EXHIBIT 2.1
STOCK PURCHASE
AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made effective as of the
16th day of September, 1996, by and among CAREER HORIZONS, INC.
("Purchaser"), a Delaware corporation, TSG PROFESSIONAL SERVICES, INC.
(the "Company"), a New Hampshire corporation, and RICHARD P. MERRIAM
("Merriam"), and STEPHEN I. EVANOFF ("Evanoff" and, together with
Merriam, the "Shareholders" or individually a "Shareholder").
WITNESSETH:
WHEREAS, the Shareholders collectively own all of the issued
and outstanding capital stock (the "Stock") of the Company;
WHEREAS, the Company owns and operates an information
systems consulting business providing information technology services
on a contracting and outsourcing basis and a health care services
business providing allied health care professionals, including
temporary and full-time placements and consulting services
(collectively, the "Business");
WHEREAS, the Shareholders desire to sell and transfer to
Purchaser, and Purchaser desires to purchase and acquire from the
Shareholders the Stock;
WHEREAS, in connection with the acquisition of the Stock by
Purchaser, Purchaser desires to have the Company engage Evanoff as
President and Chief Executive Officer of the Business in accordance
with the terms and conditions set forth in an employment agreement
(the "Employment Agreement"), which will be entered into between the
Company and Evanoff;
WHEREAS, in connection with the acquisition of the Stock by
Purchaser, Purchaser desires to have the Company engage Merriam as a
consultant in accordance with the terms and conditions set forth in a
consulting agreement (the "Consulting Agreement"), which will be
entered into between the Company and Merriam;
WHEREAS, in connection with the acquisition of the Stock by
Purchaser, Purchaser desires that the Shareholders not compete with
the Company and its affiliates with respect to the Business pursuant
to the terms and conditions set forth in noncompetition agreements
(the "Noncompetition Agreements"), which will be entered into among
Purchaser and the Shareholders on the date hereof.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of Stock.
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Subject to the terms and conditions hereof, the
Shareholders, and each of them, agree to and do hereby assign,
transfer, sell, convey and deliver to Purchaser, and Purchaser agrees
to and does hereby purchase from the Shareholders, and each of them,
free and clear of all Liens (as defined in Section 2.1(e) hereof) all
of each Shareholder's right, title and interest in and to the Stock.
1.2 Purchase Price.
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(a) Purchase Price.
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In consideration for the Stock, Purchaser shall pay the
Shareholders an aggregate purchase price (the "Purchase Price")
equal to the sum of: (i) Eighteen Million Two Hundred Fifty
Thousand Dollars ($18,250,000) (the "Closing Payment") in cash,
on this date paid and received, plus (ii) Two Million Dollars
($2,000,000) in the form of promissory notes, on this date
delivered and received (the "Notes"); plus (iii) the Net Worth
Adjustment (as defined in Section 1.2(b) hereof), if any, paid in
accordance with Section 1.2(b) hereof, plus (iv) the Earn-Out
Amounts (as defined in Section 1.2(c) hereof), if any, paid in
accordance with Section 1.2(c) hereof.
(b) Net Worth Adjustment.
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For purposes of this Agreement, the "Net Worth
Adjustment" shall mean the difference, if any, between (i) the
Net Book Value (as defined below) of the Company, and (ii) Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000). For
purposes of this Agreement, the "Net Book Value" shall mean the
excess of total assets of the Company as reflected in the Net
Worth Statement (as defined in Section 1.2(d) hereof) after
removing all assets relating to the redemption of the capital
stock of the Company formerly held by John H. Watson, Jr.
pursuant to the Stock Redemption Agreement dated July 26, 1993,
the instruments and documents associated therewith and the
transactions contemplated thereby (the "Watson Redemption"), over
total liabilities of the Company as reflected in the Closing Date
Financial Statements (as defined in Section 3.1 hereof) after
removing all liabilities relating to the Watson Redemption. The
Net Worth Adjustment shall be paid within five (5) days of the
Determination (as defined in Section 1.2(d) hereof) of the Net
Book Value, and shall be paid by Purchaser to the Shareholders if
the amount in clause (i) above is greater than the amount in
clause (ii) above, or paid by the Shareholders (jointly and
severally) to Purchaser if the amount in clause (i) above is less
than the amount in clause (ii) above, in each case by wire
transfer pursuant to written instructions provided by the
recipient at least two (2) days prior to the date such amount is
to be received.
(c) Earn-Out Amounts.
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For purposes of this Agreement, "Earn-Out Amounts"
shall be as defined in paragraphs (i), (ii) and (iii) hereof and
shall be payable regardless of either Shareholder's employment or
consulting status with the Company; PROVIDED, HOWEVER, that if
the Average Annual Adjusted Profits (as defined in Section
1.2(c)(iv) hereof) of the Business during the entire Earn-Out
Period (as defined below) is at least Three Million Seven Hundred
Ninety Thousand Dollars ($3,790,000), the sum of the Earn-Out
Amounts shall be not less than Two Million Five Hundred Thousand
Dollars ($2,500,000). For purposes of this Agreement, "Earn-Out
Period" shall mean the Thirty-Six (36) calendar month period
beginning on September 1, 1996. The Earn-Out Amounts shall be
paid in three (3) nonrefundable partial installments (each, a
"Guaranteed Earn-Out Payment"), each calculated and paid as
provided in this Section 1.2(c). Each Guaranteed Earn-Out
Payment shall be paid by wire transfer in immediately available
funds pursuant to written instructions from the Shareholders to
Purchaser.
(i) For the twelve-month period commencing September
1, 1996, and ending August 31, 1997, Purchaser shall pay to
the Shareholders, within five (5) days after the
Determination of the Company's Adjusted Profits (as defined
in Section 1.2(c)(iv) hereof) for such twelve-month period,
a Guaranteed Earn-Out Payment equal to Twenty-Seven and One-
Half percent (27.5%) of the excess, if any, of Six and One-
Half (6.5) times the Adjusted Profits during such twelve-
month period, over Twenty-Five Million Three Hundred Fifty
Thousand Dollars ($25,350,000).
(ii) For the twenty-four month period commencing
September 1, 1996, and ending August 31, 1998, Purchaser
shall pay to the Shareholders, within five (5) days after
the Determination of the Company's Adjusted Profits for such
twenty-four-month period, a Guaranteed Earn-Out Payment
equal to the amount, if any, by which (A) Twenty-Seven and
One-Half percent (27.5%) of the excess, if any, of Three and
One-Quarter (3.25) times the Adjusted Profits during such
twenty-four-month period, over Twenty-Five Million Three
Hundred Fifty Thousand Dollars ($25,350,000), exceeds (B)
the amount paid pursuant to paragraph (i) of this Section
1.2(c).
(iii) For the entire Earn-Out Period, Purchaser shall
pay to the Shareholders, within Five (5) days after the
Determination of the Average Annual Adjusted Profits for
such thirty-six-month period, the amount, if any, by which
(A) One Hundred Ten percent (110%) of the excess of Six and
One-Half (6.5) times the Average Annual Adjusted Profits,
over Twenty-Five Million Three Hundred Fifty Thousand
Dollars ($25,350,000), exceeds (B) the sum of the Guaranteed
Earn-Out Payments paid pursuant to paragraphs (i) and (ii)
of this Section 1.2(c).
(iv) For purposes of this Agreement: (A) "Adjusted
Profits" shall mean the income from operations of the
Business during the Earn-Out Period (or the portion thereof
relating to a Guaranteed Earn-Out Payment), adjusted by
adding back all of the back office expenses and all related
costs of operating the Manchester, New Hampshire, office of
the Company; by deducting a service fee equal to One and
One-Half percent (1.5%) of the Company's revenues during
such period; and by adding back the losses incurred in
operating new offices, in an amount not to exceed the
budgeted credits agreed to pursuant to Section 3.6(b)
hereof; and (B) "Average Annual Adjusted Profits" shall mean
the Adjusted Profits for the entire Earn-Out Period, divided
by three (3).
(d) Accounting Determinations.
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The following provisions apply to the determination of
the Net Worth Adjustment and Average Annual Adjusted Profits:
(i) For purposes of determining the Net Worth
Adjustment, simultaneously with the delivery of the Closing
Date Financial Statements pursuant to Section 3.1 hereof,
the Shareholders shall deliver to Purchaser a calculation of
Net Book Value, based on the Closing Date Financial
Statements (the "Net Worth Statement") as adjusted to
reflect the provisions of Section 1.2(e) hereof. The
determinations set forth in the Net Worth Statement shall be
a final and binding determination (a "Determination") on the
parties hereto unless timely disputed by Purchaser pursuant
to paragraph (iii) below.
(ii) For purposes of determining the Adjusted Profits
and the Average Annual Adjusted Profits with respect to the
calculation of the Earn-Out Amounts during the Earn-Out
Period, Purchaser shall deliver to the Shareholders, within
thirty (30) days of each anniversary of this Agreement
during the Earn-Out Period and within one hundred five (105)
days following the end of the portion of the Earn-Out Period
to which such Adjusted Profits relate, an unaudited,
internally prepared statement of the results of operations
of the Company for such portion of the Earn-Out Period,
together with a calculation of such Earn-Out Amount which
relates to such period (each, an "Earn-Out Statement"). The
Earn-Out Statements shall be prepared on an accrual basis
calculated under generally accepted accounting principles
consistently applied ("GAAP"), applied in a manner
consistent with the Company's accounting practices on the
date hereof (other than with respect to accounting periods)
and shall set forth the income from operations of the
Company for such Earn-Out Period as determined by GAAP as so
applied. The Guaranteed Earn-Out Payments or Earn-Out
Amount, if any, reflected in the given Earn-Out Statement
shall be the Determination thereof unless timely disputed by
the Shareholders pursuant to clause (iii) below.
(iii) If a party (the "Disputing Party") disputes the
determinations made by the other party (the "Determining
Party") in a Statement prepared pursuant to clause (i) or
clause (ii) above, as the case may be, the Disputing Party
shall deliver written notice of such dispute within thirty
(30) days of receipt of the Statement at issue, setting
forth the nature of the dispute and the Disputing Party's
determination of the proper calculation (a "Notice of
Dispute"). The Determining Party shall, within ten (10)
days of receipt of a Notice of Dispute, notify the Disputing
Party in writing that it challenges the calculation in the
Notice of Dispute, or it will be conclusively deemed to have
accepted such calculation, which shall be the Determination
thereof. If the Determining Party so notifies the Disputing
Party, the dispute shall be submitted within ten (10) days
of such notification to Ernst & Young (the "Arbiter") for
its determination of the dispute in accordance with the
commercial arbitration rules of the American Arbitration
Association, which shall be the Determination thereof. The
costs and expenses incurred in connection with a
determination by the Arbiter shall be allocated by the
Arbiter, in its discretion, in proportion to the relative
success of the parties as to the dispute.
(iv) During the Earn-Out Period, Purchaser shall
deliver to the Shareholders, on a monthly basis,
simultaneously with the delivery by Purchaser to its other
divisions of monthly financial statements, an unaudited,
internally prepared statement of the results of operations
of the Company for the month then-ended, which monthly
statement shall be prepared on an accrual basis in
accordance with GAAP consistently applied in accordance with
Purchaser's then-existing accounting practices for all of
its divisions. Such monthly statement shall include a
calculation of the income from operations of the Company for
the month in question, but shall not be a Determination with
respect to any of the information set forth therein.
(e) Bad Debt Adjustment.
