ASSET PURCHASE AGREEMENT
DATED FEBRUARY 18, 1998
BY AND AMONG
OUTSOURCE INTERNATIONAL OF AMERICA, INC.
AS BUYER
AND
L.M. INVESTORS, INC.
AS SELLER
AND
LOUIS J. MORELLI AND MATTHEW SCHUBERT
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is made and entered into as of the
18th day of February 1998, ("Agreement"), by and among OutSource International
of America, Inc., a Florida corporation, or one of its affiliated corporations
as designated by OutSource in its sole discretion ("OutSource" or "Buyer"), and
L.M. Investors, Inc., an Illinois corporation ("LM" or "Seller") and Louis J.
Morelli ("Morelli") and Matthew Schubert ("Schubert").
RECITALS
WHEREAS, the Seller operates a temporary help business, under the terms
of two (2) Labor World franchises with an affiliate of Buyer, that are dated on
or about November 1, 1994 (the "Franchise Agreements"), in and around Aurora,
Aurora West, Joliet, and University Park locations in Illinois and all other
territories referenced in the Franchise Agreements (the "Business");
WHEREAS, Morelli and Schubert are the sole shareholders of LM; and
WHEREAS, Seller desire to sell to Buyer, and Buyer desires to purchase
from Seller, on the terms and conditions set forth herein, substantially all of
the assets of the Seller, 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 SELLER. Subject to the terms and conditions
hereof, Seller shall sell, convey, assign, transfer and deliver to Buyer at the
Closing (as hereafter defined), and Buyer shall purchase and accept at the
Closing, all assets, properties, privileges, rights, interests, business and
goodwill owned by Seller or in which Seller have an interest (except the
Excluded Assets, as hereinafter defined), and used or held for use in connection
with the operation of the Business, of every kind and description, real,
personal and mixed, tangible and intangible and wherever located (such assets,
properties, privileges, rights, interests, business and goodwill being
transferred hereunder are hereinafter referred to collectively as the "Assets").
Without limiting the generality of the foregoing, the Assets shall include all
of Seller' right, title and interest in and to the following (except to the
extent any of the following constitute Excluded Assets):
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(a) All supplies, equipment, vehicles, machinery, furniture, fixtures,
leasehold improvements and other tangible property owned by Seller or used by
Seller in connection with the Business, including the tangible assets listed on
SCHEDULE 1.1;
(b) All of Seller's 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, including, without limitation, the documents
listed in EXHIBIT A or SCHEDULE 3.7 hereto;
(c) All of Seller's right, title and interest in and to the
Intellectual Property (as hereafter defined) owned by Seller 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) The Business as a going concern and its customer lists, vendor
lists, restrictive covenants, lists of temporary employees, together with all
books, computer software, files, papers, records and other data of Seller
relating to their respective assets, properties, business and operations;
(f) All other property and rights of every kind or nature owned by
Seller or used in the Business, including but not limited to the employment
applications of temporary staff (the "Applications") and all telephone numbers
and facsimile numbers;
(g) All rights of Seller in and to its trade names and trademarks used
in the Business, and variants thereof and all goodwill associated therewith; and
(h) All of Seller's utility, security and other deposits and prepaid
expenses, except for lease deposits and all insurance premium refunds.
1.2 ASSETS RETAINED BY SELLER. There shall be excluded from the Assets
and retained by Seller all of the following (collectively, the "Excluded
Assets"):
(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 Seller as corporations;
(b) any of the rights of Seller under this Agreement (or under any
agreement between Seller on the one hand and Buyer on the other hand entered
into on or after the date of this Agreement);
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(c) the Franchise Agreements which are being terminated by the parties
simultaneous with the Closing;
(d) cash on hand, bank account deposits, accounts receivable, rights of
recovery, and judgments in favor of Seller;
(e) All refunds and lease deposits due to Seller as of the date of
closing, including, but not limited to, workers compensation refunds and all
insurance refunds due to Seller; and
(f) Two Ford Explorer motor vehicles.
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 Seller specifically listed on EXHIBIT A hereto
(the "Assumed Obligations") and made subject to Section 1.4 of this Agreement,
and the Assumed Leases (as hereafter defined). Buyer shall not assume or be
responsible at any time for any liability, obligation, debt or commitment of
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
Seller' 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 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.
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 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 Seller with respect to
any lease or leasehold interest (the "Assumed Leases") shall be subject to the
terms of the Lease Assignment and Assumption Agreements to be delivered pursuant
to Sections 2.2 and 2.3 of the Agreement. Seller shall use their best efforts to
cause the landlords of each of the properties listed on SCHEDULE 1.4 to execute
the Estoppel Certificate and Consent to Assignment of Lease attached hereto as
EXHIBIT I.
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Buyer agrees to enter a new lease for the premises located at 1916
Plainfield Rd., Crest Hill, Illinois 60435, a copy of which is attached hereto
as EXHIBIT O.
On the Closing Date, Buyer agrees to reimburse Seller Twenty Five
Thousand Six Hundred Nine and 00/100 Dollars ($25,609.00), which sum represents
previously paid costs to complete the office buildout at the Aurora skilled
office location, as verified by third party invoices for costs which were
incurred by Seller within the six (6) months immediately preceding the Closing
Date. Seller shall reimburse Buyer up to an additional Eight Thousand Five
Hundred Thirty Six and 00/100 Dollars ($8,536.00) for the remaining costs to
complete the build out, but only after Seller provides invoices for this work,
and verification that the build out has been completed and all punchlist items
completed.
1.5 PAYMENT FOR ASSETS. Buyer shall purchase the Assets for an
aggregate purchase price (the "Purchase Price") of SIX MILLION SEVEN HUNDRED
THOUSAND and 00/100 Dollars ($6,700,000.00) payable in accordance with Section
1.6 and subject to any post-closing adjustments in accordance with Section 1.10
or any other provision of this Agreement.
1.6 PAYMENT OF PURCHASE PRICE. Buyer shall pay the Purchase Price as
follows.
(a) Cash at closing of FIVE MILLION DOLLARS and 00/100 ($5,000,000) via
wire transfer.
(b) The issuance and delivery of a junior subordinated promissory note
in the principal amount of ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS and 00/100
($1,700,000), bearing interest at the rate of seven and a quarter percent (7
1/4%) per annum, substantially in the form attached hereto as EXHIBIT M. The
principal and interest shall be paid quarterly commencing on May 1, 1998 and
continuing for a period of three (3) years.
1.7 OTHER CONSIDERATION.
1.7.1 TEMP AID FRANCHISE. Outsource Franchising, Inc. ("OFI") shall
grant to Temp Aid, Inc. within twenty (20) days of closing the transaction,
written option to buyout from all the Labor World and/or Tandem franchise
agreements between OFI and Temp Aid ("Temp Aid Franchise Agreement") for a
period of one (1) year from the Closing Date, upon the following terms:
(a) An initial termination fee ("ITF") to OutSource or one of its
affiliated corporations, or successors, equal to eighty percent (80%) of four
percent (4%) of projected gross revenue for twelve (12) months immediately
following the Effective Date (as defined hereunder) of the termination. The ITF
shall be discounted by One Half of One Percent (.5%) of the projected gross
revenue, as defined hereunder.
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The parties agree that projected gross revenue ("PGR") for twelve (12)
months immediately following the Effective Date of the termination shall be
determined by annualizing gross revenue of Temp Aid For Ninety (90) days
immediately preceding the Effective Date of the termination, adjusted for
seasonality. The ITF shall be due and payable simultaneously with Temp Aid's
written notice to OFI of its intention to exercise its option to terminate the
franchise agreements. The Effective Date of the termination shall be the date
upon which OFI receives written notice of Temp Aid's intent to terminate and the
ITF ("Effective Date").
The parties must execute a standard Mutual Termination Agreement within
ten (10) business days of the OFI's receipt of written notice of intent to
terminate. The Shareholders' releases, prepared in connection therewith, shall
be limited to any and all claims arising out of, or in connection with, the
franchise agreements and the franchise relationship being terminated.
