Exhibit 10.1
Form 8-K
Headway Corporate Resources, Inc.
File No. 1-16025
EXECUTION COPY
PURCHASE AGREEMENT
between
HEADWAY CORPORATE RESOURCES, INC., as Seller
and
WHITNEY GROUP, LLC
Dated
March 7, 2003
Table of Contents
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Table of Contents
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EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Secured Promissory Note
Exhibit C Receipt and Confirmation
Exhibit D-1 Seller Release
Exhibit D-2 Goldstein, Purchaser and Companies'
Releases
Exhibit E Salans Opinion
Exhibit F Assignment and Assumption Agreement of
Third Avenue Lease Obligations
Exhibit G Goldstein Employment Agreement
Exhibit H Guaranty
Exhibit I MCSW Opinion
Exhibit J Budget and Cash Use Covenants
Exhibit K Transition Services
Exhibit L Purchaser's Operating Agreement
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated March 7, 2003, by and between HEADWAY
CORPORATE RESOURCES, INC., a Delaware corporation (the "Seller"); and WHITNEY
GROUP, LLC, a New York limited liability company (the "Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller owns (1) 12,000 ordinary shares (the "Tyzack Shares")
of Tyzack Holdings Limited, a corporation organized under the laws of England
and Wales ("Tyzack"); (2) 10,000 common shares (the "Whitney Shares") of The
Whitney Group (Asia) Limited (HK), a corporation organized under the laws of
Hong Kong ("Whitney Asia"); (3) all of membership interests (the "Whitney
Interests") of Whitney Partners LLC, a Delaware limited liability company
("Whitney LLC"); and (4) 2,500 shares of common stock, $1.00 par value per share
(or such membership interests into which such shares are exchanged, the "Carlyle
Shares" and collectively with the Tyzack Shares, the Whitney Shares, and the
Whitney Interests, the "Shares") of Carlyle Group Ltd., an Illinois corporation
(or such corporation's successor, "Carlyle" and together with Tyzack, Whitney
Asia, and Whitney LLC, the "Companies" and each a "Company");
WHEREAS, the Companies are engaged in the executive search and placement
business throughout the United States, Europe and Asia (the "Business");
WHEREAS, the Shares constitute all the issued and outstanding shares of
capital stock (or membership interests, in the case of Whitney LLC) of the
Companies; and
WHEREAS, the Purchaser wishes to purchase from Seller and Seller wishes to
sell to Purchaser all of the Shares;
NOW, THEREFORE, the parties agree as follows:
Article I
PURCHASE AND SALE OF THE SHARES
Section 1.1.Transfer of Shares on the Closing Date. On the Closing Date (as
defined in Article II), the Seller shall sell, convey, assign, transfer and
deliver the Shares to the Purchaser, and the Purchaser shall purchase the Shares
from the Seller, free and clear of all claims, liens, security interests,
charges, or encumbrances (collectively, "Liens") created by or through the
Seller, except (i) the Lien in favor of the Seller (or any permitted assignees)
in accordance with Section 1.4 and (ii) any restrictions on transfer imposed
under federal or applicable state securities laws. On the Closing Date, the
Seller shall (1) endorse the certificates evidencing all Shares represented by
certificates in the name of the Purchaser, (2) affix any necessary documentary
or stock transfer stamps to such certificates, (3) execute any documents
reasonably necessary to effect the transfer of any Shares not evidenced by
certificates and (4) deliver such certificates and transfer documents to the
Purchaser to consummate the purchase and sale contemplated hereby. On the
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Closing Date, the Purchaser shall deliver such certificates and transfer
documents to Salans in accordance with an Escrow Agreement in the form of
Exhibit A hereto (the "Escrow Agreement"), to be held by Salans, as escrow
agent, on behalf of the Seller and the Purchaser as contemplated by Section 1.4.
Section 1.2.Purchase Price. As full consideration for the sale, conveyance,
transfer, assignment and delivery to the Purchaser of the Shares:
(a) The Purchaser shall on the Closing Date deliver to the Seller a Secured
Promissory Note in the form of Exhibit B hereto (the "Note"), whereby the
Purchaser shall agree to pay to the Seller the amount of $2,000,000 plus
interest as specified therein which shall begin accruing as of the Effective
Date (as defined in Section 1.2(b)).
(b) The Purchaser shall pay the Seller an amount (the "Earnout") equal to
five percent (5%) of the Companies' Gross Revenues (as defined below) of the
Business and such other businesses as are hereafter acquired by the Purchaser
(collectively, the "Earnout Business") during the period beginning on January 1,
2003 (the "Effective Date") and ending on the fifth anniversary of the Effective
Date (the "Earnout Period"). With respect to payment of the Earnout, the
following provisions shall apply:
(i) "Gross Revenues" of the Companies shall mean the consolidated
gross revenues of the Earnout Business and shall be computed in accordance
with United States generally accepted accounting principles applied in a
manner consistent with the Seller's preparation of its consolidated
financial statements as of the Effective Date less selling concessions,
rebates, and credits, if not already excluded (each in a manner consistent
with Seller's past practice with respect to the Business). If the Purchaser
or any of the Companies is acquired by another business entity (whether by
merger, sale of assets, sale of equity interests or otherwise), then "Gross
Revenues" shall continue to refer only to the gross revenues resulting from
the Earnout Business as conducted by the Purchaser and the Companies
immediately prior to such acquisition.
(ii) Such payments shall be made in U.S. dollars on a quarterly basis,
within five business days after final determination (pursuant to paragraphs
(iii) and (iv) below) of the Statement relating to such quarter.
