EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
DATED AS OF APRIL 1, 1996
BY AND AMONG
OUTSOURCE INTERNATIONAL, INC.
AS BUYER
AND
PAY-RAY, INC.,
TRI-TEMPS, INC.
AND
EMPLOYEES UNLIMITED, INC.
AS SELLERS
AND
RAYMOND S. MORELLI
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
1. SALE OF ASSETS; ASSUMPTION OF LIABILITIES........................................................- 1 -
1.1 SALE OF ASSETS OF SELLERS..........................................................- 1 -
1.2 ASSETS RETAINED BY SELLERS.........................................................- 2 -
1.3 ASSUMPTION OF LIABILITIES..........................................................- 3 -
1.4 LEASES.............................................................................- 3 -
1.5 PAYMENT FOR ASSETS.................................................................- 4 -
1.6 ALLOCATION OF PURCHASE PRICE.......................................................- 4 -
1.7 PAYMENT OF PURCHASE PRICE..........................................................- 4 -
1.8 ENCUMBRANCES.......................................................................- 5 -
1.9 PRORATION..........................................................................- 5 -
2. CLOSING DATE.....................................................................................- 5 -
2.1 TIME AND PLACE OF CLOSING..........................................................- 5 -
2.2 DELIVERIES BY SELLERS AND MORELLI..................................................- 5 -
2.3 DELIVERIES BY BUYER................................................................- 7 -
3. REPRESENTATIONS AND WARRANTIES OF SELLERS AND MORELLI............................................- 7 -
3.1 TITLE TO ASSETS....................................................................- 7 -
3.2 CORPORATE STATUS OF PAY-RAY........................................................- 8 -
3.3 CORPORATE STATUS OF TRI-TEMPS......................................................- 8 -
3.4 CORPORATE STATUS OF EUI............................................................- 8 -
3.5 AUTHORITY CONCERNING THIS AGREEMENT................................................- 8 -
3.6 CONDITION OF REAL AND PERSONAL PROPERTY; LEASES....................................- 9 -
3.7 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES......................................- 9 -
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS...............................................- 9 -
3.9 CONTRACTS AND COMMITMENTS.........................................................- 11 -
3.10 ACCOUNTS RECEIVABLE...............................................................- 12 -
3.11 INTELLECTUAL PROPERTY.............................................................- 12 -
3.12 TAXES.............................................................................- 13 -
3.13 LITIGATION........................................................................- 13 -
3.14 EMPLOYEE BENEFIT PLANS; ERISA.....................................................- 13 -
3.15 CONSENTS AND APPROVALS; NO VIOLATION..............................................- 14 -
3.16 LICENSES, PERMITS AND AUTHORIZATIONS..............................................- 14 -
3.17 INSURANCE.........................................................................- 14 -
3.18 GUARANTEES........................................................................- 15 -
3.19 CORPORATE AND PERSONNEL DATA; LABOR RELATIONS.....................................- 15 -
3.20 COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS........................................- 15 -
3.21 ACCURACY OF INFORMATION FURNISHED.................................................- 16 -
4. REPRESENTATIONS AND WARRANTIES OF BUYER....................................................- 16 -
4.1 ORGANIZATION......................................................................- 16 -
4.2 AUTHORITY CONCERNING THIS AGREEMENT...............................................- 16 -
5. INDEMNIFICATION............................................................................- 17 -
5.1 INDEMNIFICATION OBLIGATION OF SELLERS AND MORELLI.................................- 17 -
5.2 INDEMNIFICATION OBLIGATION OF BUYER...............................................- 17 -
5.3 INDEMNITY PROCEDURE...............................................................- 17 -
5.4 PAYMENT...........................................................................- 18 -
6. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE.......................................- 18 -
6.1 PERFORMANCE OF OBLIGATIONS........................................................- 18 -
6.2 REPRESENTATIONS AND WARRANTIES....................................................- 18 -
6.3 DELIVERIES........................................................................- 18 -
6.4 EMPLOYMENT........................................................................- 18 -
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE........................................- 19 -
7.1 PERFORMANCE OF OBLIGATIONS........................................................- 19 -
7.2 APPROVALS.........................................................................- 19 -
7.3 ESTOPPEL CERTIFICATES.............................................................- 19 -
7.4 PROPERTY..........................................................................- 19 -
7.5 APPROVAL..........................................................................- 19 -
7.6 LITIGATION........................................................................- 19 -
7.7 NONCOMPETITION AGREEMENT..........................................................- 19 -
7.8 DISCLOSURE SCHEDULE...............................................................- 20 -
7.9 DELIVERIES........................................................................- 20 -
7.10 REPRESENTATIONS AND WARRANTIES....................................................- 20 -
7.11 OPINION OF SELLERS' COUNSEL.......................................................- 20 -
8. POST-CLOSING COVENANTS.....................................................................- 20 -
8.1 UNEMPLOYMENT RATE.................................................................- 20 -
8.2 TRANSITION SERVICES...............................................................- 20 -
8.3 ACCOUNTS RECEIVABLE OF BUYER......................................................- 20 -
8.4 ACCOUNTS RECEIVABLE OF SELLERS....................................................- 20 -
8.5 ACCOUNTS RECEIVABLE REPORTS.......................................................- 20 -
8.6 FURTHER ASSURANCES................................................................- 20 -
9. MISCELLANEOUS..............................................................................- 21 -
9.1 ENTIRE AGREEMENT..................................................................- 21 -
9.2 AMENDMENT.........................................................................- 21 -
9.3 NO THIRD PARTY BENEFICIARY........................................................- 21 -
9.4 SURVIVABILITY.....................................................................- 21 -
9.5 WAIVERS AND REMEDIES..............................................................- 21 -
9.6 SEVERABILITY......................................................................- 21 -
9.7 DESCRIPTIVE HEADINGS/RECITALS.....................................................- 22 -
9.8 COUNTERPARTS......................................................................- 22 -
9.9 NOTICES...........................................................................- 22 -
9.10 SUCCESSORS AND ASSIGNS............................................................- 22 -
9.11 APPLICABLE LAW....................................................................- 23 -
9.12 BROKERS AND AGENTS................................................................- 23 -
9.13 EXPENSES..........................................................................- 23 -
9.14 CONFIDENTIALITY...................................................................- 23 -
9.15 CERTAIN INTERPRETATIONS...........................................................- 23 -
9.16 CONSENT TO JURISDICTION...........................................................- 23 -
9.17 EQUITABLE RELIEF..................................................................- 24 -
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 1st day
of April, 1996 ("Agreement"), by and among OutSource International, Inc., an
Illinois corporation ("Buyer"), and Pay-Ray, Inc., an Illinois corporation
("Pay-Ray"), Tri-Temps, Inc., an Illinois corporation ("Tri-Temps") and
Employees Unlimited, Inc., an Illinois corporation ("EUI") (Pay-Ray, Tri-Temps
and EUI are sometimes individually referred to as a "Seller" and collectively
referred to as the "Sellers" in this Agreement), and Raymond S. Morelli
("Morelli").
RECITALS:
WHEREAS, pursuant to the terms of a Franchise Agreement dated June 1,
1994 between OutSource Franchising, Inc. (as assignee from Labor World of
America, Inc.) ("OutSource Franchising"), an affiliate of Buyer, and EUI, a
Franchise Agreement dated June 1, 1994 between OutSource Franchising and
Tri-Temps, a Franchise Agreement dated February 1, 1995 between OutSource
Franchising and Tri-Temps and a Franchise Agreement dated June 1, 1994 between
OutSource Franchising and EUI (collectively, the "Franchise Agreements"), the
Sellers operate "LABOR WORLD Businesses" (as such term is defined in the
Franchise Agreements) in and around Crystal Lake, Elgin, Loves Park and
Rockford, Illinois, and Kenosha, Milwaukee and Racine, Wisconsin (the
"Business") at the locations listed on SCHEDULE 1 hereto; and
WHEREAS, Morelli is the principal shareholder of each Seller; and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, on the terms and conditions set forth herein, substantially all of
the assets of the Sellers, which together constitute substantially all of the
assets that are used in connection with, necessary for, or beneficial to, the
operation of the Business;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. SALE OF ASSETS; ASSUMPTION OF LIABILITIES.
1.1 SALE OF ASSETS OF SELLERS. Subject to the terms and conditions
hereof, Sellers will sell, convey, assign, transfer and deliver to Buyer at the
Closing (as hereafter defined), and Buyer will purchase and accept at the
Closing, all of Sellers' rights, title and interest in and to the following
assets (as hereafter defined and collectively referred to as the "Assets"):
(a) All supplies, equipment, vehicles, machinery, furniture,
fixtures, leasehold improvements and other tangible property owned by Sellers or
used by Sellers in connection with the Business listed on SCHEDULE 1.1;
(b) Except for the Franchise Agreements and related documents,
all of Sellers' right, title and interest under all agreements or contracts to
which it is a party or by which it or the Assets are bound or which otherwise
relate to the Business listed in EXHIBIT A or SCHEDULE 3.9 hereto;
(c) All of Sellers' right, title and interest in and to the
Intellectual Property (as hereafter defined) owned by Sellers or used in the
Business;
(d) All proprietary knowledge, trade secrets, technical
information, quality control data, processes (whether secret or not), methods,
and other similar know-how or rights used in the Business;
(e) All of Sellers' utility, security and other deposits and
prepaid expenses;
(f) The Business as a going concern and its Permits (as hereafter
defined), licenses, telephone numbers, customer lists, vendor lists, advertising
material and data, restrictive covenants, lists of temporary employees, together
with all books, computer software, files, papers, records and other data of
Sellers relating to their respective assets, properties, business and
operations;
(g) All rights of Sellers' in and to their tradenames and
trademarks used in the Business, all variants thereof and all goodwill
associated therewith; and
(h) The employment applications of temporary and permanent staff
(the "Applications").
1.2 ASSETS RETAINED BY SELLERS. Notwithstanding the provisions of
Section 1.1, the Assets shall exclude all assets of the Sellers not specifically
identified in Section 1.1 or the schedules referred to therein (collectively,
the "Excluded Assets"). Without limiting the foregoing, the Excluded Assets
include, but are not limited to:
(a) the corporate charters, qualifications to conduct business as
a foreign corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, seals, minute books,
stock transfer books, blank stock certificates, and other documents relating to
the organization, maintenance, and existence of Sellers as corporations;
(b) all of Sellers' accounts receivable, cash and cash
equivalents;
(c) any and all prepaid expenses or premiums of Sellers;
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(d) any workers' compensation collateral reserves of Sellers;
(e) any and all credits or refunds due to Sellers;
(f) any and all claims, causes of action, choses in action,
rights of recovery or rights of recoupment of Sellers;
(g) any of the rights of Sellers under this Agreement (or under
any agreement between Sellers on the one hand and Buyer on the other hand
entered into on or after the date of this Agreement); and
(h) the Franchise Agreements which are being terminated by the
parties simultaneous with the Closing.
1.3 ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall assume, and
shall agree to satisfy and discharge as the same become due only those
liabilities and obligations of Sellers specifically listed on EXHIBIT A hereto
(the "Assumed Obligations"), including utility and security deposits of Sellers
(the "Deposits"), and, subject to Section 1.4 of this Agreement, the Assumed
Leases (as hereafter defined). Buyer shall not assume or be responsible at any
time for any liability, obligation, debt or commitment of any Seller, whether
absolute or contingent, accrued or unaccrued, asserted or unasserted, or
otherwise, that is not expressly listed on EXHIBIT A hereto. Without limiting
the generality of the foregoing sentence, Buyer shall not assume or be
responsible for any of the following: any amounts due to any of Sellers'
creditors listed on EXHIBIT A hereto in excess of the amounts expressly listed
thereon; any matured obligations under leases, licenses, contracts or agreements
in excess of the amounts expressly listed on EXHIBIT A hereto; any liabilities,
obligations, debts or commitments of a Seller incident to, arising out of, or
incurred with respect to, this Agreement and the transactions contemplated
hereby; any and all sales, use, franchise, income, gross receipts, excise,
payroll, personal property (tangible or intangible), real property, ad-valorem,
value added, leasing, leasing use, or other taxes, levies, imposts, duties,
charges or withholdings of any nature arising out of the transactions
contemplated hereby.
At Closing, Buyer shall reimburse Sellers for the amount of any Deposits
being assumed by Buyer.
Each Seller further agrees to satisfy and discharge as the same shall
become due all of its obligations and liabilities not specifically assumed by
Buyer hereunder. Buyer's assumption of the Assumed Obligations shall in no way
expand the rights and remedies of third parties against Buyer as compared to the
rights and remedies which such parties would have had against a Seller had this
Agreement not been consummated.
1.4 LEASES. Notwithstanding any other provision of this Agreement,
Buyer's assumption of any liabilities or obligations of any Seller with respect
to any lease or leasehold interest (the "Assumed Leases") shall be subject to
the terms of the Lease Assignment and Assumption
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Agreements to be delivered pursuant to Sections 2.1(f) and 2.3(e) of this
Agreement. The Assumed Leases are listed on SCHEDULE 1.4 hereto. Buyer and
Morelli shall enter into lease agreements for, and Buyer shall tender a security
deposit in an amount equal to the first month's rent, payable to Morelli, with
respect to, the 425 15th Avenue, Rockford, Illinois, 308 Dundee Avenue, Elgin,
Illinois, and 322 East Bay Street, Milwaukee, Wisconsin locations.
1.5 PAYMENT FOR ASSETS. Buyer shall purchase the Assets for an aggregate
purchase price (the "Purchase Price") of Four Million Eight Hundred Eighty-five
Thousand Four Hundred and Forty-seven Dollars ($4,885,447.00).
1.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets as set forth on EXHIBIT B hereto (the "Allocation"). The
Allocation shall be made in accordance with Section 1060 of the Internal Revenue
Code and applicable Treasury regulations. The Buyer, Morelli and each of the
Sellers shall (i) be bound by the Allocation for purposes of determining any
Taxes (as hereafter defined), (ii) prepare and file tax returns on a basis
consistent with the Allocation and (iii) take no position inconsistent with the
Allocation in any proceeding before any taxing authority or otherwise. In the
event that the Allocation is disputed by any taxing authority, the party
receiving notice of the dispute shall promptly notify the other parties hereto
of the receipt of such notice.
1.7 PAYMENT OF PURCHASE PRICE. Buyer shall pay the Purchase Price as
follows:
(a) Buyer shall pay Eight Hundred Sixty Thousand Five Hundred and
Seventy-nine Dollars ($860,579.00) to Pay-Ray by cashier's check or bank wire
(the "Pay-Ray Cash Payment") within one (1) business day following the Closing
Date; and
(b) Buyer shall pay Five Hundred Forty-six Thousand Two Hundred
and Eighty-six Dollars ($546,286.00) to Tri-Temps by cashier's check or bank
wire (the "Tri-Temps Cash Payment") within one (1) business day following the
Closing Date; and
(c) Buyer shall pay One Thousand Dollars ($1,000.00) to EUI by
cashier's check or bank wire (the "EUI Cash Payment") within one (1) business
day following the Closing Date; and
(d) Buyer shall pay Seventy-seven Thousand Five Hundred and
Eighty-two Dollars ($77,582.00) to the appropriate Seller as set forth in
EXHIBIT B for the tangible assets of Sellers by cashier's check or bank wire
(the "Tangible Assets Cash Payment")(the Pay-Ray Cash Payment, the Tri-Temps
Cash Payment, the EUI Cash Payment and the Tangible Assets Cash Payment are
hereafter collectively referred to as the "Cash Payments") within one (1)
business day following the Closing Date; and
(e) Buyer shall pay an amount equal to the interest on the
aggregate amount of the Cash Payments beginning on April 1, 1996 through the
Closing Date, calculated at the rate of
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ten percent (10%) per annum, by cashier's check or bank wire within one (1)
business day following the Closing Date; and
(f) At Closing, Buyer shall deliver to Pay-Ray a promissory note
in substantially the form attached as EXHIBIT C hereto in the principal amount
of Two Million Seventy-nine Thousand Seven Hundred and Eighty Dollars
($2,079,780.00) and shall deliver to Tri-Temps a promissory note in
substantially the form attached as EXHIBIT C hereto in the principal amount of
One Million Three Hundred Twenty Thousand Two Hundred and Twenty Dollars
($1,320,220.00). The Promissory Notes shall bear interest at the rate of ten
percent (10%) per annum and shall be convertible into shares of Buyer's common
stock in accordance with the terms of the Promissory Notes.
1.8 ENCUMBRANCES. The Assets shall be sold and conveyed to Buyer free
and clear of all mortgages, security interests, charges, encumbrances, liens,
assessments, covenants, claims, title defects, pledges, encroachments and
burdens of every kind or nature whatsoever, except for the matters set forth in
SCHEDULE 3.1 hereto (the "Permitted Liens").
1.9 PRORATION. Sellers shall pay at Closing all applicable transfer,
sales, use, bulk sales and other taxes, and all documentary, filing, recording
and vehicle registration fees payable as a result of the transfer of the Assets.
All ad valorem and property taxes, and any similar assessment based upon or
measured by Sellers' ownership interest in the Assets, shall be prorated between
Sellers and Buyer as of the Closing Date based upon such taxes assessed against
the Assets for the tax period in question, or if there is insufficient
information for such tax period, based upon taxes assessed for the immediately
preceding tax period. All such taxes shall be prorated on the basis of a 365-day
year. Sellers shall be charged for all such taxes and assessments based upon or
measured by Sellers' ownership prior to the Closing Date and Buyer shall be
charged for all such taxes and assessments based upon or measured by Buyer's
ownership on or after the Closing Date. All such prorations and payments shall
be made at the Closing.
2. CLOSING DATE.
2.1 TIME AND PLACE OF CLOSING. The closing of the sale and purchase of
the Assets (the "Closing") will take place at such time and place as Buyer and
Sellers shall mutually agree (the date of the Closing being hereinafter referred
to as the "Closing Date"). The transactions contemplated hereby shall be deemed
to be effective as of 11:59 p.m., Eastern Standard Time, on the April 1, 1996
(the "Effective Date").
2.2 DELIVERIES BY SELLERS AND MORELLI. At or prior to the Closing,
Sellers and Morelli shall execute and deliver or cause to be executed and
delivered to Buyer the following:
(a) A Bill of Sale, in substantially the form attached as
EXHIBIT D hereto;
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(b) An Assignment and Assumption Agreement, in substantially the
form attached as EXHIBIT E hereto;
(c) Mutual Termination Agreements for each of the Franchise
Agreements in substantially the form attached as EXHIBIT F hereto;
(d) A Release in substantially the form attached as EXHIBIT G
hereto;
(e) A Noncompetition Agreement in substantially the form attached
as EXHIBIT H hereto executed by Morelli.
(f) Lease Assignment and Assumption Agreements in substantially
the form attached as EXHIBIT J hereto;
(g) An Assignment of Applications, in substantially the form
attached as EXHIBIT K hereto;
(h) Leases in substantially the form attached as EXHIBIT N hereto
for the 425 15th Avenue, Rockford, Illinois, 308 Dundee Avenue, Elgin, Illinois,
and 322 East Bay Street, Milwaukee, Wisconsin locations;
(i) A Certificate executed as of the Closing Date by a duly
authorized officer of Pay-Ray certifying: (i) the resolutions of the Board of
Directors and Shareholders of Pay-Ray approving the transactions contemplated
hereby, and (ii) as to the accuracy of Pay-Ray's representations and warranties
and as to the performance and compliance of all of the terms, provisions and
conditions to be performed or complied with by Pay-Ray at or before Closing;
(j) A Certificate executed as of the Closing Date by a duly
authorized officer of Tri-Temps certifying: (i) the resolutions of the Board of
Directors and Shareholders of Tri-Temps approving the transactions contemplated
hereby, and (ii) as to the accuracy of Tri-Temps' representations and warranties
and as to the performance and compliance of all of the terms, provisions and
conditions to be performed or complied with by Tri-Temps at or before Closing;
(k) A Certificate executed as of the Closing Date by a duly
authorized officer of EUI certifying: (i) the resolutions of the Board of
Directors and Shareholders of EUI approving the transactions contemplated
hereby, and (ii) as to the accuracy of EUI's representations and warranties and
as to the performance and compliance of all of the terms, provisions and
conditions to be performed or complied with by EUI at or before Closing;
(l) The documents required pursuant to Sections 7.2, 7.3, 7.5,
7.11, 7.12, 7.13 and 7.14 of this Agreement; and
(m) Such other instruments of sale, transfer, conveyance and
assignment as Buyer and its counsel may reasonably request.
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2.3 DELIVERIES BY BUYER. At or prior to Closing, Buyer shall execute and
deliver or cause to be executed and delivered to Sellers the following:
(a) The Promissory Notes;
(b) An Assignment and Assumption Agreement, in substantially the
form attached as EXHIBIT E hereto;
(c) Mutual Termination Agreements for each of the Franchise
Agreements in substantially the form attached as EXHIBIT F hereto;
(d) A Release in substantially the form attached as EXHIBIT I
hereto;
(e) Lease Assignment and Assumption Agreements in substantially
the form attached as EXHIBIT J hereto;
(f) Leases in substantially the form attached as EXHIBIT N hereto
for the 425 15th Avenue, Rockford, Illinois, 308 Dundee Avenue, Elgin, Illinois,
and 322 East Bay Street, Milwaukee, Wisconsin locations;
(g) A Certificate executed as of the Closing Date by a duly
authorized officer of Buyer certifying: (i) the resolutions of the Board of
Directors of Buyer approving the transactions contemplated hereby, and (ii) as
to the accuracy of Buyer's representations and warranties and as to the
performance and compliance of all of the terms, provisions and conditions to be
performed or complied with by Buyer at or before Closing; and
(h) Such other instruments of assumption as Sellers and their
counsel may reasonably request.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS AND MORELLI. Sellers and Morelli,
jointly and severally, as a material inducement to Buyer to enter into this
Agreement and consummate the transactions contemplated hereby, make the
following representations and warranties to Buyer. Exceptions to such
representations and warranties are set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"). The Disclosure Schedule
shall be effective to modify only those representations and warranties to which
the Disclosure Schedule makes explicit reference. The phrase "to any Seller's
knowledge" or similar language used in this Section 3 shall, in each case, mean
the best knowledge of any Seller, after reasonable investigation.
3.1 TITLE TO ASSETS. Except as described in SCHEDULE 3.1 hereto, Sellers
have good, marketable and unencumbered title to the Assets (or, with respect to
any real or personal property leases included in the Assets, a valid leasehold
interest therein), free and clear of all mortgages, security interests, liens,
claims, encumbrances, title defects, pledges, charges, assessments, covenants,
encroachments and burdens of any kind or nature whatsoever, and have
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full right and authority to transfer and deliver all the Assets. Except as
described in SCHEDULE 3.1 hereto, upon consummation of the transactions
contemplated hereby, Sellers will have transferred to Buyer good, marketable and
unencumbered title to the Assets (or with respect to any real or personal
property leases included in the Assets, a valid leasehold interest therein),
free and clear of all mortgages, security interests, liens, claims,
encumbrances, title defects, pledges, charges, assessments, covenants,
encroachments and burdens of any kind or nature whatsoever. The Assets
constitute all of the assets that are used in connection with, necessary for, or
beneficial to the operation of the Business.