After the completion of twelve (12) months of operations following the
effective Date of the termination, OutSource and Temp Aid agree to compare the
actual gross revenue of Temp Aid for the twelve-(12) month period following
termination (the "AGR") with the PGR. If the AGR is less than the PGR, OutSource
shall pay to Temp Aid Four percent (4%) of the difference within sixty (60) days
after the parties have satisfactorily reconciled the AGR, after which time
OutSource shall pay seven percent (7%) interest per annum on any such unpaid
difference. If the AGR exceeds PGR, no additional ITF will be due to OutSource.
(b) Payment to OutSource, OFI, one of its affiliated corporations, or
its successor, for the continued use of any software provided under the Temp Aid
Franchise Agreement, and which Seller elects to continue to use after the
effective date of the termination, at the rate of Fifteen Thousand and 00/100
Dollars ($15,000.00) per location. Temp Aid shall have use of said software for
a maximum of three (3) years from the Effective Date of the termination. If Temp
Aid elects to continue use of the software, OutSource, or one of its affiliated
corporations, or successor, shall provide support, as part of the Fifteen
Thousand and 00/100 Dollars ($15,000) consideration, for the software's use for
a period of three (3) months following the Effective Date of the termination. If
Temp Aid elects not to continue use of the software, Temp Aid shall cease all
use of the software within three months of the Effective Date of the Mutual
Termination Agreement. During the three-(3) month period following the Effective
Date, Temp Aid shall be entitled to support at a cost of Five Hundred and 00/100
Dollars ($500.00) per month.
(c) Payment to OutSource, or one of its affiliated corporations, or
its successor, of four percent (4%) of gross annual revenues for a period of two
(2) years following the Effective Date of the termination. This payment shall be
paid quarterly with any adjustments determined on an annual basis and payable in
the quarter in which the fifth and eighth payments are due hereunder
(d) Except as set forth herein, no other termination fees or transfer
fees shall be charged to exercise the option to terminate the Temp Aid
franchise.
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(e) OutSource and any affiliated corporation, or successor, shall agree
not to compete for a period of six (6) months following the Effective Date of
the termination within the territory included in the Temp Aid Franchise
Agreement unless it acquires a business owned by a third party that is operating
in said territory. If OutSource acquires a business within the territory,
OutSource agrees that, during the six-(6) month period, it will operate only
from offices obtained by way of the acquisition.
(f) Payment of attorney's fees and costs to the prevailing party
in any action to enforce any term of the option.
(g) Illinois law shall govern the option and the exclusive venue
for any proceeding brought to enforce the option shall be Kane
County, Illinois.
1.7.2 EXCLUSIVE RIGHTS OF FIRST REFUSAL.
As a condition precedent to Seller's obligations to consummate this
transaction, OutSource must deliver within twenty (20) days of closing a written
Right of First Refusal and Right to Purchase substantially as set forth below.
In the event that OutSource, or one of its affiliated corporations, elects to
sell Tandem franchises in the territories within the time limits listed below,
Morelli shall have the right to purchase, or the right of first refusal, as
described below, in the territories listed below.
(a) Exclusive Right to Purchase Tandem Franchise located in South Bend,
Indiana for a period of twelve (12) months after the Closing Date;
(b) Right of First Refusal to purchase Tandem franchise located in
Lima, Ohio, subject to the condition that the right of first refusal is
exercised, and operations are commenced by Morelli within eighteen (18) months
of the Closing Date;
(c) Right of First Refusal to purchase Tandem franchise located in Salt
Lake City and Ogden, Utah; Wichita, Kansas; and Fayetteville, Springdale, and
Rogers, Arkansas, all subject to the condition that the right of first refusal
is exercised and operations are commenced within forty two (42) months of the
Closing Date.
1.7.3 PROCEDURE TO EXERCISE RIGHT OF FIRST REFUSAL AND RIGHT TO
PURCHASE.
(a) RIGHT OF FIRST REFUSAL. Outsource will provide to Morelli, by
overnight courier to the address provided in section 10.9 herein, the executed
written offer received by Outsource, or one of its affiliates, for the purchase
of a franchise (the "Offer Letter). Morelli must respond in writing to the Offer
Letter within fifteen days of the date of the Offer Letter. The written response
(the "Right of First Refusal Letter") shall be directed to the attention of the
Chief Executive Officer of Outsource. Morelli shall then have seven (7) days
after the date of the offer letter
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thereafter to execute the standard form of franchise agreement then in
use, and to tender to Outsource, or its affiliate, the total amount of the
franchise fee, as required under the standard franchise agreement. If Morelli
fails to provide a Right of First Refusal Letter within fifteen days, fails to
execute the franchise agreement, or fails to tender the franchise fee, as
described herein, the right of first refusal shall terminate.
Morelli shall have 180 days after the date of the Right of First
refusal Letter to begin operating the franchise. If Morelli fails to begin
operations within 180 days, Outsource shall have the option to rescind the
franchise agreement and refund the franchise fee, less reasonable and customary
expenses incurred by Outsource.
The rights of first refusal granted herein shall terminate no later
than the time periods specified in Section 1.7.2 (a) - (c), whether or not
OutSource, or one of its affiliated corporations, has provided Morelli with a
written offer. Except as set forth herein, the provisions of this Section 1.7.2
do not obligate OutSource, or any of its affiliated corporations, in any manner
to sell Tandem franchises in the territories listed below and/or within the time
limits specified herein.
Included within the meaning of the term "Right of First Refusal", as
used herein, is the right of Morelli to provide written notice to Outsource of
an intent to purchase a franchise in one of the territories described above,
notwithstanding the lack of an offer from a third party to purchase a franchise.
Morelli shall be entitled to purchase a franchise in one or more of the
described territories after written notice to Outsource subject to the
procedures and conditions described in paragraph 1.7.3. Except for South Bend,
Illinois, if Outsource or one of its affiliates has, prior to Morelli providing
written notice of an intent to purchase a franchise, initiated action to operate
a corporately owned office in the territory (which would include an executed
letter of intent to acquire a business within the territory) Morelli may not
exercise a right of first refusal in the same territory. Upon the completion of
an acquisition in one of the territories, the right of first refusal for that
particular territory shall expire.
(b) EXCLUSIVE RIGHT TO PURCHASE. Anytime within the one year period of
the exclusive right to purchase a Tandem franchise located in South Bend,
Indiana Morelli may provide written notice to Outsource of his intent to
exercise the right to purchase. Upon receipt of the written notice, the
procedures described in paragraph 1.7.3(a) shall apply.
Any Tandem franchise offered hereunder shall be subject to all of the
terms and conditions of the UFOC and standard franchise agreement used as a
matter of course at the time that Morelli exercises a right to purchase or right
of first refusal. Neither the Exclusive Right to Purchase, nor the Rights of
First Refusal granted herein may be assigned or transferred, and are granted
exclusively to Morelli as an individual. The boundaries of the franchise
territories listed below shall be determined at the time that the parties enter
a franchise agreement.
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(c) GOVERNING LAW. Illinois law shall govern the Right of First Refusal
document referenced herein, and the exclusive venue for any action to enforce it
shall be Kane County, Illinois.
1.7.4 CONSENT TO BUYOUT OF TEMP-AID FRANCHISE. OutSource hereby grants
its approval for Schubert to sell his ownership interest in Temp-Aid, Inc. and
the Temp Aid franchise to Morelli and John and Margaret Janisch, as husband and
wife, and waives its right of first refusal to purchase Schubert's interest
therein. OutSource and OFI further releases Schubert from any and all
obligations under the Temp Aid franchise agreement(s), which arise after the
date on which Schubert sells his interest therein.
1.7.5 PER DIEM AMOUNT. A per diem amount of One Thousand Dollars and
Eleven Cents ($1,000.11) per day for each day after February 15, 1998 through
the day before the date upon which the proceeds are credited to Seller's
account.
1.7.6 DAILY WAGES AMOUNT. An aggregate sum of Five Thousand Seven
Hundred Six and 29/100 Dollars ($5,706.29), which sum represents wages paid by
LM on February 16 and 17, 1998.
