E-84
Exhibit No. 3
Form 8-K
Headway Corporate Resources, Inc.
SEC File No. 0-23170
[Each of the schedules to this Agreement described in Sections 3
and 6 are omitted, and will be provided supplementally to the
Commission on request.]
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of March 23, 1998, among HEADWAY
CORPORATE RESOURCES, INC., a Delaware corporation ("Buyer" or
"Headway"), L&M SHORE FAMILY HOLDINGS LIMITED PARTNERSHIP, a
Nevada limited partnership ("L&M"), ELDER INVESTMENTS LIMITED
PARTNERSHIP, a Nevada limited partnership ("ELP"), MARK SHORE
("Shore") and LINDA ELDER ("Elder"; L&M, ELP and Elder being
collectively referred to as the "Stockholders" and each
sometimes, individually, as a "Stockholder").
W I T N E S S E T H:
WHEREAS, the Stockholders own all the issued and
outstanding shares of capital stock of Shore Resources,
Incorporated, a California corporation ("SRI"); and
WHEREAS, Buyer wishes to purchase from the
Stockholders, and the Stockholders wish to sell to Buyer, all of
the issued and outstanding shares of capital stock of SRI;
NOW, THEREFORE, the parties agree as follows:
1. Purchase and Sale of the Stock.
1.1 Acquired Shares. Subject to the terms and
conditions of this Agreement, and in reliance on the
representations, warranties and agreements set forth herein, on
the "Closing Date" (as defined in Section 2), Buyer shall
purchase, and each Stockholder shall sell, convey, transfer,
assign and deliver to Buyer, all of its right, title and interest
in and to all shares of SRI Common Stock, no par value per share
(the "Stock"), held by such Stockholder. The number of shares of
Stock owned by each Stockholder on the date hereof and which
shall be transferred to Buyer on the Closing Date is as follows:
L&M, 940 shares, ELP, 35.4 shares and Elder, 24.6 shares. The
Stockholders shall transfer all of the Stock free and clear of
all claims, liens, security interests, charges, encumbrances,
equities, adverse interests and restrictions of any kind
(collectively, "Liens"), except any imposed under the federal or
applicable state securities laws. On the Closing Date, each
Stockholder shall deliver to Buyer one or more certificates
evidencing the shares of Stock to be transferred to Buyer by such
Stockholder, duly endorsed in blank or accompanied by duly
executed stock powers in blank, together with all necessary
documentary or stock transfer stamps affixed to such
certificates.
1.2 Purchase Price.
(a) As consideration for the sale, conveyance,
transfer, assignment and delivery to Buyer of the Stock, Buyer
shall pay to the Stockholders a purchase price of $5,000,000 (the
"Purchase Price"), subject to adjustment as provided in Sections
1.2(b) and 1.2(c), as follows:
(i) $4,750,000 payable on the Closing Date (the
"Closing Payment");
(ii) $250,000 deposited by Buyer in escrow on the
Closing Date, with Messrs. Christy & Viener
as escrow agent (the "Escrow Agent"), in
accordance with the terms of the Escrow
Agreement (as defined in Section 3.7); and
(iii) the Earnout on the Earnout Payment Dates
(as defined in Sections 1.2(c) and 1.2(e)).
All amounts payable by Buyer pursuant to this Section 1.2(a) and
Section 1.2(c) shall be paid by wire transfer on the Closing Date
in immediately available funds to accounts designated by the
Stockholders to Buyer not later than two business days prior to
the scheduled date of such payment.
(b) If, on the Closing Date, and based upon the
estimated Closing Balance Sheet (as defined in Section 3.8), (i)
the aggregate value of the cash, cash equivalents and accounts
receivable balances of SRI (together, the "Cash Value") does not
exceed the aggregate amount of its liabilities (including the
present value of any tax liabilities for the period ending on the
Closing Date associated with the conversion of the books of SRI
from cash basis to accrual basis accounting calculated based on a
combined federal and state effective tax rate of 40.1%
(multiplied by 88.65%, which represents a discount based on a
present value factor of 5% per annum) by at least $700,000 and
(ii) the book value of SRI's fixed assets (the "Book Value") does
not at least equal $80,000, the amount, if any, by which the Cash
Value does not exceed such aggregate liabilities by $700,000 and
the amount, if any, by which the Book Value is less than $80,000,
shall reduce the Purchase Price by $1.00 for each $1.00 of such
deficiency, as follows: (y) the aggregate amount of the
Retention Bonuses (as defined in Section 3.6), and the next
$250,000 of such deficiency shall reduce the Closing Payment; and
(z) any deficiency in excess thereof shall be payable in cash by
the Stockholders to the Buyer in three equal installments (each,
an "Installment"), with each Installment to be payable 30 days
following the close of each of the Earnout Periods (as defined in
Section 1.2(c)) (each, an "Installment Payment Date"); provided,
that, for the purposes of the foregoing, the amount, if any, by
which the Cash Value exceeds such aggregate liabilities over
$700,000 may be added to the Book Value to the extent that the
Book Value is less than $80,000. Any Installment due shall be
offset against the Earnout due on the same date. Shore and the
Stockholders, jointly and severally, shall be liable for the
repayment of each Installment, if any, on each Installment
Payment Date to the extent that such Installment has not been
repaid pursuant to the applicable Earnout. The aggregate
liabilities contained in the Closing Balance Sheet shall include
all accruals required by generally accepted accounting
principles, including, without limitation, accruals for wages,
salaries, bonuses, sales commissions, vacation time, sick pay,
unemployment insurance premiums, workers' compensation premiums,
medical and disability insurance premiums, Taxes (as that term is
defined in Section 6.15) and trade payables. Within 15 days
after the Closing Date, the Stockholders shall provide to Buyer
the finalized Closing Balance Sheet, along with a reconciliation
thereof to the estimated Closing Balance Sheet and the Closing
Payment actually made on the Closing Date. The reconciliation
shall include a calculation illustrating the amount of the
adjustment (either an increase for the Stockholders or a
reimbursement to Buyer) to the Closing Payment. Within 5
business days thereafter, the party required to make such
adjustment shall pay the party so entitled.
(c) Each of the three consecutive twelve-month periods
commencing on April 1, 1998 is referred to as an "Earnout
Period". If, for any Earnout Period, SRI's EBITA (as defined in
Section 1.2(d)) equals $1,200,000 (the "Base Amount"), Buyer
shall pay to the Stockholders $450,000 in cash for each such
Earnout Period (each, an "Earnout"), subject to adjustment as
provided below:
(i) The Earnout for each of the Earnout Periods shall
be (A) increased by $1.50 for each $1.00 that SRI's EBITA
for such Earnout Period exceeds the Base Amount and (B)
reduced, but not below zero, by $1.50 for each $1.00 that
SRI's EBITA for such Earnout Period is less than the Base
Amount; and
(ii) The Earnout for the third Earnout Period shall be
increased by $150,000 if the cumulative EBITA of SRI for the
three Earnout Periods equals or exceeds $3,600,000.
The calculation of the Earnout for each Earnout Period
shall be independent of the calculations for the other Earnout
Periods, and there shall be no cumulation of EBITA from one
Earnout Period to another (except for the purposes of Section
1(c)(ii)).
(d) For the purposes of this Agreement, "EBITA" means,
for an Earnout Period, Net Income (as defined below) without
deductions for (i) interest expense, (ii) provisions for income
taxes and (iii) amortization of goodwill and other intangible
assets resulting from Buyer's purchase of SRI.
"Net Income" means the net income (or loss) of SRI for
an Earnout Period attributable to Buyer's continued operation of
SRI's business, as reasonably determined by Buyer in accordance
with generally accepted accounting principles consistently
applied in accordance with the Financial Statements (as defined
in Section 3.8(a)). For this purpose, "SRI" and "SRI's business"
shall include (x) any organization or business that is the
successor to SRI as a result of any merger, sale or disposition
of its stock or assets, or any liquidation, consolidation or
other reorganization involving SRI or its business or assets and
(y) any organization or business of Buyer or any of its
affiliates that is utilizing assets or resources of SRI,
including client lists, trade secrets, marketing and sales
information and other intangibles owned or used by SRI in its
business, irrespective of whether such assets or resources are
owned by SRI during the Earnout Period in question. The
calculation of Net Income shall take into account the following
expenses to the extent incurred in the ordinary course of SRI's
business: (i) wage, salary and commission expense (but excluding
the automobile allowance of Elder pursuant to Section 2.5 of the
Employment Agreement (as defined in Section 3.4)) of all
temporary, payrolled (as defined in Section 1.2(f)) and full-time
employees of SRI, including, without limitation, salary and other
compensation paid to Elder and that portion of the expense of a
controller engaged by SRI attributable to SRI's operations and
reasonably acceptable to Buyer; (ii) reasonable travel and
entertainment expenses incurred by SRI's employees; (iii) bonuses
paid to SRI's employees and approved by Elder; (iv) all amounts
attributable to FICA and any other federal, state and local taxes
paid by SRI on behalf of such employees; (v) all unemployment
insurance premiums, workers' compensation premiums, medical and
disability coverage and any other benefits provided by SRI to
such employees (excluding any increase in workers' compensation
premiums due by SRI attributable to periods prior to the Closing
Date); (vi) reasonable general and administrative expenses; (vii)
sales commissions; (viii) depreciation in connection with the
acquisition by Buyer, SRI or any other subsidiary of Buyer of
computer and telecommunications equipment for use at SRI
consistent with that used by the Headway group of companies; and
(ix) an annual charge of $50,000 for technical and financial
support provided by the Headway group of companies, which amount
shall include the allocation by Headway to SRI of fees charged by
Headway's certified public accountants in connection with the
annual audit of the Headway group of companies; provided, that in
the event that in any Earnout Period SRI's EBITA (calculated in
accordance with items (i) through (viii) of this paragraph only)
is less than the Base Amount, such charge shall be reduced to
$30,000 for the determination of SRI's EBITA attributable to such
Earnout Period. For the purpose of determining Net Income
pursuant to this Section 1.2(d), any reserves established by SRI
for bad debts with respect to its receivables during any Earnout
Period shall be added to Net Income to the extent deducted
therefrom. If Shore or the Stockholders shall disagree with the
calculation of Net Income by Buyer, Shore and the Stockholders,
together with their accountants, shall be entitled to meet with
Buyer and its accountants for the purpose of resolving any such
disagreement.