3.2 CORPORATE STATUS OF PAY-RAY. Pay-Ray is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Illinois. Pay-Ray is qualified to do business and in good standing in each
jurisdiction where the operation of its business requires that it be so
qualified. Pay-Ray has all requisite corporate power and authority to own,
operate and lease its properties and assets, to conduct its business as it is
now being conducted, to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. An accurate
and complete copy of the Articles of Incorporation and Bylaws of Pay-Ray, as
presently in effect, are included as an attachment to SCHEDULE 3.2 hereto.
3.3 CORPORATE STATUS OF TRI-TEMPS. Tri-Temps is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Illinois. Tri-Temps is qualified to do business and in good standing in each
jurisdiction where the operation of its business requires that it be so
qualified. Tri-Temps has all requisite corporate power and authority to own,
operate and lease its properties and assets, to conduct its business as it is
now being conducted, to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. An accurate
and complete copy of the Articles of Incorporation and Bylaws of Tri-Temps, as
presently in effect, are included as an attachment to SCHEDULE 3.3 hereto.
3.4 CORPORATE STATUS OF EUI. EUI is a corporation duly organized,
validly existing and in good standing under the laws of the state of Illinois.
EUI is qualified to do business and in good standing in each jurisdiction where
the operation of its business requires that it be so qualified. EUI has all
requisite corporate power and authority to own, operate and lease its properties
and assets, to conduct its business as it is now being conducted, to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. An accurate and complete copy of the Articles
of Incorporation and Bylaws of EUI, as presently in effect, are included as an
attachment to SCHEDULE 3.4 hereto.
3.5 AUTHORITY CONCERNING THIS AGREEMENT. The execution, delivery and
performance by Sellers of this Agreement and of each agreement, document or
instrument executed and delivered or to be executed and delivered in connection
with the transactions contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized and approved by all necessary corporate action of Sellers. This
Agreement is (and, when executed and delivered, each agreement, document or
instrument to be executed and
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delivered in connection with the transactions contemplated hereby will be) valid
and binding upon Sellers, and enforceable against Sellers in accordance with
their respective terms except to the extent that enforcement thereof may be
limited by applicable bankruptcy, reorganization, insolvency or moratorium laws,
or other laws affecting the enforcement of creditors' rights or by the
principles governing the availability of equitable remedies.
3.6 CONDITION OF REAL AND PERSONAL PROPERTY; LEASES. All real property
leased by Sellers and used in the operation of the Business is listed and
described in SCHEDULE 1.4 hereto. To the best of Sellers' knowledge, all
buildings and improvements located thereon are in good condition and repair,
subject only to normal wear and tear. All material items of tangible personal
property and assets owned or leased by Sellers and used in the operation of the
Business are described in SCHEDULE 1.1 hereto. All machinery and equipment
listed in SCHEDULE 1.1 conforms to all applicable ordinances, regulations, and
zoning or other laws. To the best of Seller's knowledge, all items listed on
SCHEDULE 1.1 are in good operating condition and repair, subject only to normal
wear and tear, and are adequate to conduct the Business as it is now being
conducted. Sellers have delivered to Buyer accurate and complete copies of all
leases relating to real or personal property leased by Sellers and used in the
operation of the Business. All such leases are in full force and effect, no
event of default has been declared thereunder and, to any Seller's knowledge, no
basis for any default exists. No such lease of real or personal property is
subject to termination or modification as a result of the transactions
contemplated hereby. Notwithstanding the foregoing, Buyer acknowledges that
Buyer is assuming Assumed Leases and acquiring the Assets listed in SCHEDULE 1.1
in an "as is" condition.
3.7 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Attached hereto as
part of SCHEDULE 3.7 are the Sellers' Financial Statements up through the period
ending December 31, 1995. The Financial Statements (x) present fairly the
financial position and results of operations of the Sellers for the dates or
periods indicated thereon, (y) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated and (z) accurately reflect the transactions, assets and
liabilities of Sellers as of the dates and for the periods presented. Except as
set forth in the Financial Statements or on SCHEDULE 3.7 hereto, Sellers have no
debts, liabilities or obligations, whether direct or indirect, accrued,
absolute, contingent, matured, known, unknown or otherwise, and whether or not
of a nature required to be reflected or reserved against in a balance sheet in
accordance with generally accepted accounting principles. No Seller is aware of
any basis for the assertion of any claims or liabilities of any nature which are
not fully reflected or reserved against in the Financial Statements or otherwise
disclosed in SCHEDULE 3.7 hereto.
3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 16, 1996,
Sellers have conducted their business only in the normal and ordinary course in
substantially the same manner as heretofore conducted and have used all
reasonable efforts consistent with normal business practices to preserve and
promote such business and to avoid any act that might have a material adverse
effect upon the value of such business as a going concern or upon the Assets. No
event has occurred to prevent any Seller's business from operating in a normal
and usual manner and
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in substantially the same manner as heretofore operated. Except as expressly set
forth in SCHEDULE 3.8 hereto, since February 16, 1996:
(a) there has not been any damage, destruction or loss, whether
covered by insurance or not, materially and adversely affecting any Seller's
business or the Assets;
(b) there has not been any (i) increase (other than normal merit
or cost-of-living increases in the ordinary course of business and consistent
with past practices) or material change: (y) in compensation or bonuses payable
to or to become payable by any Seller to its officers, employees or agents, or
(z) in any insurance, pension or other benefit plan, payment or arrangement made
to, for or with any of such officers, employees or agents; or (ii) other
material change in the employment terms of any officer, employee or agent of any
Seller;
(c) there has not been any sale, transfer or other disposition of
any tangible or intangible asset, or real or personal property or interest
therein, or any mortgage, lien or encumbrance placed thereon except in the
ordinary course of business and consistent with past practice;
(d) there have not been any capital expenditures, capital
additions, capital improvements or charitable contributions made, or committed
to be made, involving, individually or in the aggregate, Three Hundred Dollars
($300.00) or more, without the prior written consent of Buyer;
(e) there has not been any failure to maintain any Seller's
books, accounts and records in the usual, regular and ordinary manner and in
accordance with good business practices and consistent with past practice;
(f) there has not been any action taken or omitted to be taken by
any Seller which could cause (with or without the giving of notice or the
passage of time, or both) the breach, default, acceleration, amendment,
termination or waiver of or under any Material Agreement (as hereinafter
defined) or the imposition of any lien, encumbrance, mortgage or other claim or
charge against the Assets;
(g) there has not been any liability, obligation or commitment
incurred by any Seller involving, individually or in the aggregate, more than
$10,000.00;
(h) no Seller has entered into, nor has any Seller or the Assets
become subject to, any contracts, agreements, commitments, indentures,
mortgages, notes, bonds, license, real or personal property leases or other
obligations of the type required to be disclosed in SCHEDULE 3.9 hereto that are
not otherwise disclosed herein;
(i) no Seller has made any capital investment in, any loan to,
or any acquisition of the securities or assets of any person or entity;
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(j) there has been no change made or authorized in the charter
or bylaws of any Seller;
(k) no Seller has issued, sold or otherwise disposed of any of
its capital stock or granted any options, warrants or other rights to purchase
or obtain any of its capital stock;
(l) no Seller has declared, set aside or paid any dividend or
made any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased or otherwise acquired any of its capital stock;
(m) no Seller has made any loan to, or entered into any other
transaction with, any of its directors, officers or employees;
(n) there has not been any other event or condition of any
character which, individually or in the aggregate, has had or could reasonably
be expected to have a material adverse effect on the Assets or on the business,
financial condition or operations of any Seller; and
(o) there has not been any commitment to do any of the foregoing.
3.9 CONTRACTS AND COMMITMENTS. EXHIBIT A and SCHEDULES 1.4, 3.1 AND 3.9
hereto together include a true, correct and complete list of all material
contracts, agreements, commitments, indentures, mortgages, notes, bonds,
licenses, real and personal property leases and other obligations to which any
Seller is a party, by which any Seller or their assets or properties are bound
or may be affected or which otherwise relate to the Business (the "Material
Agreements"). Without limiting the generality of the foregoing, the term
Material Agreement includes: (a) any lease or license with respect to any
Assets, whether a Seller is tenant, landlord, licensor or licensee thereunder;
(b) any agreement, contract, indenture or other instrument relating to the
borrowing of money or the guarantee of any obligation or the deferred payment of
the purchase price of any Assets; (c) any agreement concerning a partnership or
joint venture; (d) any agreements between a Seller on the one hand and any of
its shareholders, officers, directors or employees on the other; (e) any
agreement relating to confidentiality or noncompetition; (f) any preferential
purchase right, right of first refusal or similar agreement; (g) any agreement
entered into outside of the ordinary course of business; or (h) any other
agreement (or group of related agreements) which could involve expenditures (in
cash or in kind) by a Seller in excess of $10,000.00 per year. True and complete
copies of all of the Material Agreements are included as part of SCHEDULES 1.4,
3.1 AND 3.9 hereto. Each of the Material Agreements listed in EXHIBIT A and
SCHEDULES 1.4, 3.1 AND 3.9 are valid, binding and enforceable in accordance with
their respective terms and are in full force and effect and were entered into in
the ordinary course of business on an "arms length" basis. No part of any
Seller's rights or benefits under any Material Agreement has been assigned,
transferred, or in any way encumbered. No Seller is in breach of nor has any
Seller defaulted under any of the Material Agreements and no occurrence or
circumstance exists which constitutes (with or without the giving of notice or
the passage of time or both) a breach or default by a Seller under any
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Material Agreement. To any Seller's knowledge, the other parties to the Material
Agreements are not in default thereunder and no occurrence or circumstance
exists which constitutes or would constitute (with or without the giving of
notice or the passage of time or both) a breach or default by the other party
thereunder. Except as set forth on SCHEDULES 1.4, 3.1 OR 3.9 hereto, neither any
Seller nor any of the Assets are bound by or subject to any contract, agreement,
commitment, indenture, mortgage, note, bond, license, real or personal property
lease or other obligation which on the Closing Date cannot be terminated upon
thirty (30) days' written notice by a Seller or Buyer without penalty or other
obligation being incurred upon such termination.
3.10 ACCOUNTS RECEIVABLE. Except as set forth in SCHEDULE 3.10 hereto,
all of Sellers' accounts receivable have arisen in the ordinary course of
business and, together with the allowance for doubtful accounts, have been
reflected in the Sellers' Financial Statements in accordance with generally
accepted accounting principles. All such accounts receivable are bona fide,
valid and binding receivables representing obligations for the face dollar
amount thereof and will be collected in full (subject to the allowance for
doubtful accounts as set forth on Sellers' Financial Statements) within ninety
(90) days of their due date and are subject to no defenses, counterclaims or
set-offs of any nature whatsoever. The allowance for doubtful accounts set forth
in the Sellers' Financial Statements is fully adequate to cover any losses
anticipated on such receivables.
3.11 INTELLECTUAL PROPERTY. Sellers own or are licensed to use all
patents, trademarks, copyrights, trade names, service marks and other trade
designations, including common law rights, registrations, applications for
registration, technology, know-how or processes necessary to conduct the
Business ("Intellectual Property"), free and clear of and without conflict with
the rights of others. Each item of Intellectual Property owned or used by
Sellers immediately prior to the Closing shall be owned or available for use by
Buyer on identical terms and conditions immediately subsequent to the Closing.
Sellers have taken all necessary and desirable action to maintain and protect
each item of Intellectual Property that Sellers own or use and to consummate the
transfer and assignment thereof to Buyer. Sellers have not interfered with,
infringed upon, misappropriated or otherwise come into conflict with any
Intellectual Property Rights of third parties, and Sellers have not received any
charge, complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or violation. To the knowledge of Sellers, no
third party has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of Sellers. SCHEDULE
3.11 hereto contains a true and correct description of the following:
(a) All Intellectual Property currently owned, in whole or in
part, by Sellers, and all licenses, royalties, assignments and other similar
agreements relating to the foregoing to which any Seller is a party; and
(b) All agreements relating to Intellectual Property that any
Seller is licensed or authorized to use from others or which any Seller licenses
or authorizes others to use.
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3.12 TAXES. All federal, state, local and foreign tax returns (including
information returns) and reports of any Seller required by any applicable law,
rule, regulation or procedure of any federal, state, local or foreign agency,
authority or body to be filed have been duly filed by such Seller. Sellers have
either (i) paid all federal, state, county, local, foreign and other taxes
(hereinafter "Taxes" or individually a "Tax") required to be paid by them
through the Closing Date and all deficiencies or other additions to Tax,
including interest or penalties owed in connection with any such Taxes or (ii)
included adequate provision for all such Taxes and deficiencies or other
additions to Tax applicable to any Seller in the Sellers' Financial Statements.
All Taxes and other assessments and levies required to be collected or withheld
by any Seller with respect to the operation of their business from customers
with respect to sales of products or from employees for income taxes, social
security taxes and unemployment insurance taxes have been collected or withheld,
and either paid to the respective governmental agencies, or set aside in an
account owned by a Seller and established for that purpose.
No Seller is a party to any pending action or proceeding regarding
assessment or collection of Taxes by any governmental authority. To any Seller's
knowledge, no action or proceeding regarding assessment or collection of Taxes
is threatened against any Seller. There are no facts or state of facts existing
that (with or without the giving of notice) or the passage of time or both)
could form the basis for any such action or proceeding. No Seller has executed
or filed any agreement with the Internal Revenue Service or any other taxing
authority extending the period for the assessment or collection of any Taxes.
3.13 LITIGATION. Except as set forth in SCHEDULE 3.7, there is no suit,
proceeding, action, claim or investigation, at law or in equity, pending or, to
any Seller's knowledge, threatened against or affecting in any way the assets,
properties or property interests of any Seller. There are no facts or state of
facts existing that (with or without the giving or notice or the passage of time
or both) could form the basis for any such suit, proceeding, action, claim or
investigation. No Seller nor any of their assets, property or property interests
is subject to any judgement, order, writ, injunction or decree of any court or
any federal, state, municipal, foreign or other governmental authority,
department, commission, board, bureau, agency or other instrumentality.
3.14 EMPLOYEE BENEFIT PLANS; ERISA.
(a) SCHEDULE 3.14 hereto lists all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) and each other employee benefit arrangement, contract,
agreement or policy, including, without limitation, pension, profit sharing or
thrift plans, medical benefit programs, death benefit and disability programs,
and severance, vacation and sick leave policies applicable to employees of the
Sellers (hereinafter referred to collectively as the "Plans").
(b) All Plans have complied in all material respects with all
applicable requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), and any
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predecessor Federal income tax laws, ERISA, all other applicable laws and any
applicable collective bargaining agreements.
(c) No single employer defined benefit pension plan or defined
benefit plan for a controlled group of corporations included within the Plans
has since 1976: (i) had any accumulated minimum funding deficiency; (ii) been
granted a waiver of the minimum funding standards contribution; (iii) been
terminated by its plan sponsor or the Pension Benefit Guaranty Corporation
("PBGC"); or (iv) incurred or reported a reportable event; and no such Plan has
assets valued at fair market value that are less than the present value of all
accrued liabilities using PBGC actuarial and interest rate assumptions in effect
on the date hereof as applicable to single employer plan terminations or plans
for a controlled group of corporations.
3.15 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution nor
delivery by any Seller of this Agreement, or any agreement, document or
instrument executed and delivered or to be executed and delivered in connection
with the transactions contemplated hereby, nor the consummation by any Seller of
the transactions contemplated hereby or thereby, nor compliance by any Seller
with any of the provisions hereof or thereof, will (a) conflict with or result
in a breach of any provision of any Seller's Articles of Incorporation or
Bylaws, (b) result in the breach of, or conflict with, any of the terms and
conditions of, or constitute a default (with or without the giving of notice or
the passage of time or both) with respect to, or result in the cancellation or
termination of, or the acceleration of the performance of any obligations or of
any indebtedness under, any Material Agreement, (c) result in the creation of a
lien, security interest, charge or encumbrance upon any of the Assets, or (iv)
violate any law or any rule or regulation of any administrative agency or
governmental body, or any order, writ, injunction or decree of any court,
administrative agency or governmental body to which any Seller or its properties
or assets may be subject. No approval, authorization, consent or other action
of, or filing with, or notice to any court, administrative agency or other
governmental authority or any other person or entity is required for the
execution and delivery by any Seller of this Agreement or any agreement,
document or instrument executed and delivered or to be executed and delivered in
connection with the transactions contemplated hereby or thereby, or the
consummation of the transactions contemplated hereby or thereby.
3.16 LICENSES, PERMITS AND AUTHORIZATIONS. Sellers have all permits,
licenses, certificates of occupancy, approvals or other authorizations from and
registrations with federal, state, municipal and foreign governmental agencies
and private associations necessary to operate their business (collectively the
"Permits") and all such Permits are in full force and effect and no suspension
or cancellation of any such Permit is threatened. Except as set forth in
SCHEDULE 3.16 hereto, all such Permits shall continue in full force and effect
on behalf of Buyer following consummation of the transactions contemplated by
this Agreement. A list of the Permits is included in SCHEDULE 3.16 hereto.
Sellers shall use their best efforts to assign the Permits to Buyer, but Buyer
shall have ultimate obligation to obtain such Permits.
3.17 INSURANCE. SCHEDULE 3.17 hereto contains a complete list of all
insurance policies maintained by any Seller with respect to the Business or the
Assets. Such insurance is in full
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force and effect; will not terminate or lapse by reason of the transaction
contemplated hereby; and is sufficient for compliance with all requirements of
law and any agreements to which any Seller is a party or by which the Assets are
bound.
3.18 GUARANTEES. Except as set forth in SCHEDULE 3.18 attached hereto,
neither the Business nor any of the Assets is or will be at the Closing,
directly or indirectly, (i) liable, by guarantee or otherwise, upon or with
respect to, (ii) obligated, by discount or repurchase agreement or in any other
way, to provide funds in respect of, or (iii) obligated to guarantee or assume,
any debt, dividend or other obligation of any person, corporation, association,
partnership or other entity.
3.19 CORPORATE AND PERSONNEL DATA; LABOR RELATIONS. Sellers are in
compliance with all federal, state, local and foreign laws, rules and
regulations affecting employment and employment practices of Sellers, including,
without limitation, those relating to terms and conditions of employment, wages,
workers' compensation and unemployment compensation. There are no complaints
pending, or to any Seller's knowledge threatened, against any Seller in
connection with any employment related matters. No Seller is a party to any
collective bargaining agreement. SCHEDULE 3.19 includes a monthly report which
reflects Sellers' current payroll; this report accurately reflects Sellers'
entire current monthly payroll obligations to their employees. SCHEDULE 3.19
also includes a list of the names and compensation levels of any consultants,
independent contractors or temporary employees regularly utilized by any Seller.
3.20 COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS.
(a) Sellers have at all times conducted their business and the
Assets have been held in compliance with all applicable laws, regulations,
ordinances, orders and other requirements of governmental authorities having
jurisdiction over any Seller. No Seller has received any formal or informal
notice, advice, claim or complaint alleging that any Seller has violated or may
have violated any law, regulation, ordinance or order and, to any Seller's
knowledge, no such notice, advice, claim or complaint of any type is threatened.
Sellers have at all times complied and presently comply with all applicable
federal, state, local and foreign laws, rules and regulations respecting
occupational safety and health standards and no Seller has received complaints
from any employee or any federal, state, local or foreign agency alleging any
violation of any federal, state, local or foreign laws respecting occupational
safety and health standards.
(b) Without limiting the generality of the foregoing, (i) all
real property owned or leased by any Seller and all buildings, fixtures,
equipment and other improvements located thereon and the present use thereof
comply in all respects with applicable fire codes, building codes, health codes,
ordinances and regulations; (ii) the business operations of Sellers (including
without limitation their leased and owned real property) are in compliance with
all applicable statutes, regulations, ordinances, decrees or orders of
governmental authorities relating to the environment (collectively the
"Environmental Laws") including without limitation those relating to Hazardous
Materials (as hereinafter defined); (iii) no Hazardous Material has been
spilled,
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released, deposited or discharged on any of any Seller's owned or leased real
property, no such real property has been used as a landfill or waste disposal
site, and such real property is free from pollution; (iv) no notice,
information, request, citation, summons or order has been received by any Seller
and no complaint has been filed and no penalty has been assessed or threatened
by any governmental authority with respect to (x) any alleged violation by any
Seller of any Environmental Law, (y) any alleged failure by any Seller to have
any environmental permit required in connection with the operation of their
business or (z) any generation, treatment, storage, recycling, transportation of
disposal of any Hazardous Material; and (v) there have not previously been and
are not presently any claims of any nature pursuant to any Environmental Law on
any properties owned or leased by any Seller. (As used in this Agreement, the
term Hazardous Material means any hazardous or toxic substance, material or
waste or pollutants, contaminants or asbestos containing material which is
regulated by any authority in any jurisdiction in which any Seller does
business.)
3.21 ACCURACY OF INFORMATION FURNISHED. No statement contained in this
Agreement or any Exhibit or Schedule attached hereto, and no statement contained
in any certificate or other instrument or document furnished by or on behalf of
any Seller pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
that is necessary to make the statements contained herein or therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. As a material inducement for
Sellers to enter into this Agreement and to consummate the transactions
contemplated hereby, Buyer represents and warrants to Sellers as follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of Illinois. Buyer has
all requisite corporate power and authority to own and operate its properties,
to carry on its business as now being conducted and to execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby.
4.2 AUTHORITY CONCERNING THIS AGREEMENT. The execution, delivery and
performance by Buyer of this Agreement and of each agreement, document or
instrument executed and delivered or to be executed and delivered in connection
with the transactions contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized and approved by all necessary corporate action of Buyer. This
Agreement is (and, when executed and delivered, each agreement, document or
instrument to be executed and delivered in connection with the transactions
contemplated hereby will be) valid and binding upon Buyer, and enforceable
against Buyer in accordance with their respective terms except to the extent
that enforcement thereof may be limited by applicable bankruptcy,
reorganization, insolvency or moratorium laws, or other laws affecting the
enforcement of creditors' rights or the principles governing the availability of
equity remedies.
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5. INDEMNIFICATION.