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Notwithstanding any references to GAAP herein, to the
extent any account receivable reflected in the Net Worth
Statement or an Earn-Out Statement remains uncollected for a
period of Ninety (90) days, such account receivable or portion
thereof shall be treated as uncollectible (an "Uncollectible
Account"). To the extent an Uncollectible Account exceeds the
allowance for doubtful accounts reflected in such Statement, the
total assets in the Net Worth Statement or the revenue in the
Earn-Out Statement, as the case may be, shall be reduced. If any
Uncollectible Account is later collected within the next Two
Hundred Seventy (270) days, the foregoing shall be reversed and
Purchaser shall make an offsetting payment to the Shareholders by
wire transfer of immediately available funds pursuant to written
instructions from the Shareholders.
1.3 Section 338 Election.
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The Shareholders agree to join with the Purchaser in making
and Purchaser agrees to make and timely file Section 338(h)(10)
Elections (as defined in Section 6.1(h) hereof), which elections the
parties hereto agree will be made by each of them, whenever available,
under the law of any relevant jurisdiction, with respect to the
purchase and sale of the Stock hereunder as a result of the transfer
of the Stock pursuant to this Agreement. The Shareholders agree also
to join with Purchaser in making any subsequent amendments to the
Section 338(h)(10) Elections that Purchaser may file provided that
such amendments are required to accurately reflect the amount of
taxes due to the appropriate taxing authority. The Shareholders will
pay all Taxes (as defined in Section 6.1(i) hereof) imposed as a
result of the making of the Section 338(h)(10) Elections with respect
to the purchase and sale of the Stock hereunder, including any Taxes
relating to any change in accounting method resulting from the
transactions contemplated hereby. The Shareholders and Purchaser
agree to file Form 8023-A in connection with the purchaser and sale of
the Stock.
1.4 Allocation of Purchase Price.
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Purchaser and the Shareholders agree that the fair market value
of the Company's assets that constitute Class I, II and III Assets (as
such terms are defined in Treasury Regulation Section 1.1060-IT(d) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be
as set forth on Schedule 1.4, which will be prepared by the
Shareholders and delivered to Purchaser within thirty (30) days from
the date hereof. Purchaser and the Shareholders further agree that
(i) the Purchase Price shall be allocated among the Company's assets
in the manner required by Treasury Regulation Section 1.1060-IT based
on the fair market values set forth on such Schedule; (ii) such
allocation shall be binding on Purchaser and the Shareholders for all
federal, state and local tax purposes; and (iii) Purchaser and the
Shareholders shall file with their respective federal income tax
returns consistent IRS Forms 8594: Asset Acquisition Statement Under
Section 1060, including any required amendments or supplements thereto
("Form 8594"), which shall reflect such allocation.
1.5 Closing.
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The closing (the "Closing") of the transactions provided for
herein are taking place simultaneously with the execution and delivery
of this Agreement at the offices of Purchaser, 177 Crossways Park
Drive, Woodbury, New York 11797, to be effective as of 12:01 A.M.
local time on the effective date hereof.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Shareholders.
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To induce Purchaser to enter into this Agreement, the
Shareholders, jointly and severally, represent and warrant to
Purchaser, as of the date of this Agreement, as follows:
(a) Due Incorporation; Authority.
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(i) Each Shareholder has full legal capacity to
execute, deliver and perform this Agreement and all of the
other agreements to be executed by him in connection with
and pursuant to this Agreement (the "Shareholder
Agreements"), including, without limitation, the
Noncompetition Agreements.
(ii) The Company is a corporation duly organized and
validly existing under the laws of the State of New
Hampshire, the Company has all requisite power and authority
to own, lease and operate its properties and to conduct its
business as currently conducted, and to execute, deliver and
perform this Agreement and all of the other agreements to be
executed by it in connection with and pursuant to this
Agreement (collectively, the "Company Agreements" and
together with the Shareholder Agreements, the "Related
Agreements"), including, without limitation, the Employment
Agreement, the Consulting Agreement, and the Noncompetition
Agreements. The Company is duly qualified in any
jurisdiction in which the character and location of assets
owned or leased by it, or the nature of the business
transacted by it, or both, require such qualification, each
of which jurisdictions is identified in Schedule 2.1(a)
hereto. The Company is not required to be qualified as a
foreign corporation in any other jurisdictions.
(iii) The total authorized capital stock of the
Company consists of Three Hundred (300) shares of common
stock, no par value. There are presently issued and
outstanding Two Hundred (200) shares of such common stock,
all of which are owned of record by the Shareholders in the
aggregate. All of the outstanding shares of Stock are
validly authorized, issued and outstanding, fully paid and
nonassessable, with no personal liability attaching to the
ownership thereof, and are owned beneficially and of record
by the Shareholders free and clear of any Lien. There are
no outstanding options, warrants, subscriptions, calls,
unsatisfied preemptive or contractual rights, voting
agreements, registration rights agreements or other rights
for the purchase or receipt of, and no securities or
obligations of any kind convertible into, capital stock of
the Company. At closing, the Shareholders will convey to
Purchaser good title to the Stock free and clear of all
Liens.
(iv) The Company's and the Shareholders' execution,
delivery, and performance of this Agreement and the Related
Agreements to which it or he is a party have been duly and
validly authorized by all necessary corporate or other
action. This Agreement and the Related Agreements have been
duly executed and delivered by the Company and the
Shareholders. This Agreement and each of the Related
Agreements to which the Company or a Shareholder is a party
constitutes the legal, valid and binding obligations of the
Company and the Shareholders, as the case may be,
enforceable in accordance with its terms against the Company
and the Shareholders, except to the extent that such
validity, binding effect or enforceability may be limited by
applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting creditors' rights
generally from time to time in effect and by general
equitable principles.
(v) The Company has provided to Purchaser true and
complete copies of the Articles of Incorporation and By-laws
of the Company, including all amendments thereto. True,
correct and complete copies of the minutes of meetings (or
written consents in lieu of meetings) of the Board of
Directors (and all committees thereof) and stockholders of
the Company have heretofore been provided to Purchaser. All
actions taken by the stockholders of the Company is
reflected in the respective minutes and written consents of
each so provided. All material actions taken by the Board
of Directors (and all committees thereof) of the Company is
reflected in the respective minutes and written consents of
each so provided. There are no dissolution, liquidation, or
bankruptcy proceedings pending, contemplated by or, to the
best of the Shareholders' knowledge, threatened against the
Company.
(vi) The Company has no direct or indirect subsidiary,
is not a partner in any material partnership or joint
venture, or owns no capital stock interests or other equity
interests, or rights or options to acquire any equity or
other interests, in any entities.
(b) No Restrictions Against Performance.
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Except as set forth on Schedule 2.l(b) hereto, neither
the execution and delivery, nor the performance of this Agreement
or the Related Agreements, nor the consummation of the
transactions contemplated in this Agreement or in the Related
Agreements will violate any provision of or conflict with the
Company's Articles of Incorporation or By-Laws or will, with or
without the giving of notice or the passage of time, or both,
violate any provisions of, conflict with, result in a breach of,
constitute a default under, or result in the creation or
imposition of any Lien or condition under, (i) any federal, state
or local law, statute, ordinance, regulation or rule, that is or
may be applicable to the Company, a Shareholder, or the Business;
(ii) any material contract, indenture, instrument, agreement,
mortgage, lease, right or other obligation or restriction to
which the Company or a Shareholder is a party or by which the
Company, a Shareholder, or the Business is or may be bound; or
(iii) any order, judgment, writ, injunction, decree, license,
franchise, permit or other authorization of any federal, state or
local court, arbitration tribunal or governmental agency
(collectively, a "Governmental Authority") by which the Company,
a Shareholder, or the Business is or may be bound. The execution
and delivery of this Agreement and the Related Agreements by the
Company or the Shareholders and the performance by the Company or
the Shareholder of the transactions contemplated herein and
therein will not constitute an act of bulk sale, bankruptcy,
preference, insolvency or fraudulent conveyance under any
bankruptcy act or other law for the protection of debtors or
creditors.
(c) Third-Party and Governmental Consents.
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Except as disclosed in Schedule 2.1(c) hereto, no
approval, consent, waiver, order or authorization of, or
registration, qualification, declaration, or filing with, or
notice to, any Governmental Authority or other third party is
required on the part of the Company or the Shareholders in
connection with the execution of this Agreement or the Related
Agreements, or the consummation of the transactions contemplated
hereby or thereby that individually or in the aggregate would
have a material adverse effect on the Company or the Business.
(d) Contracts.
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Set forth on Schedule 2.1(d) hereto is a list
identifying the relationships between the Company and its fifteen
(15) largest customers measured by revenue in the current fiscal
year (the "Contracts"). To the best of the Shareholders'
knowledge, such relationships have not been terminated, cancelled
or expired, and such list is true, correct and complete in all
material respects. Except as set forth on Schedule 2.1(d)
hereto, each of the Contracts is valid and in full force and
effect and constitutes the legal, valid and binding obligation of
the parties thereto, enforceable against the Company and, to the
best of the Shareholders' knowledge, the other parties thereto in
accordance with its terms, and there are no existing violations
or defaults by the Company or, to the best of the Shareholders'
knowledge, by any other party thereto and no event, act or
omission has occurred which (with or without notice, lapse of
time and/or the happening or occurrence of any other event) would
result in a violation or default thereunder. No other party to
any Contract has in writing or otherwise asserted the right, and,
to the best of Shareholders' knowledge, no basis exists for the
assertion of any enforceable right, to renegotiate, or cancel or
terminate prior to the full term thereof, any of the terms or
conditions of any Contract, nor do the Shareholders have any
knowledge that any party to any Contract intends to not renew
upon termination of its current term.
(e) Title.
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Except as otherwise identified on Schedule 2.1(e)
hereto, the Company has good, valid, marketable, legal and
beneficial title to all of the assets and properties used in the
Business (the "Business Assets"), free and clear of all liens,
liabilities, claims, security interests, mortgages, pledges,
agreements, obligations, restrictions, or other encumbrances of
any nature whatsoever, whether absolute, legal, equitable,
accrued, contingent or otherwise, including, without limitation,
any Tax Liens (as defined in Section 2.1(k) hereof) or rights of
first refusal as to any of the Purchased Assets (collectively,
"Liens"). There are no outstanding options, warrants,
commitments, agreements or any other rights of any character,
entitling any person or entity to acquire any interest in all, or
any part of, the Business Assets.
(f) Trademark Rights; Proprietary Information.
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Schedule 2.l(f) hereto is a true, correct and complete
list of all trademarks, trade names, service marks and names,
copyrights (including any registrations of or pending
applications for any of the foregoing), methods of operation and
manuals, trade secrets, customer lists, computer technology,
computer programs (with the exception of mass marketed software),
computer software, master disk of source codes, licenses,
permits, and all other intangible assets, proprietary
information, properties and rights owned by the Company or used
in the Business (collectively, the "Intellectual Property").
Except as disclosed on Schedule 2.1(f) hereto:
(i) all of the Intellectual Property is owned by or
licensed to the Company free and clear of any Liens, and
with respect to the Intellectual Property owned by the
Company, is not subject to any license, royalty or other
agreement;
(ii) none of the Intellectual Property has been or is
the subject of any pending or, to the best of the
Shareholders' knowledge, threatened litigation or claim of
infringement;
(iii) no license or royalty agreement to which the
Company is a party is in material breach or default by the
Company or, to the best of the Shareholders' knowledge, any
other party thereto or the subject of any notice of
termination received by the Company;
(iv) to the best of the Shareholders' knowledge, the
Business does not infringe any trademark, trade name,
service mark or name, copyright, trade secret, or
confidential or proprietary rights of another, and the
Company has not received any notice contesting the Company's
right to use any Intellectual Property;
(v) the Company has not granted any license or agreed
to pay or receive any royalty in respect of any Intellectual
Property; and
(vi) the Company owns or possesses adequate rights in
perpetuity in and to all Intellectual Property necessary to
conduct the Business as it is currently being conducted.