1.8 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. Buyer, LM, Morelli, and Schubert 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.
1.9 SUBORDINATED NOTE. Subordinated Note (the "Subordinated Note")
shall be subordinate and junior in right of payment to the prior payment of all
indebtedness of Buyer, whether now outstanding or hereafter incurred, under that
certain Second Amended and Restated Credit Agreement among the Buyer and any of
its affiliated corporations, the banks from time to time parties thereto, and
Bank Boston, N.A., successor by merger to Bank of Boston Connecticut, as agent
(the "Agent") dated as of February 21, 1997, as the same may be amended and
restated prior to the date hereof and as the same hereafter may be amended,
modified, supplemented, restated or extended from time to time. Seller agree to
execute and deliver such subordination agreements with the foregoing as Buyer
from time to time may reasonably request or as the Agent may require. The
subordinated Note shall be assignable to Matthew Schubert, subject to the prior
approval of the Agent.
1.10 POST CLOSING ADJUSTMENTS.
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(a) ROYALTIES. Within thirty (30) days immediately following the
Closing Date, both parties shall make a full accounting to each other in regard
to all amounts due each other, including any royalties currently outstanding to
Buyer, or any of its affiliated corporations, due pursuant to the Franchise
Agreements.
(b) RETAINED ASSETS. At closing, Seller shall make a full accounting to
Buyer in regard to any personal property which Seller intends to retain with
Buyer's consent and which Buyer, ("Retained Assets"). The Retained Assets shall
be limited to those listed on SCHEDULE 1.6
1.11 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 3.3 hereto (the "Permitted Liens").
1.12 PRORATION. Seller shall pay all applicable transfer, sales, use,
bulk sales and other taxes, and all documentary, filing, and recording fees
payable as a result of the transfer of the Assets customarily paid by the
Seller. Buyer shall pay all applicable transfer, sales, use, bulk sales, and
other taxes, and all documentary, filing and recording fees payable as a result
of the Transfer of Assets customarily paid by Buyer. All ad valorem and property
taxes, and any similar assessment based upon or measured by Seller ownership
interest in the Assets, shall be prorated between Seller 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. Seller shall be charged
for all such taxes and assessments based upon or measured by Seller' 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. The parties further agree to prorate rent and utility expenses. All such
prorations shall be agreed to between the parties and paid within ninety (90)
days of the Closing Date.
All rent (including taxes if applicable) due under the assumed leases
and the Crest Hill lease, shall be prorated between Buyer and Seller as of the
Closing Date. At closing, Buyer shall tender Three Thousand and 00/100 Dollars
($3,000.00) as security deposit on the Crest Hill Lease. At closing, Buyer shall
reimburse Seller for assigned security deposits as set forth on EXHIBIT I.
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 the offices of Morelli, Stieper
and Gorecki, P.C., 37 West 570, Route 38, St. Charles, Illinois, at or before
2:30 P.M. Central Daylight Time, on February 17, 1998 or at such other time and
place as the parties may establish (the date of the Closing being
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hereinafter referred to as the "Closing Date"). The transactions contemplated
hereby shall be deemed to be effective as of 12:01 a.m., Central Daylight Time,
on February 15, 1998.
2.2 DELIVERIES BY SELLER. At or prior to the Closing, LM, and where
applicable, Morelli and Schubert, 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 C
hereto;
(b) An Assignment and Assumption Agreement, in substantially the form
attached as EXHIBIT D hereto;
(c) Releases in substantially the form attached as EXHIBIT F hereto;
(d) Noncompetition Agreements in substantially the form attached as
EXHIBIT G hereto executed by LM, Morelli and Schubert and an assignment of
non-competition agreements with the staff of LM;
(e) An Assignment of Applications, in substantially the form attached
as EXHIBIT J hereto;
(f) A Certificate executed as of the Closing Date by a duly authorized
officer of LM certifying: (i) the resolutions of the Board of Directors and
Shareholders of LM approving the transactions contemplated hereby, and (ii) the
accuracy of LM's representations and warranties and regarding its performance
and compliance with all of the terms, provisions and conditions to be performed
or complied with by LM at or before Closing;
(g) The documents required pursuant to Section 7 of this Agreement;
(h) A mutual termination of the Franchise AgreementS between the
Seller, Morelli and Schubert and an affiliate of Buyer, substantially in the
form attached as EXHIBIT L hereto;
(i) An Estoppel Certificate and Consent to Assignment of Lease, in
substantially in the form attached as EXHIBIT I hereto; and
(j) Such other instruments of sale, transfer, conveyance and assignment
as Buyer and its counsel may reasonably request, including, but not limited to
the Title certificate for any vehicles acquired by Buyer.
(k) Executed receipts from IW Management, Inc. for the payment of rent
and security deposits on the Crest Hill Property, and executed receipts from LM
for the reimbursement of security deposits, as described in Paragraph 1.12.
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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 Seller the following:
(a) An Assignment and Assumption Agreement, in substantially the form
attached as EXHIBIT D hereto;
(b) A Release in substantially the form attached as EXHIBIT H hereto;
(c) 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) the accuracy of
Buyer's representations and warranties and regarding its performance and
compliance with all of the terms, provisions and conditions to be performed or
complied with by Buyer at or before Closing;
(d) Such other instruments of assumption as Seller and their counsel
may reasonably request; and
(e) A Subordinated Note in substantially the form attached as EXHIBIT
M.
(f) Fully executed five (5) year lease for Crest Hill property in
substantially the form attached as EXHIBIT O.
(g) Closing statement reflecting pro-rated items and credits.
3. REPRESENTATIONS AND WARRANTIES OF SELLER, MORELLI AND SCHUBERT. LM, Morelli,
and Schubert, 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" at SCHEDULE 3.6). 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. Unless specifically stated otherwise, each of the representations
and warranties stated herein are made by Morelli and Schubert as individuals and
as shareholders and officers of "Seller" shall include Morelli and Schubert.
Morelli and Schubert agree that the consideration recited herein is sufficient
and adequate for purposes of the representations and warranties made, and that
that they each shall be bound personally for each representation and warranty
stated in Sections 3.1 through 3.19. Unless stated otherwise herein, the
representations and warranties of Morelli and Schubert made in this Agreement
shall survive the Closing, and thereafter will be effective through February 17,
2003. Buyer agrees that, absent fraud by Moreli or Schubert,
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Buyer will not pursue Morelli or Schubert, subsequent to February 17, 2003, for
a breach of a warranty or representation made herein by LM.
3.1 TITLE TO ASSETS. Except as described in SCHEDULE 3.3 hereto, Seller
has 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 full right
and authority to transfer and deliver all the Assets. Except as described in
SCHEDULE 3.3 hereto, upon consummation of the transactions contemplated hereby,
Seller shall 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, except for those retained assets set forth in paragraph
1.2, "ASSETS RETAINED BY SELLER". 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 LM. LM is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois. LM is
qualified to do business and in good standing in each jurisdiction where the
operation of its business requires that it be so qualified. LM 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 LM, as presently in effect, are included as an
attachment to SCHEDULE 3.2 hereto.
3.3 AUTHORITY CONCERNING THIS AGREEMENT. The execution, delivery and
performance by Seller, Morelli, and Schubert 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 Seller.
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 Seller, and enforceable
against Seller in accordance with its 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.
3.4 CONDITION OF REAL AND PERSONAL PROPERTY; LEASES. All real property
leased by Seller and used in the operation of the Business is listed and
described in SCHEDULE 1.4 hereto. To the best of Seller's knowledge, all
buildings and improvements located thereon are in operating
13
condition and repair, subject only to normal wear and tear. All material items
of tangible personal property and assets owned or leased by Seller 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. Except as described in
SCHEDULE 1.1, all items listed on SCHEDULE 1.1 are in operating condition and
repair, subject only to normal wear and tear, and are adequate to conduct the
Business as it is now being conducted. Seller has delivered to Buyer accurate
and complete copies of all leases relating to real and personal property leased
by Seller and used in the operation of the Business and, except as described in
SCHEDULE 3.4, all such leases are in full force and effect, no event of default
has been declared thereunder and, to the Seller's knowledge, no basis for any
default exists.
