as provided in Section 5.3(d) hereof, (i) Sellers
shall not be required to indemnify Purchaser pursuant to Section 5.1
or Article 6 hereof except to the extent that the aggregate amount of
indemnifiable damages exceeds One Hundred Thousand Dollars ($100,000)
(the "Deductible"), in which case Sellers shall only be responsible
for such indemnifiable damages in excess of the Deductible, and (ii)
the aggregate amount that Sellers shall be obligated to indemnify
Purchaser pursuant to Section 5.1 hereof shall not exceed the amount
of the unpaid Earn-Out Amounts, if any, for any calendar year ending
after the receipt by Sellers' Representative of the notice required by
Section 5.4(a)(i) or Section 5.5(a) hereof, and (iii) the aggregate
amount that Sellers shall be obligated to indemnify Purchaser pursuant
to Article 6 hereof shall not exceed the sum of the Earn-Out Amounts.
(b) Purchaser's Limitation. Except as provided in Section 5.3(d)
----------- ----------
hereof, Purchaser shall not be required to indemnify Sellers pursuant
to Section 5.2 hereof except to the extent that the aggregate amount
of indemnifiable damages exceeds the Deductible.
(c) Survival of Covenants and Warranties. Notwithstanding
-------- -- --------- --- ----------
anything to the contrary set forth herein, the representations,
warranties, covenants and agreements made by Sellers, on the one hand,
and Purchaser, on the other hand, shall survive the Closing for a
period of three (3) years from the date hereof, except as provided in
Article 6 hereof (the "Indemnification Period").
(d) Remedies. Except as provided in Section 7.7 hereof, the
--------
remedies for any item or matter eligible for indemnification pursuant
to Section 5.1 or 5.2 hereof, as applicable, whether or not
indemnification is sought ("Indemnifiable Losses"), other than for
intentional misrepresentation, shall be limited to recoveries under
this Article 5. Each party to this Agreement hereby acknowledges and
agrees that, except as provided in Section 7.7 hereof, its sole remedy
against the other parties to this Agreement for Indemnifiable Losses
shall be solely under this Article 5 and each party expressly waives
any and all rights, in law, by statute or in equity that it had, now
has, or may have in the future, for such Indemnifiable Losses of the
other party (other than for any intentional misrepresentation).
Notwithstanding the foregoing, Sellers' and Purchaser's remedies for
any Indemnifiable Losses arising out of an intentional
misrepresentation shall not be subject to limitation and shall be
cumulative, and the exercise by an Indemnitee (as defined in Section
5.4(a) hereof) of its right to indemnification hereunder with respect
to Indemnifiable Losses from such misrepresentation shall not affect
or diminish the right of the Indemnitee to exercise any other rights
or remedies under this Article 5 or any other remedy at law or in
equity, to recover damages, or to obtain equitable or other relief.
Without limiting any other rights or remedies set forth herein, any
amounts due to Purchaser, the Subsidiary or the Companies by Sellers
pursuant to Section 5.1 hereof may be offset by Purchaser against any
Earn-Out Amounts due to Sellers pursuant to Section 1.2(b) hereof.
(e) Limitation of Recourse. No claim shall be brought or
---------- -- --------
maintained by Purchaser, the Subsidiary or any Company against any
Seller in his or her capacity as an officer, director or employee of a
Company by virtue of or based upon any alleged misrepresentation or
inaccuracy in or breach of any other representations, warranties or
covenants set forth in this Agreement or any certificate delivered
hereunder, provided, however, that this Section 5.3(e) shall not limit
-------- -------
any claims against any Seller as a Seller in accordance with the
provisions of Section 5.1 or Article 6 hereof with respect to such
alleged misrepresentation or inaccuracy or breach.
(f) Acknowledgment by Purchaser. Purchaser acknowledges that it
-------------- -- ---------
has conducted an independent investigation of the financial condition,
results of operations, assets, liabilities, properties and projected
operations of the Companies and, in making its determination to
proceed with the transaction contemplated by this Agreement, Purchaser
has relied on the results of its own independent investigation and the
representations and warranties of the Sellers expressly contained in
this Agreement. Such representations and warranties constitute the
sole and exclusive representations and warranties of the Sellers to
Purchaser in connection with the transactions contemplated hereby, and
Purchaser understands, acknowledges and agrees that all other
representations and warranties of any kind or nature, expressed or
implied, are specifically disclaimed by the Sellers and shall not be
binding on them.
