<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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) September 30, 1996
------------------------
PERSONNEL GROUP OF AMERICA, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 001-13956 56-1930691
- ---------------------------- ------------------------ -------------------
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
--------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(704) 442-5100
--------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
---------------------------------------------------------
(Former name or address, if changed from last report)
-1-
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On September 30, 1996, Personnel Group of America, Inc. (the "Company")
acquired substantially all the assets of Business Enterprise Systems and
Technology, Inc., doing business as BEST Consulting ("BEST"), an information
technology consulting firm, pursuant to the terms of an Asset Purchase
Agreement, dated as of September 20, 1996, (the "Agreement"), between the
Company, BEST and the shareholders of BEST named in the Agreement, a copy of
which is filed as an Exhibit to this Current Report. Aggregate consideration
for the acquisition consists of the following: $86,800,000, of which a total of
$75,850,000 was paid in cash on or before closing, and $10,950,000 of which was
represented by a promissory note delivered by the Company at closing. The
purchase price is subject to adjustment based upon the amount of tangible net
worth of BEST reflected on a closing balance sheet to be prepared by the
Company within 60 days after the closing date. BEST is also entitled, in
accordance with the terms of the Agreement, to receive certain contingent
earnout payments based upon the aggregate net earnings before interest, taxes,
and amortization of intangibles (including goodwill) of the acquired business
for the four fiscal years ending December 31, 1996 through December 31, 1999.
Of the aggregate consideration already paid, approximately $66.0 million was
funded from borrowings under the Company's revolving credit facility with
NationsBank, N.A., and the balance was funded from the Company's available cash.
It is intended that any contingent earnout payments will be funded from the
operations of the acquired business. The total consideration payable in the
acquisition was determined through arm's length negotiations between the
representatives of the Company and BEST and its shareholders.
The acquired assets will continue to be used in the acquired business
to provide information technology services.
The description of the terms of the acquisition set forth above is
qualified in all respects by reference to the Agreement, a copy of which is
filed herewith as an Exhibit to this Current Report.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements
Filed herewith are the historical financial statements listed
below, as required by Item 7 of Form 8-K in connection with the Company's
acquisition of BEST:
(1) Financial Statements of BEST
Reports of Independent Public Accountants
-2-
<PAGE> 3
Balance Sheets as of December 31, 1994 and 1995 and June 30,
1996 (unaudited)
Statements of Operations for the Years ended December 31, 1993,
1994 and 1995 and the Six Months ended June
30, 1995 and 1996 (unaudited)
Statements of Shareholders' Equity for the Years ended December
31, 1993, 1994, 1995 and for the Six Months
ended June 30, 1996 (unaudited)
Statements of Cash Flows for the Years ended December 31, 1993,
1994, 1995 and for the Six Months ended June
30, 1995 and 1996 (unaudited)
Notes to Financial Statements
(2) Financial Statements of Prodata, Inc.
Report of Independent Public Accountants
Balance Sheet as of March 31, 1995
Statements of Operations for the Twelve Months ended March 31,
1994 and 1995 and the Four Months ended July
31, 1995
Statements of Stockholders' Equity for the Twelve Months ended
March 31, 1994, 1995, and for the Four Months
ended July 31, 1995
Statements of Cash Flows for the Twelve Months ended March 31,
1994 and 1995 and the Four Months ended July
31, 1995
Notes to Financial Statements
The pro forma information required to be filed by Item 7 of Form 8-K
in connection with the acquisition of BEST is not currently available. The
Company anticipates that such pro forma financial information will be filed on
or before December 13, 1996.
(b) Exhibits
-3-
<PAGE> 4
Exhibit 2 -- Asset Purchase Agreement between the Company,
BEST and the individuals named therein, dated
as of September 20, 1996
Exhibit 23 -- Consent of Arthur Andersen LLP
The Company agrees to furnish supplementally to the Commission upon
request any Schedule or Exhibit to Exhibit 2 omitted from the copy attached
hereto.
-4-
<PAGE> 5
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.
Date: October 14, 1996
PERSONNEL GROUP OF AMERICA, INC.
By: /s/ MICHAEL P. BERNARD
-----------------------------------
Chief Financial Officer and Treasurer
-5-
<PAGE> 6
INDEX TO FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<CAPTION>
Documents filed under Item 7
- ----------------------------
<S> <C> <C>
(b) Exhibit 2 -- Asset Purchase Agreement between the
Company, BEST and the individuals
named therein, dated as of September 20, 1996
Exhibit 23 -- Consent of Arthur Andersen LLP
</TABLE>
-6-
<PAGE> 7
BUSINESS ENTERPRISE SYSTEMS
& TECHNOLOGY, INC.
DBA BEST CONSULTING
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Personnel Group of America, Inc.:
We have audited the accompanying balance sheets of Business Enterprise Systems
& Technology, Inc., dba BEST Consulting (a Washington corporation), as of
December 31, 1995 and 1994, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BEST Consulting as of December
31, 1995 and 1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
September 9, 1996.
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Personnel Group of America, Inc.:
We have reviewed the accompanying balance sheet of Business Enterprise Systems
& Technology, Inc., dba BEST Consulting (a Washington corporation) as of June
30, 1996 and the related statements of income and cash flows for the six-month
periods ended June 30, 1995 and 1996. These financial statements are the
responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
September 9, 1996.
<PAGE> 10
BEST CONSULTING
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $12,064,115 $19,798,890 $41,475,983 $14,121,073 $30,690,306
OPERATING EXPENSES:
Direct cost of services 7,218,598 12,058,232 27,623,760 9,050,851 20,135,215
Selling, general and administrative 2,155,514 4,381,280 8,627,494 2,667,098 6,669,832
Depreciation and amortization 72,317 158,439 769,712 289,683 742,554
Stock option compensation - - 5,333,000 - 1,712,000
----------- ----------- ----------- ----------- -----------
Total operating expenses 9,446,429 16,597,951 42,353,966 12,007,632 29,259,601
Interest income 12,584 31,820 67,732 40,096 25,378
Interest expense (54) - (383,958) (25,358) (431,164)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 2,630,216 $ 3,232,759 $(1,194,209) $ 2,128,179 $ 1,024,919
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
BEST CONSULTING
BALANCE SHEETS -- DECEMBER 31, 1994 AND 1995, AND JUNE 30, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $1,230,037 $ 431,513 $ 849,771
Marketable securities 250,345 - -
Accounts receivable, net of
allowance of $0, $225,000 and
$160,212, respectively 2,801,350 8,897,994 8,516,071
Other receivables 84,003 236,850 254,400
Other current assets 262,043 831,694 882,484
---------- ----------- -----------
Total current assets 4,627,778 10,398,051 10,502,726
PROPERTY AND EQUIPMENT:
Computer equipment 416,540 1,001,235 1,222,506
Furniture and fixtures 58,961 152,812 197,423
Office equipment - 145,856 172,307
Purchased software 95,821 250,030 410,570
---------- ----------- -----------
571,322 1,549,933 2,002,806
Less- accumulated depreciation (266,756) (594,331) (887,631)
---------- ----------- -----------
Property and equipment, net 304,566 955,602 1,115,175
---------- ----------- -----------
INTANGIBLE ASSETS:
Noncompete agreements, net 1,087,648 2,651,256 2,363,285
Goodwill, net - 7,634,955 7,538,517
Other assets, net 11,688 188,402 156,181
---------- ----------- -----------
Total assets $6,031,680 $21,828,266 $21,675,884
========== =========== ===========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31, June 30,
1994 1995 1996
------------ ------------ -----------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued
liabilities other than payroll $ 359,901 $ 932,911 $ 962,724
Accrued payroll 445,704 3,514,581 3,462,864
Deferred revenue 58,500 104,038 180,419
Line of credit - 2,789,271 712,329
Current portion of long-term debt 166,052 1,621,966 1,725,583
Accrued tax offset bonus - 2,133,000 2,818,000
---------- ----------- -----------
Total current liabilities 1,030,157 11,095,767 9,861,919
LONG-TERM LIABILITIES:
Long-term debt, net of current portion 1,295,792 5,303,139 4,332,686
---------- ----------- -----------
Total liabilities 2,325,949 16,398,906 14,194,605
---------- ----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, 20,000,000 shares;
authorized, 4,457,925, 4,960,425 and
4,960,425 shares issued and
outstanding, respectively 162,209 3,962,809 4,989,809
Retained earnings 3,543,522 1,466,551 2,491,470
---------- ----------- -----------
Total shareholders' equity 3,705,731 5,429,360 7,481,279
---------- ----------- -----------
Total liabilities and
shareholders' equity $6,031,680 $21,828,266 $21,675,884
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 12
BEST CONSULTING
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
---------------------------------------------- -------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------ -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,630,216 $ 3,232,759 $(1,194,209) $ 2,128,179 $ 1,024,919
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation and amortization 72,317 158,439 769,712 289,683 742,554
Loss on sale of assets - - 52,008 - -
Stock option compensation expense - - 5,333,000 - 1,712,000
Changes in operating accounts:
Accounts receivable, net (1,607,686) (710,351) (2,527,270) (1,017,245) 364,373
Other current assets (428,364) 166,321 (570,376) (673,458) (42,883)
Accounts payable and accrued expenses 66,200 200,332 34,712 178,624 (107,687)
Accrued payroll 136,415 175,715 185,142 399,094 925,945
Deferred revenue - 58,500 (125,374) (58,500) 76,381
Other current liabilities - - 801,216 - (840,163)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities 869,098 3,281,715 2,758,561 1,246,377 3,855,439
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (276,481) (176,911) (532,576) (379,222) (498,909)
Loan (from) to employees, net (76,136) (16,574) 91,359 (1,786) -
Purchase of Prodata, net of cash
acquired of $2,445 - - (813,955) - -
Payment of loan fees - - (130,000) - -
Proceeds from the sale of equipment - - - - 5,505
Proceeds from the sale of investments - - 249,059 345 -
Purchases of investments - (250,345) - - -
Payments on noncompete agreements - - (527,512) (41,655) (277,496)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (352,617) (443,830) (1,663,625) (422,318) (770,900)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on line of credit - - (785,729) - (2,076,942)
Proceeds from sale of stock 44,637 72,319 - - -
Cash paid for the repurchase of stock - (771,000) - - -
Payments on long-term debt - - (224,969) (7,730) (589,339)
Distributions to shareholders (739,002) (1,343,976) (882,762) (882,762) -
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities (694,365) (2,042,657) (1,893,460) (890,492) (2,666,281)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash (177,884) 795,228 (798,524) (66,433) 418,258
CASH AT BEGINNING OF PERIOD 612,693 434,809 1,230,037 1,230,037 431,513
----------- ----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 434,809 $ 1,230,037 $ 431,513 $ 1,163,604 $ 849,771
=========== =========== =========== =========== ===========
CASH PAID FOR INTEREST $ 54 $ - $ 268,336 $ 25,358 $ 406,548
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 13
BEST CONSULTING
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Retained
Shares Stock Earnings Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 6,177,225 $ 81,000 $ 838,778 $ 919,778
1993 net income - - 2,630,216 2,630,216
Distributions to
shareholders - - (739,002) (739,002)
Sale of stock 212,100 44,637 - 44,637
---------- ---------- ----------- -----------
BALANCE, December 31, 1993 6,389,325 125,637 2,729,992 2,855,629
1994 net income - - 3,232,759 3,232,759
Repurchase of stock (2,065,875) (35,747) (1,075,253) (1,111,000)
Distributions to
shareholders - - (1,343,976) (1,343,976)
Sale of stock 134,475 72,319 - 72,319
---------- ---------- ----------- ------------
BALANCE, December 31, 1994 4,457,925 162,209 3,543,522 3,705,731
1995 net loss - - (1,194,209) (1,194,209)
Issuance of stock 502,500 600,600 - 600,600
Distributions to
shareholders - - (882,762) (882,762)
Stock option compensation - 3,200,000 - 3,200,000
---------- ---------- ----------- -----------
BALANCE, December 31, 1995 4,960,425 3,962,809 1,466,551 5,429,360
1996 net income - - 1,024,919 1,024,919
Stock option compensation - 1,027,000 - 1,027,000
---------- ---------- ----------- -----------
BALANCE, June 30, 1996 4,960,425 $4,989,809 $ 2,491,470 $ 7,481,279
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 14
BUSINESS ENTERPRISE SYSTEMS & TECHNOLOGY, INC.
DBA BEST CONSULTING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPAL BUSINESS
Business Enterprise Systems & Technology, Inc. (a Washington corporation,
hereinafter referred to as BEST or the Company) is an information systems
consulting firm, providing systems integration, development and implementation
of new application systems, and flexible staffing to support both mainframe and
mid-range based "legacy" and client/server systems.
Founded in 1990, BEST is headquartered in Kirkland, Washington, and has offices
in Arizona, California, Idaho, Minnesota, Nevada, Oregon and Utah.
INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited balance sheet as of
June 30, 1996, and the unaudited statements of operations and cash flows for
the six-month periods ended June 30, 1996 and 1995, contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position of the Company as of June 30, 1996, and the results of
its operations and its cash flows for the six-month periods ended June 30, 1996
and 1995. The interim financial information is not necessarily indicative of
the results that will occur for a full year and is not intended to be a
projection of future results or trends.
REVENUE AND COST RECOGNITION
Revenues from "time and material" contracts are recognized when the services
are performed. These represent the substantial majority of the Company's
revenues.
Revenues from fixed-price contracts are recognized using the
percentage-of-completion method. Contract costs include direct labor, combined
with allocations of operational overhead, and other direct costs. Changes in
job performance, job conditions and estimated profitability may result in
revisions to the total estimated costs of the contract. The impact of such
changes in estimated costs are recognized in the period in which revisions are
determined.
Services performed which have been authorized, but not yet billable, are
classified as unbilled services and are included in accounts receivable. Cash
received in excess of revenue recognized under the percentage of completion
method is reported as deferred revenue.
<PAGE> 15
- 2 -
DEPRECIATION
Depreciation of computer equipment, furniture and fixtures and software is
computed using the straight-line method based upon estimated useful lives of
two to five years. The Company capitalizes expenditures that materially
increase the asset lives and charges ordinary maintenance and repairs to
operations as incurred. When assets are sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in income.
AMORTIZATION
Amortization of intangible assets is computed using the straight-line method
over periods defined as follows:
<TABLE>
<CAPTION>
Intangible Amortization Period
- ---------- ------------------------------
<S> <C>
Noncompetition Agreements Life of agreement (4-10 years)
Goodwill 40 years
Loan Fees Life of loan (1.75 to 4 years)
</TABLE>
Accumulated amortization on these intangible assets was $870,358, $461,635 and
$34,196 at June 30, 1996, December 31, 1995 and 1994, respectively.
The Company annually evaluates the impairment of its intangibles on the basis
of whether they are fully recoverable from projected, undiscounted, net cash
flows of the related business unit. Impairment would be recognized in
operating results if a permanent diminution in value were to occur.
ADVERTISING
Costs incurred for producing and communicating advertising are expensed when
incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a remaining maturity of three months or
less to be cash equivalents.
INCOME TAXES
The Company, with the consent of its shareholders, has elected to have its
income taxed under Section 1362 of the Internal Revenue Code, which provides
that, in lieu of corporation income taxes, the shareholders are taxed on the
proportionate share of the Company's cash-basis taxable income. Therefore, no
provision or liability for federal or state income taxes is included in these
financial statements.
OTHER CURRENT ASSETS
Other current assets consist primarily of the cash surrender value of life
insurance policies carried on the lives of its officer-shareholders.
<PAGE> 16
- 3 -
NEW ACCOUNTING STANDARDS
During 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock Based Compensation." The Company plans to continue to
measure compensation cost of employee stock options plans using the intrinsic
value method prescribed by APB Opinion No. 25, and, starting in 1996, to make
pro forma disclosures of net income and earnings per share as if the fair value
method prescribed by SFAS No. 123 had been applied.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
2. BUSINESS COMBINATION:
Effective August 1, 1995, BEST acquired the outstanding stock of Prodata, Inc.
(hereinafter referred to as Prodata), an Idaho corporation providing
information systems consulting through offices in Arizona, California, Idaho,
Nevada and Utah. The transaction has been accounted for utilizing the purchase
method of accounting; thus, the financial statements include the results of
operations of Prodata for all periods subsequent to July 31, 1995.
The details of the acquisition are as follows:
<TABLE>
<S> <C>
Assets acquired, net of cash:
Accounts receivable $ 3,806,224
Other current assets 74,540
Property, plant and equipment 511,455
-----------
4,392,219
Liabilities assumed:
Accounts payable and accrued expenses (538,298)
Accrued payroll (1,847,263)
Deferred revenue (170,912)
Line-of-credit (225,000)
Other current liabilities (235,256)
-----------
(3,016,729)
Goodwill 7,715,345
-----------
Net assets purchased $ 9,090,835
===========
Cash paid $ 813,955
Debt obligations incurred 7,676,280
6,700 shares of common stock issued 600,600
-----------
Total purchase price $ 9,090,835
===========
</TABLE>
<PAGE> 17
- 4 -
Simultaneous with the acquisition, BEST entered into a management and
consulting contract with the sellers to act as consultants with respect to all
phases of the operation of Prodata for a period of six months, expiring January
31, 1996. In addition, BEST entered into four year noncompetition contracts
with certain of the sellers totaling $1,889,462.
SUPPLEMENTAL PRO FORMA DISCLOSURE
The following is a pro forma presentation of the results of operations as if
BEST had acquired Prodata, Inc. as of the beginning of each of the periods
shown:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Revenues $56,920,444 $41,816,559
Income (loss) from operations (1,064,714) 3,076,353
Net income (loss) (1,682,432) 2,199,338
</TABLE>
These pro forma results consider the effects of amortization of goodwill,
noncompete agreements and loan fees and the interest expense on additional debt
incurred in the purchase and on the noncompete agreements.
3. SIGNIFICANT CUSTOMERS:
One customer accounted for approximately 23%, 46% and 51% of the Company's
sales for the years ended December 31, 1995, 1994 and 1993, respectively.
Another customer accounted for approximately 12% and 14% of the Company's sales
for the years ended December 31, 1995 and 1994, respectively.
4. NOTE RECEIVABLE - STOCKHOLDER:
The Company has a note receivable from one of its stockholders. The note is
due in annual installments of $62,685, including interest at 8.53%, payable
through February 1, 1998, and is included in other receivables.
Management estimates that the carrying value of the note receivable, based on
terms at which the same loan would be made currently, approximates the fair
value.
5. LINE OF CREDIT:
BEST maintains a revolving line of credit with a maximum borrowing limit of
$5,000,000, bearing interest at prime plus 2.0%, due and payable April 30,
1997. The facility is collateralized by assets of the Company and at no time
is the outstanding balance of the principal and interest to exceed an amount
equal to 80% of the trade accounts receivable.