3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Attached hereto as
part of SCHEDULE 3.5 are the Seller' Financial Statements up through the period
ending December 31, 1997. The Financial Statements (a) present fairly the
financial position and results of operations of the Seller for the dates or
periods indicated thereon, (b) have been prepared in Accordance with generally
accepted accounting principles applied on a consistent basis throughout the
period indicated and (c) accurately reflect the transactions, assets and
liabilities of Seller as of the dates and for the periods presented. Except as
set forth in the Financial Statements or on SCHEDULE 3.5 hereto, Seller 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. Seller are not 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 3.5 hereto.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since January 8, 1998, Seller
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 the Seller business from operating in a normal and
usual manner and in substantially the same manner as heretofore operated. Except
as expressly set forth in SCHEDULE 3.6 hereto and since the date noted herein.
(a) There has not been any damage, destruction or loss, whether covered
by insurance or not, materially and adversely affecting the Seller business or
the Assets;
(b) There has not been any increase (other than normal merit or
cost-of-living increases in the ordinary course of business and consistent with
past practices) or material change: (i) in compensation or bonuses payable to or
to become payable by Seller to its officers, employees or agents, or (ii) in any
insurance, pension or other benefit plan, payment or arrangement made to,
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for or with any of such officers, employees or agents; or (iii) other material
change in the employment terms of any officer, employee or agent of 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, Two Thousand Five Hundred Dollars
and 00/100 ($2,500.00) or more, without the prior written consent of Buyer;
(e) There has not been any failure to maintain any of 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
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 Seller involving, individually or in the aggregate, more than Two Thousand
Five Hundred Dollars and 00/100 ($2,500.00);
(h) Neither Seller, Morelli nor Schubert have entered into, nor has
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 3.7 hereto
that are not otherwise disclosed herein;
(i) Neither Seller, Morelli, nor Schubert have made any capital
investment in, any loan to, or any acquisition of the securities or assets of
any person or entity;
(j) There has been no change made or authorized in the charter or
bylaws of Seller;
(k) 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 Seller;
15
(l) Seller has not 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;
(m) Seller has not declared, set aside or paid any dividend nor 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;
(n) Neither Seller, Morelli, nor Schubert have not made any loan to, or
entered into any other transaction with, any of its directors, officers or
employees;
(o) There are no pending uninsured claims for workers compensation
submitted by any employee of Seller with respect to services performed on behalf
of Seller, or facts or state of facts existing which could give rise to claims
for workers compensation by any employee of Seller with respect to services
performed on behalf of Seller which exceed individually Five Thousand Dollars
and 00/100 ($5,000); and
(p) There has not been any commitment to do any of the foregoing.
3.7 CONTRACTS AND COMMITMENTS. EXHIBIT A and SCHEDULE 3.7 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 Seller are a party, by
which 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 LM 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 Seller in
excess of Two Thousand Five Hundred Dollars and 00/100 ($2,500.00) per year.
True and complete copies of all of the Material Agreements are included as part
of SCHEDULE 3.7 hereto. Each of the Material Agreements listed in EXHIBIT A and
SCHEDULE 3.7 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. Seller, Morelli and
Schubert make no warranty or representation concerning the enforceability of the
Employee Covenant Not to Compete Agreements. Buyer acknowledges George Barton
terms of contract and enforceability are being disputed by Barton. No part of
Seller's rights or benefits under any Material Agreement has been assigned,
transferred, or in any way encumbered. Seller are not in breach of nor have
Seller defaulted under any of the Material
16
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 Seller under any Material Agreement. 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 SCHEDULE 3.7 hereto, neither 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 Seller or Buyer without penalty or other obligation being
incurred upon such termination.
3.8 INTELLECTUAL PROPERTY. Seller owns or is 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 Seller
immediately prior to the Closing shall be owned or available for use by Buyer on
identical terms and conditions immediately subsequent to the Closing. Seller has
taken all necessary and desirable action to maintain and protect each item of
Intellectual Property that Seller owns or uses and to consummate the transfer
and assignment thereof to Buyer. Seller has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
Rights of third parties, and Seller has not received any charge, complaint,
claim, demand or notice alleging any such interference, infringement,
misappropriation or violation. To the knowledge of Seller, no third party has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of Seller. SCHEDULE 3.8 hereto contains a
true and correct description of the following:
(a) All Intellectual Property currently owned, in whole or in part, by
Seller, and all licenses, royalties, assignments and other similar agreements
relating to the foregoing to which Seller are a party; and
(b) All agreements relating to Intellectual Property that Seller is
licensed or authorized to use from others or which Seller licenses or authorizes
others to use.
3.9 TAXES. All federal, state, local and foreign tax returns (including
information returns) and reports of 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. Seller has
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 Seller in the Seller' Financial Statements. All
17
Taxes and other assessments and levies required to be collected or withheld by
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 Seller and established for that purpose.
Seller is not a party to any pending action or proceeding regarding
assessment or collection of Taxes by any governmental authority. To Seller's
knowledge, no action or proceeding regarding assessment or collection of Taxes
is threatened against 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. Seller has not 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.
3.10 LITIGATION. There is no suit, proceeding, action, claim or
investigation, at law, in equity or by any government agency, pending or, to the
knowledge of Seller, Morelli, or Schubert, threatened against or affecting in
any way the assets, properties or property interests of 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, except for litigation threatened by George
Barton relating to his employment with Seller. Neither Seller nor any of their
assets, property or property interests is subject to any judgment, 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 except as garnishments against certain employees of
Seller.
3.11 EMPLOYEE BENEFIT PLANS; ERISA.
(a) SCHEDULE 3.11 hereto contains a true and complete list of each
pension, retirement, profit sharing, deferred compensation, stock option, stock
purchase, bonus, medical, welfare, disability, severance or termination pay,
insurance or incentive plan, and each other employee benefit plan, program,
agreement or arrangement, whether funded or unfunded, sponsored, maintained or
contributed to or required to be contributed to by Seller, including without
limitation, Seller's 401(k) plan (the "401(k) Plan"), or by any trade or
business, whether or not incorporated, that together with Seller would be deemed
a "single employer" within the meaning of Section 4001 of ERISA (a "Company
ERISA Affiliate"), for the benefit of any employee or terminated employee of
Seller or any Seller ERISA Affiliate (the "Plans"). SCHEDULE 3.11 identifies
each Plan that is an "employee benefit plan," within the meaning of Section 3(3)
of ERISA (the "ERISA Plans").
(b) Seller does not now have, nor has it ever had, any unionized
employees. Consequently, Seller does not participate currently and has never
participated in and is not required currently and has never been required to
contribute to or otherwise participate in any
18
"multi-employer plan", as defined in Sections 3(37)(A) and 4001(a)(3) of ERISA
and Section 414(f) of the Code.
(c) True and complete copies of each of the Plans and the trusts
included in the 401(k) Plan have been furnished to Buyer. To the extent noT yet
furnished to Buyer, there shall be furnished to Buyer within ten (10) days of
the date hereof, with respect to each of the Plans, the most recent financial
statement and the most recent actuarial report prepared with respect to any of
such Plans that are funded, the most recent Internal Revenue Service ("service")
determination letter, the most recent Summary Plan Description and the most
recent Annual report together with a statement setting forth any such documents
which cannot be furnished; and any such documents furnished and the nature of
the documents which cannot be furnished shall be reasonably satisfactory to
Buyer.
(d) With respect to each Plan intended to be "qualified" within the
meaning of Section 401(a) of the Code, a determination letter from the Service
has been received to the effect that the Plan is qualified under Section 401 of
the Code and any trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code, and nothing has occurred or will occur
through the Closing Date (including without limitation the transactions
contemplated by this Agreement) which would cause the loss of such qualification
or exemption or the imposition of any penalty or tax liability.