5.1 INDEMNIFICATION OBLIGATION OF SELLERS AND MORELLI. Sellers and
Morelli, jointly and severally, hereby agree to defend, indemnify and hold
harmless Buyer from, against and in respect of any loss, cost, damage or
expense, including but not limited to, legal and accounting fees and expenses
(and sales taxes thereon, if any) asserted against, imposed upon or paid,
incurred or suffered by Buyer (a "Loss"):
(a) as a result of, arising from or in connection with any breach
of any representation, warranty, covenant or agreement of any Seller or Morelli
in this Agreement or in any agreement, document or instrument executed and
delivered in connection with the transactions contemplated hereby; or
(b) any misrepresentation or inaccuracy in, or omission from the
Disclosure Schedule or from any certificate, schedule, statement, document or
instrument furnished by any Seller or Morelli to Buyer in connection with the
transactions contemplated by this Agreement.
5.2 INDEMNIFICATION OBLIGATION OF BUYER. Buyer hereby agrees to defend,
indemnify and hold harmless Sellers from, against and in respect of any loss,
cost, damage or expense, including but not limited to, legal and accounting fees
and expenses (and sales taxes thereon, if any) asserted against, imposed upon or
paid, incurred or suffered by Sellers (a "Loss"):
(a) as a result of, arising from or in connection with any breach
of any representation, warranty, covenant or agreement of Buyer in this
Agreement or in any agreement, document or instrument executed and delivered in
connection with the transactions contemplated hereby; or
(b) as a result of, arising from or in connection with the
Assumed Obligations.
5.3 INDEMNITY PROCEDURE. A party hereto agreeing to be responsible for
or to indemnify against any matter pursuant to this Agreement is referred to
herein as the "Indemnifying Party" and the other party claiming indemnity is
referred to as the "Indemnified Party." The Indemnified Party under this
Agreement shall give prompt written notice to the Indemnifying Party of any
liability which might give rise to a claim of indemnity under this Agreement;
provided, however, that any failure to give such notice will not waive any
rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced. As to any claim, action, suit or
proceeding by a third party, the Indemnifying Party shall be entitled to assume
defense thereof (at its expense) provided that counsel for the Indemnifying
Party who shall conduct the defense of such claim shall be approved by the
Indemnified Party. If the Indemnified Party does not approve such counsel, the
Indemnified Party may choose counsel to conduct the defense of such claim, at
its sole cost and expense. The Indemnified Party shall provide such cooperation
and such access to its books, records and properties as the Indemnifying Party
shall reasonably request with respect to such matter; and the parties hereto
agree to cooperate with each other in order to ensure the proper and adequate
- 17 -
defense thereof. If in the Indemnified Party's reasonable judgment, a conflict
of interest between the Indemnified Party and the Indemnifying Party exists in
respect of a claim, or, if the Indemnifying Party, after written notice from the
Indemnified Party, fails to take timely action to defend a claim, the
Indemnified Party may assume defense of such claim or action with counsel of its
choosing at the Indemnifying Party's cost.
An Indemnifying Party shall not make any settlement of any claim without
the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld. Without limiting the generality of the foregoing, it
shall not be deemed unreasonable to withhold consent to a settlement (i)
involving injunctive or other equitable relief against the Indemnified Party or
its assets, employees or business or (ii) which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
5.4 PAYMENT. The Indemnifying Party shall pay to the Indemnified Party
any amounts owed to the Indemnified Party pursuant to this Section 5 within
twenty (20) days after written request from the Indemnified Party to the
Indemnifying Party to make such payment accompanied by appropriate
substantiating documentation. In determining the amount owed hereunder, the
parties shall make appropriate adjustments for tax benefits and insurance
proceeds. Upon the payment in full of any claim, the Indemnifying Party shall be
subrogated to the rights of the Indemnified Party against any person, firm or
entity with respect to the subject matter of the claim or litigation.
6. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE. Sellers' obligation to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to Closing, of each of the following conditions
precedent (any or all of which may be waived in writing, in whole or in part, by
any Seller):
6.1 PERFORMANCE OF OBLIGATIONS. Buyer shall have performed all of its
obligations and complied with all of its covenants required to be performed or
to be complied with by it under this Agreement on or prior to the Closing Date.
6.2 REPRESENTATIONS AND WARRANTIES. Each representation and warranty of
Buyer contained in this Agreement shall be true and correct both at the date on
which this Agreement is signed and at and as of the Closing Date as if made at
and as of such time.
6.3 DELIVERIES. Buyer shall have delivered or caused delivery of the
items set forth in Section 2.3 of this Agreement.
6.4 EMPLOYMENT. Buyer shall have offered employment to each member of
Pay-Ray's branch office staff (a "PR Branch Office Staff Member") on terms
comparable to similarly situated employees of Buyer, including eligibility for
benefits and participation in stock option plans, and the compensation to be
paid to the PR Branch Office Staff Members shall remain at the level as of the
Closing Date through December 31, 1996, and then adjusted thereafter.
- 18 -
Buyer shall designate those PR Branch Office Staff Members who shall retain
their seniority with Buyer. Notwithstanding any other provision of this
Agreement, Buyer shall have no obligation to continue the employment of any PR
Branch Office Staff Member.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, at or prior to Closing, of each of the following conditions
precedent (any or all of which may be waived in writing, in whole or in part, by
Buyer):
7.1 PERFORMANCE OF OBLIGATIONS. Sellers and Morelli shall have performed
all of the obligations and complied with all of the covenants required to be
performed or to be complied with by them under this Agreement on or prior to the
Closing Date.
7.2 APPROVALS. Sellers shall have delivered to Buyer any and all
approvals, consents or assignments necessary for the consummation of the
transactions contemplated hereby, including, without limitation, any consents
required (i) by any governmental or administrative body, (ii) under any Material
Agreement, (iii) under any insurance policies that Buyer has determined should
continue in force after the Closing, or (iv) under any Permit.
7.3 ESTOPPEL CERTIFICATES. Sellers shall have delivered to Buyer
estoppel certificates from each of the lessors under each of Sellers' real and
personal property leases, in form and substance acceptable to Buyer.
7.4 PROPERTY. All of Sellers' real and personal property shall be in
good operating condition, structurally sound and in good repair. Notwithstanding
the foregoing, Buyer acknowledges that Buyer is assuming Assumed Leases and
acquiring the Assets listed in SCHEDULE 1.1 in an "as is" condition.
7.5 APPROVAL. The board of directors of each of the Sellers shall have
approved such Seller's entering into this Agreement and the consummation of the
transactions contemplated hereby. The board of directors of Buyer shall have
approved Buyer's entering into this Agreement and consummation of the
transactions contemplated hereby.
7.6 LITIGATION. There shall not have been instituted, pending or
threatened against any Seller, any suit, action or other proceeding by any
private party or governmental agency, commission, bureau or body seeking to
restrain or prohibit any of the transactions contemplated by this Agreement.
7.7 NONCOMPETITION AGREEMENTS. Sellers shall have assigned all
employment contracts, including noncompetition provisions, with each PR Branch
Office Staff Member. Dave Mehr shall have entered into a noncompetition
agreement with Buyer substantially in the form attached hereto as EXHIBIT M.
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7.8 DISCLOSURE SCHEDULE. Sellers shall have furnished to Buyer and its
representatives true, correct and complete copies of all documents, agreements
and instruments listed in the Disclosure Schedule.
7.9 DELIVERIES. Sellers and Morelli shall have delivered or caused
delivery of the items set forth in Section 2.2 hereof.
7.10 REPRESENTATIONS AND WARRANTIES. Each representation and warranty of
Sellers and Morelli contained in this Agreement shall be true and correct as of
the Effective Date.
7.11 OPINION OF SELLERS' COUNSEL. Buyer shall have received an opinion
from counsel of Sellers dated as of the Closing Date and in substantially the
form attached as EXHIBIT L hereto.
8. POST-CLOSING COVENANTS.
8.1 UNEMPLOYMENT RATE. Sellers and Morelli shall assist and cooperate
with Buyer to obtain the state unemployment compensation rate of Tri-Temps in
Wisconsin. No Seller shall be liable for costs associated with Buyer's attempt
to acquire the state unemployment compensation rate of any Seller. Sellers shall
not be liable for any underpayment of unemployment contributions which shall
accrue after the effective date of this Agreement but shall be liable for an
underpayment of unemployment contributions which accrued prior to the effective
date of this Agreement. Buyer agrees to defend, indemnify and hold harmless
Sellers from, against and in respect of any loss, cost, damage or expense,
including, but not limited to, legal and accounting fees and expenses, asserted
against, imposed upon or paid, incurred or suffered by Sellers as a result of
Buyer's acquisition of Sellers' unemployment rates.
8.2 TRANSITION SERVICES. Morelli shall assist Buyer, or Sellers shall
cause David Mehr to assist Buyer, on an as needed basis and without
compensation, with the Business for a period of forty-five (45) days following
the Closing Date.
8.3 ACCOUNTS RECEIVABLE OF BUYER. Sellers and Morelli covenant and agree
that if a Seller inadvertently collects an account receivable of the Buyer, such
Seller will deliver the amount received to Buyer within ten (10) days of receipt
by such Seller.
8.4 ACCOUNTS RECEIVABLE OF SELLERS. Buyer covenants and agrees that if
Buyer inadvertently collects an account receivable of a Seller, Buyer will
deliver the amount received to such Seller within ten (10) days of receipt by
Buyer.
8.5 ACCOUNTS RECEIVABLE REPORTS. Sellers and Morelli covenant and agree
that Sellers will deliver a weekly accounts receivable report to Buyer for
ninety (90) days following the Closing Date.
8.6 FURTHER ASSURANCES. Sellers and Morelli covenant and agree with
Buyer, its successors and assigns, that they will do, execute, acknowledge and
deliver, or cause to be done,
- 20 -
executed, acknowledged and delivered, any and all such further acts,
instruments, papers and documents as may be necessary to carry out and
effectuate the intent and purposes of this Agreement.
9. MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement and the Exhibits and Schedules to
this Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
understandings, agreements, arrangements and understandings, both oral and
written, between the parties hereto with respect to such subject matter. The
Exhibits and Schedules to this Agreement are incorporated into and constitute
part of this Agreement.
9.2 AMENDMENT. This Agreement may not be amended or modified in any
respect, except by the mutual written agreement of the parties hereto.
9.3 NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person,
firm, corporation, partnership, association or other entity, other than the
parties hereto and their respective successors and permitted assigns, any rights
or remedies under or by reason of this Agreement.
9.4 SURVIVABILITY. Notwithstanding any investigation made by or on
behalf of any party to this Agreement, the representations and warranties made
under and in connection with this Agreement shall be true and correct on and as
of the Effective Date with the same effect as if made on and as of such date and
shall survive the Closing and consummation of all the transactions contemplated
hereby for a period of five (5) years.
9.5 WAIVERS AND REMEDIES. The waiver by any of the parties hereto of any
other party's prompt and complete performance, or breach or violation, of any
provision of this Agreement shall not operate nor be construed as a waiver of
any subsequent breach or violation, and the waiver by any of the parties hereto
to exercise any right or remedy which it may possess hereunder shall not operate
nor be construed as a bar to the exercise of such right or remedy by such party
upon the occurrence of any subsequent breach or violation.
9.6 SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in this Agreement
shall not affect the enforceability of the remaining portions of this Agreement
or any part hereof, all of which are inserted conditionally on their being valid
in law, and, in the event that any one or more of the words, phrases, sentences,
clauses, sections or subsections contained in this Agreement shall be declared
invalid by a court of competent jurisdiction, this Agreement shall be construed
as if such invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or subsections had not
been inserted.
- 21 -
9.7 DESCRIPTIVE HEADINGS/RECITALS. Descriptive headings contained herein
are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. The recitals are incorporated
into and made a part of this Agreement.
9.8 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be
executed in counterparts by the separate parties hereto, all of which shall be
deemed to be one and the same instrument. Facsimile signatures shall have the
same effect as original signatures.
9.9 NOTICES. All notices, consents, requests, instructions, approvals
and other communications provided for herein and all legal process in regard
hereto shall be in writing and shall be deemed to have been duly given: when
delivered by hand; when delivered by facsimile (if written confirmation of
receipt of the facsimile is obtained from the party to be charged with notice);
five (5) days after being deposited in the United States mail, by registered or
certified mail, return receipt requested, postage prepaid; or on the second
business day after being sent (prepaid for next day delivery), via Federal
Express, Purolator Courier, DHL or other nationally recognized delivery service,
as follows:
If to Sellers
or Morelli: Raymond S. Morelli
c/o Office Ours
1111 Plaza Drive, Suite 320
Schaumberg, Illinois 60173
With a copy to: Louis J. Morelli, Esq.
37 W 570 Route 38
St. Charles, Illinois 60175
If to Buyer: OutSource International, Inc.
8000 North Federal Highway
Boca Raton, Florida 33487
With a copy to: Steven Sonberg, Esq.
Holland & Knight
One East Broward Boulevard
Fort Lauderdale, FL 33301
Phone: 305 468-7819
Fax: 305 463-2030
or to such other address as any party hereto may from time to time designate in
writing delivered in a like manner.
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns. None of
- 22 -
the parties hereto shall assign any of its rights or obligations hereunder
without the express written consent of the other party hereto.
9.11 APPLICABLE LAW. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in accordance with, the laws of the State of
Florida.
9.12 BROKERS AND AGENTS. Neither Sellers nor Buyer has retained any
broker with respect to the transactions contemplated pursuant to this Agreement.
Accordingly, each party agrees to indemnify the other with respect to any claims
made by any third part claiming a brokerage fee or commission arising out of the
transactions contemplated by this Agreement from said party.
9.13 EXPENSES. Each of the parties hereto agrees to pay all of the
respective expenses incurred by it in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including accountants' and
attorneys' fees.
9.14 CONFIDENTIALITY. No party hereto shall divulge the existence of the
terms of this Agreement, the transactions contemplated hereby or any information
about another party that such party may have acquired in connection with the
transaction, without the prior written approval of all of the parties hereto,
except and as to the extent (i) obligated by law or, (ii) necessary for such
party to defend or prosecute any litigation in connection with the transactions
contemplated hereby. The parties hereto acknowledge that any breach of the
foregoing will give rise to irreparable injury that is not compensable in
damages and agree that any party may seek and obtain equitable relief in the
form of specific enforcement, temporary restraining order, temporary or
permanent injunction, or any other equitable remedy that may then be available
to such party against the breach or threatened breach of such covenants, in
addition to any other legal remedies which may be available.
9.15 CERTAIN INTERPRETATIONS. Words such as "herein," "hereof,"
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular Section or subsection of this Agreement.
9.16 CONSENT TO JURISDICTION. The parties to this Agreement agree that
any claim, suit, action or proceeding arising out of or relating to this
Agreement shall be submitted for adjudication exclusively in any Florida state
or federal court sitting in Broward County, Florida and each of the parties
hereto expressly agrees to be bound by such selection of jurisdiction and venue
for purposes of such adjudication. Each party (i) waives any objection which it
may have that such court is not a convenient forum for any such adjudication,
(ii) agrees and consents to the personal jurisdiction of such court with respect
to any claim or dispute arising out of or relating to this Agreement or the
transactions contemplated hereby and (iii) agrees that process issued out of
such court or in accordance with the rules of practice of such court shall be
properly served if served personally or served by certified mail or other form
of substituted service, as provided under the rules of practice of such court.
In the event of any suit, action
- 23 -
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby the prevailing party thereunder shall be entitled to recover
reasonable attorneys' and paralegals' fees (for negotiations, trials, appeals
and collection efforts) and court costs incurred in connection therewith in
addition to any other relief to which such party may be entitled. The prevailing
party shall be the party that prevails on its claim whether or not an award or
judgement is entered in its favor.
9.17 EQUITABLE RELIEF. The parties hereto acknowledge and agree that any
party's remedy at law for any breach or threatened breach of this Agreement
which relates to requiring that the breaching party take any action or refrain
from taking any action, would be inadequate and such breach or threatened breach
shall be per se deemed as causing irreparable harm to such party. Therefore, in
the event of such breach or threatened breach, the parties hereto agree that in
addition to any available remedy at law, including but not limited to monetary
damages, an aggrieved party shall be entitled to obtain equitable relief in the
form of specific enforcement, temporary restraining order, temporary permanent
injunction, or any other equitable remedy that may then be available to the
aggrieved party.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
BUYER:
Witness:
OutSource International, Inc.
/s/ [ILLEGIBLE]
- -----------------------------
By: /s/ LOUIS A. MORELLI
-------------------------------------
Name: LOUIS A. MORELLI
- ----------------------------- Title: PRESIDENT
SELLERS:
Witness:
Pay-Ray, Inc.
/s/ [ILLEGIBLE]
- -----------------------------
By: /s/ RAYMOND S. MORELLI
-------------------------------------
Name: RAYMOND S. MORELLI
- ----------------------------- Title: PRESIDENT
- 24 -
Witness:
Tri-Temps, Inc.
/s/ [ILLEGIBLE]
- -----------------------------
By: /s/ RAYMOND S. MORELLI
-------------------------------------
Name: RAYMOND S. MORELLI
- ----------------------------- Title: PRESIDENT
Witness:
Employees Unlimited, Inc.
/s/ [ILLEGIBLE]
- -----------------------------
By: /s/ RAYMOND S. MORELLI
-------------------------------------
Name: RAYMOND S. MORELLI
- ----------------------------- Title: PRESIDENT
MORELLI:
/s/ RAYMOND S. MORELLI
-----------------------------------------
Raymond S. Morelli
- 25 -
LIST OF EXHIBITS
Exhibit A List of Assumed Obligations
Exhibit B Allocation of Purchase Price
Exhibit C Promissory Note
Exhibit D Bill of Sale
Exhibit E Assignment and Assumption Agreement
Exhibit F Mutual Termination Agreement
Exhibit G Release by Sellers
Exhibit H Morelli Noncompetition Agreement
Exhibit I Release by Buyer
Exhibit J Lease Assignment and Assumption Agreement
Exhibit K Assignment of Applications
Exhibit L Opinion of Counsel
Exhibit M Mehr Noncompetition Agreement
Exhibit N Leases
LIST OF SCHEDULES
Schedule 1 Locations
Schedule 1.1 Assets
Schedule 1.4 Assumed Leases
Schedule 3.1 Title to Assets
Schedule 3.2 Corporate Status of Pay-Ray
Schedule 3.3 Corporate Status of Tri-Temps
Schedule 3.4 Corporate Status of EUI
Schedule 3.7 Financial Statements; Undisclosed Liabilities
Schedule 3.8 Absence of Certain Changes or Events
Schedule 3.9 Contracts and Commitments
Schedule 3.10 Accounts Receivable
Schedule 3.11 Intellectual Property
Schedule 3.14 Employee Benefit Plans; ERISA
Schedule 3.16 Licenses, Permits and Authorizations
Schedule 3.17 Insurance
Schedule 3.18 Guarantees
Schedule 3.19 Corporate and Personnel Data; Labor Relations
BILL OF SALE
PAY-RAY, INC., an Illinois corporation ("Pay-Ray"), TRI-TEMPS, INC., an
Illinois corporation ("Tri-Temps") and EMPLOYEES UNLIMITED, INC. ("EUI")
(Pay-Ray, Tri-Temps and EUI are sometimes individually referred to as a "Seller"
and collectively referred to as the "Sellers") for good and valuable
consideration, paid by OUTSOURCE INTERNATIONAL, INC., an Illinois corporation
(the "Buyer"), the receipt and sufficiency of which are hereby acknowledged, has
bargained and sold and by these presents does hereby grant, bargain, sell,
assign, transfer and deliver unto Buyer the Assets (as such term is defined in
the Asset Purchase Agreement of even date herewith among Buyer, Sellers and
certain other parties).
TO HAVE AND TO HOLD the same unto Buyer, its successors and assigns,
forever, free, clear and discharged of all former grants, charges, taxes,
judgments, mortgages, liens, encumbrances and claims of whatsoever nature made
by any Seller or any person claiming by, through or under any Seller.
Sellers warrant that the Assets are free and clear of all encumbrances
and claims, that good title to and right to sell the Assets are vested in
Sellers, and that Sellers will defend the title against the lawful claims of all
persons whomsoever. Notwithstanding the foregoing, Buyer is acquiring the Assets
in an "as is" condition.
Sellers agree to indemnify, defend and hold Buyer harmless of, from and
against any losses, damages, costs, charges, encumbrances, expenses or any other
claim relating to any claim or liability by or to any third parties relating to
the Assets, to the extent such losses, damages, costs, charges, encumbrances,
expenses, claim or liability relate to the period prior to the date hereof.
IN WITNESS WHEREOF, this Bill of Sale has been executed by Sellers as
of the 1st day of April, 1996.
SELLERS:
Signed, sealed and delivered
in the presence of:
Pay-Ray, Inc.
/s/ LOUIS J. MORELLI
- ---------------------------
By: /s/ RAYMOND S. MORELLI
--------------------------------
Name: RAYMOND S. MORELLI
Title: PRESIDENT
/s/ LOUIS J. MORELLI
- ----------------------------
Tri-Temps, Inc.
/s/ LOUIS J. MORELLI
- ---------------------------
By: /s/ RAYMOND S. MORELLI
--------------------------------
Name: RAYMOND S. MORELLI
Title: PRESIDENT
/s/ LOUIS J. MORELLI
- ----------------------------
Employees Unlimited, Inc.
/s/ LOUIS J. MORELLI
- ---------------------------
By: /s/ RAYMOND S. MORELLI
--------------------------------
Name: RAYMOND S. MORELLI
Title: PRESIDENT
/s/ LOUIS J. MORELLI
- ----------------------------
2
STATE OF ILLINOIS
COUNTY OF KANE
The foregoing instrument was acknowledged before me this 16th day of
April, 1996, by Raymond S. Morelli, as President of Pay-Ray, Inc., who is
personally known to me (or who has produced DRIVERS LICENSE as
identification) and who did (did not) take an oath.
/s/ ANITA M. DAZZO
-------------------------
Name: ANITA M. DAZZO
Notary Public, State of ILLINOIS
Commission No.:
My commission expires: 9/30/97
"OFFICIAL SEAL"
ANITA M. DAZZO
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 9/30/97
3
STATE OF ILLINOIS
COUNTY OF KANE
The foregoing instrument was acknowledged before me this 16th day of
April, 1996, by Raymond S. Morelli, as President of Tri-Temps, Inc., who is
personally known to me (or who has produced DRIVERS LICENSE as
identification) and who did (did not) take an oath.
/s/ ANITA M. DAZZO
-------------------------
Name: ANITA M. DAZZO
Notary Public, State of ILL
Commission No.:
My commission expires: 9/30/97
"OFFICIAL SEAL"
ANITA M. DAZZO
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 9/30/97
4
STATE OF ILLINOIS
COUNTY OF KANE
The foregoing instrument was acknowledged before me this 16th day of
April, 1996, by Raymond S. Morelli, as President of Employees Unlimited, Inc.,
who is personally known to me (or who has produced DRIVERS LICENSE as
identification) and who did (did not) take an oath.