(g) Solvency and Payment of Liabilities.
------------------------------------
Neither Shareholder nor the Company is, as a result of
the transactions contemplated by this Agreement or otherwise,
insolvent, as such term is defined in Title 11 (Bankruptcy) of
the United States Code or any applicable state statute relating
to insolvency; the sum of his or its debts is not greater than
all of his or its property on the date hereof either as a result
of the transactions contemplated herein or otherwise; and he or
it is able to pay its debts as they mature.
(h) Litigation.
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Except as set forth on Schedule 2.1(h), there is no
judicial or administrative action, suit or proceeding pending or,
to the best of the Shareholders' knowledge, threatened against or
relating to the Company, the Shareholders, the Business, or the
transactions contemplated hereby, before any Governmental
Authority. There are no claims, actions, suits, proceedings or
investigations pending or, to the best of the Shareholders'
knowledge, threatened by or against the Company or the
Shareholders with respect to this Agreement or the Related
Agreements, or in connection with the transactions contemplated
hereby or thereby, and the Shareholders have no reason to believe
there is a valid basis for any such claim, action, suit,
proceeding or investigation. The Company is not the subject of
any order, judgment, decree, injunction or stipulation of any
Governmental Authority.
(i) Compliance with Laws; Permits.
------------------------------
The Company has complied, during the last three (3)
years, with all applicable federal and state domestic and foreign
laws, rules, regulations, judgments, orders and other legal
requirements (including, but not limited to, those relating to
environmental, safety and labor matters) materially affecting its
Business. Schedule 2.l(i) hereto sets forth a true, correct and
complete list of all material permits, licenses, franchises,
orders, certificates and approvals (collectively, the "Permits")
of any Governmental Authority relating to the Company, the
Business Assets or the Business. The Permits constitute all
permits, licenses, franchises, orders, certificates and approvals
which are required for the lawful operation of the Business and
the operation of the Business Assets. The Company is in
compliance in all material respects with all Permits and the
Company owns or has owned or had valid Permits to use all
properties, tangible or intangible, necessary for the conduct of
the Business and the operation of the Business Assets in the
manner in which they are presently conducted and operated. The
execution and performance of this Agreement will have no material
adverse effect on the Permits.
(j) Insurance.
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(i) Schedule 2.1(j)(i) contains a true, correct and
complete list of all policies of fire, liability, workers'
compensation, title and other forms of insurance owned or
held by the Company applicable to the Business or the
Business Assets. All such policies are in full force and
effect and no notice of cancellation or termination has been
received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and
all contracts to which the Company is a party, and are
valid, outstanding and enforceable policies applicable to
the Business. Such insurance policies provide types and
amounts of insurance customarily obtained by businesses
similar to the Business. To the extent insurable, the
Business Assets are insured by the Company, under such
policies of fire, casualty, liability or other forms of
insurance in such amounts and against such risks and losses
as are reasonably adequate for the Business Assets.
(ii) Set forth on Schedule 2.1(j)(ii) is a list of all
claims that have been made against the Company in the last
three (3) years for workers' compensation, general
liability, property damage, errors or omissions and
professional liability, whether insured under insurance
policies or otherwise, applicable to the Company, the
Business or any of the Business Assets. Except as set forth
on said list, there are no pending or threatened claims
under any such insurance policy or otherwise. Such claim
information includes the following information with respect
to each accident, loss or other event: the identity of the
claimant; the date of the occurrence; and the posted
reserves.
(k) Taxes.
------
(i) Except as set forth on Schedule 2.1(k) hereof,
(A) all Tax returns, statements, reports and forms by or on
behalf of the Company with any Taxing Authority (as defined
in Section 6.1 hereof) with respect to any Pre-Closing Tax
Period (as defined in Section 6.1 hereof) (collectively,
"Returns") have been filed when due in accordance with all
applicable laws; (B) as of the time of filing, the Returns
correctly reflected (and, as to Returns not yet filed as of
the date hereof, will correctly reflect) the facts regarding
the income, business, assets, operations, activities and
status of the Company and any other information required to
be shown therein; (C) the Company has timely paid, withheld
or made provision for all Taxes shown as due and payable on
the Returns; (D) the Company has made or will make provision
for all Taxes payable by it for any Pre-Closing Tax Period
for which no Return has yet been filed; (E) the charges,
accruals and reserves for Taxes with respect to the Company
for any Pre-Closing Tax Period (excluding any provision for
deferred income taxes) reflected on the books of the Company
are adequate to cover such Taxes; (F) all Returns filed with
respect to Taxable years of the Company through the Taxable
year ended on or about December 31, 1993, either have been
examined and such examination has closed, or are Returns
with respect to which the applicable period for assessment
under the applicable law, after giving effect to extensions
or waivers, has expired; (G) there is no claim, audit,
action, suit, proceeding, or investigation now pending or,
to the best of the Shareholders' knowledge, threatened
against or with respect to the Company in respect of any
Tax; (H) there are no requests for rulings in respect of any
Tax pending between the Company and any Taxing Authority;
(I) there are no liens for Taxes upon the assets of the
Company; (J) the Company has not filed consolidated federal
income Tax Returns; (K) the Company is not currently under
any contractual obligation to indemnify any other person or
entity with respect to Taxes; and (L) the Company is not a
party to any agreement providing for payments with respect
to Taxable income or Tax benefits.
(ii) Schedule 2.1(k) contains a list of states,
territories and jurisdictions (whether foreign or domestic)
to which any material Tax is properly payable by the Company
or to which the Company has paid any material Tax within the
last fiscal year.
(iii) There are no agreements, waivers or other
arrangements providing for extension of time with respect to
the assessment or collection of unpaid tax of the Company
nor are there any actions, suits, proceedings,
investigations or claims now pending against the Company
with respect to any such unpaid taxes, or any matters under
discussion with any Governmental Authority relating to any
amount of any such unpaid taxes.
(iv) There are no Taxes that are or could constitute a
Lien (as otherwise defined without reference to Tax Liens)
on the assets of the Company or that could have an adverse
effect on the Stock, the Company, the Business or Purchaser
(a "Tax Lien").
(l) Condition and Sufficiency of Assets.
------------------------------------
Except as disclosed on Schedule 2.l(l), all of the tangible
assets and properties included in the Business Assets, whether
owned or leased, have been maintained in good operating condition
and repair (with the exception of normal wear and tear), and are
free from defects other than such defects as do not materially
interfere with the intended use thereof in the conduct of normal
operations or adversely affect the resale value thereof. The
Business Assets constitute all of the tangible and intangible
assets which are required for the operation of the Business as it
is presently conducted.
(m) Employee Benefit Plans.
-----------------------
(i) During the sixty (60) month period ending on the
date hereof, except as set forth on Schedule 2.1(m) hereto,
neither the Company nor any other entity included with the
Company in a controlled group of corporations or other
organizations (within the meaning of Sections 414(b), (c),
(m) or (o) of the Code) at any time within the sixty (60)
month period ending on the date hereof (the "Controlled
Group"), (x) has (or will have) at any time maintained,
contributed to or participated in, (y) had (or will have)
any obligation to maintain, contribute to or participate in,
or (z) had (or will have) any liability or contingent
liability, direct or indirect, with respect to any of the
following (an "Employee Benefit Plan"):
(A) any "Employee Welfare Benefit Plan" or
"Employee Pension Benefit Plan" as those terms are
respectively defined in Sections 3(l) and 3(2) of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
(B) any oral or written retirement or deferred
compensation plan, incentive compensation plan, stock
plan, consulting agreement, unemployment compensation
plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or
any other compensation or fringe benefit arrangements
or any other type of employee-related program or policy
for any current or former employee, director,
consultant or agent, whether pursuant to contract
arrangement, custom or informal understanding, which
does not constitute an "employee benefit plan" (as
defined in Section 3(3) of ERISA), other than
compensation and incentive arrangements in the ordinary
course of business;
(C) any other plans, programs or arrangements of
any kind relating to employee benefits sponsored or
maintained by a Company, whether or not specifically
identified, except as maintained in the ordinary course
of business; or
(d) any employment agreement not terminable on
thirty (30) days (or less) written notice, without
further liability to the Company.
(ii) With respect to each Employee Benefit Plan: (A)
each such Plan which is an Employee Pension Benefit Plan
intended to qualify under the Code so qualifies and has
received a favorable determination letter as to its
qualification under the Code; (B) the Company and each
member of the Controlled Group have complied in all respects
with all provisions of ERISA; (C) all administrative and
trustee fees and insurance and annuity premiums relating to
all periods up to and including the date hereof have been
paid or otherwise provided for; (D) the beneficial tax
benefits of any Employee Benefit Plans have not been
adversely affected by the Company's leased employees (as
such term is defined in Code Section 414(n)), if any; (E) no
Employee Benefit Plan provides for any post-retirement life,
medical, dental or other welfare benefits (whether or not
insured) for any individual except as required under Section
4980B of the Code or Part 6 of Title I of ERISA; (F) all
benefit payments under, and contributions required to have
been made to, any such Plan pursuant to the requirements of
law or under the terms of any contract, agreement or
Employee Benefit Plan for the plan year which includes the
date hereof and all prior plan years have been made; (G) no
breach of fiduciary duty set forth under Part 4 of Title I
of ERISA has occurred which would subject a Company to any
penalty or liability; (H) there are no matters pending
before the Internal Revenue Service or the Department of
Labor; (I) there have been no claims or notice of claims
filed under any fiduciary liability insurance policy
covering any Employee Benefit Plan; (J) except as set forth
in Schedule 2.1(n), there are no Qualified Domestic
Relations Orders (as defined under Section 414(p) of the
Code or 203 of ERISA) relating to any Employee Benefit Plan;
(K) to the extent applicable, each such Employee Benefit
Plan complies, and at all times has complied, with the
secondary payor requirement of Section 1862(b)(1) of the
Social Security Act; (L) each and every such Employee
Benefit Plan which is a group health plan complies, and in
each and every case has complied, with the applicable
requirements of Code Section 4980B, Part 6 of Title I of
ERISA, and all other federal or state laws requiring the
provision or continuance of health or medical benefits; and
(M) there are no actions, suits or claims (other than
routine claims for benefits in the ordinary course) pending
or, to the best of the Shareholders' knowledge, threatened,
and the Shareholders have no knowledge of any facts which
could give rise to any such actions, suits or claims (other
than routine claims for benefits in the ordinary course),
which could subject the Company or Purchaser to any
liability.
(iii) (A) The Company is not subject to any legal,
contractual, equitable, or other obligation to (I) establish
as of any date any employee benefit plan of any nature,
including, without limitation, any pension, profit sharing,
welfare, post-retirement welfare, stock option, stock or
cash award, non-qualified deferred compensation or executive
compensation plan, policy or practice, or (II) continue any
employee benefit plan of any nature, including, without
limitation any Employee Benefit Plan or any other pension,
profit sharing, welfare, or post-retirement welfare plan, or
any stock option, stock or cash award, non-qualified
deferred compensation or executive compensation plan, policy
or practice (or to continue their participation in any such
benefit plan, policy or practice) on or after the date
hereof; and (B) the Company may, in any manner, and without
the consent of any employee, beneficiary or other person,
terminate, modify or amend any such Employee Benefit Plan or
any other plan, program or practice (or its participation in
such Employee Benefit Plan or any other plan, program or
practice) effective as of any date before, on or after the
date hereof.