(iii) Within 60 days after the end of each fiscal quarter ending after
the Effective Date, Purchaser shall deliver to Seller a statement (the
"Statement"), certified by the chief executive officer and the principal
financial officer of Purchaser, setting forth the Gross Revenues of the
Companies in reasonable detail (but without specifically identifying the
Companies' clients) during such quarter (or, in the case of the Statement
for the first fiscal quarter ending after the Effective Date, the Gross
Revenues of the Companies from the Effective Date through the end of such
quarter) and, in addition to each quarterly Statement, within 60 days after
the end of each fiscal year ending after the Effective Date, Purchaser
shall deliver to Seller a report (the "Report") certified by Purchaser's
independent auditors, whereby such auditors (1) confirm that the Gross
Revenues set forth in the Statements for such fiscal year were correctly
computed in accordance with this Agreement or (2) set forth their own
calculations of Gross Revenues. The Seller shall have a period of 20 days
to review the Statement or the Report (as applicable) and to either accept
the contents of the Statement or Report (as applicable) or to deliver a
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notice of objection to the Purchaser, which notice shall state the Seller's
objections in reasonable detail. A failure to deliver any such notice of
objection by the Seller within such 20-day period shall be deemed to be an
acceptance of the Statement or Report, as applicable; provided, however,
any such deemed acceptance shall not limit Seller's ability to deliver a
notice of objection to a Statement if the Report for the fiscal year in
which such Statement was given contradicts such Statement (such notice of
objection shall be delivered by Seller within the applicable 20-day period
for Seller to deliver a notice of objection to such Report). If the Seller
delivers a notice of objection within the applicable 20-day period, then
for a period of 30 days thereafter, the Purchaser and the Seller shall use
good faith efforts to resolve the objections set forth therein. To the
extent that such objections are so resolved, the Statement or the Report,
as the case may be, will be accordingly confirmed or modified, as the case
may be; any such modifications shall, absent manifest error, be final and
binding on the parties hereto.
(iv) Any objections that are not so resolved shall be submitted to a
mutually acceptable independent accounting firm (an "Arbiter") for
resolution. The Arbiter shall be instructed to deliver to the Purchaser and
the Seller, as promptly as is reasonably practicable, but in no event more
than thirty (30) days after its retention, a written notification as to its
resolution of such objections, and if required by such resolution, a
revised Statement that reflects such resolution. In resolving any disputed
item, the Arbiter may not assign a value to such item greater than the
greatest value for such item claimed by either party or less then the
lowest value for such item claimed by either party. Each of the Purchaser
and the Seller shall cooperate with the Arbiter in making its determination
and such determination shall be conclusive and binding on the parties
absent manifest error. The fees and expenses of the Arbiter shall be borne
equally by the Purchaser and the Seller.
(v) After the Closing Date and until the earlier of (x) the date as of
which all payment obligations under Section 1.2 are indefeasibly paid in
full (whether upon expiration of the Earnout Period or by prepayment
thereof pursuant to Section 1.3) and all payment obligations under the Note
are indefeasibly paid in full by the Purchaser or (y) the fifth anniversary
of the Closing Date (such time period ending on the earlier to occur of
clause (x) or clause (y) is hereinafter referred to as the "Term"), and for
three years thereafter (or for such longer period as ----- may be required
by law), the Purchaser shall maintain complete and correct financial
records, books, and other information, including other information required
by law to be maintained by Purchaser (collectively "Records") in connection
with the operations of the ------- Earnout Business sufficient to enable
Seller to verify the Purchaser's compliance with this Section 1.2 and to
enable Seller to review the Purchaser's calculation of the Earnout. The
Seller (and its representatives) shall have the right to make such
inspections and reviews of the Records as may be reasonably necessary from
time to time to verify Purchaser's Earnout calculations and the Statement
and the Seller (and its representatives) shall have the right to
communicate directly with the independent auditors of the Purchaser and
each of the Companies. Such review and inspection shall take place at the
Purchaser's principal executive offices located in New York City (or
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wherever located if Purchaser's principal executive offices are hereafter
moved) during normal business hours upon at least five (5) business days
advance written notice to the Purchaser. The Seller may cause the Records
to be audited at the Seller's expense upon reasonable written notice to the
Purchaser. Unless there is a Default (as defined in Section 1.4(b)) or at
any time after a five percent (5%) discrepancy is found, such audit right
of Seller shall not be exercised by Seller more than once in any 12-month
period.
(vi) Subject to the provisions of Section 8.7, the Purchaser shall
have the right to offset against any Earnout payments to which Seller is
entitled any Losses (as defined in Section 8.3) for which Purchaser is
entitled to indemnification from the Seller.
(c) The Purchaser shall on the Closing Date issue to the Seller common
membership interests of the Purchaser equal to 15% of the Applicable Share
Amount (as defined below). For purposes of this Section 1.2(c) the "Applicable
Share Amount" means (i) all of the Purchaser's outstanding common membership
interests under the Purchaser's Operating Agreement on the Closing Date less
(ii) the common membership interests of the Purchaser issued to Richard Stein
less (iii) the common membership interests of the Purchaser held by Max DeZara
(the "DeZara Shares"), but only in the event that the DeZara Shares are returned
to the Purchaser (pursuant to Mr. DeZara's employment agreement amendment) as a
result of the Purchaser's failure to enter into the Caryle Disposition Agreement
(as defined in paragraph 4 of Exhibit J) (it being understood that upon the
occurrence of such event, the Seller agrees that the number of common membership
interests of the Purchaser issued to it pursuant to this Section 1.2(c) shall be
reduced accordingly without further action or consent by the parties hereto).
Section 1.3 Prepayment.
(a) On or at any time prior to the third anniversary of the Effective Date,
the Purchaser may, in lieu of then remaining Earnout payment obligations and
payment obligations under the Note, pay to the Seller an amount in cash (the
"Payoff Amount") equal to (a) the sum of (i) $5,000,000 plus (ii) the amount of
any then accrued and unpaid interest on the Note through such date of payment
less (b) the sum of all amounts actually paid to the Seller through such date of
payment in respect of the Earnout and principal under the Note. Upon
indefeasible receipt of the Payoff Amount, the Seller shall (i) cause Salans to
deliver to the Purchaser the certificates and transfer documents held by it
pursuant to the last sentence of Section 1.1, and (ii) promptly return the Note
to the Purchaser for cancellation. Thereafter, the Purchaser shall be under no
further obligation to continue paying the Earnout and shall have no further
obligations under the Note and the Term shall expire.
