SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report
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Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): July 1, 1998
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SOS Staffing Services, Inc.
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(Exact name of registrant as specified in its charter)
Utah 0-26094 87-0295503
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1415 South Main Street
Salt Lake City, Utah 84115
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(Address of principal executive offices, including zip code)
(801) 484-4400
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(Registrant's telephone number, including area code)
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TABLE OF CONTENTS
Page
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Item 2. Acquisition or Disposition of Assets 3
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Item 7. Financial Statements and Exhibits 3
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SIGNATURES 4
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Item 2. Acquisition or Disposition of Assets
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Pursuant to an agreement entered into on July 1, 1998 to be effective
July 1, 1998, the Company completed the acquisition of substantially all of the
assets of Neosoft, Inc. ("Neosoft"). Neosoft is engaged in providing high-end,
advanced skills information technology temporary staffing specializing in
enterprise resource packages, Internet development and software validation
quality assurance testing. The assets purchased from Neosoft consist principally
of office furniture and equipment, receivables and goodwill used in Neosofts'
information technology staffing business. The Company intends to use all such
assets to continue and expand its information technology staffing business.
The purchase price for the Neosoft assets was $5.5 million in cash plus
future earnouts not to exceed an additional $9.0 million based on profitability.
In connection with the purchase, the Company assumed a real property lease,
certain contracts, and entered into a non-competition agreement with the former
principal of Neosoft. The Company also entered into an employment agreement with
the former principal of Neosoft. The purchase price for the assets and business
was determined in arms-length negotiations conducted by principals of the
Company and representatives of Neosoft. There was no material relationship
between the owners of Neosoft and the Company or any of its affiliates, any
director or officer of the Company, or any associate of any such director or
officer. The initial purchase price for the Neosoft assets was funded through
borrowings against the Company's credit facility. The Company presently
anticipates that the future earnout payments will be funded from the additional
revenues generated by the acquisition coupled with cash flows from normal
Company operations.
Item 7. Financial Statements and Exhibits
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(a) Financial statements of business acquired
Not applicable
(b) Pro forma financial information
Not applicable
(c) Exhibits
2.1 Acquisition agreement
99.1 Press Release dated July 9, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned thereto duly authorized.
SOS STAFING SERVICES, INC.
\S\ Gary B. Crook
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Gary B. Crook
Executive Vice President and
Chief Financial Officer
Date: July 16, 1998
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ASSET PURCHASE
AGREEMENT
NEOSOFT, INC.
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ASSET PURCHASE AGREEMENT
COME NOW, Wolfe & Associates, Inc., a New Mexico corporation at 5325
Wyoming Boulevard, N.E., Suite 200, Albuquerque, New Mexico, 87109 (hereinafter
referred to as "Buyer"); Buyer's parent company, SOS Staffing Services, Inc., a
Utah corporation at 1415 South Main Street, Salt Lake City, Utah, 84115
(hereinafter referred to as "SOS"); Neosoft, Inc., a California corporation at
25 First Street, Suite 105, Cambridge, Massachusetts, 02141 (hereinafter
referred to as "Seller"); Tirumala V. Chaparala (hereinafter referred to as
"Principal"); and Sujana Chaparala and Tirumala Chaparala as trustee for Rohit
Chaparala and Sindura C. Chaparala (the other shareholders of Seller, and
together with Principal, hereinafter referred to as "Shareholders") and agree as
follows:
WITNESSETH:
WHEREAS, Seller owns the assets and business set out in Article 1 and
Exhibits A, B and C herein and desires to sell them to Buyer;
WHEREAS, Principal is an officer, director and shareholder of Seller
and stands to benefit from Seller transferring said assets to Buyer;
WHEREAS, the Shareholders are authorized to vote all of the outstanding
shares of the Seller and are the only shareholders of Seller;
WHEREAS, Buyer desires to purchase said assets and business from Seller
for cash and other consideration;
WHEREAS, the parties desire to enter into a written Agreement
describing and setting forth the terms and conditions under which they will
transfer ownership of said assets and business;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and conditions hereinafter set forth, and for other good and valuable
consideration, the parties agree as follows:
1. (a) Buyer agrees to purchase and Seller agrees to sell, convey,
transfer, and deliver to Buyer the business and assets as set
out more specifically in Exhibits A, B and C which are hereby
incorporated by reference as if fully set forth herein (the
"Assets"). The "Business" shall mean the business activities
conducted by Seller's staffing division of employing software
programmers and making those programmers available to Seller's
customers on a contract basis as temporary staff. Buyer is
only purchasing the assets set forth on Exhibits A, B and C.
Seller is conveying to Buyer only the assets listed on
Exhibits A, B and C. Assets not referenced or identified on
Exhibits A, B and C shall not be transferred to Buyer.
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(b) Seller agrees to sell or convey to Buyer and Buyer hereby
agrees to purchase and assume the equipment and real property
leases, third party contracts and/or other liabilities listed
in Exhibit D of this Agreement, provided, however, with
respect to the employment agreements described in Exhibit D,
no such employment agreement shall be assumed by Buyer until
the date that the respective employee's H-1B visa is
transferred to Buyer as described in Article 13. Buyer shall
also assume all liabilities described in Exhibit E which are
related to Buyer being considered a successor employer for
Seller's H-1B visa status employees. Seller shall remain fully
responsible and liable for all Seller's liabilities, except
for the liabilities specifically identified on Exhibits D and
E, which Buyer hereby agrees to assume. Buyer does not in any
way or manner assume any debt, liability, or obligation of
Seller, other than those set forth in Exhibit D and E, whether
known or unknown, whether asserted or un-asserted, whether
absolute or contingent. Buyer hereby specifically assumes the
obligations for real property lease, contingent upon the
landlord's approval, arising after Closing for the real
property referenced in Exhibit A, to wit: the real property
lease for the demised premises located at 25 First Street,
Suite 105, Cambridge, Massachusetts, 02141.
(c) Seller shall pay all sales taxes, if any, due as a result of
the closing of this Agreement.
2. In consideration for receiving said Assets and in consideration of
the representations, warranties, and covenants of Seller set forth herein, Buyer
agrees to pay Seller the following amounts on the conditions set forth herein:
(a) (i) At the time of Closing of this Agreement, Buyer shall pay
Seller Five Million Dollars ($5,000,000.00), by direct wire
transfer (or other method designated by Seller) to an account
which has been designated by Seller.
(ii) At the time of Closing of this Agreement, Buyer shall
deliver to Seller the sum of Five Hundred Thousand Dollars
($500,000.00), which represents the principal amount of the
earnest money deposit being held in escrow, plus accumulated
interest.
(iii) The payments made pursuant to this Article 2(a) in the
amount of Five Million Five Hundred Thousand Dollars
($5,500,000.00) shall be hereinafter referred to as the
"Initial Purchase Price."
(b) (i) In addition to the Initial Purchase Price, Buyer shall pay
Seller four (4) times the EBIT (as defined in Article 2 (c)
herein) earned by the Business as operated by Buyer during the
period commencing on July 1, 1998 and continuing through June
30, 1999 (the "First Earnout Period") which is greater than
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the EBIT earned by the Business for the period commencing July
1, 1997 and continuing through June 30, 1998. The parties
agree that the EBIT for the period commencing July 1, 1997 and
ending June 30, 1998 was $950,000. Buyer shall pay Seller
three (3) times the EBIT earned by the Business during the
period commencing July 1, 1999 and continuing through June 30,
2000 (the "Second Earnout Period") which is greater than the
EBIT earned by the Business during the First Earnout Period.