<PAGE> 18
- 5 -
6. LONG-TERM DEBT:
At December 31, 1995, long-term debt consisted of the following:
<TABLE>
<S> <C>
Note payable to the bank, due in monthly installments of
$102,900, including interest at the prime rate plus 2% (adjusted
annually), due October 1, 1999. The terms of the financing
agreement allow for accelerated annual principal payments
pursuant to an agreed-upon formula but not to exceed $2,000,000
per annum. Concurrently, the Company is required to pay an
annual loan fee based on an agreed-upon formula. The terms of
the financing agreement contain, among other provisions,
requirements for maintaining defined levels of working capital,
net worth, capital expenditures and various financial ratios,
including debt to equity, as well as place certain restrictions
on dividend payments and the repurchase of company common stock. $ 3,791,084
Note payable - individual, pursuant to an employment agreement,
noninterest bearing, discounted at 6%, payable in three annual
installments of $118,611, due January 31, 1998. 326,280
Note payable - individual, pursuant to a stock repurchase
agreement, payable in quarterly installments of $16,544 plus
interest at 15%, due October 30, 2004. 323,947
Note payable - individual, pursuant to a noncompete agreement,
payable in quarterly installments of $37,500, due October 5, 2004
(discounted at 6%). 1,037,276
Note payable - individual, pursuant to a noncompete agreement,
payable in three annual installments of $350,000 due August 1,
1998 (discounted at 6%). 935,554
Note payable - individual, pursuant to a non-compete agreement,
payable in annual installments of $250,000 due April 1, 1996,
$200,000 due April 1, 1997, and $100,000 due April 1, 1998
(discounted at 6%). 510,964
-----------
6,925,105
Less- current portion (1,621,966)
-----------
Total long-term debt $ 5,303,139
===========
</TABLE>
<PAGE> 19
- 6 -
The future maturities of long-term debt obligations are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
------------
<S> <C>
1996 $1,621,966
1997 1,693,965
1998 1,654,565
1999 1,086,752
2000 149,130
Thereafter 718,727
----------
$6,925,105
==========
</TABLE>
Management estimates that the fair value of long-term notes payable, based on
borrowing rates currently available to the Company, approximates the carrying
values at December 31, 1995.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office space in the various cities where it conducts
business. The rent expense for the three 12-month periods ending December 31,
1995, were $626,031, $83,238 and $48,388, respectively. Total rent expense for
the six-month periods ending June 30, 1996 and 1995, were $350,577 and $54,351,
respectively.
Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1996 $ 720,973
1997 506,403
1998 494,155
1999 412,221
2000 232,729
----------
$2,366,481
==========
</TABLE>
CONTINGENCY
The state of Washington Department of Labor and Industries has asserted that
the Company has failed to pay a portion of overtime compensation for certain of
its employees. The Company disputes the state's claim and management believes
the Company has defenses to this assertion. Management believes it has
adequately provided for the potential cost of ultimately settling this dispute.
The Company is a defendant in a lawsuit arising from normal business
activities. Management has reviewed pending litigation with legal counsel and
believes that the action is without merit and that the ultimate liability, if
any, resulting from the lawsuit will not materially affect the Company's
financial position or results of operations.
<PAGE> 20
- 7 -
8. CASH FLOW INFORMATION:
In 1994 the Company repurchased shares from a shareholder with cash of $771,000
and a note payable in the amount of $340,000, for a total of $1,111,000.
9. EMPLOYEE BENEFIT PLANS:
QUALIFIED CASH OR DEFERRED COMPENSATION PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code. Under the plan, employees may
elect to defer up to 15% of their salary, subject to Internal Revenue Service
limits. The plan allows for the Company to make discretionary contributions
based on the participant's compensation. The Company made no discretionary
contributions for the years ended December 31, 1995, 1994 and 1993.
FLEXIBLE BENEFIT PLAN
BEST provides a flexible benefit plan to its full-time salaried and hourly
employees. Benefit choices include medical and dental insurance, supplemental
life insurance and disability insurance. Effective January 1, 1996 the Company
self-insures for medical and dental benefits.
10. LIFE INSURANCE POLICIES:
The Company is the owner and beneficiary of key-man life insurance policies,
carried on the lives of its officer-shareholders, bearing face value amounts
totaling approximately $15,270,000. No loans are outstanding against the
policies, but there is no restriction in the policy regarding loans.
The life insurance contracts are accompanied by mandatory stock purchase
agreements for the amount of the proceeds of the life insurance. In the event
of the insured's death, the insured's estate will be obligated to sell, and the
Company will be obligated to purchase the insured's stock at the value of the
stock established pursuant to the terms stated in the stock retirement
agreement. The purpose of the insurance policy is to protect the Company
against an abrupt change in ownership or management.
The Company is also the owner and beneficiary of a life insurance policy
carried on the life of a former shareholder, bearing a face value of
$2,000,000. The purpose of this contract is to protect the Company against
undue cash requirements in the event of the death of the former shareholder.
The proceeds of the policy would be applied to the unpaid balance of the
noncompete agreement with the former shareholder.
11. STOCKHOLDERS EQUITY:
STOCK PURCHASE AGREEMENT
All of the capital stock outstanding at the balance sheet date is subject to a
contractual agreement, which imposes certain restrictions upon the transfer of
the shares and which grants first right of repurchase to the Company. In
certain instances, as defined in the agreement, a shareholder may dispose of
his stock by offering it for sale to the Company and the other shareholders.
The method for determining the purchase price is set forth in the agreement.
<PAGE> 21
- 8 -
As part of the same agreement, upon the death of a shareholder, the Company or
its shareholders will have the option to purchase the Company's common stock
from the estate of the deceased shareholder under the same terms and price as
for the disposition of stock.
The Company has purchased life insurance policies on the shareholders to fund
the purchase.
STOCK OPTION PLAN
The Company has a nonqualified incentive stock option agreement dated May 1,
1994 with a key employee. Under the plan, the employee is eligible to acquire
2,065,875 of the outstanding shares of common stock. The current exercise
price of all options granted is $1.73 per share. The exercise price is
adjusted to the extent excess distributions, as defined in the agreement, are
made to the shareholders. This option also includes a tax-offset cash bonus to
the option holder, which is payable by December 31 of any calendar year in
which the option holder receives option shares, upon the exercise of any part
of this option. The options vest one-third each year beginning May 1, 1996 or
upon a public offering of the Company's stock or other liquidating event.
The Company is accounting for this agreement as a variable stock option plan
and accordingly recognizes compensation expense in each period based on the
estimated fair market value of the Company's stock as of the date of the
balance sheet, the resulting tax-offset bonus and the percentage of options
that have vested. In the six-month period ended June 30, 1996 and the year
ended December 31, 1995, the Company recorded compensation expense in the
amount of $1,712,000 and $5,333,000 related to this option.
The Company has a nonqualified incentive stock option agreement with a minority
shareholder-employee. Under the agreement, the employee is eligible to acquire
102,750 shares of common stock at an exercise price of $2.69 per share.
On June 18, 1996, the Company adopted the 1996 stock option plan (the Plan),
which enables certain employees of the Company to acquire shares of the
Company's common stock. The Plan Administrator determines the individuals to
be granted options, the number of shares subject to each option, the exercise
price and all other terms and conditions of the options, within certain
parameters as defined in the Plan. As of June 18, 1996, the Company granted
55,000 options under the Plan at an exercise price equal to the then estimated
fair market value of $4.43 per share.
12. SUBSEQUENT EVENTS:
On June 11, 1996, the Company authorized 20,000,000 shares of no par value
common stock, and changed all existing shares to no par value common stock.
On June 18, 1996, the Company authorized a stock split of 75 to 1. Each
shareholder received 74 additional shares of the company's stock for each share
they owned. The financial statements reflect this stock split for all periods
presented.
The Company has entered into a letter of intent, whereby Personnel Group of
America, Inc. will acquire the assets of the Company and assume certain
liabilities. The letter of intent is subject to the execution of a definitive
agreement.
<PAGE> 22
PRODATA, INC.
FINANCIAL STATEMENTS
JULY 31, 1995, MARCH 31, 1995 AND 1994
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Personnel Group of America Inc.:
We have audited the accompanying balance sheet of Prodata, Inc. (an Idaho
corporation) as of March 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the years ended March 31, 1994 and 1995
and the four-month period ended July 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prodata, Inc. as of March 31,
1995, and the results of its operations and its cash flows for the years ended
March 31, 1994 and 1995, and the four-month period ended July 31, 1995, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
September 9, 1996.
<PAGE> 24
PRODATA, INC.
BALANCE SHEET -- MARCH 31, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash $ 3,412
Accounts receivable 3,463,855
Prepaid expenses and other assets 96,810
----------
Total current assets 3,564,077
----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 14,502
Computers 514,466
Furniture and equipment 249,255
----------
778,223
Less-accumulated depreciation and amortization (294,041)
----------
Net property and equipment 484,182
----------
DEFERRED TAX ASSET 60,180
----------
Total assets $4,108,439
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line-of-credit $ 850,000
Accounts payable 254,461
Deferred revenue 212,789
Accrued wages and leave 1,336,085
Accrued payroll taxes 198,365
Income taxes payable 31,206
Other accrued liabilities 72,766
Shareholder notes payable 150,000
Current deferred taxes 19,600
----------
Total current liabilities 3,125,272
----------
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value; authorized 200,000 shares;
issued and outstanding 87,770 shares 43,885
Additional paid-in capital 726,910
Retained earnings 389,667
Treasury stock, 47,520 shares, at cost (177,295)
----------
Total stockholders' equity 983,167
----------
Total liabilities and stockholders' equity $4,108,439
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
<PAGE> 25
PRODATA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months Ended Four Months
March 31, Ended
-------------------------- July 31,
1994 1995 1995
----------- ------------ ----------
<S> <C> <C> <C>
REVENUES $18,357,098 $23,237,859 $8,755,705
OPERATING EXPENSES:
Direct cost of services 14,525,495 17,127,235 6,778,013
General and administrative expenses 3,999,193 5,260,315 1,040,440
Depreciation and amortization 48,428 70,160 47,536
----------- ----------- ----------
Total operating expenses 18,573,116 22,457,710 7,865,989
----------- ----------- ----------
NONOPERATING EXPENSES:
Interest expense 33,948 20,698 34,816
Loss on sale of assets 619 1,931 27,333
----------- ----------- ----------
Total nonoperating expenses 34,567 22,629 62,149
----------- ----------- ----------
Earnings (loss) before income taxes (250,585) 757,520 827,567
----------- ----------- ----------
INCOME TAX (EXPENSE) BENEFIT 39,446 (328,049) (339,372)
----------- ----------- ----------
NET (LOSS) INCOME $ (211,139) $ 429,471 $ 488,195
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 26
PRODATA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------- Additional Treasury
Number of Par Paid-in Retained Stock
Shares Value Capital Earnings (at Cost) Total
--------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, March 31, 1993 83,650 $41,825 $249,700 $ 246,991 $(161,425) $ 377,091
Issuance of restricted common stock 100 50 - - - 50
Sale of unrestricted common stock 3,200 1,600 424,000 - - 425,600
Dividends - - - (14,861) - (14,861)
Net loss for the year - - - (211,139) - (211,139)
------ ------- -------- --------- --------- ----------
BALANCE, March 31, 1994 86,950 43,475 673,700 20,991 (161,425) 576,741
------ ------- -------- --------- --------- ----------
Issuance of restricted common stock 420 210 210 - - 420
Sale of unrestricted common stock 400 200 53,000 - - 53,200
Purchase of shares for Treasury - - - - (15,870) (15,870)
Dividends - - - (60,795) - (60,795)
Net income for the year - - - 429,471 - 429,471
------ ------- -------- --------- --------- ----------
BALANCE, March 31, 1995 87,770 43,885 726,910 389,667 (177,295) 983,167
------ ------- -------- --------- --------- ----------
Purchase of shares for Treasury - - - - (58,520) (58,520)
Net income for the four months ended July 31, 1995 - - - 488,195 - 488,195
------ ------- -------- --------- --------- ----------
BALANCE, July 31, 1995 87,770 $43,885 $726,910 $ 877,862 $(235,815) $1,412,842
====== ======= ======== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 27
PRODATA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For Twelve Months Ended For Four
March 31, Months Ended
----------------------- July 31,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income for the year $ (211,139) $ 429,471 $ 488,195
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities-
Depreciation and amortization 48,428 70,160 47,536
Loss on sale of assets 619 1,931 27,333
Deferred income taxes (40,426) (50,245) 69,252
Increase in accounts receivable (480,540) (1,192,754) (353,912)
Decrease (increase) in prepaid
expenses and other assets 24 (25,605) 11,761
(Decrease) increase in accounts payable 40,930 (21,154) (3,427)
Increase (decrease) in deferred
revenues 53,800 158,989 (19,825)
Increase (decrease) in accrued wages
and leave 457,279 (89,288) 511,178
Increase in accrued payroll taxes 68,086 8,193 55,973
(Decrease) increase in income taxes
payable (483) 31,206 135,938
Increase (decrease) in other accrued
liabilities (23,051) 67,637 (35,307)
---------- ---------- ----------
Net cash (used in) provided by
operating activities (86,473) (611,459) 934,695
---------- ---------- ----------
For Twelve Months For Four
Ended March 31, Months Ended
------------------------- July 31,
1994 1995 1995
----------- ---------- ------------
<C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Treasury stock $ - $ (15,870) $ (58,520)
Proceeds from sale of stock 425,650 53,620 -
Dividends (14,861) (60,795) -
Purchase of equipment (81,472) (403,848) (162,497)
Proceeds from sale of equipment - - 60,355
---------- --------- ------------
Net cash (used in) provided by
investing activities 329,317 (426,893) (160,662)
---------- --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of-
Short-term debt (115,000) - (5,175,000)
Long-term debt (81,973) (74,157) (150,000)
Borrowing of-
Short-term debt - 850,000 4,550,000
Long-term debt 70,000 150,000 -
---------- --------- ------------
Net cash provided by (used in)
financing activities (126,973) 925,843 (775,000)
---------- --------- ------------
Net (decrease) increase in cash 115,871 (112,509) (967)
CASH, at beginning of year 50 115,921 3,412
---------- --------- ------------
CASH, at end of year $ 115,921 $ 3,412 $ 2,445
========== ========= ============
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Cash paid for interest $ 35,191 $ 21,068 $ 31,822
========== ========= ============
Income taxes-
Cash paid for taxes $ 1,463 $ 341,789 $ 134,438
========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 28
PRODATA, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS
Prodata, Inc. (the Company) provided information technology services to markets
in Boise, Idaho; Salt Lake City, Utah; Portland, Oregon; Seattle, Washington;
Sacramento, Santa Clara, and San Francisco, California; Reno, Nevada; and
Phoenix, Arizona.
The Company was merged with an unrelated company, Business Enterprise Systems
and Technology, Inc. (BEST Consulting), effective August 1, 1995. Pursuant to
the plan, BEST Consulting purchased or exchanged all of the issued and
outstanding stock of Prodata, Inc.
ACCOUNTS RECEIVABLE
In the opinion of management, at March 31, 1995, all accounts receivable are
considered fully collectible. Therefore, no allowance for doubtful accounts
has been provided for within these financial statements.
REVENUE RECOGNITION
Revenues from fixed-price contracts are recognized on the percentage of
completion method, measured on the basis of incurred costs to estimated total
costs (cost-to-cost method) since, in the opinion of management, this basis of
measurement is most appropriate under the circumstances. Revenues from other
contract programming and consulting engagements are recognized on the basis of
hourly billing rates assigned to each staff member. A substantial majority of
revenues are derived from the latter time and materials type contracts.
Contract costs include all direct labor and subcontractor costs, and those
indirect costs related to contract performance, such as supplies, travel and
subcontractor costs. Operating, general and administrative costs are charged
to expense as incurred.
Changes in job performance, job conditions and estimated profitability,
including those arising from contract penalty provisions, and final contract
settlements may result in revisions to costs and income and are recognized in
the period in which the revisions are determined.
Deferred revenue represents billings in excess of revenues earned.
<PAGE> 29
- 2 -
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Maintenance, repairs and renewals
which neither materially add to the value of the property nor appreciably
prolong its life are charged to expense as incurred. Gains or losses on
disposition of property and equipment are included in income in the period in
which they occur. Depreciation and amortization of property and equipment are
provided on the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Leasehold improvements 3 years
Computers 3-5 years
Furniture and equipment 5-10 years
</TABLE>
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to temporary differences between the basis of certain assets
and liabilities for financial and tax reporting. The deferred taxes represent
the future tax return consequences of those differences, which will be taxable
or deductible as applicable when the assets and liabilities are recovered or
settled.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company operates and grants credit to customers in Idaho, Utah, Oregon,
Washington, California, Nevada and Arizona. Financial instruments that
potentially subject the Company to credit risk include contracts and accounts
receivable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results may differ from those estimates.
2. NOTE PAYABLE - LINE-OF-CREDIT:
At March 31, 1995, the Company had an operating line with a lending institution
for up to a maximum of $1,700,000, available on demand, collateralized by cash
accounts with the lender, accounts receivable and equipment. Interest is at
prime plus 1.50% (10.50% at March 31, 1995). There was an outstanding balance
on this line of $850,000 at the balance sheet date.
<PAGE> 30
- 3 -
3. INCOME TAXES:
Income tax expense consists of the following:
<TABLE>
<CAPTION>
For Twelve Months For Four
Ended March 31, Months Ended
------------------- July 31,
1994 1995 1995
-------- ------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $ - $314,223 $223,481
State 980 64,071 46,639
-------- -------- --------
980 378,294 270,120
Deferred income tax
(benefit) expense (40,426) (50,245) 69,252
-------- -------- --------
Income tax (benefit) expense $(39,446) $328,049 $339,372
======== ======== ========
</TABLE>
Deferred taxes result from temporary differences in accrued vacation,
carryforward adjustments relating to changing from the cash to accrual method
of accounting for tax purposes and those caused by utilizing the accelerated
cost recovery method of depreciation for income tax purposes.
Differences between expected income tax expense (based on statutory rates) and
actual income tax expense result principally from nondeductible meals and
entertainment expenses.
4. RETIREMENT PLAN:
Effective April 1, 1990, the Company established a defined contribution 401(k)
pension and profit sharing plan for substantially all of the employees.
Company contributions to the plan are composed of a matching contribution equal
to 25% of the first 6% of employee contributions and discretionary profit
sharing contributions. Participants may make voluntary contributions to the
plan up to 15% of their compensation (as defined).
Company matching contributions totaled $17,371 for the four-month period ended
July 31, 1995, and $72,941 and $52,251 for the years ended March 31, 1995 and
1994, respectively. There were no discretionary profit sharing contributions
made during these same periods.
5. MAJOR CUSTOMERS:
For the four months ended July 31, 1995 and the year ended March 31, 1995, the
Company had a major customer who comprised 14% and 16% of total revenues.
6. OPERATING LEASE COMMITMENTS:
The Company leases office facilities at various locations in Idaho, Arizona,
Oregon, Nevada, Washington, Utah and California.
<PAGE> 31
- 4 -
Minimum rental commitments under all noncancelable lease agreements in effect
at July 31, 1995, were:
<TABLE>
<CAPTION>
Year ending July 31,
<S> <C>
1996 $ 311,858
1997 185,844
1998 179,058
1999 183,649
2000 178,187
----------
$1,038,596
==========
</TABLE>
Lease payments included in expense for the four months ended July 31, 1995, and
the years ended March 31, 1995 and 1994, were $138,418, $351,017 and $277,467,
respectively.
<PAGE> 1
EXHIBIT 2
===============================================================================
ASSET PURCHASE AGREEMENT
BETWEEN
PERSONNEL GROUP OF AMERICA, INC.