(b) If on or at any time prior to the third anniversary of the Effective
Date a Sales Transaction (as defined below) shall occur, the Purchaser shall pay
the Payoff Amount to the Seller. For purposes of this Section 1.3(b) a "Sales
Transaction" shall mean any of the following, (i) Gary S. Goldstein
("Goldstein") (and/or his "Permitted Transferees" as defined on the date hereof
in the Purchaser's Operating Agreement a copy of which is attached hereto as
Exhibit L) shall fail to own (both beneficially and of record) and control 25%
of the membership interests of Purchaser with voting rights to elect members to
the Purchaser's Board of Managers, or other voting interests of the Purchaser,
as such percentage may be diluted for issuances of "Incentive Shares" (as
defined in Purchaser's Operating Agreement) under the Purchaser's Operating
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Agreement, issuances of membership interests in connection with permitted
acquisitions by the Purchaser and issuances to third parties in permitted
capital raising transactions, (ii) the Purchaser sells all or substantially all
of its assets in one transaction or a series of transactions, or (iii) the
Purchaser enters into a merger, consolidation or other combination in which the
majority of the voting interests of the surviving entity are not owned by the
owners of a majority of the voting interests of the Purchaser immediately
preceding such merger, consolidation or other combination.
(c) If the Purchaser desires to enter into a transaction or take any action
that would otherwise result in a Default, so long as the payment of the Payoff
Amount occurs contemporaneously with the closing of such transaction or the
taking of such action, no Default shall be deemed to have occurred.
Section 1.4 Grant of Security Interest; Default.
(a) To secure the full and punctual performance of the obligations of the
Purchaser and the Companies under the Note and with respect to the Earnout and
the Third Avenue Lease Obligations (as defined in Section 4.4) (collectively,
the "Purchaser Obligations"), the Purchaser hereby grants to the Seller a
continuing security interest in all of the Shares and all other assets and
property of the Purchaser, whether real or personal or tangible or intangible,
including, without limitation, all accounts, goods, fixtures, inventory,
equipment, chattel paper, documents, instruments, and general intangibles (as
such terms are defined in the New York Uniform Commercial Code), whether now
owned or hereafter acquired, and all proceeds therefrom (collectively, the
"Collateral"). Notwithstanding the foregoing, if the Purchaser obtains
"Permitted A/R Financing" (as such term is defined in Exhibit J), the Seller
shall, upon request by the Purchaser, subordinate its security interest in any
accounts receivable to be pledged as security for the Permitted A/R Financing,
and shall execute and deliver such documents as the Purchaser may reasonably
request to confirm and give effect to such subordination. The Purchaser
represents, warrants and confirms that such security interest in the Collateral
constitutes a valid, first priority security interest in the Collateral. Until
the Purchaser and the Companies shall have performed all their obligations under
the Note and Section 1.2 (or Section 1.3, as the case may be), so long as no
Default (as defined below) shall occur and be continuing, the certificates
evidencing the Shares and transfer documents described in the last sentence of
Section 1.1 shall continue to be held by Salans on behalf of the Seller, as
secured party, pursuant to the Escrow Agreement; provided that so long as no
Default shall occur and be continuing, the Purchaser may exercise all rights as
record and beneficial owner of the Shares (other than transferring or pledging
the Shares or any rights therein).
(b) During the Obligation Period (as defined in Section 1.4(e) hereof),
each of the following events will constitute a "Default":
(i) The commencement of a voluntary case or proceeding by the
Purchaser or any of the Companies (other than Tyzack) under any applicable
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent or the consent
to the entry of a decree or order for relief by the Purchaser or any of the
Companies (other than Tyzack) in an involuntary case or proceeding under
any applicable bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against the Purchaser or any of the Companies (other than Tyzack), or the
filing, by the Purchaser or any of the Companies (other than Tyzack), of a
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petition or answer or consent seeking reorganization or relief under
applicable law, or the consent by the Purchaser or any of the Companies
(other than Tyzack) to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Purchaser or any of the
Companies (other than Tyzack) or any substantial part of their respective
property, or the making by the Purchaser or any of the Companies (other
than Tyzack) of an assignment for the benefit of creditors, or the
admitting in writing by the Purchaser or any of the Companies (other than
Tyzack) of an inability to pay its debts generally as they become due, or
the taking of corporate action by the Purchaser or any of the Companies
(other than Tyzack) in furtherance of any such action, or any receiver and
manager shall otherwise be appointed in respect of the Purchaser or any of
the Companies (other than Tyzack) or any substantial part of their
respective property pursuant to any contract, agreement or instrument to
which the Purchaser or any of the Companies (other than Tyzack), as the
case may be, is a party;
(ii) A court of competent jurisdiction shall enter (A) a decree or
order for relief in respect of the Purchaser or any of the Companies (other
than Tyzack) in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law or (B) a decree
or order adjudging the Purchaser or any of the Companies (other than
Tyzack) a bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of or in
respect of the Purchaser or any of the Companies (other than Tyzack) under
any applicable law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Purchaser
or any of the Companies (other than Tyzack) or of any substantial part of
their respective property, or ordering the winding up or liquidation of the
affairs of the Purchaser or any of the Companies (other than Tyzack), and
any such decree or order for relief or any such other decree or order shall
continue unstayed, undismissed, unvacated or undischarged and in effect for
a period of 60 consecutive days;
(iii) The failure by the Purchaser or any of the Companies to pay when
due any amount hereunder, including, without limitation, a quarterly
payment of the Earnout, a payment under the Note, or payment of the Payoff
Amount pursuant to Section 1.3(b), which failure shall not have been cured
within five business days after written notice of such failure shall have
been delivered to the Purchaser;
(iv) The failure by the Purchaser, Goldstein or any of the Companies
to perform or observe any of the terms, covenants or agreements applicable
to it or him and contained either in Article VII of this Agreement or in
Exhibit J hereto, which violation (if curable) shall not have been cured
within 30 days after the occurrence thereof;
(v) A judgment or order for the payment of money in excess of $100,000
(and not covered by insurance) shall be rendered against the Purchaser or
any of the Companies and such judgment or order shall continue unsatisfied
and unstayed for a period of 30 consecutive days;