(iv) Prior to the date hereof, the Company will, with
respect to each Employee Pension Benefit Plan under which
the Company's employees participate: (A) contribute or make
provisions for contribution to the trust related to such
plans all pre-tax and post-tax (if applicable) employee
salary deferrals and contributions made with respect to all
periods ending on or before the Closing, (B) contribute or
make provisions for contribution to the trust related to
such plans, all matching and non-matching employer
contributions (if any) which the Company is obligated to
make for all plan years of such plans ending on or before
the date hereof, and (C) with respect to the plan year which
includes the date hereof (the Current Plan Year ),
contribute or make provisions for contribution to the trusts
related to such plans matching and non-matching employer
contributions (if any) equal to the greater of (x) an amount
determined in accordance with past funding and accrual
practices (as adjusted to include proportional accrual or
contribution obligations for the period beginning on the
first day of such Current Plan Year and ending on the date
hereof), or (y) the amount which the Company is under any
obligation (legal or otherwise) to contribute for such
period.
(n) Accounts Receivable.
--------------------
(i) Schedule 2.1(n)(i) hereto contains a description
of the Accounts Receivable of the Company as of September 1,
1996, and a true and accurate aging Schedule thereof. Each
Account Receivable arose, and each account receivable
generated by the Business between September 1, 1996, and the
date hereof has arisen, from business in the ordinary course
and, to the best of the Shareholder's knowledge, is or will
be fully collectible in the face amount thereof, subject to
any bad debt reserve reflected in the Closing Date Financial
Statements.
(ii) Except as set forth on Schedule 2.1(n)(ii), no
Account Receivable is subject to any claim for reduction,
set-off, counterclaim, recoupment or other claim for credit,
allowances or adjustments by the obligor thereof.
(o) Real Property.
--------------
The Company owns no real property relating to the
Business. Schedule 2.1(o) hereto identifies each lease of real
property to which the Company is a party, other than leases that
are of ninety (90) days or less in duration or that can be
terminated on sixty (60) days or less notice ("Excludable
Leases"). The aggregate amount payable under Excludable Leases
for the most recent fiscal month did not exceed One Hundred Fifty
Thousand Dollars ($150,000). The Company has heretofore
delivered to Purchaser true, correct and complete copies of each
real property lease other than Excludable Leases and has provided
Purchaser with a description of the Excludable Leases.
(p) Personal Property.
------------------
Schedule 2.1(p) sets forth a true and complete list of
all of the tangible personal property used by the Company in the
Business having an original acquisition cost of Five Thousand
Dollars ($5,000). Schedule 2.1(p) also sets forth all leases of
personal property binding upon the Company or any of its assets
or properties other than personal property associated with
Excludable Leases, and all items of personal property covered
thereby. All of such tangible personal property is presently
utilized by the Company in the ordinary course of the Business.
The Company has heretofore delivered to Purchaser true, correct
and complete copies of each such personal property lease.
(q) Other Contracts.
----------------
Schedule 2.l(q) lists all contracts and arrangements,
other than the Contracts, of the following types, whether oral or
written, to which the Company is a party or by which it is bound,
or to which any of the Business Assets is subject:
(i) any collective bargaining agreement;
(ii) any contract or arrangement of any kind with any
employee, officer or director of the Company or any of its
affiliates;
(iii) any contract or arrangement having a value in
excess of Five Thousand Dollars ($5,000) with a sales
representative, dealer, broker, marketing, sales agency,
advertising agency or other person engaged in sales,
distributing, marketing or promotional activities, or any
contract to act as one of the foregoing on behalf of any
person;
(iv) any contract or arrangement of any nature which
involves the payment or receipt of cash or other property,
an unperformed commitment, or goods or services, having a
value in excess of Five Thousand Dollars ($5,000);
(v) any contract or arrangement pursuant to which the
Company has made or will make loans or advances, or has or
will have incurred debts or become a guarantor or surety or
pledged its credit on or otherwise become responsible with
respect to any undertaking of another (except for the
negotiation or collection of negotiable instruments in
transactions in the ordinary course of business);
(vi) any indenture, credit agreement, loan agreement,
note, mortgage, security agreement, lease of real property
or personal property or agreement for financing;
(vii) any contract or arrangement involving a
partnership, joint venture or other cooperative undertaking;
(viii) any contract or arrangement involving any
restrictions with respect to the geographical area of
operations or scope or type of business of the Company;
(ix) any power of attorney or agency agreement or
arrangement with any person pursuant to which such person is
granted the authority to act for or on behalf of the
Company, or the Company is granted the authority to act for
or on behalf of any person;
(x) any contract having a value in excess of Five
Thousand Dollars ($5,000) for which the full performance
thereof may extend beyond sixty (60) days from the date of
this Agreement;
(xi) any contract not made in the ordinary course of
business which is to be performed at or after the date of
this Agreement;
(xii) any contract relating to any acquisition or
disposition of the Company or any material amount of
Business Assets or any acquisition or disposition of any
subsidiary or division of the Company during the six (6)
years prior to the date of this Agreement; and
(xiii) any contract not specified above that is
material to the Company.
the Company has delivered to Purchaser true and complete copies
of each written agreement listed on Schedule 2.1(q), and a
written description of each oral arrangement so listed. the
Company has delivered to Purchaser accurate copies of each form
which has been used in the Business and is in effect with respect
to any third party on the date hereof.
(r) Labor Matters.
--------------
The Company has and currently is conducting the
Business in full compliance with all laws relating to employment
and employment practices, terms and conditions of employment,
wages and hours, and nondiscrimination in employment. Except as
disclosed on Schedule 2.1(r), the relationships of the Company
with its employees are good and there is, and during the past
three (3) years there has been, no material labor strike,
dispute, slowdown, work stoppage or other labor difficulty
actually pending or, to the best of the Shareholders' knowledge,
threatened against or involving the Company. None of the
employees of the Company is covered by any collective bargaining
agreement, no collective bargaining agreement is currently being
negotiated and, to the best of the Shareholders' knowledge, no
attempt is currently being made or during the past three (3)
years has been made to organize any employees of the Company to
form or enter a labor union or similar organization.
(s) Customers.
----------
(i) Schedule 2.1(s)(i) sets forth a list of the
fifteen (15) largest customers of the Company, in terms of
revenue, during each of the 1994 and 1995 fiscal years, and
through June 30 of fiscal year 1996 (collectively, the
"Major Customers"), showing the approximate total revenue
received in each such period from each such customer.
(ii) Except as set forth on Schedule 2.1(s)(ii), no
customer represented in excess of five percent (5%) of the
Company's total revenue during the 1995 fiscal year and
through June 30 of fiscal year 1996.
(iii) Except to the extent set forth in Schedule
2.1(s)(iii), since June 30, 1996, there has not been any
material adverse change in the business relationship, and
there has been no material dispute, between the Company and
any Major Customer, and the Shareholders have no knowledge
that any Major Customer intends to reduce its purchases from
the Company, except for customary seasonal variations.
(t) Historical Financial Information.
---------------------------------
The management-prepared unaudited financial statements
of the Company for the quarter ended June 30, 1996, and the
audited financial statements for each of the fiscal years 1993,
1994 and 1995, copies of which are annexed hereto as Schedule
2.1(t) (collectively the "Financial Statements") have been, and
the Closing Date Financial Statements will be, prepared in a
manner consistent with that used in prior years' reporting. The
Financial Statements present, and the Closing Date Financial
Statements will present, fairly the financial position, assets
and liabilities of the Company as of the dates thereof and the
revenues, expenses, results of operations and cash flows of the
Company for the periods covered thereby, all in accordance with
prior reporting methods of the Company and have been or will be
prepared in accordance with GAAP consistently applied. The
Financial Statements are, and the Closing Date Financial
Statements will be, in accordance with the books and records of
the Company, do and will not reflect any material transactions
which are not bona fide transactions, and do and will not contain
any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained therein,
in light of the circumstances in which they were made, not
misleading. The Financial Statements make, and the Closing Date
Financial Statements will make, full and adequate disclosure of,
and provision for, all obligations and liabilities of the Company
as of the dates thereof. The books and records of the Company
have been maintained in accordance with applicable laws, rules
and regulations, and in the ordinary course of business.
(u) No Adverse Effects or Changes.
------------------------------
Except as listed on Schedule 2.1(u), since December 31,
1995, the Company has not:
(i) taken any action, or entered into or authorized
any contract or transaction other than in the ordinary
course of business and consistent with past practice;
(ii) sold, transferred, conveyed, assigned or
otherwise disposed of any of the Company's assets other than
in the ordinary course of business;
(iii) made any changes in its accounting systems,
policies, principles or practices;
(iv) entered into, adopted, amended or terminated any
bonus, profit-sharing, compensation, termination, stock
option, stock appreciation right, restricted stock,
performance unit, pension, retirement, employment, severance
or other employee benefit agreements, trusts, plans, funds
or other arrangements for the benefit or welfare of any
director, officer or employee, or increased in any manner
the compensation or fringe benefits of any director, officer
or employee other than in the ordinary course of business,
or paid any benefit not required by any existing plan and
arrangement or entered into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(v) acquired, leased or encumbered any assets outside
the ordinary course of business or any assets which are
material to the Company;
(vi) terminated, modified, amended or otherwise
altered or changed any of the terms or provisions of any
material contract or arrangement, or breached the terms of
any material contract or arrangement; or
(vii) taken any other action that would have a
material adverse effect on the Business or the Business
Assets.
(v) Broker's Fees.
--------------
No agent, broker or other person acting pursuant to the express
or implied authority of the Company or the Shareholders is or may
be entitled to a commission or finder's fee in connection with
the transactions contemplated by this Agreement, or is or may be
entitled to make any claim against the Company or Purchaser as a
result of any actions by the Company or the Shareholders, for a
commission or finder's fee.
(w) No Misstatements or Omissions.
------------------------------
No representation or warranty made in this Agreement or
on any Schedule hereto by the Shareholders is false or misleading
as to any material fact, or omits to state a material fact
required to make any of the statements made herein or therein not
misleading in any material respect. All of the Schedules hereto
applicable to the Shareholders will constitute representations
and warranties by the Shareholders herein. All representations,
covenants and warranties made by or on behalf of the Shareholders
in this Agreement will be deemed to have been relied upon by
Purchaser (not withstanding any investigation by Purchaser).
2.2 Representations and Warranties of Purchaser.
--------------------------------------------
In order to induce the Shareholders to enter into this
Agreement, Purchaser represents and warrants to the Shareholders as of
the date of this Agreement, as follows:
(a) Due Incorporation; Authority.
-----------------------------
Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Purchaser has all requisite power and authority to own
its properties and to conduct its business as currently
conducted, and to execute, deliver and perform this Agreement and
the Related Agreements to which it is a party. Purchaser's
execution, delivery, and performance of this Agreement and the
Related Agreements have been duly and validly authorized by all
necessary corporate action on the part of Purchaser. This
Agreement has been duly executed and delivered by Purchaser and
this Agreement constitutes, and when executed and delivered by
Purchaser, each of the Related Agreements to which it is a party
will constitute, the legal, valid and binding obligation of
Purchaser enforceable in accordance with its terms against
Purchaser, except to the extent that such validity, binding
effect and enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally from time to time in effect
and by general equitable principles.