AND
BUSINESS ENTERPRISE SYSTEMS AND TECHNOLOGY, INC.
AND
CRAIG NEWBOLD,
WILLIAM ADAMUCCI,
DAVID MCKEE,
RON HETLAND
AND
LESTER LEROSS
DATED AS OF SEPTEMBER 20, 1996
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.1 Definitions..............................................................................................1
1.2 Interpretation...........................................................................................9
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Sale and Purchase of Assets.............................................................................10
2.2 Excluded Assets.........................................................................................11
2.3 Assumption of Liabilities...............................................................................12
(a) Assumed Liabilities............................................................................12
(b) No Other Assumed Liabilities...................................................................12
2.4 Procedures for Assets Not Transferable..................................................................13
2.5 Closing.................................................................................................13
ARTICLE III
PURCHASE PRICE; ADJUSTMENTS AND PAYMENT
3.1 Purchase Price..........................................................................................14
3.2 Deposit; Closing Payment................................................................................14
3.3 Purchase Price Adjustment...............................................................................14
3.4 Closing Balance Sheet...................................................................................14
3.4.1. Delivery of Closing Balance Sheet..............................................................14
3.4.2. Determination of the Purchase
Price Adjustment...............................................................................15
3.5 Post-Closing Payment....................................................................................15
3.6 Contingent Payments.....................................................................................16
3.7 Purchase Price Allocation...............................................................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller
and Shareholders........................................................................................17
4.1.1. Existence......................................................................................17
4.1.2. Authorization..................................................................................18
4.1.3. No Violation; Consents.........................................................................18
4.1.4. Insurance......................................................................................18
4.1.5. Litigation.....................................................................................19
4.1.6. Governmental Authorizations; Compliance
with Laws......................................................................................19
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
4.1.7. Tax Matters....................................................................................19
4.1.8. Financial Statements...........................................................................20
4.1.9. Liabilities....................................................................................20
4.1.10. No Adverse Change..............................................................................21
4.1.11. Title to Properties............................................................................21
4.1.12. Accounts Receivable............................................................................21
4.1.13. Fixed Assets...................................................................................21
4.1.14. Proprietary Rights.............................................................................22
4.1.15. Assumed Contracts..............................................................................23
4.1.16. Employee Benefit Plans.........................................................................24
4.1.17. Labor and Employment Matters...................................................................28
4.1.18. Environmental Matters..........................................................................29
4.1.19. Real Property..................................................................................30
4.1.20. Customers......................................................................................31
4.1.21. Assets Sufficient for Conduct of Business......................................................32
4.1.22. Brokers; Finders...............................................................................32
4.1.23. Minute Books...................................................................................32
4.1.24. Bank Accounts; Powers of Attorney..............................................................32
4.1.25. Certain Transactions...........................................................................32
4.1.26. Product Warranties; Defects; Liability.........................................................32
4.1.27. Investment Intent..............................................................................33
4.1.28. Accuracy of Statements.........................................................................33
4.2 Representations and Warranties of Buyer.................................................................33
4.2.1. Corporate Existence............................................................................33
4.2.2. Authorization; Enforceability..................................................................33
4.2.3. No Violation; Consents.........................................................................34
4.2.4. SEC Documents..................................................................................34
4.2.5. Financing......................................................................................34
ARTICLE V
CERTAIN COVENANTS
5.1 Access and Information; Confidentiality.................................................................34
5.2 Conduct of Business.....................................................................................35
5.3 Change of Corporate Name................................................................................36
5.4 Filings.................................................................................................36
5.5 Employees...............................................................................................36
5.6 Lien Search.............................................................................................37
5.7 Exclusivity.............................................................................................38
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligation of Buyer.......................................................................38
6.1.1. Representations; Performance...................................................................38
6.1.2. Employment and Noncompetition Agreements.......................................................38
6.1.3. Opinion of Counsel.............................................................................39
6.1.4. Consents.......................................................................................39
6.1.5. No Proceeding or Litigation....................................................................39
6.1.6. No Material Adverse Change.....................................................................39
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
6.1.7. Purchased Assets and Documents Delivered.......................................................39
6.1.8. HSR Act Filings................................................................................40
6.1.9. Due Diligence..................................................................................40
6.1.10. Draft Closing Balance Sheet....................................................................40
6.1.11. Subordination Agreement........................................................................40
6.1.12. Adamucci Option................................................................................40
6.2 Conditions to Obligation of Seller......................................................................40
6.2.1. Representations; Performance...................................................................41
6.2.2. Opinion of Counsel.............................................................................41
6.2.3. No Proceeding or Litigation....................................................................41
6.2.4. Purchase Price and Documents Delivered.........................................................41
6.2.5. HSR Act Filings................................................................................41
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller and Shareholders..............................................................42
7.2 Indemnification by Buyer................................................................................42
7.3 Limitations.............................................................................................43
7.4 Procedure for Indemnification...........................................................................43
7.4.1. Third Party Claims.............................................................................43
7.4.2. Direct Claims..................................................................................45
7.4.3. Interest.......................................................................................45
7.5 Right of Set-Off........................................................................................45
ARTICLE VIII
MISCELLANEOUS
8.1 Termination.............................................................................................46
8.2 Default by Buyer........................................................................................47
8.3 Default by Seller.......................................................................................47
8.4 Survival of Representations and Warranties..............................................................47
8.5 Bulk Sales Law..........................................................................................47
8.6 Expenses................................................................................................47
8.7 Public Announcements....................................................................................48
8.8 Assignment; Successors..................................................................................48
8.9 Amendment and Modification; Waivers.....................................................................48
8.10 Notices.................................................................................................48
8.11 Further Assurances; Records.............................................................................50
8.12 Tax and Financial Cooperation...........................................................................50
8.13 Submission to Jurisdiction..............................................................................50
8.14 Representations and Warranties; Schedules...............................................................51
8.15 Remedies................................................................................................51
8.16 Assignment of Life Insurance Policies...................................................................51
8.17 Entire Agreement; Counterparts; Governing Law...........................................................51
</TABLE>
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Exhibits
A Form of Bill of Sale
B Form of Contract Assignment
C Form of Promissory Note
D Form of Employment Agreement
E Form of Noncompetition Agreement
F Form of Opinion of Counsel to Seller
G Form of Opinion of Counsel to Buyer
Schedules
1.1-A Calculation of EBITA
1.1-B Calculation of Tangible Net Worth
2.1 Assumed Contracts
2.2 Excluded Assets
3.7 Purchase Price Allocation
4.1.1 Foreign Qualification; Shareholders; Subsidiaries
4.1.3 Seller's Consents
4.1.4 Insurance
4.1.5 Litigation
4.1.6 Permits
4.1.7 Taxes
4.1.9 Liabilities
4.1.10 Absence of Changes
4.1.13 Fixed Assets
4.1.14 Proprietary Rights
4.1.16 Employee Benefit Plans
4.1.17 Employees
4.1.18 Environmental Matters
4.1.19 Real Property
4.1.20 Major Customers
4.1.24 Bank Accounts; Powers of Attorney
4.1.26 Product Warranties
4.2.3 Buyer's Consents
5.5(f) Options
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<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of September 20, 1996, is
between:
PERSONNEL GROUP OF AMERICA, INC., a Delaware corporation
(the "BUYER");
BUSINESS ENTERPRISE SYSTEMS AND TECHNOLOGY, INC., a
Washington corporation (the "SELLER"); and
CRAIG NEWBOLD, an individual resident of Woodinville, Washington
("NEWBOLD"), WILLIAM ADAMUCCI, an individual resident of Seattle,
Washington ("ADAMUCCI"), DAVID MCKEE, an individual resident of
Issaquah, Washington ("MCKEE"), RON HETLAND, an individual resident of
Star, Idaho ("HETLAND") and LESTER LEROSS, an individual resident of
Redmond, Washington ("LEROSS"), the sole shareholders of Seller
(collectively, the "SHAREHOLDERS").
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the covenants
made herein and of the mutual benefits to be derived herefrom, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for their
heirs, successors and assigns, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms as used in this Agreement shall
have the following meanings:
"Affiliate" means, with reference to a Person, any Person that directly
or indirectly through one or more intermediaries controls or is controlled by or
is under common control with the specified Person. For purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
<PAGE> 7
"Agreement" means this Agreement, all Exhibits and Schedules hereto,
and all amendments made hereto and thereto by written agreement between the
parties.
"Assumed Contracts" shall have the meaning specified in SECTION
2.1(B).
"Assumed Liabilities" shall have the meaning specified in SECTION
2.3(A).
"Base Purchase Price" shall have the meaning specified in SECTION 3.1.
"Bill of Sale" shall have the meaning specified in SECTION 2.1.
"Business" means the staffing, information technology consulting and
related businesses conducted by Seller as of and prior to the Closing Date.
"Business Day" means a day other than a Saturday, Sunday or day on
which commercial banks in Charlotte, North Carolina are generally closed for
business.
"Buyer" means the meaning specified in the introductory paragraph.
"Charter Documents" shall have the meaning specified in SECTION 4.1.1.
"Closing" and "Closing Date" shall have the meanings specified in
SECTION 2.5.
"Closing Balance Sheet" shall have the meaning specified in SECTION
3.4.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consent" shall have the meaning specified in SECTION 4.1.3.
"Contract Assignment" shall have the meaning specified in SECTION 2.1.
"Contracts" means and includes all contracts, licenses or agreements,
whether written or oral, to which Seller is a party or shall become a party
prior to the Closing Date (other than this Agreement and the agreements
executed pursuant hereto or contemplated hereby), including without limitation
all supply and customer contracts; work and purchase orders; employment and
consultancy contracts; contracts with shareholders; contracts between Seller
and any of its Affiliates; labor union contracts; licenses or other agreements
relating to Software or Proprietary
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<PAGE> 8
Rights; contracts, plans and arrangements regarding any pension, retirement,
deferred compensation, profit-sharing, incentive compensation, bonus, stock
purchase, stock option, welfare, hospitalization or insurance plan or
arrangement or any vacation pay or severance pay or any other employee benefit
arrangement for its officers, employees, consultants or agents; equipment,
capital and real property leases; all commitments and arrangements pursuant to
which Seller has made or will make loans or advances, or has or will have
incurred debts or become a guarantor or surety or pledged its assets or 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); all indentures, credit
agreements, loan agreements, notes, mortgages, security agreements and
agreements for financing; all powers of attorney and agency agreements with any
Person pursuant to which such Person is granted the authority to act for or on
behalf of Seller; and all property, casualty and other forms of insurance;
excluding, however, such oral contracts and arrangements which may be terminated
at will by Seller without liability arising from such termination and which
termination would not have a Material Adverse Effect.
"Copyright" means the legal right provided by the Copyright Act of
1976, as amended, to the expression contained in any work of authorship fixed in
any tangible medium of expression.
"Customer Contracts" means the Major Customer Contracts and all other
Assumed Contracts with any of Seller's customers, collectively.
"Deposit" shall have the meaning set forth in SECTION 3.2(A).
"Draft Closing Balance Sheet" shall have the meaning set forth in
SECTION 6.1.10.
"EBITA" means, for any period, the aggregate net earnings before
interest, taxes, and amortization of intangibles (including goodwill) of the
Business for such period, determined in accordance with GAAP, consistently
applied, on a basis consistent with the example set forth on Schedule 1.1-A and
in accordance with the following parameters (without limitation):
(a) except as otherwise provided herein, EBITA shall be
calculated with the Business being considered on a stand-alone basis;
(b) EBITA shall take into account all payments paid or to be
paid during the calculation period pursuant to the Employment Agreements;
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<PAGE> 9
(c) there shall be no deduction for allocation by Buyer of
corporate overhead expenses to the Business during the calculation period;
(d) EBITA shall not take into account any broker, legal,
accounting and transaction fees paid or to be paid by Seller resulting directly
from the transactions contemplated in this Agreement;
(e) EBITA shall exclude any divisional management expenses
associated with Buyer's Information Technology business (except to the extent
attributable to the Best Division); and
(f) EBITA shall be adjusted for such items as investments,
expenses, acquisition costs, and revenue as mutually agreed by Buyer and
Seller.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Employment Agreements" shall have the meaning specified in SECTION
6.1.2(A).
"Environmental Law" means any and all federal, state and local laws or
regulations, codes, orders, decrees, judgments, injunctions, notices or demand
letters issued, promulgated, approved or entered under any of the foregoing, in
each case limited to those laws and other regulations that exist on the date
hereof, relating to pollution or protection of the environment, including
without limitation laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment (including without
limitation ambient air, surface water, ground water, land surface or subsurface
strata) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminates,
chemicals or industrial, toxic or hazardous substances or wastes, and
specifically including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C.A. Section Section 9601 et seq., and the
Resource Conservation and Recovery Act, 42 U.S.C. Section Section 6901 et seq..
"Escrow Agent" shall have the meaning set forth in SECTION 3.2(A).
"Escrow Agreement" shall have the meaning set forth in SECTION 3.2(A).
"Excluded Assets" shall have the meaning specified in SECTION 2.2.
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<PAGE> 10
"Excluded Liabilities" shall have the meaning specified in SECTION
2.3(B).
"Financial Statements" means the audited balance sheets of Seller as of
December 31, 1995 and 1994 and the audited income statements and statements of
cash flows of Seller for the years ended December 31, 1995, 1994, and 1993; and
the unaudited reviewed balance sheet, income statement and statement of cash
flows of Seller as of June 30, 1996 and for the six-month period then ended.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Hazardous Material" means any substance or material meeting any one or
more of the following criteria: (i) it is or contains a substance designated as
a hazardous waste, hazardous substance, hazardous material, pollutant,
contaminant or toxic substance under any Environmental Law; (ii) it is toxic,
explosive, corrosive, reactive, ignitable, infectious, radioactive, mutagenic,
dangerous or otherwise hazardous; (iii) its presence at some quantity requires
investigation, notification or remediation under any Environmental Law or common
law; (iv) it constitutes a danger, a nuisance, a trespass or a health or safety
hazard to persons or property; or (v) it is or contains, without limiting the
foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons,
petroleum derived substances or waste, crude oil or any fraction thereof,
nuclear fuel or waste, natural gas or synthetic gas (excluding petroleum or
natural gas products for on-site use properly stored in accordance with all
Environmental Laws in gas pipelines serving the Real Property, vehicles,
machinery or above ground storage tanks).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations thereunder.
"Income Tax" or "Income Taxes" means all federal, state or local income
taxes (inclusive of any and all interest and penalties thereon) imposed on
Seller with respect to the assets or operations of Seller and which are based in
whole or in part upon income, but does not include any other Taxes.
"June Balance Sheet" means the unaudited reviewed balance sheet of
Seller as of June 30, 1996 included in the Financial Statements.
"Know-how" means ideas, designs, concepts, compilations of information,
methods, techniques, procedures and processes, whether or not patentable.
"Lien" means, with respect to any asset, any lien, security interest,
claim, encumbrance, option, lease (or sublease),
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conditional sales agreement, title retention agreement, charge, easement or
encroachment thereon.
"Limitation Date" shall have the meaning specified in SECTION 8.4.
"Major Customer Contracts" shall have the meaning set forth in SECTION
4.1.15.
"Material Adverse Effect" means any effect that is or could be
materially adverse to the condition (financial or otherwise), results of
operations, business, properties or prospects of Seller or the Business.
"Noncompetition Agreements" shall have the meaning specified
in SECTION 6.1.2(B).
"PBGC" shall have the meaning set forth in SECTION 4.1.16(C).
"Patent" means any patent granted by the U.S. Patent and Trademark
Office, or by the comparable agency of any other country, and any renewal
thereof, and any rights arising under any patent application filed with the U.S.
Patent and Trademark Office or the comparable agency of any other country and
any rights which may exist to file any such application.
"Pension Benefit Plan" shall have the meaning set forth in SECTION
4.1.16(C).
"Permits" shall have the meaning set forth in SECTION 4.1.6.
"Permitted Liens" means: (i) liens for current taxes not yet due and
payable, and (ii) liens arising in the ordinary course of business for sums not
yet due and payable, but not involving any borrowed money or the deferred
purchase price for property or services.
"Person" means an individual, firm, partnership, association,
unincorporated organization, trust, corporation, or any other entity.
"Plans" shall have the meaning specified in SECTION 4.1.16(A).
"Pro Rata Share" shall have the meaning set forth in SECTION 3.6(E).
"Promissory Note" means the promissory note, substantially in the form
of Exhibit C attached hereto, delivered by Buyer to Seller pursuant to SECTION
3.2(B), and any additional promissory note (or amendment to or restatement of
the Promissory Note delivered pursuant to SECTION 3.2(B)) delivered by Buyer to
Seller pursuant to SECTION 3.6.
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<PAGE> 12
"Proprietary Rights" means Copyrights, Trademarks, Trade Secrets,
Patents and trade names.
"Proprietary Software" shall have the meaning set forth under the
definition of "SOFTWARE."
"Purchased Assets" shall have the meaning specified in SECTION 2.1.
"Purchase Price Adjustment" shall have the meaning set forth in
SECTION 3.3.
"Real Property" means the fifteen (15) office locations leased by
Seller in Bellevue, Washington, Portland, Oregon, Salem, Oregon, Salt Lake City,
Utah (two locations), Boise, Idaho, Sacramento, California, Burlingame,
California, Olympia, Washington, Phoenix, Arizona, Reno, Nevada, Minneapolis,
Minnesota, Kirkland, Washington (two locations), and Las Vegas, Nevada, for the
conduct of the Business prior to the Closing, which constitute all of the real
property owned, leased or otherwise used by Seller in the Business.
"Securities Act" means the Securities Act of 1933, as amended,
and the regulations thereunder.
"Seller" shall have the meaning specified in the introductory
paragraph.
"Seller's knowledge" or "to the knowledge of Seller" or words of
similar import means the knowledge of any officer or director of Seller or any
Shareholder after reasonable investigation. As used in this definition,
"reasonable investigation" means that investigation that each officer, director
or Shareholder would perform in the normal course of performing his or her
respective duties and fiduciary obligations as director and/or officer, as
applicable, of Seller.
"Shareholders" shall have the meaning specified in the introductory
paragraph.
"Software" means:
(a) every computer software program that Seller uses or has used within
the last two years in connection with the operation of the Business, including
without limitation computer software programs purchased or licensed from third
parties;
(b) every computer software program or portion thereof that is embedded
within any telecommunications or other equipment that Seller uses or has used
within the last two years in connection with the Business or that Seller markets
or proposes to market to third parties in connection with the Business and that
is
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<PAGE> 13
necessary, in either case, for the proper operation of the equipment;
(c) every computer software program or portion thereof (including
compiled object code, source code and firmware embedded in any equipment) that
Seller has sold, leased, licensed or otherwise distributed or marketed to third
parties during the last two years, or presently offers to sell, lease, license
or otherwise distribute to third parties, including computer software programs
purchased or licensed by Seller from third parties;
(d) every computer software program that Seller (including its
employees and independent contractors) has designed or created, is in the
process of designing or creating or proposes to design or create, including
without limitation any modifications, enhancements and derivative works of any
of the computer software programs described above;
(e) all written materials that explain any computer software program
described above or were used in the development of any such computer software
program or represent an interim step in the development of any such computer
software program, including without limitation logic diagrams, flowcharts,
procedural diagrams and algorithms; and
(f) all written materials used by Seller or provided to any customer
in connection with the installation, customization or use of any of the
computer software programs described above.