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(vi) The failure by the Purchaser to pay when due any Third Avenue
Lease Obligation if the Purchaser has previously failed to pay when due any
Third Avenue Lease Obligation in the six months prior to such failure;
provided that such failure is not the result of a good faith dispute with
respect to such Third Avenue Lease Obligation and Purchaser placed the
amount of the disputed Third Avenue Lease Obligation into an escrow with an
appropriate third party pending resolution of such dispute;
(vii) The Purchaser or any of the Companies fails to pay in full when
due (whether at stated maturity, by acceleration or otherwise) all or any
portion of any principal of or interest on or any amount payable in
connection with any of their respective debts or indebtedness or otherwise
defaults or breaches any obligations with respect to such debt or
indebtedness, as a result of which any such debt or indebtedness in an
amount equal to or greater than $150,000 is declared to be due and payable
prior to the stated maturity thereof; or
(viii) A Change of Control (as defined herein) shall occur. For
purposes of this Section 1.4(b)(viii), a "Change of Control" means any of
the following, (A) Goldstein (and/or his "Permitted Transferees" as defined
on the date hereof in the Purchaser's Operating Agreement) shall fail to
own (both beneficially and of record) and control 25% of the membership
interests of Purchaser with voting rights to elect members to the
Purchaser's Board of Managers, or other voting interests of the Purchaser,
as such percentage may be diluted for issuances of Incentive Shares under
the Purchaser's Operating Agreement, issuances of membership interests in
connection with permitted acquisitions by the Purchaser and issuances to
third parties in permitted capital raising transactions, (B) Goldstein
shall no longer be a member of the Board of Managers of the Purchaser, (C)
Goldstein shall no longer be employed by the Purchaser whether through
Goldstein's resignation or his termination for cause by the Purchaser
pursuant to Goldstein's Employment Agreement or otherwise, (D) the
Purchaser sells all or substantially all of its assets in one transaction
or a series of transactions, or (E) the Purchaser enters into a merger,
consolidation or other combination in which the majority of the voting
interests of the surviving entity are not owned by the owners of a majority
of the voting interests of the Purchaser immediately preceding such merger,
consolidation or other combination.
Upon the occurrence of a Default under subsections (i) and (ii) of this
Section 1.4(b), without any action by or notice from the Seller, the principal
and interest under the Note and all other amounts accrued and unpaid under this
Agreement shall be immediately due and payable, whereupon all such principal and
interest and all such other amounts shall become and be immediately due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived by the Purchaser. Upon the occurrence of a
Default under subsections (iii) through and including (viii) of this Section
1.4(b), the Seller shall have the right to declare the principal and interest
under the Note and all other amounts accrued and unpaid under this Agreement,
immediately due and payable, whereupon all such principal and interest and all
such other amounts shall become and be immediately due and payable, without
presentment, demand, protest, or notice of any kind, all of which are hereby
expressly waived by the Purchaser. Upon the occurrence of any Default; (A) the
Seller shall have the right to appoint a majority of the managers of the
Purchaser (in accordance with Section 4.15, Seller shall receive proxies to vote
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the membership interests of Purchaser necessary to elect a majority of the
managers of Purchaser with such proxy becoming exercisable upon the occurrence
of a Default); (B) the Seller may: (1) prepare for sale, advertise for sale, and
sell (in the manner provided for herein) the Collateral and shall (without
limiting any of the provisions of this Section 1.4) have all the rights with
respect thereto of a secured party under the New York Uniform Commercial Code,
or (2) dispose of the Collateral by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
the Seller's premises) as is commercially reasonable under the New York Uniform
Commercial Code, and apply any proceeds to the obligations owing to it in
whatever manner or order the Seller deems appropriate. The Seller may credit bid
and purchase at any public sale. Any deficiency that exists after disposition of
the Collateral provided above will be paid immediately by the Purchaser. The
Seller is hereby granted a license or other right to use, without charge, the
Companies' labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, in completing production of, advertising for sale,
and selling the Collateral and, in connection with the Seller's exercise of its
rights under this Section 1.4, the Companies' rights under all licenses and all
franchise agreements shall inure to the Seller's benefit.
If all or a portion of the principal of, or interest on, the Note or any
other amount payable under the Note or this Agreement shall not be paid in full
when due, such overdue amount shall bear interest (but if such amount is
interest on the Note, only to the extent permitted by applicable law) from and
including the date when such amount became due to but not including the date on
which such amount shall be paid in full at a rate per annum equal to 5% plus the
interest rate applicable to such amount pursuant to the Note or this Agreement,
if any. Interest on amounts in default shall be payable from time to time on
demand given by the Seller.
(c) Alternatively (and in lieu of any other remedies and relief that would
be available to the Seller, whether under this Agreement, at law, in equity or
otherwise), upon a Default occurring prior to the first anniversary of the
Closing Date, the Seller may, at its sole option, cause Salans to release the
Shares to it in accordance with the Escrow Agreement, endorse the Shares to
itself and continue to hold the Shares as sole record and beneficial holder
thereof free and clear of any claims of Purchaser, in which case the Purchaser
shall be released from any obligation to continue making any payments under the
Note or the Earnout. The Purchaser agrees that given the unknown future value of
the Earnout, it would be impossible to determine the precise amount of damages
the Seller would suffer as a result of a Default within the first year after the
Closing Date, and that the remedy in this paragraph (c) therefore constitutes a
reasonable approximation of such damages.
(d) Effective only upon the occurrence and during the continuance of a
Default, the Purchaser hereby irrevocably appoints the Seller (and any of the
Seller's designated officers, or employees) as the true and lawful attorney of
the Purchaser and the Companies (as applicable) to: (A) endorse the Purchaser's
name on the certificates evidencing the Shares; (B) sign the name of the
Purchaser or any of the Companies on any documents relating to the sale or other
disposition of the Shares; or (C) dispose of the Shares. The appointment of the
Seller as the attorney-in-fact of the Purchaser and the Companies as aforesaid,
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being coupled with an interest, is irrevocable until all of the obligations of
the Purchaser hereunder and under the Note have been fully paid and performed.