Buyer shall pay Seller two (2) times the EBIT earned by the
Business during the period commencing July 1, 2000 and
continuing through June 31, 2001 (the "Third Earnout Period")
which is greater than the EBIT earned by the Business during
the Second Earnout Period. Each such Earnout Payment shall be
paid within forty-five (45) days from the close of the Earnout
Period for which it is made.
(ii) The total Earnout payments made pursuant to this Article
2 (b) shall not exceed Nine Million Dollars (9,000,000.00).
(c) (i) "EBIT," in all respects, shall be calculated on an accrual
basis in a manner consistent with generally accepted
accounting principles. "EBIT" as used in this Agreement means
gross sales of the Business (total sales of goods and
services) less the following adjustments and discounts arising
directly from the conduct of the Business; the cost of sales
(temporary employee or contractor programs, direct costs,
temporary or contractor payroll, temporary or contractor
payroll taxes, i.e. FICA, unemployment, etc., temporary or
contractor worker's compensation, drug testing and bonding
insurance); staff and consultant expenses (staff or consultant
payroll, temporary staff or consultant payroll, commissions
and bonuses, branch staff, temporary staff and consultant
payroll taxes, i.e. FICA, unemployment insurance, etc., branch
staff worker's compensation, sales and travel, group
insurance, background checks, and drug testing); advertising
expenses (specialty items, classified ads, Yellow Pages,
promotional events, other advertising); operation expenses
(telephone, office supplies, legal, professional, postage and
delivery, petty cash, training expenses, and other operating
expenses); facilities expenses (rent, repair and maintenance,
and utilities); bad debt (to constitute a bad debt, the
receivable must be actually written off); miscellaneous
expenses (dues and subscriptions, adjustments/recoveries, and
reimbursements); printing expenses; computer expenses;
consultation expenses; taxes (exclusive of federal, state and
local income tax) and insurance; or loss on disposal of
assets; depreciation of current assets and other expenses
(career fair; services fees, internal expenses, etc.). EBIT
shall be increased by the amount of any gain on disposal of
assets and other current income (bad debt recovery, finance
charges collected and other income). Except for receivables
due from a customer that is in bankruptcy, no receivable aged
less than one hundred eighty (180) days shall be written off
without the permission of Seller. No receivable for which
Buyer seeks and obtains indemnification pursued to Article 11
shall be written off or treated as bad debt. After the Closing
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Date, all accounts receivable aged more than one hundred and
eighty (180) days shall be considered bad debt, unless such
account is subject to a payment plan which requires
substantial and regular payments to be completed within one
year. Upon breach of any such payment plan, the remaining
receivable shall be considered a bad debt. All recoveries made
on any receivables written off as a bad debt shall be added
back to total sales. EBIT shall exclude all corporate or home
office expenses or allocations. EBIT shall exclude interest
and amortization expenses, EBIT shall exclude any additional
purchase price paid in the form of the Earnout Payments. EBIT
shall be based only on the operation of the Business and shall
not include the profit or loss any other operating unit of
Buyer. Buyer's obligation to pay the Earnout Payments
described herein shall be independent of Principal's
employment with Buyer and shall survive Principal's separation
from employment with Buyer for any reason or cause.
(ii) Seller acknowledges and agrees that EBIT will be based on
Buyer's operation of the Business. Seller acknowledges and
agrees that there shall be no limitation on Buyer's operation
of the Business during the Earnout Period, except that Buyer
shall operate the Business in a manner consistent with good
business judgment, consistent with Buyer's past practices with
respect to acquired businesses and as a separate operating
division for accounting purposes with separate profit and loss
statements. Buyer shall not incur any unreasonable expenses in
order to reduce the amount of the Earnout Payments. Seller
acknowledges that Buyer's workers' compensation insurance,
unemployment insurance, bonding insurance, cost of employee
benefits and other costs differ from Seller's and past
performance will not necessarily be indicative of future
profits.
(iii) During the Earnout Periods, Buyer shall provide Seller
with profit and loss statements on a monthly basis. Such
statements shall be provided within a reasonable time after
the close of the month for which the statement is generated.
Buyer's representatives will make the determination of the
EBIT for each Earnout Period and deliver a copy of such
determination, including the financial data which served as
the basis for such determination, to the Seller. If Seller
disagrees with Buyer's determination, Buyer and Seller shall
negotiate in good faith to reach an agreement as to the EBIT.
If no agreement can be reached within twenty (20) days, then
at Seller's expense, a third party independent auditor
acceptable to both Buyer and Seller shall audit the books and
records of the Business and make a determination as to the
EBIT. In the event that the Buyer and Seller cannot agree upon
the appointment of a third party independent auditor, then
they shall jointly send a written request to the American
Arbitration Association located in Salt Lake County, Utah or
to a nationally recognized trade association asking that such
entity recommend a third party independent auditor located in
Salt Lake County, Utah, and the auditor so recommended shall
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be deemed to be the third party independent auditor selected
by Buyer and Seller. The third party independent auditor's
determination of the EBIT shall be final. Notwithstanding the
foregoing, the third party independent auditor shall have no
power to alter or modify any express provision of this
Agreement, nor shall he/she make any determination or
calculation which, by its terms, effects any such alteration
or modification. The Earnout Payments shall be made based on
the third party auditor's determination of EBIT. If the third
party auditor's determination is materially different than
Buyer's determination in Seller's favor, then Buyer shall
reimburse Seller the cost of the third party auditor. As used
herein "material" shall mean a $20,000.00 difference between
Buyer's determination of the EBIT and the third party
auditor's determination of the EBIT in Seller's favor.
(d) In the event that Principal's employment with Buyer or SOS is
terminated by Buyer or SOS without cause or by Principal for
"Good Reason" (as defined in the Employment Agreement), and
such termination occurs prior to the completion of the Third
Earnout Period, then for the Earnout Period in which the
termination occurs, Buyer shall pay Seller an Earnout Payment
based on the annualized EBIT earned by the Business during the
Earnout Period during which the termination occurred. The
Earnout Payment for any future Earnout Periods remaining shall
be based upon the annualized EBIT earned by the Business
during the Earnout Period during which the termination occurs
is made multiplied by the annual growth rate of EBIT from the
Effective Date to the date that the termination occurs. Such
payment shall be made within thirty (30) days from the date of
the termination and shall terminate all other obligations of
Buyer and SOS under Section 2 (b) of this Agreement.
(e) The parties agree that the Initial Purchase Price payment of
Five Million Five Hundred Thousand Dollars ($5,500,000.00)
shall be allocated as follows:
to Goodwill: $4,877.959.97;
to Accounts Receivable: $507,051.98;
to Customer Lists: $10,000.00;
to Employee Lists: $10,000.00;
to Pre-paid Deposits: $8,394.75;
to the Non-Competition Covenant: $75,000.00; and
to Property, Facilities and Equipment $11,593.30.
All additional payments made hereunder shall be allocated to
Goodwill.
All parties agree to file IRS Form 8594 reflecting the
purchase price allocation contained herein.