That portion of the Software that is owned by Seller is referred to herein as
the "PROPRIETARY SOFTWARE," and that portion of the Software that is owned by
any Person other than Seller is referred to herein as the "THIRD-PARTY
SOFTWARE."
"Tangible Net Worth" means, as of any date, the excess (if any) of the
book value of the Purchased Assets as of such date (excluding goodwill and any
other intangibles) over the book value of the Assumed Liabilities as of such
date, calculated in accordance with GAAP, consistently applied, in accordance
with the example set forth on Schedule 1.1-B.
"Tax" or "Taxes" means federal, state, municipal, local or foreign
taxes, assessments, additions to tax, deficiencies, duties, fees and other
governmental charges or impositions of each and every kind, whether measured by
properties, assets, wages, payroll, withholding, purchases, value added,
payments, sales, use, business, capital stock or surplus income, and including
without limitation all business, occupation, franchise, excise, stamp, leasing,
lease, transfer, severance and employment, income withholding and Social
Security taxes, real and personal property, sales, use and other taxes,
including interest, penalties and additions in connection therewith, arising
from or in connection
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<PAGE> 14
with the Business prior to the Closing Date, but in all cases excluding Income
Taxes.
"Termination Credit" shall have the meaning set forth in SECTION
2.4(B).
"Third-Party Software" has the meaning set forth under the definition
of the term "SOFTWARE".
"Trade Secrets" means business or technical information of any Person
including without limitation customer lists and Know-how, that is not generally
known to other Persons who are not subject to an obligation of nondisclosure
and that derives actual or potential commercial value from not being generally
known or readily ascertainable to other Persons.
"Trademark" means any symbol used by a Person to identify its goods or
services, whether or not registered, and any right that may exist to obtain a
registration with respect to any such symbol from any Governmental Authority. As
used in this Agreement, the term "TRADEMARK" includes any service mark.
1.2 Interpretation. The following provisions shall govern the
interpretation of this Agreement:
(a) "Herein" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article,
Section, subsection, Exhibit or Schedule.
(b) Headings or captions are for convenience of reference
only and shall not affect the construction or interpretation of this
Agreement.
(c) Words importing the singular number only shall include the
plural and vice versa and words importing the masculine gender shall
include the feminine and neuter genders and vice versa and words
importing individuals shall include Persons and vice versa.
(d) The calculation of time within which or following which
any act is to be done or step is to be taken pursuant to this Agreement
excludes the date which is the reference day in calculating such
period.
(e) Performance on holidays is not required hereunder.
Whenever anything is required to be done or any action is required to
be taken hereunder on or by a day which is not a Business Day, then
such thing may be validly done and such action may be validly taken on
or by the next succeeding day that is a Business Day.
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(f) Unless the context otherwise requires, the term
"including" shall be deemed to mean "including without limitation."
(g) The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question
of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
ARTICLE II
SALE AND PURCHASE OF ASSETS
2.1 Sale and Purchase of Assets. Subject to the terms and conditions of
this Agreement, at the Closing, Seller shall sell, transfer, convey, assign and
deliver to Buyer, and Buyer shall purchase from Seller, all of the assets,
properties, goodwill and rights of Seller used in the Business of every nature,
kind and description, tangible and intangible, wheresoever located and whether
or not carried or reflected on the books and records of Seller (collectively,
the "PURCHASED ASSETS"), including without limitation:
(a) all of Seller's cash and cash equivalents;
(b) all of Seller's right, title and interest in and to all of the
Contracts set forth on Schedule 2.1 (the "ASSUMED CONTRACTS");
(c) all inventories and supplies;
(d) all accounts receivable, checks, negotiable instruments and chattel
paper payable to or, with respect to bearer instruments, in Seller's
possession, including all amounts receivable from Hetland;
(e) all furniture, fixtures, equipment and machinery;
(f) all leasehold interests and improvements thereon;
(g) all books and records, files and operating data relating to the
Purchased Assets;
(h) all of Seller's right, title and interest in and to its
Proprietary Rights;
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(i) all Proprietary Software and all right, title and interest of
Seller in Third Party Software, including all accompanying
documentation;
(j) all of Seller's right, title and interest in and to all licenses,
permits and other governmental authorizations;
(k) all of Seller's telephone numbers and telephone directory listings
and advertisements;
(l) all claims, causes of actions, and suits which Seller has or may
have against third parties in connection with the Purchased Assets;
and
(m) the Business of Seller as a going concern;
and excluding only the Excluded Assets. On the Closing Date, Seller shall convey
to Buyer good and marketable title to the Purchased Assets, free and clear of
all Liens other than Permitted Liens, which conveyance shall be made pursuant to
a bill of sale substantially in the form of Exhibit A attached hereto (the "BILL
OF SALE"), an assignment agreement substantially in the form of Exhibit B
attached hereto (the "CONTRACT ASSIGNMENT"), and such other instruments of
conveyance as are required to be delivered pursuant to this Agreement.
2.2 Excluded Assets. Notwithstanding anything to the contrary
contained herein, the Purchased Assets shall not include any of the following
(collectively, the "EXCLUDED ASSETS"):
(a) all Contracts which are not Assumed Contracts;
(b) the corporate seals, certificates of incorporation, minute books,
stock books, tax returns, books of account or other records having to
do with the corporate organization of Seller, together with the
financial records of Seller relating to the period prior to the Closing
Date (provided that after the Closing Buyer shall have reasonable
access to, including the right to copy, any of such records or
information for any reasonable purpose);
(c) any rights of Seller under this Agreement or under any other
agreement between Seller on the one hand and Buyer on the other hand
entered into on or after the date of this Agreement;
(d) the rights to any of Seller's claims for any federal, state, local
or foreign Income Tax refunds or carrybacks;
(e) any Contracts with or amounts owing from any of Seller's
Affiliates, except as set forth on the Closing Balance Sheet; and
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(f) the assets listed in Schedule 2.2 attached hereto.
2.3 Assumption of Liabilities.
(a) Assumed Liabilities. As of the Closing Date, Buyer shall assume,
and shall thereafter timely pay and perform, the following obligations and
liabilities of Seller existing as of the end of business on the Closing Date
(the "ASSUMED LIABILITIES"):
(i) the liabilities of Seller to the extent set forth on the
face of the Draft Closing Balance Sheet (rather than in any notes
thereto);
(ii) the liabilities of Seller of the same nature as those
liabilities set forth on the face of the Draft Closing Balance Sheet
to the extent set forth on the face of the Closing Balance Sheet
(rather than in any notes thereto); and
(iii) the obligations of Seller arising after the Closing
Date under the Assumed Contracts;
but excluding in each case any liabilities or alleged liabilities (A) relating
to any Income Taxes or sales, use or transfer taxes arising in connection with
the sale of the Purchased Assets; (B) relating to any tort, infringement, or
violation of law by Seller; (C) payable to any Affiliate of Seller, except as
set forth on the Closing Balance Sheet; (D) arising under the Environmental Laws
or any Plan; (E) relating to any overtime compensation owing to Seller's
employees through the Closing Date; (F) arising from or relating to the
termination of any employee of Seller by Seller at or prior to the Closing Date;
(G) relating to Seller's dispute with the Nevada Department of Taxation
(described in Schedule 4.1.5 hereto); (H) relating to any failure by Seller to
file any Form 5500 required to be filed prior to the Closing Date in connection
with any Plan; and (I) relating to any prepayment penalty or other obligation
relating to the Seller's debt not shown on the Closing Balance Sheet, provided
that Buyer agrees to pay 50% of any prepayment penalty (up to $20,000) incurred
by Seller in connection with the prepayment of Seller's term loan from US Bank
of Washington, National Association.
(b) No Other Assumed Liabilities. Except as expressly set forth in
SECTION 2.3(A) above, Buyer shall not assume or become liable for the payment or
performance of any liabilities or alleged liabilities of Seller of any nature
whatsoever, whether accrued or unaccrued, known or unknown, fixed or contingent
(the "EXCLUDED LIABILITIES"). Except as set forth in SECTION 2.3(A) as shown on
the Closing Balance Sheet, Seller shall be responsible for all Taxes arising
from the operation of the Business prior to the Closing and all Taxes incurred
by Seller in connection with this Agreement, the sale of the Purchased Assets
and the transactions
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<PAGE> 18
contemplated hereby. Sales, use and transfer taxes, if any, imposed by law in
connection with the sale of the Purchased Assets shall be borne and paid by
Seller.
2.4 Procedures for Assets Not Transferable. (a) If any of the Assumed
Contracts or any other property or rights included in the Purchased Assets are
not assignable or transferable either by virtue of the provisions thereof or
under applicable law without the consent of some other party or parties, Seller
shall use all reasonable efforts to obtain such consents (except for any such
consent required in connection with any Customer Contract or any leases relating
to the Real Property) prior to the Closing Date and shall notify Buyer on or
prior to the Closing Date of any consents not so obtained. If any such consent
(except for any such consent required in connection with any Customer Contract)
cannot be obtained prior to Closing, Buyer may (i) in the exercise of its sole
discretion waive such requirement as a condition to closing, and in such event,
this Agreement, and the related instruments of transfer shall not constitute an
assignment or transfer thereof and Buyer shall not assume Seller's obligations
with respect thereto or (ii) terminate this Agreement pursuant to SECTION
8.1(B). Following the Closing, Seller shall use all reasonable efforts to obtain
any consents not previously obtained as soon as possible after the Closing Date
or otherwise obtain for Buyer the practical benefit of such property or rights.
(b) If at any time during the 12 months after the Closing Date, any
customer terminates any Major Customer Contract because its consent has not been
obtained to the assignment of such Major Customer Contract, then Buyer shall
determine (and Seller shall provide such assistance as is reasonably requested
by Buyer to make such determination) an amount (the "TERMINATION CREDIT") equal
to (i) 50% of the amount of gross profit (revenues less direct costs of
services) earned by Seller under such Major Customer Contract during the 12
months prior to the Closing Date, multiplied by (ii) 9.5. Buyer shall offset the
amount of the Termination Credit (if any) against amounts otherwise payable
under the contingent payment provisions of SECTION 3.6. The exercise of such
right of set-off by Buyer in good faith, whether or not ultimately determined to
be justified, shall not be deemed a breach of this Agreement.
2.5 Closing. The closing of the sale and purchase of the Purchased
Assets (the "CLOSING") will take place at the offices of Short Cressman &
Burgess P.L.L.C., Seattle, Washington at 10:00 a.m. (Pacific Time) on September
30, 1996, or at such other place, time and date as the parties may agree upon in
writing (the "CLOSING DATE").
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ARTICLE III
PURCHASE PRICE; ADJUSTMENTS AND PAYMENT
3.1 Purchase Price. In consideration of the transfer to Buyer of the
Purchased Assets and subject to the terms and conditions of this Agreement,
Buyer shall pay to Seller the aggregate amount of eighty-six million eight
hundred thousand dollars ($86,800,000) (the "BASE PURCHASE PRICE"), subject to
the Purchase Price Adjustment to be made pursuant to SECTION 3.3 below and the
payment of the contingent payments to be made pursuant to SECTION 3.6 below.
3.2 Deposit; Closing Payment. (a) Concurrently with the execution of
this Agreement, Buyer and Seller will enter into an escrow agreement (the
"ESCROW AGREEMENT") with First Union National Bank of North Carolina, as escrow
agent (the "ESCROW AGENT"), in form and substance satisfactory to the parties.
Not later than one Business Day after the execution of this Agreement, Buyer
shall pay, by wire transfer of immediately available funds to the Escrow Agent,
the aggregate sum of $10,000,000 (the "DEPOSIT").
(b) On the Closing Date, Buyer (i) shall pay, by wire transfer to such
account or accounts as Seller shall designate in writing not later than one
Business Day in advance thereof, the aggregate sum of $65,850,000 and (ii) shall
deliver to Seller a promissory note in the form of Exhibit C attached hereto in
the principal amount of $10,950,000. On the Closing Date, the Escrow Agent shall
pay the Deposit (together with interest) to Seller in accordance with the terms
of the Escrow Agreement.
3.3 Purchase Price Adjustment. The Base Purchase Price shall
be adjusted as follows (such adjustment being referred to herein as
the "PURCHASE PRICE ADJUSTMENT"):
(a) The Base Purchase Price shall be increased by the dollar
amount, if any, by which (i) Tangible Net Worth as shown on
the Closing Date Balance Sheet is greater than (ii) three
hundred thirty-seven thousand dollars ($337,000); and
(b) The Base Purchase Price shall be decreased by the dollar
amount, if any, by which (i) Tangible Net Worth as shown on
the Closing Date Balance Sheet is less than (ii) three hundred
thirty-seven thousand dollars ($337,000).
3.4 Closing Balance Sheet.
3.4.1. Delivery of Closing Balance Sheet. Within 60 days
after the Closing Date, Buyer shall cause to be prepared (at
Buyer's expense) and shall deliver to Seller the unaudited balance
sheet, showing all Purchased Assets (excluding any Excluded Assets)
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and all Assumed Liabilities (excluding any Excluded Liabilities) (the "CLOSING
BALANCE SHEET") as of the end of business on the Closing Date (as if such assets
and liabilities were at that time assets and liabilities of Seller rather than
having been transferred to Buyer pursuant to this Agreement). The Closing
Balance Sheet shall be prepared in accordance with GAAP, consistently applied,
and on a basis consistent with the June Balance Sheet. Without limiting the
generality of the foregoing, the cash surrender value of the key man life
insurance policies being conveyed as part of the Purchased Assets shall be
treated on the Closing Balance Sheet on a basis consistent with their treatment
on the June Balance Sheet (except to reflect any change in such cash value
between the dates of the June Balance Sheet and the Closing Balance Sheet).
Based on the Closing Balance Sheet, Buyer shall compute the Purchase Price
Adjustment and attach a certificate to the Closing Balance Sheet setting forth
its calculation of the Purchase Price Adjustment.
3.4.2. Determination of the Purchase Price Adjustment. If Seller does
not accept the Closing Balance Sheet or the Purchase Price Adjustment prepared
by Buyer, Seller shall give written notice to Buyer within 10 days after
delivery thereof. The notice shall set forth in detail the basis for Seller's
objections. If Buyer and Seller are unable to resolve the disagreement within
30 days after delivery of Seller's written notice, the parties shall engage a
mutually agreeable independent certified public accounting firm to resolve the
issues. The accounting firm shall apply GAAP to the issues at hand (except that
it shall assume that the Purchased Assets and Assumed Liabilities included in
the Closing Balance Sheet were, as of the end of business on the Closing Date,
assets and liabilities of Seller rather than having been transferred to Buyer
pursuant to this Agreement) and shall not have the power to alter, modify,
amend, add to or subtract from any term or provision of this Agreement. The
decision of the accounting firm shall be rendered within 20 days of the
engagement and shall be binding on the parties. Buyer on the one hand, and
Seller on the other, each shall pay one-half of the cost of the accounting
firm. Seller shall be deemed to have accepted the Closing Balance Sheet and the
Purchase Price Adjustment prepared and proposed by Buyer at 5:00 p.m.
Charlotte, North Carolina time on the 10th day after delivery thereof if Seller
has not by then given Buyer timely written notice of objection.
3.5 Post-Closing Payment. Within three Business Days after the final
determination of the Purchase Price Adjustment, an amount (the "POST-CLOSING
PAYMENT") shall be payable, by wire transfer of immediately available funds, to
an account designated by the recipient, as follows: (a) if the Base Purchase
Price is to be increased by the Purchase Price Adjustment pursuant to SECTION
3.3(A), Buyer shall pay to Seller the amount of such increase; and (b) if the
Base Purchase Price is to be decreased by the Purchase
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Price Adjustment pursuant to SECTION 3.3(B), Seller shall pay to Buyer the
amount of such decrease.
3.6 Contingent Payments. (a) On March 1, 1997, Buyer shall pay to
Seller an amount equal to the product of (i) the amount, if any, by which the
Business' EBITA for the 12-month period ending December 31, 1996 exceeds $9.1
million, multiplied by (ii) 9.5; provided that in no event shall the payment
required under this SECTION 3.6(A) exceed $9.5 million;
(b) On March 1, 1998, if the Business' EBITA for the 12-month period
ending December 31, 1997 exceeds $12.6 million, Buyer shall pay to Seller an
amount equal to (i) $9.5 million, minus (ii) the amount of the contingent
payment, if any, paid pursuant to SECTION 3.6(A);
(c) On March 1, 1998, Buyer shall pay to Seller an amount equal to the
Business' EBITA for the 12-month period ending December 31, 1997;
(d) On March 1, 2000, Buyer shall pay to Seller an amount equal to (i)
the Business' EBITA for the 24-month period ending December 31, 1999, minus (ii)
two (2) times the Business' EBITA for the 12-month period ending December 31,
1997.
(e) Notwithstanding the foregoing, if any Shareholder executing an
Employment Agreement voluntarily terminates his Employment Agreement prior to
the expiration of its initial term pursuant to SECTION 7(D) thereof, unless the
termination is consented to in writing by Buyer, then any contingent payment
determined after the date of such termination under SECTION 3.6(A)-(D) above
shall be reduced by such Shareholder's Pro Rata Share of such payment. For
purposes of this Section, (i) the date the contingent payment is determined
shall be December 31, 1996, December 31, 1997, December 31, 1997, and December
31, 1999, with respect to SECTION 3.6(A), (B), (C) and (D), respectively, and
(ii) each Shareholder's "PRO RATA SHARE" of any contingent payment means the
amount of such payment multiplied by the percentage of Seller's outstanding
common stock owned by such Shareholder on the Closing Date, as set forth on
Schedule 4.1.1.
(f) All amounts due under SECTION 3.6(A)-(D) shall be due on the dates
indicated above or, if later, the date five Business Days after receipt of the
audited financial statements of Buyer for the preceding fiscal year. All amounts
owing to Seller under SECTION 3.6(A) and (B) shall be paid as follows: (i) 50%
of any such amount shall be paid by wire transfer of immediately available funds
to such account or accounts as Seller shall designate not less than one Business
Day in advance of the date any such payment is due, and (ii) 50% of any such
amount shall be paid by delivery of an additional promissory note (or an
amendment to or restatement of the Promissory Note delivered pursuant to SECTION
3.2(B)),
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substantially in the form of EXHIBIT C (which will provide that the additional
principal due as provided in this SECTION 3.6 will be repaid in equal
installments on the scheduled repayment dates occurring thereafter). All amounts
owing to Seller under SECTION 3.6(C) and (D) shall be paid by wire transfer of
immediately available funds to such account or accounts as Seller shall
designate not less than one Business Day in advance of the date any such payment
is due.
(g) Buyer shall be entitled to set-off against payments otherwise due
under the contingent payments described in SECTIONS 3.6(B)-(D) an amount equal
to the product of (i) the amount, if any, expressed as a positive number, by
which the Business' EBITA for the 12-month period ending December 31, 1996 is
less than $9.1 million, multiplied by (ii) 9.5; provided, however, that if the
Business' EBITA for the 12-month period ending December 31, 1997 exceeds $12.6
million, then Buyer shall not be entitled to exercise the set-off provided by
this SECTION 3.6(G). The exercise of such right of set-off by Buyer in good
faith, whether or not ultimately determined to be justified, shall not be deemed
a breach of this Agreement.