(e) Upon the indefeasible payment in full in cash of all payment
obligations under the Note and the Earnout (whether upon expiration of the
Earnout Period or prepayment thereof pursuant to Section 1.3) and the payment in
full in cash of the Security Deposit (as defined in Section 9.10 hereof), the
security interest created by this Section 1.4 shall terminate; provided,
however, that if for any reason the Seller is required to return any part of
such payment to the Purchaser (whether as a result of a court order, pursuant to
a fraudulent conveyance statute or rule, in a bankruptcy proceeding or
otherwise), then the security interest created by this Section 1.4 shall
retroactively remain in effect and the Purchaser shall immediately take such
actions as may be necessary to return the Shares and transfer documents
contemplated by the last sentence of Section 1.1 to the Seller to hold as
provided herein. Such period of time as the (x) Note remains outstanding, (y)
the Purchaser has outstanding obligations to make Earnout payments pursuant to
Section 1.2(b), and (z) the Purchaser has not paid the Security Deposit, shall
be referred to herein as the "Obligation Period".
(f) For avoidance of doubt, it is understood and agreed that the occurrence
of a Default or the exercise by the Seller of any of its rights under this
Section 1.4 (including without limitation the remedy provided for in Section
1.4(c)) shall not relieve Goldstein of his obligations under Sections 7.3, 7.5
or 7.6 hereof or under the non-competition agreement to be delivered by him
pursuant to Section 4.7 hereof; provided that such obligations shall remain in
effect only for so long as any material portion of the Business continues to be
conducted by any Company, the Seller or any successor in interest to the
Business, as the case may be, and the Seller (or the successor in interest to
the Business, as applicable) is not in payment default under Goldstein's
employment contract as then in effect; and provided, further, that if the Seller
(or the successor in interest to the Business, as applicable) terminates
Goldstein's employment (other than for "cause", as defined in Goldstein's
employment contract as then in effect), the obligations of Goldstein under
Section 7.3 shall only remain in effect for a period of up to twelve months
after the date of such termination and only so long as Goldstein is receiving
severance payments equal to at least 80% of his average annual compensation for
the three years prior to the date of such termination (in computing such average
annual compensation any Goldstein Additional Compensation Payments (as defined
in paragraph 3 of Exhibit J) payments and Goldstein 2003 Advances (as defined in
paragraph 3 of Exhibit J) shall not be included as compensation).
(g) Notwithstanding anything to the contrary in this Agreement, it is
understood and agreed that the Seller's security interest created by this
Section 1.4 shall terminate upon the expiration of the Obligation Period and is
subject to the liens and security interest of the Lenders (as defined in Section
3.6) under that certain Amended and Restated Credit Agreement, dated as of April
17, 2002 (as amended, supplemented or otherwise modified from time to time (the
"Credit Agreement")), and all of the Seller's contractual rights, remedies and
privileges hereunder may be assigned at any time by the Seller to any of the
Lenders and that, in the case of such an assignment, such Lender or Lenders
shall have all the rights of the Seller under this Agreement, including, without
limitation, under Section 1.4, as though such Lender or Lenders were the Seller
itself.
9
Article II
CLOSING
The closing of the purchase and sale of the Shares shall take place at
10:00 a.m. on Thursday, March 7, 2003, at the offices of Salans, 620 Fifth
Avenue, New York, New York 10020, or at such other time, date and place as the
Purchaser and the Seller may agree (the "Closing Date"). On the Closing Date,
the Purchaser shall execute and deliver the Note to the Seller and the Purchaser
shall deliver to the Seller a Receipt and Confirmation in the form of Exhibit C
hereto.
Article III
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser under Article I are subject to the
satisfaction, on or before the Closing Date, of the following conditions, any of
which may be waived in whole or in part by the Purchaser in its sole discretion:
Section 3.1.Due Performance. The Seller shall have in all material respects
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.
Section 3.2.Accuracy of Representations and Warranties. All representations
and warranties of the Seller set forth in Article V of this Agreement shall be
true and correct on and as of the Closing Date as if made on and as of such
date.
Section 3.3.Certificate. The Purchaser shall have received a certificate
from the Seller executed by its President to the effect set forth in Sections
3.1 and 3.2.
Section 3.4.Transfer of Assets. To the extent that the Seller or any
subsidiary of the Seller other than one of the Companies (or one of their
respective subsidiaries) owns or holds any of the assets set forth on Schedule
3.4 hereto (the "Business Assets"), such assets shall have been transferred to
one or more of the Companies. The terms of the agreement or instrument effecting
such transfer shall be reasonably satisfactory to the Purchaser and its counsel.
Section 3.5.Working Capital Adjustment.
(a) The Companies' consolidated Net Working Capital (as hereinafter
defined) shall be calculated as of the Effective Date. In the event the Net
Working Capital is less than $1,000,000, the Seller shall contribute to the
Companies an amount equal to the lesser of (i) $1,000,000 or (ii) an amount that
is necessary to raise the Net Working Capital (as calculated on the Effective
Date) to $1,000,000 (such amount may include, among other things, the assumption
by Seller of Third Avenue Lease Obligations or obligations, including, without
limitation, payment obligations of Purchaser arising in connection with the
performance, by Seller, of the Transition Services set forth on Exhibit K
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attached hereto where such amount shall be so provided to Purchaser as such
payment obligation becomes due in accordance with this Agreement); provided that
the contribution of intercompany loans (other than New Intercompany Debt) due
Seller and/or any of its subsidiaries to the capital of any of the Companies
shall not be deemed or construed as an addition to Net Working Capital; and
provided, further, that if the Seller increases the Net Working Capital by
assumption of a portion of the Third Avenue Lease Obligations, and the Seller
then disposes of the Third Avenue Lease (in accordance with Section 9.4) in a
manner such that the Seller shall not have actually paid the Third Avenue Lease
Obligations so assumed by it, the Seller shall promptly contribute to the
Purchaser an amount equal to the unpaid Third Avenue Lease Obligations that had
been so assumed by the Seller. In the event the Net Working Capital (as
calculated on the Effective Date) is in excess of $1,000,000, Seller shall be
entitled to retain such assets of the Companies (subject to the Purchaser's
consent as to the assets so retained) having an aggregate fair market value
equal to the amount of the Net Working Capital in excess of $1,000,000 or, at
the Seller's option (or if the Purchaser and the Seller cannot agree on the
assets to be retained), the Purchaser shall pay such excess amount to the Seller
in cash within 30 days after the Closing Date.