(g) Indemnification Net of Taxes and Insurance. The amount of any
--------------- --- -- ----- --- ---------
loss subject to indemnification hereunder or any claim therefore shall
be calculated net of (i) any net Tax Benefit inuring to Purchaser, the
Subsidiary or a Company on account of such loss, and (ii) any
insurance proceeds (net of direct collection expenses and Taxes with
respect thereto) received or receivable by Purchaser, the Subsidiary
or a Company on account of such loss. If Purchaser, the Subsidiary or
a Company receives a Tax Benefit after an indemnification payment is
made, Purchaser shall promptly pay to Sellers who have made such
indemnification payment pro rata according to the amount of such Tax
Benefit at such time or times as and to the extent that such Tax
Benefit is received for purposes hereof. "Tax Benefit" shall mean the
present value of any refund of Taxes paid or reduction in the amount
of Tax which otherwise would have been paid currently using the
maximum tax rate for the then-current tax year. Purchaser, the
Subsidiary and/or the Companies shall seek full recovery under any
insurance policies covering any loss to the same extent as they would
if such loss were not subject to indemnification hereunder. In the
event that an insurance recovery is made by Purchaser, the Subsidiary,
a Company or any of their respective affiliates with respect to any
loss for which any such person has been indemnified hereunder, then a
refund equal to the net, after-Tax amount of the recovery shall be
made promptly to the Sellers who have directly or indirectly made an
indemnification payment under this Article pro rata based on the
respective amounts paid.
(h) Purchase Price Adjustment. All indemnification payments
-------- ----- ----------
made hereunder shall be treated by all parties as an adjustment to the
Purchase Price.
5.4 Third Party Claims.
----- ----- ------
(a) Defense of Claims. If any party entitled to indemnification
------- -- ------
under this Agreement (an "Indemnitee") receives notice of the
assertion of any claim or of the commencement of any action or
proceeding by any entity who is not a party to this Agreement or an
affiliate of such a party (a "Third Party Claim") against such
Indemnitee, against which a party is or may be obligated to provide
indemnification under this Agreement (an "Indemnifying Party"), the
following procedures shall apply:
(i) The Indemnitee shall give such Indemnifying Party
reasonably prompt written notice thereof, but in any event no
later than thirty (30) days after receipt of such notice of such
Third Party Claim; provided, however, that failure to strictly
-------- -------
comply with such notice requirements shall not affect the
Indemnitee's right to indemnification except to the extent such
failure adversely affects the Indemnifying Party's ability to
defend such Third Party Claim. Such Notice shall describe the
Third Party Claim in reasonable detail and shall indicate the
estimated amount, if reasonably practicable, of the Indemnifiable
Loss that has been or may be sustained by the Indemnitee.
(ii) The Indemnifying Party shall have the right to
participate in or, by giving written notice to the Indemnitee no
later than thirty (30) days after receipt of the above-described
notice of such Third Party Claim, to elect to assume the defense
of (and to agree to provide indemnification for) any Third Party
Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel (reasonably satisfactory to the
Indemnitee), and the Indemnitee shall cooperate in good faith in
such defense. If the Indemnifying Party does not elect to assume
the defense by giving notice within thirty (30) days after
receipt of the above-described notice of such Third Party Claim,
as provided in the preceding sentence, the Indemnifying Party
thereafter may elect, by providing the Indemnitee written notice,
to later assume the defense of (and to agree to provide
indemnification for) such Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel
(reasonably satisfactory to Indemnitee), and the Indemnitee shall
cooperate in good faith in such defense.
(iii) The Indemnitee shall have the right to participate in
the defense of any Third Party Claim assisted by counsel of its
own choosing, provided that, if the named parties to any such
proceeding (including any impleaded parties) include both the
Indemnifying Party and the Indemnitee or if the Indemnifying
Party proposes that the same counsel represent both the
Indemnitee and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual
or potential differing interests between them, then the
Indemnitee shall have the right to retain its own counsel at the
cost and expense of the Indemnifying Party. If the Indemnitee
has not received written notice within such thirty (30) day
period that the Indemnifying Party has elected to assume the
defense of such Third Party Claim, the Indemnitee may, at its
option, elect to settle or assume such defense, assisted by
counsel of its own choosing, and the Indemnifying Party shall be
liable for all costs, expenses, settlement amounts or other
Indemnifiable Losses paid or incurred in connection therewith.