In the event of a material change in the ownership,
management or operations of SRI during the Earnout Periods that,
in the reasonable discretion of either Elder or Shore, would
materially and adversely affect the revenues of SRI, including
without limitation, changes resulting from one or more sales or
other dispositions of substantially all of the assets of SRI, an
organizational or ownership restructuring (such as a merger,
consolidation or other reorganization involving its business, or
a spin-off, split-up or other divisional restructuring, or a
substantial sale of its stock to an unaffiliated organization) or
any other organic change that reduces operations, then the
parties shall agree to discuss and evaluate the then current
definition of Net Income to assure that the Earnout calculation
set forth in this Section 1.2 continues to be a fair and relevant
method to measure SRI's EBITA and the Net Income defined herein,
and whether adjustments should be made to the method of
calculation to take into account the effect of such changes.
Such adjustments might include augmenting the EBITA of SRI with
portions of the EBITA of affiliated organizations that are
attributable to SRI assets or resources transferred to or shared
with such other organizations. Buyer also agrees not to take
actions calculated to minimize EBITA or to reduce Net Income for
the purpose of avoiding any Earnout obligations hereunder, or to
reduce any Earnout to which the Stockholders and Shore would
otherwise be entitled to hereunder (including using affiliated
organizations to compete with SRI's business or using marketing
or business plans intended to cause the diversion of revenue from
SRI to the Buyer's affiliated organizations). Buyer agrees
otherwise to conduct itself in good faith and to use commercially
reasonable efforts to maximize EBITA and Net Income during the
Earnout Periods.
(e) Each Earnout shall be paid in two equal
installments, the first installment to be paid 30 days following
the close of the related Earnout Period and the second
installment to be paid 90 days following the close of the related
Earnout Period (each, an "Earnout Payment Date"); provided, that,
the Earnout paid on the first Earnout Payment Date may be based
on an estimate, as reasonably determined by Buyer, of the total
Earnout for the related Earnout Period. If any such day is not a
business day, the Earnout Payment Date shall be the next
succeeding business day. If, as of the close of business on the
third day prior to an Earnout Payment Date with respect to any
Earnout, any account receivable included as income in the
calculation of Net Income has not been collected (using a cash
basis method of determination), the uncollected amount of such
account receivable shall be deducted from Net Income and EBITA
and the Earnout shall be reduced accordingly; provided, that any
such uncollected account receivable may not be deducted more
than once during any Earnout Period. If such account receivable
is thereafter collected after any such Earnout Payment Date,
Buyer shall pay the Stockholders (but no sooner than on the
second Earnout Payment Date of an Earnout Period to the extent
that the uncollected receivable relates to the first Earnout
Payment Date in the same Earnout Period) the amount by which such
Earnout had been reduced in respect of such account receivable,
net of any direct collection costs paid to outside collection
agents or attorneys and net of an interest charge for any account
receivable paid more than 120 days after the date of invoice (a
"Restoration Amount"), with the interest rate determined by
reference to the interest rate then in effect for Eurodollar
Loans under the Credit Agreement, dated as of March 12, 1998, by
and among Headway, as Borrower, NationsBank, National
Association, as Agent and as Lender, and the lenders from time to
time parties thereto (or any successor senior credit facility of
Headway); provided, that with respect to the Earnout for the
third Earnout Period, Buyer shall be obligated to pay the
Stockholders a Restoration Amount with respect to any such
account receivable only if such account receivable is collected
within 90 days of the second Earnout Payment Date (the "Final
Restoration Amount") with respect to such Earnout. Any such
accounts receivable remaining uncollected on the day following
the Final Restoration Date shall be deemed to be conveyed,
transferred and assigned to the Stockholders on such day and the
Stockholders shall have the right to institute collection
proceeding with respect thereto and to keep any proceeds received
therefrom. The Stockholders shall notify Buyer of any such
action not less than five days before it is instituted.
(f) For the purposes of this Agreement, "payrolled"
personnel means (i) those employees of Buyer or SRI, as the case
may be, who are hired by Buyer or SRI on behalf of a client of
Buyer or SRI, as the case may be, and are considered as full-time
"permanent" employees of such client, but whose compensation is
paid by Buyer or SRI or (ii) those employees of Buyer or SRI who
are considered to be payrolled employees under industry practice
or understanding prevailing at the time. For the purposes of
Section 1.2(d)(i), payrolled personnel of SRI shall mean only
those personnel with regard to which the revenue for their
placement services is credited to the account of SRI.
2. Closing. The consummation of the purchase and
sale of the Stock shall take place at 10:00 a.m. on March 16,
1998 (the "Closing Date"), at the offices of Christy & Viener,
620 Fifth Avenue, New York, New York 10020.
3. Conditions to the Obligations of Buyer. The
obligations of Buyer under Section 1 are subject to the
satisfaction, on or before the Closing Date, of the following
conditions:
3.1 Due Performance. The Stockholders and Shore shall
have in all material respects fully performed and complied with
all agreements and conditions required under this Agreement to be
performed or complied with by it or them on or prior to the
Closing Date.
3.2 Accuracy of Representations and Warranties. All
representations and warranties of the Stockholders and Shore set
forth in Section 6 of this Agreement shall be true and correct in
all material respects on and as of the Closing Date as if made on
and as of such date.
3.3 Certificate. Buyer shall have received a
certificate from the Stockholders and Shore to the effect set
forth in Sections 3.1 and 3.2.
3.4 Employment Agreement. Buyer and Elder shall have
entered into an Employment Agreement in a form satisfactory to
both parties (the "Employment Agreement").
3.5 Sharing Agreement. The Stockholders and Shore
shall have provided a certificate to Buyer, in form and substance
reasonably satisfactory to Buyer, with respect to the terms of an
agreement between Shore and Elder regarding the allocation of the
Purchase Price (the "Sharing Agreement").
3.6 Retention Bonuses. On or prior to the Closing
Date, Shore, Elder and SRI shall have reached agreement with key
employees of SRI whereby such employees shall receive the bonuses
(the "Retention Bonuses") set forth on Schedule 3.6 and included
in the Closing Balance Sheet as an incentive for remaining with
SRI after the Closing Date, the amount and payee of each such
Retention Bonus to be reasonably satisfactory to Buyer.
3.7 Escrow Agreement. Buyer, the Stockholders, Shore
and Christy & Viener, as escrow agent (the "Escrow Agent") shall
have entered into an Escrow Agreement in a form satisfactory to
all such parties (the "Escrow Agreement").
3.8 Financial Statements.
(a) On or before the Closing Date, the Stockholders
shall have prepared and delivered to Buyer unaudited financial
statements of SRI as of and for the nine-month period ended
September 30, 1997 and for the twelve-month periods ended
December 31, 1995 and December 31, 1996 (collectively, the
"Unaudited Financial Statements") and on or before March 31,
1998, the Stockholders shall have prepared and delivered to Buyer
audited financial statements of SRI for the twelve-month period
ended December 31, 1997 (the "Audited Financial Statements"). On
the Closing Date, the Stockholders shall have prepared and
delivered to Buyer an unaudited balance sheet of SRI as of the
Closing Date (the "Closing Balance Sheet"; the Unaudited
Financial Statements, the Audited Financial Statements and the
Closing Balance Sheet being collectively referred to as the
"Financial Statements"). The Financial Statements shall be
prepared at the expense of the Stockholders in accordance with
generally accepted accounting principles (except, with respect to
the Unaudited Financial Statements, (i) to the extent that
deferred income taxes are not recognized as to differences
between the financial and tax bases of assets and (ii)
substantially all of the footnote disclosures and statements of
cash flows required by generally accepted accounting principles
are omitted) applied on a basis consistent throughout all periods
presented and, as requested by Buyer, on a calendar-year and
accrual basis and shall reflect a deferred tax liability for the
conversion of the books of SRI from cash basis to accrual basis
accounting calculated based on a combined federal and state
effective tax rate of 40.1% (multiplied by 88.65%, which
represents a discount based on a present value factor of 5% per
annum).
