EXHIBIT 2.6
OPTION AGREEMENT
(FORTUNE/KINGSTON/SCHAFIR)
THIS OPTION AGREEMENT (this "Agreement") is entered into this 1st day
of October, 2003 by and between Harlan M. Schafir, ("Schafir"), Carter M.
Fortune and Robert J. Kingston (collectively "Shareholders").
RECITALS
1. Contemporaneously with the execution of this Agreement, Fortune
Diversified Industries, Inc. ("FDI") acquired 100% of the common shares
of Professional Staff Management, Inc. ("PSM"), Professional Staff
Management, Inc. II and Pro Staff, Inc. (collectively "Companies"),
pursuant to Agreements and Plans of Merger by and among FDI, certain
subsidiaries of FDI, Companies and Schafir ("Merger Agreements").
2. As part of the acquisition, FDI issued 13,100,000 shares of FDI's
common stock ("FDI Stock") to Schafir.
3. Schafir and the Shareholders desire that the FDI Stock have certain
rights and restrictions.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. Put Options. Schafir shall have the option to put any or all of the
FDI Stock received by him to the Shareholders, according to the terms of this
Agreement. Upon exercise of such put option by Schafir, the Shareholders shall
jointly and severally have the obligation to purchase the FDI Stock so put
according to the terms of this Agreement. Except as otherwise described herein,
the put price shall be dependent upon the Companies' combined cumulative EBITDA
during the three-year period October l, 2003 to September 30, 2006 ("Regular
Test Period").
(A) With respect to 10,000,000 shares of the FDI Stock: a) if the
Companies' combined cumulative EBITDA during the Regular Test Period is (i)
greater than $3,600,000.00, the put price per share shall be $0.60; (ii) greater
than $3,000,000 but less than or equal to $3,600,000, the put price per share
shall be $0.50; or(iii) greater than $2,400,000 but less than or equal to
$3,000,000, the put price per share shall be $0.40; and b) if the Companies'
combined cumulative EBITDA during the Regular Test Period is less than or equal
to $2,400,000, Schafir shall not have any put rights. Schafir's rights under
this Section 1(A) may be further limited as more fully described in Section 9 of
the Registration Rights Agreement between FDI and Schafir dated the same date
hereof (the "Registration Rights Agreement").
(B) With respect to 2,500,000 shares of the FDI Stock, if the
Companies' combined cumulative EBITDA during the Regular Test Period is (i)
greater than $3,600,000, the
put price per share shall be $0.60, and (ii) greater than $0.00 but less than or
equal to $3,600,000, the put price per share shall be $0.50.
(C) With respect to 600,000 shares of the FDI Stock: a) if the Companies'
combined cumulative EBITDA during the Regular Test Period is (i) greater than
$3,000,000, the put price per share shall be $1.00; (ii) greater than $2,000,000
but less than or equal to $3,000,000, the put price per share shall be $0.75;
and (iii) greater than $1,000,000 but less than or equal to $2,000,000, the put
price per share shall be $0.50; and b) if the Companies' combined cumulative
EDITDA during the Regular Test Period is less than or equal to $1,000,000,
Schafir shall not have any put rights.
(D) If there is a Triggering Event (as hereinafter defined) prior to the
completion of the Regular Test Period, the Shareholders shall give Schafir
prompt written notice thereof and, Schafir may exercise the put options for the
13,100,000 shares of FDI Stock based upon a shorter test period pursuant to the
terms of this paragraph. The put price shall be dependent upon the Companies'
combined cumulative EBITDA during the period beginning on October 1, 2003 and
ending on the last day of the month preceding the month in which the Triggering
Event occurs ("Short Test Period"). The income thresholds described in the three
(3) previous paragraphs relating to the Regular Test Period shall be reduced
proportionately based upon the number of months contained in the Short Test
Period versus the number of months contained in the Regular Test Period (36
months). So for example, with respect to the 10,000,000 shares of the FDI Stock,
if the Short Test Period contains eighteen (18) months and the combined
cumulative EBITDA during the Short Test Period is greater than $1,800,000 (18/36
x $3,600,000), the put price per share shall be $0.60. Schafir may, in his
discretion, exercise the put options based upon the Short Test Period (if
applicable), or he may exercise the put options based on the Regular Test
Period. This Section 1(D) shall not apply if Schafir's employment with the
Companies or FDI is terminated with Cause but Schafir's other rights hereunder
shall not be affected by his termination with Cause.