3.7 Purchase Price Allocation. The Base Purchase Price shall be
allocated among the Purchased Assets in accordance with Schedule 3.7 attached
hereto. Following the payment of the Purchase Price Adjustment and contingent
payments, the parties shall revise such allocation in a fashion consistent with
the agreed-upon allocation of the Base Purchase Price set forth on Schedule 3.7.
The allocation set forth in such schedule is intended to comply with the
requirements of Section 1060 of the Code. The Shareholders, Seller and Buyer
agree to file all Income Tax returns or reports, including without limitation
IRS Form 8594, for their respective taxable years in which the Closing occurs,
to reflect the allocation described in Schedule 3.7 and agree not to take any
position inconsistent therewith before any governmental agency charged with the
collection of any Tax or Income Tax or in any judicial proceeding.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Seller and Shareholders. Seller
and Shareholders (jointly and severally as to each such Person) hereby represent
and warrant to Buyer as follows:
4.1.1. Existence. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of Washington
and has full corporate power and authority to own or lease its properties and
to carry on its business as now conducted. Seller has delivered to Buyer true
and
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complete copies of its articles of incorporation and bylaws, each as amended to
date (collectively, the "CHARTER DOCUMENTS"). Shareholders are the sole
shareholders of Seller, and the shares owned and percentage ownership of each
such Shareholder is set forth on Schedule 4.1.1. Seller is duly qualified to do
business and in good standing as a foreign corporation in the states set forth
on Schedule 4.1.1 attached hereto, which are all states in which either the
ownership or use of its properties, or the nature of the activities conducted by
it, requires such qualification. Except as disclosed on Schedule 4.1.1, Seller
does not presently own, directly or indirectly, any shares of capital stock of
or other equity interest in any corporation, partnership or other entity.
4.1.2. Authorization; Enforceability. Seller has full
corporate or other power and authority to enter into and perform its obligations
under this Agreement and to consummate the transactions contemplated herein. The
execution, delivery and performance of this Agreement by Seller has been duly
authorized by all requisite corporate action. This Agreement is, and each
Noncompetition Agreement and each Employment Agreement will be when executed and
delivered by Seller and the Shareholders party thereto, the legal, valid and
binding obligations of Seller and each Shareholder party thereto, enforceable in
accordance with their respective terms, except as enforceability may be limited
by equitable principles or by bankruptcy, fraudulent conveyance or insolvency
laws affecting creditors' rights generally.
4.1.3. No Violation; Consents. Neither the execution, delivery
and performance by Seller and each Shareholder of their obligations under this
Agreement, nor the consummation of the transactions contemplated herein, will
(i) conflict with, violate or result in a breach of any of the terms or
provisions of, or constitute a default (with the passage of time or giving of
notice or both) under, or result in the creation or imposition of any Lien on
the Purchased Assets pursuant to, any indenture, mortgage, deed of trust, lease,
note, or other agreement or instrument to which Seller or any Shareholder is a
party, (ii) conflict with any provision of the Charter Documents, or (iii)
violate any law, order, judgment, decree, rule or regulation of any court or
governmental authority having jurisdiction over Seller, any Shareholder or their
properties. Except for any required filing under the HSR Act and as otherwise
set forth on Schedule 4.1.3 attached hereto, no consent, approval,
authorization, order, filing, registration or qualification of or with any
governmental authority or other Person (each, a "CONSENT") is required to be
obtained by Seller or any Shareholder in connection with the execution and
delivery of this Agreement by Seller and Shareholders or the consummation of the
transactions contemplated herein.
4.1.4. Insurance. Schedule 4.1.4 attached hereto accurately
lists all policies of insurance covering the assets and
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<PAGE> 24
operations of Seller as of the date hereof, and for each indicates the insurer's
name, policy number, expiration date and amount and type of coverage. A correct
and complete copy of each such policy has been delivered to Buyer. All such
policies are in full force and effect and neither Seller nor any other party
thereto is in breach or default under any such policies (and no event has
occurred which, with the giving of notice or the passage of time, or both, would
constitute a breach or default). No written notice of termination of any such
policy has been received by Seller or any of its Affiliates.
4.1.5. Litigation. Except as set forth on Schedule 4.1.5
attached hereto, there are no actions, suits, labor disputes or other
litigation, proceedings or governmental investigations pending or, to the
knowledge of Seller and Shareholders, threatened against or affecting Seller or
the Business, or relating to the transactions contemplated by this Agreement.
Seller is not subject to any order, judgment, decree, stipulation or consent of
or with any court, governmental body or agency.
4.1.6. Governmental Authorizations; Compliance with Laws.
Seller holds the licenses and permits, authorizations, franchises and approvals
described on Schedule 4.1.6 attached hereto (the "PERMITS"), and no other
licenses, certificates, permits, authorizations, franchises, approvals or rights
issued by any governmental authority, federal, state, local or foreign, are
necessary for the lawful operation of the Business (other than city or county
business or privilege licenses). The Permits are in full force and effect, and,
to Seller's knowledge, no material violations of any of the Permits have
occurred or have been alleged to have occurred. Furthermore, no proceedings are
pending or, to the knowledge of Seller, threatened, that would have the effect
of revoking or materially limiting or affecting the transfer or renewal of any
of the Permits. The Permits (i) are not subject to any restrictions or
conditions that would limit the Business of Seller as presently conducted; (ii)
may be assigned to Buyer without the consent of any Person other than Seller;
and (iii) shall remain in full force and effect immediately subsequent to
Closing and shall not be subject to any additional restriction or condition as a
result of their assignment to Buyer. Seller has delivered to Buyer true and
complete copies of each of the Permits. Seller is now and, since June 30, 1996,
has been, in compliance in all material respects with all laws applicable to the
operation of the Business and the ownership of its assets and has not received
written notice that it is in violation of or in default under any judgment,
order or decree of any court or administrative agency or any law, rule or
regulation applicable to it.
4.1.7. Tax Matters. Seller has timely filed or will timely
file all tax returns and reports required to be filed for any period ending on
or before the Closing Date, or if applicable, any period that includes the
Closing Date. All such tax returns
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are or will be correct and complete in all respects. Except as set forth on
Schedule 4.1.7 or as shown on the face of the Closing Balance Sheet, Seller has
properly calculated and has timely paid or will timely pay or cause to be paid
all Income Taxes and Taxes (whether or not shown on any tax return) due to any
taxing authority with respect to all such periods. Seller has not received
written notice that the Internal Revenue Service or any other taxing authority
has asserted against such Seller any deficiency or claim for additional Taxes or
Income Taxes in connection therewith. Seller has not been granted and has not
given any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment or filing of, any Tax or Income Tax. All deposits
required by law to be made by Seller with respect to employees' withholding
taxes have been made. Seller has withheld and paid all Taxes and Income Taxes
required to have been withheld and paid in connection with the amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party. There are no tax liens on any assets of Seller, except liens for
Taxes not yet due. There are no claims pending against Seller for past due Taxes
or Income Taxes, and no Seller or Shareholder knows of any such threatened claim
or the basis for any such claim. There are not now any matters under discussion
with any federal, state, local or other authority with respect to any additional
Taxes or Income Taxes relating to Seller.
4.1.8. Financial Statements. Seller has delivered to Buyer
copies of the Financial Statements. The Financial Statements (i) present fairly
the financial position, results of operation, and changes in financial position
of Seller as of and for the periods indicated in conformity with GAAP
consistently applied during the periods, except that any interim Financial
Statements do not include notes and are subject to normal recurring year-end
adjustments (which will not, individually or in the aggregate, have a Material
Adverse Effect), and (ii) are consistent with the books and records of Seller
(which books and records are correct and complete).
4.1.9. Liabilities. Except as disclosed on Schedule 4.1.9,
Seller does not have any liabilities or obligations of any nature, whether known
or unknown, absolute, accrued, contingent or otherwise and whether due or to
become due, except: (a) that are accrued or reserved against on the face of the
June Balance Sheet (excluding the notes thereto); or (b)(i) that were incurred
after the date of the June Balance Sheet and were incurred in the ordinary
course of business and consistent with past practices and (ii) individually and
in the aggregate have not had or resulted in, and will not have or result in, a
Material Adverse Effect. Except as disclosed in Schedule 4.1.9, to Seller's
knowledge, no facts or circumstances exist that, with or without the passing of
time or the giving of notice or both, might reasonably serve as the basis for
any other liabilities or obligations.
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4.1.10. No Adverse Change. Except as set forth on Schedule
4.1.10, since June 30, 1996, there has not been (a) any material adverse change
in the financial condition (financial or otherwise), results of operations,
business, properties or prospects of Seller or the Business, (b) any material
loss or damage (whether or not covered by insurance) to any of the Purchased
Assets, which materially affects or impairs the ability of Seller to conduct the
Business, or any other event or condition of any character which has had a
Material Adverse Effect, (c) any mortgage or pledge of any of the Purchased
Assets, (d) any indebtedness incurred by Seller relating to, or taking as
security any interest whatsoever in, the Purchased Assets, (e) any contract or
other transaction entered into by Seller relating to, or otherwise affecting in
any way, the Business or the operation thereof, other than in the ordinary
course of business, (f) any sale or transfer of the Purchased Assets or any
cancellation of any debts or claims of Seller, except in the ordinary course of
business, (g) any waiver by Seller of any rights which have any material value,
(h) any change in the accounting practices of Seller or the manner in which it
maintains its books of account and records (other than to reflect GAAP
principles on the Financial Statements as a result of the Arthur Andersen & Co.
audit), (i) any dividend or distribution by Seller, or (j) any increase in the
rate or terms of compensation payable to Seller's employees, except increases
occurring in accordance with Seller's customary practices, or any modifications
in employee benefits to Seller's employees.
4.1.11. Title to Properties. Seller has good and marketable
title to, is the lawful owner of, and has the full right to sell, convey,
transfer, assign and deliver the Purchased Assets, free and clear of any Liens
other than Permitted Liens. At and as of the Closing, Seller will convey the
Purchased Assets to Buyer, and Buyer will have, good and marketable title to all
of the Purchased Assets, free and clear of all Liens other than Permitted Liens.
4.1.12. Accounts Receivable. All of Seller's accounts, notes
and other receivables comprising a portion of the Purchased Assets represent
valid and bona fide claims, were acquired or arose in the ordinary course of
business and are and will be fully collectible in the aggregate face amounts
thereof in the ordinary course of business.
4.1.13. Fixed Assets. Schedule 4.1.13 attached hereto sets
forth a complete and accurate list of all of the equipment and other fixed
assets constituting Purchased Assets as of July 31, 1996, other than items
acquired by Seller in the ordinary course of business from July 31, 1996
through the Closing Date (and Seller will identify in writing to Buyer, prior
to the Closing, each item so acquired which has a market value or book value of
$5,000 or more). All of such assets have been well maintained and are in
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normal operating condition (with the exception of normal wear and tear), and, to
Seller's knowledge, are free from defects other than such minor defects as do
not interfere with the continued use thereof in the conduct of normal
operations.
4.1.14. Proprietary Rights.
(a) Schedule 4.1.14(a) separately lists (i) all registered Trademarks
and registered Copyrights owned or used by Seller (together with any
applications therefor); (ii) all non-registered Trademarks and trade names used
by Seller in the operation of the Business.
(b) Schedule 4.1.14(b) separately lists (i) all Patents owned by Seller
(together with any applications therefor); and (ii) all Patents licensed by
Seller from third parties and used in the Business. All the claims of each of
the Patents set forth on Schedule 4.1.14(b) are valid and enforceable.
(c) Except as set forth on Schedule 4.1.14(c): (i) Seller owns all
Proprietary Rights that are material for the operation of the Business, free and
clear of any lien, encumbrance or other claim (whether pending, threatened or
anticipated); and (ii) Seller has not granted any Person any right, license or
interest whatsoever in any Proprietary Rights owned by Seller.
(d) All Third-Party Software is either (i) listed in Schedule
4.1.14(d), (ii) object code versions of generally commercially available
software programs that are used by Seller for word processing, accounting,
internal communications or other similar internal administrative functions, or
(iii) custom software developed by Seller exclusively for its customers, which
software is owned by such customers and is not otherwise used, distributed or
marketed in the Business. Except for the Third Party Software described in
clause (iii) of the previous sentence, Seller has perpetual licenses to all
Third-Party Software material to the operation of the Business as now conducted.
Seller has the legal right to use, copy, modify, sublicense, distribute or
otherwise market all such Third-Party Software in the manner that such
Third-Party Software is currently being used, copied, modified, sublicensed,
distributed or otherwise marketed in the Business, all without the payment of
any additional royalties or other fees or payments, now or in the future, to any
other Person, other than annual maintenance or upgrade fees in accordance with
normal industry practices.
(e) A complete list of all Proprietary Software is set forth on
Schedule 4.1.14(e). Seller owns all right, title and interest in the
Proprietary Software, including all of the Proprietary Rights therein. Each
other Person who has participated in the development of the Proprietary
Software has either: (i) so participated as an employee of Seller within the
scope of his or
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her employment obligations; (ii) so participated as an independent contractor
pursuant to a valid and binding agreement that specifically assigns all
Copyrights to Seller, or (iii) otherwise assigned to Seller the Copyright in
such Proprietary Software. Seller has not entered into any agreement that limits
or restricts its right to use, copy, modify, prepare derivatives of, sublicense,
distribute or otherwise market all or any part of the Proprietary Software.
(f) The present and projected use by Seller of all its Software and
Proprietary Rights does not, and Buyer's use of all Software and Proprietary
Rights transferred to Buyer pursuant to this Agreement (to the extent such
transferred Software and Proprietary Rights are employed by Buyer in a manner
consistent with the operation of the Business by Seller) will not, infringe the
rights of any other Person. No claim has been asserted by any Person: (i) that
such Person has any right, title or interest in or to any of Seller's
Proprietary Rights; (ii) to the effect that any past, present or projected act
or omission by Seller infringes any Proprietary Rights of such Person; (iii)
that such Person has the right to use any of Seller's Trademarks or trade names;
or (iv) that challenges Seller's right to use any of its Proprietary Rights or
Know-how or that seeks to deny, modify or revoke any registration or application
therefor or renewal thereof. To Seller's knowledge, no facts or circumstances
exist that, with or without the passing of time or the giving of notice or both,
might reasonably serve as the basis for any such claim.
(g) Seller has taken efforts that are reasonable under the
circumstances to prevent the unauthorized disclosure to other Persons of such
portions of Seller's Trade Secrets as would enable any such other Person to
compete with Seller within the scope of any its Business as now conducted and
as presently proposed to be conducted.
4.1.15. Assumed Contracts. Seller has delivered to Buyer true
and correct copies of (i) each Assumed Contract with its 50 largest customers
during the six months ended June 30, 1996 (the "MAJOR CUSTOMER CONTRACTS"), and
(ii) each other written Assumed Contract, except for customer contracts other
than Major Customer Contracts (true and correct copies of which have been made
available to Buyer) and those contracts described in clauses (II) and (III) of
SECTION 4.1.17(A). Each Contract (including each Assumed Contract) is valid,
binding, in full force and effect and enforceable against each party thereto.
Seller is not in default under any Contract nor does there exist any condition
or event which after notice, lapse of time or both would constitute a default by
Seller under any Contract. To Seller's knowledge, no other party to any Contract
is in default or breach, or alleged to be in default or breach, under any
Contract nor does there exist any condition or event which, after notice, lapse
of time or both, would constitute a default by any other party to any Contract.
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Seller has not received notice that Seller is in default under or in breach of
any Contract or of the election of any party to any Contract to cancel,
terminate or not to renew any such Contract whether in accordance with the terms
of any Contract or otherwise. Seller has not given notice to any other party to
any Contract that such other party is in default thereunder or in breach thereof
or given notice of the termination thereof. Except as set forth on Schedule
4.1.3, none of the Assumed Contracts requires the consent of the other party
thereto for the assignment of such Assumed Contract to Buyer and, upon such
assignment at Closing as contemplated by this Agreement, Buyer shall have all of
the rights of Seller thereunder.
4.1.16. Employee Benefit Plans. (a) Schedule 4.1.16 attached
hereto identifies each employee pension, retirement, profit-sharing, bonus,
incentive, deferred compensation, stock option, employee stock ownership,
hospitalization, medical, dental, vacation, insurance, sick pay, disability,
severance or other plan, fund, program, policy, contract or arrangement, whether
arrived at through collective bargaining or otherwise, providing employee
benefits, including without limitation any "employee benefit plan" as that term
is defined in Section 3(3) of ERISA, currently maintained by, or maintained
within the last five years by, sponsored in whole or in part by, or contributed
to by Seller, for the benefit of employees, retirees, dependents, spouses,
directors, independent contractors or other beneficiaries, whether created in
writing, through an employee manual or similar document or orally (collectively,
the "PLANS"). All such Plans are listed in Schedule 4.1.16 by name and ERISA
plan number, if any. Schedule 4.1.16 also lists by name and applicable ERISA
plan number, if any, all trust agreements or other funding arrangements,
including insurance contracts (including issuer and contract number), with
respect to all Plans, all annual reports and summary annual reports (by Plan
name, year and applicable ERISA plan number) referred to in SECTION
4.1.16(B)(II) below, all actuarial reports (by Plan name and applicable ERISA
plan number) referred to in SECTION 4.1.16(B)(III) below, and all documents (by
Plan name and applicable ERISA plan number) referred to in SECTIONS
4.1.16(B)(IV), (V), (VII), (VIII) and (IX) below. No Plan is or has been a
multiemployer plan (as defined in Section 3(37) or 4001(a)(3) of ERISA), and
Seller has never been a member of a controlled group (as defined in Section
4001(a)(14) of ERISA), a controlled group of corporations (as defined in Section
414(b) of the Code), or a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), any member of which, including Seller,
has ever participated in or contributed to or been obligated to contribute to
any such multiemployer plan. Except as set forth on Schedule 4.1.16, Seller has
no formal plan or commitment, and has made no announcement of its intentions,
whether legally binding or not, to create any additional Plan or modify or
change any existing Plan.
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(b) Except as set forth on Schedule 4.1.16, with respect to
each of the Plans, Seller has heretofore delivered to Buyer true and complete
copies of each of the following documents:
(i) a copy of each written Plan (including all
amendments thereto), including representative
copies of each written bonus or incentive Plan for
Seller's administrative employees or branch
managers;
(ii) a copy of the annual return or report
(including without limitation reports on the
Form 5500 series and all attachments
thereto), if required under ERISA or the
Code, with respect to each Plan (such
reports are for the three most recent plan
years with filing deadlines prior to the
date of this Agreement or for which returns
have actually been prepared or filed prior
to the date of this Agreement) and a copy of
each summary annual report with respect to
each such annual report;
(iii) a copy of the actuarial report, if required under
ERISA or the Code, with respect to each such Plan
(such reports are for the three most recent plan
years ending prior to the date of this Agreement);
(iv) a copy of the most recent summary plan
description, together with each subsequent
summary of material modifications, required
under ERISA with respect to each Plan, all
statements filed under Section 2520.104-23
of the U.S. Labor Department regulations,
and all other material employee
communications relating to each Plan;
(v) a copy of all written rules, regulations,
procedures and interpretations for each
Plan;
(vi) if a Plan is funded through a trust or other
funding arrangement, including insurance
contracts, a copy of the trust or other funding
agreement (including all amendments thereto) and
the latest financial statements thereof;
(vii) all contracts relating to the Plans with
respect to which Seller may have any
liability, including without limitation
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insurance contracts (except as included under
SECTION 4.1.16(B)(VI) above), investment
management agreements, subscription and
participation agreements, administration
agreements and record keeping agreements;
(viii) the most recent determination letter
received from the Internal Revenue Service
that covers the entire Plan with respect to
each Plan that is intended to be qualified
under Section 401 of the Code, and a
complete copy of the determination letter
application (including attachments and cover
letters) for such determination letter; and
(ix) all rulings, opinion letters, information letters
or advisory opinions issued by the Internal
Revenue Service or the United States Department of
Labor with respect to each Plan within the 10-year
period prior to the date of this Agreement.