(b) The Audited Financial Statements may be prepared
by SRI's accounting firm, as long as such firm is registered to
practice in front of the Securities and Exchange Commission
("SEC") and agrees to provide consents, as needed, for the
inclusion of their audit reports in SEC filings made by Buyer
that include such financial statements, but in any event will be
prepared at SRI's sole expense. In the event that the
transactions contemplated by this Agreement are not consummated
other than (i) by reason of any material misrepresentation by the
Stockholders of any representation or warranty made by them
hereunder or (ii) at the election of the Stockholders, Buyer
shall bear the cost of the preparation of the Audited Financial
Statements
3.9 Payoff Letter. Buyer shall have received an
original, signed payoff letter from Harbor Bank and original,
signed Form UCC-3's releasing all liens held by Harbor Bank with
respect to the assets of SRI, all such documents to be in form
and substance satisfactory to Buyer and Headway.
3.10 Shareholders' Agreement. On or prior to the
Closing Date, Shore, Elder and SRI shall have terminated the SRI
Shareholders' Agreement, dated as of April 1, 1995, among such
parties, such termination to be in form and substance
satisfactory to Buyer and Headway.
3.11 Legal Opinion. Buyer shall have received an
opinion of Messrs. Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., special counsel for the Stockholders and Shore,
dated the Closing Date, reasonably satisfactory in form and
substance to counsel for Buyer and covering the matters set forth
in Sections 6.1 (exclusive of the last sentence thereof), 6.2,
6.3, 6.4(a), 6.6 and, to their actual knowledge, 6.8.
3.12 Partnership Action. Buyer shall have received
copies, certified by the general partner of each of L&M and ELP,
of actions of the limited partners and general partner of each
of L&M and ELP approving the execution of this Agreement, the
Escrow Agreement and the Sharing Agreement and the consummation
of the transactions contemplated hereby and thereby.
3.13 Resignations. Buyer shall have received the
written resignations of all persons serving as officers and
directors of SRI.
3.14 No Adverse Change. There shall have been no
material adverse change in the business, results of operations or
financial condition of SRI since September 30, 1997.
3.15 Consents and Governmental Approvals. Buyer shall
have received any material consents of third parties, and any
authorizations, orders, grants, consents, permits and approvals
of all relevant governmental authorities, required in connection
with the consummation of the transactions contemplated under this
Agreement, without the imposition of any materially burdensome
conditions or restrictions, which shall continue to be in full
force and effect on the Closing Date.
3.16 No Claims. No claim, action, suit, investigation
or proceeding shall be pending or threatened against any of the
parties which, if adversely determined, might (i) prevent or
hinder consummation of the transactions contemplated by this
Agreement, (ii) result in the payment of substantial damages by
Buyer as a result of the transactions contemplated hereby or
(iii) materially and adversely affect the business or assets of
SRI or Buyer.
3.17 Due Diligence. Buyer shall have completed to its
reasonable satisfaction a diligence review of SRI's business.
4. Conditions to the Obligations of the Stockholders
and Shore. The obligations of the Stockholders and Shore under
Section 1 are subject to the satisfaction, on or before the
Closing Date, of the following conditions:
4.1 Due Performance. Buyer shall have in all material
respects fully performed and complied with all agreements and
conditions required under this Agreement to be performed or
complied with by it on or prior to the Closing Date.
4.2 Accuracy of Representations and Warranties. All
representations and warranties of Buyer set forth in Section 7 of
this Agreement shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of such date.
4.3 Certificate. The Stockholders and Shore shall
have received a certificate from Buyer to the effect set forth in
Sections 4.1 and 4.2.
4.4 Employment Agreement. Buyer and Elder shall have
entered into the Employment Agreement.
4.5 Escrow Agreement. Buyer, the Stockholders, Shore
and the Escrow Agent shall have entered into the Escrow
Agreement.
4.6 Legal Opinion. The Stockholders and Shore shall
have received an opinion of Messrs. Christy & Viener, counsel for
Buyer, dated the Closing Date, reasonably satisfactory in form
and substance to counsel for the Stockholders and Shore and
covering the matters set forth in Sections 7.1 (exclusive of the
last sentence thereof), 7.2, 7.3, 7.4 (a) and, to their actual
knowledge, 7.6.
4.7 Corporate Action. The Stockholders and Shore
shall have received copies of resolutions of Buyer's Board of
Directors, certified by the Secretary of Buyer, approving the
execution of this Agreement, the Employment Agreement and the
Escrow Agreement and the consummation of the transactions
contemplated hereby and thereby.
4.8 Consents and Governmental Approvals. The
Stockholders and Shore shall have received any material consents
of third parties, and any authorizations, orders, grants,
consents, permits and approvals of all relevant governmental
authorities, required in connection with the consummation of the
transactions contemplated under this Agreement, without the
imposition of any materially burdensome conditions or
restrictions, which shall continue to be in full force and effect
on the Closing Date.
4.9 No Claims. No claim, action, suit, investigation
or proceeding shall be pending or threatened against any of the
parties which, if adversely determined, might (i) prevent or
hinder consummation of the transactions contemplated by this
Agreement, (ii) result in the payment of substantial damages by
the Stockholders or Shore as a result of the transactions
contemplated hereby or (iii) materially and adversely affect the
business or assets of SRI or Buyer.
5. Waiver of Conditions. Each of the parties shall
have the right to waive, in whole or in part, any of the
conditions to its performance set forth in this Agreement and, on
such waiver, the waiving party may proceed with the consummation
of the transactions contemplated herein, it being understood
that such waiver shall not constitute a waiver of any right which
such party may have by reason of the breach by the other party of
any representation, warranty or agreement contained herein, or by
reason of any misrepresentation made by such other party herein.
6. Representations and Warranties of the Stockholders
and Shore. Each of the Stockholders and Shore, jointly and
severally, represents and warrants to Buyer as follows:
6.1 Due Organization and Qualification. SRI is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of California, with full
corporate power and authority to own, lease and operate its
properties and to carry on its business in the places and in the
manner currently conducted or proposed to be conducted. SRI is
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the
activities conducted by it or the character of the properties
owned or leased by it makes such qualification necessary and the
failure to so qualify would have a material adverse effect on its
business. Each of L&M and ELP is a limited partnership duly
organized and validly existing under the laws of the State of
Nevada, with full power and authority to own, lease and operate
its properties and to carry on its business in the places and
manner currently conducted or proposed to be conducted. Each of
the Stockholders is qualified to do business as a foreign limited
partnership in each jurisdiction in which the nature of the
activities conducted by it or the character of the properties
owned or leased by it makes such qualification necessary and the
failure to so qualify would have a material adverse effect on its
business.
6.2 Authority; Due Authorization. Each of L&M and ELP
has the requisite power and authority to execute and deliver, and
has taken all action necessary for the execution and delivery of,
this Agreement and the Escrow Agreement, and for the consummation
of the transactions contemplated hereby and thereby. Shore has
the requisite power and authority to execute and deliver, and has
taken all action necessary for the execution and delivery of,
this Agreement, the Escrow Agreement and the Sharing Agreement
and for the consummation of the transactions contemplated hereby
and thereby. Elder has the requisite power and authority to
execute and deliver, and has taken all action necessary for the
execution and delivery of, this Agreement, the Escrow Agreement,
the Employment Agreement and the Sharing Agreement and for the
consummation of the transactions contemplated hereby and thereby.
6.3 Valid Obligation. This Agreement and the Escrow
Agreement, when executed and delivered by each of the
Stockholders and Shore, the Sharing Agreement, when executed and
delivered by Shore and Elder, and the Employment Agreement, when
executed and delivered by Elder, shall constitute the valid and
binding obligation of such Stockholder or Shore, as the case may
be, in each case enforceable in accordance with its terms, except
as may be limited by principles of equity or by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
6.4 No Conflicts or Defaults. The execution and
delivery of this Agreement and the Escrow Agreement by each of
the Stockholders and Shore, the Sharing Agreement by Shore and
Elder, the Employment Agreement by Elder and the consummation of
the transactions contemplated hereby and thereby, do not and
shall not (a) contravene the Certificate of Incorporation or By-
Laws of SRI or the certificates of limited partnership or limited
partnership agreement of each of L&M or ELP or (b) with or
without the giving of notice or the passage of time, (i)
materially violate or conflict with, or result in a material
breach of, or a material default or loss of rights under, any
agreement, lease, mortgage, instrument, permit or license to
which SRI, any Stockholder or Shore is a party, or to which SRI,
any Stockholder, Shore or the Stock are subject, or any judgment,
order, decree, law, rule or regulation to which SRI, any
Stockholder, Shore or the Stock are subject, (ii) result in the
creation of, or give any party the right to create, any lien,
charge, encumbrance or any other right or adverse interest on or
with respect to SRI or the Stock, or (iii) terminate or give any
party the right to terminate, abandon or refuse to perform any
material agreement, arrangement or commitment to which SRI, any
Stockholder or Shore is a party or to which SRI, any Stockholder,
Shore or the Stock are subject.