/s/ ANITA M. DAZZO
-------------------------
Name: ANITA M. DAZZO
Notary Public, State of ILLINOIS
Commission No.:
My commission expires: 9/30/97
"OFFICIAL SEAL"
ANITA M. DAZZO
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 9/30/97
5
AMENDMENT NUMBER 1
TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO THE ASSET PURCHASE AGREEMENT dated as of April
1, 1996 by and among OutSource International of America, Inc., a Florida
corporation, ("OSIA") (formerly known as OutSource International, Inc., an
Illinois corporation), Pay-Ray, Inc., an Illinois corporation, ("Pay-Ray"),
Tri-Temps, Inc., an Illinois corporation, ("Tri-Temps"), Employees Unlimited
Inc., an Illinois corporation, ("EUI") and Raymond S. Morelli ("Morelli") (the
"Purchase Agreement") is entered into this 21st day of February, 1997. All
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Purchase Agreement.
BACKGROUND
Pursuant to the Purchase Agreement OSIA purchased all of the assets of
Pay-Ray, Tri-Temps, and EUI, in exchange for cash and two promissory notes (each
an "Original Note"), copies of which are attached hereto as Exhibit 1. Morelli
is the majority shareholder of Pay-Ray and Tri-Temps, and OutSource
International, Inc., a Florida corporation ("OSI") is the sole shareholder of
OSIA. Pursuant to the terms of the Purchase Agreement and the Original Notes,
payments to be made to Pay-Ray and Tri-Temps were subordinate in certain
respects to certain indebtedness of OSIA. OSIA wishes to refinance certain of
its debt ("New Senior Debt") and to obtain additional financing ("Mezzanine
Financing"). As a condition to obtaining New Senior Debt and the Mezzanine
Financing OSIA is required to amend certain terms of the Purchase Agreement and
the Original Notes. In addition, OSI, OSIA and Morelli wish to amend certain
terms of the Purchase Agreement.
NOW THEREFORE, in consideration of the mutual representations,
warranties and covenants and subject to the conditions herein contained, the
parties agree as follows:
1. PAYMENT OF PURCHASE PRICE. Section 1.7 of the Purchase
Agreement is hereby amended as follows.
(a) The parties hereto acknowledge and agree that the outstanding
principal and interest due on the Original Note payable to Pay-Ray as of
February 21, 1997, is Two Million Two Hundred Seventy-Six Thousand Six Hundred
Thirty-Six and 23/100 Dollars ($2,276,636.23), and that the outstanding
principal and interest due on the Original Note payable to Tri-Temps as of
February 21, 1997 is One Million Five Hundred Forty-Seven Thousand Sixty-Seven
and 00/100 Dollars ($1,547,067.00). Upon execution of this Agreement, OSIA shall
make a cash payment to Pay-Ray in the amount of Seven Hundred Forty-Four
Thousand Two Hundred Fifty and 00/100 Dollars ($744,250.00) and a cash payment
to Tri-Temps in the amount
of Five Hundred Five Thousand Seven Hundred Fifty and 00/100
Dollars ($505,750.00).
(b) Upon execution of this Agreement OSIA shall also execute and
deliver to each of Pay-Ray and Tri-Temps an Amended and Restated Subordinated
Note in the forms attached hereto as Exhibit 2 which shall contain, as
appropriate, the terms and conditions contained in this Amendment, in exchange
for the cancellation of Original Notes previously delivered to Pay-Ray and
Tri-Temps. The Amended and Restated Subordinated Notes shall bear interest at
the rate of fourteen (14%) percent. The Amended and Restated Subordinated Note
issued to Pay-Ray shall be for the aggregate principal amount of One Million
Five Hundred Thirty-Two Thousand Three Hundred Eighty-Six and 23/100 Dollars
($1,532,386.23) and shall be payable in forty-eight (48) monthly installments of
Forty-One Thousand Eight Hundred Seventy-Four and 71/100 Dollars ($41,874.71)
commencing on April 1, 1997. The Amended and Restated Subordinated Note issued
to Tri-Temps shall be for the aggregate principal amount of One Million
Forty-One Thousand Three Hundred Seventeen and 00/100 Dollars ($1,041,317.00)
and shall be payable in forty-eight (48) monthly installments of Twenty-Eight
Thousand Four Hundred Fifty-Five and 52/100 Dollars ($28,455.52) commencing on
April 1, 1997. Upon execution and delivery of the Amended and Restated
Subordinated Notes, the Original Notes shall be returned to OSIA for
cancellation.
2. REACQUISITION RIGHTS UPON DEFAULT.
(a) If OSIA shall fail to make any principal or interest payment to
Pay-Ray or Tri-Temps under the Amended and Restated Subordinated Notes, within
thirty (30) days after their respective due date (a "Delinquent Payment"), and
such failure shall continue thereafter for a period of an additional 120 days,
Morelli shall have the right commencing on such 120th day (the "Election Date")
to reacquire certain of the business operations sold to OSIA pursuant to the
Purchase Agreement (the "Reacquisition Rights") in accordance with the terms
described below. Morelli may exercise his Reacquisition Rights by mailing a
"Reacquisition Notice" by personal service or certified mail, return receipt
requested to OSIA at any time after the Election Date and prior to any Cure Date
(as defined below) to either or both of Pay-Ray and Tri-Temps, as the case may
be. If Delinquent Payments shall be tendered prior to the date of mailing of the
Reacquisition Notice, Morelli's Reacquisition Right with respect to such
Delinquent Payments shall terminate. If any amount due under either Amended and
Restated Note shall thereafter become a Delinquent Payment, Morelli shall again
have the Reacquisition Rights described herein, subject to the exercise thereof
in accordance with the terms hereof prior to the "payment" of such Delinquent
Payment. For purposes of this Section 2, "payment" of a Delinquent Payment shall
take place on the date (the "Cure Date") that cleared funds are received in the
bank account of Pay-Ray or Tri-Temps as the case may be.
2
(b) For purposes hereof the term "Reacquisition Rights" shall mean the
right of Morelli to open and operate a staffing business at the Pay-Ray
Reacquisition Locations or the Tri-Temps Reacquisition Locations (as defined
below), and to acquire from OSIA the following assets of OSIA (the "Reacquired
Assets"): (i) employment contracts for all employees employed by OSIA at such
Reacquisition Location, (ii) customer lists for all customers serviced by OSIA
from such Reacquisition Location, (iii) all furniture, fixtures, leasehold
improvements and equipment (other than proprietary information or materials,
including computer software), and business records regarding the operations of
such Reacquisition Location.
(c) The term "Pay-Ray Reacquisition Locations" shall mean if the
Delinquent Payment shall arise with respect to any amount due to Pay-Ray prior
to February 28, 2000, the operations in Elgin, Illinois. In the event OSIA is
not conducting business operations at a designated Pay-Ray Reacquisition
Location at the time the Delinquent Payment originally became due, Morelli shall
have the right to designate an alternate location in the Northwest Region at
which OSIA is conducting business operations and which is producing gross income
in an amount approximately equal to the gross income of such defunct
Reacquisition Location, determined as of the date of this Amendment.
(d) The term "Tri-Temps Reacquisition Locations" shall mean, (i) if the
Delinquent Payment shall arise with respect to any amount due to Tri-Temps prior
to April 30, 1999, the operations in Kenosha, Wisconsin and Racine, Wisconsin,
(ii) if the Delinquent Payment shall arise with respect to any amount due to
Tri-Temps after April 30, 1999, the operations in Kenosha, Wisconsin. In the
event OSIA is not conducting business operations at a designated Tri-Temps
Reacquisition Location at the time the Delinquent Payment originally became due,
Morelli shall have the right to designate an alternate location in the Northwest
Region at which OSIA is conducting business operations and which is producing
gross income in an amount approximately equal to the gross income of such
defunct Reacquisition Location, determined as of the date of this Amendment.
(e) Morelli may, at his option, following the exercise of any
Reacquisition Rights, operate any or all of the Reacquisition Locations as a
franchisee of OSIA, or independent from OSIA. If Morelli elects to operate as a
franchisee he shall be required to execute and comply with the terms of OSIA's
standard franchise agreement, provided, however, that Morelli shall not be
required to pay any initial franchise fee. Morelli shall not use the trade name
"Labor World" or any other trade or service mark of OSIA for any Reacquisition
Location unless it shall operate as a franchise, and then only to the extent
then permitted in the applicable franchise agreements.
3
(f) The Reacquisition Notice shall specify a date for a closing (the
"Reacquisition Closing"), which shall be not less than ten (10) business days
following the date of the Reacquisition Notice. The Reacquisition Closing shall
be scheduled to effect the orderly transfer of the Reacquired Assets to Morelli
and such other matters as are described below, provided however that OSIA's
failure to cooperate in good faith in attending a Reacquisition Closing or in
delivering such documents as may be required shall not affect Morelli's legal
rights to the Reacquisition Assets or to commence operations at the
Reacquisition Location as of the date of the Reacquisition Closing specified in
the Reacquisition Notice.
(g) Upon the occurrence of an event giving rise to a Reacquisition
Right, the Non-Competition Agreements executed by Morelli, Pay-Ray, Tri-Temps
and David Mehr in connection with the Purchase Agreement shall be terminated and
of no further force or effect. For a period of one year following the
Reacquisition Closing, OSI shall not hire any individual employed directly or
indirectly by Morelli if such individual was employed by OSIA at any of the
Reacquisition Locations prior to the Reacquisition Closing.
(h) Following any Reacquisition Closing OSIA shall execute, acknowledge
and deliver to Morelli such other documents or instruments and take such other
reasonable action as may be requested by Morelli in order to carry out and
effectuate the intent and purposes of the Reacquisition.
(i) In order to enable Morelli to monitor the operations at the
Reacquisition Locations until the Amended and Restated Subordinated Note shall
be paid in full, OSIA shall, upon request by Morelli, deliver to Morelli copies
of all internal monthly operating reports pertaining to the Reacquisition
Locations, and shall, if requested by Morelli, on a quarterly basis meet with
Morelli in order to answer questions or discuss generally the operations of the
Reacquisitions Locations. In the event there are any Delinquent Payments
outstanding, Morelli shall have the right to increase the frequency of such
meetings to monthly. Any information obtained by Morelli shall constitute
confidential information and trade secrets and shall not be disclosed by Morelli
to any third parties other than financial advisors.
(j) Morelli shall be entitled to exercise the Reacquisition Rights
described herein even if OSIA shall be in Default under the terms of the Senior
Indebtedness, as such terms are defined in the Amended and Restated Subordinated
Notes. OSIA hereby waives its right to contest the Reacquisition Rights granted
hereunder on the basis that either Pay-Ray or Tri-Temps have adequate remedies
at law for money damages.
(k) The Reacquisition Rights provided for hereunder shall
apply separately to each of Pay-Ray and Tri-Temps, so that a
4
Delinquent Payment under the Pay-Ray Amended and Restated Subordinated Note will
only result in Reacquisition Rights to the Pay-Ray Reacquisition Locations and
Delinquent Payments under the Tri-Temps Amended and Restated Subordinated Note
will only result in Reacquisition Rights to the Tri-Temps Reacquisition
Locations.
(l) Upon the consummation of the Reacquisition Closing (i) OSIA
acknowledges that it will have no right to receive a return of any portion of
the purchase price paid to Pay-Ray or Tri-Temps, as appropriate, prior to the
Reacquisition Closing, and (ii) Pay-Ray and/or Tri-Temps, as appropriate,
acknowledge that they will have no right to collect any amounts otherwise due
under the respective Amended and Restated Subordinated Note and such note or
notes shall be returned to OSIA for cancellation.
3. MANDATORY ACCELERATION. In the event OSIA or an entity controlling,
controlled by or under common control with OSIA (the "Offering Company") files a
registration statement with the Securities and Exchange Commission for an
initial public offering of its common stock, and such registration statement is
declared effective, upon the closing of the sale of the shares to the public the
entire outstanding principal balance due under the Amended and Restated
Subordinated Notes payable to Pay-Ray and Tri-Temps, together with all accrued
and unpaid interest thereon. For purposes of this section the term "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of an entity.
4. ASSIGNMENT. The Reacquisition Rights set forth in Section 2 hereof are unique
and special rights granted solely to Morelli and may not be sold, transferred or
assigned by Morelli to any other person or entity. Notwithstanding the
foregoing, however, Morelli may assign the Reacquisition Rights to any trust
established by Morelli solely for the benefit of his Family (a "Morelli Trust")
or to any corporation in which Morelli or a Morelli Trust is the owner of at
least sixty (60%) percent of all outstanding voting stock, provided, however,
that no assignment shall be made to any corporation in which Morelli or a
Morelli Trust owns less than one hundred (100%) percent if any of the remaining
shares are owned, directly or indirectly, by any entity which is a competitor of
OSIA which has consolidated gross revenues in excess of $50 million. The term
"Morelli" as used in this Amendment shall mean Morelli individually or any
assignee of Morelli as permitted under this Section 4.
5. EXPENSES. Upon execution of this Amendment the Company shall
pay all expenses incurred by Morelli in connection with the
negotiations, preparation and delivery of this Amendment and the
continuation of the transactions contemplated hereunder including
all accounting and legal fees.
5
6. CONTINUING EFFECT. Except as provided herein the terms and
conditions set forth in the Purchase Agreement shall remain in full
force and effect. The effective date of this Agreement shall be
the date set forth above.
7. EXECUTION. This Agreement may be executed in counterparts,
which may be by facsimile signature, each of which shall be
considered an original, and when taken together shall constitute
one document.
8. ATTORNEYS' FEES. If OSIA is found by a court of competent
jurisdiction to be in default under the terms of this Amendment,
Morelli shall be entitled to recover reasonable attorneys' fees and
court costs incurred in connection with such default.
9. CONSENT TO JURISDICTION. Section 9.16 of the Asset Purchase Agreement shall
be amended such that the reference to Florida state or federal court sitting in
Broward County, Florida shall be deemed to mean Illinois state or federal court
sitting in or for Kane County, Illinois.
IN WITNESS WHEREOF, the parties have executed this Amendment Number 1
to Asset Purchase Agreement on the date set forth above.
WITNESSES: OUTSOURCE INTERNATIONAL OF
AMERICA, INC., a Florida
corporation
/s/ ILLEGIBLE By: /s/ ROBERT LEFCORT
- -------------------------- -------------------------------
Illegible Robert Lefcort
Vice President
PAY-RAY, INC., an Illinois
corporation
/s/ ILLEGIBLE By: /s/ RAYMOND S. MORELLI
- -------------------------- -------------------------------
Illegible Raymond S. Morelli
TRI-TEMPS, INC., an Illinois
corporation
/s/ ILLEGIBLE By: /s/ RAYMOND S. MORELLI
- -------------------------- -------------------------------
Illegible Raymond S. Morelli
EMPLOYEES UNLIMITED INC., an
Illinois corporation
/s/ ILLEGIBLE By: /s/ RAYMOND S. MORELLI
- -------------------------- -------------------------------
Illegible Raymond S. Morelli
6
/s/ RAYMOND S. MORELLI
-------------------------------
Raymond S. Morelli
Bank of Boston Connecticut, as agent ("Lender"), executes this Amendment Number
1 To Asset Purchase Agreement solely for the purpose of consenting to Pay-Ray
and Tri-Temps Reacquisition Rights set forth in Section 2 and covenant to
execute such documents reasonably requested by Pay-Ray or Tri-Temps in order to
release Lender's security interest in such assets in the event of an exercise of
Reacquisition Rights.
BANK OF BOSTON CONNECTICUT
By: /s/ ILLEGIBLE
---------------------------
7
EXHIBIT 1
ORIGINAL NOTES
8
EXHIBIT 2
AMENDED AND RESTATED SUBORDINATED NOTES
9
AFFIDAVIT OF LOST PROMISSORY NOTE
STATE OF ILLINOIS
COUNTY OF KANE
Raymond S. Morelli ("Affiant"), on behalf of and as PRESIDENT of
Pay-Ray, Inc., an Illinois corporation ("Pay-Ray"), being duly sworn, deposes
and says:
1. That OutSource International of America, Inc., a Florida corporation
(formerly known as OutSource International, Inc., an Illinois corporation) (the
"Corporation") has issued a promissory note dated April 1, 1996 in the principal
amount of $2,079,780.00 (the "Original Note") to Pay-Ray.
2. The Original Note has been lost, destroyed, or stolen so that it
cannot be found or produced, and Pay-Ray has not endorsed, assigned, sold,
pledged, hypothecated, negotiated or otherwise transferred the Original Note or
an interest therein.
3. That Pay-Ray has made a diligent effort to find the Original Note.
4. It is understood by Pay-Ray that if the Original Note is found, that
it will surrender said certificate to the Secretary of the Corporation for
cancellation.
5. This Affidavit of Lost Promissory Note is made for the purpose of
inducing the Corporation to issue an Amended and Restated Subordinated Note to
Pay-Ray.
6. Pay-Ray hereby agrees to indemnify and holds harmless the
Corporation and all of its shareholders from and against all costs, expenses,
liabilities, claims and amounts, including attorneys' fees, arising in
connection with claims regarding the Original Note or the issuance of a new
Amended and Restated Subordinated Note.
/s/ RAYMOND S. MORELLI
-----------------------------------
Raymond S. Morelli, as President of
Pay-Ray, Inc.
The foregoing affidavit was sworn to and subscribed before me this 20
day of February, 1997, by Raymond S. Morelli, as President of Pay-Ray, Inc., an
Illinois corporation, who is personally known to me or who has produced Driver's
License as identification and who did take an Oath.
/s/ ANITA M. DAZZO
-------------------------------
(AFFIX NOTARIAL SEAL) Notary Public, State of Florida
(Name) Anita M. Dazzo
Commission Number: _________________ My Commission Expires: 9/30/97
FTL1-231528
OUTSOURCE INTERNATIONAL, INC.
SUBORDINATED CONVERTIBLE NOTE
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
OTHER STATE. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED FOR SALE, SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED NOR WILL ANY
ASSIGNEE OR TRANSFEREE HEREOF BE RECOGNIZED BY THE CORPORATION AS
HAVING ANY INTEREST IN SUCH NOTE WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH NOTE UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS.
$2,079,780.00 ------------------------
April 1, 1996
FOR VALUE RECEIVED, OutSource International, Inc., a corporation
organized and existing under the laws of the state of Illinois (the "Company"),
hereby promises to pay Pay-Ray, Inc. (together with any subsequent holder of
this Note, the "Holder") the principal sum of Two Million Seventy-nine Thousand
Seven Hundred and Eighty U.S. Dollars ($2,079,780.00), with interest in arrears
on the unpaid principal balance from time to time outstanding from the date
hereof until due and payable at the rate provided in Section 1(a) hereof. Each
Holder of this Note, by acceptance hereof, agrees to and shall be bound by the
provisions of this Note.
1. TERMS OF NOTE
(a) INTEREST AND PRINCIPAL. This Note shall bear interest on the
outstanding principal balance hereof (i) at the rate of ten percent (10%) per
annum (computed on the basis of a 365- day year) through the Determination Date
(as such term is defined in Section 1(c) hereof) and (ii) at the rate of
fourteen percent (14%) per annum (computed on the basis of a 365-day year) after
the Determination Date. Except as otherwise set forth in this Agreement, all
payments of principal and interest hereunder shall be made by the Company in
lawful money of the United States of America in immediately available funds on
the date such payment is due at the address of the Holder on the books of the
Company or such other place as the holder hereof shall designate to the Company
in writing.
No principal or interest payments shall be required to be paid to
Holder until the Determination Date. Beginning thirty (30) days after the
Determination Date and on the same day of each month thereafter, the Company
shall pay to Holder forty-eight (48) equal monthly payments of principal and
interest in the amount of $58,249.99, on or before the date forty-eight (48)
months after the Determination Date (the "Maturity Date"). If any amount of
principal and
interest hereunder is not paid within five (5) business days of its due date,
such amount shall bear interest at eighteen percent (18%) per annum until paid.
(b) VOLUNTARY PREPAYMENT. Prior to July 1, 1997, the Company may not
prepay this Note in whole or in part (a "Voluntary Prepayment") without the
written consent of Holder. Beginning July 1, 1997, the Company may make one or
more Voluntary Prepayments from time to time without premium or penalty, upon
not less than ten (10) days' prior written notice to the Holder hereof. Each
such notice shall specify the prepayment date (the "Prepayment Date") and the
principal amount hereof to be prepaid. All Voluntary Prepayments shall be
applied first to accrued but unpaid interest and second to the payment of
principal on this Note. Notwithstanding the foregoing, if the Company elects to
make a Voluntary Prepayment prior to the Conversion Date without the written
consent of the Holder, the Company shall deliver to Holder an option to
purchase, at the Conversion Price (as such term is defined in Section 2(c)
below), the number of shares of Common Stock of the Offering Company (as such
term is defined in Section 2(d) hereof) equal to the quotient obtained by
dividing (i) One Million Two Hundred Twenty-seven Thousand Seventy Dollars
($1,227,070.00) by (ii) the Conversion Price.
(c) DETERMINATION DATE. The "Determination Date" means the earlier of
(i) the Conversion Date (as such term is defined in Section 2(b) hereof) or (ii)
July 1, 1996.
(d) PAYMENTS. Principal, interest and charges hereunder are payable in
lawful money of the United States. Payments under this Note shall be made by
direct wire transfer, at the Company's cost, to such banking or savings
institution as Holder shall direct from time to time.
2. CONVERSION.
(a) CONVERSION OF NOTE INTO COMMON STOCK. On the Conversion Date,
subject to and in compliance with the provisions of this Section 2, (i) the
Company shall pay to Holder by cashier's check or bank wire (y) the Cash
Conversion Payment (as such term is defined in Section 2(e) hereof) and (z) all
of the accrued and unpaid interest of this Note, and (ii) all of the outstanding
principal amount of this Note, less the amount of the Cash Conversion Payment,
shall be converted into shares of Common Stock of the Offering Company (as such
term is defined in Section 2(d) hereof). The number of shares of Common Stock to
which the Holder shall be entitled upon conversion shall be the quotient
obtained by dividing the outstanding principal amount of this Note, less the
amount of the Cash Conversion Payment, by the Conversion Price (determined as
provided in Section 2(c) hereof). The Offering Company's delivery to the holder
of the Cash Conversion Payment and the fixed number of shares of Common Stock of
the Offering Company (and any cash in lieu of a fractional share of such Common
Stock) shall be deemed to satisfy the Company's obligation to pay the principal
amount of the Note and all accrued interest that has not previously been paid.