(b) Limitations. If, within the thirty (30) days set forth above,
-----------
an Indemnitee receives written notice from an Indemnifying Party that
such Indemnifying Party has elected to assume the defense of (and to
agree to provide indemnification for) any Third Party Claim as
provided in Section 5.4(a) hereof, the following procedures apply:
(i) The Indemnifying Party will not be liable for any legal
expenses subsequently incurred by the Indemnitee in connection
with the defense thereof (except as provided in Section 5.4(a)
hereof); provided, however, that if the Indemnifying Party fails
-------- -------
to take reasonable steps necessary to defend diligently such
Third Party Claim within thirty (30) days after receiving written
notice from the Indemnitee that the Indemnitee reasonably
believes the Indemnifying Party has failed to take such steps,
the Indemnitee may, at its option, after giving the Indemnifying
Party a reasonable opportunity to justify its litigation
strategy, elect to settle or assume its own defense, assisted by
counsel of its own choosing, and the Indemnifying Party shall be
liable for all costs, expenses, settlement amounts or other
Indemnifiable Losses paid or incurred in connection therewith.
(ii) Without the prior written consent of the Indemnitee,
the Indemnifying Party shall not enter into any settlement of any
Third Party Claim or cease to defend against such Claim, if,
pursuant to or as a result of such settlement or cessation,
injunctive or other equitable relief would be imposed against the
Indemnitee. The Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to each Indemnitee of a release from all
liability in respect of such Claim.
(iii) The Indemnifying Party shall not be entitled to
control, and the Indemnitee shall be entitled to have sole
control over, the defense or settlement of any Third Party Claim
to the extent that such Claim seeks an order, injunction or other
equitable relief against the Indemnitee which, if successful,
would be reasonably likely to materially interfere with the
business, operations, assets, condition (financial or otherwise)
or prospects of the Indemnitee (and the cost of such defense
shall constitute an amount for which the Indemnitee is entitled
to indemnification hereunder).
(iv) If a firm offer is made to settle a Third Party Claim
which offer the Indemnifying Party is permitted to settle under
this Section 5.4(b), and the Indemnifying Party desires to accept
and agree to such offer, the Indemnifying Party shall give
written notice to the Indemnitee to that effect. If the
Indemnitee fails to consent to such firm offer within ten (10)
days after its receipt of such notice, the Indemnitee may
continue to contest or defend such Third Party Claim and, in such
event, the maximum liability of the Indemnifying Party as to such
Third Party Claim shall not exceed the amount of such settlement
offer, plus costs and expenses paid or incurred by the Indemnitee
through the end of such ten (10) day period. If the Indemnifying
Party chooses not to accept and agree to any such firm offer
which is acceptable and agreeable to the Indemnitee, then the
Indemnifying Party shall separately indemnify and hold Indemnitee
harmless from and against any and all Indemnifiable Losses in
excess of such firm offer amount, and any such excess
Indemnifiable Losses shall be due and payable without regard to
Section 5.3 hereof.
(c) Diligence. Each party hereunder who has assumed the defense
---------
of a Third Party Claim shall use all reasonable effort to diligently
defend such Claim.
5.5 Direct Claims.
------ ------
(a) Notice. Any claim by an Indemnitee for indemnification other
------
than indemnification against a Third Party Claim (a "Direct Claim")
shall be asserted by giving the Indemnifying Party reasonably prompt
written notice thereof, and the Indemnifying Party shall have a period
of thirty (30) days within which to respond in writing to such Direct
Claim. If the Indemnifying Party does not so respond within such
thirty (30) day period, the Indemnifying Party shall be deemed to have
accepted such claim, in which event the Indemnitee will be free to
pursue such remedies as may be available to the Indemnitee under this
Article 5.
(b) Arbitration. Each of the parties hereto irrevocably consents
-----------
to the personal jurisdiction of the American Arbitration Association
to adjudicate and resolve any dispute or claim relating to or arising
out of this Agreement, the Related Agreements or the transactions
contemplated hereby. Arbitration of any such claim or dispute shall
be conducted in New York City or Nassau County, New York, as the
claimant elects and shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Each of the parties hereto hereby waives any objection that such party
may now or hereafter have to the jurisdiction of the American
Arbitration Association in New York on the basis of inconvenient
forum, lack of jury trial, or otherwise.
5.6 Sellers' Representative. All notices to be sent or received or
-------- --------------
elections to be made by Sellers under this Article 5 shall be sent to or be
made by Sellers' Representative as provided in Section 3.10 hereof.
ARTICLE 6
TAX AND ERISA MATTERS
6.1 Definitions. For purposes of this Article 6, the following terms
-----------
shall have the following meanings:
(a) "Additional Tax Assessment" means the loss defined in
Section 6.2(a) hereof.
(b) "Affiliate" means, with respect to any person, any person
directly or indirectly controlling, controlled by, or under common
control with such other person.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Federal Taxes" means United States federal income,
environmental and alternative or add-on minimum taxes.