6.5 Copies of Charter and Other Documents. Copies of
the Articles of Incorporation and By-Laws of SRI and abstracts of
the Certificates of Limited Partnership and Limited Partnership
Agreements of each of L&M and ELP, in each case as amended to the
date hereof, have been delivered to Buyer or its representatives
and are true and complete copies of such documents as in effect
on the date of this Agreement. Copies of all minutes and
consents of the board of directors and the stockholders of SRI
and all actions taken by the limited partners and general partner
of each of L&M and ELP, up to and including the date hereof, have
been delivered to Buyer or its representatives and are true and
complete copies of such documents.
6.6 Capitalization of SRI, L&M and ELP.
(a) The authorized capital stock of SRI consists of
25,000 shares of Stock, of which 1,000 shares are issued and
outstanding and no shares are held in treasury. All of such
issued and outstanding shares of Stock were duly authorized and
validly issued, are fully paid and nonassessable, were not issued
in violation of any preemptive rights and are owned by the
Stockholders. There are no outstanding options, warrants,
rights, conversion rights, preemptive rights, calls, commitments
or demands of any character obligating SRI or any of the
Stockholders, to issue, sell, redeem or repurchase any shares of
Stock or any other security giving a right to acquire shares of
Stock. Each Stockholder is the sole beneficial and record owner
of the shares of Stock indicated for such Stockholder in Section
1.1, and owns such shares free and clear of all Liens, except any
imposed under the federal or applicable state securities laws.
As of the Closing Date, all right, title and interest in and to
all of such shares of Stock shall be owned by such Stockholder,
and on the assignment and delivery of the certificates for such
shares to Buyer on the Closing Date, Buyer shall acquire good and
marketable title to such shares, free and clear of all Liens,
except any imposed under the federal or applicable state
securities laws.
(b) The holders of the limited and general partnership
interests of each of L&M and ELP are set forth in Schedule 6.6.
Each limited and general partner so listed is the sole and
beneficial holder of the interest indicated for such partner.
There are no outstanding options, warrants, rights, preemptive
rights, calls, commitments or demands of any character obligating
either of L&M or ELP or any limited or general partner of L&M or
ELP to issue, sell, redeem or repurchase any limited or general
partnership interest of L&M or ELP.
6.7 Subsidiaries and Related Parties. SRI's business
is conducted entirely by and through SRI. SRI has no direct or
indirect subsidiaries, nor are there any other entities that SRI
otherwise directly or indirectly controls or in which it has any
ownership or other interest. Except as set forth in Schedule
6.7, none of the Stockholders, Shore or any director, member,
officer or key employee of SRI or any of their respective
affiliates or relatives has any direct or indirect interest
(other than an ownership interest of up to 5% of the voting
securities of any corporation, the securities of which are
publicly-traded) in any assets used in SRI's business or in any
corporation, partnership or other entity that (a) competes with
SRI, (b) sells or purchases products or services to or from SRI,
(c) leases real or personal property to or from SRI or (d)
otherwise does business with SRI.
6.8 Authorizations. Except as set forth in Schedule
6.8, no authorization, approval, order, license, permit or
consent of, or filing or registration with, any court or
governmental authority, regulatory entity or official body, and
no consent of any other party, is required in connection with the
execution, delivery and performance of this Agreement and the
Escrow Agreement by each of the Stockholders and Shore, the
Sharing Agreement by Shore and Elder or the Employment Agreement
by Elder.
6.9 The Assets.
(a) SRI has good and marketable title to all of its
tangible personal property and assets free and clear of all Liens
or mortgages, except (i) any arising under leases of real or
personal property to which SRI is a party and which have been
specifically disclosed to Buyer or (ii) mechanics' or other liens
arising or incurred in the ordinary course of business and which
do not interfere materially with the possession, ownership or use
of any real or personal property used by SRI.
(b) Set forth in Schedule 6.9.A is a list (by
categories) of all real property leased by SRI, with a brief
description of the premises. SRI owns no real property.
(c) Schedule 6.9.B sets forth a true and complete list
of all office furniture and equipment, computers, fixtures,
leasehold improvements, vehicles, computer software, programs and
databases of SRI. All such property is, in all material
respects, in good operating condition and repair, reasonable wear
and tear excepted, and is satisfactory for the requirements of
SRI's business.
6.10 Client Agreements.
(a) Schedule 6.10.A sets forth a true and complete
list of all written agreements and, to the best knowledge of each
of the Stockholders and Shore, all oral client agreements and
arrangements, to which SRI is party (the "Client Agreements").
SRI has furnished Buyer with a true copy of each Client Agreement
or a written description of any Client Agreement that has not
been reduced to writing. The written Client Agreements, and to
the best knowledge of each of the Stockholders and Shore, the
oral Client Agreements, constitute all of the contracts,
agreements, understandings and arrangements pursuant to which SRI
provides any temporary, permanent, leased or payrolled employee
services for or with respect to the clients who are parties to
such agreements. Except as set forth in Schedule 6.10.A, (i)
each Client Agreement was entered into in the ordinary course of
SRI's business, (ii) is in full force and effect on the date of
this Agreement and is valid, binding and enforceable in
accordance with its terms, (iii) SRI is not in material breach or
default under any of the Client Agreements and has not received
any notice or claim of any such breach or default from any party,
(iv) to the best knowledge of each of the Stockholders and Shore,
the relationship of SRI with the clients that are parties to the
Client Agreements is generally good, and there has been no
expression of any intention to terminate or materially modify any
of such relationships, (v) the Stockholders have no knowledge of
any material breach or default under any of the Client
Agreements by any other party thereto, (vi) to the best knowledge
of each of the Stockholders and Shore, no event or action has
occurred, is pending or, is threatened, which, after the giving
of notice, passage of time or otherwise, could constitute or
result in any such material breach or default by SRI or any other
party under any of the Client Agreements and (vii) no material
amount claimed to be payable to SRI under any of the Client
Agreements is being disputed by any client.
(b) Except as set forth in Schedule 6.10.B, (i) for
its services under each Client Agreement, SRI receives the
compensation provided under such Client Agreement, without
discount, offset or concessions of any kind (other than billing
adjustments in the ordinary course of business), and SRI has not
proposed or agreed to offer or accept any discount, offset or
concession and (ii) the Stockholders and Shore believe that the
payment history of the clients under the Client Agreements has
been within acceptable industry standards.
6.11 Receivables and Payables.
(a) SRI's receivables (including, without limitation,
accounts receivable, loans receivable, notes, advances and
receivables due from affiliates) which are reflected in the
Closing Balance Sheet (subject to any reserves for bad debts with
respect to such receivables set forth in the Closing Balance
Sheet) were the result of bona fide transactions in the ordinary
course of SRI's business. All receivables that are reflected in
the Closing Balance Sheet (subject to any reserves for bad debt
set forth in the Closing Balance Sheet) are fully collectible and
are subject to no defenses, counterclaims, set-offs or
recoupments. Except as set forth in Schedule 6.11.A, no fall-
offs, rebates, discounts, offsets or concessions have been
granted by SRI to any of its clients with respect to any
receivable which is reflected on the Closing Balance Sheet and
SRI has no obligation to grant any fall-offs, rebates, discounts,
offsets or concessions to any customer with respect to any
transaction reflected on the Closing Balance Sheet.
(b) Set forth in Schedule 6.11.B is an aging schedule
of SRI's accounts receivable and accounts payable as of the
Closing Date, which list is accurate in all material respects.
6.12 Financial Statements.
(a) Subject to Section 3.8(a), the Financial
Statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent
throughout all periods presented. Such statements are correct
and complete in all material respects, are reconcilable to the
books and records of SRI, and present fairly the financial
position of SRI as of the dates, and the results of operations,
cash flows and changes in financial position of SRI for the
periods, indicated, except in the case of interim or unaudited
financial statements, for the omission of footnotes and for year-
end review adjustments which are not expected to be material.
(b) Except as set forth in Schedule 6.12, SRI had no
material liabilities or obligations, whether secured or
unsecured, accrued, determined, absolute or contingent, asserted
or unasserted or otherwise, which are required to be reflected or
reserved in a balance sheet or the notes thereto under generally
accepted accounting principles, but which are not reflected in
the Financial Statements.
6.13 Other Agreements.
(a) Schedule 6.13.A sets forth a true and complete
list of the office leases, equipment leases and other agreements,
contracts and instruments to which SRI is a party other than the
Client Agreements (the "Other Agreements"). Together with the
Client Agreements, the Other Agreements constitute all of the
material contracts, agreements, understandings and arrangements
required for the operation of SRI's business, as currently
conducted by SRI, or which have a material effect thereon.
(b) Except as set forth in Schedule 6.13.B, (i) each
Other Agreement was entered into in the ordinary course of SRI's
business, is in full force and effect on the date of this
Agreement and is valid, binding and enforceable in accordance
with its terms, (ii) SRI is not in material breach or default
under any of the Other Agreements and has not received any
written notice or claim of any such breach or default from any
party, (iii) none of SRI, the Stockholders and Shore have any
knowledge of any material breach or default under any of the
Other Agreements by any party thereto and (iv) to the best
knowledge of each of the Stockholders and Shore, no event or
action has occurred, is pending or is threatened, which, after
the giving of notice, passage of time or otherwise, could
constitute or result in any such material breach or default by
SRI or any other party under any of the Other Agreements.