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3. As further consideration for Buyer to enter into this Agreement and
in consideration for Buyer making payments to Seller pursuant to Article 2 and
in consideration of Principal benefiting from this Agreement, Principal agrees
to the following:
(a) For a period commencing on the Closing Date hereof and
continuing until the later of (i) sixty (60) months or (ii)
twelve (12) months following termination of Principal's
employment with the Company and whenever such termination may
occur, whether prior to, concurrently with, or after the
expiration or early termination of the employment term
specified the employment agreement referenced in Article 14 of
this Agreement; provided however, that if Principal's
employment with Buyer is terminated without "Cause," as
defined in Principal's employment agreement or if Principal's
employment with Buyer is terminated by Principal for "Good
Reason" as defined in the Employment Agreement, then for
twelve (12) months following such termination (the "Covenant
Period"), Seller and Principal shall not, for any reason
directly or indirectly: (i) solicit or otherwise deal with any
client of the Buyer, any affiliate or any of their successors
in interest in a manner designed to (or that could) take
business away from the Buyer, any affiliate or any of their
successors in interest; (ii) solicit or otherwise induce any
employee of the Buyer, any affiliate or any of their
successors in interest to terminate his/her employment with
the Buyer, any affiliate or any of their successors in
interest; or (iii) hire or solicit any consultant under
contract with the Buyer, any affiliate or any of their
successors in interest or encourage such consultant to
terminate such relationship. During the Covenant Period,
Seller and Principal shall not, for any reason, within one
hundred (100) miles of Seller's Office or any office in which
Principal works on a permanent basis as an employee of Buyer,
directly or indirectly: (i) engage in software consulting,
contract staffing or outsourcing business; or provide any
other related service; (ii) enter the employ of, or render any
services to or consult with, any person engaged in competition
with the Buyer, any affiliate or any of their successors in
interest; (iii) become associated with or interested in any
person engaged in competition with Buyer in any capacity,
including, without limitation, as an individual, partner,
shareholder, officer, director, principal, agent or trustee;
provided, however, each Principal may own, directly or
indirectly, solely as an investment, securities of any person
traded on any national securities exchange or over-the-counter
if such Principal is not a controlling person of, or a member
of a group which controls, such person and does not, directly
or indirectly, own 5% or more of any class of securities of
such person. (The covenant contained in this Article 3 (a)
shall hereinafter be referred to as the "Restrictive
Covenant"),
(b) Principal acknowledges that he will be able to earn a
livelihood without violating the Restrictive Covenant.
Principal further acknowledges: (i) that the consideration for
the covenant is adequate, (ii) that compliance with the
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Restrictive Covenant contained in this Article 3 is necessary
to protect the business and goodwill of the Buyer, any
affiliate's or its successors in interest, (iii) that a breach
will result in irreparable and continuing damage to the Buyer
or its successors in interest, for which money damages may not
provide adequate relief and (iv) that the Restrictive Covenant
is reasonable and valid in scope, and geographical and
temporal breadth and in all other respects. Consequently,
Principal agrees that, in the event that he breaches the
restrictive covenant of this Article 3, the Buyer or its
successors in interest shall be entitled to seek: (1) a
preliminary or permanent injunction to prevent the
continuation of harm, and (2) money damages insofar as they
can be determined. Nothing in this Agreement shall be
construed to prohibit the Buyer or its successors in interest
from also pursuing any other remedy, the parties having agreed
that all remedies are cumulative.
(c) The parties intend to and hereby confer jurisdiction to
enforce the Restrictive Covenant upon the courts of any
jurisdiction within the geographical scope of the Restrictive
Covenant. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenant unenforceable by
reason of its scope or otherwise, it is the intention of the
parties that such determination not bar or in any way affect
the Buyer's right to the relief provided above in the courts
of any other jurisdiction within the geographical scope of the
Restrictive Covenant, as to breaches of the Restrictive
Covenant in such other respective jurisdictions, the
Restrictive Covenant as it relates to each jurisdiction being,
for this purpose, severable into a diverse and independent
covenant.
4. The "Closing" of the transactions contemplated by this Agreement
shall take place at 9:00 a.m. (Mountain Daylight Time) on July 1, 1998 (the
"Closing Date") at 1415 South Main Street, Salt Lake City, Utah, 84111, SOS's
principal office. Closing may also take place at any other time or place
mutually agreed to in writing by the parties. The parties agree that the Closing
may take place by exchanging signed documents at the time of Closing via
facsimile. The parties agree that a facsimile signature shall have the same
force and effect as a signature on an original document.
This Agreement shall be effective upon its execution by each party
hereto. For all purposes, the transfer of the Assets and Business herein
described to Buyer is hereby recognized as occurring at 12:01 a.m. on July 1,
1998, regardless of the date when this Agreement shall be executed. At 12:01
a.m. on July 1, 1998, Buyer will also commence operation of Seller's Business
with respect to the Assets purchased. July 1, 1998 shall be referred to herein
as the "Effective Date".
5 (a) At Closing, Seller and Principal shall deliver to Buyer
the following:
(i) A Bill of Sale for all items of personal and tangible
property to transferred hereby;
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(ii) An assignment of all trademarks and trade names to be
transferred hereby;
(iii) All Assets to be transferred hereby; and
(iv) Lien releases for any encumbered Asset.
(b) At Closing, Buyer or SOS shall deliver to Seller or Principal
the following:
(i) All funds, monies or SOS Stock described in Article 2
herein;
(ii) Certificate that all necessary consents have been
obtained; and
(iii) Executed Employment Agreement between Buyer and
Principal.
6. In the event the transaction contemplated by this Agreement does not
close, Buyer will maintain as confidential all proprietary information and shall
not use for any reason any proprietary information which it or any of its
representatives may obtain from Seller, any of its employees or the Principals.
This restriction shall not apply, however, (i) as may otherwise be required by
law (if such disclosure is required by legal process, Buyer shall notify Seller,
prior to any response to such legal process. Thereafter, Seller, at its sole
cost and expense, may oppose such disclosure), (ii) to the extent such
information (A) shall be or have become publicly available, (B) was legally
available to Buyer on a non-confidential basis prior to its disclosure by Seller
or (C) becomes available to Buyer on a non-confidential basis from a person
other than Seller or (iii) with respect to disclosure by Buyer to parties to
whom disclosure may be required or desirable in connection with the transactions
contemplated by this Agreement, provided such parties agree to be bound by the
provisions of this Article 6. This confidentiality Agreement will also apply to
any proprietary information not purchased by Buyer regardless of whether the
transaction closes.
7. Seller and Principals represent and warrant to the Buyer that the
statements made herein below are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date. As used in
this Article 7, "material" shall mean any discrepancy in the financial
statements or representations that in the aggregate have an impact of more than
twenty-five thousand dollars ($25,000.00).
(a) Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the state of California.
Seller has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on
the business in which it is engaged and to own and use the
properties owned and used by it. Seller is not in default
under or in violation of any provision of its charter,
articles of incorporation, or bylaws.
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(b) Seller has good and marketable title to all the Assets listed
in Article 1 and Exhibits A, B and C. All Assets are free and
clear of mortgages, liens, pledges, charges, encumbrances,
equities, or claims, except as set forth in Exhibits A, B and
C.
(c) To the Knowledge of Seller and Principal, all accounts
receivable of Seller listed on Exhibit C represent or will
represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of
business and are fully collectable.
(d) Neither the execution nor the delivery of this Agreement will
(i) violate any statute, regulation, judgment, order, or other
restriction of any governmental agency or court; or (ii)
conflict with, result in a breach or default under any
material Agreement, contract, license, or other arrangement to
which Seller is a party.
(e) This Agreement constitutes the legal, valid, and binding
obligation of Seller, enforceable against Seller in accordance
with its terms. Seller has the absolute and unrestricted
right, power, and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement.
(f) Seller has filed all income tax returns that it was required
to file, has paid in full all taxes associated with such tax
returns except for those contested in good faith and is not
deficient on any tax payments or liabilities.
(g) To the extent required by law, Seller has maintained workers'
compensation insurance on each of its employees at all times
since Seller's incorporation. Seller has paid all workers'
compensation insurance premiums and is not deficient on any
such premium payment.
(h) Seller has complied with all environmental, health, and safety
laws which are applicable to it in all material respects and
does not have any material liability relating to any
environmental, health, or safety law.