The Cash Conversion Payment and the Common Stock of the Offering Company so
delivered shall be treated as payment of accrued interest and principal. Thus,
accrued interest shall be treated as paid rather than cancelled, extinguished or
forfeited. No fractions of shares or scrip representing fractions of shares will
be issued on conversion, but instead of any fractional interest the Company
shall
2
pay a cash adjustment. Notwithstanding the foregoing, the Company shall have no
obligation to pay the Cash Conversion Payment and the accrued and unpaid
interest and to deliver the shares of Common Stock unless and until the Holder
tenders this Note to the Company marked "PAID IN FULL".
(b) CONVERSION DATE. The "Conversion Date" means the closing date of
the sale of the Offering Company's newly issued Common Stock in a public
offering (the "Public Offering").
(c) CONVERSION PRICE. The Conversion Price per share shall be equal to
the offering price per share of the Common Stock pursuant to the Public
Offering.
(d) OFFERING COMPANY. The "Offering Company" means the Company or an
entity controlling, controlled by or under common control with the Company for
which a registration statement for the initial public offering of its Common
Stock has become effective. For the purposes of this definition, the term
"control" shall mean the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of an entity.
(e) CASH CONVERSION PAYMENT. The "Cash Conversion Payment" means an
amount equal to the lesser of (i) Eight Hundred Fifty-two Thousand Seven Hundred
and Ten Dollars ($852,710.00) (the "Initial Cash Amount") or (ii) the Initial
Cash Amount less the aggregate amount of all payments of principal of this Note
made by the Company through the Conversion Date; provided, however, that if the
aggregate amount of all payments of principal of this Note made by the Company
through the Conversion Date is greater than the Initial Cash Amount, the Cash
Conversion Payment shall be zero.
3. CONVERSION REPRESENTATIONS.
(a) The Holder by its acceptance of this Note acknowledges that it is
aware that this Note and the shares of Common Stock issuable to it by the
Offering Company upon the conversion of this Note have not been registered under
the Securities Act or the securities laws of any state or other jurisdiction.
(b) The Holder warrants and represents to the Company that it has
acquired this Note, and, upon the conversion of this Note, it will be acquiring
Common Stock, for investment and not with a view to or for sale in connection
with any distribution of this Note or such Common Stock or with any intention of
distributing or selling this Note or such Common Stock. As a condition to the
issuance of Common Stock upon conversion, the Holder requesting to convert this
Note shall execute appropriate investment letters and other documents, if any,
as may be reasonably required by the Company and its counsel to assure that such
Common Stock is issued only in compliance with applicable securities laws.
(c) All shares of Common Stock acquired by the Holder upon conversion
shall be evidenced by stock certificate(s) containing a restrictive legend
indicating the shares have not
3
been registered pursuant to the Securities Act or the securities laws of any
state or other jurisdiction and may not be sold or transferred unless pursuant
to the Securities Act and securities laws of any applicable state or other
jurisdiction.
(d) The Holder has no right to demand that the Offering Company
register this Note or the shares of Common Stock issued or issuable under this
Note.
4. SUBORDINATION IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS.
(a) SUBORDINATION. The principal and interest on this Note is and shall
be subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Indebtedness (as defined
below).
(b) SENIOR INDEBTEDNESS. "Senior Indebtedness" means the "Secured
Obligations," as such term is defined in the Loan Agreement (as defined below),
together with (a) all complete or partial refinancings of the Secured
Obligations, (b) any increases, amendments, modifications, renewals or
extensions of any of the foregoing and (c) any interest accruing on the
foregoing after the commencement of a Proceeding (as defined below), without
regard to whether or not such interest is an allowed claim; provided, however,
that in no event shall the principal amount of the Senior Indebtedness exceed
$40,000,000. Senior Indebtedness shall be considered to be outstanding whenever
any loan commitment under the Loan Agreement is outstanding.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or
distribution of assets of the Company of any kind or character (whether in cash,
securities or other property) to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
(i) The holders of Senior Indebtedness shall be entitled
to receive payment in full of all Senior Indebtedness
or such payment shall first be duly provided for in
cash or in a manner satisfactory to the holders of
Senior Indebtedness before Holder shall be entitled
to receive any payment on this Note; and
(ii) Until the Senior Indebtedness is paid in full in cash
or in a manner satisfactory to the holders of Senior
Indebtedness, any payment or distribution to which
the Holder would be entitled but for this Section
shall be made to the Agent (as defined below) for
application to the payment of the Senior
Indebtedness, except that the Holder may receive
securities, including interest notes, that are
subordinated to the Senior Indebtedness to at least
the same extent as this Note.
(iii) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Holder on account of this
4
Note at a time when such payment is prohibited by
this Section, such payment or distribution shall be
held by the Holder, in trust for the ratable benefit
of, and shall be paid forthwith over and delivered
to, the Agent for application to the payment of all
Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in
accordance with its terms, after giving effect any
concurrent payment or distribution to or for the
holders of Senior Indebtedness, and the Holder
irrevocably authorizes, empowers and directs all
receivers, trustees, liquidators, custodians,
conservators and others having authority in the
premises to effect all such payments and
distributions, and the Holder also irrevocably
authorizes, empowers and directs the Agent to demand,
sue for, collect and receive every such payment or
distribution.
(iv) The Holder agrees to execute, verify, deliver and
file any proofs of claim in respect of the
indebtedness evidenced by this Note requested by the
Agent in connection with any such proceeding and
hereby irrevocably authorizes, empowers and appoints
the Agent as its agent and attorney-in- fact to (A)
execute, verify, deliver and file such proofs of
claim upon the failure of the Holder to do so not
less than thirty (30) days before the expiration of
the time to file any such proof and (b) vote such
claim in any such proceeding upon the failure of the
Holder to do so prior to five (5) days before the
expiration of the time to vote any such claim;
provided that the Agent shall have no obligation to
execute, verify, deliver, file and/or vote any such
proof of claim.
(d) DEFAULT ON SENIOR INDEBTEDNESS.
(i) Upon the maturity of the Senior Indebtedness by lapse
of time, acceleration (unless waived in writing by
the holders of Senior Indebtedness) or otherwise, all
of the Senior Indebtedness shall first be paid in
full, or such payment duly provided for, in cash or
in a manner satisfactory to the holders of the Senior
Indebtedness, before any payment is made by the
Company on account of this Note and, until all of the
Senior Indebtedness is paid in full, any payment or
other distribution to which the Holder would be
entitled but for the provisions of this Section shall
(unless otherwise required by this Section 4) be made
to the Agent, for application to the payment of the
Senior Indebtedness, except that the Holder may
receive securities, including interest notes, that
are subordinated to the Senior Indebtedness to at
least the same extent as this Note.
(ii) During the continuance of any default in the payment
of any of the Senior Indebtedness, upon the
occurrence of receipt by the Holder of written notice
from the Agent specifying that such payment default
has occurred
5
and is continuing, the Company may not make any
payment of principal, interest, or other amounts
owing on this Note, and the Holder may not pursue any
Collection Action (as defined below) until such
payment default has been cured by the Company or
waived in writing by the holders of the Senior
Indebtedness.
(iii) During the continuance of any other event of default
with respect to the Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, upon
the occurrence of receipt by the Holder of written
notice from the Agent specifying that it is a payment
blockage notice delivered pursuant to this Section,
the Company may not make any payment of principal,
interest or other amounts owing on this Note, and the
Holder may not pursue any Collection Action, for a
period ("Payment Blockage Period") commencing on the
date of receipt of such notice and ending one hundred
and eighty (180) days thereafter (unless such Payment
Blockage Period shall be terminated by written notice
to the Holder under this clause (iii) from the
Agent). The aggregate duration of all Payment
Blockage Periods shall not exceed one hundred and
eighty (180) days during any period of three hundred
and sixty (360) consecutive days.
(iv) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Holder on account of this Note at
a time when such payment is prohibited by this
Section, unless otherwise required by this Section,
such payment or distribution shall be held by the
Holder, in trust for the ratable benefit of, and
shall be paid forthwith over and delivered to, the
Agent for application to the payment of all of the
Senior Indebtedness remaining unpaid to the extent
necessary to pay all of the Senior Indebtedness in
full in accordance with its terms, after giving
effect any concurrent payment or distribution to or
for the holders of the Senior Indebtedness.
(e) SUBROGATION. After all Senior Indebtedness is paid in full and
until this Note is paid in full (but not prior to such time), the Holder shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments and distributions applicable to the Senior Indebtedness to the extent
that payments and distributions otherwise payable to the Holder have been
applied to the payment of Senior Indebtedness. A payment or distribution made
under this Section to holders of Senior Indebtedness which otherwise would have
been made to the Holder is not, as between the Company and the Holder, a payment
by the Company on Senior Indebtedness.
(f) NO COLLECTION ACTION. Until all of the Senior Indebtedness is paid
in full and all loan commitments under the Loan Agreement have terminated, the
Holder shall not take any Collection Action with respect to the indebtedness
evidenced by this Note until the expiration of thirty (30) days following the
Holder's delivery to the Agent of written notice to the effect
6
that an Event of Default has occurred under this Note and that the Holder
intends to take Collection Action in respect thereof, provided, however, that
the right of the Holder to take Collection Action after the expiration of such
thirty (30) day period shall be subject to the limitations of Section 4(d).
(g) RETURN OF PAYMENTS. The provisions of this Section 4 shall be
reinstated if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of the Senior Indebtedness
or any representative of such holder.
(h) NO CHALLENGE TO SENIOR INDEBTEDNESS. The Holder agrees not to
initiate or prosecute any claim, action or other proceeding challenging the
enforceability of the Senior Indebtedness or any liens and security interests
securing the Senior Indebtedness.
(i) MODIFICATIONS TO SENIOR INDEBTEDNESS. The holders of the Senior
Indebtedness may at any time and from time to time without the consent of or
notice to the Holder, without incurring liability to the Holder and without
impairing or releasing the obligations of the Holder under this Section 4,
change the manner or place of payment or extend the time of payment of or renew
or alter any Senior Indebtedness, or amend in any manner any agreement, note,
guaranty or other instrument evidencing or securing or otherwise relating to the
Senior Indebtedness; provided that such holders shall not increase the principal
amount of the Senior Indebtedness to an amount in excess of the limit set forth
in the definition of "Senior Indebtedness" herein.
(j) NO SECURITY FOR NOTE. The Holder represents that it does not have,
and agrees that it shall not acquire, any security interest in the assets of the
Company or any other Borrower (as defined in the Loan Agreement) as security for
the indebtedness evidenced hereby.
(k) NO MODIFICATION OF NOTE. Until all of the Senior Indebtedness is
paid in full and all loan commitments under the Loan Agreement have terminated,
without the prior written consent of the Agent, the Holder shall not agree to
any amendment, modification or supplement to this Note or the indebtedness
evidenced by this Note, including without limitation, any amendment,
modification or supplement the effect of which is to (i) increase the principal
amount hereof or the rate of interest hereon, (ii) change the dates upon which
payments of principal or interest hereon are due, (iii) change or add any event
of default, (iv) change the prepayment provisions hereof or (v) alter the
subordination provisions hereof, including, without limitation, subordinating
this Note or the indebtedness evidenced hereby to any other debt.
(l) ASSIGNMENT. Until all of the Senior Indebtedness is paid in full
and all loan commitments under the Loan Agreement have terminated, the Holder
shall not sell, assign, pledge, dispose of or otherwise transfer all or any
portion of this Note or the indebtedness evidenced hereby unless prior to the
consummation of any such action, the transferee thereof shall execute and
deliver to the Agent an agreement providing for the continued subordination of
this Note and the indebtedness evidenced hereby as provided herein.
Notwithstanding the failure to execute or deliver any such agreement, the
subordination effected hereby shall survive
7
any sale, assignment, pledge, disposition or other transfer of all or any
portion of this Note or the indebtedness evidenced hereby, and the subordination
terms of this Note shall be binding upon the successors and assigns of the
Holder.
(m) PAYMENT ON CONVERSION DATE. This Section 4 shall not prohibit the
Company from making the Cash Conversion Payment to the Holder on the Conversion
Date from the proceeds of the Public Offering, provided that the Company also
makes all payments that are due on the Senior Indebtedness on the Conversion
Date.
(n) CERTAIN DEFINED TERMS. As used herein,
(i) "Agent" means The First National Bank of Boston, in
its capacity as agent for the holders of the Senior
Indebtedness, or any successor agent appointed
pursuant to the terms of the Loan Agreement, provided
that the Holder may rely on a certificate from any
such successor agent to the effect that such
successor is acting as a successor agent under the
Loan Agreement.
(ii) "Collection Action" means (A) to demand, sue for,
take or receive from or on behalf of the Company, by
set-off or in any other manner, the whole or any part
of any moneys which may now or hereafter be owing by
the Company under this Note, (B) to initiate or
participate with others in any suit, action or
proceeding against the Company to (1) enforce payment
of or to collect the whole or any part of the
indebtedness evidenced by this Note or (2) commence
judicial enforcement of any of the rights and
remedies under this Note or applicable law with
respect to this Note, or (C) to accelerate any
indebtedness evidenced by this Note.
(iii) "Loan Agreement" means that certain Loan and Security
Agreement dated as of July 20, 1995, among the
Company, certain of its affiliates, the lenders party
thereto from time to time and The First National Bank
of Boston, as agent for said lenders, as heretofore
or hereafter amended, supplemented or restated from
time to time.
(iv) "Proceeding" means any voluntary or involuntary
insolvency, bankruptcy, receivership, custodianship,
liquidation, dissolution, reorganization, assignment
for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with
similar powers or any other proceeding for the
liquidation, dissolution or other winding up of the
Company or any other Borrower (as such term is
defined in the Loan Agreement).
8
5. EVENTS OF DEFAULT AND ACCELERATION.
If any of the following events shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about to be effected by operation of law or otherwise):
(a) the Company defaults in the payment of the principal of or any
interest on this Note and such default continues for a period of thirty (30)
business days after the date such payment was due; or
(b) the Company shall:
(i) have commenced a voluntary case under Title 11 of the
United States Code as from time to time in effect, or have authorized, by
appropriate proceedings of its board of directors or other governing body, the
commencement of such a voluntary case;
(ii) have filed an answer or other pleading admitting or
failing to deny the material allegations of a petition filed against it
commencing an involuntary case under said Title 11, or seeking, consenting to or
acquiescing in the relief therein provided, or have failed to controvert timely
the material allegations of any such petition;
(iii) be subject to the entry of an order for relief against
it in any involuntary case commenced under said Title 11 which remains
undischarged or unstayed for more than sixty (60) days;
(iv) have sought relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the insolvency,
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or have consented to or acquiesced in such relief;
(v) be subject the entry of an order by a court of competent
jurisdiction (A) finding it to be bankruptcy or insolvent or (B) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors which remains undischarged or unstayed for more than
sixty (60) days;
(vi) be subject to the entry of an order by a court of
competent jurisdiction assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property which remains
undischarged or unstayed for more than sixty (60) days; or
(vii) have entered into a composition with its creditors or
have appointed or consented to the appointment of a receiver or other custodian
for all or a substantial part of its property;
9
then, subject to the provisions of Section 4, the Holder may, by ten (10) days
written notice to the Company, declare the Company to be in default hereunder
(an "Event of Default") and may exercise any right, power or remedy permitted to
such holder or holders by law, including, without limitation:
(y) the right to declare the entire principal amount of this
Note and accrued interest thereon, if any, due and payable; and
(z) the right to commence any proceeding against the Company
in furtherance of the foregoing.
6. COMPLIANCE WITH USURY LAWS.
All agreements between the Company and the Holder are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the Indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Holder for the use,
forbearance or detention of the Indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term "applicable law"
shall mean the law in effect as of the date hereof; provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Note shall be governed by such new law as of its
effective date. If, from any circumstance whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity, and if from any circumstances the Holder should ever receive as
interest an amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the principal
balance evidenced hereby and not to the payment of interest. This provision
shall control every other provision of all agreements between the Company and
the Holder.
7. DEFINED TERMS.
Unless the context otherwise requires, all capitalized words and
phrases used but not defined herein and defined in the Asset Purchase Agreement
shall have the respective meanings attributed thereto in the Asset Purchase
Agreement.
8. NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing, shall be deemed to have been duly given when received by the
intended recipient and shall be delivered by overnight delivery service or hand
delivered, addressed as follows:
10
If to Holder:
c/o Raymond S. Morelli
Office Ours
1111 Plaza Drive, Suite 320
Schaumberg, Illinois 60173
With a copy to:
Louis J. Morelli, Esq.
37 W 570 Route 38
St. Charles, Illinois 60175
If to Company:
OutSource International, Inc.
8000 North Federal Highway
Boca Raton, Florida 33487
With a copy to:
Holland & Knight
One East Broward Boulevard, Suite 1300
Fort Lauderdale, Florida 33301
Attention: Steven Sonberg, Esquire
9. GOVERNING LAW.
This Note shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the State
of Illinois. The parties to this Note agree that any claim, suit, action or
proceeding arising out of or relating to this Note shall be submitted for
adjudication exclusively in any Illinois state or federal court sitting in Kane
County, Illinois and each of the parties hereto expressly agrees to be bound by
such selection of jurisdiction and venue for purposes of such adjudication. Each
party (i) waives any objection which it may have that such court is not a
convenient forum for any such adjudication, (ii) agrees and consents to the
personal jurisdiction of such court with respect to any claim or dispute arising
out of or relating to this Agreement or the transactions contemplated hereby and
(iii) agrees that process issued out of such court or in accordance with the
rules of practice of such court shall be properly served if served personally or
served by certified mail or other form of substituted service, as provided under
the rules of practice of such court.
11
10. WAIVER OF TRIAL BY JURY.
THE COMPANY AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE COMPANY OR HOLDER.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
under seal by its duly authorized officer as of the date set forth above.
OUTSOURCE INTERNATIONAL, INC.
By: /s/ LOUIS A. MORELLI
----------------------------
Name: Louis A. Morelli
----------------------------
Title: President
----------------------------
ATTEST:
By: /s/ DAVID H. HINZE
----------------------------
Name: David H. Hinze
----------------------------
Title: Vice President
----------------------------
[Corporate Seal]
ACCEPTED AND AGREED:
PAY-RAY, INC.
By: /s/ RAYMOND S MORELLI
----------------------------
Name: Raymond S. Morelli
----------------------------
Title: President
----------------------------
12
STATE OF ILLINOIS
COUNTY OF KANE
The foregoing instrument was acknowledged before me this 16th day of
April, 1997, by Louis A. Morelli, President of OutSource International, Inc., on
behalf of the company. He who is personally known to me/has produced Driver's
License as identification.
(SEAL)
/s/ ANITA M. DAZZO
--------------------------
Printed/Typed Name: Anita M. Dazzo
Notary Public State of Illinois
Commission Number:
13
OUTSOURCE INTERNATIONAL, INC.
SUBORDINATED CONVERTIBLE NOTE
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OF THIS NOTE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
OTHER STATE. THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A
VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED FOR SALE, SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED NOR WILL ANY
ASSIGNEE OR TRANSFEREE HEREOF BE RECOGNIZED BY THE CORPORATION AS
HAVING ANY INTEREST IN SUCH NOTE WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH NOTE UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES LAWS.
$1,320,220.00 ------------------------
April 1, 1996
FOR VALUE RECEIVED, OutSource International, Inc., a corporation
organized and existing under the laws of the state of Illinois (the "Company"),
hereby promises to pay Tri-Temps, Inc. (together with any subsequent holder of
this Note, the "Holder") the principal sum of One Million Three Hundred Twenty
Thousand Two Hundred and Twenty U.S. Dollars ($1,320,220.00), with interest in
arrears on the unpaid principal balance from time to time outstanding from the
date hereof until due and payable at the rate provided in Section 1(a) hereof.
Each Holder of this Note, by acceptance hereof, agrees to and shall be bound by
the provisions of this Note.
1. TERMS OF NOTE
(a) INTEREST AND PRINCIPAL. This Note shall bear interest on the
outstanding principal balance hereof (i) at the rate of ten percent (10%) per
annum (computed on the basis of a 365- day year) through the Determination Date
(as such term is defined in Section 1(c) hereof) and (ii) at the rate of
fourteen percent (14%) per annum (computed on the basis of a 365-day year) after
the Determination Date. Except as otherwise set forth in this Agreement, all
payments of principal and interest hereunder shall be made by the Company in
lawful money of the United States of America in immediately available funds on
the date such payment is due at the address of the Holder on the books of the
Company or such other place as the holder hereof shall designate to the Company
in writing.
No principal or interest payments shall be required to be paid to
Holder until the Determination Date. Beginning thirty (30) days after the
Determination Date and on the same day of each month thereafter, the Company
shall pay to Holder forty-eight (48) equal monthly payments of principal and
interest in the amount of $36,976.40, on or before the date forty-eight
(48) months after the Determination Date (the "Maturity Date"). If any amount of
principal and interest hereunder is not paid within five (5) business days of
its due date, such amount shall bear interest at eighteen percent (18%) per
annum until paid.
(b) VOLUNTARY PREPAYMENT. Prior to July 1, 1997, the Company may not
prepay this Note in whole or in part (a "Voluntary Prepayment") without the
written consent of Holder. Beginning July 1, 1997, the Company may make one or
more Voluntary Prepayments from time to time without premium or penalty, upon
not less than ten (10) days' prior written notice to the Holder hereof. Each
such notice shall specify the prepayment date (the "Prepayment Date") and the
principal amount hereof to be prepaid. All Voluntary Prepayments shall be
applied first to accrued but unpaid interest and second to the payment of
principal on this Note. Notwithstanding the foregoing, if the Company elects to
make a Voluntary Prepayment prior to the Conversion Date without the written
consent of the Holder, the Company shall deliver to Holder an option to
purchase, at the Conversion Price (as such term is defined in Section 2(c)
below), the number of shares of Common Stock of the Offering Company (as such
term is defined in Section 2(d) hereof) equal to the quotient obtained by
dividing (i) Seven Hundred Seventy-eight Thousand Nine Hundred and Thirty
($778,930.00) by (ii) the Conversion Price.
(c) DETERMINATION DATE. The "Determination Date" means the earlier of
(i) the Conversion Date (as such term is defined in Section 2(b) hereof) or (ii)
July 1, 1996.
(d) PAYMENTS. Principal, interest and charges hereunder are payable in
lawful money of the United States. Payments under this Note shall be made by
direct wire transfer, at the Company's cost, to such banking or savings
institution as Holder shall direct from time to time.