(E) If Schafir's employment with the Companies or FDI is terminated due to
Schafir's death prior to the completion of the Regular Test Period, Schafir's
personal representative may exercise the put options described in Section 1 (E)
of the Option Agreement (FDI/Schafir) dated the same date hereof.
Notwithstanding anything in this Agreement to the contrary, if Schafir's
personal representative does not exercise the put option to sell any of the
13,100,000 shares of FDI Stock to FDI as described in Section 1 (E) of the
Option Agreement (FDI/Schafir) dated the same date hereof, Schafir's option to
put any remaining unsold shares of FDI Stock to Carter M. Fortune, Robert J.
Kingston and FDI shall immediately expire.
(F) As used herein, "Triggering Event" means (i) the termination of Schafir's
employment by PSM or FDI without Cause (as defined in Schafir's employment
agreements, respectively, with the Companies and FDI); (ii) Schafir becoming
Permanently Disabled (as defined in such employment agreements); (iii) the sale
of all or substantially all of the assets of PSM or FDI; (iv) PSM ceasing to be
a wholly-owned subsidiary of FDI; (v) the insolvency of FDI; (vi) the breach by
any party (other than Schafir) under either of the Control Agreements (as
hereinafter defined); or (vii) the breach by FDI of its obligations under
Section 1(E) of the Option Agreement (FDI/Schafir).
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(G) For purposes of Section 1(F), the effective date of a Triggering Event (i)
by reason of Schafir's termination without Cause, shall be the Termination Date
(as defined in such employment agreements); (ii) by reason of Schafir becoming
Permanently Disabled, the Termination Date (as defined in such employment
agreements) or the effective date of Schafir's resignation by reason of such
permanent disability; (iii) by reason of the sale of assets, the closing date of
such sale; (iv) by reason of insolvency, the earliest of (a) the date on which a
petition in bankruptcy is filed by or against FDI, (b) the date that FDI applies
for, consents to, or suffers the appointment of or the taking of possession by a
receiver, trustee, custodian, liquidator or similar fiduciary of it or any
substantial part of its assets, (c) the date FDI is adjudicated bankrupt or
insolvent, or (d) the date FDI admits in writing its inability to pay its debts
as they become due or ceases operation; or (vi) by reason of breach, the date
Schafir gives notice to the appropriate party of such breach, as applicable and
such breach is not promptly contested by such party.
2. Exercise Period: Except as described in Section 1(E), Schafir may only
exercise the put options during the thirty (30) day exercise period that begins
on the date there is final resolution of the EBITDA calculation for the Regular
Test Period. Any closing on a sale of the FDI Stock to the Shareholders shall
occur within ten (10) days after the date of exercise. If Schafir or his
personal representative does not exercise the put options during this exercise
period (except as described in Section 1(E)), the put options shall expire.
3. Priority of Exercise. Pursuant to the Merger Agreements, Schafir has certain
other put options available to him. Schafir shall exercise the put options
described in this Agreement and the other put options available to him in the
priority described in Sections 1.10 of the Merger Agreements.