(c) Seller has paid all premiums (and interest charges and
penalties for late payment, if applicable) due to the Pension Benefit Guaranty
Corporation ("PBGC") with respect to each Pension Benefit Plan (as defined in
Section 3(2) of ERISA) maintained or contributed to Seller (each, a "PENSION
BENEFIT PLAN") and each plan year thereof for which such premiums are required.
On and after the effective date of ERISA, there has been no reportable event (as
defined in Section 4043 of ERISA and the PBGC regulations thereunder) with
respect to any Pension Benefit Plan subject to Title IV of ERISA. No liability
under Title IV has been incurred by Seller since the effective date of ERISA
that has not been satisfied in full, and no condition exists that presents a
risk to Seller of incurring any material liability under Title IV.
(d) Seller has not engaged in any transaction with respect to
a Plan as a result of which Seller could be subject to either a material
liability or civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a material tax imposed pursuant to Section 4975 or 4976 of the Code. All
reports required by any government agency with respect to each Plan have been
timely filed. No oral or written representation or communication with respect to
any Plan has been made to the employees of Seller or any other person entitled
to participate in or receive benefits under a Plan which is not in accordance
with the written or otherwise pre-existing terms of such Plan. There are no
material pending or, to the knowledge of Seller and the Shareholders, threatened
claims by or on behalf of any of the Plans, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
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(e) The fair market value of the assets of each Pension
Benefit Plan required to be funded equals or exceeds the present value of all
benefits (whether or not vested) accrued to date by all present or former
participants or beneficiaries under such Plan. For this purpose, the assumptions
prescribed by the PBGC for valuing pension plan assets or liabilities upon plan
termination shall be applied to the extent such assumptions would apply upon
termination of each such Plan. To the extent such assumptions would not apply,
the actuarial assumptions used or required to be used to determine the funding
requirements under a plan shall be applied. No Pension Benefit Plan has incurred
any accumulated funding deficiency (as defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived. Full payment has been made on
or prior to the Closing Date of all amounts which Seller is required to pay
under the terms of each of the Plans and applicable law (including any employee
salary deferral contributions described in Section 125 or 401(k) of the Code).
Seller will make contributions to the Plans required to be made before the
Closing Date for the current Plan year and for any prior year through the
Closing Date, or if any such contributions are not due before the Closing Date,
will make adequate provisions for reserves therefor.
(f) Each of the Plans, and any related trust agreements or
annuity contracts or other funding instruments, comply currently and have
complied in the past, as to both form and operation, with the provisions of
ERISA, the Code, and all other applicable laws, rules and regulations; all
necessary government approvals for the Plans have been obtained; and, where
applicable, a favorable determination as to qualification under the Code of each
Pension Benefit Plan and each amendment thereto has been made by the Internal
Revenue Service.
(g) No Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees beyond retirement or other termination of service other than
(i) coverage mandated by applicable law, (ii) death benefits or retirement
benefits under any Pension Benefit Plan, (iii) deferred compensation benefits
accrued as liabilities on the books of Seller, or (iv) benefits the full cost of
which is borne by the current or former employee (or his beneficiary).
(h) Except as set forth on Schedule 4.1.16(h), the
consummation of the transactions contemplated by this Agreement will not entitle
any current or former employee or officer of Seller to severance pay,
unemployment compensation or any other payment. The consummation of the
transactions under this Agreement will not accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer, or result in any prohibited transaction described in Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not available.
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(i) For purposes of this SECTION 4.1.16, the term "Seller"
includes each trade or business (whether or not incorporated) which together
with Seller is treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code.
4.1.17. Labor and Employment Matters.
(a) Seller has delivered to Buyer (i) complete and accurate
copies of each employment, consulting and similar agreement to which Seller is a
party with any Shareholder or any other of its executive officers, (ii)
representative copies of employment and similar agreements between Seller and
its administrative employees and branch managers, and (iii) representative
copies of consulting agreements between Seller and its consultants or
independent contractors. Seller has made available to Buyer complete and
accurate copies of all other employment, consulting and similar agreements to
which Seller is a party. Except as disclosed on Schedule 4.1.17, Seller is not a
party to or bound by any written agreement, any employment manual, employment
handbook, employment practice or policy constituting a contractual obligation,
or any consent decree, court order or statutory obligation: (i) for the
employment of any individual, or the provision of services by any individual,
who is not terminable by Seller without penalty upon thirty days notice or less;
(ii) with any labor union; or (iii) relating to the payment of any severance or
termination payment, bonus or death benefit to any employee or former employee
or his or her estate or designated beneficiary.
(b) Seller is not a party to any collective bargaining
agreement, and has not recognized or received a demand for recognition of any
collective bargaining representative with respect thereto; and during the past
three years there have been no material labor strikes, disputes or work
stoppages nor, to the knowledge of Seller, are any such actions threatened
against Seller.
(c) Except as disclosed on Schedule 4.1.17(c), there are no
loans or other obligations payable or owing to any officers, directors or
employees of Seller, except salaries, wages, bonuses and salary advances and
reimbursement of expenses incurred and accrued in the ordinary course of
business, nor are any loans or debts payable or owing by any such persons or
their Affiliates to Seller, nor has Seller guaranteed any of their respective
loans or obligations.
(d) Except as set forth on Schedule 4.1.17(d), Seller is in
compliance in all material respects with all laws and other obligations relating
to employment, denial of employment or employment opportunity and termination of
employment.
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(e) To Seller's knowledge, there is no controversy pending or
threatened between Seller and any of its present or former officers, directors,
supervisory personnel or any group of its employees.
4.1.18. Environmental Matters. Except as set forth in
Schedule 4.1.18:
(a) The Real Property and all other land, buildings and
premises owned, leased or operated by Seller currently or in the past (all of
which Real Property and other land, buildings, and premises are listed in
Schedule 4.1.18), and each portion of such Real Property and other land,
buildings and premises, including without limitation the improvements thereon
and the soil and groundwater thereunder (i) do not contain and are not
contaminated by any Hazardous Material; (ii) do not contain and have not
previously contained underground storage tanks; (iii) have never been used for
the generation, treatment, storage or disposal of any Hazardous Material, or for
mining, land filling, dumping, gasoline station, dry cleaning or commercial
petroleum product storage purposes; (iv) have never been the subject of any
activities representing a violation or alleged violation of any Environmental
Law or any report to or action by a governmental authority pursuant to any
Environmental Law, and are in full compliance with all Environmental Laws; (v)
do not otherwise contain a condition that is or may be a threat to the safety or
health of the public or to the environment; (vi) have not had any release of any
Hazardous Material from, on, in or upon it and do not face any risk of
contamination by any Hazardous Material from any nearby property; and (vii) have
never been the subject of an environmental audit or assessment, or remedial
action or a lien or encumbrance for an environmental problem. With respect to
any real property owned, leased or operated by Seller in the past, but not
currently owned, leased or operated by Seller, the representations set forth
above in this SECTION 4.1.18(A) shall be deemed to apply as of the last date
that Seller owned, leased or operated the property in question. The
representations and warranties set forth in this SECTION 4.1.18(A) shall be
limited to matters within Seller's knowledge, except with respect to any such
matters arising from the conduct of Seller's Business, as to which the foregoing
representations and warranties shall apply whether or not known by Seller.
(b) Seller: (i) has never sent or disposed of, otherwise had taken or
transported, arranged for the taking or disposal of (on behalf of itself, a
customer or any other party) or in any other manner participated or been
involved in the taking of or disposal or release of a Hazardous Material to or
at a site that is contaminated by any Hazardous Material or that, pursuant to
any Environmental Law, (1) has been placed on the "National Priorities List",
the "CERCLIS" list, or any similar state or federal list, or (2) is subject to
or the source of a claim, an administrative order
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or other request to take "removal", "remedial", "corrective" or any other
"response" action, as defined in any Environmental Law, or to pay for the costs
of any such action at the site; (ii) is and at all times has been in compliance
with all Environmental Laws in all of its activities and operations, and is not
liable under any Environmental Law; (iii) is not involved in (and has no basis
to expect to be involved in) any suit or proceeding and has not received (and
has no basis to expect to receive) any notice, request for information or other
communication from any governmental authority or other third party with respect
to a release or threatened release of any Hazardous Material or a violation or
alleged violation of any Environmental Law, and has not received (and has no
basis to expect to receive) notice of any claims from any person or entity
relating to property damage or to personal injuries from exposure to any
Hazardous Material; and (iv) has timely filed every report required to be filed,
acquired all necessary certificates, approvals and permits (all of which are
listed on Schedule 4.1.6), and generated and maintained all required data,
documentation and records under all Environmental Laws.
(c) Buyer will be able to hold the properties and Assets acquired
pursuant to this Agreement and to carry on the Business as presently conducted
in compliance with any prospective requirement adopted or promulgated prior to
the date hereof under any Environmental Law without material cost or change in
the operations of the Business.
4.1.19. Real Property.
(a) Schedule 4.1.19 contains a complete and correct list of
all lease agreements pursuant to which Seller leases the Real Property, setting
forth the address, landlord and tenant for each lease. Seller has delivered to
Buyer correct and complete copies of such leases. Each lease agreement set forth
on Schedule 4.1.19 is legal, valid, binding, enforceable, and in full force and
effect, except as may be limited by bankruptcy, insolvency, reorganization and
similar laws affecting creditors generally and by the availability of equitable
remedies. To Seller's knowledge, neither Seller nor any other party is in
default, violation or breach in any respect under any such lease, and no event
has occurred and is continuing that constitutes or, with notice or the passage
of time or both, would constitute a default, violation or breach in any respect
under any such lease. Each such lease grants the tenant under the lease the
exclusive right to use and occupy the demised premises thereunder. Seller has
good and valid title to the leasehold estate under each such lease free and
clear of all liens, claims and encumbrances other than Permitted Liens. Seller
enjoys peaceful and undisturbed possession under each such lease of the Real
Property.
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<PAGE> 36
(b) The Real Property constitutes all the fee and leasehold
interests in real property held for use in connection with, necessary for the
conduct of, or otherwise material to, the Business as currently conducted by
Seller.
(c) There are no eminent domain or other similar proceedings
pending or, to Seller's knowledge, threatened affecting any portion of the Real
Property. There is no writ, injunction, decree, order or judgment outstanding,
nor any action, claim, suit or proceeding, pending or, to Seller's knowledge,
threatened, relating to the ownership, lease, use, occupance or operating by any
Person of any Real Property.
(d) To Seller' knowledge, the use and operation of the Real
Property in the conduct of the Business does not violate in any material respect
any instrument of record or agreement affecting the Real Property. To Seller's
knowledge, there is no violation of any covenant, condition, restriction,
easement or order of any governmental authority having jurisdiction over such
property or of any other Person entitled to enforce the same affecting the Real
Property or the use or occupancy thereof.
(e) To Seller's knowledge, the Real Property is in full
compliance with all applicable building, zoning, subdivision and other land use
and similar applicable laws affecting the Real Property, and Seller has not
received any notice of violation or claimed violation of any such law. There is
no pending or, to the knowledge of Seller, anticipated change in any such laws
that will have or result in a material adverse effect upon the ownership,
alteration, use, occupancy or operation of the Real Property or any portion
thereof. No current use by Seller of the Real Property is dependent on a
nonconforming use or other governmental approval the absence of which would
materially limit the use of such properties or assets held for use in connection
with, necessary for the conduct of, or otherwise material to, the Business.
(f) The Real Property, and all components thereof, including
without limitation the roofs, walls, floors, heating, cooling and ventilation
systems, electrical and plumbing systems and structural components, are in good
condition, are operating properly, are not in need of repair and have been
properly maintained. To Seller's knowledge, the improvements on the Real
Property are free of wood destroying insects and damage therefrom. All
facilities leased on the Real Property are supplied with utilities and other
similar services necessary for the operation of such facilities as now used for
the conduct of the Business.
4.1.20. Customers. Schedule 4.1.20 attached hereto lists each
Major Customer Contract. Except as set forth on Schedule 4.1.20, to Seller's
knowledge, Seller has not received any notice and has no reason to believe that
any Major Customer Contract is being terminated or is being considered for
termination
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or nonrenewal. To Seller's knowledge, no such customer listed on Schedule 4.1.20
is reasonably likely to, as a result of the consummation of this Agreement,
terminate or materially reduce its relationship with the Business.
4.1.21. Assets Sufficient for Conduct of Business. The
Purchased Assets constitute all of the assets, properties and rights used by
Seller in, and required for the continued operation by Buyer of, the Business
as it is presently operated by Seller.
4.1.22. Brokers; Finders. Seller has not retained any broker
or finder in connection with the transactions contemplated herein so as to give
rise to any valid claim against Buyer for any brokerage or finder's commission,
fee or similar compensation. Seller and Shareholders are solely liable for all
fees and expenses payable to The Updata Group, Inc. and will indemnify and hold
harmless Buyer against any such fees and expenses.
4.1.23. Minute Books. Seller's minute books contain complete
and accurate records of all meetings and other corporate actions of its
stockholders and Board of Directors and committees thereof.
4.1.24. Bank Accounts; Powers of Attorney. Schedule 4.1.24
sets forth (i) the name of each bank in which Seller maintains an account or
safe deposit box and the names of all persons authorized to draw thereon or to
have access thereto, and (ii) the names of all persons, if any, holding powers
of attorney from Seller and a summary statement of the terms thereof.
4.1.25. Certain Transactions. There is no transaction, and no
transaction is now proposed, to which Seller was or is to be a party and in
which any director, officer, stockholder or Affiliate of Seller had or has a
direct or indirect material interest.
4.1.26. Product Warranties; Defects; Liability. Except as set
forth on Schedule 4.1.26, each product or service manufactured, sold, leased,
or delivered by Seller has been in conformity with all applicable federal,
state, local or foreign laws and regulations, contractual commitments and all
express and implied warranties, and Seller has no liability (and there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand giving rise to any
liability) for replacement or repair thereof or other damages in connection
therewith. No product or service manufactured, sold, leased, or delivered by
Seller is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease as set forth in the
applicable Major Customer Contract or other Customer Contract delivered or made
available to Buyer. Seller has no liability (and there is no basis for any
present or future action, suit, proceeding, hearing,
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investigation, charge, complaint, claim, or demand against any of them giving
rise to any liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any service provided, or any
product manufactured, sold, leased or delivered, by Seller and there has been no
inquiry or investigation made in respect thereof by and Person including any
governmental or administrative agency.
4.1.27. Investment Intent. Seller is acquiring the Promissory
Note for investment for its own account and not with a view to its distribution
within the meaning of Section 2(11) of the Securities Act. Seller is an
"accredited investor" as such term is defined in Rule 501(a) under the
Securities Act.
4.1.28. Accuracy of Statements. Neither this Agreement
(including the Exhibits and Schedules attached hereto) nor any statement, list,
certificate or other information furnished or to be furnished by or on behalf
of Seller to Buyer in connection with this Agreement or any of the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact regarding Seller, the Purchased Assets or the operation of the Business or
omits or will omit to state a material fact necessary to make the statements
regarding Seller, the Purchased Assets or the operation of the Business
contained herein or therein, in light of the circumstances in which they are
made, not misleading. The pro forma income statements of Seller delivered to
Buyer for all periods through June 30, 1996 have been prepared in good faith by
the executive and financial personnel of Seller on the basis of reasonable
assumptions, present fairly the results of operations of Seller (as adjusted
for the items described therein), and are consistent with the books and records
of Seller (which books and records are correct and complete).
4.2 Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
4.2.1. Corporate Existence. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Buyer has full corporate power and authority to enter into and
perform this Agreement and to consummate the transactions contemplated herein.
4.2.2. Authorization; Enforceability. The execution, delivery
and performance of this Agreement by Buyer and the consummation of the
transactions contemplated herein have been duly authorized by all requisite
corporate action. This Agreement has been duly executed and delivered by Buyer
and constitutes the valid, legal and binding obligation of Buyer enforceable in
accordance with its terms, except as enforceability may be limited by equitable
principles or by bankruptcy, fraudulent conveyance or insolvency laws affecting
creditors' rights generally.
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4.2.3. No Violation; Consents. Neither the execution, delivery
and performance by Buyer of its obligations under this Agreement, nor the
consummation of the transactions contemplated hereby, will conflict with,
violate or result in a breach of any of the terms or provisions of, or
constitute a default (with the passage of time or giving of notice or both)
under, or result in the creation or imposition of any lien on the assets of
Buyer pursuant to, the certificate of incorporation or bylaws of Buyer, any
order, judgment, decree, rule or regulation of any court or governmental agency
or body having jurisdiction over Buyer or its properties, or under any provision
of law. Except for any required filing under the HSR Act and as otherwise set
forth on Schedule 4.2.3 attached hereto, no Consent is required to be obtained
by Buyer in connection with the execution and delivery of this Agreement by
Buyer or the consummation of the transactions contemplated herein.
4.2.4. SEC Documents. Buyer has filed all documents required
by law to be filed by it with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. At the time filed, none of such
documents contained any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements contained therein, in light of
the circumstances in which they were made, not misleading.
4.2.5. Financing. Buyer has a commitment from NationsBank,
N.A. for the provision of senior credit facilities on the terms and subject to
the conditions set forth therein. A copy of the commitment has been provided to
Seller.
ARTICLE V
CERTAIN COVENANTS
5.1 Access and Information; Confidentiality. From the date hereof
until the Closing Date:
(a) Seller will give to Buyer and its representatives (including
Buyer's lender and its representatives as long as such lender agrees, upon the
request of Seller, to execute a confidentiality agreement in form and substance
reasonably acceptable to both parties) full access during normal business hours
to its employees, properties, books, records, contracts and commitments and will
furnish all such information and documents relating to its properties and
business as Buyer may reasonably request; provided, however, that such
investigation by Buyer shall be conducted in such a manner as not to
unreasonably interfere with the normal operation of the Business.