(e) All contributions required by each Plan or by law with respect to
all periods through the Closing Date shall have been made by such date (or
provided for by Seller by adequate reserves on its financial statements) and no
excise or other taxes have been incurred or are due and owing with respect to
the Plan because of any failure to comply with the minimum funding standards of
ERISA and the Code.
(f) No "accumulated funding deficiency", as defined in Section 302 of
ERISA, has been incurred with respect to any Plan, whether or not waived.
(g) No "reportable event" of the type set forth in Section 4043 of
ERISA has occurred and is continuing with respect to any Plan.
(h) Seller does not currently maintain, and has never maintained, any
defined benefit pension plan within the meaning of ERISA. There are no
violations of ERISA or the Code with respect to the filing of applicable
reports, documents, and notices regarding any Plan with the Secretary of Labor,
Secretary of the Treasury, or the Pension Benefit Guaranty Corporation (the
"PBGC") or furnishing such documents to participants or beneficiaries, as the
case may be. No Plan is under audit by the Service or the Department of Labor.
19
(i) No claim, lawsuit, arbitration, or other action has been
threatened, asserted, or instituted against any plan, any trustee or fiduciaries
thereof, the Seller, or any of the assets of any trust maintained under any
Plan.
(j) All amendments required to bring any Plan into conformity with any
of the applicable provisions of ERISA and the Code have been duly adopted.
(k) Any bonding required with respect to any ERISA Plan in accordance
with applicable provisions of ERISA has been obtained and is in full force and
effect.
(l) Each Plan has been operated and administered in accordance with its
terms and the provisions of ERISA and the Code (including rules and regulations
thereunder) applicable thereto and in practice is tax qualified under Sections
401(a) and 501 of the Code.
(m) Each Plan intended to be "qualified" within the meaning of Section
401(a) of the Code is so qualified and the trusts maintained under such Plan is
exempt from taxation under Section 501(a) of the Code.
(n) The Seller has not incurred nor reasonably expects to incur any
liability to the PBGC.
(o) No "prohibited transaction", as such term is defined in Section
4975 of the Code and Section 406 of ERISA, has occurred with respect to any Plan
(and the transactions contemplated by this Agreement will not constitute or
directly or indirectly result in such a "prohibited transaction") which could
subject Seller, Buyer, or any officer, director or employee of any of the
foregoing, or any trustee, administrator or other fiduciary, to a tax or penalty
on prohibited transactions imposed by either Section 502 of ERISA or Section
4975 of the Code.
(p) No Plan is under audit by the Service or the Department of Labor.
(q) The present value, determined on a termination basis, of all
accrued benefits, vested and unvested, under each plan, determined using the
actuarial valuation assumptions and methods (including interest rates) contained
in the most recent actuarial report for such Plan, does not exceed the assets
thereof allocable to such benefits.
(r) No welfare benefit plan (within the meaning of Section 3(1) of
ERISA) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except as may be required by COBRA at the expense of the participant or the
beneficiary of the participant.
(s) The Seller does not currently maintain or contribute to any
severance pay plan.
20
(t) No individual shall accrue or receive any additional benefits,
service, or accelerated rights to payment of benefits under any Plan as a result
of the actions contemplated by this Agreement.
(u) Seller has complied with all of the requirements of Code Section
4980B and Part 6 of Title I of ERISA ("COBRA").
3.12 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution nor
delivery by 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 Seller of the
transactions contemplated hereby or thereby, nor compliance by Seller with any
of the provisions hereof or thereof, will (a) conflict with or result in a
breach of any provision of 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 (d) 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.
3.13 LICENSES, PERMITS AND AUTHORIZATIONS. Seller has 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. 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 3.13 hereto. Seller makes no representation whether any or
all of the permits, licenses, or approvals can be transferred to Buyer.
3.14 INSURANCE. SCHEDULE 3.14 hereto contains a complete list of all
insurance policies maintained by Seller with respect to the Business or the
Assets. Such insurance is in full 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 Seller is a
party or by which the Assets are bound.
21
3.15 GUARANTEES. Except as set forth in SCHEDULE 3.15 attached hereto,
neither the Business nor any of the Assets are 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.
3.16 CORPORATE AND PERSONNEL DATA; LABOR RELATIONS. To the best of
Seller's knowledge, Seller is in compliance with all federal, state, local and
foreign laws, rules and regulations affecting employment and employment
practices of Seller, including those relating to terms and conditions of
employment and wages. There are no complaints pending, or to Seller's knowledge
threatened, against Seller in connection with any employment related matters,
except a potential claim by George Barton. Seller is not a party to any
collective bargaining agreement. SCHEDULE 3.16 includes a monthly report that
reflects Seller' current payroll; this report accurately reflects Seller' entire
current monthly payroll obligations to their employees. SCHEDULE 3.16 also
includes a list of the names and compensation levels of any consultants,
independent contractors or temporary employees regularly utilized by Seller.
3.17 COMPLIANCE WITH LAWS/ENVIRONMENTAL MATTERS.
(a) To the best of Seller's knowledge, Seller has 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 Seller. Seller has not
received any formal or informal notice, advice, claim or complaint alleging that
Seller has violated or may have violated any law, regulation, ordinance or order
and, to Seller' knowledge, no such notice, advice, claim or complaint of any
type is threatened. Seller has 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 Seller has not 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) To the best of Seller's knowledge, without limiting the generality
of the foregoing, (i) all real property owned or leased by 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
Seller (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); however, Seller shall not be responsible for
nor shall there be a set off for leased real property not complying with
applicable environmental laws, including, without limitation those relationg to
"Hazardous Materials" and applicable fire codes, building codes, health codes,
ordinances, and regulations; (iii) no Hazardous
22
Material has been spilled, released, deposited or discharged on any of 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
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 Seller of any Environmental Law, (y) any alleged failure by 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 Seller. (As used in this
Agreement, the term Hazardous Material(s) 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 Seller
does business.
3.18 ACCRUED VACATION. There is no accrued vacation for any employee of
Seller other than vacation accrued since January 1, 1998.
3.19 ASSISTANCE. Schubert shall assist OutSource with the transition of
ownership for a minimum of thirty (30) hours and a maximum of forty (40) hours a
month for as long as needed, but not to exceed two (2) months from the Closing
Date, at the operational locations.
3.20 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
Seller pursuant to this Agreement including, but not limited to, information
relating to Seller's workers compensation premiums, losses, experience, claims,
payroll and employee classification, 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 Seller
to enter into this Agreement and to consummate the transactions contemplated
hereby, Buyer represents and warrants to Seller 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,
23
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.
4.3 NO PROHIBITION. No Agreement or Contract has been entered by Buyer,
which would prohibit Buyer from entering or performing this Agreement.
4.4 PERMISSION. No permission of any person, individual, group,
committee, body or entity outside the Board of Directors of the Buyer is or
will be required in order for Buyer to lawfully enter or perform this
Agreement or any Agreement referenced herein, however this transaction was
previously approved by Bank of Boston, Triumph Capital Group and Bachow and
Associates.
4.5 CORPORATE STATUS. An accurate and complete copy of the Articles of
Incorporation and Bylaws of Buyer, with all amendments thereto is presently in
effect, as included in SCHEDULE 4.5 hereto.
5. INDEMNIFICATION AND SET-OFF.
5.1 INDEMNIFICATION OBLIGATION OF SELLER, MORELLI, AND SCHUBERT. LM,
Morelli, and Schubert, 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 material
breach of any representation, warranty, covenant or agreement of Seller,
Morelli, or Schubert in this Agreement or in any agreement, document or
instrument executed and delivered in connection with the transactions
contemplated hereby; however, the liability of Morelli and Schubert for breach
of a their respective non-competition agreements, executed in connection with
this Agreement, shall be individual, and not joint and several;
(b) any material misrepresentation or material inaccuracy in, or
material omission from the Disclosure Schedule (Schedule 3.6)or from any
certificate, schedule, statement, document or instrument furnished by Seller,
Morelli, or Schubert to Buyer in connection with the transactions contemplated
by this Agreement.