2. CONVERSION.
(a) CONVERSION OF NOTE INTO COMMON STOCK. On the Conversion Date,
subject to and in compliance with the provisions of this Section 2, (i) the
Company shall pay to Holder by cashier's check or bank wire (y) the Cash
Conversion Payment (as such term is defined in Section 2(e) hereof) and (z) all
of the accrued and unpaid interest of this Note, and (ii) all of the outstanding
principal amount of this Note, less the amount of the Cash Conversion Payment,
shall be converted into shares of Common Stock of the Offering Company (as such
term is defined in Section 2(d) hereof). The number of shares of Common Stock to
which the Holder shall be entitled upon conversion shall be the quotient
obtained by dividing the outstanding principal amount of this Note, less the
amount of the Cash Conversion Payment, by the Conversion Price (determined as
provided in Section 2(c) hereof). The Offering Company's delivery to the holder
of the Cash Conversion Payment and the fixed number of shares of Common Stock of
the Offering Company (and any cash in lieu of a fractional share of such Common
Stock) shall be deemed to satisfy the Company's obligation to pay the principal
amount of the Note and all accrued interest that has not previously been paid.
The Cash Conversion Payment and the Common Stock of the Offering Company so
delivered shall be treated as payment of accrued interest and principal. Thus,
accrued interest shall be treated as paid rather than cancelled, extinguished or
forfeited. No fractions of shares or scrip representing fractions
2
of shares will be issued on conversion, but instead of any fractional interest
the Company shall pay a cash adjustment. Notwithstanding the foregoing, the
Company shall have no obligation to pay the Cash Conversion Payment and the
accrued and unpaid interest and to deliver the shares of Common Stock unless and
until the Holder tenders this Note to the Company marked "PAID IN FULL".
(b) CONVERSION DATE. The "Conversion Date" means the closing date of
the sale of the Offering Company's newly issued Common Stock in a public
offering (the "Public Offering").
(c) CONVERSION PRICE. The Conversion Price per share shall be equal to
the offering price per share of the Common Stock pursuant to the Public
Offering.
(d) OFFERING COMPANY. The "Offering Company" means the Company or an
entity controlling, controlled by or under common control with the Company for
which a registration statement for the initial public offering of its Common
Stock has become effective. For the purposes of this definition, the term
"control" shall mean the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of an entity.
(e) CASH CONVERSION PAYMENT. The "Cash Conversion Payment" means an
amount equal to the lesser of (i) Five Hundred Forty-one Thousand Two Hundred
and Ninety Dollars ($541,290.00) (the "Initial Cash Amount") or (ii) the Initial
Cash Amount less the aggregate amount of all payments of principal of this Note
made by the Company through the Conversion Date; provided, however, that if the
aggregate amount of all payments of principal of this Note made by the Company
through the Conversion Date is greater than the Initial Cash Amount, the Cash
Conversion Payment shall be zero.
3. CONVERSION REPRESENTATIONS.
(a) The Holder by its acceptance of this Note acknowledges that it is
aware that this Note and the shares of Common Stock issuable to it by the
Offering Company upon the conversion of this Note have not been registered under
the Securities Act or the securities laws of any state or other jurisdiction.
(b) The Holder warrants and represents to the Company that it has
acquired this Note, and, upon the conversion of this Note, it will be acquiring
Common Stock, for investment and not with a view to or for sale in connection
with any distribution of this Note or such Common Stock or with any intention of
distributing or selling this Note or such Common Stock. As a condition to the
issuance of Common Stock upon conversion, the Holder requesting to convert this
Note shall execute appropriate investment letters and other documents, if any,
as may be reasonably required by the Company and its counsel to assure that such
Common Stock is issued only in compliance with applicable securities laws.
3
(c) All shares of Common Stock acquired by the Holder upon conversion
shall be evidenced by stock certificate(s) containing a restrictive legend
indicating the shares have not been registered pursuant to the Securities Act or
the securities laws of any state or other jurisdiction and may not be sold or
transferred unless pursuant to the Securities Act and securities laws of any
applicable state or other jurisdiction.
(d) The Holder has no right to demand that the Offering Company
register this Note or the shares of Common Stock issued or issuable under this
Note.
4. SUBORDINATION IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS.
(a) SUBORDINATION. The principal and interest on this Note is and shall
be subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full of all Senior Indebtedness (as defined
below).
(b) SENIOR INDEBTEDNESS. "Senior Indebtedness" means the "Secured
Obligations," as such term is defined in the Loan Agreement (as defined below),
together with (a) all complete or partial refinancings of the Secured
Obligations, (b) any increases, amendments, modifications, renewals or
extensions of any of the foregoing and (c) any interest accruing on the
foregoing after the commencement of a Proceeding (as defined below), without
regard to whether or not such interest is an allowed claim; provided, however,
that in no event shall the principal amount of the Senior Indebtedness exceed
$40,000,000. Senior Indebtedness shall be considered to be outstanding whenever
any loan commitment under the Loan Agreement is outstanding.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or
distribution of assets of the Company of any kind or character (whether in cash,
securities or other property) to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
(i) The holders of Senior Indebtedness shall be entitled
to receive payment in full of all Senior Indebtedness
or such payment shall first be duly provided for in
cash or in a manner satisfactory to the holders of
Senior Indebtedness before Holder shall be entitled
to receive any payment on this Note; and
(ii) Until the Senior Indebtedness is paid in full in cash
or in a manner satisfactory to the holders of Senior
Indebtedness, any payment or distribution to which
the Holder would be entitled but for this Section
shall be made to the Agent (as defined below) for
application to the payment of the Senior
Indebtedness, except that the Holder may receive
securities, including interest notes, that are
subordinated to the Senior Indebtedness to at least
the same extent as this Note.
4
(iii) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Holder on account of this Note at
a time when such payment is prohibited by this
Section, such payment or distribution shall be held
by the Holder, in trust for the ratable benefit of,
and shall be paid forthwith over and delivered to,
the Agent for application to the payment of all
Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in
accordance with its terms, after giving effect any
concurrent payment or distribution to or for the
holders of Senior Indebtedness, and the Holder
irrevocably authorizes, empowers and directs all
receivers, trustees, liquidators, custodians,
conservators and others having authority in the
premises to effect all such payments and
distributions, and the Holder also irrevocably
authorizes, empowers and directs the Agent to demand,
sue for, collect and receive every such payment or
distribution.
(iv) The Holder agrees to execute, verify, deliver and
file any proofs of claim in respect of the
indebtedness evidenced by this Note requested by the
Agent in connection with any such proceeding and
hereby irrevocably authorizes, empowers and appoints
the Agent as its agent and attorney-in- fact to (A)
execute, verify, deliver and file such proofs of
claim upon the failure of the Holder to do so not
less than thirty (30) days before the expiration of
the time to file any such proof and (b) vote such
claim in any such proceeding upon the failure of the
Holder to do so prior to five (5) days before the
expiration of the time to vote any such claim;
provided that the Agent shall have no obligation to
execute, verify, deliver, file and/or vote any such
proof of claim.
(d) DEFAULT ON SENIOR INDEBTEDNESS.
(i) Upon the maturity of the Senior Indebtedness by lapse
of time, acceleration (unless waived in writing by
the holders of Senior Indebtedness) or otherwise, all
of the Senior Indebtedness shall first be paid in
full, or such payment duly provided for, in cash or
in a manner satisfactory to the holders of the Senior
Indebtedness, before any payment is made by the
Company on account of this Note and, until all of the
Senior Indebtedness is paid in full, any payment or
other distribution to which the Holder would be
entitled but for the provisions of this Section shall
(unless otherwise required by this Section 4) be made
to the Agent, for application to the payment of the
Senior Indebtedness, except that the Holder may
receive securities, including interest notes, that
are subordinated to the Senior Indebtedness to at
least the same extent as this Note.
5
(ii) During the continuance of any default in the payment
of any of the Senior Indebtedness, upon the
occurrence of receipt by the Holder of written notice
from the Agent specifying that such payment default
has occurred and is continuing, the Company may not
make any payment of principal, interest, or other
amounts owing on this Note, and the Holder may not
pursue any Collection Action (as defined below) until
such payment default has been cured by the Company or
waived in writing by the holders of the Senior
Indebtedness.
(iii) During the continuance of any other event of default
with respect to the Senior Indebtedness pursuant to
which the maturity thereof may be accelerated, upon
the occurrence of receipt by the Holder of written
notice from the Agent specifying that it is a payment
blockage notice delivered pursuant to this Section,
the Company may not make any payment of principal,
interest or other amounts owing on this Note, and the
Holder may not pursue any Collection Action, for a
period ("Payment Blockage Period") commencing on the
date of receipt of such notice and ending one hundred
and eighty (180) days thereafter (unless such Payment
Blockage Period shall be terminated by written notice
to the Holder under this clause (iii) from the
Agent). The aggregate duration of all Payment
Blockage Periods shall not exceed one hundred and
eighty (180) days during any period of three hundred
and sixty (360) consecutive days.
(iv) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Holder on account of this Note at
a time when such payment is prohibited by this
Section, unless otherwise required by this Section,
such payment or distribution shall be held by the
Holder, in trust for the ratable benefit of, and
shall be paid forthwith over and delivered to, the
Agent for application to the payment of all of the
Senior Indebtedness remaining unpaid to the extent
necessary to pay all of the Senior Indebtedness in
full in accordance with its terms, after giving
effect any concurrent payment or distribution to or
for the holders of the Senior Indebtedness.
(e) SUBROGATION. After all Senior Indebtedness is paid in full and
until this Note is paid in full (but not prior to such time), the Holder shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments and distributions applicable to the Senior Indebtedness to the extent
that payments and distributions otherwise payable to the Holder have been
applied to the payment of Senior Indebtedness. A payment or distribution made
under this Section to holders of Senior Indebtedness which otherwise would have
been made to the Holder is not, as between the Company and the Holder, a payment
by the Company on Senior Indebtedness.
6
(f) NO COLLECTION ACTION. Until all of the Senior Indebtedness is paid
in full and all loan commitments under the Loan Agreement have terminated, the
Holder shall not take any Collection Action with respect to the indebtedness
evidenced by this Note until the expiration of thirty (30) days following the
Holder's delivery to the Agent of written notice to the effect that an Event of
Default has occurred under this Note and that the Holder intends to take
Collection Action in respect thereof, provided, however, that the right of the
Holder to take Collection Action after the expiration of such thirty (30) day
period shall be subject to the limitations of Section 4(d).
(g) RETURN OF PAYMENTS. The provisions of this Section 4 shall be
reinstated if at any time any payment of any of the Senior Indebtedness is
rescinded or must otherwise be returned by any holder of the Senior Indebtedness
or any representative of such holder.
(h) NO CHALLENGE TO SENIOR INDEBTEDNESS. The Holder agrees not to
initiate or prosecute any claim, action or other proceeding challenging the
enforceability of the Senior Indebtedness or any liens and security interests
securing the Senior Indebtedness.
(i) MODIFICATIONS TO SENIOR INDEBTEDNESS. The holders of the Senior
Indebtedness may at any time and from time to time without the consent of or
notice to the Holder, without incurring liability to the Holder and without
impairing or releasing the obligations of the Holder under this Section 4,
change the manner or place of payment or extend the time of payment of or renew
or alter any Senior Indebtedness, or amend in any manner any agreement, note,
guaranty or other instrument evidencing or securing or otherwise relating to the
Senior Indebtedness; provided that such holders shall not increase the principal
amount of the Senior Indebtedness to an amount in excess of the limit set forth
in the definition of "Senior Indebtedness" herein.
(j) NO SECURITY FOR NOTE. The Holder represents that it does not have,
and agrees that it shall not acquire, any security interest in the assets of the
Company or any other Borrower (as defined in the Loan Agreement) as security for
the indebtedness evidenced hereby.
(k) NO MODIFICATION OF NOTE. Until all of the Senior Indebtedness is
paid in full and all loan commitments under the Loan Agreement have terminated,
without the prior written consent of the Agent, the Holder shall not agree to
any amendment, modification or supplement to this Note or the indebtedness
evidenced by this Note, including without limitation, any amendment,
modification or supplement the effect of which is to (i) increase the principal
amount hereof or the rate of interest hereon, (ii) change the dates upon which
payments of principal or interest hereon are due, (iii) change or add any event
of default, (iv) change the prepayment provisions hereof or (v) alter the
subordination provisions hereof, including, without limitation, subordinating
this Note or the indebtedness evidenced hereby to any other debt.
(l) ASSIGNMENT. Until all of the Senior Indebtedness is paid in full
and all loan commitments under the Loan Agreement have terminated, the Holder
shall not sell, assign, pledge, dispose of or otherwise transfer all or any
portion of this Note or the indebtedness
7
evidenced hereby unless prior to the consummation of any such action, the
transferee thereof shall execute and deliver to the Agent an agreement providing
for the continued subordination of this Note and the indebtedness evidenced
hereby as provided herein. Notwithstanding the failure to execute or deliver any
such agreement, the subordination effected hereby shall survive any sale,
assignment, pledge, disposition or other transfer of all or any portion of this
Note or the indebtedness evidenced hereby, and the subordination terms of this
Note shall be binding upon the successors and assigns of the Holder.
(m) PAYMENT ON CONVERSION DATE. This Section 4 shall not prohibit the
Company from making the Cash Conversion Payment to the Holder on the Conversion
Date from the proceeds of the Public Offering, provided that the Company also
makes all payments that are due on the Senior Indebtedness on the Conversion
Date.
(n) CERTAIN DEFINED TERMS. As used herein,
(i) "Agent" means The First National Bank of Boston, in
its capacity as agent for the holders of the Senior
Indebtedness, or any successor agent appointed
pursuant to the terms of the Loan Agreement, provided
that the Holder may rely on a certificate from any
such successor agent to the effect that such
successor is acting as a successor agent under the
Loan Agreement.
(ii) "Collection Action" means (A) to demand, sue
for, take or receive from or on behalf of the
Company, by set-off or in any other manner, the whole
or any part of any moneys which may now or hereafter
be owing by the Company under this Note, (B) to
initiate or participate with others in any suit,
action or proceeding against the Company to (1)
enforce payment of or to collect the whole or any
part of the indebtedness evidenced by this Note or
(2) commence judicial enforcement of any of the
rights and remedies under this Note or applicable law
with respect to this Note, or (C) to accelerate any
indebtedness evidenced by this Note.
(iii) "Loan Agreement" means that certain Loan and Security
Agreement dated as of July 20, 1995, among the
Company, certain of its affiliates, the lenders party
thereto from time to time and The First National Bank
of Boston, as agent for said lenders, as heretofore
or hereafter amended, supplemented or restated from
time to time.
(iv) "Proceeding" means any voluntary or involuntary
insolvency, bankruptcy, receivership, custodianship,
liquidation, dissolution, reorganization, assignment
for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with
similar powers or any other proceeding for the
liquidation, dissolution or other winding up of the
8
Company or any other Borrower (as such term is
defined in the Loan Agreement).
5. EVENTS OF DEFAULT AND ACCELERATION.
If any of the following events shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about to be effected by operation of law or otherwise):
(a) the Company defaults in the payment of the principal of or any
interest on this Note and such default continues for a period of thirty (30)
business days after the date such payment was due; or
(b) the Company shall:
(i) have commenced a voluntary case under Title 11 of the
United States Code as from time to time in effect, or have authorized, by
appropriate proceedings of its board of directors or other governing body, the
commencement of such a voluntary case;
(ii) have filed an answer or other pleading admitting or
failing to deny the material allegations of a petition filed against it
commencing an involuntary case under said Title 11, or seeking, consenting to or
acquiescing in the relief therein provided, or have failed to controvert timely
the material allegations of any such petition;
(iii) be subject to the entry of an order for relief against
it in any involuntary case commenced under said Title 11 which remains
undischarged or unstayed for more than sixty (60) days;
(iv) have sought relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the insolvency,
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or have consented to or acquiesced in such relief;
(v) be subject the entry of an order by a court of competent
jurisdiction (A) finding it to be bankruptcy or insolvent or (B) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors which remains undischarged or unstayed for more than
sixty (60) days;
(vi) be subject to the entry of an order by a court of
competent jurisdiction assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property which remains
undischarged or unstayed for more than sixty (60) days; or
9
(vii) have entered into a composition with its creditors or
have appointed or consented to the appointment of a receiver or other custodian
for all or a substantial part of its property;
then, subject to the provisions of Section 4, the Holder may, by ten (10) days
written notice to the Company, declare the Company to be in default hereunder
(an "Event of Default") and may exercise any right, power or remedy permitted to
such holder or holders by law, including, without limitation:
(y) the right to declare the entire principal amount of this
Note and accrued interest thereon, if any, due and payable; and
(z) the right to commence any proceeding against the Company
in furtherance of the foregoing.
6. COMPLIANCE WITH USURY LAWS.
All agreements between the Company and the Holder are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the Indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to be paid to the Holder for the use,
forbearance or detention of the Indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term "applicable law"
shall mean the law in effect as of the date hereof; provided, however, that in
the event there is a change in the law which results in a higher permissible
rate of interest, then this Note shall be governed by such new law as of its
effective date. If, from any circumstance whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then the
obligation to be fulfilled shall automatically be reduced to the limit of such
validity, and if from any circumstances the Holder should ever receive as
interest an amount which would exceed the highest lawful rate, such amount which
would be excessive interest shall be applied to the reduction of the principal
balance evidenced hereby and not to the payment of interest. This provision
shall control every other provision of all agreements between the Company and
the Holder.
7. DEFINED TERMS.
Unless the context otherwise requires, all capitalized words and
phrases used but not defined herein and defined in the Asset Purchase Agreement
shall have the respective meanings attributed thereto in the Asset Purchase
Agreement.
8. NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing, shall be deemed to have been duly given when received by the
intended recipient and shall be delivered by overnight delivery service or hand
delivered, addressed as follows:
10
If to Holder:
c/o Raymond S. Morelli
Office Ours
1111 Plaza Drive, Suite 320
Schaumberg, Illinois 60173
With a copy to:
Louis J. Morelli, Esq.
37 W 570 Route 38
St. Charles, Illinois 60175
If to Company:
OutSource International, Inc.
8000 North Federal Highway
Boca Raton, Florida 33487
With a copy to:
Holland & Knight
One East Broward Boulevard, Suite 1300
Fort Lauderdale, Florida 33301
Attention: Steven Sonberg, Esquire
9. GOVERNING LAW.
This Note shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the State
of Illinois. The parties to this Note agree that any claim, suit, action or
proceeding arising out of or relating to this Note shall be submitted for
adjudication exclusively in any Illinois state or federal court sitting in Kane
County, Illinois and each of the parties hereto expressly agrees to be bound by
such selection of jurisdiction and venue for purposes of such adjudication. Each
party (i) waives any objection which it may have that such court is not a
convenient forum for any such adjudication, (ii) agrees and consents to the
personal jurisdiction of such court with respect to any claim or dispute arising
out of or relating to this Agreement or the transactions contemplated hereby and
(iii) agrees that process issued out of such court or in accordance with the
rules of practice of such court shall be properly served if served personally or
served by certified mail or other form of substituted service, as provided under
the rules of practice of such court.
11
10. WAIVER OF TRIAL BY JURY.
THE COMPANY AND HOLDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE COMPANY OR HOLDER.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
under seal by its duly authorized officer as of the date set forth above.
OUTSOURCE INTERNATIONAL, INC.
By: /s/ LOUIS A. MORELLI
---------------------------
Name: Louis A. Morelli
-------------------------
Title: President
------------------------
ATTEST:
By: /s/ DAVID H. HINZE
----------------------------
Name: David H. Hinze
----------------------------
Title: Vice President
----------------------------
[Corporate Seal]
ACCEPTED AND AGREED:
TRI-TEMPS, INC.
By: /s/ RAYMOND S. MORELLI
----------------------------
Name: Raymond S. Morelli
----------------------------
Title: President
----------------------------
12
STATE OF ILLINOIS
COUNTY OF KANE
The foregoing instrument was acknowledged before me this 16th day of
April, 1997, by Louis A. Morelli, President of OutSource International, Inc., on
behalf of the company. He who is personally known to me/has produced
Driver's License as identification.
"OFFICIAL SEAL"
ANITA M. DAZZO
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 9/30/97
[STAMP]
(SEAL)
/s/ ANITA M. DAZZO
-----------------------------
Printed/Typed Name:
Notary Public State of
Commission Number:
13
EXHIBIT 2
AMENDED AND RESTATED SUBORDINATED NOTES
OUTSOURCE INTERNATIONAL OF AMERICA, INC.
AMENDED AND RESTATED
SUBORDINATED NOTE
$1,041,317.00 Boston, Massachusetts
February 21, 1997
FOR VALUE RECEIVED, OUTSOURCE INTERNATIONAL OF AMERICA, INC., a
corporation organized and existing under the laws of the state of Florida
(formerly known as OutSource International, Inc., a corporation organized under
the laws of the state of Illinois) (the "Company"), hereby promises to pay
Tri-Temps, Inc., a corporation organized and existing under the laws of the
state of Illinois ("Tri-Temps"), (together with any subsequent holder of this
Note, the "Obligee") the principal sum of One Million Forty-One Thousand Three
Hundred Seventeen and 00/100 Dollars ($1,041,317.00), with interest in arrears
on the unpaid principal balance from time to time outstanding from the date
hereof until due and payable at the rate provided in Section 1(a) hereof. Each
holder of this Note, by acceptance hereof, agrees to and shall be bound by the
provisions of this Note, including without limitation, the subordination
provisions in Section 2 hereof. This Note amends and restates a subordinated
promissory note dated April 1, 1996, from the Company to the Obligee.
1. TERMS OF NOTE.
(a) INTEREST AND PRINCIPAL. This Note shall bear interest on the
outstanding principal balance hereof at the rate of fourteen percent (14%) per
annum (computed on the basis of a 365-day year) provided, however, that if any
installment is not paid within five (5) days of its due date such installment
shall bear interest at the rate of eighteen percent (18%). Principal and
interest shall be due and payable in forty-eight (48) monthly installments of
Twenty-Eight Thousand Four Hundred Fifty-Five and 52/100 Dollars ($28,455.52) on
the first day of each month commencing on April 1, 1997, and, in addition, on
April 1, 1997 accrued interest from February 22-28, 1997 in the amount of Two
Thousand Seven Hundred Ninety-Five and 86/100 Dollars ($2,795.86). Except as
otherwise set forth in this Agreement, all payments of principal and interest
hereunder shall be made by the Company in lawful money of the United States of
America in immediately available funds on the date such payment is due at the
address of the Obligee on the books of the Company or such other place as the
holder hereof shall designate to the Company in writing.
(b) NO PREPAYMENT. This Note shall not be prepaid until the Senior
Indebtedness (as defined below) shall have been paid in full in cash and the
Credit Agreement (as defined below) shall have been irrevocably terminated.
(c) MANDATORY ACCELERATION. In the event the Company or an
entity controlling, controlled by or under common control with the
Company (the "Offering Company") files a registration statement with the
Securities and Exchange Commission for an initial public offering of its common
stock, and such registration statement is declared effective; upon the closing
of the sale of the shares to the public the entire outstanding principal balance
due hereunder together with all accrued interest thereon (the "Payoff Amount")
shall become immediately due and payable.