(i) Seller has complied with all federal, state and local equal
employment opportunity and anti-discrimination laws in all
material respects and does not have any material liability
relating to any federal, state or local equal employment
opportunity or anti-discrimination law.
(j) Seller has complied with Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), in all material respects
and does not have any material liability relating to ERISA.
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(k) Seller has complied with the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") in all
material respects and does not have any material liability
relating to COBRA.
(l) Seller has paid or provided for the payment of all payroll
taxes and other withholdings mandated by federal, state and
local laws, including, but not limited to, workers
compensation, unemployment insurance, FICA, Medicaid and
employee income tax withholdings, except as provided for in
Article 13.
(m) Seller has complied with the federal Occupation Safety and
Health Act, National Labor Relations Act, and the Fair Labor
Standards Act, and any equivalent state or local laws in all
material respects and does not have any material liability
relating to any such law.
(n) Seller has complied with all laws, regulations, rules and
requirements issued by any and all governmental entity related
to the eligibility of its employees to work in the United
States of America. Seller warrants, to the Knowledge of Seller
and Principal, that all H-1B and other visas sponsored by
Seller and used by its employees are validly issued and were
obtained in accordance with all related laws, regulations,
rules and requirements and that, to the Knowledge of Seller
and Principal, all applications sponsored by or made by Seller
were truthful in all respects.
(o) All financial statements and information provided by Seller to
Buyer are true, correct and complete in all material respects.
(p) Seller warrants that it has used the services of Delhi and
Dublin Ventures as a broker in connection with the transaction
contemplated by this Agreement and has not used the services
of any other broker or agency in connection with the
transaction contemplated by this Agreement. Seller warrants
that it shall pay all costs and fees due Delhi and Dublin
Ventures in connection with the transaction contemplated by
this Agreement and is not obligated to pay any other broker,
agency or finder's fee in connection with the transaction
contemplated by this Agreement.
(q) As used herein, Principal or Seller shall be deemed to have
"Knowledge" of a particular fact or other matter if: (i)
Principal or Seller is actually aware of such fact or other
matter; or (ii) a prudent individual having access to the same
information as Principal and Seller could reasonably be
expected to discover or otherwise become aware of such fact or
other matter. Seller will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is
servingas a director, officer, partner, executor or trustee of
Seller (or in any similar capacity) has Knowledge of such fact
or other matter.
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8. Buyer and SOS represent and warrant to Seller and Principal that the
statements made below are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date, except as described
herein.
(a) Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the state of New Mexico.
Buyer has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the business
in which it is engaged and to own and use the properties owned
and used by it. Buyer is not in default under or in violation
of any provision of its charter, articles of incorporation, or
bylaws.
(b) Buyer is sufficiently capitalized to undertake and perform the
obligations and covenants under this Agreement.
(c) The Buyer's board of directors has approved the terms of this
Agreement and the officers of Buyer have been duly authorized
to enter into and execute this Agreement and to perform the
obligations of Buyer hereunder.
(d) The Buyer has obtained all necessary consents to enter into
this Agreement.
(e) Neither the execution nor the delivery of this Agreement will
(i) violate any statute, regulation, judgment, order, or other
restriction of any governmental agency or court; or (ii)
conflict with, result in a breach or default under any
Agreement, contract, license, or other arrangement to which
Buyer is a party.
(f) Buyer warrants that it has not used the services of any broker
or agency in connection with the transaction contemplated by
this Agreement. Buyer warrants that it is not obligated to pay
any broker, agency or finder's fee in connection with the
transaction contemplated by this Agreement.
9. SOS and Buyer represent and warrant to Seller and Principal that the
statements made below are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date, except as described
herein.
(a) SOS is a corporation duly organized, validly existing, and in
good standing under the laws of the state of Utah. SOS has
full corporate power and authority and all licenses, permits,
and authorizations necessary to carry on the business in which
it is engaged and to own and use the properties owned and used
by it. SOS is not in default under or in violation of any
provision of its charter, articles of incorporation, or
bylaws.
11
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(b) SOS's board of directors has approved the terms of this
Agreement and the officers of SOS have been duly authorized to
enter into and execute this Agreement and to perform all the
obligations of SOS hereunder.
(c) SOS has obtained all necessary consents to enter into this
Agreement.
(d) Neither the execution nor the delivery of this Agreement will
(i) violate any statute, regulation, judgment, order, or other
restriction of any governmental agency or court; or (ii)
conflict with, result in a breach or default under any
Agreement, contract, license, or other arrangement to which
SOS is a party.
(e) SOS warrants that it has not used the services of any broker
or agency in connection with the transaction contemplated by
this Agreement. SOS warrants that it is not obligated to pay
any broker, agency or finder's fee in connection with the
transaction contemplated by this Agreement.
(f) SOS is sufficiently capitalized to undertake and perform its
obligations and covenants under this Agreement, including the
obligation to guarantee the performance of Buyer hereunder.
10. Seller and Principal agree to indemnify Buyer and SOS, and hold
Buyer and SOS harmless from any material loss, damage, expense, liability, or
claim, including without limitation, attorney's fees and expenses of litigation,
to which Buyer or SOS may become subject arising out of: (a) any material
misstatement of the Seller or Principal as warranted in Article 7; (b) any
material failure of Seller or Principal to perform any of its or his covenants,
Agreements or undertakings contained in this Agreement or in any other Agreement
executed in connection with the transactions contemplated herein, except for
Principal's employment agreement and his performance thereunder. Nothing herein
shall be construed as creating any indemnification in Buyer's favor based on
Principal's employment agreement and his performance, or non-performance,
thereunder; (c) any undisclosed liability (whether known or unknown, whether
asserted or un-asserted, whether absolute or contingent) for any claim relating
to Seller or the Business; (d) any liability arising from or related to the
operation of the Business by Seller prior to Effective Date, except as
specifically assumed by Buyer pursuant to this Agreement; or (e) any account
receivable described in Exhibit C which remains unpaid after one hundred eighty
(180)days (180) from the Effective Date.
In no event shall the aggregate payments made by Seller and
Principal pursuant to this Article 10 exceed Two Million Seven Hundred and Fifty
Thousand Dollars ($2,750,000).
As used in this Article 10, "material" shall mean losses, damages,
expenses, liabilities or claims, including without limitation, attorney's fees
and expenses of litigation which are twenty-five thousand dollars ($25,000.00)
in the aggregate, except that Seller shall reimburse Buyer for any account
12
<PAGE>
receivable described in Exhibit C which remains unpaid after one hundred eighty
(180) days from the Effective Date, however any such payment for the receivables
shall be excluded from the twenty-five thousand dollars ($25,000.00)-cap.
11. Buyer and SOS agree to indemnify Seller and Principal and hold
Seller and Principals harmless from any material loss, damage, expense,
liability, or claim, including without limitation, attorney's fees and expenses
of litigation, to which Seller or Principals may become subject arising out of:
(a) any material failure of Buyer to perform any of its covenants, Agreements or
undertaking contained in this Agreement or in any other Agreement executed in
connection with the transactions contemplated herein; (b) any material
misstatement of Buyer as warranted in Article 8 or 9; (c) Buyer's operation of
the Business after the Effective Date; or (d) any liability specifically assumed
by Buyer hereunder.
As used in this Article 11, "material" shall mean losses, damages,
expenses, liabilities or claims, including without limitation, attorney's fees
and expenses of litigation which are twenty-five thousand dollars ($25,000.00)
in the aggregate.
12. Buyer agrees to employ the Principal for a period of four (4) years
following the Closing Date pursuant to the terms and conditions of a separate
employment agreement. The form of the employment agreement is attached hereto as
Exhibit F.