4. EBITDA. "EBITDA" for any fiscal period shall be defined as follows:
(i) the Companies' combined net income for such period; plus,
(ii) to the extent deducted in determining the Companies' combined
net income for such period, the sum of:
(A) interest expense with respect to indebtedness;
federal and state income and taxes; depreciation,
including but not limited to depreciation of physical
structures, fixtures, machinery and equipment; and
amortization of goodwill, intangible and other
assets; and
(B) any intercompany expenses allocated to the Companies
by FDI, net of any corresponding efficiencies
(excluding, however, any expenses that directly
benefit the Companies and that do not exceed the cost
that would be charged by a third-party vendor and an
allocation of $2,000.00 per month representing the
estimated additional cost of accounting services);
minus
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(iii) the amount of compensation and other benefits paid to Schafir
or made for the benefit of Schafir by FDI in an amount not to
exceed: $60,000 during the period October 1, 2003 to September
30, 2004; $30,000 during the period October 1, 2004 to
September 30, 2005; and $0.00 during the period October 1,
2005 to September 30, 2006; minus
(iv) the premiums paid for the insurance policy described in
Section 1(E) of the Option Agreement (FDI/Schafir) for such
period to the extent not deducted in determining the Companies
combined net income for such period; minus
(v) the proceeds received from the insurance policy described in
such Section 1(E) for such period to the extent included in
determining the Companies combined net income for such period;
minus
(vi) any income related to the reversal of any accrual made in
connection with (a) the sexual discrimination lawsuit
disclosed as part of the disclosure schedules to the Merger
Agreements; or (b) the excise tax issue disclosed as part of
the disclosure schedules to the Merger Agreements.
The Shareholders shall use their best efforts to cause the books and
records of the Companies to be maintained in a manner to enable EBITDA for the
fiscal period to be reasonably and consistently determined. Upon the request of
Schafir or the Shareholders such books and records shall be made available to
Schafir, the Shareholders and their respective attorneys and accountants for
inspection and copying upon reasonable notice during normal business hours.
Except as otherwise expressly provided herein or as expressly agreed
in writing by Schafir and the Shareholders, any amount or calculation to be made
in connection with EBITDA shall be determined or made (i) in accordance with
GAAP in a manner consistent with the accounting principles and methodologies
used in preparation of the Companies's audited financial statements as modified
in the manner set forth in Schedule 3.8 to the Merger Agreements, (ii) using the
revenue, income and expense recognition policies and practices used by the
Companies in those financial statements, and (iii) using reasonable reserves for
pending claims based upon the Companies' historical claim experience.
5. Calculation of EBITDA. The Shareholders shall cause FDI to cause FDI's
regular independent certified public accounting firm (or other firm of
independent certified public accountants reasonably satisfactory to Schafir) to
calculate EBITDA during the Regular Test Period and the Short Test Period (if
applicable). FDI shall provide a written explanation of such calculations, in
such detail and with such accompanying documentation as Schafir or the
Shareholders may request, to Schafir and the Shareholders simultaneously on or
before the dates that are forty five (45) days following the conclusion of the
Regular Test Period and the Short Term Period (if applicable). Such calculations
of EBITDA shall be final and binding upon the parties and shall be finally
resolved upon the expiration of ten (10) days following receipt thereof
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by the parties unless Schafir or the Shareholders object to such calculations
within such ten (10) days following the receipt thereof, in which case the
Shareholders and Schafir shall exercise their respective best efforts to resolve
such dispute within ten (10) days of a party's objection.