6.14 Intellectual Property. Schedule 6.14 sets forth a
true and complete list of all trademarks, service marks, domain
name, trade names and copyrights, and United States or foreign
registrations and applications for registration of any of them,
and any other intellectual property rights, used by SRI in its
business, all of which intellectual property is included in the
assets of SRI. SRI owns or has legal right to use, pursuant to
one or more of the Other Agreements, all such intellectual
property without, to the best knowledge of each of the
Stockholders and Shore, infringing on the rights or intellectual
property of any third party. No royalties or fees are payable by
SRI to any party by reason of the use by SRI of any of such
intellectual property. SRI has not received any claims that it
or its products or services have infringed the rights of others,
and the Stockholders and Shore are not aware of any infringement
by others of SRI's intellectual property.
6.15 Taxes. Except as set forth in Schedule 6.15, SRI
has filed all federal, state, local and foreign returns and
reports which were required to be filed prior to the date hereof
in respect of all income, withholding, franchise, payroll,
excise, property, value-added, sales, use or other taxes,
imposts, duties or assessments (together with any related
penalties, fines or interest, "Taxes"). Each such return and
report is complete and accurate in all material respects, and SRI
has paid, or established adequate reserves for payment of, all
Taxes (and any related penalties, fines and interest) shown to be
due on such returns or reports and any assessments received with
respect thereto. Except as set forth in Schedule 6.15, SRI has
received no notice of any claims pending or threatened for taxes
against it for periods prior to the date hereof in excess of such
reserves. No tax return or tax return liability of SRI is
presently under audit, or, to the best knowledge of the
Stockholders or Shore, proposed to be audited. SRI has not given
or been requested to give waivers of any statute of limitations
related to the payment of any Taxes.
6.16 Permits; Compliance with Law. SRI holds all
permits, certificates, licenses, approvals and other
authorizations of governmental authorities as are materially
necessary to the conduct of its businesses. SRI is in material
compliance with the terms of each thereof and have not received
any notice or claim pertaining to the failure to obtain, or the
breach or violation of the terms of, any such authorization.
None of SRI, the Stockholders or Shore has received any notice of
any proceeding or investigation likely to result in the
suspension or revocation of any such authorization. SRI is
conducting its business and affairs in material compliance with
all applicable federal, state and local laws, ordinances, rules,
regulations and court or administrative orders and decrees,
including, without limitation, any respecting wage and hour,
withholding and unemployment compensation requirements.
6.17 Litigation. Except for workers compensation
claims arising in the ordinary course of business or as set forth
in Schedule 6.17, there are no claims, actions, suits,
proceedings, investigations or criminal proceedings, at law or in
equity, before any court, tribunal, governmental authority or
other forum (collectively, "Proceedings") pending or, to the best
knowledge of each of the Stockholders or Shore, threatened,
against SRI, any of the Stockholders or Shore, which, if
adversely determined, would, singly or in the aggregate, have a
material adverse effect on SRI's business or the ability of any
of the Stockholders or Shore to perform their respective
obligations under this Agreement or which would challenge the
validity or propriety of the transactions contemplated in this
Agreement. Schedule 6.17 contains a list of all Proceedings to
which SRI or any of the Stockholders or Shore is a party. There
is no material outstanding and unsatisfied judgment, order, writ,
ruling, injunction, stipulation or decree of any court,
arbitrator or governmental authority against or materially
affecting SRI, SRI's business or any of the Stockholders or
Shore.
6.18 Ordinary Course; No Material Adverse Effect.
Except as set forth in Schedule 6.18 and for the transactions
contemplated in this Agreement, since September 30, 1997, SRI has
conducted its business and maintained its assets substantially in
the same manner as previously conducted or maintained and solely
in the ordinary course and, since such date, there has not been
any event that has or would, with or without the giving of notice
or the passage of time, result in a material adverse effect on
SRI or its business.
6.19 Employee Benefits and Relations.
(a) Except as set forth in Schedule 6.19, SRI does not
maintain or sponsor, or contribute or has any obligation or
liability to, any "employee pension benefit plan", "employee
welfare benefit plan" or "multi-employer plan" (as such terms are
defined in Sections 3(2), 3(1) and 4001(a)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")).
Set forth in Schedule 6.19 is a list of all bonus, pension,
profit-sharing, deferred compensation, stock ownership, stock
bonus, stock option, phantom stock, retirement, vacation,
disability, death benefit, unemployment, hospitalization,
medical, dental, severance, or other plan, agreement, arrangement
or understanding providing benefits to any current or former
employee, officer, member or director of SRI or to which SRI has
any liability or obligation (all such plans, agreements,
arrangements and understandings are referred to as "Benefit
Plans"). Shore and Elder have delivered to Buyer true, complete
and correct copies of (i) each Benefit Plan and all amendments
thereto (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (ii) annual reports on Form 5500 for the
past three years (together with accompanying financial
statements) filed with the Internal Revenue Service or Department
of Labor, as applicable, with respect to each Benefit Plan (if
any such report was required), (iii) all summary plan
descriptions for each Benefit Plan for which such summary plan
description is required or otherwise available and (iv) each
trust agreement and group annuity contract relating to any
Benefit Plan. No Benefit Plan provides for post-retirement
medical or life insurance benefits unless the event giving rise
to the benefit entitlement occurs prior to the employee's
retirement (except as required by Title I, Part 6 of ERISA).
(b) Any accrued obligations of SRI under all Benefit
Plans that are required to be reflected on the balance sheet of
SRI in accordance with generally accepted accounting principles
are reflected thereon as of the dates indicated thereon and on
the books and records of SRI for all periods thereafter. Shore
and Elder have provided Buyer with copies of all such balance
sheets, books and records.
(c) Except as set forth in Schedule 6.19, each Benefit
Plan and any related trust complies currently, and has complied
at all times in the past, both as to form and operation, in all
material respects with the terms of such Benefit Plan and with
the applicable provisions of ERISA, the Code and other applicable
laws. All necessary government approvals for each Benefit Plan
have been obtained on a timely basis.
(d) Except as set forth in Schedule 6.19, SRI has no
liability (contingent or otherwise) with respect to any
terminated Benefit Plan. SRI is not a member of, and has no
liability with respect to, a controlled group of corporations or
a trade or business (whether or not incorporated) under common
control which, together with SRI, is or was at any time treated
as a single employer under Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b)(1) of ERISA.
(e) SRI is not a party to any union or collective
bargaining contract with respect to any of its employees and
there has not been, nor has SRI, any of the Stockholders or Shore
received written notice threatening, any representational or
organizational activity, strike, slowdown, picketing or work
stoppage by any union or other group of employees against SRI.
(f) Schedule 6.19 sets forth (i) the name of each
director, officer, employee and sales representative of SRI
(other than temporary or payrolled personnel), together with the
annual compensation rate for each such person and (ii) each oral
or written contract, commitment or understanding between SRI and
any current or former director, officer, sales person, employee,
agent or stockholder of SRI or any associate or relative of such
persons (other than temporary or payrolled personnel).
6.20 Insurance. All of the insurable assets of SRI
are, in the judgment of the Stockholders and Shore, adequately
insured for the benefit of SRI against loss or damage by theft,
fire and all other hazards and risks of a character usually
insured against by persons operating similar properties in the
localities where such properties are located, under valid and
enforceable policies issued by insurance carriers of substantial
assets. A list of all of insurance policies of SRI, indicating
carriers, coverage and applicable limits of liability, is set
forth in Schedule 6.20. All such policies of insurance are in
full force and effect on the date hereof, and shall remain in
full force and effect through the Closing Date in accordance with
their terms. None of the Stockholders or Shore has received
notice of termination of any such policies.
6.21 Bank Accounts, Etc. Schedule 6.21 sets forth a
true and complete list of (a) all accounts and credit
arrangements maintained by SRI and all persons authorized to sign
or act on behalf of the SRI with respect thereto, and all safe
deposit boxes and other similar custodial arrangements, and (b)
the names of all persons holding powers of attorney from SRI or
otherwise authorized to act on behalf of SRI with respect to any
matters and a summary of the terms thereof.
6.22 Payment of Taxes on Transaction. On or before the
Closing Date, each of the Stockholders shall have paid, and
complied with all laws imposing, any federal, state or local
documentary, transfer or other taxes (other than income taxes)
which are required to be paid in connection with the sale,
transfer, exchange, conveyance, assignment and delivery of its
shares of Stock to Buyer.
6.23 Miscellaneous. All representations and warranties
of each of the Stockholders and Shore set forth in this Agreement
and all information set forth in the Schedules are true and
complete in all material respects and no such representation,
warranty or information contains any untrue statement of a
material fact or, to the best knowledge of each of the
Stockholders or Shore, omits to state any material fact necessary
in order to make such representation, warranty or information, in
light of the circumstances under which it is made, not false or
misleading. Any disclosure made pursuant to any of the
representations and warranties in this Section 6 shall be deemed
to have been made for purposes of any other such representations
and warranties. Buyer acknowledges that it has performed an
independent investigation in connection with the acquisition of
the Stock and that, aside from the representations and warranties
in this Section 6, the Stockholders and Shore have not made any
representations and warranties in connection with the sale of the
Stock.