(e) "Final Determination" (i) shall mean with respect to Federal
Taxes, a "determination" as defined in Section 1313(a) of the Code or
execution of an Internal Revenue Service Form 970AD and, with respect
to Taxes other than Federal Taxes, any final determination of
liability in respect of a Tax provided for under applicable law; and
(ii) shall include the payment of Tax by Purchaser, the Companies or
Sellers, whichever is responsible for payment of such Tax under
applicable law, with respect to any item disallowed by a Taxing
Authority, provided that the other party is notified that Purchaser,
the Companies or Sellers, whichever is responsible, determines that no
action should be taken to recoup such disallowed item, and such other
party agrees with such determination.
(f) "Overlap Tax Period" means a Tax period for which a Tax
Return must be filed that commences prior to the Closing Date and ends
after the Closing Date.
(g) "Post-Closing Tax Period" means any Tax period (or portion
thereof) ending after the Closing Date.
(h) "Pre-Closing Tax Period" means any Tax period (or pre-
closing portion of an Overlap Tax Period) ending on or before the
close of business on the Closing Date.
(i) "Tax" (and, with correlative meaning, "Taxes"and "Taxable")
means (i) any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding on amounts paid or payable to or by a Company,
payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any Governmental Authority (a "Taxing
Authority") responsible for the imposition of any such Tax (domestic
or foreign), and (ii) liability of a Company for the payment of any
amounts of the type described in clause (i) above as a result of any
express or implied obligation to indemnify any other person.
(j) "Tax Indemnification Period" means (i) any Pre-Closing Tax
Period of any Company, and (ii) with respect to any Tax described in
clause (ii) of the definition of "Tax" contained herein in this
Section 6.1, the survival period of the indemnification obligation
under the applicable contract.
6.2 Tax Indemnification.
--- ---------------
(a) Additional Tax Assessment. Notwithstanding the
---------- --- ----------
indemnification obligations set forth in Section 5.1 hereof but
subject to the limitations set forth in Section 5.3(a) hereto, Sellers
shall indemnify Purchaser against and agree to hold it harmless from
any (i) Tax of any Company or Sellers, including any Taxes payable as
a result of the transactions contemplated hereby, including as a
result of any change in accounting method, and (ii) liabilities,
costs, expenses (including, without limitation, reasonable expenses of
investigation and attorneys' fees and expenses), losses, damages,
assessments, settlements or judgments arising out of or incident to
the imposition, assessment or assertion of any Tax, including those
incurred in the contest in good faith of appropriate proceedings for
the imposition, assessment or assertion of any Tax, and any liability
as transferee, in each case related to the Tax Indemnification Period
and in each case incurred or suffered by Purchaser, any of its
Affiliates or, effective upon the Closing Date, any Company (the sum
of clauses (i) and (ii) above, an "Additional Tax Assessment").
(b) Allocations. For purposes of this Section 6.2, in the case of
-----------
any Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes the Closing Date, the portion of such Tax
related to the portion of such Taxable period ending on the Closing
Date shall (i) in the case of any Taxes other than Taxes based upon or
related to income, be deemed to be the amount of such Tax for the
entire Taxable period multiplied by a fraction, the numerator of which
is the number of days in the Taxable period ending on day prior to the
Closing Date and the denominator of which is the number of days in the
entire Taxable period, and (ii) in the case of any Tax based upon or
related to income, be deemed equal to the amount which would be
payable if the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations
shall be made in a manner consistent with prior practices of the
Companies.
(c) Payment. Upon a Final Determination of an Additional Tax
-------
Assessment, Sellers shall jointly and severally discharge their
obligation to indemnify Purchaser against such Additional Tax
Assessment by paying the amount thereof to Purchaser. Any payment
pursuant to this Section 6.2 shall be made not later than Thirty (30)
days after receipt by Sellers' Representative of written notice from
Purchaser stating that a Final Determination of any Additional Tax
Assessment has occurred, and the amount thereof and of the indemnity
payment requested. Any payment required under this Section 6.2 and
not made when due shall bear interest at the rate per annum
determined, from time to time, under the provisions of Section
6621(a)(2) of the Code for each day until paid.