13. Seller, at its sole expense, shall immediately qualify and obtain a
Certificate of Authority from the Secretary of State or other appropriate
authority in each state where Seller has employees working as of the Effective
Date. Seller, at its sole expense, shall also immediately obtain income tax
withholding and unemployment accounts from each such state's taxing and
employment services authorities. Seller, at its sole expense, shall also
immediately obtain any other item required to conduct business in such states.
After the Closing of this Agreement, if Buyer determines to assign
employees leased hereunder from Seller to a state where Seller is not qualified
to transact business, Seller shall, at Buyer's sole expense, qualify and obtain
a Certificate of Authority in each such state. Seller, at Buyer's sole expense,
shall also obtain income tax withholding and unemployment accounts from each
such state's taxing and employment services authorities. Seller, at Buyer's sole
expense, shall also obtain any other item required to conduct business in such
state.
14. Buyer agrees that it shall offer employment to each of Seller's
current employees which it deems is suitable for employment with Buyer.
Alternatively, Buyer shall assume and accept the assignment of each such
employee's employment contract with Seller. For each of Seller's former
employees hired by Buyer, Buyer shall recognize time of service with Seller as
time of service with Buyer for purposes of non-health, life or disability
benefits, such as, 401(k) eligibility and matching contribution vesting, C-125,
etc. Seller acknowledges that Buyer maintains a drug-free workplace policy and
that all of Seller's former employees hired by Buyer will be subject to such
policy. Such staff employees shall be exempt from the pre-employment drug
screen, but shall be subject to all other provisions of the policy applicable in
13
<PAGE>
the state where work is being performed, including random testing. After the
Closing, each of Seller's employees hired by Buyer will be subject to
post-incident screening. Buyer may modify its policy at any time to reflect
changes in statutory or case law or for any other reason consistent with good
business judgment.
Seller and Principal shall make reasonable assurances and efforts
to encourage Seller's existing employees to accept employment with Buyer. Buyer
and Seller acknowledge and agree that due to the requirements of the INS
relating to transfer of H-1B visas and the legal permanent residency process,
Seller will lease to Buyer any employees who are subject to H-1B visas and the
legal permanent residency process until such time as the INS approves and
processes the transfer of H-1B visas or finally approves the legal permanent
residency of such employees. Such employees will be leased to Buyer at the cost
of the salary of such employee plus any allocation of actual overhead and
benefit costs of Seller relating to such leased employees.
Buyer and Seller further agree to cooperate in every way in order
to expedite the transfer of Seller's employees subject to H-1B visas to Buyer.
Buyer agrees to begin the transfer process immediately following the Closing
Date.
15. Seller shall pay all staff, consultant, contractor and temporary
employee benefits, costs and expenses earned prior to the Effective Date of this
Agreement. Seller agrees to pay before the Effective Date or to accrue and
maintain adequate reserves for any staff and temporary employee benefits earned
prior to the Effective Date of this Agreement, but to be paid after the
Effective Date. For those employee benefits, costs or expenses which a specific
date cannot be determined, Buyer and Seller shall share the payment of the
benefit, cost or expense on a pro-rated basis.
16. Buyer agrees to assist Seller to collect accounts receivable. Such
assistance shall be limited to turning over payments due Seller which are
received by Buyer within five (5) days of receipt of such payment. If Buyer
receives payment for both its services as well as Seller's, Buyer will deposit
said funds in its accounts and pay the amount due Seller to Seller within five
(5) days of receipt of such payment. Payments for which no invoice is designated
shall be applied to the oldest outstanding invoice.
Seller agrees if it receives any payment for any account receivable
due Buyer that it will turn over such payment to Buyer when received by Seller.
If Seller receives payment for both its services as well as Buyer's, Seller will
deposit said funds in its accounts and pay the amount due Buyer to Buyer.
Payments for which no invoice is designated shall be applied to the oldest
outstanding invoice.
17. To the extent that Seller's rights under any agreement, contract,
commitment, lease or other Asset to be assigned to Buyer hereunder may not be
assigned without the consent of another person which has not been obtained, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof or be unlawful, and Seller shall
14
<PAGE>
use its best efforts to obtain any such required consent(s) as promptly as
possible. If any such consent shall not be obtained or in any attempted
assignment would be ineffective or would impair Buyer's rights under the Asset
in question so that Buyer would not in effect acquire the benefit of all such
rights, Seller, to the maximum extent permitted by law and the Asset, shall act
after the Closing as Buyer's agent in order to obtain for it the benefits
thereunder and shall cooperate, to the maximum extent permitted by law and the
Asset, with buyer in any other reasonable arrangement designed to provide such
benefits to Buyer. Buyer, Seller, and Principal agree to take such further
action as is necessary to carry out the purpose of this Agreement, including the
execution and delivery of such further instruments and documents as any party
reasonably may request.
18. All of the representations and warranties contained in this
Agreement shall survive the Closing Date (except that representations and
warranties that specifically relate to a particular date or period shall be true
and correct as of such date and for such period) and shall continue in full
force and effect until the date of the first anniversary of the Effective Date,
except that the representations and warranties related to taxes and ERISA shall
continue in full force and effect until the applicable statute of limitations
for claims made thereunder shall have expired.
19. Buyer, Seller, and Principal agree to take such further action as
is necessary to carry out the purpose of this Agreement, including the execution
and delivery of such further instruments and documents as any party reasonably
may request.
20. Buyer, Seller and Principal agree that prior to the commencement of
any action for breach of this agreement they will submit to non-binding
mediation in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the action. The parties agree
to negotiate in good faith to resolve the breach or enter a settlement. An
arbitrator will be chosen by the Buyer and Seller. If the parties are unable to
agree upon an arbitrator, an arbitrator shall be selected pursuant to the rules
of the American Arbitration Association then in effect. Arbitration shall take
place in Salt Lake City, Utah.
21. This Agreement and all documents executed and delivered hereunder
shall be deemed to be contracts under the laws of the State of Utah without
regard to conflicts of law principles, and for all purposes shall be construed
and governed in accordance with such laws. Any suit or other action to enforce
any provision of this Agreement or to obtain any remedy with respect hereto
shall be brought in any federal or state court with competent jurisdiction
sitting in Salt Lake County, State of Utah.
22. In the event of the commencement of any litigation or arbitration
to enforce any provision of this Agreement or that is related to this Agreement,
the prevailing party shall be entitled to its costs for such action, including
reasonable attorney's fees, expert witness fees and other reasonable costs
incurred related to such action.
23. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, telegraphed, telexed,
15
<PAGE>
sent by facsimile transmission or sent by certified, registered or express mail,
postage prepaid. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or, if
mailed, five days after the date of deposit in the United States mail, as
follows:
(i) if to Buyer, to:
Wolfe & Associates, Inc.
5325 Wyoming Boulevard, N.E., Suite 200,
Albuquerque, NM 87109
Fax No. (505) 821-1741
(ii) if to SOS, to:
SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, Utah 84115
Attn: Legal Department
Fax No. (801) 486-3131
(iii) if to Seller to:
Tirumala V. Chaparala
NeoSoft, Inc.
25 First Street, Suite 105
Cambridge, MA 02141
Fax No. (617) 577-7999
(iv) if to Principal to:
Tirumala V. Chaparala
NeoSoft, Inc.
25 First Street, Suite 105
Cambridge, MA 02141
Fax No. (617) 577-7999
(v) if to Seller or Principal, Copy to:
Scott M. Stanton, Esq.
Gary Cary Ware Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Fax No. (619) 677-1477
16
<PAGE>
Any party may change its address for notice hereunder by written notice
to the parties hereto.
24. Any term or provision of this Agreement that is invalid or
unenforceable shall not affect the validity and enforceability of the remaining
terms and provisions of this Agreement.