6. Dispute Resolution. If the Shareholders and Schafir are unable to agree on a
final calculation of EBITDA within such ten (10) day periods, then FDI shall
select a firm of independent certified public accountants which has a regional
or national reputation and which is wholly unrelated to FDI, the Shareholders
and Schafir (the "Arbitrating Accounting Firm") shall make a final
determination. In such case, (i) the Shareholders and (ii) Schafir shall inform
the Arbitrating Accounting Firm of their respective calculations of EBITDA, and
each shall be granted the opportunity to provide to the Arbitrating Accounting
Firm verbal and written explanations of their respective calculations. The
Arbitrating Accounting Firm shall be instructed to reach a determination that is
within the range of values proposed by the Shareholders and Schafir and to
complete its analysis and calculations within twenty (20) days of its
engagement. The determination of the Arbitrating Accounting Firm shall not be
more than the EBITDA amount determined by Schafir nor less than the EBITDA
amount determined by FDI's accountants. The determination of the Arbitrating
Accounting Firm shall be in writing with an explanation in reasonable detail of
the basis for its decision. Such determination of the Arbitrating Accounting
Firm shall be final and binding upon the parties. One half of the fees of the
Arbitrating Accounting Firmand one half of any deposit required by the
Arbitrating Accounting Firm shall be paid bySchafir on one hand and the
Shareholders on the other hand. The determination of EBITDA pursuant to Sections
4 and 5 hereof shall be subject to the prior determination of EBITDA pursuant to
Sections 4 and 5 of the Option Agreement (FDI/Schafir). If EBITDA has been
finally resolved pursuant to the Option Agreement (FDI/Schafir), or the
procedures toward such final resolution have been previously or simultaneously
invoked, the parties shall be bound by the final resolution of EBITDA pursuant
to the Option Agreement (FDI/Schafir).
7. Call Option. Subject to Schafir's prior exercise of his put rights herein,
the Shareholders shall have the option to call any or all of the 2,500,000
shares of FDI Stock described in Section 1(B) from Schafir. Upon exercise of
such call option by the Shareholders, Schafir shall have the obligation to sell
the FDI Stock so called according to the terms of this Section 7. The call price
per share shall be $0.60. The Shareholders may only exercise the call option
during the same period within which Schafir may exercise his put option pursuant
to Section 2. Any closing on a sale of the FDI Stock to the Shareholders shall
occur within thirty (30) days after the date of exercise. If the Shareholders do
not exercise the call option during the exercise period, the call option shall
expire.
8. Maintenance of Economic Structure of the Put Options. It is the intent of the
parties that the put options provided for in this Agreement, and the relative
rights associated therewith, shall be appropriately adjusted so as to maintain
the economic structure contemplated by the parties as set forth herein. Without
limiting the generality of the foregoing, if there is any change in FDI's common
stock by way of a stock split, stock dividend, combination or reclassification,
or through a merger, consolidation, reorganization or recapitalization or by any
other means (an "Organic Change"), appropriate adjustments shall be made in the
provisions hereof so that the rights and privileges granted hereby shall
continue with respect to the FDI Stock as so changed and so that Schafir or his
personal representative, as the case may be, shall
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have the right to receive the same consideration that he or it would have
received if such Organic Change had not occurred.
9. Retention of FDI Stock. All of the FDI Stock received by Schafir shall be
retained by Schafir until the earlier of : (i) the exercise of the put options
or call option for all of the FDI Stock as provided for in this Agreement or in
the Option Agreement (FDI/Schafir); (ii) the expiration of all applicable
exercise periods (including any extensions) for all of the put options and call
option without exercise of such put options or call option, (iii) FDI sells
substantially all of its assets; (iv) Carter M. Fortune, Robert J. Kingston and
John F. Fisbeck sell more than fifty percent (50%) of the FDI shares that they
collectively own on the date of this Agreement, or (v) the sale of all of the
FDI Stock pursuant to the terms of the Registration Rights Agreement. Schafir
shall not voluntarily, sell, bequeath, transfer, assign, make a gift of or
otherwise dispose of, mortgage, encumber, hypothecate, pledge or offer, or enter
into a contract with respect to any of the foregoing, any part or all of the FDI
stock or any interest thereon to any other person, company or other entity,
unless Schafir receives the written consent of the Shareholders, which consent
may be withheld in the Shareholders' sole and absolute discretion.
Notwithstanding the above, if requested by Schafir, the Shareholders will
consent to Schafir's transfer of up to two million (2,000,000) shares (above
2,000,000 subject to consent which shall not be unreasonably withheld or
delayed) of FDI Stock to Schafir's wife or children. Any transferred shares are
subject to the terms and conditions of and entitled to the benefits of this
Agreement. In addition, the certificates issued by FDI to Schafir (whether or
not transferred pursuant to the previous sentence) representing the shares of
FDI Stock shall contain a legend stating that such shares are subject to the
terms and conditions of this Agreement.