For purposes of this Section 3.5, "Net Working Capital" means (1) cash,
cash equivalents, accounts receivable, deposits and prepaid expenses minus (2)
total current liabilities. Each of the foregoing elements in determining net
working capital shall be calculated in accordance with United States generally
accepted accounting principles applied in a manner consistent with the Seller's
preparation of its consolidated financial statements as of the Effective Date.
The evidence of such amount of Net Working Capital shall be reasonably
satisfactory to the Purchaser and its counsel. Schedule 3.5 attached hereto sets
forth an estimate of Net Working Capital items and a reasonable description
thereof. In computing Net Working Capital, any expenses , payables or other
liabilities of the Companies paid by the Seller since January 1, 2003 shall be
offset against any collected accounts receivable or other cash of the Companies
retained by the Seller since January 1, 2003. The amount of required Net Working
Capital shall be increased by the amount, if any, (the "Excess Swept Cash") by
which the sum of such collected accounts receivable and such retained cash
exceeds the sum of such expenses, payables or other liabilities of the Companies
paid by the Seller since January 1, 2003 where Seller shall be required to
contribute the Excess Swept Cash to the Companies in cash at the Closing. In the
event that the sum of such expenses, payables or other liabilities of the
Companies paid by the Seller since January 1, 2003 exceeds the sum of such
collected accounts receivable and such retained cash, such excess shall reduce
the amount of required Net Working Capital by an amount equal to such excess.
The Purchaser and the Seller agree that any such adjustments to the Net Working
Capital shall be made within thirty (30) days after the Closing Date. The
Purchaser and the Seller shall have had the opportunity to review the financial
statements documenting the existence of the Net Working Capital.
Section 3.6.Consents and Governmental Approvals. The Purchaser 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 (including without limitation the transfer of
the Business Assets to the Companies contemplated by Section 3.4), without the
imposition of any materially burdensome conditions or restrictions, which
consents shall continue to be in full force and effect on the Closing Date.
11
Without limiting the foregoing, (a) the required lenders (the "Lenders") under
the Credit Agreement and the required sub-debt holders (the "Sub-Debt Holders")
of the Seller each shall have consented to the transactions contemplated hereby
and the Companies shall have no continuing obligations to the Lenders under the
Credit Agreement and the other agreements and documents contemplated thereby,
and/or to the Sub-Debt Holders; (b) the Lenders shall have released their Liens
on the Shares and released their Liens on all property of the Companies,
including, without limitation, the Business Assets; and (c) Seller shall provide
to Purchaser such documents and written evidence of the satisfaction and
discharge in favor of the Companies of indebtedness ("Satisfaction
Indebtedness") due the Lenders and the Sub-Debt Holder and evidence of the
events described in Section 3.6(a) and Section 3.6(b) above ("Indebtedness
Release Documents") (including, without limitation, an acknowledgment of such
release, an appropriate satisfaction and discharge and UCC-3 financing
statements) reasonably requested by Purchaser and its counsel.
Section 3.7.Release. Seller and certain related parties shall have executed
and delivered a Release of Claims in favor of Goldstein, the Purchaser, the
Companies and certain related parties, in the form of Exhibit D-1 hereto.
Section 3.8.No Claims. No claim, action, suit, investigation or proceeding
shall be pending or threatened against any of the parties which, if adversely
determined, would (a) prevent or hinder consummation of the transactions
contemplated by this Agreement or (b) materially adversely affect the
Purchaser's rights with respect to the Shares after the Closing Date or the
ability of the Purchaser and the Companies to operate the Business after the
Closing Date.
Section 3.9.Resolutions, Etc. The Purchaser shall have received, in form
and substance reasonably satisfactory to it, (i) copies of resolutions duly
adopted by the Seller's Board of Directors authorizing the Seller's execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and the contribution to capital of each Company
of any intercompany debt due from such Company to Seller or a subsidiary of the
Seller other than a Company certified by the Secretary of Seller.
Section 3.10 Escrow Agreement. All parties to the Escrow Agreement (other
than the Purchaser) shall have executed and delivered the Escrow Agreement.
Section 3.11 Legal Opinion. The Purchaser shall have received from Salans a
legal opinion in the form attached hereto as Exhibit E.
Section 3.12 Good Standing Certificate. The Seller shall have delivered to
the Purchaser a certificate of good standing from the appropriate authority in
the jurisdiction of the Seller's organization.
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Article IV
CONDITIONS TO THE OBLIGATIONS OF THE SELLER
The obligations of the Seller under Article I are subject to the
satisfaction, on or before the Closing Date, of the following conditions, any of
which may be waived in whole or in part by the Seller in its sole discretion:
Section 4.1.Due Performance. The Purchaser 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.
Section 4.2.Accuracy of Representations and Warranties. All representations
and warranties of the Purchaser set forth in Article VI of this Agreement shall
be true and correct on and as of the Closing Date as if made on and as of such
date.
Section 4.3.Certificate. The Seller shall have received a certificate from
the Purchaser executed by its Chief Executive Officer to the effect set forth in
Sections 4.1 and 4.2.