(b) No Restrictions Against Performance.
------------------------------------
Neither the execution and delivery, nor the performance
of this Agreement, nor the consummation of the transactions
contemplated hereby will violate any provision of or conflict
with Purchaser's Certificate of Incorporation or By-Laws or will,
with or without the giving of notice or the passage of time, or
both, violate any provisions of, conflict with, result in a
breach of, constitute a default under (i) any federal, state or
local law, statute, ordinance, regulation or rule, which is
applicable to Purchaser; (ii) any contract, indenture,
instrument, agreement, mortgage, lease, right or other obligation
or restriction to which Purchaser is a party or by which
Purchaser is bound; or (iii) any order, judgment, writ,
injunction, decree, license, franchise, permit or other
authorization of any Governmental Authority by which Purchaser is
bound.
(c) Governmental Consents.
----------------------
No approval, consent, waiver, order or authorization
of, or registration, qualification, declaration, or filing with,
or notice to, any Governmental Authority is required on the part
of Purchaser prior to the execution of this Agreement or the
Related Agreements or the consummation of the transactions
contemplated hereby or thereby.
(d) Broker's Fees.
--------------
Other than John Hamachek & Company, no agent, broker or
other person acting pursuant to the express or implied authority
of Purchaser is or may be entitled to a commission or finder's
fee in connection with the transactions contemplated by this
Agreement, or is or may be entitled to make any claim against the
Shareholders or Purchaser as a result of any actions by
Purchaser, for a commission or finder's fee. Purchaser agrees to
satisfy the broker's fee payable to John Hamachek & Company.
(e) No Misstatements or Omissions.
------------------------------
No representation or warranty made in this Agreement or
on any Schedule hereto by Purchaser is false or misleading as to
any material fact, or omits to state a material fact required to
make any of the statements made herein or therein not misleading
in any material respect. All of the Schedules hereto applicable
to Purchaser will constitute representations and warranties by
Purchaser herein. All representations, covenants and warranties
made by or on behalf of Purchaser in this Agreement will be
deemed to have been relied upon by the Shareholders
(notwithstanding any investigation by the Shareholders).
ARTICLE 3
COVENANTS SUBSEQUENT TO CLOSING
3.1 Closing Date Financial Statements.
-----------------------------------
The Shareholders shall deliver to Purchaser (at Purchaser's
expense) within Ninety (90) days after the date hereof unaudited
financial statements, prepared in accordance with GAAP and Regulation
S-X of the Securities and Exchange Commission, ("Regulation S-X")
applied in a manner consistent with the accounting practices reflected
in the Financial Statements, for the Company for the fiscal period
ending on September 15, 1996 (the "Closing Date Financial
Statements"), together with original signatures of the Company's
accountants and a consent to the use thereof in filings required under
the securities laws of the United States and the markets in which
Purchaser's stock is traded, if requested by Purchaser. The
Shareholders shall also deliver within Five (5) days after the date
hereof audited financial statements, prepared in accordance with GAAP
and Regulation S-X, for the Company's two (2) fiscal years ended 1994
and 1995, together with original signatures of the Company's
accountants and consents to the use thereof in any filings required
under the securities laws of the United States and the applicable
securities markets.
3.2 Further Assurances.
-------------------
The Shareholders jointly and severally agree, without
further consideration, to execute and deliver following the Closing
such other instruments of transfer and take such other action as
Purchaser may reasonably request in order to put Purchaser in
possession of, and to vest in Purchaser, good and valid title to the
Stock free and clear of any Liens in accordance with this Agreement
and to consummate the transactions contemplated by this Agreement.
3.3 Closing Accounts Receivable.
-----------------------------
The Company shall provide the Shareholders with a monthly
written accounting of the accounts receivable collected by the Company
on or before the last day of the immediately succeeding calendar
month. Each such accounting shall include the total amount of
collections made from customers, any portion of whose outstanding
accounts receivable balance arose prior to the date hereof.
3.4 Records.
---------
(a) Tax Purposes.
-------------
Purchaser shall allow the Shareholders, their counsel,
accountants and other representatives, access for all Tax
purposes for six (6) years from the date hereof to existing
records of the Business that are in Purchaser's possession, and
Purchaser shall use its good faith efforts to maintain such
records for six (6) years unless specifically authorized in
writing by the Shareholders to the contrary.
(b) Access.
-------
After the Closing, upon reasonable notice to Purchaser,
Purchaser shall (i) permit the Shareholders, their counsel,
accountants and other representatives to have full access during
regular business hours to the offices, properties, books and
records of the Company relating to the Business, (ii) furnish the
Shareholders, their counsel, accountants, and other
representatives such additional financial and other information
regarding the Business as the Shareholders may from time to time
reasonably request to assist in the verification of the
calculation of any Estimated Earn-Out Payments or the Earn-Out
Amount, and (iii) make available to the Shareholders, their
counsel, accountants and other representatives, the employees of
the Company or Purchaser whose assistance, testimony or presence
is necessary to assist the Shareholders in evaluating any claims
and defending any claims; provided, however, that such
investigation and access shall not unreasonably interfere with
any of the businesses or operations of the Company and shall have
a legitimate purpose.
3.5 Satisfaction of Liabilities.
-----------------------------
The Shareholders, jointly and severally, covenant and agree
that, on, prior to, or as soon as practicable after the date hereof,
all outstanding obligations, liabilities, costs and expenses of the
Company relating to the Watson Redemption will be paid, performed or
otherwise discharged or provided for by the Shareholders.
3.6 Operation of the Business. During the Earn-Out Period:
--------------------------
(a) Accounting.
-----------
Purchaser shall maintain the integrity of the Company
for accounting purposes, so as to make the calculation of Average
Annual Adjusted Profits, the Estimated Earn-Out payment and the
Earn-Out Amount feasible and verifiable.
(b) New Offices.
------------
The Company shall be entitled to open new offices, on
such terms and conditions as Purchaser and the Shareholders
mutually agree in a written budget for each such new office, in
Tampa, Ft. Lauderdale, Orlando, Chicago, Kansas City, St. Louis
and such other cities in which Purchaser and the Shareholders
mutually agree. Purchaser and the Shareholders agree to
negotiate in good faith such terms and conditions, which will
include a credit in calculating Average Annual Adjusted Profits
with respect to each such new office that remains open until at
least the last day of the Earn-Out Period. Without the mutual
agreement of Purchaser and the Shareholders, no such new office
may be opened until the immediately preceding new office has at
least fifteen (15) contractors simultaneously on assignment for
one week. Notwithstanding any other provision hereof to or
seemingly to the contrary, Purchaser and its affiliates may
operate, maintain or open offices providing competing or
noncompeting services in cities or geographic areas in which the
Company operates, maintains or opens offices.
(c) NACCB.
------
Unless consented to the contrary by the Shareholders,
the Company shall be allowed to remain a member of the National
Association of Computer Consultant Businesses in accordance with
the rules and regulations thereunder and shall, to the extent
possible, continue to participate in the Legal Defense Fund.
3.7 Operations by Purchaser.
-------------------------
Nothing in this Agreement shall be interpreted as a
restriction or limitation on Purchaser's or its affiliates' right and
ability to acquire by purchase, merger, exchange or otherwise any
other entity, organization, business or other enterprise, whether or
not engaged in a business similar or related to the Business (an
"Acquired Business"). Unless the Company becomes the owner of an
Acquired Business, as determined by Purchaser in its sole discretion
and agreed to in writing by the Shareholders, the Shareholders and the
Company shall have no rights or interests in or relating to any
Acquired Business.
3.8 Stock Options.
---------------
Purchaser shall grant, pursuant to its 1993 Stock Option and
Performance Award Plan (the "Plan"), "non-qualified stock options" (as
defined in the Plan) to acquire an aggregate of Forty Thousand
(40,000) shares of its common stock, $.01 par value, to the employees
of the Company identified in Schedule 3.8 hereto, to be prepared by
the Shareholders and delivered to Purchaser, in accordance with the
allocation.
ARTICLE 4
DELIVERIES
4.1 The Shareholders' Deliveries.
------------------------------
In connection with the Closing, the Shareholders are
delivering or causing to be delivered to Purchaser the following:
(a) Stock Certificates.
-------------------
The certificates representing the Stock, duly endorsed
in blank or accompanied by duly and properly executed stock
powers with all required transfer taxes, if any, paid and stamps
affixed, assigning to Purchaser all of the Shareholders' rights
and interests in and to the Stock, free and clear of any and all
Liens;
(b) Books and Records.
------------------
The Company's corporate books and records, including,
without limitation, its minute books and stock transfer records.
(c) Certified Corporate Records.
----------------------------
A certificate, dated the date hereof, executed by the
secretary or assistant secretary of the Company, certifying the
Articles of Incorporation of the Company, the By-Laws of the
Company and the resolutions of the Board of Directors and of the
shareholders of the Company approving and authorizing the
execution, delivery and performance by the Company of this
Agreement and of each of the Related Agreements to which the
Company is a party and the consummation of the transactions
contemplated hereby and thereby (together with an incumbency and
signature certificate regarding the officer(s) signing any
document or instrument on behalf of the Company).
(d) Legal Opinion.
--------------
The legal opinion of Devine, Millimet & Branch,
Professional Association, containing opinions reasonably
satisfactory to Purchaser.
(e) Business Documents.
-------------------
Constructive possession of all manuals, including
employee manuals, customer lists, books and other records and
files, computer programs, computer software and master disk of
source codes relating to, or associated with, the Business, or
the Business Assets.
(f) Consents and Approvals.
-----------------------
Copies of all consents, approvals, certificates and
other documents, if any, required in connection with the
performance by the Shareholders of this Agreement and the
consummation of the transactions contemplated hereby listed in
Schedule 2.1(c).
(g) Noncompetition Agreements.
--------------------------
The Noncompetition Agreements as executed by the
Shareholders.
(h) Employment and Consulting Agreements.
-------------------------------------
The Employment Agreement as executed by Evanoff and the
Consulting Agreement as executed by Merriam.
(i) Corporate Certificate.
----------------------
A Certificate of Legal Existence or Good Standing for
the Company from the States of New Hampshire, Georgia,
Massachusetts, North Carolina, Florida and Alabama as of a date
within thirty (30) days before the date hereof.
(j) Payoff Letter.
--------------
A letter from Bank of Boston certifying as to the
payoff figure for the Company's indebtedness for borrowed money
and letter of credit security.
(k) General Releases.
-----------------
A general release and waiver from each Shareholder to
the Company.
(l) Lien Release.
-------------
An undertaking by the Shareholders to provide as soon
as is reasonably practicable releases of any Liens of record on
the date hereof against the Company that have not otherwise been
removed or released.
4.2 Purchaser's Deliveries.
------------------------
In connection with the Closing, Purchaser is delivering to
the Shareholders the following:
(a) Cash and Note.
--------------
The Closing Payment and the Notes as provided in
Section 1.2(a) hereof.
(b) Corporate Authorization.
------------------------
A certificate, dated the date hereof, executed by the
secretary or assistant secretary of Purchaser certifying
resolutions of the Board of Directors of Purchaser approving and
authorizing the execution, delivery and performance by Purchaser
of this Agreement and each of the Related Agreements to which
Purchaser is a party and the consummation of the transactions
contemplated hereby and thereby (together with an incumbency and
signature certificate regarding the officer(s) signing any
document or instrument on behalf of Purchaser).