(d) Notice. Purchaser agrees to give prompt notice to Sellers'
------
Representative of the assertion of any claim, or the commencement of
any suit, action or proceeding in respect of which indemnity may be
sought hereunder and of any Additional Tax Assessment, which Purchaser
deems to be within the scope of this Section 6.2 (specifying with
reasonable particularity the basis therefor) and will give Sellers'
Representative such information with respect thereto as Sellers'
Representative may reasonably request. Sellers may, at their own
expense, participate in, and, upon notice to Purchaser, assume the
defense of any such suit, action or proceeding; provided that (i)
Sellers' counsel is reasonably satisfactory to Purchaser; (ii) Sellers
shall thereafter consult with Purchaser upon Purchaser's reasonable
request for such consultation from time to time with respect to such
suit, action or proceeding; and (iii) Sellers shall not, without
Purchaser's consent, agree to any settlement with respect to any Tax
if such settlement could adversely affect the past, present or future
Tax liability of Purchaser, any of its Affiliates or, after the
Closing Date, any Company. If Sellers assume such defense, Purchaser
shall have the right (but not the duty) to participate in the defense
thereof and to employ counsel, at its own expense, separate from the
counsel employed by Sellers. Whether or not Sellers choose to defend
or prosecute any claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof. Failure of Purchaser to give
Sellers' Representative prompt notice under this Section 6.2(d) shall
not excuse Sellers from their obligation to indemnify Purchaser for an
Additional Tax Assessment except, and to the extent, such failure
prejudices the favorable resolution of such claim.
(e) Investigation. No investigation by Purchaser or any of its
-------------
Affiliates at or prior to the Closing Date shall relieve Sellers of
any liability under this Article 6.
(f) Survival. Notwithstanding anything in this Agreement to the
--------
contrary, the provisions of this Article 6 shall survive for the full
period of all applicable statutes of limitations (giving effect to any
waiver, mitigation or extension thereof).
6.3 Tax Covenants.
--- ---------
(a) No Change of Elections. Without the prior written consent of
-- ------ -- ---------
Purchaser, Sellers shall not make or change any election, change an
annual accounting period, adopt or change any accounting method, file
any amended Return, enter into any closing agreement, settle any Tax
claim or assessment relating to any Company, surrender any right to
claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating
to any Company, take any other action or omit to take any action, if
any such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action or omission would have the effect
of increasing the Tax liability of a Company, Purchaser or any
Affiliate of Purchaser.
(b) Tax Returns.
--- -------
(i) On or before the due date for each Tax Return for Pre-
Closing Tax Periods of the Companies that are not due as of the
Closing Date, Sellers shall deliver to Purchaser a pro forma Pre-
Closing Tax Period Return (each a "Pro Forma Pre-Closing Tax
Period Return"). Unless the Purchaser timely objects as
specified in Section 6.3(b)(iii) hereof, Sellers shall timely
file each such Tax Return with respect to each Pre-Closing Tax
Period.
(ii) On or before the due date for the Tax Return with
respect to each Overlap Tax Period of the Companies, Purchaser
shall deliver to Sellers' Representative a pro forma Overlap Tax
Period Tax Return (each a "Pro Forma Overlap Tax Period Return"),
reflecting the amount of Tax for the portion of Taxable year that
ends on the Closing Date, calculated in accordance with Section
6.3(b)(iv) hereof. Unless Sellers' Representative timely objects
as specified in Section 6.3(b)(iii) hereof, the amount of Tax
shall be binding on the parties without further adjustment.
Purchaser shall timely file each Tax Return with respect to each
Overlap Tax Period.
(iii) Sellers and Purchaser, as appropriate, shall have the
right at their own expense to review all work papers and
procedures used to prepare Tax information and the Pro Forma Tax
Returns. If Sellers' Representative, within ten (10) business
days after delivery of the Pro Forma Overlap Tax Period Returns
or the Tax Return information, notifies Purchaser in writing that
Sellers object to any items on a Pro Forma Overlap Tax Period
Return or in the Tax Return information, specifying with
particularity any such item and stating the specific factual or
legal basis for any such objection, Purchaser and Sellers'
Representative shall negotiate in good faith and use their good
faith efforts to resolve such items. If Purchaser, within Ten
(10) business days after delivery of the Pro Forma Pre-Closing
Tax Returns or the Tax Return information notifies Sellers'
Representative in writing that it objects to any items on a pro
Forma Pre-Closing Tax Return, specifying with particularity any
such item and stating the specific factual or legal basis for any
such objection, Purchaser and Sellers' Representative shall
negotiate in good faith and use their good faith efforts to
resolve such items. Upon resolution of such items, (A) as to a
Pro Forma Return, the relevant Return shall be adjusted to
reflect such resolution, binding on the parties without further
adjustment, and (B) as to the Tax Return information, the Tax
Return information shall be binding on the parties without
further adjustment.
(iv) The calculation of the amount of Tax liability set
forth on the Pro Forma Overlap Tax Period Returns shall be made
as appropriate, as if each Company were filing a separate return
using the applicable tax rates in effect during the relevant Pre-
Closing Tax Period. Sellers and Purchaser agree that Sellers'
share of Taxes for the Pre-Closing Tax Period of the Overlap Tax
Period will be determined based on the closing of the books of
the Companies as of the Closing Date and the allocation of income
items or liability for non-income Taxes using the principles set
forth in Section 6.2(b) hereof.