7. Representations and Warranties of Buyer. Buyer
represents and warrants to each of the Stockholders and Shore as
follows:
7.1 Due Organization and Qualification. Buyer is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its
properties and to carry on its business in the places and in the
manner currently conducted or proposed to be conducted. Buyer is
qualified to do business and is in good standing as a foreign
corporation in which the nature of the activities conducted by it
or the character of the properties owned or leased by it makes
such qualification necessary and the failure to so qualify would
have a material adverse effect on its business.
7.2 Authority; Due Authorization. Buyer has all
requisite corporate power and authority to execute and deliver
this Agreement, the Escrow Agreement and the Employment Agreement
and to consummate the transactions contemplated hereby and
thereby. Buyer has taken all corporate action necessary for the
execution and delivery by it of this Agreement, the Escrow
Agreement and the Employment Agreement and for the consummation
of the transactions contemplated hereby and thereby.
7.3 Valid Obligation. This Agreement, the Escrow
Agreement and the Employment Agreement, when executed and
delivered by Buyer, shall constitute its valid and binding
obligations, in each case enforceable in accordance with its
terms, except as may be limited by principles of equity or by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally.
7.4 No Conflicts or Defaults. The execution and
delivery of this Agreement, the Escrow Agreement and the
Employment Agreement by Buyer, and the consummation of the
transactions contemplated hereby and thereby, do not and shall
not (a) contravene the Certificate of Incorporation or the By-
Laws of Buyer or (b) with or without the giving of notice or the
passage of time, materially violate or conflict with, or result
in a material breach of, or a material default or loss of rights
under, any agreement, lease, mortgage, instrument, permit or
license to which Buyer is a party or by which Buyer is bound,
other than the Credit Agreement, or any judgment, order, decree,
law, rule or regulation to which Buyer is subject.
7.5 Copies of Charter Documents. Copies of the
Certificate of Incorporation and By-Laws of Buyer, as amended to
the date hereof, have been delivered to the Stockholders and
Shore and are true and complete copies of such documents as in
effect on the date of this Agreement.
7.6 Authorizations. No authorization, approval,
order, license, permit or consent of, or filing or registration
with, any court or governmental authority, regulatory entity or
official body, and no consent of any other party, is required in
connection with the execution, delivery and performance of this
Agreement, the Escrow Agreement or the Employment Agreement by
Buyer.
7.7 Litigation. There are no Proceedings, pending or
threatened, against Buyer which, if adversely determined, would,
singly or in the aggregate, have a material adverse effect on the
ability of Buyer to perform its obligations under this Agreement
or that would challenge the validity or propriety of the
transactions contemplated in this Agreement. There is no material
outstanding and unsatisfied judgment, order, writ, ruling,
injunction, stipulation or decree of any court, arbitrator or
governmental authority against or materially affecting Buyer or
any material portion of its assets.
7.8 Miscellaneous. All representations and warranties
of Buyer set forth in this Agreement were, as of the date on
which they were made or given, true and complete in all material
respects and no such representation, warranty or information
contains or contained any untrue statement of a material fact or,
to the best knowledge of Buyer, omits or omitted to state any
material fact necessary in order to make such representation or
warranty, in light of the circumstances under which it is or was
made, not false or misleading. Any disclosure made pursuant to
any of the representations in this Section 7 shall be deemed to
have been made for purposes of any other such representations.
8. Survival of Representations and Warranties. All
representations and warranties made by any party in this
Agreement or in any document or certificate delivered pursuant to
this Agreement shall survive the Closing Date for a period of two
years (except that the representations and warranties set forth
in Sections 6.15 and 6.19 relating to Taxes and Benefit Plans
shall survive for a period equal to the statute of limitations
applicable to any claims and liabilities which may result from a
breach thereof) and shall be unaffected by any investigation made
by or on behalf of any party or by any notice of breach of, or
failure to perform under, this Agreement which is not effectively
waived pursuant to Section 5, subject, however, to the
limitations on indemnification set forth in Section 11.5.
9. Post-Closing Matters.
9.1 Operation of SRI During Earnout Periods. For each
Earnout Period, SRI shall prepare and submit to the Board of
Directors of Headway Corporate Staffing Services, Inc. ("HCSSI")
annual operating and capital expenditure budgets with respect to
SRI, as well as interim budget reports, at such times as the
HCSSI Board of Directors (the "HCSSI Board") reasonably
establishes, which budgets shall be approved in the reasonable
discretion of the HCSSI Board. Shore and Elder shall have the
right to participate in and assist in the preparation of any such
budgets during the Earnout Periods and shall receive copies of
SRI's quarterly financial statements and shall have reasonable
access to SRI's strategic and business plans and other management
reports upon providing reasonable notice to review the same
during normal business hours or other mutually agreed times. In
the event of a dispute with respect to the calculation of Net
Income for any Earnout Period, to the extent that the parties
cannot resolve their differences after the meeting of the parties
with their accountants contemplated by Section 1.2(d), Shore and
Elder shall have the right, under the supervision of Headway or
SRI personnel, upon reasonable prior written notice to SRI and
during normal business hours, to review the books and records of
SRI pertaining to such Net Income calculation; provided, that
neither Shore nor Elder may make copies of any such books and
records. After a budget is approved by the HCSSI Board, SRI's
management shall be authorized to act and to operate SRI's
business in accordance with such budget. HCSSI and Buyer shall at
all times have access to the books and records of SRI and to such
other information pertaining to its business as they request from
time to time and shall have the right at any time to audit the
books of SRI. Each of the Stockholders and Shore acknowledge
that SRI shall be required to implement the accounting and
operating systems and procedures of the Headway group of
companies. To the extent that SRI is not meeting the annual
operating or capital expenditure budgets then in effect, or its
accounts receivable collection experience is less favorable than
that of other HCSSI subsidiaries, the HCSSI Board shall have the
right to require Buyer to make such changes in its operations and
personnel as the HCSSI Board deems reasonably necessary.
9.2 Uncollected Receivables.
(a) To the extent that any of the accounts receivable
of SRI acquired by Buyer pursuant to this Agreement (the
"Acquired Receivables") remain uncollected (the "Uncollected
Receivables") for a period greater than 90 days from the Closing
Date, the Stockholders and Shore, jointly and severally, shall,
within 5 days of receipt of written notice from Buyer setting
forth in detail such Uncollected Receivables, pay to Buyer the
uncollected amount net of any reserves for bad debts reflected in
the Closing Balance Sheet, net of tax cost (using the combined
federal and state effective tax rate of 40.1%) relating to such
Uncollected Receivables but grossed-up to account for the
discount rate applied pursuant to Section 1.2(b), which
uncollected amount shall be deemed a reduction of the Purchase
Price (provided, however, that such uncollected amount shall not
require any additional repayment or reimbursement of the Purchase
Price because such adjustment is already taken into account by
the payment obligations of the Stockholders and Shore set forth
in this Section 9.2(a)).
(b) SRI shall use reasonable efforts to collect the
Acquired Receivables commensurate with the efforts it would use
to collect its own accounts receivable. SRI shall not be
required to institute litigation or other collection proceedings
in order to do so. The Stockholders shall have the right to
institute collection proceedings with respect to the Uncollected
Receivables but only after payment in full is made with respect
to such receivables pursuant to Section 9.2(a), and SRI shall be
deemed to have conveyed, transferred and assigned any such
Uncollected Receivables to the Stockholders. The Stockholders
shall notify Buyer of any such action not less than five days
before it is instituted. Any amounts received by SRI with
respect to collection of the Acquired Receivables or accounts
receivable generated by SRI on and after the Closing Date shall
be applied to the receivables specifically identified by the
client. If no such identification is provided, SRI shall inquire
of client for written identification and apply the amount
received accordingly.
9.3 Insurance Matters. The parties shall cooperate to
preserve the existing insurance coverage of SRI through the
Closing Date and to effect an appropriate transition to Buyer's
insurance, if requested, on the Closing Date.
9.4 Financial Statements. On or prior to 30 days
following the Closing Date, the Stockholders shall, at their
expense, prepare and deliver to Buyer and Headway unaudited
financial statements with respect to SRI as of and for the three-
month periods ended March 31, 1997, June 30, 1997 and September
30, 1997, such financial statements to be prepared in accordance
with generally accepted accounting principles on a basis
consistent with the Financial Statements and on an accrual basis
(except (i) to the extent that deferred income taxes are not
recognized as to differences between the financial and tax bases
of assets and (ii) substantially all of the footnote disclosures
and statements of cash flows required by generally accepted
accounting principles are omitted).
9.5 Transition Period. Shore agrees, for six months
following the Closing Date, to assist with the transition of
SRI's business to Buyer at such reasonable times and with respect
to such matters as from time to time may be reasonably requested
by Buyer or HCSSI.
9.6 Further Assurances. Whenever reasonably requested
to do so by a party to this Agreement, on or after the Closing
Date, any other party shall do, execute, acknowledge and deliver
all such acts, bills of sale, assignments, confirmations,
consents and any and all such further instruments and documents,
in form reasonably satisfactory to the requesting party, as shall
be reasonably necessary or advisable to carry out the intent of
this Agreement, including, without limitation, to vest in Buyer
all of the right, title and interest of the Stockholders in the
Stock.