(c) Consents and Approvals.
-----------------------
All consents and approvals, if any, required of
Purchaser in connection with the execution and performance by
Purchaser of this Agreement.
(d) Legal Opinion.
--------------
The legal opinion of Mike G. Reinecke, General Counsel,
containing opinions reasonably satisfactory to the Shareholders.
ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
5.1 Survival of Representations and Warranties of the
--------------------------------------------------
Shareholders.
------------
All representations, warranties, agreements, covenants and
obligations made or undertaken by the Shareholders in this Agreement
or in any document or instrument executed and delivered pursuant
hereto are material, have been relied upon by Purchaser and shall
survive the Closing hereunder and shall not merge in the performance
of any obligation by any party hereto, and will remain in full force
and effect, but in all events subject to the provisions of Section 5.3
hereof, if applicable. Except as to the Contracts, the Shareholders
hereby jointly and severally release, discharge, and agree to
indemnify, defend and hold Purchaser and the Company harmless from and
against any and all liability, loss, actual, punitive or exemplary
damages, fines, penalties, obligations, payments, costs and expenses
or injury and all reasonable costs and expenses (including reasonable
counsel and expert fees and costs of any suit, action, claim, demand,
investigation, assessment, judgment, remediation, settlement or
compromise related thereto by any person or entity) suffered or
incurred by Purchaser or the Company arising from: (i) claims for
improper services rendered or omissions made in services rendered by
the Company on or before the date hereof; (ii) any other claim, suit,
cause of action, investigation or proceeding of any kind whatsoever
which relates to, or arises from, the Business or the Business Assets
on or before the date hereof to the extent not reserved for in the
Closing Date Financial Statements; (iii) any misrepresentation or
breach of any representation, warranty or covenant of the Shareholders
contained in this Agreement or in any certificate or other instrument
furnished or to be furnished by the Shareholders hereunder, PROVIDED,
HOWEVER, that for purposes of this Section 5.1, all representations
and warranties of the Shareholders shall be deemed to have been made
unconditionally and without regard to knowledge or materiality; (iv)
any claim or debt, obligation or liability of the Company or in
respect of the Business or the Business Assets existing on or before
the date hereof which is not adequately reserved against in the
Closing Date Financial Statements, regardless of whether such claim or
liability is disclosed elsewhere in this Agreement or the Schedules
and Exhibits hereto; and (v) any liability, loss, damage, obligation,
payment, cost or expense relating to the Watson Redemption (any of the
foregoing, a "Purchaser Claim").
5.2 Survival of Representations and Warranties of Purchaser.
---------------------------------------------------------
All representations, warranties, agreements, covenants and
obligations made or undertaken by Purchaser in this Agreement or in
any document or instrument executed and delivered pursuant hereto are
material, have been relied upon by the Shareholders and shall survive
the Closing hereunder and shall not merge in the performance of any
obligation by any party hereto, and will remain in full force and
effect, but in all events subject to the provisions of Section 5.3
hereof, if applicable. Purchaser hereby releases, discharges and
agrees to indemnify, defend and hold the Shareholders harmless from
and against all liability, loss, damage or injury and all reasonable
costs and expenses (including reasonable counsel and expert fees and
costs of any suit, action, claim, demand, investigation, assessment,
judgement, remediation, settlement or compromise related thereto by
any person or entity) suffered or incurred by the Shareholders arising
from (i) claims for improper services rendered or omissions made in
services rendered by the Company to third parties, after the date
hereof; (ii) any other claim, suit, course of action, investigation or
proceeding of any kind whatsoever which relates to, or arises from,
the Business or the Business Assets after the date hereof; (iii) any
misrepresentation or breach of any representation, warranty or
covenant of Purchaser contained in this Agreement or any certificate
or other instrument furnished or to be furnished by Purchaser
hereunder; and (iv) any claim or debt, obligation or liability of the
Company or in respect of the Business or the Business Assets existing
on or before the date hereof which is adequately reserved against in
the Closing Date Financial Statements (any of the foregoing, a
"Shareholder Claim").
5.3 Limitations on Indemnification.
--------------------------------
(a) Survival of Covenants and Warranties.
-------------------------------------
Notwithstanding anything to the contrary set forth
herein, the representations, warranties, covenants and agreements
made by the Shareholders, on the one hand, and Purchaser, on the
other hand, shall survive the Closing for a period of five (5)
years from the date hereof or, in the case of Taxes or claims
made under ERISA, until the expiration of the statute of
limitations, as extended, with respect thereto.
(b) Remedies.
---------
Except as provided in Section 6.7 hereof, the remedies
for any item or matter eligible for indemnification pursuant to
Section 5.1 or 5.2 hereof, as applicable, whether or not
indemnification is sought ("Indemnifiable Losses"), other than
for intentional or knowing misrepresentation, shall be limited to
recoveries under this Article 5. Each party to this Agreement
hereby acknowledges and agrees that, except as provided in
Section 7.7 hereof, its sole remedy against the other parties to
this Agreement for Indemnifiable Losses shall be solely under
this Article 5 and each party expressly waives any and all
rights, in law, by statute or in equity that it had, now has, or
may have in the future, for such Indemnifiable Losses of the
other party. Notwithstanding the foregoing, (i) the
Shareholders' and Purchaser's remedies for any Indemnifiable
Losses arising out of an intentional or knowing misrepresentation
shall be cumulative, and the exercise by an Indemnitee of its
right to indemnification hereunder with respect to Indemnifiable
Losses from such intentional or knowing misrepresentation shall
not affect or diminish the right of the Indemnitee to exercise
any rights or remedies under this Article 5 or any other remedy
at law or in equity, to recover damages, or to obtain equitable
or other relief. The Shareholders acknowledge that the Purchase
Price for the Stock was based on a Six and One-Half (6.5)
multiplier applied to the adjusted profits of the Company and
that any Indemnifiable Losses for a Purchaser Claim that would
have affected the adjusted profits of the Company for the twelve
(12) months ended on the date hereof will be calculated based
upon such multiplier.
(c) Purchase Price Limitation.
--------------------------
The aggregate amount that the Shareholders shall be
obligated to indemnify Purchaser pursuant to Section 5.1 and
Article 6 hereof shall not exceed the Purchase Price. Without
limiting any other rights and notwithstanding anything to the
contrary set forth herein, any amounts due to Purchaser by the
Shareholders pursuant to Section 5.1 or Article 6 may be offset
by Purchaser against any Earn-Out Amount due to the Shareholders
pursuant to Section 1.2 hereof.
5.4 Third Party Claims.
-------------------
(a) Defense of Claims.
------------------
If any party entitled to indemnification under this
Agreement (an "Indemnitee") receives notice of the assertion of
any claim or of the commencement of any action or proceeding by
any entity who is not a party to this Agreement or an affiliate
of such a party (a "Third Party Claim") against such Indemnitee,
against which a party is obligated to provide indemnification
under this Agreement (an "Indemnifying Party"), the Indemnitee
will give such Indemnifying Party reasonably prompt written
notice thereof, but in any event no later than thirty (30) days
after receipt of such notice of such Third Party Claim; provided
that failure to strictly comply with such notice requirements
shall not affect the Indemnitee's right to indemnification except
to the extent such failure adversely affects the Indemnifying
Party's ability to defend such Third Party Claim. Such Notice
will describe the Third Party Claim in reasonable detail, and
will indicate the estimated amount, if reasonably practicable, of
the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to
participate in or, by giving written notice to the Indemnitee no
later than thirty (30) days after receipt of the above-described
notice of such Third Party Claim, to elect to assume the defense
of (and to agree to provide indemnification for) any Third Party
Claim at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel (reasonably satisfactory to the
Indemnitee), and the Indemnitee will cooperate in good faith in
such defense. If the Indemnifying Party does not elect to assume
the defense by giving notice within thirty (30) days after
receipt of the above-described notice of such Third Party Claim,
as provided in the preceding sentence, the Indemnifying Party
thereafter may elect, by providing the Indemnitee written notice,
to later assume the defense of (and to agree to provide
indemnification for) such Third Party Claim at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel
(reasonably satisfactory to Indemnitee), and the Indemnitee will
cooperate in good faith in such defense. The Indemnitee will
have the right to participate in the defense of any Third Party
Claim assisted by counsel of its own choosing, provided that, if
the named parties to any such proceeding (including any impleaded
parties) include both the Indemnifying Party and the Indemnitee
or if the Indemnifying Party proposes that the same counsel
represent both the Indemnitee and the Indemnifying Party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests
between them, then the Indemnitee shall have the right to retain
its own counsel at the cost and expense of the Indemnifying
Party. If the Indemnitee has not received written notice within
such thirty (30) day period that the Indemnifying Party has
elected to assume the defense of such Third Party Claim, the
Indemnitee may, at its option, elect to settle or assume such
defense, assisted by counsel of its own choosing, and the
Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Indemnifiable Losses paid or incurred
in connection therewith.
(b) Limitations.
------------
If, within the thirty (30) days set forth above, an
Indemnitee receives written notice from an Indemnifying Party
that such Indemnifying Party has elected to assume the defense of
(and to agree to provide indemnification for) any Third Party
Claim as provided in Section 5.4(a) hereof, the Indemnifying
Party will not be liable for any legal expenses subsequently
incurred by the Indemnitee in connection with the defense thereof
(except as provided in Section 5.4(a) hereof); provided, however,
that if the Indemnifying Party fails to take reasonable steps
necessary to defend diligently such Third Party Claim within
thirty (30) days after receiving written notice from the
Indemnitee that the Indemnitee believes the Indemnifying Party
has failed to take such steps, the Indemnitee may, at its option,
after giving the Indemnifying Party a reasonable opportunity to
justify its litigation strategy, elect to settle or assume its
own defense, assisted by counsel of its own choosing, and the
Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Indemnifiable Losses paid or incurred
in connection therewith. Without the prior written consent of
the Indemnitee, the Indemnifying Party will not enter into any
settlement of any Third Party Claim or cease to defend against
such Claim, if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed
against the Indemnitee. The Indemnifying Party shall not consent
to the entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by
the claimant or plaintiff to each Indemnitee of a release from
all liability in respect of such Claim. The Indemnifying Party
shall not be entitled to control, and the Indemnitee shall be
entitled to have sole control over, the defense or settlement of
any Third Party Claim to the extent that such Claim seeks an
order, injunction or other equitable relief against the
Indemnitee which, if successful, would be reasonably likely to
materially interfere with the business, operations, assets,
condition (financial or otherwise) or prospects of the Indemnitee
(and the cost of such defense shall constitute an amount for
which the Indemnitee is entitled to indemnification hereunder).
If a firm offer is made to settle a Third Party Claim which offer
the Indemnifying Party is permitted to settle under this Section
5.4(b), and the Indemnifying Party desires to accept and agree to
such offer, the Indemnifying Party will give written notice to
the Indemnitee to that effect. If the Indemnitee fails to
consent to such firm offer within thirty (30) days after its
receipt of such notice, the Indemnitee may continue to contest or
defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim
will not exceed the amount of such settlement offer, plus costs
and expenses paid or incurred by the Indemnitee through the end
of such thirty (30) day period. If the Indemnifying Party
chooses not to accept and agree to any such firm offer which is
acceptable and agreeable to the Indemnitee, then the Indemnifying
Party shall separately indemnify and hold Indemnitee harmless
from and against any and all Indemnifiable Losses in excess of
such firm offer amount, and any such excess Indemnifiable Losses
shall be due and payable without regard to Section 5.3 hereof and
shall not enter into any computations of, or be included with
other Indemnifiable Losses in calculating, the thresholds or
limitations in Section 5.3(b) hereof.