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5.2 INDEMNIFICATION OBLIGATION OF BUYER. Buyer hereby agrees to defend,
indemnify and hold harmless Seller Morelli and Schubert 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, Morelli
and/or Schubert (a "Loss"):
(a) as a result of, arising from or in connection with any material
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.
(c) as a result of, arising from or in connection with Buyer's
operation of the Business subsequent to the Closing and not related to, or
caused by any act or omission of Seller.
(d) as a result of, arising from, or in connection with the assumption
or use by Buyer of Seller's SUTA rate subsequent to the Closing.
(e) as a result of, arising from, or in connection with the employment
contract of George Barton.
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 shall 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, which approval shall not be unreasonably withheld. 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 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.
25
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 LIMITATIONS OF INDEMNITY. The obligation to indemnify is limited in
the aggregate to SIX MILLION SEVEN HUNDRED THOUSAND and 00/100 Dollars
($6,700,000.00), excluding any reasonable costs incurred to bring or defend an
action or suit.
5.5 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.
5.6 BUYER'S RIGHT OF SET-OFF. In the event any claim of a right to
indemnification is made by Buyer, Buyer may, at its sole option, after complying
with the set off procedures stated in paragraph 5.6.1, satisfy all or a portion
of a loss by way of setoff against amounts due to Seller under the Subordinated
Notes. Buyer's right of setoff shall not constitute a limitation on Buyer's
rights hereunder or a measure of liquidated damages and Buyer may seek full
indemnification for all damages suffered and may pursue all rights and remedies
available to it, at law or in equity, against any party hereto, jointly or
severally, without seeking recourse against any other party and without
exercising any right of setoff.
5.6.1 RIGHT TO SET-OFF PROCEDURE. In the event that Buyer believes that
there is reason to exercise a right of set-off, Buyer must follow the following
procedure prior to setting off an amount:
(a) Provide written notice to Seller, as provided in paragraph 10.9
herein, stating the basis for the right of set-off and the amount to be set off;
(b) Seller shall have twenty (20) days thereafter to cure the alleged
breach or other violation forming the basis for the right of set-off;
26
(c) If the Seller does not cure the alleged breach or other violation
to the satisfaction of Buyer, then Buyer may exercise the right of set-off;
however, if it is ultimately determined by a tribunal of competent jurisdiction
that Buyer did not have the right to set-off under this Agreement, Buyer shall
pay to Seller as a penalty, in addition to the set-off amount, plus interest at
Eighteen (18%) per annum, two times all attorneys fees and costs incurred by
Seller to defend or challenge the Buyer's election to set-off.
6. CONDITIONS PRECEDENT TO SELLER' OBLIGATION TO CLOSE. Seller' 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
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.
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. LM, Morelli, and Schubert 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. Seller, and if applicable, Morelli and Schubert, 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.
27
7.3 ACCESS. Buyer shall have had full and complete access during normal
business hours to the properties, assets, books, agreements, files and records
of Seller for the purpose of verifying the information set forth herein. Buyer
and Seller agree that Buyer has not, as of the date of signing this Agreement,
completed its due diligence review of the Seller or the Assets. Buyer and Seller
further agree that Buyer may continue its due diligence review after the signing
of this Agreement and that Buyer is under no obligation to consummate the
Closing if, in its sole discretion, it is not satisfied with the results of its
due diligence review or the disclosures provided in the Disclosure Schedule.
Buyer's due diligence investigation shall not relieve Seller from any liability
in connection with its representations and warranties set forth in this
Agreement.
7.4 FINANCIAL STATEMENTS. Buyer shall have received copies of the
Financial Statements for the years ended 1995, 1996, and 1997. Each of the
Financial Statements shall be accompanied by a certificate of a company officer
in form and substance satisfactory to Buyer. Buyer also shall have received a
report of Seller' independent auditors (if any), in form and substance
satisfactory to Buyer, regarding certain matters contained in the Financial
Statements.
7.5 PROPERTY. All of Seller' 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 in SCHEDULE 1.1 in an "as is" condition.
7.6 APPROVAL. The board of directors of Seller shall have approved
Seller 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.
7.7 LITIGATION. There shall not have been instituted, pending or
threatened against 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.
7.8 INTENTIONALLY OMITTED
7.9 NONCOMPETITION AGREEMENT. Buyer and LM, Morelli, and Schubert shall
have entered into a Noncompetition Agreement in the form and containing the
restrictive covenants as EXHIBIT G attached hereto.
7.10 ABSENCE OF CERTAIN CHANGES OR EVENTS SCHEDULE. Seller shall have
furnished to Buyer and its representatives true, correct and complete copies of
all documents, agreements and instruments listed in the Absence of Certain
Changes of Events Schedule (SCHEDULE 3.6).
28
7.11 DELIVERIES. Seller, Morelli, and Schubert shall have delivered or
caused delivery of the items set forth in Section 2.2 hereof.
7.12 REPRESENTATIONS AND WARRANTIES. Each representation and warranty
of Seller, Morelli, and Schubert 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 anew at and as of such time.
7.13 OPINION OF SELLER' COUNSEL. Buyer shall have received an opinion
from counsel of Seller dated as of the Closing Date and in substantially the
form attached as EXHIBIT K hereto.
8. CERTAIN ADDITIONAL COVENANTS OF SELLER, MORELLI AND SCHUBERT Seller, Morelli,
and Schubert covenant and agree with Buyer as follows:
8.1 CONDUCT AND TRANSACTIONS PRIOR TO CLOSING. From and after the date
of this Agreement until the Closing Date, except to the extent contemplated by
this Agreement or otherwise consented to in writing by Buyer:
(a) Seller shall operate its business in the same manner as presently
conducted and only in the ordinary and usual course and consistent with past
practice, and shall use all reasonable efforts to preserve intact its present
business organization and to keep available the services of all employees,
representatives and agents. Seller shall use all reasonable efforts, consistent
with its past practices, to promote its business and shall not take or omit to
take any action which causes, or which is likely to cause, any deterioration of
their present business or relationships with suppliers or customers.
(b) Seller shall maintain all of its properties and assets, tangible,
in substantially the same condition and repair as such properties and assets are
maintained as of the date hereof, ordinary wear and tear excepted, and shall
take all reasonable steps necessary to maintain and protect its intangible
assets. Seller shall not sell, lease or otherwise dispose of any of its assets
except in the ordinary course of business consistent with past practice.
(c) Without the prior written consent of Buyer, neither Seller, Morelli
nor Schubert shall grant any salary increase to any employee, or enter into any
new or amend or alter any existing employment agreement or bonus, incentive
compensation, medical reimbursement, life insurance, deferred compensation,
profit sharing, retirement, pension, stock option, group insurance, death
benefit or other fringe benefit plans or other arrangements for its employees.
(d) Seller shall keep its properties and business insured to the same
extent as insured on the date hereof.
29
(e) Neither Seller, Morelli, nor Schubert shall take any action or omit
to take any action that 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 or the imposition of
any lien, encumbrance, mortgage or other claim or charge against the Assets.
(f) Seller shall maintain its books, accounts and records in accordance
with good business practice and generally accepted accounting principles
consistently applied.
(g) Neither Seller, Morelli, nor Schubert shall not take any action
that would cause its representations and warranties set forth herein not to be
true and correct at and as of the Closing Date as if made at and as of such
time.
(h) Seller shall not declare, set aside or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock.
(i) Seller, Morelli and Schubert shall use their best efforts to obtain
the approvals referred to in Section 7 hereto.
(j) From the Effective Date of this Agreement until the Closing Date,
the aggregate number of employees of Seller shall not decrease by more than
twenty five percent (25%) or more and the number of employees of Seller in any
one office of Seller shall not decrease by more than twenty percent (20%).
(k) Seller shall assume responsibility for the payment of all Federal
and State income tax liabilities incurred through February 15, 1998.
(l) In the event that Buyer desires to use and retain the benefit of
Seller's unemployment insurance rating with respect to any employees of Seller
whom Buyer desires to employ, Seller shall cooperate with Buyer with respect to
the taking of such rating and to allow Buyer to retain the full benefit thereof.
(m) Seller shall not otherwise engage in any practice, take any action
or enter into any transactions of the sort described in Section 3.6.