25. Each party shall bear its own costs and expenses incurred in
connection with this Agreement, including any fee to be paid to a broker.
26. Each party acknowledges that it has sought the advice (or has had
the opportunity to do so) of competent legal counsel and tax advisors with
respect to the subject matter of this Agreement and the legal and tax
consequences of entering this Agreement.
27. This Agreement, together with the exhibits incorporated herein,
constitutes the entire agreement of the parties with respect to the subject
matter herein. This Agreement may only be modified by written instrument
executed by the parties hereto.
28. This Agreement may be executed in any number of counterparts, each
of which when executed and delivered shall be an original, but all such
counterparts shall constitute one and the same instrument. As used herein,
"counterparts" shall include full copies of this Agreement signed and delivered
by facsimile transmission, as well as photocopies of such facsimile
transmission.
29. Time is of the essence of this Agreement and all its provisions.
30. SOS hereby guarantees the performance of Buyer of each provision of
this Agreement. If Buyer fails to perform or satisfy any covenant, promise, term
or condition of this Agreement, including Principal's employment agreement
described in Article 14, within ten (10) days of written notice from Seller or
Principal to SOS, SOS shall perform or cause Buyer to perform or satisfy such
covenant, promise, term or condition.
[THIS SPACE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement.
DATED this day of July, 1998. DATED this day of July, 1998.
----- -----
Buyer SOS
Wolfe & Associates, Inc., by: SOS Staffing Services, Inc. by:
- ------------------------------- -----------------------------
Peter R. Sollenne, Chairman and JoAnn W. Wagner, Chairman and
Chief Executive Officer Executive Vice President
DATED this day of July, 1998. DATED this day of July, 1998.
----- -----
Seller Shareholder
Neosoft, Inc. Sujana Chaparala
- ----------------------------------------- -------------------------
Tirumala V. Chaparala, in his capacity as Sujana Chaparala
President of Seller as an individual Principal and
Shareholder and as trustee for Rohit Chaparala
and Sindura C. Chaparala, Shareholders
18
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT A
The following assets are to be purchased assumed by Buyer from Seller:
(a) The real property lease for the demised premises located at 25 First Street,
Suite 105, Cambridge, Massachusetts, 02141, together with all rights and
privileges under said lease to real property subject to said lease; and
(b) All papers and records in Seller's care, custody or control relating to the
operational aspects of Seller's consulting business or any of the Assets to be
transferred under this Agreement, including but not limited to all personnel and
labor relations records of Seller's employees hired by Buyer, environmental
control records, sales records, accounting and financial records, maintenance
and production records, except that Seller shall either have unlimited access to
or copies of such records; and
(c) All records in any way related to Seller's customers, business, employees
(which are hired by Buyer), etc. that are maintained at any location, except for
Seller's corporate minute books and other documents related solely to Seller's
corporate affairs or governance;
(d) To the extent of Seller's interest, the telephone numbers of Seller, to wit:
(617) 577-7888 and all other telephone numbers listed or used by Seller (Seller
shall transfer any right or interest it might have in such numbers to Buyer) ;
and
(e) To the extent of Seller's interest, the facsimile telephone numbers of
Seller, to wit: (617) 577-7999 (Seller shall transfer any right or interest it
might have in such numbers to Buyer) ; and
(f) E-mail domain address of Seller; and
(g) All of Seller's intangibles relating to its consulting business, including:
(i) all assumed business or trade names to the extent such trade names
are used in connection with providing outsourcing, consulting or staffing
services, including temporary help services, payroll services, permanent
placement or employee leasing. Such names to be transferred include but are not
limited to: "Neosoft," and all other assumed business names and trade names
owned or used by Seller; and all other slogans, trademarks and service marks
related to Seller; and
(ii) for any of Seller's employees hired by Buyer, their complete
personnel files, work histories, employment agreements between Seller and
employees of Seller, employee Confidentiality and non-compete agreements between
Seller and employees of Seller, and all other documents related to employees of
Seller which are hired by Buyer; and
(iii) all customer lists, including but not limited to all telephone
numbers, credit histories, sales histories and other documents related to
Seller's customers; and
(iv) Seller's goodwill; and
<PAGE>
(v) all other intangibles of Seller; and
(h) All proprietary and other software and hardware; and
(i) All operational assets of Seller including, but not limited to all
inventory, office furniture, phones, electronic and computer equipment and all
other equipment used by Seller to conduct business which are listed in Exhibit
B; and
(j) All prepaid expenses relating to any of the assets, facilities, and
operations being taken over by Buyer, including any deposits used in the normal
operation of Seller's business such as deposits for rent or security which were
or are required by the terms of any real property lease (excludes voluntary
pre-payments not required by any lease), all utility deposits, and any other
equipment lease deposits, all of which are more particularly described in
Exhibit B.
(k) All accounts receivable existing at the start of business on July 1, 1998 as
more particularly described in Exhibit C
<PAGE>
EXHIBIT B
<PAGE>
[Exhibit B consists of the asset inventory and a description of and all
leasehold, rent, security and utility deposits to be provided by Seller]
<PAGE>
EXHIBIT C
24
<PAGE>
[Exhibit C is a description of all accounts receivable as of July 1, 1998, the
Effective Date]
25
<PAGE>
EXHIBIT D
26
<PAGE>
Exhibit D
The real property lease for the demised premises located at:
25 First Street, Suite 105, Cambridge, Massachusetts, 02141
Agreements between Neosoft and other corporations.
Employment agreements.
27
<PAGE>
EXHIBIT E
28
<PAGE>
Exhibit E
Buyer agrees that it shall be responsible for all costs, expenses and fees
associated with transferring the H-1B visas of Seller's employees to Buyer.
29
<PAGE>
EXHIBIT F
30
<PAGE>
Exhibit F
EMPLOYMENT AND NONDISCLOSURE AGREEMENT
--------------------------------------
THIS EMPLOYMENT AND NONDISCLOSURE AGREEMENT (the "Agreement") is
entered into this of July, 1998 by and between Wolfe & Associates, Inc., a New
Mexico corporation (the "Company"), and Tirumala V. Chaparala ("Chaparala").
WHEREAS, the Company desires to employ Chaparala based on the terms and
conditions of this Agreement; and
WHEREAS, Chaparala desires to accept such employment on the terms and
conditions of this Agreement.
Accordingly, the parties agree as follows:
1. Employment, Duties and Acceptance.
----------------------------------
1.1 Employment by the Company. The Company hereby agrees to
employ Chaparala as a full-time employee of the Company in the position of Vice
President, NeoSoft Division for the Company's Neosoft Division, Cambridge,
Massachusetts, for the Term as hereinafter defined, to render such services and
to perform such duties as the Management of the Company shall reasonably request
(for purposes of this agreement, "Management" means any officer of the Company
or any person designated by the officers of the Company at their sole discretion
to whom Chaparala reports). Chaparala's primary duties shall be to supervise and
manage the Company's Neosoft Division based in Cambridge, Massachusetts.
Notwithstanding the foregoing, Chaparala's position and duties may be reasonably
modified or changed from time to time at the discretion of the management
without additional compensation. Chaparala shall also serve during all or any
part of the Term in any other office (office does not refer to any physical
office) to which he may be appointed or elected without any compensation
therefor other than that specified in this Agreement. Any material change to
Chaparala's position or duties, including relocation, must be agreed to by
Chaparala. A refusal by Chaparala shall not diminish his status or position with
the Company.
1.2 Acceptance of Employment by Chaparala. Chaparala hereby
accepts such continued employment and shall render the services described above.