9.7 Final Tax Return. The Stockholders shall promptly
prepare at its expense a federal income tax return for SRI for
the period beginning July 1, 1997 and ending on the Closing Date.
Such return shall not be filed with the Internal Revenue Service
prior to Buyer being given a reasonable opportunity to review,
comment on and approve the return; provided, that if such
approval process results in additional fees charged by the
accounting firm preparing such return other than those
reasonably necessary to completely and accurately prepare such
return, such additional fees shall be at the expense of Buyer.
Buyer shall bear responsibility to fund the amount due pursuant
to such return solely to the extent of the tax liability for 1998
reflected on the Closing Balance Sheet. Buyer agrees to make no
election that would adversely affect the Stockholders without
their prior consent. If any election taken by Buyer (without the
prior consent of the Stockholders) causes SRI to have a tax
liability for the period beginning on July 1, 1997 and ending on
the Closing Date in excess of that reflected on the Closing
Balance Sheet, then such amount shall not be the subject of
indemnification under Section 11.1.
10. NonCompetition.
10.1 General. Each of the Stockholders and Shore
agrees, provided Buyer is not in material default with respect to
any of its material obligations under this Agreement, for a
period of five years after the Closing Date (the "Term"), that
he, she or it shall not, in the Ventura, Los Angeles, Orange, San
Bernadino, San Diego and Riverside counties of the State of
California (the "Market Area") (or for such lesser area or such
lesser period as may be determined by a court of competent
jurisdiction to be a reasonable limitation on the competitive
activity of any of the Stockholders or Shore), directly or
indirectly:
(a) engage, for or on behalf of himself, herself or
itself or any person or entity other than SRI or Buyer, in the
business of the placement or provision of temporary, permanent,
leased or payrolled personnel (including self-incorporated
personnel);
(b) solicit or attempt to solicit business for
services offered by SRI or Buyer from any parties who (i) are
clients of SRI on the Closing Date or at any time during the 12
months prior to the Closing Date or to whom SRI has made or makes
proposals for services during the 12 months preceding the Closing
Date or (ii) are clients of SRI or Buyer during the Term or to
whom SRI or Buyer makes proposals for services during the Term;
(c) otherwise divert or attempt to divert from SRI or
Buyer any business involving the placement or provision of
temporary, permanent, leased or payrolled personnel (including
self-incorporated personnel) of the type now or during the Term
conducted by SRI or Buyer;
(d) solicit or attempt to solicit for any business
endeavor any employee (including, without limitation, any
temporary, payrolled or leased employee) of SRI or Buyer; or
(e) render any services as a joint venturer, partner,
consultant or otherwise to, or have any interest as a
stockholder, partner, member, lender or otherwise in, any person
or entity which is engaged in activities which, if performed by
any of the Stockholders or Shore, would violate this Section
10.1.
The foregoing shall not prevent any of the Stockholders or Shore
from purchasing or owning (i) up to 5% of the voting securities
of any corporation, the securities of which are publicly-traded,
or (ii) any interest in any entity which is not also engaged in
the business of the placement or provision of temporary,
permanent, leased or payrolled personnel (including self-
incorporated personnel). Each of the Stockholders and Shore
shall, during the Term, provided that Buyer is not in material
default with respect to any of its material obligations under
this Agreement, use his, her or its best efforts to direct to SRI
any business opportunities in the temporary, permanent, leased or
payrolled personnel placement business that may come to his, her
or its attention in the Market Area. Notwithstanding the
foregoing, each of the Stockholders and Shore, and personnel
under their control, may engage in customary referral practices
that are general industry practices. References to Buyer in this
Section 10 shall also be deemed to refer to its divisions and
subsidiaries.
10.2 Injunctive Relief. Because Buyer would not have
an adequate remedy at law to protect its business from any breach
of the provisions of Section 10.1, Buyer shall be entitled, in
the event of such a breach or threatened breach thereof by any of
the Stockholders or Shore, to injunctive relief, in addition to
such other remedies and relief that would be available to Buyer.
In the event of such a breach, in addition to any other remedies,
Buyer shall be entitled to receive from the Stockholders or Shore
payment of, or reimbursement for, its reasonable attorneys' fees
and disbursements incurred in successfully enforcing any such
provision. The provisions of this Section 10 shall survive the
Closing Date.
11. Indemnification.
11.1 Obligations of the Stockholders and Shore. Each
of the Stockholders and Shore, jointly and severally, shall
indemnify, defend and hold harmless Buyer and its officers,
directors, employees, agents, shareholders, successors and
assigns from and against any Damages (as defined in Section 11.3)
in connection with:
(a) any breach of any representation, warranty or
agreement of the Stockholders, or Shore contained in this
Agreement or in any certificate delivered by any of them on the
Closing Date;
(b) claims of third parties for liabilities not
disclosed to Buyer in this Agreement and arising from the
operation of SRI's business at any time prior to the Closing
Date;
(c) any increase in workers' compensation premiums due
by SRI attributable to periods prior to the Closing Date;
(d) any and all Taxes attributable to the operations
of SRI on or prior to the Closing Date, including, without
limitation, any Taxes arising out of the transactions
contemplated hereby, but excluding any Taxes set forth in the
Closing Balance Sheet;
(e) any claim, action, suit or proceeding against SRI
for employment discrimination, sexual harassment or employee
mischief (such as the planting of viruses in computer software)
by any present or former member, director, officer, employee
(temporary or permanent) or agent of SRI arising out of
circumstances existing on or prior to the Closing Date;
(f) any liabilities set forth in the Audited Financial
Statements that should have been set forth in the Closing Balance
Sheet and which are liabilities of SRI subsequent to the Closing
Date; and
(g) any claim, action, suit or proceeding asserted or
instituted on the basis of any matter described in clauses (a),
(b), (c), (d), (e) or (f) of this Section 11.1;
provided, however, that, except in connection with liabilities
under clauses (d) or (e) above, the breach of the representations
and warranties set forth in Sections 6.15 and 6.19 relating to
Taxes and Benefit Plans or the breach of the provisions set forth
in Section 10 relating to non-competition (as to which the
limitations of these provisos shall not apply), no payment
hereunder shall be required to be made by the Stockholders and
Shore unless and until the aggregate amount of any such losses,
damages, liabilities, costs and expenses exceeds $50,000 and the
Stockholders and Shore shall not be required to make payments
hereunder in excess of the Purchase Price; provided, that the
amount of such losses, damages, liabilities, costs and expenses
shall be offset by any insurance proceeds received by Buyer with
respect to the foregoing. To the extent that the Stockholders
and Shore are required to indemnify Buyer pursuant to the
provisions of this Section 11.1, Shore and Elder shall have the
right, under the supervision of Headway or SRI personnel, upon
reasonable prior written notice to SRI and during normal business
hours, to review the books and records of SRI pertaining to such
indemnification event; provided, that neither Shore nor Elder may
make copies of any such books and records.
11.2 Obligations of Buyer. Buyer shall indemnify,
defend and hold harmless each of the Stockholders and Shore and
their respective heirs, executors and assigns, as applicable,
from and against any Damages in connection with:
(a) any breach of any representation, warranty or
covenant of Buyer (and its successors and assigns) contained in
this Agreement or in any certificate, instrument or other
agreement delivered by it in connection with this Agreement;
(b) the operation by Buyer of SRI at any time on or
after the Closing Date; and
(c) any claim, action, suit or proceeding asserted or
instituted on the basis of any matter described in clauses (a) or
(b) of this Section 11.2;
provided, however, that, except in connection with clause (b)
above, no payment hereunder shall be required to be made by Buyer
unless and until the aggregate amount of any such losses,
damages, liabilities, costs and expenses exceeds $50,000 and
Buyer shall not be required to make payments hereunder in excess
of the Purchase Price provided, that the amount of such losses,
damages, liabilities, costs and expenses shall be offset by any
insurance proceeds received by Buyer with respect to the
foregoing.
11.3 Damages. For purposes of this Section 11,
"Damages" means any loss, liability, damage or expense suffered
or incurred by a party in connection with the matters described
in Sections 11.1 or 11.2, as the case may be, including, without
limitation, assessments, fines, penalties, judgments,
settlements, costs, reasonable attorneys' fees and reasonable
disbursements and other reasonable out of pocket expenses of the
party incident to any matter as to which the party is entitled to
indemnification under such Sections, or incident to any
allegations or claims which, if true, would give rise to Damages
subject to indemnification hereunder, or incident to the
enforcement by the party of its rights and remedies under this
Section 11.