10. Location of FDI Stock Certificates. Pending the exercise of the put options
or call option provided for in this Agreement or the expiration of the exercise
period (including any extensions) for such put options and call option without
exercise thereof, Schafir shall maintain all of the FDI Stock in an account at
the downtown Indianapolis office of Merrill Lynch.
11. Security. The obligations of the Shareholders under this Agreement are
secured in the manner provided in the Merrill Lynch Pledged Collateral Account
Control Agreements executed among the Shareholders respectively, Schafir and
Merrill Lynch, Pierce, Fenner & Smith Incorporated of even date (together the
"Control Agreements"). Carter M. Fortune agrees that the marketable securities
subject to his Control Agreement shall only consist of shares or other
securities of companies that comprise the S&P 500 or which are rated S&P aa or
better. Robert J. Kingston agrees that the marketable securities subject to his
Control Agreement shall only consist of readily-tradable, liquid securities and
shall not contain any shares of FDI Stock.
12. Notices. All notices or other communications permitted or required under
this Agreement shall be in writing and shall be sufficiently given if and when
hand delivered to the persons set forth below or if sent by documented overnight
delivery service or registered or certified mail, postage prepaid, return
receipt requested, or by facsimile, receipt acknowledged, addressed as set forth
below or to such other person or persons and/or at such other address or
addresses as shall be furnished in writing by any party hereto to the others.
Any such notice or communication shall be deemed to have been given as of the
date received, in the case of personal delivery, or on the date shown on the
receipt or confirmation therefore in all other cases.
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To Schafir:
- ----------
Harlan M. Schafir
3026 Lantern Trail
Richmond, IN 47374
With a copy to (which shall not constitute notice):
- ---------------------------------------------------
Donald K. Densborn
Sommer Barnard Ackerson, P.C.
8900 Keystone Crossing, Suite 1150
Indianapolis, IN 46240
Fax: (317) 844-4780
To Carter M. Fortune and Robert J. Kingston:
- -------------------------------------------
Carter M. Fortune
Robert J. Kingston
6809 Corporate Drive
Indianapolis, IN 46278
With a copy to (which shall not constitute notice):
- ---------------------------------------------------
Robert J. Milford
Drewry Simmons Pitts & Vornehm, LLP
8888 Keystone Crossing, Suite 1200
Indianapolis, IN 46240
Fax: (317) 580-4855
13. Assignment. No party shall assign this Agreement or delegate any of his
rights or obligations hereunder, without prior written consent of the other
parties provided, however, this Agreement shall be assignable by any party to
any permitted transferee or to his legal or personal representative upon his
death or permanent disability. Subject to the foregoing, this Agreement and the
rights and obligations set forth herein, shall inure to the benefit of, and be
binding upon, the parties hereto, and each of their respective successors, heirs
and assigns.
14. Amendment, Modification and Waiver. The parties may amend or modify this
Agreement in any respect. Any such amendment, modification, extension or waiver
shall be in writing and signed by all parties hereto.
15. Governing Law. This Agreement is made pursuant to, and shall be construed
and enforced in accordance with, the laws of the State of Indiana (and United
States federal law, to the extent applicable), irrespective of the principal
place of business, residence or domicile of the parties hereto, and without
giving effect to otherwise applicable principles of conflicts of law.
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16. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original; and any person may become a party
hereto by executing a counterpart hereof, but all of such counterparts together
shall be deemed to be one and the same instrument.
17. Entire Agreement. This Agreement together with the Control Agreements
constitutes the entire agreement between the parties hereto with respect to the
put right and supersedes all prior agreements and understandings.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement all as of the date first above written.
____________________________________ ____________________________________
Carter M. Fortune Harlan M. Schafir
____________________________________
Robert J. Kingston
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