Chaparala will faithfully, and at all times, and to the best of his ability,
experience and talents, perform all of the duties which are required of him
under this Agreement, including devoting of his full business time to and for
the exclusive benefit of the Company, and shall keep free from conflicting
31
<PAGE>
enterprises or any other activities which would be detrimental to or interfere
with the business of the Company or the devotion of his full time to the
business of the Company. Chaparala agrees to use his best efforts to comply with
any and all instructions that management may give him from time to time, and to
promote and maintain the success, quality, professionalism and reputation of the
Company.
32
<PAGE>
2. Term of Agreement and Employment. The term of this Agreement and
Chaparala's employment hereunder (the "Term") shall commence on July 1, 1998
(the "Commencement Date") and shall continue for a period of three (3) years
thereafter (such period may hereinafter be referred to as the "Initial Term").
Thereafter, the Term shall be extended automatically on each anniversary of the
Commencement Date for successive one (1) year periods unless either the Company
or Chaparala give not less than ninety (90) days written notice of its or his
intent not to extend the contract. As used in this Agreement, "Term" shall mean
and include the Initial Term of Chaparala's employment with the Company and any
extension thereof.
3. Compensation and Other Benefits.
--------------------------------
3.1 Compensation. As compensation for services to be rendered
pursuant to this Agreement, the Company shall pay Chaparala, during the Term, a
salary of not less than $60,000.00 per annum (the "Annual Salary"), subject to
such increases as the Management may, at its discretion, approve.
3.2 Expenses. Chaparala shall be entitled to reimbursement of
his reasonable expenses incurred related to the performance of his duties
hereunder pursuant to the Company's expense reimbursement program. The expenses
covered by such policy include mileage reimbursement for business related travel
or reimbursement for actual allowable automobile expenses or mileage,
reimbursement for other business related travel, entertainment of potential and
current customers of the Company, etc. Chaparala shall submit to the Company
receipts and the Company's expense reimbursement report. The Company shall
reimburse Chaparala within a reasonable time (not to exceed thirty (30) days)
after the appropriate Company employee receives the expense reimbursement report
and supporting documentation.
3.3 Other Compensation. Chaparala shall be eligible for such
other compensation, whether in the form of stock options, stock appreciation
rights, restricted stock awards or otherwise, in such amounts and upon such
terms and conditions as the Board of Directors (or a compensation committee
thereof) may, at its discretion, approve. All compensation described in Articles
3.2 and 3.3, shall be collectively referred to as "Additional Compensation."
3.4 Payment. The Annual Salary and the Additional Compensation
shall be payable in accordance with the applicable payroll and/or other
compensation policies and plans of the Company as from time to time in effect,
less such deductions as shall be required to be withheld by applicable law and
regulations.
3.5 Participation in Employee Benefit Plans. Chaparala shall
be permitted, during the Term to participate in any group life, hospitalization
or disability insurance plan, health program, pension plan, nonqualified
deferred compensation plan, similar benefit plan or other so-called "fringe
benefits" of the Company for which he may be eligible pursuant to the terms of
such plans on the same terms and conditions as other employees of the Company.
<PAGE>
4. Nondisclosure.
--------------
4.1 Non-Competition Covenants. Chaparala shall comply with all
non-competition covenants and the Company shall have all remedies as set forth
in Section 3 of the Asset Purchase Agreement between the Company, SOS Staffing
Services, Inc. and NeoSoft, Inc., dated July 1, 1998 (the "Asset Purchase
Agreement").
4.2 Nondisclosure Covenant. During the Covenant Period, as
defined in the Asset Purchase Agreement, Chaparala shall not, without the prior
written consent of the Company, intentionally, reveal, make accessible, or
disseminate to any person not an employee of the Company, or to any other
entity, or use for the benefit of himself or others, the Trade Secrets and any
and all other confidential matters of the Company. "Trade Secret" means
information, including a formula, pattern, compilation, program, device, method,
technique, or process that: (a) derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (b) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy. Chaparala covenants
and agrees during the Covenant Period that he shall not exploit for his own
benefit, or the benefit of others, personal relationships with customers,
suppliers or agents of the Company in a manner that would or may adversely
affect the Company.
4.3 Property of the Company. All of the Company's Trade
Secrets, and all tangible items, including, without limitation, all memoranda,
notes, lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by any other
means, made or compiled by or on behalf of Chaparala, or made available to
Chaparala relating to the past, existing, or contemplated business or work of
the Company, other than purely personal matters, are and shall remain the
Company's exclusive property and shall be delivered to the Company promptly upon
the termination of Chaparala's employment (whether for Cause or otherwise) or at
any other time on request of the Company.
4.4 Rights and Remedies upon Breach. If Chaparala breaches any
of the provisions of Articles 4.2, or 4.3 (collectively, the "Restrictive
Covenants"), the Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity:
4.4.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed by the parties hereto that any breach or
threatened breach of the Restrictive Covenants would cause irreparable injury to
the Company and that money damages would not provide an adequate remedy to the
Company.
<PAGE>
4.4.2 Accounting. Upon the determination, judgment or finding
of a court of competent jurisdiction or an arbitrator under binding arbitration
hereunder that Chaparala has breached the terms of the Restrictive Covenants,
the right and remedy to require Chaparala to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits derived or received by Chaparala as the result of any transactions
constituting a breach of the Restrictive Covenants.
5. Termination of Agreement and Employment.
----------------------------------------
5.1 Termination upon Death. If Chaparala dies during the Term,
this Agreement and Chaparala's employment hereunder shall terminate, except that
Chaparala's legal representatives, successors, heirs or assigns shall be
entitled to receive the Annual Salary, the Additional Compensation, other
accrued benefits, if any, earned up to the date of Chaparala's death; provided,
however, if any Additional Compensation or other benefits are governed by the
provisions of any written employee benefit plan or policy of the Company, any
written agreement contemplated thereunder, or any other separate written
agreement entered into between Chaparala and the Company, the terms and
conditions of such plan, policy or agreement shall control in the event of any
discrepancy or conflict with the provisions of this Agreement regarding such
Additional Compensation or other benefit upon the death, termination or
disability of Chaparala pursuant to this Article 5.
5.2 Termination for Cause. The Company has the right, at any
time during the Term, subject to all of the provisions hereof, exercisable by
serving notice, effective in accordance with its terms, to terminate this
Agreement and Chaparala's employment hereunder and discharge Chaparala for
"Cause" (as hereinafter defined). If such right is exercised, the Company's
obligation to Chaparala shall be limited to the payment of any unpaid Annual
Salary, Additional Compensation and other benefits, if any, accrued up to the
effective date (which shall not be retroactive) specified in the Company's
notice of termination. As used in this Article 5.2, the term "Cause" shall mean
and include (i) breach by Chaparala of the material terms of Article 4 of this
Agreement, (ii) wrongful misappropriation of any money or other assets or
properties of the Company or any subsidiary or affiliate of the Company, (iii)
the conviction of Chaparala for any felony, (iv) use of illegal drugs, (v) use
of alcohol if such use renders Chaparala unable to perform the essential
functions of his job, (vi) Chaparala's gross moral turpitude relevant to his
office or employment with the Company or any subsidiary or affiliate of the
Company ("gross moral turpitude" as used herein shall mean any act involving
dishonesty, fraud or deliberate misrepresentation, (vii) Chaparala's violation
of the Company's sexual harassment or anti-discrimination policy, or (vii)
Chaparala's violation of other established Company policies, whether currently
in place or adopted during the Term, where such violations ordinarily result in
termination.