(d) CERTAIN REPRESENTATIONS.
(i) The Obligee by its acceptance of this Note
acknowledges that it is aware that this Note and
the shares of Common Stock issuable to it by the
Offering Company upon the acceleration of this
Note pursuant to Section 1(c) hereof have not been
registered under the Securities Act of 1933 (the
"Securities Act") or the securities laws of any
state or other jurisdiction.
(ii) The Obligee warrants and represents to the Company
that it has acquired this Note, and, upon the
conversion of this Note, it will be acquiring
Common Stock, for investment and not with a view
to or for sale in connection with any distribution
of this Note or such Common Stock or with any
intention of distributing or selling this Note or
such Common Stock. As a condition to the issuance
of Common Stock, the Obligee shall execute
appropriate investment letters and other
documents, if any, as may be reasonably required
by the Company and its counsel to assure that such
Common Stock is issued only in compliance with
applicable securities laws.
(iii) All shares of Common Stock acquired by the Obligee
pursuant hereto shall be evidenced by stock
certificate(s) containing a restrictive legend
indicating the shares have not been registered
pursuant to the Securities Act or the securities
laws of any state or other jurisdiction and may
not be sold or transferred unless pursuant to the
Securities Act and securities laws of any
applicable state or other jurisdiction.
(iv) The Obligee has no right to demand that the
Offering Company register this Note or the shares
of Common Stock issued or issuable under this Note.
2
2. SUBORDINATION IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS.
(a) SUBORDINATION. The Company agrees, and each holder of this Note
agrees, that the principal and interest on this Note is and shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full in cash of all Senior Indebtedness and
that the subordination of this Note pursuant to this Section 2 is for the
benefit of all holders of the Senior Indebtedness.
(b) SENIOR INDEBTEDNESS. "Senior Indebtedness" means all obligations
and undertakings of any kind owed by the Company or any Subsidiary of the
Company to the holders of the Senior Indebtedness from time to time under or
pursuant to any of the Senior Lending Agreements including, without limitation,
whether direct or indirect, absolute or contingent, secured or unsecured, now
existing or hereafter arising, all loans, advances, liabilities and debt
balances, all principal and interest (including all interest accruing after
commencement of any case, Proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company) accruing thereon, all charges,
expenses, fees and other sums chargeable to the Company or any Subsidiary of the
Company by the holders of the Senior Indebtedness, all reimbursement, indemnity
or other obligations due and payable to the holders of the Senior Indebtedness
and all covenants and duties at any time owed by the Company or any Subsidiary
of the Company to the holders of the Senior Indebtedness. Senior Indebtedness
shall include any debt, liability or obligation owing from the Company or any
Subsidiary of the Company to others which the holders of the Senior Indebtedness
may have obtained by assignment, pledge, purchase or otherwise. Senior
Indebtedness shall continue to constitute Senior Indebtedness notwithstanding
the fact that such Senior Indebtedness or any claim for such Senior Indebtedness
is subordinated, avoided or disallowed under the federal Bankruptcy Code or
other applicable law. Senior Indebtedness shall also include any indebtedness of
the Company or any Subsidiary of the Company incurred in connection with a
refinancing of the Senior Indebtedness under the Senior Lending Agreements.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or
distribution of assets of the Company of any kind or character (whether in cash,
securities or other property) to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar Proceeding relating to the Company or its property:
(i) The holders of Senior Indebtedness shall be
entitled to receive payment in full in cash of all
Senior Indebtedness or such payment shall first be
duly provided for in cash or in a manner
satisfactory to the holders of Senior Indebtedness
3
before Obligee shall be entitled to receive any
payment on this Note.
(ii) Until the Senior Indebtedness is paid in full in
cash or provided for in a manner satisfactory to
the holders of Senior Indebtedness, any payment or
distribution to which the Obligee would be entitled
but for this Section shall be made to the Agent (as
defined below) for application to the payment of
the Senior Indebtedness.
(iii) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Obligee on account of this
Note at a time when such payment is prohibited by
this Section, such payment or distribution shall
be held by the Obligee in trust for the ratable
benefit of, and shall be paid forthwith over and
delivered to, the Agent for application to the
payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or
distribution to or for the holders of Senior
Indebtedness, and the Obligee irrevocably
authorizes, empowers and directs all receivers,
trustees, liquidators, custodians, conservators
and others having authority in the premises to
effect all such payments and distributions, and
the Obligee also irrevocably authorizes, empowers
and directs the Agent to demand, sue for, collect
and receive every such payment or distribution.
(iv) The Obligee agrees to execute, verify, deliver and
file any proofs of claim in respect of the
indebtedness evidenced by this Note requested by
the Agent in connection with any such Proceeding
and hereby irrevocably authorizes, empowers and
appoints the Agent as the Company's agent and
attorney-in-fact to (A) execute, verify, deliver
and file such proofs of claim and (B) vote such
claim in any such Proceeding; provided that the
Agency shall have no obligation to execute,
verify, deliver, file and/or vote any such proof
of claim.
(d) DEFAULT ON SENIOR INDEBTEDNESS.
(i) Upon the maturity of the Senior Indebtedness by
lapse of time, acceleration (unless waived in
writing by the holders of Senior Indebtedness) or
otherwise, all of the Senior Indebtedness shall
4
first be paid in full, or such payment duly
provided for, in cash or in a manner satisfactory
to the holders of the Senior Indebtedness, before
any payment is made by the Company on account of
this Note and, until all of the Senior Indebtedness
is paid in full, any payment or other distribution
to which the Obligee would be entitled but for the
provisions of this Section shall (unless otherwise
required by this Section 2) be made to the Agent,
for application to the payment of the Senior
Indebtedness.
(ii) After notice from the Agent of any default in the
payment of any of the Senior Indebtedness and
during the continuance thereof, the Company shall
not make any payment of interest or other amounts
owing on this Note until such payment default has
been cured by the Company or waived in writing by
the holders of the Senior Indebtedness. Upon any
such cure or waiver, payments may resume, but
interest that accrued on this Note during the
period for which there was a payment default on
the Senior Indebtedness shall not be paid until
after all of the Senior Indebtedness shall have
first been paid in full. Notice from the Agent
hereunder shall be deemed to have been received by
the holder of this Note thirty (30) days prior to
the date of actual receipt of such notice given to
the Obligee in accordance with Section 5 hereof.
(iii) During the continuance of any other event of
default (other than payment defaults) with respect
to the Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, commencing
upon receipt by the Company of written notice from
the Agent specifying that such notice is a payment
blockage notice delivered pursuant to this
Section, the Company may not make any payment of
interest or other amounts owing on this Note for a
period ("Payment Blockage Period") commencing on
the date of receipt of such notice and ending one
hundred and eighty (180) days thereafter (unless
such Payment Blockage Period shall be terminated
by written notice to the Company from the Agent).
The aggregate duration of all Payment Blockage
Periods for such nonpayment defaults shall not
exceed one hundred eighty (180) days during any
period of three hundred sixty (360) consecutive
days. During any Payment Blockage Period,
interest shall continue to accrue as otherwise
provided herein. Upon the termination of any
Payment Blockage Period, payments of interest
5
and/or principal shall resume as provided in
Section 1; provided that the outstanding principal
balance of this Note shall be increased by the
amount of interest that accrued during such Payment
Blockage Period and no interest shall be paid with
respect to said Payment Blockage Period until the
Senior Indebtedness is paid in full in cash and the
Credit Agreement shall have been irrevocably
terminated.
(iv) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Obligee on account of this
Note at a time when such payment is prohibited by
this Section, unless otherwise required by this
Section, such payment or distribution shall be
held by Obligee in trust for the ratable benefit
of, and shall be paid forthwith over and delivered
to, the Agent for application to the payment of
all of the Senior Indebtedness remaining unpaid to
the extent necessary to pay all of the Senior
Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or
distribution to or for the holders of the Senior
Indebtedness.
(e) SUBROGATION. After all Senior Indebtedness is paid in full (but not
prior to such time) and until this Note is paid in full, the Obligee shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments and distributions applicable to the Senior Indebtedness to the extent
that payments and distributions otherwise payable to the Obligee have been
applied to the payment of the Senior Indebtedness. A payment or distribution
made under this Section to holders of Senior Indebtedness which otherwise would
have been made to the Obligee is not, as between the Company and the Obligee, a
payment by the Company on Senior Indebtedness, but until such payment is made to
Obligee it is not a payment by the Company to the Obligee.
(f) NO COLLECTION ACTION. Until all of the Senior Indebtedness is paid
in full in cash and all loan commitments under the Credit Agreement have been
irrevocably terminated, the Obligee shall not take any Collection Action with
respect to the indebtedness evidenced by this Note.
(g) RETURN OF PAYMENTS. After all Senior Indebtedness is paid in full,
the provisions of this Section 2 shall be reinstated if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be returned by
any holder of the Senior Indebtedness or any representative of such holder.
6
(h) NO CHALLENGE TO SENIOR INDEBTEDNESS. The Obligee agrees not to
initiate or prosecute any claim, action or other Proceeding challenging the
enforceability of the Senior Indebtedness or any liens and security interests
securing the Senior Indebtedness, nor will the Obligee file or join in the
filing of an involuntary bankruptcy petition against the Company. The right of
the holders of the Senior Indebtedness to enforce the provisions of this Section
2 shall not be prejudiced or impaired by any act or omitted act of the holders
of the Senior Indebtedness or the Company, including without limitation
forbearance, waiver, compromise, amendment, extension, renewal or taking or
release of security in respect of any Senior Indebtedness or noncompliance by
the Company with such provisions, regardless of the actual or imputed knowledge
of the holders of the Senior Indebtedness. In the event that the Senior
Indebtedness is refinanced in full, Obligee agrees at the request of such
refinancing party to enter into a subordination agreement on terms substantially
similar to this Section 2.
(i) MODIFICATIONS TO SENIOR INDEBTEDNESS. The holders of the Senior
Indebtedness may at any time and from time to time without the consent of or
notice to the Obligee, without incurring liability to the Obligee and without
impairing or releasing the obligations of the Obligee under this Section 2,
change the manner or place of payment or extend the time of payment of or renew
or alter any Senior Indebtedness, or amend in any manner any agreement, note,
guaranty, security agreement or other instrument evidencing or securing or
otherwise relating to the Senior Indebtedness.
(j) NO SECURITY FOR NOTE. The Obligee represents that it does not have,
and agrees that it shall not require or obtain, any security interest in the
assets of the Company or any Subsidiary or parent of the Company as security for
the indebtedness evidenced hereby. The Obligee acknowledges that the holders of
the Senior Indebtedness do have a security interest in the assets of the
Company.
(k) NO MODIFICATIONS OF NOTE. Until all of the Senior Indebtedness is
paid in full and all loan commitments under the Credit Agreement have
terminated, without the prior written consent of the Agent, the Obligee shall
not agree to any amendment, modification or supplement to this Note or the
indebtedness evidenced by this Note, including without limitation, any
amendment, modification or supplement the effect of which is to (i) increase the
principal amount hereof or the rate of interest herein, (ii) change the dates
upon which payments of principal or interest hereon are due, (iii) change or add
any event of default, (iv) change the prepayment provisions hereof or (v) alter
the subordination provisions hereof, including without limitation, subordinating
this Note or the indebtedness evidenced hereby to any other debt.
7
(l) ASSIGNMENT. Until all of the Senior Indebtedness is paid in full
and all loan commitments under the Credit Agreement have terminated, the Obligee
shall not sell, assign, pledge, dispose of or otherwise transfer all or any
portion of this Note or the indebtedness evidenced hereby unless prior to the
consummation of any such action, the transferee thereof shall execute and
deliver to the Agent an agreement providing the continued subordination of this
Note and the indebtedness evidenced hereby as provided herein. Notwithstanding
the failure to execute or deliver any such agreement, the subordination effected
hereby shall survive any sale, assignment, pledge, disposition or other transfer
of all or any portion of this Note or the indebtedness evidenced hereby, and the
subordination terms of this Note shall be binding upon the successors and
assigns of the Obligee.
(m) SCOPE OF SUBORDINATION. The provisions in this Section 2 are solely
to define the relative rights of the Obligee and the holders of the Senior
Indebtedness. Nothing in this Section 2 shall impair, as between the Company and
the Obligee, the unconditional and absolute obligation of the Company to
punctually pay the principal, interest, and any other amounts and obligations
owing to Obligee under the terms of this Note, subject to the rights of the
holders of the Senior Indebtedness under this Note.
(n) CERTAIN DEFINED TERMS. As used herein,
(i) "Agent" means Bank of Boston Connecticut, in its
capacity as agent for the holders of the Senior
Indebtedness, or any successor agent appointed
pursuant to the terms of the Credit Agreement,
provided that the Obligee may rely on a
certificate from any such successor agent to the
effect that such successor is acting as a
successor agent under the Credit Agreement.
(ii) "Collection Action" means (A) to demand, sue for,
take or receive from or on behalf of the Company,
by set-off or in any other manner, the whole or
any part of any moneys which may now or hereafter
be owing by the Company under this Note, (B) to
initiate or participate with others in any
lawsuit, action, or Proceeding against the Company
to (1) enforce payment of or to collect the whole
or any part of the indebtedness evidenced by this
Note, or (2) commence judicial enforcement of any
of the rights and remedies under this Note or
under applicable law with respect to this Note, or
(C) to accelerate any indebtedness evidenced by
this Note.
(iii) "Credit Agreement" means the Credit Agreement
dated as of February 21, 1997, among the Company,
8
the Banks from time to time parties thereto and
Bank of Boston Connecticut, as Agent, as the same
hereafter be amended, modified, supplemented,
restated or extended from time to time.
(iv) "Proceeding" means any voluntary or involuntary
insolvency, bankruptcy, receivership,
custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of
creditors, appointment of a custodian, receiver,
trustee or other officer with similar powers or
any other proceeding for the liquidation,
dissolution or other winding up of the Company.
(v) "Senior Lending Agreements" means collectively the
Credit Agreement, the Senior Subordinated Debt
Agreements, and the other loan documents between
the Company or any Subsidiaries of the Company and
the holders of Senior Indebtedness, including
without limitation all notes, pledge agreements,
security agreements and guarantees, together with
any and all other instruments, documents and
agreements executed and delivered by the Company
or any Subsidiary of the Company from time to time
in connection with the Senior Indebtedness
evidenced by the Credit Agreement and such notes,
as the same may hereafter be amended, modified,
supplemented, restated or extended from time to
time.
(vi) "Senior Subordinated Debt Agreements" shall mean
that certain Securities Purchase Agreement, dated
as of February 21, 1997, by and among the Company,
Triumph - Connecticut Limited Partnership
("Triumph"), Bachow Investment Partners III, L.P.
("Bachow") and the other parties named therein
(the "Purchase Agreement"), and those certain
Senior Subordinated Notes, due February 20, 2002,
in an aggregate principal amount of $25,000,000,
issued to each of Triumph and Bachow pursuant to
the Purchase Agreement, and any "put note" issued
by the Company to either Triumph or Bachow
pursuant to the terms of those certain Common
Stock Warrants to Purchase Common Stock of the
Company, dated as of February 21, 1997 issued to
Triumph and Bachow pursuant to the Purchase
Agreement, as any of the foregoing may hereafter
be amended, modified, supplemented, restated or
extended from time to time.
(vii) "Subsidiary" shall mean, as to any Person, a
corporation, partnership, limited liability
9
company or other entity of which shares of stock or
other ownership interests having ordinary voting
power (other than stock or such other ownership
interests having such power only by reason of the
happening of a contingency) to elect a majority of
the board of directors or other managers of such
corporation, partnership, limited liability company
or other entity are at the time owned, or the
management of which is otherwise controlled,
directly or indirectly through one or more
intermediaries, or both, by such Person.
(o) Notwithstanding the foregoing Subordination provisions of this
Note, in the event the Company fails to pay any monthly installment due
hereunder within one hundred and fifty (150) days of its due date, certain of
the shareholders of Tri-Temps shall have those rights (the "Reacquisition
Rights") to reacquire certain assets which Tri-Temps sold to the Company as more
particularly described in Amendment Number 1 to the Asset Purchase Agreement by
and among the Company, Tri-Temps and certain other persons dated of even date
herewith.
3. EVENTS OF DEFAULTS AND ACCELERATION.
If any of the following events shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about to be effected by operation of law or otherwise):
(a) the Company defaults in the payment of the principal of or any
interest on this Note and such default continues for a period of thirty (30)
business days after the date such payment was due; or
(b) the Company shall:
(i) have commenced a voluntary case under Title 11 of
the United States Code as from time to time in
effect, or have authorized, by appropriate
proceedings of its board of directors or other
governing body, the commencement of such a
voluntary case;
(ii) have filed an answer or other pleading admitting or
failing to deny the material allegations of a
petition filed against it commencing an involuntary
case under said Title 11, or seeking, consenting to
or acquiescing in the relief therein provided, or
have failed to controvert timely the material
allegations of any such petition;
10
(iii) be subject to the entry of an order for relief
against it in any involuntary case commenced under
said Title 11 which remains undischarged or
unstayed for more than sixty (60) days;
(iv) have sought relief as a debtor under any applicable
law, other than said Title 11, of any jurisdiction
relating to the insolvency, liquidation or
reorganization of debtors or to the modification or
alteration of the rights of creditors, or have
consented to or acquiesced in such relief;
(v) be subject to the entry of an order by a court of
competent jurisdiction (A) finding it to be
bankruptcy or insolvent or (B) ordering or
approving its liquidation, reorganization or any
modification or alteration of the rights of its
creditors which remains undischarged or unstayed
for more than sixty (60) days;
(vi) be subject to the entry of an order by a court of
competent jurisdiction assuming custody of, or
appointing a receiver or other custodian for, all
or a substantial part of its property which remains
undischarged or unstayed for more than sixty (60)
days; or
(vii) have entered into a composition with its creditors
or have appointed or consented to the appointment
of a receiver of other custodian for all or a
substantial part of its property.
then the Obligee may, subject to the provisions of Section 2, by providing (10)
days written notice to the Company, declare the Company to be in default
hereunder (an "Event of Default") and may exercise any right, power or remedy
permitted to such holder or holders by law, including, without limitation:
(y) the right to declare the entire principal amount
of this Note and accrued interest thereon, if any,
due and payable; and
(z) the right to commence any proceeding against the
Company in furtherance of the foregoing.
4. COMPLIANCE WITH USURY LAWS.
All agreements between the Company and the Obligee are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the Indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to
11
be paid to the Obligee for the use, forbearance or detention of the Indebtedness
evidenced hereby exceed the maximum permissible under the applicable law. As
used herein, the term "applicable law" shall mean the law in effect as of the
date hereof, provided, however, that in the event there is a change in the law
which results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. If, from any circumstances
whatsoever, fulfillment of any provision hereof at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances the Obligee
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between the Company and the Obligee.
5. NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing, shall be deemed to have been duly given when delivered at or
telecopied to the address specified below and shall be delivered by overnight
delivery service or hand delivered, addressed or telecopied as follows:
If to Obligee:
TRI-TEMPS, INC.
1807 BELTER COURT
--------------------------
GENEVA, IL 60134
--------------------------
Telecopier No._________________________
If to Company:
OUTSOURCE INTERNATIONAL OF AMERICA, INC.
Attention: CEO
1144 E. NEWPORT CENTER DRIVE
----------------------------
DEERFIELD BEACH, FL 33442
----------------------------
Telecopier No.: (954) 418-3365
6. GOVERNING LAW.
This Note shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the State
of Illinois. The sole venue for any action arising hereunder shall be Kane
County, Illinois.
12
7. WAIVER OF TRIAL BY JURY.
THE COMPANY AND OBLIGEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE COMPANY OR OBLIGEE.
8. ATTORNEY'S FEES AND COSTS.
The Company agrees to pay all reasonable expenses and costs, including,
without limitation, attorney's fees and costs of collection, which may be
incurred by the Obligee in connection with the enforcement of any obligations
hereunder or in connection with representation with respect to bankruptcy or
insolvency Proceedings.
13
IN WITNESS WHEREOF, the Company has caused this Note to be executed
under seal by its duly authorized officer as of the date set forth above.
OUTSOURCE INTERNATIONAL OF
AMERICA, INC.
By: /s/ ILLEGIBLE
----------------------
Name:
Title:
AGREED AND ACCEPTED:
OBLIGEE
TRI-TEMPS, INC.
By: /s/ RAYMOND S. MORELLI
-----------------------
14
STATE OF ________________________
COUNTY OF________________________
I, _________________________________, a Notary Public in and for said
county, in the state aforesaid, do hereby certify that _______________, who is
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed, sealed and delivered the said instrument as his own free and
voluntary act, for the uses and purposes therein set forth.
Given under my hand and notarial seal this ___ day of
- ----------------.
Notary Public
My Commission Expires:
- ------------------------------
15
STATE OF ________________________
COUNTY OF________________________
I, _________________________________, a Notary Public in and for said
county, in the state aforesaid, do hereby certify that _______________, who is
personally known to me to be the same person whose name is subscribed to the
foregoing instrument, appeared before me this day in person and acknowledged
that he signed, sealed and delivered the said instrument as his own free and
voluntary act, for the uses and purposes therein set forth.
Given under my hand and notarial seal this ___ day of
- ----------------.
Notary Public
My Commission Expires:
- ------------------------------
FTL1-231409.3
16
OUTSOURCE INTERNATIONAL OF AMERICA, INC.
AMENDED AND RESTATED
SUBORDINATED NOTE
$1,532,386.23 Boston, Massachusetts
February 21, 1997
FOR VALUE RECEIVED, OUTSOURCE INTERNATIONAL OF AMERICA, INC., a
corporation organized and existing under the laws of the state of Florida
(formerly known as OutSource International, Inc., a corporation organized under
the laws of the state of Illinois) (the "Company"), hereby promises to pay
Pay-Ray, Inc., a corporation organized and existing under the laws of the state
of Illinois ("Pay-Ray"), (together with any subsequent holder of this Note, the
"Obligee") the principal sum of One Million Five Hundred Thirty-Two Thousand
Three Hundred Eighty-Six and 23/100 Dollars ($1,532,386.23), with interest in
arrears on the unpaid principal balance from time to time outstanding from the
date hereof until due and payable at the rate provided in Section 1(a) hereof.
Each holder of this Note, by acceptance hereof, agrees to and shall be bound by
the provisions of this Note, including without limitation, the subordination
provisions in Section 2 hereof. This Note amends and restates a subordinated
promissory note dated April 1, 1996, from the Company to the Obligee.