(v) Subject to Section 5.3(a) hereof, Sellers shall pay to
Purchaser an amount equal to their share of any Taxes with
respect to the Pre-Closing Tax Period of an Overlap Tax Period to
the extent Sellers are liable therefor in accordance with this
Section 6.3 and to the extent such Taxes are not already paid or
accrued by a Company prior to the Closing. The amounts to be
paid hereunder shall be paid by the appropriate party ten (10)
days before the filing of the relevant Tax Return.
(vi) Any payment required under this Section 6.3 and not
made when due shall bear interest at the rate per annum
determined, from time to time, under the provisions of Section
6621(a)(2) of the Code for each day until paid.
(c) Transfer Taxes. All transfer, documentary, sales, use, stamp,
-------- -----
registration and other such Taxes and fees (including any penalties
and interest) incurred in connection with this Agreement (including
any realty gains tax, realty transfer tax and any similar tax imposed
in other states or subdivisions), shall be paid by Sellers when due,
and Sellers shall, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other taxes and fees,
and, if required by applicable law, Purchaser shall, and shall cause
its Affiliates to, join in the execution of any such Tax Returns and
other documentation.
(d) Cooperation on Tax Matters. Purchaser and Sellers shall
----------- -- --- -------
cooperate fully, as and to the extent reasonably requested by the
other party, in connection with any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. Sellers and Purchaser
agree (i) to retain all books and records with respect to Tax matters
pertinent to the Companies relating to any Pre-Closing Taxable Period,
and to abide by all record retention agreements entered into with any
Taxing Authority, and (ii) to give the other party reasonable written
notice prior to destroying or discarding any such books and records
and, if the other party so requests, Sellers or Purchaser, as the case
may be, shall allow the other party to take possession of such books
and records.
6.4 Employee Benefit Plans.
-------- ------- -----
(a) Indemnification. Except as provided in Section 6.4(b) hereof
---------------
but subject to the limitations set forth in Section 5.3(a) hereto, on
and after the Closing Date, Sellers shall indemnify Purchaser and the
Companies for, and hold them harmless against, any and all of the
following costs, expenses or other liabilities relating to all current
and former employees of the Companies performing, or having performed,
services for a Company (the "Employees"), including to the extent
applicable their spouses, dependents and beneficiaries:
(i) all claims under the Employee Benefit Plans that provide
health and medical, or other welfare benefits which are submitted
for covered expenses with respect to occurrences commencing prior
to the Closing Date, including, but not limited to, (A) covered
hospital benefits for any confinements that commenced before the
Closing Date, including any covered charges of health care
professionals relating to such confinements and (B) any other
covered medical or health expenses incurred before the Closing
Date;
(ii) short-term and long-term disability benefits, if any,
for disabilities that commenced before the Closing Date for the
period that each of such affected individuals remain disabled;
(iii) life and survivor income benefits, if any, for deaths
which occur prior to the Closing Date;
(iv) workers' compensation benefits for disabilities
resulting from a work-related accident which occurred prior to
the Closing Date;
(v) all benefits that are being, or that may be, paid to, or
with respect to, any Employees who are on short- or long-term
disability, or medical, personal or other leaves of absence as of
the Closing Date (or who go on short- or long-term disability, or
medical, personal or other leave of absence after the Closing
Date as a result of any injury, illness or other factor occurring
prior to the Closing Date);
(vi) benefits under any "spending account," or similar
arrangement, under any "cafeteria plan" (as defined under Section
125 of the Code), with respect to salary reduction elections made
prior to the Closing Date;
(vii) continued health and any other applicable federal,
state or local law or ordinance provided to any Employee of a
Company (and their spouses, dependents and beneficiaries) with
respect to whom a "qualifying event" (as such term is defined
under Sections 4980B(f)(3) of the Code or 603 of ERISA) or other
triggering event described under the applicable federal, state or
local laws or ordinances occurred before the Closing Date; and
(viii) benefits under all other such Employee Benefit Plans
which accrue before the Closing Date.
(b) Exclusion. Sellers shall not be obligated to indemnify
---------
Purchaser for the dollar amount of the costs, expenses and liabilities
listed in Section 6.4(a) hereof that is included as a liability in the
balance sheet included in the Closing Date Financial Statements.
ARTICLE 7
GENERAL PROVISIONS
7.1 Expenses. Except as otherwise expressly provided herein, Purchaser
--------
and Sellers shall pay its, her or his own expenses (including, without
limitation, the fees and expenses of its or his agents, representatives,
counsel, and accountants) incidental to the negotiation, drafting, and
performance of this Agreement.