(b) Buyer agrees to, and to cause its employees and agents to, protect
the confidentiality of all proprietary and confidential
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information received from Seller pursuant to this Agreement or otherwise, using
the same care and procedures used to protect Buyer's own proprietary and
confidential information, and agrees not to disclose, and to cause its
Affiliates, employees and agents not to disclose, such proprietary and
confidential information to any other Persons except as may be reasonably
necessary in connection with the transactions contemplated herein or except to
the extent (i) such information is or becomes publicly available or obtainable
from independent, nonconfidential sources and not in breach of Buyer's
obligations hereunder or any other party's confidentiality obligations owed to
Seller, (ii) such information is required to be disclosed by law or by
governmental authorities having jurisdiction over Buyer, (iii) such information
was known by Buyer prior to any disclosure by Seller, or (iv) disclosure is
necessary for Buyer to enforce any or all of its rights under this Agreement.
(c) Buyer further agrees not to contact or attempt to contact any of
Seller's clients without first notifying Seller and permitting Seller to
participate in all such contacts.
5.2 Conduct of Business. Except as otherwise contemplated by the terms
of this Agreement, from the date hereof until the Closing, Seller will: (a) not
enter into any Contract relating to the Business unless such Contract is entered
into in the ordinary course of business and either involves an aggregate
financial obligation on the part of Seller of $50,000 or less or is terminable
upon not more than 30 days' prior notice; (b) not amend, modify or waive any
material provision of any Assumed Contract; (c) not mortgage, pledge, sell or
transfer any of its assets, except in the ordinary course of business; (d)
conduct the Business only in the ordinary course (including with respect to the
payment of payables and the collection of receivables) and in substantially the
same manner as heretofore conducted; (e) maintain and keep its properties and
equipment in good repair, working order and condition, except for ordinary wear
and tear; (f) keep in full force and effect insurance comparable in amount and
scope of coverage to that now maintained; (g) perform its obligations under all
Contracts; (h) use its best efforts to maintain and preserve its business
organizations, retain its present employees and maintain its relationships with
suppliers, customers and others having business dealings with it; (i) maintain
its books of account and records in the usual and regular manner and not make
any changes in its accounting practices; (j) comply with all laws and
regulations applicable to them and to the conduct of the Business; (k) except to
the extent of any Excluded Assets, not make any distribution, dividend or
advance to any Affiliate (including any Shareholder) without the prior written
consent of Buyer, except for any dividend paid solely from the proceeds of the
exercise of options exercised by any Shareholder; (l) use its best efforts to
maintain and protect the Proprietary Rights and Proprietary Software; and (m)
not make any change in any Plan or compensation
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<PAGE> 41
to any officers, directors or employees (except for normal salary increases or
bonuses in the ordinary course of business consistent with past practice to
employees other than the Shareholders or other executive officers that do not in
the aggregate result in a significant increase in compensation or benefit
expense to Seller) or adopt any new Plan without the prior written consent of
Buyer. Without limiting the foregoing, Seller will consult with Buyer regarding
all significant developments, transactions and proposals relating to the
Business or the Purchased Assets.
5.3 Change of Corporate Name. On the Closing Date or as soon as
practicable thereafter, Seller shall change its corporate name to a new name
which does not include the words making up its existing name (or any existing
trade names) or the acronym or abbreviation or any variations, translations or
combinations thereof or similar names and otherwise is not likely to be confused
with its present names so as to make Seller's present names available to Buyer.
From and after the Closing, Seller shall not use the words making up its
existing name (or any existing trade names) or the acronym or abbreviation or
any variations, translations or combinations thereof or similar names in
connection with any business.
5.4 Filings. Buyer and Seller will make or cause to be made all such
filings and submissions under applicable laws and regulations as may be required
for the consummation of the transactions contemplated hereunder, including
without limitation any filings required under the HSR Act. Buyer and Seller will
cooperate and coordinate with one another in connection with any such filings or
submissions.
5.5 Employees. (a) Buyer and Seller agree that on the Closing Date the
employees of Seller shall cease to be employees of Seller and, except for those
employees subject to the Employment Agreements and except as otherwise
determined by Buyer in its sole discretion, shall become employees of Buyer or
an Affiliate of Buyer on an employment at will basis. Notwithstanding the
foregoing, except as set forth in SECTION 7.2, Buyer will have no liability to
Seller if for any reason (i) Buyer decides not to offer employment to any of
Seller's employees (other than employees subject to the Employment Agreements),
(ii) any of the employees do not accept Buyer's offer of employment or (iii) any
of the employees (other than employees subject to the Employment Agreements)
accept employment with Buyer, but such employment is terminated for any reason
after the Closing Date.
(b) Except as set forth in SECTION 5.5(A) above, the parties
acknowledge and agree that it is the intention of the parties that all existing
contracts of employment, nondisclosure, and nonsolicitation and noncompetition
between Seller and its employees shall be transferred to or assumed by Buyer as
a result of the
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transactions described herein and that such contracts shall constitute Assumed
Contracts hereunder.
(c) Seller shall, if requested by Buyer, assign to Buyer or its
designated Affiliates Seller's unemployment insurance and worker's compensation
experience ratings and take such steps as Buyer shall reasonably request to
effect such assignment, if such assignment is permitted and does not result in
any cost, expense or penalty to Seller and is otherwise not prejudicial to
Seller.
(d) Unless prohibited by law, Seller shall make available to Buyer all
personnel records, including without limitation names, Social Security numbers,
dates of hire by Seller, dates of birth, number of hours worked each calendar
year, and salary histories, for all Seller's employees. Seller and Buyer shall
also cooperate, both before and after the Closing Date, in exchanging
information, including pertinent employment records, benefit information, salary
and compensation records, financial statements and other data, and in taking
other action respecting the interests of Seller's employees who become employees
of Buyer at or shortly following the Closing Date, and their respective
beneficiaries and dependents, in each of the employee benefit plans of Seller
and any plans established by Buyer, so as to secure an orderly and effective
transition of the benefit arrangements for such employees of Seller and their
respective beneficiaries and dependents.
(e) Employee Benefits. Buyer will initially provide all of Seller's
employees who are hired by Buyer with the same benefits, in all material
respects, as those provided by Seller to such employees on the Closing Date.
After the Closing, Buyer may amend, modify or terminate any such benefits at any
time in its sole discretion, provided that for not less than two (2) years,
except as otherwise required by applicable law, Buyer agrees not to materially
reduce the benefits (taken as a whole) provided to such employees relative to
the benefits provided to such employees by Seller on the Closing Date. Buyer
will give effect to such employees' tenure of service with Seller for
determining eligibility and waiting period requirements under Buyer's benefit
plans.
(f) Options. As promptly as practicable after the Closing, Buyer will
cause to be issued to those employees of Seller listed on Schedule 5.5(f) stock
options for the purchase of Buyer's common stock on the terms summarized on
Schedule 5.5(f).
5.6 Lien Search. Prior to Closing, Seller at its expense shall obtain
and deliver Uniform Commercial Code and tax lien search results covering the
Purchased Assets from each jurisdiction in which Purchased Assets are located.
The searches shall be accurate as of a date not earlier than 20 days prior to
the Closing Date.
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5.7 Exclusivity. Without limiting the effect of any other warranty or
representation contained in this Agreement, at no time from the date hereof
through the Closing Date will Seller, directly or through any agents or
representatives, (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities of Seller, or any substantial portion of the
Purchased Assets (including any acquisition structured as a merger,
consolidation or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
Person to do or seek any of the foregoing. Seller shall notify Buyer immediately
if any Person makes any proposal, offer, inquiry, or contact with respect to any
of the foregoing.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Obligation of Buyer. The obligation of Buyer under
this Agreement to purchase the Purchased Assets and to consummate the other
transactions contemplated by this Agreement is subject to the fulfillment, at or
prior to the Closing, of each of the following conditions, each of which may be
waived in whole or in part by Buyer in its sole discretion:
6.1.1. Representations; Performance. The representations and
warranties of Seller and Shareholders contained herein shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date with the same effect as though made on and as of the Closing Date,
except as modified by transactions permitted by this Agreement. Seller shall
have duly performed and complied with all agreements and conditions required by
this Agreement to be performed or complied with by it prior to or at the
Closing. Seller shall have delivered to Buyer a certificate, dated the Closing
Date and signed by the Chief Executive Officer or President of Seller, to the
effect set forth above in this SECTION 6.1.1.
6.1.2. Employment and Noncompetition Agreements.
(a) Newbold, Hetland, and LeRoss shall each have entered into
an Employment and Noncompetition Agreement dated the Closing Date with
Buyer substantially in the form of Exhibit D attached hereto (the
"EMPLOYMENT AGREEMENTS"). The Employment Agreements with each of
Newbold and Hetland shall have an initial term of three (3) years. The
Employment Agreement with LeRoss shall have a term of one (1) year.
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(b) Seller, McKee and Adamucci shall each have entered into a
Noncompetition Agreement dated the Closing Date with Buyer or Buyer's
designated Affiliate (the "NONCOMPETITION AGREEMENTS") substantially in
the form of Exhibit E attached hereto.
6.1.3. Opinion of Counsel. Buyer shall have received a
favorable opinion, addressed to Buyer and dated the Closing Date, of Short
Cressman & Burgess P.L.L.C., counsel to Seller and the Shareholders, in
substantially the form attached hereto as Exhibit F.
6.1.4. Consents. All Consents required to be obtained by
Seller to consummate the transactions contemplated herein shall have been
obtained, other than any Consents required in connection with any Customer
Contracts or any leases relating to the Real Property or where the failure to
obtain such Consents has been temporarily waived by Buyer pursuant to SECTION
2.4(A).
6.1.5. No Proceeding or Litigation. No claim, action, suit,
arbitration, investigation or other formal proceeding shall be pending or
threatened on or before the Closing which (a) seeks to (i) enjoin, restrain or
prohibit the transactions contemplated herein, (ii) impose limitations on the
ability of Buyer to conduct the Business or exercise full rights of ownership of
the Purchased Assets or (iii) require the divesture by Buyer or its Affiliates
of any of the Purchased Assets or any other assets of Buyer or its Affiliates by
reason of this Agreement, or (b) could have a Material Adverse Effect.
6.1.6. No Material Adverse Change. There shall have occurred
no material adverse change in the condition (financial or otherwise), results
of operations, business, properties or prospects of the Business.
6.1.7. Purchased Assets and Documents Delivered. Buyer shall
have received at the Closing the following documents required to be delivered
to Buyer by Seller or Shareholders as provided herein:
(a) corporate and tax certificates of good standing for Seller
issued by the Secretary of State and Department of Revenue (or similar
applicable offices) of each jurisdiction where Seller is organized and
qualified to do business as a foreign corporation;
(b) a certificate of the secretary of Seller, certifying and
attaching copies of the Charter Documents (including a copy of the
articles of incorporation of Seller certified by the Secretary of State
of Washington), the resolutions of the directors and shareholders or
other owners of Seller approving the execution and delivery by Seller
of
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this Agreement and the consummation of the transactions contemplated
hereby, and the incumbency of the officers of Seller executing this
Agreement and all other agreements and instruments to be executed and
delivered by Seller in connection herewith; and
(c) the Bill of Sale, Contract Assignment, such other
documents, certificates and items reasonably requested by Buyer to
consummate the transactions contemplated hereby and effect the transfer
of the Purchased Assets as provided herein.
6.1.8. HSR Act Filings. All filings required by any Person
under the HSR Act with respect to the transfer of the Purchased Assets shall
have been made, all applicable waiting periods with respect thereto shall have
expired or been terminated and no action shall have been taken or threatened by
the United States Department of Justice or Federal Trade Commission challenging
or seeking to enjoin the transactions contemplated under this Agreement.
6.1.9. Due Diligence. Buyer shall have completed its due
diligence review of Seller and the Business, and the results of such review
shall have been satisfactory to Buyer in its sole discretion.
6.1.10. Draft Closing Balance Sheet. Prior to Closing, Seller
shall have delivered an estimated balance sheet (the "DRAFT CLOSING BALANCE
SHEET"), dated as of the Closing Date, or such other date agreed to by the
parties, prepared in a manner consistent with the June Balance Sheet and in form
and substance satisfactory to the Buyer, showing all Purchased Assets (excluding
any Excluded Assets) and all Assumed Liabilities (excluding any Excluded
Liabilities) of the Seller of such date, and the Tangible Net Worth set forth on
the Draft Closing Balance Sheet shall not amount to less than $337,000.
6.1.11. Subordination Agreement. Buyer, Seller and
NationsBank, N.A. shall have executed a Subordination Agreement in form and
substance satisfactory to the parties thereto relating to the subordination of
certain obligations of Buyer to Seller hereunder and under the Promissory Note
to the obligations of Buyer to NationsBank, N.A. under the senior credit
facilities described in SECTION 4.2.5 above.
6.1.12. Adamucci Option. Prior to or contemporaneously with
the Closing, Adamucci shall have exercised the Option, dated May 1, 1994, for
the purchase of BEST stock.
6.2 Conditions to Obligation of Seller. The obligations of Seller
under this Agreement to sell the Purchased Assets and to consummate the other
transactions contemplated by this Agreement is
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subject to the fulfillment, at or prior to the Closing, of each of the following
conditions, each of which may be waived in whole or in part by Seller in its
sole discretion:
6.2.1. Representations; Performance. The representations and
warranties of Buyer contained herein hereof shall be true and correct in all
material respects on and as of the date hereof and on and as of the Closing Date
with the same effect as though made on and as of the Closing Date, except as
modified by transactions permitted by this Agreement. Buyer shall have duly
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
Buyer shall have delivered to Seller a certificate of Buyer, dated the Closing
Date and signed by the Chief Executive Officer or President of Buyer, to the
effect set forth above in this SECTION 6.2.1.
6.2.2. Opinion of Counsel. Seller shall have received a
favorable opinion, addressed to Seller and dated the Closing Date, of Robinson,
Bradshaw & Hinson, P.A., counsel to Buyer, in substantially the form attached
hereto as Exhibit G.
6.2.3. No Proceeding or Litigation. No injunction or order of
any court or administrative agency of competent jurisdiction shall be in effect
and no actions by any public or governmental authority seeking any such
injunction or order shall be pending as of the Closing Date that restrains or
prohibits the purchase and sale of the Purchased Assets or any other action to
be taken in connection herewith.
6.2.4. Purchase Price and Documents Delivered. Seller shall
have received at the Closing the cash payments and the Promissory Note required
under SECTION 3.2(B), and the following documents required to be delivered at
the Closing as provided herein:
(a) a corporate certificate of good standing for Buyer issued
by the Delaware Secretary of State; and
(b) a certificate of the secretary of Buyer, certifying and
attaching copies of its certificate of incorporation (certified by the
Secretary of State of Delaware) and bylaws, the resolutions of the
directors of Buyer approving the execution and delivery by Buyer of
this Agreement and the consummation of the transactions contemplated
hereby, and the incumbency of the officers of Buyer executing this
Agreement and all other agreements and instruments to be executed and
delivered by Buyer in connection herewith.
6.2.5. HSR Act Filings. All filings required by any Person
under the HSR Act with respect to the transfer of the
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Purchased Assets shall have been made, all applicable waiting periods with
respect thereto shall have expired or been terminated and no action shall have
been taken or threatened by the United States Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the transactions contemplated
under this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification by Seller and Shareholders. Seller and Shareholders
(jointly and severally as to each such Person) agree to indemnify and hold
harmless Buyer and its shareholders, officers and directors, Affiliates, agents
and employees from and against and in respect of any and all damages, losses,
diminution of value, or expenses suffered or incurred by any such party (whether
as a result of third party claims (whether valid or not), demands, suits, causes
of action, proceedings, investigations, judgments or liabilities or otherwise),
including costs of investigation and defense and reasonable attorneys' fees
assessed, incurred or sustained by or against any of them, with respect to or
arising out of (a) any breach of the representations, warranties and covenants
of Seller or Shareholders set forth herein and in any other agreement or
instrument executed by Seller or Shareholders in connection herewith, or (b) any
Excluded Liabilities (including without limitation any liability or alleged
liability that becomes, or is alleged to have become, a liability of Buyer under
any applicable bulk sales law, under any doctrine of de facto merger or
successor liability, or otherwise by operation of law), in all cases subject to
each of the terms, conditions and limitations set forth in this ARTICLE VII
hereof.
7.2 Indemnification by Buyer. Buyer agrees to indemnify, defend and
hold harmless Seller, Shareholders and Seller's officers, directors, employees,
Affiliates and agents from and against and in respect of any and all damages,
losses, diminution of value, or expenses suffered or incurred by any such party
(whether as a result of third party claims (whether valid or not), demands,
suits, causes of action, proceedings, investigations, judgments or liabilities
or otherwise), including costs of investigation and defense and reasonable
attorneys' fees assessed or incurred or sustained by or against any of them,
with respect to or arising out of (a) any breach of the representations,
warranties and covenants of Buyer set forth herein and in any other agreement or
instrument executed by Buyer in connection herewith, and (b) any liability,
claim, action or loss arising from Buyer's operation of the Business after the
Closing, including without limitation (i) Buyer's termination of or failure to
hire any employees formerly employed by Seller (unless such liability arises
from actions taken by Seller prior to the Closing), or (ii) any post-Closing
actions of Buyer pursuant to the Assumed Contracts.
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7.3 Limitations. Notwithstanding anything contained herein to the
contrary, no person shall be entitled to indemnification under the provisions of
this ARTICLE VII: (a) unless such party shall have given written notice to the
indemnifying party setting forth its claim for indemnification in reasonable
detail, on or prior to the close of business on the Limitation Date, (b) unless
and until the aggregate amount of all claims for indemnification under SECTION
7.1 or SECTION 7.2, as applicable, shall have exceeded $500,000, in which event
the indemnified person shall be entitled to such indemnification only for all
claims in excess of that amount, and (c) to the extent that the aggregate amount
of all claims for indemnification under SECTION 7.1 or SECTION 7.2, as
applicable, exceeds the sum of (i) $43,400,000, plus (ii) 50% of the sum of all
contingent payments paid to Seller pursuant to SECTION 3.6; provided, however,
that the limitation contained in clause (b) shall not apply to (x) any breach of
the representation made by Seller or Shareholders in SECTION 4.1.22 or (y)
Seller's and Shareholders' indemnification obligations as set forth in clause
(b) of SECTION 7.1. Notwithstanding anything contained herein to the contrary,
this ARTICLE VII shall not apply to any breach by Buyer, Seller or any
Shareholder of any Employment Agreement or Noncompetition Agreement.
7.4 Procedure for Indemnification.
7.4.1. Third Party Claims. (a) If any Person shall claim
indemnification hereunder arising from any claim or demand of a third party,
the party seeking indemnification (the "indemnified party") shall promptly
notify the party from whom indemnification is sought (the "indemnifying party")
in writing of the basis for such claim or demand setting forth the nature of
the claim or demand in reasonable detail. The failure of the indemnified party
to so notify the indemnifying party shall not relieve the indemnifying party of
any indemnification obligation hereunder except to the extent the indemnifying
party demonstrates that the defense of such claim or demand is materially
prejudiced by the failure to give such notice.