9. POST-CLOSING COVENANTS.
9.1 FURTHER ASSURANCES. LM, Morelli, and Schubert, and Buyer covenant
and agree that they will do, execute, acknowledge and deliver, or cause to be
done, 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.
30
9.2 AUDITS. Seller covenant and agrees to allow Buyer's independent
auditors, on or before July 16, 1998, to prepare audited financial statements of
Seller for the year ended December 31, 1997 and to deliver such audited
statements to Buyer, together with a written consent to such auditors with
respect to the use of those statements, and an agreement to provide signed
opinions and consents with respect thereto, at any time and from time-to-time,
at no cost to Seller, in any required filings with the Securities and Exchange
Commission by Buyer for a period of seventeen (17) months after the Closing
Date.
9.3 ACCRUED VACATION. Seller covenant and agree, at their sole cost and
expense, to pay, within two weeks of the Closing Date, all accrued vacation pay
due and owing to any of Seller's employees, as of December 31, 1997, whom were
employed by Buyer as of the Closing Date.
9.4 PAYMENT OF ACCOUNTS RECEIVABLES. Buyer and Seller agree that in the
event one receives payment on an account receivable of the other, the party
receiving the payment shall deliver to the other party, within 45 days of
receipt, the full amount of the payment. Any account receivable not turned over
within forty-five (45) days of receipt, shall bear interest at twelve percent
(12%) per annum until paid.
10. MISCELLANEOUS.
10.1 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.
10.2 AMENDMENT. This Agreement may not be amended or modified in any
respect, except by the mutual written agreement of the parties hereto.
10.3 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.
10.4 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 Closing 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.
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10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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 Seller or Morelli
Louis J. Morelli, Esquire
36 West 439 Hunters Gate
St. Charles, Illinois 60174
Phone: (630) 377-7500
32
With a copy to:
Louis J. Morelli, Esquire
2902 Lincoln Highway
St. Charles, Illinois 60174
Phone: (630) 377-7500
If to Schubert:
Matthew Schubert
1529 Windy Hill Drive
Northbrook, Illinois 60062
If to Buyer: OutSource International of
America, Inc.
Attention: CEO
1144 East Newport Center Drive
Deerfield Beach, Illinois 33442
Phone: (954) 418-6200
With a copy to: Brian M. Nugent, Esq.
Vice President and General Counsel
OutSource International of
America, Inc.
Deerfield Beach, Illinois 33442
Phone: (954) 418-6580
or to such other address as any party hereto may from time to time
designate in writing delivered in a like manner.
10.10 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 the parties hereto shall assign any of its rights
or obligations hereunder without the express written consent of the other party
hereto.
10.11 APPLICABLE LAW. This Agreement shall be governed by, and shall be
construed, interpreted and enforced in Accordance with, the laws of the State of
Illinois.
10.12 BROKERS AND AGENTS. Neither Seller nor Buyer has retained any
broker with respect to the transaction contemplated pursuant to this Agreement.
Accordingly, each party agrees to
33
indemnify the other with respect to any claims made by any third party
claiming a brokerage fee or commission arising out of the transaction
contemplated by this Agreement from said party.
10.13 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.
10.14 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 may not be
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. In
addition to the equitable relief described, the non-breaching party may withhold
performance under this Agreement if this confidentiality clause is violated.
10.15 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. The word
"material" as used in this Agreement shall mean a deviation of more than five
(5%) percent.
10.16 CONSENT TO JURISDICTION. The parties to this Agreement agree that
any claim, suit, action or proceeding, brought by either party, arising out of
or relating to this Agreement or the transactions contemplated hereby shall be
submitted for adjudication exclusively in any Illinois state 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. In the event of
any suit, action 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 paralegal 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.
34
10.17 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 of America, Inc.
/s/ Anita M. Dazzo /s/ David Sparkman
- ----------------------------- By: -------------------------------
Zone Vice President
Title: -------------------------------
SELLER:
Witness: L.M. Investors, Inc.
/s/ Anita M. Dazzo /s/ Louis Morelli
- ----------------------------- By: -------------------------------
President
Title: -------------------------------
/s/ Anita M. Dazzo /s/ Louis Morelli
- ----------------------------- ----------------------------------------
Louis J. Morelli, individually
35
Matthew Schubert, individually
/s/ Matthew Schubert /s/ Anita M. Dazzo
- ----------------------------- ----------------------------------------
36
LIST OF EXHIBITS
Exhibit A List of Assumed Obligations
Exhibit B Allocation of Purchase Price
Exhibit C Bill of Sale
Exhibit D Assignment and Assumption Agreement
Exhibit E Payment of Assets
Exhibit F Release of Seller and Louis J. Morelli and Matthew Schubert
Exhibit G Noncompetition Agreement(s)
Exhibit H Release of Buyers
Exhibit I Assignment and Assumption of Leases; Estoppel Certificate
and Consent to Assignment of Lease
Exhibit J Assignment of Applications
Exhibit K Opinion of Seller Counsel
Exhibit L Termination of Franchise Agreement
Exhibit M Subordinate Note
Exhibit N Employment Agreement with George Barton
Exhibit O Office Lease for Crest Hill location
37
EXHIBIT A
ASSUMED OBLIGATIONS
The following represents a list of assumed obligations:
1. All employment contracts and all amendments thereto by and between LM
Investors and its employees set forth on Attachment (i) "List of
Employees and attached Employment Contracts".
2. Assumed leases set forth on Schedule 1.4.
3. Accrued employee vacation benefits commencing January 1, 1998 and
thereafter.
38
EXHIBIT B
ALLOCATION OF PURCHASE PRICE
CUSTOMER LIST $ 979,538.00
EMPLOYEE LIST $ 20,000.00
NON-COMPETE $ 224,081.00
GOODWILL $5,406,714.00
TANGIBLE ASSETS $ 69,667.00
TOTAL $6,700,000.00
39
EXHIBIT C
BILL OF SALE
SEE ATTACHED BILL OF SALE.
40
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
SEE ATTACHED ASSIGNMENT AND ASSUMPTION AGREEMENT.
41
EXHIBIT E
PAYMENTS FOR ASSETS
CASH IN THE AMOUNT OF $5,000,000.00 TO BE TRANSMITTED BY WIRE TRANSFER ON OR
BEFORE 2:30 P.M. CENTRAL TIME, ON THE DAY OF CLOSING IN ACCORDANCE WITH SECTION
1.6 OF THE AGREEMENT.
SUBORDINATED NOTE A IN THE AMOUNT $1,700,000.00 TO BE DELIVERED BY BUYER ON DAY
OF CLOSING.
42
EXHIBIT F
RELEASE OF SELLER, LOUIS J. MORELLI AND MATTHEW SCHUBERT
SEE ATTACHED RELEASES.
43
EXHIBIT G
NONCOMPETITION AGREEMENTS
SEE ATTACHED NON COMPETITION AGREEMENTS.
44
EXHIBIT H
RELEASE OF BUYER
SEE ATTACHED RELEASE.
45
EXHIBIT I
ESTOPPEL CERTIFICATE AND CONSENT TO ASSIGNMENT OF LEASE
SEE ATTACHED ESTOPPEL CERTIFICATE AND LEASE ASSIGNMENTS.
46
EXHIBIT J
ASSIGNMENT OF APPLICATIONS
SEE ATTACHED ASSIGNMENT OF APPLICATIONS.
47
EXHIBIT K
OPINION OF SELLER COUNSEL
SEE ATTACHED OPINION OF SELLER COUNSEL.
48
EXHIBIT L
TERMINATION OF FRANCHISE AGREEMENT
SEE ATTACHED MUTUAL TERMINATION AGREEMENT.
49
EXHIBIT M
SUBORDINATE NOTE
SEE ATTACHED SUBORDINATE NOTE.
50
EXHIBIT N
EMPLOYMENT AGREEMENT WITH GEORGE BARTON
SEE ATTACHED EMPLOYMENT AGREEMENT WITH GEORGE BARTON.