11.4 Proceedings. Any party seeking indemnification
pursuant to this Section 11 (the "Indemnified Party") shall give
the party from which indemnification is sought (the "Indemnifying
Party") prompt notice of any claim, allegation, action, suit or
proceeding which it believes might give rise to indemnification
under this Section 11, stating the nature and extent of any such
claim, allegation, suit or proceeding with reasonable
specificity, and the amount thereof, if known. Any failure to
give such notice shall not affect the indemnification provided
hereunder except to the extent that the Indemnifying Party is
actually prejudiced as a result of such failure. The
Indemnifying Party shall have the right to participate in, and,
with the consent of the Indemnified Party, which consent shall
not be unreasonably withheld or delayed, to control, the defense
of any such claim, allegation, action, suit or proceeding, at the
Indemnifying Party's expense, and with counsel of its own
choosing reasonably acceptable to the Indemnified Party;
provided, however, that if Buyer is the Indemnified Party, it
shall have the right to withhold such consent and to retain
control of such defense in the case of any claim, action, suit or
proceeding with respect to which, in Buyer's reasonable
discretion, an adverse outcome could have a material adverse
effect on Buyer, with the expense of any counsel retained by
Buyer in any such instance to be at Buyer's expense. No
settlement or compromise of any such claim, action, suit or
proceeding shall be made without the prior consent of the
Indemnified Party and the Indemnifying Party, which consent shall
not be unreasonably withheld or delayed by either of them.
11.5 Limitations on Indemnification. No right to
indemnification may be asserted under this Section 11 after the
second anniversary of the Closing Date, except any such rights to
indemnification arising in connection with (a) any matter
referred to in Sections 6.15 or 6.19, none of which shall be
subject to any time limitation other than any statutes of
limitation applicable to such matters, (b) any matter covered by
Section 10, (c) any claim arising under Section 11.1(e)
(provided, that Buyer shall have no right to indemnification
under Section 11(e) after the third anniversary of the Closing
Date) or (d) any claim as to which the notice required by Section
11.4 has been given on or prior to the second (or in the case of
clause (c) above, third) anniversary of the Closing Date.
12. Arbitration.
12.1 General. Any controversy or claim arising out of
or relating to this Agreement shall be finally resolved by
arbitration pursuant to the Commercial Arbitration Rules of the
American Arbitration Association; provided, however, that this
Section 12.1 shall not in any way affect the right of Buyer to
seek injunctive relief or any other remedies pursuant to Section
10.2. Any such arbitration shall take place in New York, New
York, before three arbitrators, one of which shall be appointed
by Buyer, one by the Stockholders and Shore, and the third by the
arbitrators so appointed; provided, however, that the parties may
by mutual agreement designate a single arbitrator. The parties
further agree that (i) the arbitrators shall include arbitration
costs and attorney fees in the award to the prevailing party in
such proceedings and (ii) the award in such proceedings shall be
final and binding on the parties. The arbitrators shall apply
the law of the State of New York, exclusive of conflict of laws
principles, to any dispute. Judgment on the arbitrators' award
may be entered in any court having the requisite jurisdiction.
Nothing in this Agreement shall require the arbitration of
disputes between the parties that arise from actions, suits or
proceedings instituted by third parties.
12.2 Consent to Jurisdiction; Service of Process. Each
party irrevocably submits to the jurisdiction and venue of the
arbitration described in Section 12.1 and to the jurisdiction and
venue of the federal and state courts sitting in New York County,
New York, for the enforcement of any judgment on the arbitrators'
award, and waives any objection it may have with respect to the
jurisdiction of such arbitrations or courts or the inconvenience
of such forums or venues. Buyer appoints Messrs. Christy &
Viener, 620 Fifth Avenue, New York, New York 10020, Attention:
Laurence S. Markowitz, Esq., and the Stockholders and Shore
appoint Messrs. Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., 1221 Brickell Avenue, Miami, Florida 33131,
Attention: Allan Shore, Esq., as their respective attorneys-in-
fact and authorized agents solely to receive on their behalf,
service of any demands for, or any notice with respect to,
arbitration hereunder or any service of process. Service on
either of such attorneys-in-fact may be made by registered or
certified mail or by personal delivery, in any case return
receipt requested, and shall be effective as service on Buyer or
the Stockholders or Shore, as the case may be. Nothing herein
shall be deemed to affect any right to serve any such demand,
notice or process in any other manner permitted under applicable
law.
13. Miscellaneous.
13.1 Entire Agreement; Amendments; No Waivers. This
Agreement, together with the Schedules, sets forth the entire
understanding of the parties with respect to its subject matter
and merges and supersedes all prior and contemporaneous
understandings of the parties with respect to its subject matter.
No provision of this Agreement may be waived or modified, in
whole or in part, except by a writing signed by each of the
parties. Failure of any party to enforce any provision of this
Agreement shall not be construed as a waiver of its rights under
such or any other provision. No waiver of any provision of this
Agreement in any instance shall be deemed to be a waiver of the
same or any other provision in any other instance.
13.2 Communications. All notices, consents and other
communications given under this Agreement shall be in writing and
shall be deemed to have been duly given (a) when delivered by
hand or by Federal Express or a similar overnight courier to, (b)
five days after being deposited in any United States post office
enclosed in a postage prepaid registered or certified mail
envelope addressed to, or (c) when successfully transmitted by
facsimile (with a confirming copy of such communication to be
sent as provided in (a) or (b) above) to, the party for whom
intended, at the address or facsimile number for such party set
forth below, or to such other address or facsimile number as may
be furnished by such party by notice in the manner provided
herein; provided, that any notice of change of address or
facsimile number shall be effective only on receipt.
If to Buyer: with a copy to:
Headway Corporate Resources, Christy & Viener
Inc. 620 Fifth Avenue
850 Third Avenue New York, New York 10020
New York, New York 10022 Attention: Laurence S.
Attention: Barry S. Roseman, Markowitz, Esq.
President Fax No.: (212) 632-5555
Fax No.: (212) 508-3540
If to the Stockholders or
Shore:
Greenberg Traurig
1221 Brickell Avenue
Miami, Florida 33131
Attention: Allan Shore, Esq.
Fax No.: (305) 579-0717
13.3 Successors and Assigns. This Agreement shall be
binding on, enforceable against and inure to the benefit of, the
parties and their respective heirs, successors and permitted
assigns (whether by merger, consolidation, acquisition or
otherwise), and nothing herein is intended to confer any right,
remedy or benefit upon any other person. No party may assign its
rights or delegate its obligations under this Agreement without
the express written consent of all of the other parties;
provided, however, that Buyer may assign its rights or delegate
its obligations hereunder, either before or after the Closing
Date, to any of its wholly-owned subsidiaries; provided, that as
a condition to any such assignment by Buyer, Buyer shall provide
to the Stockholders and Shore a guarantee in form and substance
reasonably acceptable to them guaranteeing such assignee's
obligations under this Agreement.
13.4 Expenses. Each of the parties shall bear and pay,
without any right of reimbursement from any other party, all
costs, expenses and fees incurred by it or on its or his behalf
incident to the preparation, execution and delivery of this
Agreement and the performance of such party's obligations
hereunder, whether or not the transactions contemplated in this
Agreement are consummated, including, without limitation, the
fees and disbursements of attorneys, accountants and consultants
employed by such party, and shall indemnify and hold harmless the
other parties from and against all such fees, costs and expenses.
13.5 Brokers and Finders. Except Oxford Mergers &
Acquisitions, Inc., with respect to the Stockholders and Shore,
and Staffing Solution, Inc., with respect to Buyer, each party
represents to the others that no agent, broker, investment
banker, financial advisor or other person or entity is or shall
be entitled to any broker's or finder's fee or other commission
or similar fee in connection with the transactions contemplated
by this Agreement. Each party shall indemnify and hold harmless
the others from and against any claim, liability or obligation
with respect to any fees, commissions or expenses asserted by any
person or entity on the basis of any act or statement alleged to
have been committed or made by such indemnifying party or any of
its affiliates.
13.6 Public Announcements. No oral or written public
announcement or disclosure with respect to this Agreement and the
transactions contemplated herein prior to the Closing Date shall
be made by or on behalf of any party without the prior approval
of the other parties, except to the extent required by applicable
securities laws or the rules and regulations of any stock
exchange, by court order or as otherwise required by law (in
which case Shore shall be notified prior to such required
disclosure and provided with a copy thereof).
13.7 Governing Law. This Agreement shall in all
respects be governed by and construed in accordance with the laws
of the State of New York applicable to agreements made and fully
to be performed in such state, without giving effect to conflicts
of law principles.
13.8 Severability and Savings Clause. If any provision
of this Agreement is held to be invalid or unenforceable by any
court or tribunal of competent jurisdiction, the remainder of
this Agreement shall not be affected thereby, and such provision
shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or
unenforceability. In this regard, the parties agree that the
provisions of Section 10, including, without limitation, the
scope of the territorial and time restrictions, are reasonable
and necessary to protect and preserve Buyer's legitimate
interests. If the provisions of Section 10 are held by a court
of competent jurisdiction to be in any respect unreasonable, then
such court may reduce the territory or time to which it pertains
or otherwise modify such provisions to the extent necessary to
render such provisions reasonable and enforceable.
13.9 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
13.10 Construction. Headings used in this
Agreement are for convenience only and shall not be used in the
interpretation of this Agreement. References to Sections and
Schedules are to the sections and schedules of this Agreement.
As used herein, the singular includes the plural and the
masculine, feminine and neuter gender each includes the others
where the context so indicates.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
HEADWAY CORPORATE RESOURCES, INC.
By (Signature)
ELDER INVESTMENTS L&M SHORE FAMILY HOLDINGS
LIMITED PARTNERSHIP LIMITED PARTNERSHIP
By (Signature) By (Signature)
/s/ MARK SHORE /s/ LINDA ELDER