7.2 Successors and Assigns. This Agreement shall be binding upon and
---------- --- -------
inure to the benefit of the Companies, Purchaser, Sellers and their
respective heirs, successors, representatives and assigns. Neither this
Agreement nor any of the Related Agreements may be assigned without the
written consent of the other party(ies) hereto or thereto. Notwithstanding
the foregoing, (a) Purchaser may assign this Agreement in whole or in part
to any person or entity that owns or controls fifty percent (50%) or more
of the capital stock or equity interests of ("Controls") Purchaser, is
Controlled by Purchaser or is under common Control with Purchaser;
provided, however, that no such assignment shall relieve Purchaser of its
liabilities and obligations hereunder; and (b) Purchaser may assign its
rights and interests in and under this Agreement in full to any person or
entity that acquires from Purchaser all or substantially all of the Stock,
the Business or the assets used therein; provided, however, that if such an
-------- -------
acquisition of the Stock,Business or the assets used therein occurs prior
to the conclusion of the Earn-Out Period, the person or entity making the
acquisition must first agree to assume, to Sellers' reasonable
satisfaction, all of the liabilities and obligations of Purchaser
hereunder.
7.3 Waiver. No provision of this Agreement shall be deemed waived by
------
course of conduct, including the act of closing, unless such waiver is made
in a writing signed by all parties hereto stating that it is intended
specifically to modify this Agreement, nor shall any course of conduct
operate or be construed as a waiver of any subsequent breach of this
Agreement, whether of a similar or dissimilar nature.
7.4 Entire Agreement. This Agreement (together with the Schedules
------ ---------
hereto) supersedes any other agreement, whether written or oral, that may
have been made or entered into by Purchaser, the Companies or Sellers (or
by any director, officer, agent, or other representative of such parties)
relating to the matters contemplated hereby. This Agreement (together with
the Schedules hereto) constitutes the entire agreement by and among the
parties and there are no agreements or commitments except as expressly set
forth herein.
7.5 Further Assurances. Each of the parties hereto agrees to execute
------- ----------
all further documents and instruments and to take or to cause to be taken
all reasonable actions which are necessary or appropriate to complete the
transactions contemplated by this Agreement.
7.6 Notices. All notices, demands, requests, and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given
and shall be effective upon receipt if delivered by hand, or sent by
certified or registered United States mail, postage prepaid and return
receipt requested, or by prepaid overnight express service, or by telecopy
with an original copy sent by ordinary first class mail. Notices shall be
sent to the parties at the following addresses and telecopy numbers (or at
such address for a party as is specified by like notice; provided that
--------
such notice shall be effective only upon receipt thereof):
(a) If to Sellers:
Wayne Berger
2808 McKinney, Apt. 709
Dallas, TX 75204
and
1933 Columbine Ct.
Golden, CO 80401
in each case, with a copy (which shall not constitute notice) to:
James A. Thomas, Jr.
Minor & Brown, P.C.
650 Cherry Street, Suite 1100
Denver, CO 80222
FAX: (303) 320-6330
(b) If to Purchaser:
Career Horizons, Inc.
177 Crossways Park Drive
Woodbury, NY 11797
Attn: Chief Executive Officer
FAX: (212) 496-3167
7.7 Specific Performance. In addition to the remedies specified in
-------- -----------
Articles 5 and 6 hereof, the parties agree that, due to the unique subject
matter of this transaction, monetary damages will be insufficient to
compensate the non-breaching party in the event of a breach by any party of
this Agreement; therefore, the parties agree that in the event of a
material breach of this Agreement by any party, the non-breaching party
shall be entitled to specific performance of the breaching party's
obligations hereunder, without any showing of actual damage or inadequacy
of legal remedy.
7.8 Amendments, Supplements. This Agreement may be amended or modified
----------- -----------
only by a written instrument executed by all parties hereto which states
specifically that it is intended to amend or modify this Agreement.
7.9 Severability. In the event that any provision contained in this
------------
Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein and, in lieu of each such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid or unenforceable provision as may be possible but
still be legal, valid and enforceable.
7.10 Applicable Law. This Agreement and the rights, obligations and
---------- ---
relations of the parties hereto shall be governed by and construed and
enforced in accordance with the laws of the State of New York without
giving effect to the principles of conflicts of law thereof.
7.11 Titles and Headings. Titles and headings to sections hereof are
------ --- --------
inserted for convenience of reference only and are not intended to be a
part of, or to affect the meaning or interpretation of, this Agreement.