51
EXHIBIT O
OFFICE LEASE FOR CREST HILL LOCATION
SEE ATTACHED OFFICE LEASE.
52
LIST OF SCHEDULES
Schedule 1 Locations
Schedule 1.1 Assets
Schedule 1.4 Assumed Leases
Schedule 1.6 Retained Assets
Schedule 2.2 Certificate of Officer and Resolution of Board of Directors and
Shareholders.
Schedule 3.1 Title to Assets
Schedule 3.2 Corporate Status of L.M. Investors, Inc.
Schedule 3.3 Permitted Liens
Schedule 3.4 Condition of Personal Property
Schedule 3.5 Financial Statements; Undisclosed Liabilities
Schedule 3.6 Absence of Certain Changes or Events
Schedule 3.7 Contracts and Commitments
Schedule 3.8 Accounts Receivable
Schedule 3.9 Intellectual Property
Schedule 3.11 Employee Benefit Plans; ERISA
Schedule 3.13 Licenses, Permits and Authorizations
Schedule 3.14 Insurance
Schedule 3.16 Corporate and Personnel Data; Labor Relations
Schedule 4.1 Corporate Status of Buyer
53
SCHEDULE 1
LOCATIONS
ADDRESS OF LOCATIONS:
1. 916 N. Farnsworth Avenue
Aurora, IL 60505
Phone: (630) 906-8700
Fax: (630) 906-1301
2. 330 N. Broadway, Unit 3
Aurora, IL 60505
Phone: (630) 906-1200
Fax: (630) 906-1301
3. 1916 Plainfield Road
Joliet, IL 60435
Phone: (815) 744-8500
Fax: (815) 744-8505
4. 28 Town Center Drive
University Park, IL 60466
Phone: (708) 534-7154
Fax: (708) 534-8312
5. 3577 East New York Street
Aurora, IL
54
SCHEDULE 1.1
ASSETS
The following tangible assets being sold:
1. Customer list identified on Attachment (i) to Schedule 1.1 "Assets."
2. All equipment, supplies, machinery, furniture, fixtures and any other
tangible property specifically identified on group Attachment ii to Schedule 1.1
"Assets" (Joliet, West Aurora, East Aurora and University Park).
3. Used Dodge passenger van, VIN No. 2B5WB35Z99TK128567, Model B3500, more
fully set forth on Schedule 3.1 "Title to Assets."
55
SCHEDULE 1.4
ASSUMED LEASES
1. All of Seller's rights and interest in that certain lease dated September 4,
1992 between Village Associates, Ltd. and Labor World, Inc., subsequently
assigned to LM Investors, Inc. d/b/a Labor World, in the Village Mart Shopping
Center on Attachment (i) to Schedule 1.4, "Assumed Leases."
2. All of Seller's rights and interest in that certain lease dated September 9,
1996 between R. Gary Gooding and LM Investors, Inc. d/b/a Labor World, at 330 N.
Broadway, Aurora, on Attachment (ii) to Schedule 1.4 "Assumed Leases."
3. All of Seller's rights and interest in that certain lease dated August 1,
1997 between C.W. Habiger and LM Investors, Inc. d/b/a Labor World, at 3577 E.
New York Street, Aurora, on Attachment (ii) to Schedule 1.4 "Assumed Leases."
4. All of Seller's rights and interest in that certain lease dated August 28,
1995 between University Park Towncenter Joint Venture and LM Investors, Inc.
d/b/a Labor World, at 28 Towncenter Drive, University Park, on Attachment (ii)
to Schedule 1.4 "Assumed Leases."
56
SCHEDULE 1.6
RETAINED ASSETS
All of the those assets set forth in paragraph 1.2(a) through and including
1.2(f) of the Asset Purchase Agreement.
57
SCHEDULE 3.1
TITLE TO ASSETS
Attached in an original Certificate of Title to the only motor vehicle being
transferred:
(Used Dodge passenger van, VIN No. 2B5WBZ9TK128567)
58
SCHEDULE 3.2
CORPORATE STATUS OF L.M. INVESTMENTS, INC.
A copy of the following corporate documents of Seller now in effect:
1. Attachment (i) hereto Articles of Incorporation L. M.
Investments, Inc.
2. Attachment (ii) hereto By-Laws of L. M. Investments, Inc.
3. Attachment (iii) hereto Certificate of Good Standing of L. M.
Investments, Inc.
59
SCHEDULE 3.3
PERMITTED LIENS
NONE.
60
SCHEDULE 3.4
CONDITION OF REAL AND PERSONAL PROPERTY; LEASES
ALL PERSONAL PROPERTY AND LEASED PROPERTY IS SOLD AND/OR TRANSFERRED AS IS.
61
SCHEDULE 3.5
FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES
EXCEPT AS SET FORTH IN THE FINANCIAL STATEMENTS, IDENTIFIED IN ATTACHMENT (i),
SELLER HAS 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.
62
SCHEDULE 3.6
ABSENCE OF CERTAIN CHANGES OR EVENTS
EXCEPT AS STATED BELOW, NO EVENT HAS OCCURRED TO PREVENT SELLERS' BUSINESS FROM
OPERATING IN SUBSTANTIALLY THE SAME MANNER AS HERETO OPERATED SINCE FEBRUARY 16,
1998.
EXCEPTION TO ABOVE: SELLER HAS GIVEN NOTICE TO THE MEADOWS DISTRIBUTING COMPANY
OF ITS INTENTION TO VOID THE ATTACHED SERVICE AGREEMENT EXECUTED BY AND BETWEEN
THE PARTIES. THE MEADOWS DISTRIBUTING COMPANY MAY NOT WISH TO CONTINUE BUSINESS
WITH OUTSOURCE UNLESS A DUPLICATE AGREEMENT IS EXECUTED. PURCHASER HAS INDICATED
IT DOES NOT WISH TO ASSUME THE SERVICE AGREEMENT; THEREFORE, IT COULD HAVE A
MATERIAL EFFECT ON THE FUTURE REVENUES.
TWO EMPLOYEES OF SELLER HAVE BEEN PLACED ON LIGHT DUTY IN LIEU OF FILING
WORKERS' COMP CLAIMS.
63
SCHEDULE 3.7
CONTRACTS AND COMMITMENTS
ANY AND ALL CONTRACTS AND COMMITMENTS SPECIFICALLY SET FORTH ON EXHIBIT A
"ASSUMED OBLIGATIONS".
ASSUMED LEASES CANNOT BE TERMINATED UPON THIRTY (30) DAYS WRITTEN NOTICE BY
BUYER WITHOUT PENALTY OR OTHER OBLIGATIONS BEING INCURRED UPON SUCH TERMINATION.
64
SCHEDULE 3.8
ACCOUNTS RECEIVABLE
1. Attachment (i) for invoices through February 9, 1998 for East Aurora
location;
2. Attachment (i) for invoices through February 9, 1998 for West Aurora
location;
3. Attachment (i) for invoices through February 9, 1998 for Joliet
location;
4. Attachment (i) for invoices through February 9, 1998 for University
Park location;
65
SCHEDULE 3.9
INTELLECTUAL PROPERTY
NONE.
66
SCHEDULE 3.10
EMPLOYEE BENEFIT PLANS; ERISA
1. 401(k) Plan now in effect for Seller as set forth in attachment (i) to
Schedule 3.10
2. Employee Health Plan now in effect for Seller as set forth in
attachment (ii) to Schedule 3.10
67
SCHEDULE 3.11
LICENSES, PERMITS AND AUTHORIZATIONS
NONE.
68
SCHEDULE 3.12
INSURANCE
69
SCHEDULE 3.13
CORPORATE AND PERSONNEL DATA; LABOR RELATIONS
70
SCHEDULE 4.1
CORPORATE STATUS OF OUTSOURCE INTERNATIONAL OF AMERICA, INC.
AN ACCURATE AND COMPLETE COPY OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF
OUTSOURCE INTERNATIONAL OF AMERICA, INC., AS PRESENTLY IN EFFECT, ARE INCLUDED
AS AN ATTACHMENT HERETO.
71