Section 4.4.Transfer of Liabilities. To the extent that the Seller or any
subsidiary of the Seller other than the Companies (or their respective
subsidiaries) is subject to or under any obligation with respect to (i) the
liabilities set forth on Schedule 4.4 hereto or (ii) any obligations of any
sort, including, without limitation, the payment of forty percent (40%) of the
rent relating to the lease (the "Third Avenue Lease") of office space located at
850 Third Avenue, New York, New York (the "Third Avenue Lease Obligations")
(subject to the application of Section 3.5 or 8.2(d) hereof), such liabilities
shall have been transferred to and assumed by the Companies and, to the extent
reasonably practicable, Seller shall have been released therefrom. The terms of
the agreement effecting such transfer shall be reasonably satisfactory to the
Seller and its counsel. The Purchaser shall have executed and delivered an
assumption agreement in the form attached hereto as Exhibit F with respect to
the Third Avenue Lease Obligations.
Section 4.5.Consents and Governmental Approvals. The Seller 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 (including without limitation the assumption
of liabilities by the Companies contemplated by Section 4.4), without the
imposition of any materially burdensome conditions or restrictions, which
consents shall continue to be in full force and effect on the Closing Date.
Without limiting the foregoing, executed Indebtedness Release Documents shall
have been obtained.
Section 4.6.Capitalization. The Purchaser shall have obtained at least
$1,000,000 in new capital to be invested in the Purchaser as of the Closing
Date, with at least $300,000 (or such greater amount as is necessary for the
transaction contemplated by this Agreement to be treated as a sale for
accounting purposes) of such amount to be in new equity. To the extent that such
new equity is preferred stock, such preferred stock, by its terms, shall not be
redeemable prior to the expiration of the Term and shall not have a cumulative
dividend rate in excess of six percent (6%) per annum. The terms of all such
13
investment documents shall be reasonably satisfactory to the Seller and its
counsel, it being understood that the obligation to loan or invest such funds as
of the Closing Date must not be subject to any conditions other than the closing
of the transactions contemplated by this Agreement. If and to the extent that
any portion of such $1,000,000 amount consists of debt, such indebtedness shall
be unsecured and shall be subordinated to the Note on terms reasonably
satisfactory to the Seller and its counsel and after January 15, 2003, any such
indebtedness shall be unsecured and shall be subordinated to the Purchaser
Obligations.
Section 4.7.Senior Executive Non-Competition and Employment Agreement.
Goldstein shall have entered into an employment agreement (the "Goldstein
Employment Agreement") with the Purchaser and each of the Companies in the form
attached hereto as Exhibit G.
Section 4.8.Resignation. Goldstein shall have resigned from the Board of
Directors and offices of the Seller and affiliates of the Seller, other than the
Companies. Any other employees of the Companies that are directors or officers
of the Seller or any affiliates of the Seller (other than the Companies) shall
have resigned from such directorships or offices.
Section 4.9.Release. Goldstein, the Purchaser, the Companies and certain
related parties shall have executed a Release of Claims in favor of Seller and
certain related parties, in the form of Exhibit D-2.
Section 4.10 Guarantees and Security Agreements. The Companies shall have
executed and delivered guarantees of the Purchaser's obligations under this
Agreement and the Note and shall have pledged all of their respective assets to
the Seller (and its assignees) to secure such obligations. The agreements giving
effect to such guarantees and pledges shall be in the form attached hereto as
Exhibit H (individually, a "Guaranty" and collectively, the "Guarantees").
Section 4.11 Budgets. Purchaser shall have delivered to Seller budgets for
the operation of the Purchaser and each of the Companies for the 2003 calendar
year (the "First Year Budget") prepared on a monthly basis and including balance
sheets, statements of profits and loss and cash flows for each month.
Section 4.12 UCC-1 Financing Statements. UCC-1 financing statements shall
have been filed with respect to the Collateral other than the Shares, as well as
the property of each of the Companies (as contemplated by the Guarantees).
Section 4.13 No Claims. No claim, action, suit, investigation or proceeding
shall be pending or threatened against any of the parties which, if adversely
determined, would prevent or hinder consummation of the transactions
contemplated by this Agreement.
Section 4.14 Secretary's Certificate. The Seller shall have received
copies, certified by the Secretary of Purchaser, of the (i) formation or
organization documents of the Purchaser, (ii) the limited liability company
agreement or operating agreement of the Purchaser, (iii) the resolutions of the
Purchaser approving the execution, delivery and performance of this Agreement
14
and the Note, and (iv) all other documents which set forth the relationship
between, or interests of, members of the Purchaser.
Section 4.15 Proxies. The Purchaser shall have delivered to Seller, from
the members of Purchaser, proxies to vote the membership interests of Purchaser
sufficient to elect a majority of the managers of Purchaser with such proxies
becoming exercisable by Seller upon the occurrence of a Default.
Section 4.16 Equity in Purchaser. The Purchaser shall have issued to the
Seller common membership interests of the Purchaser equal to 15% of the
Applicable Share Amount.
Section 4.17 Escrow Agreement. All parties to the Escrow Agreement (other
than the Seller) shall have executed and delivered the Escrow Agreement.
Section 4.18 Legal Opinion. The Seller shall have received from Morrison
Cohen Singer & Weinstein, LLP, a legal opinion in the form attached hereto as
Exhibit I.
Section 4.19 Good Standing Certificate. The Purchaser shall have delivered
to the Seller a certificate of good standing from the appropriate authority in
the jurisdiction of the Purchaser's formation.
Article V
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Purchaser as follows:
Section 5.1.Due Incorporation and Qualification. The Seller is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The Seller has the requisite power and authority
to execute and deliver this Agreement and to perform its obligations hereunder,
and has taken all corporate action necessary for the execution and delivery of
this Agreement and for the performance of its obligations hereunder. Each
Company has been duly incorporated or formed and is validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation.
Section 5.2.Valid Obligation. This Agreement constitutes the legal, valid
and binding agreement of the Seller, enforceable against the Seller in
accordance with its terms.