5.3 Suspension upon Disability. If during the Term, Chaparala
becomes physically or mentally disabled, whether totally or partially, as
<PAGE>
evidenced by the written statement of (2) competent physicians licensed to
practice medicine in the United States, so that Chaparala is unable to
substantially perform his services hereunder for (i) a period of six consecutive
months, or (ii) for shorter periods aggregating six months during any
twelve-month period, the Company may at any time after the last day of the six
consecutive months of disability, or on the day on which the shorter periods of
disability equal an aggregate of six months, by written notice to Chaparala,
suspend Chaparala's employment and the performance of the Company's obligations
hereunder, including payments of the Annual Salary, Additional Compensation and
other benefits. If at any time Chaparala shall no longer be disabled, as
evidenced by the written statement of two (2) competent physicians licensed to
practice medicine in the United States, the Company may, at its election, fully
reinstate this Agreement and Chaparala's employment hereunder, and all of the
terms of this Agreement, including payment of the Annual Salary, shall resume in
full force for the balance of the Term. Nothing in this Article 5.3 shall be
deemed, however, to extend the Term. Additionally, nothing in this Article 5.3
shall limit or diminish Company's obligations towards Chaparala with respect to
the Americans with Disabilities Act of 1990, as amended, the Family and Medical
Leave Act of 1993, as amended, or any similar state laws.
5.4 Termination other than for Cause. During the Term, the
Company may terminate Chaparala's employment other than for Cause by (i) serving
written notice of termination to Chaparala and (ii) enclosing with the notice a
check in the amount of the Annual Salary then in effect for the remainder of the
Term. If Chaparala's employment is terminated per this paragraph 5.4, Company's
liability under this Agreement shall be limited to the Annual Salary payable for
the remainder of the Term and any Additional Compensation accrued and owing on
the date of such termination.
5.5 Termination by Chaparala for Good Reason. During the Term,
Chaparala may terminate his employment with Company for Good Reason by serving
notice of resignation to the company with a description of the circumstances
giving rise to the Good Reason. "Good Reason" means one or both of the following
events that occurs without Chaparala's express written consent during the Term;
(i) the relocation of the principal place of Chaparala's employment to a
location that is more than thirty (30) miles from Cambridge, Massachusetts,
without Chaparala's consent; or (ii) a significant decrease in Chaparala's
responsibilities and duties. If Chaparala's employment is terminated per this
paragraph 5.5, the Company's liability under this Agreement shall be limited to
the Annual Salary payable for the remainder of the Term and any Additional
Compensation accrued and owing on the date of such termination.
6. Insurance. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which is may change from time to time), policies for
health, accident, disability or other insurance upon Chaparala in any amount or
amounts that it may deem necessary or appropriate to protect its interest.
Chaparala agrees to aid the Company in procuring such insurance by submitting to
<PAGE>
reasonable medical examinations and by filling out, executing and delivering
such applications and other instruments in writing as may reasonably be required
by an insurance company or companies to which any application or applications
for insurance may be made by or for the Company.
7. Continuing Obligations. Notwithstanding the expiration or early
termination of the Term of this Agreement pursuant to Article 2 or Article 5
hereof, respectively, any provision of this Agreement calling for performance by
any party after such expiration or termination, including, without limitation,
the obligations of Chaparala set forth in Article 4 hereof, shall continue in
full force and effect.
8. Other Provisions.
-----------------
8.1 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of deposit in the United
States mail, as follows:
(i) if to the Company, to:
Wolfe & Associates, Inc.
5325 Wyoming Boulevard, N.E., Suite 200
Albuquerque, NM 87109
Fax No. (505) 821-1741
Copy to:
SOS Staffing Services, Inc.
1415 South Main Street
Salt Lake City, UT 84115
Attn: Legal Department
Fax No. (801) 486-3131
(ii) if to Chaparala to:
Tirumala V. Chaparala
NeoSoft, Inc.
25 First Street, Suite 105
Cambridge, MA 02141
Fax No. (617) 577-7999
<PAGE>
Copy to:
Scott M. Stanton, Esq.
Gary Cary Ware Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121
Fax No. (619) 677-1477
Any party may change its address for notice hereunder by
written notice to the parties hereto.
8.2 Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, written or oral, with respect
thereto; provided, however, that nothing herein shall in any way limit the
obligation, rights or liabilities of the parties under any written stock option
agreement separately entered into by the parties.
8.3 Waivers and Amendments. This Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
8.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah without regard to
conflicts of laws principles.
8.5 Arbitration. Each party agrees that with respect to any
dispute related to or arising out of this Agreement or Chaparala's employment
with the Company that the parties shall submit to binding arbitration in
accordance with the Arbitration Rules for Employment Contracts of the American
Arbitration Association in effect at the time of the action. The parties agree
to negotiate in good faith to resolve the breach or enter a settlement. An
arbitrator will be chosen by the parties. If the parties are unable to agree
upon an arbitrator, an arbitrator shall be selected pursuant to the rules of the
American Arbitration Association then in effect. Arbitration shall take place in
Salt Lake City, Utah.
8.6 Assignment. This Agreement, and any rights and obligations
hereunder, may not be assigned by either party hereto without the prior written
consent of the other party. Notwithstanding the foregoing, this Agreement may be
assigned by the Company to its parent company (SOS Staffing Services, Inc., a
<PAGE>
Utah corporation ("SOS")) or any subsidiary of SOS without Chaparala's consent.
An assignment to SOS or any affiliate of SOS shall not diminish or interfere
with any right, including vesting, of any employee benefit plan in which
Chaparala participates.
8.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Wolfe & Associates, Inc.
By: ----------------- ---------------------
Peter R. Sollenne Tirumala V. Chaparala
Chairman and CEO
FOR IMMEDIATE RELEASE: Thursday, July 9, 1998
CONTACT: W.B. Collings Madeleine Franco
Vice President Patrick Shaw
SOS Staffing Services, Inc. Jordan Richard Assoc.
801-484-4400 801-595-8611
SOS STAFFING SERVICES ACQUISITION OF NEOSOFT, INC.
EXPANDS SPECIALIZED IT SERVICES
SALT LAKE CITY, UTAH - SOS Staffing Services, Inc. (NASDAQ/NMS: SOSS) announced
today that it has completed the acquisition of Neosoft, Inc. (Cambridge, Mass.).
Neosoft, Inc. is a high-end, advanced skills information technology (IT)
staffing company. Neosoft's areas of specialty include Enterprise Resource
Packages (ERP), Internet development (JAVA, COBRA, Databases) and software
validation quality assurance testing. Neosoft specializes in ERP projects with
an emphasis in PeopleSoft, BaaN, and Oracle. The company provides advanced level
IT staffing and consulting solutions to the growing North American information
technology markets, with a concentration currently in the Midwest and western
United States.
SOS will retain the current management of Neosoft, which represents more than 25
years of direct experience in the software industry.
For the 12 months ended May 31, 1998, Neosoft had revenue of $2.9 million.
Currently the company is generating revenue of approximately $5.0 million on an
annualized basis.
"Founded in 1993, Neosoft is a much-respected and excellent strategic fit for
our Information Technology Division and provides an outstanding complement to
our existing IT business," said Howard W. Scott, Jr., chief executive officer of
SOS. "We are especially enthusiastic about the technology expertise and the
geographic expansion represented in this acquisition, and we look forward to
working with this well-established IT solutions provider to create more
opportunities for SOS in a rapidly growing market," he said.7
SOS Staffing Services, Inc. is a full-service provider of staffing services,
operating through a network of more than 140 offices located in 18 states.
# # #
NOTE: Any statements released by SOS Staffing Services, Inc. that are forward-
looking are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Editors and investors are cautioned
that forward-looking statements invoke risk and uncertainties that may affect
the company's business prospects and performance. These include economic,
competitive, governmental, technological and other factors discussed in the
company's filings with the Securities and Exchange Commission.