7.12 Execution in Counterparts. This Agreement may be executed in one
--------- -- ------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7.13 Public Announcements. Except and to the extent as may be required
------ -------------
by law, no party to this Agreement shall make any public announcements in
respect of this Agreement or the transactions contemplated hereby or
otherwise communicate with any news media without the prior written
approval of the other parties, and the parties shall cooperate as to the
timing and contents of any such announcement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
7.14 No Third-Party Beneficiaries. Nothing in this Agreement shall be
-- ----------- -------------
construed or interpreted to create or otherwise give rise to any third-
party rights or to any third-party beneficiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CAREER HORIZONS, INC.
By: /s/ Mike G. Reinecke
----------------------------
Mike G. Reinecke, V.P.
/s/ Wayne Berger
---------------------------------
Wayne Berger
/s/ Juan Solano, III
--------------------------------
Juan Solano, III
/s/ Mary Turner
-----------------------------
Mary Turner
/s/ Drew Verret
-----------------------------
Drew Verret
THE JUAN SOLANO, III
CHARITABLE REMAINDER TRUST,
DATED JULY 16, 1996
By: /s/ Arnold Goldblatt
-------------------------
Arnold Goldblatt, Independent
Special Trustee
THE WAYNE BERGER CHARITABLE
REMAINDER TRUST, DATED
JULY 9, 1996
By: /s/ Arnold Goldblatt
-------------------------
Arnold Goldblatt, Independent
Special Trustee
(SIGNATURES CONTINUED ON NET PAGE)
<PAGE>
THE WAYNE BERGER CHARITABLE
REMAINDER TRUST II, DATED
JULY 9, 1996
By: /s/ Arnold Goldblatt
-------------------------
Arnold Goldblatt, Independent
Special Trustee
[letterhead of Levine Hughes & Mithuen, Inc.]
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-99840) of Career Horizons, Inc. (the
"Company"), and in the related Prospectus, and in the
Registration Statement (Form S-8 No 33-80499) pertaining to the
Career Horizons 1993 Stock Option and Performance Award Plan, of
our report dated April 18, 1996 with respect to he consolidated
financial statements of Daedalian Group, Inc. and Subsidiaries,
included in the Company's current Report on Form 8-K dated August
28, 1996.
/s/ Levine Hughes & Mithuen, Inc.
Englewood, Colorado
September 11, 1996
CAREER HORIZONS
===========================================================
For Immediate Release
Career Horizons Acquires Berger & Co.
-------------------
Adds Over $30 million in IT Revenues
Woodbury, NY--August 28, 1996 -- Career Horizons, Inc. (NYSE:
CHZ) today announced the acquisition of Berger & Co., a rapidly
growing provider of information technology consulting and
staffing services. The privately-held firm, with offices in
Denver, Houston and Dallas, is projected to generate revenues of
over $30 million in the current fiscal year. Terms of the cash
transaction were not disclosed.
Berger & Co.'s experienced information technology specialists are
available for a broad range of assignments, including systems
planning, design, development and integration, supplemental
programmer staffing, and technical writing. In addition, Berger
provides extensive computer and software training to clients'
employees, its own employees, and the general public. Each office
has dedicated state-of-the-art equipment for training and
full-time instructors. Berger & Co. was founded in 1981 by Wayne
Berger, chief executive officer, who will remain in his present
position.
Walter W. Macauley, president and chief executive officer of
Career Horizons, said, "With a strong presence in the Colorado
and Texas markets, Berger & Co. is a welcome addition to our
information technology staffing group, and it will be accretive
to earnings. We look forward to sharing with our other IT
companies Berger's extensive training capabilities, which enable
information technology specialists to continually upgrade their
skills in fast-paced fields such as client/server systems and
on-line networking."
Wayne Berger, CEO of Berger & Co., commented, "Affiliation with a
major national company provides us with expanded opportunities to
serve our clients and additional resources to support our
growth."
In addition to general and supplemental staffing, Career Horizons
serves four specialty markets: information technology, health
care, desktop publishing, and pharmacy. It has 577 company-owned,
franchised and private label offices operating under recognized
local and regional brand names.
On August 26, 1996, Career Horizons and AccuStaff Incorporated
(Nasdaq: ASTF) announced a definitive agreement under which
Career Horizons will merge with AccuStaff. The combined company
will be a nationwide provider of strategic staffing, consulting,
and outsourcing services with a total of over 750 offices in 43
states.
Contacts:
Career Horizons, Inc. Lundy Associates, Inc.
Michael T. Druckman Michael A. Lundy
Chief Financial Officer 201-660-1100
S 16-682-1403
# # #
CAREER HORIZONS,INC. 177 Crossways Park Drive
Woodbury, NY 11797-2047 (516) 682-1400