(c) Diligence.
----------
Each party hereunder who has assumed the defense of a
Third Party Claim shall use all reasonable effort to diligently
defend such Claim.
5.5 Direct Claims.
---------------
Any claim by an Indemnitee for indemnification other than
indemnification against a Third Party Claim (a "Direct Claim") shall
be asserted by giving the Indemnifying Party reasonably prompt written
notice thereof, and the Indemnifying Party will have a period of
thirty (30) days within which to respond in writing to such Direct
Claim. If the Indemnifying Party does not so respond within such
thirty (30) day period, the Indemnifying Party will be deemed to have
rejected such claim, in which event the Indemnitee will be free to
pursue such remedies as may be available to the Indemnitee under this
Article 5.
ARTICLE 6
TAX AND ERISA MATTERS
6.1 Definitions.
-------------
For purposes of this Article 6, the following terms shall
have the following meanings:
(a) "Affiliate" means, with respect to any person, any
person directly or indirectly controlling, controlled by, or
under common control with such other person.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Federal Taxes" means United States federal income,
environmental and alternative or add-on minimum taxes.
(d) "Final Determination" (i) shall mean with respect to
Federal Taxes, a "determination" as defined in Section 1313(a) of
the Code or execution of an Internal Revenue Service Form 970AD
and, with respect to Taxes other than Federal Taxes, any final
determination of liability in respect of a Tax provided for under
applicable law; and (ii) shall include the payment of Tax by
Purchaser, the Company or the Shareholders, whichever is
responsible for payment of such Tax under applicable law, with
respect to any item disallowed by a Taxing Authority, provided
that the other party is notified that Purchaser, the Company or
the Shareholders, whichever is responsible, determines that no
action should be taken to recoup such disallowed item, and such
other party agrees with such determination.
(e) "Overlap Tax Period" means a Tax period for which a Tax
Return must be filed that commences prior to the date hereof and
ends after the date hereof.
(f) "Post-Closing Tax Period" means any Tax period (or
portion thereof) ending after the date hereof.
(g) "Pre-Closing Tax Period" means any Tax period (or pre-
closing portion of an Overlap Tax Period) ending on or before the
close of business on the date hereof.
(h) "Section 338(h)(10) Election" means with respect to the
purchase and sale of the Stock, the election under Section
338(h)(10) of the Code and Treasury Regulations thereunder and
any corresponding elections under state, local or foreign law
including, if no election may be made pursuant to such law under
Section 338(h)(10) of the Code or corresponding state, local or
foreign law provision, the election under Section 338(g) of the
Code or corresponding state, local or foreign law provisions.
(i) "Tax" (and, with correlative meaning, "Taxes"and
"Taxable") means (i) any net income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding on amounts paid
or payable to or by a Company, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee
or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or
additional amount imposed by any Governmental Authority (a
"Taxing Authority") responsible for the imposition of any such
Tax (domestic or foreign), and (ii) liability of the Company for
the payment of any amounts of the type described in clause (i)
above as a result of any express or implied obligation to
indemnify any other person.
(j) "Tax Indemnification Period" means (i) any Pre-Closing
Tax Period of the Company, and (ii) with respect to any Tax
described in clause (ii) of the definition of "Tax" contained
herein in this Section 6.1, the survival period of the
indemnification obligation under the applicable contract.
(k) "Tax Loss" means the loss defined in Section 6.2(a)
hereof.
6.2 Tax Indemnification.
---------------------
(a) Tax Loss.
---------
Notwithstanding the indemnification obligations set
forth in Section 5.1 hereof, the Shareholders shall jointly and
severally indemnify Purchaser and the Company against and agree
to hold them harmless from any (i) Tax of either the Company or
the Shareholders, including any Taxes payable as a result of a
Section 338(h)(10) Election or the transactions contemplated
hereby, including as a result of any change in accounting method,
and (ii) liabilities, costs, expenses (including, without
limitation, reasonable expenses of investigation and attorneys'
fees and expenses), losses, damages, assessments, settlements or
judgments arising out of or incident to the imposition,
assessment or assertion of any Tax, including those incurred in
the contest in good faith of appropriate proceedings for the
imposition, assessment or assertion of any Tax, and any liability
as transferee, in each case related to the Tax Indemnification
Period and in each case incurred or suffered by Purchaser, any of
its Affiliates or, effective upon the date hereof the Company,
and (iii) the present value of the net taxes payable as a result
of the failure of any state to recognize or allow the Section
338(h)(10) Election or its equivalent (the sum of clauses (i),
(ii) and (iii) above, a "Tax Loss").
(b) Allocations.
------------
For purposes of this Section 6.2, in the case of any
Taxes that are imposed on a periodic basis and are payable for a
Taxable period that includes (but does not end on) the date
hereof, the portion of such Tax related to the portion of such
Taxable period ending on the date hereof shall (i) in the case of
any Taxes other than Taxes based upon or related to income, be
deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction, the numerator of which is the number of
days in the Taxable period ending on the date hereof and the
denominator of which is the number of days in the entire Taxable
period, and (ii) in the case of any Tax based upon or related to
income, be deemed equal to the amount which would be payable if
the relevant Taxable period ended on the date hereof. All
determinations necessary to give effect to the foregoing
allocations shall be made in a manner consistent with prior
practices of the Company.
(c) Payment.
--------
Upon a Final Determination of a Tax Loss, the
Shareholders shall jointly and severally discharge their
obligation to indemnify Purchaser against such Tax Loss by paying
the amount thereof to Purchaser. Any payment pursuant to this
Section 6.2 shall be made not later than Thirty (30) days after
receipt by the Shareholders of written notice from Purchaser
stating that a Final Determination of any Tax Loss has occurred,
and the amount thereof and of the indemnity payment requested.
Any payment required under this Section 6.2 and not made when due
shall bear interest at the rate per annum determined, from time
to time, under the provisions of Section 6621(a)(2) of the Code
for each day until paid.
(d) Notice.
-------
Purchaser agrees to give prompt notice to the
Shareholders of the assertion of any claim, or the commencement
of any suit, action or proceeding in respect of which indemnity
may be sought hereunder and of any Tax Loss, which Purchaser
deems to be within the scope of this Section 6.2 (specifying with
reasonable particularity the basis therefor) and will give the
Shareholders such information with respect thereto as the
Shareholders may reasonably request. The Shareholders may, at
their own expense, participate in, and, upon notice to Purchaser,
assume the defense of any such suit, action or proceeding;
provided that (i) the Shareholders' counsel is reasonably
satisfactory to Purchaser; (ii) the Shareholders shall thereafter
consult with Purchaser upon Purchaser's reasonable request for
such consultation from time to time with respect to such suit,
action or proceeding; and (iii) the Shareholders shall not,
without Purchaser's consent, agree to any settlement with respect
to any Tax if such settlement could adversely affect the past,
present or future Tax liability of Purchaser, any of its
Affiliates or, after the date hereof, the Company. If the
Shareholders assume such defense, Purchaser shall have the right
(but not the duty) to participate in the defense thereof and to
employ counsel, at its own expense, separate from the counsel
employed by the Shareholders. Whether or not the Shareholders
choose to defend or prosecute any claim, all of the parties
hereto shall cooperate in the defense or prosecution thereof.
Failure of Purchaser to give the Shareholders prompt notice under
this Section 6.2(d) shall not excuse the Shareholders from their
obligation to indemnify Purchaser for a Tax Loss except, and to
the extent, such failure prejudices the favorable resolution of
such claim.
(e) Investigation.
--------------
No investigation by Purchaser or its Affiliates at or
prior to the date hereof shall relieve the Shareholders of any
liability under this Article 6.
(f) Survival.
---------
Notwithstanding anything in this Agreement to the
contrary, the provisions of this Article 6 shall survive for the
full period of all applicable statutes of limitations (giving
effect to any waiver, mitigation or extension thereof).
6.3 Tax Covenants.
---------------
(a) No Change of Elections.
-----------------------
Without the prior written consent of Purchaser, the
Shareholders shall not make or change any election, change an
annual accounting period, adopt or change any accounting method,
file any amended Return, enter into any closing agreement, settle
any Tax claim or assessment relating to either Company, surrender
any right to claim a refund of Taxes, consent to any extension or
waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company, take any other action or omit
to take any action, if any such election, adoption, change,
amendment, agreement, settlement, surrender, consent or other
action or omission would have the effect of increasing the Tax
liability of the Company, Purchaser or any Affiliate of
Purchaser.
(b) Tax Returns.
------------
(i) On or before the due date for each Tax Return
(including S Corporation information Returns) for Pre-
Closing Tax Periods of the Company that are not due as of
the date hereof, the Shareholders shall deliver to Purchaser
a pro forma Pre-Closing Tax Period Return (each a "Pro Forma
Pre-Closing Tax Period Return"). Unless the Purchaser
timely objects as specified in Section 8.3(b)(iii) hereof,
the Shareholders shall timely file each such Tax Return with
respect to each Pre-Closing Tax Period.
(ii) On or before the due date for the Tax Return with
respect to each Overlap Tax Period of the Company, Purchaser
shall deliver to the Shareholders a pro forma Overlap Tax
Period Tax Return (each a "Pro Forma Overlap Tax Period
Return"), reflecting the amount of Tax for the portion of
Taxable year that ends on the date hereof, calculated in
accordance with Section 6.3(b)(iv) hereof. Unless the
Shareholders timely object as specified in Section
6.3(b)(iii) hereof, the amount of Tax shall be binding on
the parties without further adjustment. Purchaser shall
timely file each Tax Return with respect to each Overlap Tax
Period.
(iii) The Shareholders and Purchaser, as appropriate,
shall have the right at their own expense to review all work
papers and procedures used to prepare Tax information and
the Pro Forma Tax Returns. If the Shareholders, within ten
(10) business days after delivery of the Pro Forma Overlap
Tax Period Returns or the Tax Return information, notify
Purchaser in writing that they object to any items on a Pro
Forma Overlap Tax Period Return or in the Tax Return
information, specifying with particularity any such item and
stating the specific factual or legal basis for any such
objection, Purchaser and the Shareholders shall negotiate in
good faith and use their best efforts to resolve such items.
If Purchaser, within Ten (10) business days after delivery
of the Pro Forma Pre-Closing Tax Returns or the Tax Return
information notifies the Shareholders in writing that it
objects to any items on a pro Forma Pre-Closing Tax Return,
specifying with particularity any such item and stating the
specific factual or legal basis for any such objection,
Purchaser and the Shareholders shall negotiate in good faith
and use their best efforts to resolve such items. Upon
resolution of such items, (A) as to a Pro Forma Return, the
relevant Return shall be adjusted to reflect such
resolution, binding on the parties without further
adjustment, and (B) as to the Tax Return information, the
Tax Return information shall be binding on the parties
without further adjustment.
(iv) The calculation of the amount of Tax liability
set forth on the Pro Forma Overlap Tax Period Returns shall
be made as appropriate, as if the Company were filing a
separate return using the applicable tax rates in effect
during the relevant Pre-Closing Tax Period. The
Shareholders and Purchaser agree that the Shareholders'
share of Taxes for the Pre-Closing Tax Period of the Overlap
Tax Period will be determined based on the closing of the
books of the Company as of the date hereof and the
allocation of income items or liability for non-income Taxes
using the principles set forth in Section 6.2(b) hereof,
provided that notwithstanding the foregoing all taxes
attributable to the Section 338(h)(10) Elections shall be
paid by the Shareholders.