(b) If any legal proceeding or action is brought by a third party
against an indemnified party and the indemnified party gives notice to the
indemnifying party pursuant to SECTION 7.4.1(A), the indemnifying party will be
entitled to participate in such proceeding and, to the extent that it wishes, to
assume the defense of such proceeding if (i) the indemnifying party provides
written notice to the indemnified party that the indemnifying party intends to
undertake such defense and the indemnifying party will indemnify the indemnified
party against all claims for indemnification resulting from or relating to such
third party claim, (ii) the indemnifying party provides to the indemnified party
evidence acceptable to the indemnified party that the indemnifying party will
have the financial resources to defend against the third party claim and to
fulfill its indemnification obligations hereunder,
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(iii) the indemnifying party conducts the defense of the third party claim
actively and diligently with counsel reasonably satisfactory to the indemnified
party, and (iv) if the indemnifying party is a party to the proceeding, the
indemnifying party has not determined in good faith that joint representation
would be inappropriate. The indemnified party shall, in its sole discretion,
have the right to employ separate counsel (who may be selected by the
indemnified party in its sole discretion) in any such action and to participate
in the defense thereof, and the fees and expenses of such counsel shall be paid
by such indemnified party. The indemnified party shall fully cooperate with the
indemnifying party and its counsel in the defense or compromise of such claim or
demand, provided that all out-of-pocket expenses incurred by indemnified party
shall be paid by indemnifying party. If the indemnifying party assumes the
defense of a proceeding, (1) no compromise or settlement of such claims may be
effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of law or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (2) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. Should one or more but
not all of the indemnifying parties agree to defend any such third party claim,
the indemnifying party or parties not participating in the defense of the claim
shall be bound by the acts and agreements of the other or others.
(c) If (i) notice is given to indemnifying party of the commencement of
any proceeding and the indemnifying party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such proceeding, (ii) any of the conditions
set forth in clauses (i)-(iv) of SECTION 7.4.1(B) above become unsatisfied, or
(iii) an indemnified party determines in good faith that there is a reasonable
probability that a proceeding may adversely affect it other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party will (upon further notice to the indemnifying
party) have the right to undertake the defense, compromise or settlement of such
claim, provided that the indemnifying party will reimburse the indemnified party
promptly and periodically for the costs of defending against the third party
claim (including reasonable attorneys' fees and expenses) and the indemnifying
party will remain responsible for any indemnifiable amounts arising from or
related to such third party claim to the fullest extent provided in this ARTICLE
VII. The indemnifying party may elect to participate in such proceedings,
negotiations or defense at any time at its own expense.
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7.4.2. Direct Claims. If either party shall claim
indemnification hereunder for any claim other than third party claims, the
indemnified party shall promptly notify the indemnifying party in writing of
the basis for such claim setting forth the nature and amount of the damages
resulting from such claim. The indemnifying party shall give written notice of
any disagreement with such claim within fifteen (15) days following receipt of
indemnified party's notice of the claim, specifying in reasonable detail the
nature and extent of such disagreement. If the indemnifying party and
indemnified party are unable to resolve any disagreement within thirty (30)
days following receipt by the indemnified party of the notice referred to in
the preceding sentence, the disagreement shall be submitted for resolution to
an independent person (the "arbitrator") mutually agreed by the indemnifying
party and indemnified party. If the indemnifying party and indemnified party
cannot agree on a single arbitrator, then the disagreement shall be submitted
to a panel of three arbitrators, one selected by the indemnifying party, one by
the indemnified party and one by the two arbitrators so selected. Any such
arbitration proceeding shall be held in the state selected by the indemnifying
party. The arbitrator(s)' determination shall be made within thirty (30) days
of the submission of the dispute, shall be in accordance with this Agreement,
shall be set forth in a written statement delivered to indemnifying party and
the indemnified party and shall be final, binding and conclusive. Judgment upon
the decision rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof and may include the award of attorneys' fees and other
costs to the extent provided by this Article. The Person who is prevailed
against in the resolution of such disagreement shall pay the fees and expenses
of the arbitrator(s); and if one Person does not prevail on all issues, the
fees and expenses shall be apportioned in such manner as the arbitrator(s)
shall determine. Any amount owing by any Person as a result of this SECTION
7.4.2 shall be paid within two (2) Business Days after final determination of
such amount.
7.4.3. Interest. Interest shall accrue on the unpaid amount
of all indemnification obligations hereunder at the per annum prime rate of
interest announced from time to time by NationsBank, N.A. (or, if such bank
discontinues its practice of announcing its prime rate, such other institution
approved by Shareholders and Buyer) as its prime rate of interest, as in effect
from time to time, such interest to be calculated based on the actual number of
days elapsed from the date each indemnification obligation becomes due and
owing until paid in full and based on a 365-day year.
7.5 Right of Set-Off. Upon notice to Seller specifying in reasonable
detail the basis for such set-off, Buyer may set-off any amount to which it may
be entitled under this ARTICLE VII against amounts otherwise payable under the
Promissory Note or under the contingent payment provisions of SECTION 3.6 (but
shall not be set-
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off against any amounts owing under the Employment Agreements or the
Noncompetition Agreements). The exercise of such right of set-off by Buyer in
good faith, whether or not ultimately determined to be justified, shall be
deemed not to constitute an event of default under the Promissory Note or a
breach of this Agreement. Neither the exercise of nor the failure to exercise
such right of set-off will constitute an election of remedies or limit Buyer in
any manner in the enforcement of any other remedies that may be available to it.
This Section shall not apply to the set-off of any Termination Credit, which
shall be governed by SECTION 2.4(B).
ARTICLE VIII
MISCELLANEOUS
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by mutual written consent of Buyer, Seller and Shareholders; or
(b) by Buyer by written notice to Seller and Shareholders if any of the
Purchased Assets are not assignable on the Closing Date as set forth in SECTION
2.4(A) (other than any Customer Contract or any lease relating to the Real
Property) or if any of the conditions set forth in SECTION 6.1 hereof shall not
have been fulfilled on or prior to the Closing Date, or shall have become
incapable of fulfillment, and shall not have been waived by Buyer; or
(c) by Seller and Shareholders by written notice to Buyer if any of the
conditions set forth in SECTION 6.2 hereof shall not have been fulfilled on or
prior to the Closing Date, or shall have become incapable of fulfillment, and
shall not have been waived by Seller and Shareholders; or
(d) by Seller and Shareholders or Buyer if the Closing has not occurred
on or before October 31, 1996, provided that such terminating party shall not be
in material breach of its obligations under this Agreement.
If this Agreement is terminated in accordance with the foregoing provisions, all
further obligations of the parties hereunder shall terminate, except that the
obligations contained in SECTIONS 5.1(B) and 8.6 shall survive.
Except as expressly set forth in SECTION 8.2 below, if this Agreement
is terminated for any reason whatsoever, the Deposit (together with interest)
shall promptly be fully refunded by the Escrow Agent to Buyer in accordance with
the Escrow Agreement.
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8.2 Default by Buyer. In the event that (a) this Agreement is
terminated by Seller and Shareholders pursuant to SECTION 8.1(C) or (D) by
reason of the willful failure of Buyer to satisfy one or more of the conditions
set forth in SECTION 6.2 and (b) all of the conditions set forth in SECTION 6.1
have been satisfied, then the Deposit (together with interest) shall promptly be
paid by the Escrow Agent to Seller in accordance with the Escrow Agreement, but
Buyer shall have no other liability to Seller as a result of Buyer's willful
default.
8.3 Default by Seller. In the event that (a) this Agreement is
terminated by Buyer pursuant to SECTION 8.1(B) or (D) by reason of the willful
failure of Seller to satisfy one or more of the conditions set forth in SECTION
6.1 and (b) all of the conditions set forth in SECTION 6.2 have been satisfied,
then Seller and Shareholders shall be liable to Buyer for all loss, damage or
expense incurred by Buyer as a result of Seller's willful default.
8.4 Survival of Representations and Warranties. The indemnities
contained in ARTICLE VII and all representations and warranties of the parties
as set forth in this Agreement shall survive the Closing until the third
anniversary of the Closing Date (the "LIMITATION DATE"), provided that the
representations and warranties of Seller and Shareholders set forth in SECTIONS
4.1.7 (Tax Matters) shall survive the Closing for a period of thirty (30) days
following the expiration of any applicable statute of limitations and,
accordingly, as used with respect to the representations and warranties of
Seller and Shareholders set forth in SECTIONS 4.1.7 hereof, the Limitation Date
shall mean the thirtieth (30th) day following the expiration of the applicable
statute of limitations (including extensions thereof).
8.5 Bulk Sales Law. Buyer hereby waives compliance by Seller with the
provisions of any applicable bulk sales law, or other law for the protection of
creditors. Shareholders and Seller shall indemnify, defend and hold harmless
Buyer in accordance with ARTICLE VII hereof from any liability, claim, loss or
expense (including reasonable attorneys' fees) arising from any noncompliance
with such laws.
8.6 Expenses. Except as otherwise provided herein, Seller shall assume
and bear all expenses, costs and fees incurred or assumed by Seller in the
preparation and execution of this Agreement and compliance herewith, and Buyer
shall assume and bear all expenses, costs and fees incurred or assumed by Buyer
in the preparation and the execution of this Agreement and compliance herewith,
in each case whether or not the purchase and sale provided for herein shall be
consummated. The parties agree that Buyer shall be responsible for the fees and
expenses of Arthur Andersen & Co. relating to the audit or review, as
applicable, of the Financial Statements.
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8.7 Public Announcements. Buyer, on the one hand, and Seller and
Shareholders, on the other hand, shall not, directly or indirectly, make or
cause to be made any public announcement or issue any notice in any form with
respect to this Agreement or the transactions contemplated herein without the
prior written consent of the other party; provided, however, that any party may
make any public disclosure it believes in good faith to be required by
applicable law or any listing or trading agreement concerning its publicly
traded securities (in which case the disclosing party will use reasonable
efforts to advise the other party prior to making the disclosure).
8.8 Assignment; Successors. This Agreement shall not be assigned by any
party without the prior written consent of the other party, which consent shall
not be unreasonably withheld; provided, however, that Buyer may appoint any of
its Affiliates (including without limitation Infotech Services, Inc., a wholly
owned subsidiary of Buyer) to take title to any or all of the Purchased Assets
or to otherwise perform any of its other obligations hereunder and that Buyer
may assign its rights in this Agreement as collateral security to its lenders.
This Agreement is intended for the exclusive benefit of the parties hereto and
their respective heirs, successors and permitted assigns, and shall not create
any rights in or be enforceable by any other Person whomsoever other than any
Person entitled to indemnification from Seller and Shareholders on the one hand
or Buyer on the other hand pursuant to ARTICLE VII hereof, it being the
intention of the parties that no one shall be deemed to be a third party
beneficiary of this Agreement. This Agreement shall inure to the benefit of, and
be binding on and enforceable against, the successors and permitted assigns of
the respective parties. Without limiting the generality of the foregoing, except
for the rights conferred by the Employment Agreements, nothing in this
Agreement, express or implied, shall confer upon any employees of Seller or any
other third party any rights or remedies of any nature or kind, including
without limitation any right to employment or employee benefits, or to continued
employment or benefits for any specified period.
8.9 Amendment and Modification; Waivers. This Agreement or any term
hereof may be changed, waived, discharged or terminated only by an agreement in
writing signed by each of the parties. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained herein
shall be effective unless in writing, and no waiver in any one or more instances
shall be deemed to be a further or continuing waiver of any such condition or
breach in any other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
8.10 Notices. All notices, consents, requests, instructions,
approvals and other communications provided for herein and all
legal process in regard shall be validly given, made or served, if
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in writing and delivered personally or sent by telecopier, telex, nationally
recognized overnight courier or registered or certified mail, postage prepaid,
to the following address:
If to Seller at: 12910 Totem Lake Blvd., N.E.
Suite 270
Kirkland, Washington 98034
ATTENTION: William Adamucci
Facsimile Number: (206) 814-3287
With a copy to: Short Cressman & Burgess, P.L.L.C.
3000 First Interstate Center
999 Third Avenue
Seattle, Washington 98104-4088
ATTENTION: Kenneth L. Myer
Facsimile Number: (206) 340-8856
If to
Shareholders at: c/o Craig Newbold
12910 Totem Lake Blvd., N.E.
Suite 270
Kirkland, Washington 98034
Facsimile Number: (206) 814-3287
With a copy to: Short Cressman & Burgess, P.L.L.C.
3000 First Interstate Center
999 Third Avenue
Seattle, Washington 98104-4088
ATTENTION: Kenneth L. Myer
Facsimile Number: (206) 340-8856
If to Buyer at: 6302 Fairview Road, Suite 201
Charlotte, North Carolina 28210
ATTENTION: Edward P. Drudge, Jr.
Facsimile Number: (704) 442-5138
With a copy to: Robinson, Bradshaw & Hinson, P.A.
101 North Tryon Street, Suite 1900
Charlotte, North Carolina 28246
ATTENTION: Kenneth R. Bramlett, Jr.
Facsimile Number: (704) 378-4000
or in each case at such other address as may be specified in writing, but no
such change shall be deemed to have been given until it is actually received by
the parties sought to be charged with its contents. All notices and other
communications given hereunder shall be effective (a) upon delivery if delivered
personally or sent by telecopier or telex, (b) if delivered by overnight
courier, one (1) Business Day after delivery to such courier, and (c) if
delivered by registered or certified mail, three (3) Business Days after
mailing. Each Shareholder hereby irrevocably appoints and authorizes Craig
Newbold to act as the Shareholders' representative for the purpose of delivering
and
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receiving notices (including service of process) and to act on behalf of each
Shareholder. Notice sent to Craig Newbold pursuant to this SECTION 8.10 will
have the same force and effect as if delivered to each Shareholder.
8.11 Further Assurances; Records. Each of Seller, Shareholders and
Buyer shall cooperate and take such actions, and execute all such further
instruments and documents, at or subsequent to the Closing, as either may
reasonably request in order to convey title to the Purchased Assets to Buyer and
otherwise to effect the terms and purposes of this Agreement. Each party shall
provide the other party or parties with access to all relevant documents and
other information pertaining to the Purchased Assets which are needed by such
other party or parties for the purposes of preparing tax returns or responding
to an audit by any governmental agency or for any other reasonable purpose.
8.12 Tax and Financial Cooperation. After the Closing, Seller and Buyer
agree to cooperate with each other in connection with any official tax inquiry,
tax audit, tax determination or tax-related proceeding affecting tax liability
of Seller or Buyer and to make available to each other party within a reasonable
amount of time, its employees and officers, together with documents,
correspondence, reports, books and records and other materials bearing on such
tax inquiry, audit, examination, proceeding or determination of tax liability or
treatment, provided that each party shall be reimbursed for any out-of-pocket
expenses it incurs in assisting another party hereunder.
8.13 Submission to Jurisdiction. Each of the parties hereto hereby
consents to the jurisdiction of any State or federal court located within the
State of North Carolina or the State of Washington and irrevocably agrees that
all actions and proceedings relating to this Agreement or the transactions
contemplated hereby shall be litigated in (i) any state court within King
County, Washington or any federal court located within the Western District of
the State of Washington, if the claim is being brought by Buyer against Seller
or any Shareholder or (ii) any state court within Mecklenburg County, North
Carolina or any federal court within the Western District of the State of North
Carolina, if the claim is being brought by Seller or any Shareholder against
Buyer; provided, however, that any disagreement pursuant to SECTION 7.4.2 shall
be resolved exclusively by the dispute resolution process set forth in SECTION
7.4.2 and judgment upon the decision reached by any arbitrator(s) pursuant to
SECTION 7.4.2 may be entered in any court of competent jurisdiction. Each of the
parties hereto waives any objection that it may have to the conduct of any
action or proceeding in any such court based on improper venue or forum non
conveniens, waives personal service of any and all process upon it, and consents
that all service of process may be made by registered or certified mail (postage
prepaid) or courier service directed to it at the address set forth herein and
that service so made shall
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be deemed to be completed upon the earlier of actual receipt or ten (10) days
after the same shall have been posted. Nothing contained in this SECTION 8.13
shall affect the right of any party hereto to serve legal process in any other
matter permitted by law.
8.14 Representations and Warranties; Schedules. Nothing in the
Schedules shall be deemed adequate to disclose an exception to a representation
or warranty made herein unless the Schedule reasonably identifies the exception
with particularity. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself) unless doing so reasonably identifies the
substance of the exception. The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance, and
any disclosures in the Schedules apply only to the related Section of this
Agreement unless specifically cross-referenced with reasonable detail to another
part of the Schedules.
8.15 Remedies. Except as otherwise provided herein, none of the
remedies provided in this Agreement for any party, including termination of this
Agreement, or specific performance, are the exclusive remedy of either party for
a breach of this Agreement. Except as otherwise provided herein, the party shall
have the right to seek any other remedy in law or equity in lieu of or in
addition to any remedies provided in this Agreement, including an action for
damages for breach of contract.
8.16 Assignment of Life Insurance Policies. Seller presently has in
force certain (whole life) insurance policies on Shareholders as set forth on
Schedule 4.1.4, which policies (and the cash surrender value thereon) are part
of the Purchased Assets being transferred to Buyer hereunder. Buyer agrees to
grant each Shareholder the right and option to purchase the life insurance
policy on each respective Shareholder's life for an amount equal to the cash
surrender value of the policy at the time of the purchase of said policy. Buyer
agrees to transfer and assign said policy, with premiums fully paid, to
Shareholder upon receipt of notice of Shareholder's election to purchase the
life insurance policy on his respective life and upon receipt of payment of said
cash surrender value. Buyer will not cancel, assign, borrow, or default on the
payment of any premium on the life insurance policies without giving the
respective Shareholder whose life is insured by said policy 30 days written
notice thereof, to allow Shareholder to elect to purchase said policy from
Buyer.
8.17 Entire Agreement; Counterparts; Governing Law. This Agreement,
together with the Exhibits and Schedules attached hereto, constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the
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parties with respect to the subject matter hereof, including without limitation
the letter dated July 29, 1996 from Buyer to Seller and Shareholders (c/o The
Updata Group). This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, and all of which, together, shall
constitute one and the same instrument. Executed counterparts of this Agreement
may be delivered by any party at Closing by facsimile transmission, provided
that a manually executed counterpart is also sent by overnight courier for
delivery the following Business Day. This Agreement shall be governed in all
respects by the laws of the State of North Carolina (without reference to
conflict-of-law provisions).
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BUYER:
PERSONNEL GROUP OF AMERICA, INC.
By: /s/ Edward P. Drudge, Jr.
--------------------------------
Edward P. Drudge,
Chief Executive Officer
SELLER:
BUSINESS ENTERPRISE SYSTEMS AND
TECHNOLOGY, INC.
By: /s/ Craig Newbold
--------------------------------
Craig Newbold,
Chief Executive Officer
SHAREHOLDERS:
/s/ Craig Newbold (SEAL)
------------------------------------
Craig Newbold
/s/ William Adamucci (SEAL)
------------------------------------
William Adamucci
/s/ David McKee (SEAL)
------------------------------------
David McKee
/s/ Ron Hetland (SEAL)
------------------------------------
Ron Hetland
/s/ Lester LeRoss (SEAL)
------------------------------------
Lester LeRoss
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EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated September 9, 1996, on the financial statements of Business
Enterprise Systems & Technology, Inc., as of December 31, 1995, and 1994, and
for each of the three years in the period ended December 31, 1995, and our
report dated September 9, 1996, on the financial statements of Prodata, Inc.,
as of March 31, 1995, and for the years ended March 31, 1994, and 1995, and the
four-month period ended July 31, 1995, included in this Current Report of Form
8-K in Personnel Group of America, Inc.'s previously filed Registration
Statement No. 333-1954.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington,
October 11, 1996.