1. TERMS OF NOTE.
(a) INTEREST AND PRINCIPAL. This Note shall bear interest on the
outstanding principal balance hereof at the rate of fourteen percent (14%) per
annum (computed on the basis of a 365-day year) provided, however, that if any
installment is not paid within five (5) days of its due date such installment
shall bear interest at the rate of eighteen percent (18%). Principal and
interest shall be due and payable in forty-eight (48) monthly installments of
Forty-One Thousand Eight Hundred Seventy-Four and 71/100 Dollars ($41,874.71) on
the first day of each month commencing on April 1, 1997, and, in addition, on
April 1, 1997 accrued interest from February 22-28, 1997 in the amount of Four
Thousand One Hundred Fourteen and 35/100 Dollars ($4,114.35). Except as
otherwise set forth in this Agreement, all payments of principal and interest
hereunder shall be made by the Company in lawful money of the United States of
America in immediately available funds on the date such payment is due at the
address of the Obligee on the books of the Company or such other place as the
holder hereof shall designate to the Company in writing.
(b) NO PREPAYMENT. This Note shall not be prepaid until the Senior
Indebtedness (as defined below) shall have been paid in full in cash and the
Credit Agreement (as defined below) shall have been irrevocably terminated.
(c) MANDATORY ACCELERATION. In the event the Company or an
entity controlling, controlled by or under common control with the
Company (the "Offering Company") files a registration statement with the
Securities and Exchange Commission for an initial public offering of its common
stock, and such registration statement is declared effective; upon the closing
of the sale of the shares to the public the entire outstanding principal balance
due hereunder together with all accrued interest thereon (the "Payoff Amount")
shall become immediately due and payable.
(d) CERTAIN REPRESENTATIONS.
(i) The Obligee by its acceptance of this Note
acknowledges that it is aware that this Note and
the shares of Common Stock issuable to it by the
Offering Company upon the acceleration of this
Note pursuant to Section 1(c) hereof have not been
registered under the Securities Act of 1933 (the
"Securities Act") or the securities laws of any
state or other jurisdiction.
(ii) The Obligee warrants and represents to the Company
that it has acquired this Note, and, upon the
conversion of this Note, it will be acquiring
Common Stock, for investment and not with a view
to or for sale in connection with any distribution
of this Note or such Common Stock or with any
intention of distributing or selling this Note or
such Common Stock. As a condition to the issuance
of Common Stock, the Obligee shall execute
appropriate investment letters and other
documents, if any, as may be reasonably required
by the Company and its counsel to assure that such
Common Stock is issued only in compliance with
applicable securities laws.
(iii) All shares of Common Stock acquired by the Obligee
pursuant hereto shall be evidenced by stock
certificate(s) containing a restrictive legend
indicating the shares have not been registered
pursuant to the Securities Act or the securities
laws of any state or other jurisdiction and may
not be sold or transferred unless pursuant to the
Securities Act and securities laws of any
applicable state or other jurisdiction.
(iv) The Obligee has no right to demand that the
Offering Company register this Note or the shares
of Common Stock issued or issuable under this Note.
2
2. SUBORDINATION IN RIGHT OF PAYMENT TO SENIOR INDEBTEDNESS.
(a) SUBORDINATION. The Company agrees, and each holder of this Note
agrees, that the principal and interest on this Note is and shall be
subordinated in right of payment, to the extent and in the manner hereinafter
set forth, to the prior payment in full in cash of all Senior Indebtedness and
that the subordination of this Note pursuant to this Section 2 is for the
benefit of all holders of the Senior Indebtedness.
(b) SENIOR INDEBTEDNESS. "Senior Indebtedness" means all obligations
and undertakings of any kind owed by the Company or any Subsidiary of the
Company to the holders of the Senior Indebtedness from time to time under or
pursuant to any of the Senior Lending Agreements including, without limitation,
whether direct or indirect, absolute or contingent, secured or unsecured, now
existing or hereafter arising, all loans, advances, liabilities and debt
balances, all principal and interest (including all interest accruing after
commencement of any case, Proceeding or other action relating to the bankruptcy,
insolvency or reorganization of the Company) accruing thereon, all charges,
expenses, fees and other sums chargeable to the Company or any Subsidiary of the
Company by the holders of the Senior Indebtedness, all reimbursement, indemnity
or other obligations due and payable to the holders of the Senior Indebtedness
and all covenants and duties at any time owed by the Company or any Subsidiary
of the Company to the holders of the Senior Indebtedness. Senior Indebtedness
shall include any debt, liability or obligation owing from the Company or any
Subsidiary of the Company to others which the holders of the Senior Indebtedness
may have obtained by assignment, pledge, purchase or otherwise. Senior
Indebtedness shall continue to constitute Senior Indebtedness notwithstanding
the fact that such Senior Indebtedness or any claim for such Senior Indebtedness
is subordinated, avoided or disallowed under the federal Bankruptcy Code or
other applicable law. Senior Indebtedness shall also include any indebtedness of
the Company or any Subsidiary of the Company incurred in connection with a
refinancing of the Senior Indebtedness under the Senior Lending Agreements.
(c) LIQUIDATION; DISSOLUTION; BANKRUPTCY. Upon any payment or
distribution of assets of the Company of any kind or character (whether in cash,
securities or other property) to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar Proceeding relating to the Company or its property:
(i) The holders of Senior Indebtedness shall be
entitled to receive payment in full in cash of all
Senior Indebtedness or such payment shall first be
duly provided for in cash or in a manner
satisfactory to the holders of Senior Indebtedness
3
before Obligee shall be entitled to receive any
payment on this Note.
(ii) Until the Senior Indebtedness is paid in full in
cash or provided for in a manner satisfactory to
the holders of Senior Indebtedness, any payment or
distribution to which the Obligee would be entitled
but for this Section shall be made to the Agent (as
defined below) for application to the payment of
the Senior Indebtedness.
(iii) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Obligee on account of this
Note at a time when such payment is prohibited by
this Section, such payment or distribution shall
be held by the Obligee in trust for the ratable
benefit of, and shall be paid forthwith over and
delivered to, the Agent for application to the
payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior
Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or
distribution to or for the holders of Senior
Indebtedness, and the Obligee irrevocably
authorizes, empowers and directs all receivers,
trustees, liquidators, custodians, conservators
and others having authority in the premises to
effect all such payments and distributions, and
the Obligee also irrevocably authorizes, empowers
and directs the Agent to demand, sue for, collect
and receive every such payment or distribution.
(iv) The Obligee agrees to execute, verify, deliver and
file any proofs of claim in respect of the
indebtedness evidenced by this Note requested by
the Agent in connection with any such Proceeding
and hereby irrevocably authorizes, empowers and
appoints the Agent as the Company's agent and
attorney-in-fact to (A) execute, verify, deliver
and file such proofs of claim and (B) vote such
claim in any such Proceeding; provided that the
Agency shall have no obligation to execute,
verify, deliver, file and/or vote any such proof
of claim.
(d) DEFAULT ON SENIOR INDEBTEDNESS.
(i) Upon the maturity of the Senior Indebtedness by
lapse of time, acceleration (unless waived in
writing by the holders of Senior Indebtedness) or
otherwise, all of the Senior Indebtedness shall
4
first be paid in full, or such payment duly
provided for, in cash or in a manner satisfactory
to the holders of the Senior Indebtedness, before
any payment is made by the Company on account of
this Note and, until all of the Senior Indebtedness
is paid in full, any payment or other distribution
to which the Obligee would be entitled but for the
provisions of this Section shall (unless otherwise
required by this Section 2) be made to the Agent,
for application to the payment of the Senior
Indebtedness.
(ii) After notice from the Agent of any default in the
payment of any of the Senior Indebtedness and
during the continuance thereof, the Company shall
not make any payment of interest or other amounts
owing on this Note until such payment default has
been cured by the Company or waived in writing by
the holders of the Senior Indebtedness. Upon any
such cure or waiver, payments may resume, but
interest that accrued on this Note during the
period for which there was a payment default on
the Senior Indebtedness shall not be paid until
after all of the Senior Indebtedness shall have
first been paid in full. Notice from the Agent
hereunder shall be deemed to have been received by
the holder of this Note thirty (30) days prior to
the date of actual receipt of such notice given to
the Obligee in accordance with Section 5 hereof.
(iii) During the continuance of any other event of
default (other than payment defaults) with respect
to the Senior Indebtedness pursuant to which the
maturity thereof may be accelerated, commencing
upon receipt by the Company of written notice from
the Agent specifying that such notice is a payment
blockage notice delivered pursuant to this
Section, the Company may not make any payment of
interest or other amounts owing on this Note for a
period ("Payment Blockage Period") commencing on
the date of receipt of such notice and ending one
hundred and eighty (180) days thereafter (unless
such Payment Blockage Period shall be terminated
by written notice to the Company from the Agent).
The aggregate duration of all Payment Blockage
Periods for such nonpayment defaults shall not
exceed one hundred eighty (180) days during any
period of three hundred sixty (360) consecutive
days. During any Payment Blockage Period,
interest shall continue to accrue as otherwise
provided herein. Upon the termination of any
Payment Blockage Period, payments of interest
5
and/or principal shall resume as provided in
Section 1; provided that the outstanding principal
balance of this Note shall be increased by the
amount of interest that accrued during such Payment
Blockage Period and no interest shall be paid with
respect to said Payment Blockage Period until the
Senior Indebtedness is paid in full in cash and the
Credit Agreement shall have been irrevocably
terminated.
(iv) Notwithstanding the foregoing provisions of this
Section, if the Company shall make any payment or
distribution to the Obligee on account of this
Note at a time when such payment is prohibited by
this Section, unless otherwise required by this
Section, such payment or distribution shall be
held by Obligee in trust for the ratable benefit
of, and shall be paid forthwith over and delivered
to, the Agent for application to the payment of
all of the Senior Indebtedness remaining unpaid to
the extent necessary to pay all of the Senior
Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or
distribution to or for the holders of the Senior
Indebtedness.
(e) SUBROGATION. After all Senior Indebtedness is paid in full (but not
prior to such time) and until this Note is paid in full, the Obligee shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments and distributions applicable to the Senior Indebtedness to the extent
that payments and distributions otherwise payable to the Obligee have been
applied to the payment of the Senior Indebtedness. A payment or distribution
made under this Section to holders of Senior Indebtedness which otherwise would
have been made to the Obligee is not, as between the Company and the Obligee, a
payment by the Company on Senior Indebtedness, but until such payment is made to
Obligee it is not a payment by the Company to the Obligee.
(f) NO COLLECTION ACTION. Until all of the Senior Indebtedness is paid
in full in cash and all loan commitments under the Credit Agreement have been
irrevocably terminated, the Obligee shall not take any Collection Action with
respect to the indebtedness evidenced by this Note.
(g) RETURN OF PAYMENTS. After all Senior Indebtedness is paid in full,
the provisions of this Section 2 shall be reinstated if at any time any payment
of any of the Senior Indebtedness is rescinded or must otherwise be returned by
any holder of the Senior Indebtedness or any representative of such holder.
6
(h) NO CHALLENGE TO SENIOR INDEBTEDNESS. The Obligee agrees not to
initiate or prosecute any claim, action or other Proceeding challenging the
enforceability of the Senior Indebtedness or any liens and security interests
securing the Senior Indebtedness, nor will the Obligee file or join in the
filing of an involuntary bankruptcy petition against the Company. The right of
the holders of the Senior Indebtedness to enforce the provisions of this Section
2 shall not be prejudiced or impaired by any act or omitted act of the holders
of the Senior Indebtedness or the Company, including without limitation
forbearance, waiver, compromise, amendment, extension, renewal or taking or
release of security in respect of any Senior Indebtedness or noncompliance by
the Company with such provisions, regardless of the actual or imputed knowledge
of the holders of the Senior Indebtedness. In the event that the Senior
Indebtedness is refinanced in full, Obligee agrees at the request of such
refinancing party to enter into a subordination agreement on terms substantially
similar to this Section 2.
(i) MODIFICATIONS TO SENIOR INDEBTEDNESS. The holders of the Senior
Indebtedness may at any time and from time to time without the consent of or
notice to the Obligee, without incurring liability to the Obligee and without
impairing or releasing the obligations of the Obligee under this Section 2,
change the manner or place of payment or extend the time of payment of or renew
or alter any Senior Indebtedness, or amend in any manner any agreement, note,
guaranty, security agreement or other instrument evidencing or securing or
otherwise relating to the Senior Indebtedness.
(j) NO SECURITY FOR NOTE. The Obligee represents that it does not have,
and agrees that it shall not require or obtain, any security interest in the
assets of the Company or any Subsidiary or parent of the Company as security for
the indebtedness evidenced hereby. The Obligee acknowledges that the holders of
the Senior Indebtedness do have a security interest in the assets of the
Company.
(k) NO MODIFICATIONS OF NOTE. Until all of the Senior Indebtedness is
paid in full and all loan commitments under the Credit Agreement have
terminated, without the prior written consent of the Agent, the Obligee shall
not agree to any amendment, modification or supplement to this Note or the
indebtedness evidenced by this Note, including without limitation, any
amendment, modification or supplement the effect of which is to (i) increase the
principal amount hereof or the rate of interest herein, (ii) change the dates
upon which payments of principal or interest hereon are due, (iii) change or add
any event of default, (iv) change the prepayment provisions hereof or (v) alter
the subordination provisions hereof, including without limitation, subordinating
this Note or the indebtedness evidenced hereby to any other debt.
7
(l) ASSIGNMENT. Until all of the Senior Indebtedness is paid in full
and all loan commitments under the Credit Agreement have terminated, the Obligee
shall not sell, assign, pledge, dispose of or otherwise transfer all or any
portion of this Note or the indebtedness evidenced hereby unless prior to the
consummation of any such action, the transferee thereof shall execute and
deliver to the Agent an agreement providing the continued subordination of this
Note and the indebtedness evidenced hereby as provided herein. Notwithstanding
the failure to execute or deliver any such agreement, the subordination effected
hereby shall survive any sale, assignment, pledge, disposition or other transfer
of all or any portion of this Note or the indebtedness evidenced hereby, and the
subordination terms of this Note shall be binding upon the successors and
assigns of the Obligee.
(m) SCOPE OF SUBORDINATION. The provisions in this Section 2 are solely
to define the relative rights of the Obligee and the holders of the Senior
Indebtedness. Nothing in this Section 2 shall impair, as between the Company and
the Obligee, the unconditional and absolute obligation of the Company to
punctually pay the principal, interest, and any other amounts and obligations
owing to Obligee under the terms of this Note, subject to the rights of the
holders of the Senior Indebtedness under this Note.
(n) CERTAIN DEFINED TERMS. As used herein,
(i) "Agent" means Bank of Boston Connecticut, in its
capacity as agent for the holders of the Senior
Indebtedness, or any successor agent appointed
pursuant to the terms of the Credit Agreement,
provided that the Obligee may rely on a
certificate from any such successor agent to the
effect that such successor is acting as a
successor agent under the Credit Agreement.
(ii) "Collection Action" means (A) to demand, sue for,
take or receive from or on behalf of the Company,
by set-off or in any other manner, the whole or
any part of any moneys which may now or hereafter
be owing by the Company under this Note, (B) to
initiate or participate with others in any
lawsuit, action, or Proceeding against the Company
to (1) enforce payment of or to collect the whole
or any part of the indebtedness evidenced by this
Note, or (2) commence judicial enforcement of any
of the rights and remedies under this Note or
under applicable law with respect to this Note, or
(C) to accelerate any indebtedness evidenced by
this Note.
(iii) "Credit Agreement" means the Credit Agreement
dated as of February 21, 1997, among the Company,
8
the Banks from time to time parties thereto and
Bank of Boston Connecticut, as Agent, as the same
hereafter be amended, modified, supplemented,
restated or extended from time to time.
(iv) "Proceeding" means any voluntary or involuntary
insolvency, bankruptcy, receivership,
custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of
creditors, appointment of a custodian, receiver,
trustee or other officer with similar powers or
any other proceeding for the liquidation,
dissolution or other winding up of the Company.
(v) "Senior Lending Agreements" means collectively the
Credit Agreement, the Senior Subordinated Debt
Agreements, and the other loan documents between
the Company or any Subsidiaries of the Company and
the holders of Senior Indebtedness, including
without limitation all notes, pledge agreements,
security agreements and guarantees, together with
any and all other instruments, documents and
agreements executed and delivered by the Company
or any Subsidiary of the Company from time to time
in connection with the Senior Indebtedness
evidenced by the Credit Agreement and such notes,
as the same may hereafter be amended, modified,
supplemented, restated or extended from time to
time.
(vi) "Senior Subordinated Debt Agreements" shall mean
that certain Securities Purchase Agreement, dated
as of February 21, 1997, by and among the Company,
Triumph - Connecticut Limited Partnership
("Triumph"), Bachow Investment Partners III, L.P.
("Bachow") and the other parties named therein
(the "Purchase Agreement"), and those certain
Senior Subordinated Notes, due February 20, 2002,
in an aggregate principal amount of $25,000,000,
issued to each of Triumph and Bachow pursuant to
the Purchase Agreement, and any "put note" issued
by the Company to either Triumph or Bachow
pursuant to the terms of those certain Common
Stock Warrants to Purchase Common Stock of the
Company, dated as of February 21, 1997 issued to
Triumph and Bachow pursuant to the Purchase
Agreement, as any of the foregoing may hereafter
be amended, modified, supplemented, restated or
extended from time to time.
(vii) "Subsidiary" shall mean, as to any Person, a
corporation, partnership, limited liability
9
company or other entity of which shares of stock or
other ownership interests having ordinary voting
power (other than stock or such other ownership
interests having such power only by reason of the
happening of a contingency) to elect a majority of
the board of directors or other managers of such
corporation, partnership, limited liability company
or other entity are at the time owned, or the
management of which is otherwise controlled,
directly or indirectly through one or more
intermediaries, or both, by such Person.
(o) Notwithstanding the foregoing Subordination provisions of this
Note, in the event the Company fails to pay any monthly installment due
hereunder within one hundred and fifty (150) days of its due date, certain of
the shareholders of Pay-Ray shall have those rights (the "Reacquisition Rights")
to reacquire certain assets which Pay-Ray sold to the Company as more
particularly described in Amendment Number 1 to the Asset Purchase Agreement by
and among the Company, Pay-Ray and certain other persons dated of even date
herewith.
3. EVENTS OF DEFAULTS AND ACCELERATION.
If any of the following events shall occur and be continuing for any
reason whatsoever (and whether such occurrence shall be voluntary or involuntary
or come about to be effected by operation of law or otherwise):
(a) the Company defaults in the payment of the principal of or any
interest on this Note and such default continues for a period of thirty (30)
business days after the date such payment was due; or
(b) the Company shall:
(i) have commenced a voluntary case under Title 11 of
the United States Code as from time to time in
effect, or have authorized, by appropriate
proceedings of its board of directors or other
governing body, the commencement of such a
voluntary case;
(ii) have filed an answer or other pleading admitting or
failing to deny the material allegations of a
petition filed against it commencing an involuntary
case under said Title 11, or seeking, consenting to
or acquiescing in the relief therein provided, or
have failed to controvert timely the material
allegations of any such petition;
10
(iii) be subject to the entry of an order for relief
against it in any involuntary case commenced under
said Title 11 which remains undischarged or
unstayed for more than sixty (60) days;
(iv) have sought relief as a debtor under any applicable
law, other than said Title 11, of any jurisdiction
relating to the insolvency, liquidation or
reorganization of debtors or to the modification or
alteration of the rights of creditors, or have
consented to or acquiesced in such relief;
(v) be subject to the entry of an order by a court of
competent jurisdiction (A) finding it to be
bankruptcy or insolvent or (B) ordering or
approving its liquidation, reorganization or any
modification or alteration of the rights of its
creditors which remains undischarged or unstayed
for more than sixty (60) days;
(vi) be subject to the entry of an order by a court of
competent jurisdiction assuming custody of, or
appointing a receiver or other custodian for, all
or a substantial part of its property which remains
undischarged or unstayed for more than sixty (60)
days; or
(vii) have entered into a composition with its creditors
or have appointed or consented to the appointment
of a receiver of other custodian for all or a
substantial part of its property.
then the Obligee may, subject to the provisions of Section 2, by providing (10)
days written notice to the Company, declare the Company to be in default
hereunder (an "Event of Default") and may exercise any right, power or remedy
permitted to such holder or holders by law, including, without limitation:
(y) the right to declare the entire principal amount
of this Note and accrued interest thereon, if any,
due and payable; and
(z) the right to commence any proceeding against the
Company in furtherance of the foregoing.
4. COMPLIANCE WITH USURY LAWS.
All agreements between the Company and the Obligee are hereby expressly
limited so that in no contingency or event whatsoever, whether by reason of
acceleration of maturity of the Indebtedness evidenced hereby or otherwise,
shall the amount paid or agreed to
11
be paid to the Obligee for the use, forbearance or detention of the Indebtedness
evidenced hereby exceed the maximum permissible under the applicable law. As
used herein, the term "applicable law" shall mean the law in effect as of the
date hereof, provided, however, that in the event there is a change in the law
which results in a higher permissible rate of interest, then this Note shall be
governed by such new law as of its effective date. If, from any circumstances
whatsoever, fulfillment of any provision hereof at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall automatically be
reduced to the limit of such validity, and if from any circumstances the Obligee
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. This provision shall control every other provision of all agreements
between the Company and the Obligee.
5. NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing, shall be deemed to have been duly given when delivered at or
telecopied to the address specified below and shall be delivered by overnight
delivery service or hand delivered, addressed or telecopied as follows:
If to Obligee:
PAY-RAY, INC.
1807 BELTER COURT
--------------------------
GENEVA, IL 60134
--------------------------
Telecopier No.: ( ) __________________________
If to Company:
OUTSOURCE INTERNATIONAL OF AMERICA, INC.
Attention: CEO
1144 E NEWPORT CENTER DRIVE
---------------------------
DEERFIELD BEACH, FL 33442
---------------------------
Telecopier No.: (954) 418-3365
12
6. GOVERNING LAW.
This Note shall have the effect of an instrument executed under seal
and shall be governed by and construed in accordance with the laws of the State
of Illinois. The sole venue for any action arising hereunder shall be Kane
County, Illinois.
7. WAIVER OF TRIAL BY JURY.
THE COMPANY AND OBLIGEE HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE COMPANY OR OBLIGEE.
8. ATTORNEY'S FEES AND COSTS.
The Company agrees to pay all reasonable expenses and costs, including,
without limitation, attorney's fees and costs of collection, which may be
incurred by the Obligee in connection with the enforcement of any obligations
hereunder or in connection with representation with respect to bankruptcy or
insolvency Proceedings.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
under seal by its duly authorized officer as of the date set forth above.
OUTSOURCE INTERNATIONAL OF
AMERICA, INC.
By: /s/ ILLEGIBLE
-----------------------
Name:
Title:
AGREED AND ACCEPTED:
OBLIGEE
PAY-RAY, INC.
By: /s/ ILLEGIBLE
----------------------
Illegible
13