(v) The Shareholders shall pay to Purchaser an amount
equal to their share of any Taxes with respect to the Pre-
Closing Tax Period of an Overlap Tax Period to the extent
the Shareholders are liable therefor in accordance with this
Section 6.3 and to the extent such Taxes are not already
paid by the Company prior to the Closing. Purchaser shall
pay to the Shareholders the amount, if any, by which the
Pre-Closing Period portion of Taxes of an Overlap Tax Period
calculated under this Section 6.3 is less than the amounts
already paid by the Company or the Shareholders on or before
the Closing. The amounts to be paid hereunder shall be paid
by the appropriate party ten (10) days before the filing of
the relevant Tax Return.
(vi) Any payment required under this Section 6.3 and
not made when due shall bear interest at the rate per annum
determined, from time to time, under the provisions of
Section 6621(a)(2) of the Code for each day until paid.
(c) Transfer Taxes.
---------------
All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any
penalties and interest) incurred in connection with this
Agreement (including any realty gains tax, realty transfer tax
and any similar tax imposed in other states or subdivisions),
shall be paid by the Shareholders when due, and the Shareholders
shall, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other taxes and
fees, and, if required by applicable law, Purchaser shall, and
shall cause its Affiliates to, join in the execution of any such
Tax Returns and other documentation.
(d) Cooperation on Tax Matters.
---------------------------
Purchaser and the Shareholders shall cooperate fully,
as and to the extent reasonably requested by the other party, in
connection with any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on
a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Shareholders
and Purchaser agree (i) to retain all books and records with
respect to Tax matters pertinent to the Company relating to any
Pre-Closing Taxable Period, and to abide by all record retention
agreements entered into with any Taxing Authority, and (ii) to
give the other party reasonable written notice prior to
destroying or discarding any such books and records and, if the
other party so requests, the Shareholders or Purchaser, as the
case may be, shall allow the other party to take possession of
such books and records.
(e) Tax Refunds.
------------
Tax refunds for Taxes relating to any Pre-Closing Tax
Period received after the date hereof by the Company shall be
paid to the Shareholders.
6.4 Employee Benefit Plans.
------------------------
(a) Indemnification.
----------------
Except as provided in Section 6.4(b) hereof, on and
after the date hereof, the Shareholders shall indemnify Purchaser
and the Company for, and hold them harmless against, any and all
of the following costs, expenses or other liabilities relating to
all current and former employees of the Company performing, or
having performed, services for the Company (the "Employees"),
including to the extent applicable their spouses, dependents and
beneficiaries:
(i) all claims under the Employee Benefit Plans that
provide health and medical, or other welfare benefits which
are submitted for covered expenses with respect to
occurrences commencing on or prior to the date hereof,
including, but not limited to, (A) covered hospital benefits
for any confinements that commenced on or before the date
hereof, including any covered charges of health care
professionals relating to such confinements and (B) any
other covered medical or health expenses incurred on or
before the date hereof;
(ii) short-term and long-term disability benefits, if
any, for disabilities that commenced on or before the date
hereof for the period that each of such affected individuals
remain disabled;
(iii) life and survivor income benefits, if any, for
deaths which occur on or prior to the date hereof;
(iv) workers' compensation benefits for disabilities
resulting from a work-related accident which occurred on or
prior to the date hereof;
(v) all benefits that are being, or that may be, paid
to, or with respect to, any Employees who are on short or
long-term disability, or medical, personal or other leaves
of absence as of the date hereof (or who go on short or
long-term disability, or medical, personal or other leave of
absence after the date hereof as a result of any injury,
illness or other factor occurring on or prior to the date
hereof);
(vi) benefits under any "spending account," or similar
arrangement, under any "cafeteria plan" (as defined under
Section 125 of the Code), with respect to salary reduction
elections made prior to the date hereof;
(vii) continued health and any other applicable
federal, state or local law or ordinance provided to any
Employee of the Company (and their spouses, dependents and
beneficiaries) with respect to whom a "qualifying event" (as
such term is defined under Sections 4980B(f)(3) of the Code
or 603 of ERISA) or other triggering event described under
the applicable federal, state or local laws or ordinances
occurred on or before the date hereof; and
(viii) benefits under all other such Employee Benefit
Plans which accrue on or before the date hereof.
(b) Exclusion.
----------
The Shareholders shall not be obligated to indemnify
Purchaser for the dollar amount of the costs, expenses and
liabilities listed in Section 6.4(a) hereof that is included as a
liability in the balance sheet included in the Closing Date
Financial Statements.
ARTICLE 7
GENERAL PROVISIONS
7.1 Expenses.
-----------
Except as otherwise expressly provided herein, each party to
this Agreement shall pay its or his own expenses (including, without
limitation, the fees and expenses of its or his agents,
representatives, counsel, and accountants) incidental to the
negotiation, drafting, and performance of this Agreement.
7.2 Successors and Assigns.
------------------------
This Agreement shall be binding upon and shall inure to the
benefit of the Company, Purchaser, Purchaser, the Shareholders and
their respective heirs, successors, representatives and assigns. No
party hereto may assign or transfer any of his or its rights or
obligations under this Agreement without the prior written consent of
the other party hereto. Notwithstanding the foregoing, (a) Purchaser
may assign this Agreement in whole or in part to any person or entity
that owns or controls directly or indirectly fifty percent (50%) or
more of the capital stock or equity interests ("Controls") of
Purchaser, is Controlled by Purchaser, or is under common Control with
Purchaser; and (b) Purchaser may assign this Agreement in full to any
person or entity that acquires from Purchaser all or substantially all
of the Business or the assets used therein; PROVIDED, HOWEVER, that
the assignee hereof must assume all of Purchaser's liabilities and
obligations hereunder and that no such assignment shall relieve
Purchaser of its liabilities and obligations hereunder.
7.3 Waiver.
--------
No provision of this Agreement shall be deemed waived by
course of conduct, including the act of closing, unless such waiver is
made in a writing signed by all parties hereto stating that it is
intended specifically to modify this Agreement, nor shall any course
of conduct operate or be construed as a waiver of any subsequent
breach of this Agreement, whether of a similar or dissimilar nature.
7.4 Entire Agreement.
------------------
This Agreement (together with the Schedules hereto)
supersedes any other agreement, whether written or oral, that may have
been made or entered into by Purchaser, the Company or the
Shareholders (or by any director, officer, agent, or other
representative of such parties) relating to the matters contemplated
hereby. This Agreement (together with the Schedules hereto)
constitutes the entire agreement by and among the parties and there
are no agreements or commitments except as expressly set forth herein.
7.5 Further Assurances.
-------------------
Each of the parties hereto agrees to execute all further
documents and instruments and to take or to cause to be taken all
reasonable actions which are necessary or appropriate to complete the
transactions contemplated by this Agreement.
7.6 Notices.
---------
All notices, demands, requests, and other communications
hereunder shall be in writing and shall be deemed to have been duly
given and shall be effective upon receipt if delivered by hand, or
sent by certified or registered United States mail, postage prepaid
and return receipt requested, or by prepaid overnight express service,
or by telecopy with an original copy sent by ordinary first class
mail. Notices shall be sent to the parties at the following addresses
and telecopy numbers (or at such other addresses for a party as shall
be specified by like notice; PROVIDED that such notice shall be
effective only upon receipt thereof):
(a) If to the Shareholders:
Richard P. Merriam
92 Concord Street
Nashua, NH 03060
Stephen I. Evanoff
32 Sharon Road
Windham, NH 03087
(b) If to Purchaser:
TSG Professional Services, Inc.
177 Crossways Park Drive
Woodbury, NY 11797
Attn: General Counsel
FAX: 516-496-2492
7.7 Specific Performance.
----------------------
In addition to the remedies specified in Article 5 hereof,
the parties agree that, due to the unique subject matter of this
transaction, monetary damages will be insufficient to compensate the
non-breaching party in the event of a breach by any party of this
Agreement; therefore, the parties agree that in the event of a
material breach of this Agreement by any party, the non-breaching
party shall be entitled to specific performance of the breaching
party's obligations hereunder, without any showing of actual damage or
inadequacy of legal remedy.
7.8 Amendments, Supplements.
------------------------
This Agreement may be amended or modified only by a written
instrument executed by all parties hereto which states specifically
that it is intended to amend or modify this Agreement.
7.9 Severability.
--------------
In the event that any provision contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not
affect any other provision hereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provisions had
never been contained herein and, in lieu of each such illegal, invalid
or unenforceable provision, there shall be added automatically as a
part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible but
still be legal, valid and enforceable.
7.10 Applicable Law.
------------------
This Agreement and the legal relations between the parties
hereto shall be governed by and construed in accordance with the
substantive laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
7.11 Interpretation.
-----------------
Titles and headings to sections hereof are inserted for
convenience of reference only and are not intended to be a part of, or
to affect the meaning or interpretation of, this Agreement. Any
reference herein to "days" or a "day" shall be a reference to calendar
days unless specifically provided otherwise.
7.12 Execution in Counterparts.
---------------------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
7.13 Public Announcements.
----------------------
Except and to the extent as may be required by law, no party
to this Agreement shall make any public announcements in respect of
this Agreement or the transactions contemplated hereby or otherwise
communicate with any news media without the prior written approval of
the other parties, and the parties shall cooperate as to the timing
and contents of any such announcement.
7.14 No Third Party Beneficiaries.
-------------------------------
Nothing in this Agreement shall be construed as a contract
of employment for any person, nor shall the terms hereof be construed
as creating any rights in any person for future or continued
employment by or with Purchaser or Purchaser. This Agreement shall
not create any third-party rights or beneficiaries and may be enforced
only by or on behalf of and create remedies for the parties hereto.
7.14 Shareholders' Actions.
------------------------
Any provision of this Agreement requiring an action by the
Shareholders, including consents and agreements, shall be satisfied
only by the unanimous action of the Shareholders. The inability of
the Shareholders to take an action as so required by this Agreement
shall toll the time period in which Purchaser is otherwise required to
act. Such rights of the Shareholders are personal to each of them and
may not be assigned or transferred.
7.15 Purchaser Guarantee.
----------------------
Purchaser hereby unconditionally guarantees to the
Shareholders the full and timely performance of all of the
obligations, liabilities and agreements of the Company under the
agreements and documents contemplated by this Agreement to which the
Company is a party. Any guaranteed person may, at his option, proceed
against Purchaser for the performance of any such obligation or
agreement, or for damages for default in the performance thereof,
without first proceeding against the Company. Purchaser further
agrees that its guarantee shall be an irrevocable guarantee and shall
continue
in effect notwithstanding any extension or modification of any
guaranteed liability, other than any defenses or remedies available to
the Company under this guarantee.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
WITNESSES: CAREER HORIZONS, INC.
/s/ Leslie A. Adler By: /s/ Michael T. Druckman
------------------- ----------------------------------
Michael T. Druckman, Sr. V.P. & CFO
TSG PROFESSIONAL SERVICES, INC., a New
Hampshire corporation
/s/ Leslie A. Adler By:/s/ Richard P. Merriam
-------------------- ---------------------------------
Richard P. Merriam, President
/s/ Leslie A. Adler /s/ Stephen I. Evanoff
------------------- ----------------------------------
Stephen I. Evanoff
/s/ Leslie A. Adler /s/ Richard P. Merriam
------------------- ----------------------------------
Richard P. Merriam