Section 5.3.No Conflicts or Defaults. The execution and delivery of this
Agreement by the Seller, and the performance by the Seller of its obligations
hereunder, do not and will not (a) contravene the Certificate of Incorporation
or By-Laws of the Seller, or (b) with or without the giving of notice or the
passage of time, (i) violate or conflict with, or result in a breach of, or a
default or loss of rights under, any material agreement, lease, mortgage,
instrument, permit or license, judgment, order, decree, law, rule or regulation
to which the Seller is a party or to which the Seller is subject or (ii) result
in the creation of, or give any party the right to create, any Lien on the
Shares (other than the Lien in favor of the Seller in accordance with Section
1.4) or the Business Assets.
15
Section 5.4.Capitalization of the Companies. The authorized share capital
of Tyzack consists of 250,000 ordinary shares. The Tyzack Shares are the only
issued and outstanding shares of capital stock of Tyzack. The authorized share
capital of Whitney Asia consists of 10,000 common shares. The Whitney Shares are
the only issued and outstanding shares of capital stock of Whitney Asia. The
Whitney Interests are the only issued and outstanding membership interests of
Whitney LLC. The authorized capital stock of Carlyle consists of 1,000,000
shares of common stock, par value $1.00 per share. The Carlyle Shares are the
only issued and outstanding shares of capital stock of Carlyle. All of such
shares are owned of record and beneficially by the Seller free and clear of all
Liens other than the pledge in favor of the Lenders and Sub-Debt Holders and
other than restrictions under federal and applicable state securities laws.
There are no outstanding options, warrants, rights, conversion rights,
preemptive rights, calls, commitments or demands of any character obligating any
of the Companies or any stockholder of any of the Companies to issue, sell,
redeem or repurchase any shares of the capital stock of any of the Companies (or
membership interests, in the case of Whitney LLC), or securities convertible
into the capital stock of any of the Companies (or membership interests, in the
case of Whitney LLC), or any other security giving a right to acquire shares of
capital stock of any of the Companies (or membership interests, in the case of
Whitney LLC) or securities convertible into such shares or interests.
Section 5.5.Authorizations. Except for the consent of the required Lenders
and Sub-Debt Holders, any authorization, approval, order, license, permit or
consent of, or filing or registration with, any court or governmental authority,
regulatory entity or official body, and any consent of any other party, required
to be obtained or made by the Seller in connection with the execution and
delivery of, and performance of its obligations under, this Agreement has been
obtained or made.
Section 5.6.Taxes. (a) For purposes of this Agreement the following terms
have the following meanings:
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, Liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Code" means the Internal Revenue Code of 1986, as amended.
"Tax" means all forms of taxation, whether direct or indirect and whether
levied by reference to income, profits, gains (capital or otherwise),
withholding, payroll, property, value-added, sales, use, supplies, net wealth,
net worth, asset value, turnover, added value, benefits provided or deemed by
applicable law to be provided to employees or any other matter, and statutory,
franchise, governmental, state, provincial, local governmental or municipal
impositions, duties, contributions and levies (including, without limitation,
social security contributions), customs, import and excise taxes, duties and
assessments in each case, applicable to any party, in any case including (x) an
obligation to contribute to the payment of Taxes on a consolidated, combined or
unitary basis and (y) any related penalties, fines, charges, costs, interest or
other additions thereon.
16
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
(b) (i) Each of the Companies has filed all Tax Returns that it was
required to file and the Seller has filed all material Tax Returns that it
was required to file. All Tax Returns filed by the Companies were correct
and complete in all material respects, and all Tax Returns filed by the
Seller were correct in all material respects. All Taxes owed by each of the
Companies, and all material Taxes owed by the Seller (whether or not shown
on any Tax Return) have been paid. No Company currently is the beneficiary
of any extension of time within which to file any Tax Return. There are no
Liens on any of the assets of any of the Companies, or the Seller, that
arose in connection with any failure (or alleged failure) to pay any Tax.
(ii) Each of the Companies and the Seller has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, member, or other third party.
(iii) Except as set forth on Schedule 5.6 attached hereto, there is no
dispute or claim concerning any Tax liability of any of the Companies or
the Seller either (A) claimed or raised by any taxing authority in writing
or (B) as to which the Seller or any of its directors and officers (and
employees responsible for Tax matters) has knowledge based upon personal
contact with any agent of such authority. The Seller delivered to the
Purchaser correct and complete copies of all federal income Tax Returns
filed by any of the Companies since December 31, 1999.
(iv) None of the Companies or the Seller has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) None of the Companies is a party to a Tax allocation or sharing
agreement that will not be cancelled or terminated (without any further
obligation thereunder) prior to or after the Closing.
(vi) None of the Companies is required to make any adjustments or
changes either on, before or after the Closing Date to its accounting
methods pursuant to Section 481 of the Code and the IRS (or similar taxing
authority) has not proposed in writing any such adjustments or changes in
the accounting methods of any of them.
(vii) None of the Companies will be required to include in income
during a taxable period after the Closing Date any income that economically
accrued and was accounted for prior to the Closing Date by reason of the
installment method of accounting or otherwise.
(viii) None of the Companies has any liability for the Taxes of any
person or entity other than any of the Companies (A) under Treasury Reg.
ss.1.1502-6 (or any similar provision of state, local, or foreign law), (B)
as a transferee or successor, (C) by contract, or (D) otherwise.
17
(ix) For purposes of U.S. federal income Tax and Treasury Regulation
Section 301.7701-3 each of Tyzak and Whitney Asia is classified as a
"corporation," and Whitney LLC is classified as a "disregarded entity".
Section 5.7.No Other Representations. Except as expressly provided in this
Article V, the Seller makes no representations or warranties of any sort
whatsoever relating to the Companies or their respective businesses, condition
(financial or otherwise), operations, results of operations, customers,
properties, contracts or prospects.
Article VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as follows:
Section 6.1.Due Incorporation and Qualification. The Purchaser is a limited
liability company duly formed, validly existing and in good standing under the
laws of its jurisdiction of formation, with full requisite power and authority
to execute and deliver this Agreement and the Note and to perform its
obligations hereunder and thereunder. The Purchaser has taken all action
necessary of a limited liability company for the execution and delivery of this
Agreement and the Note and for the performance of its obligations hereunder and
thereunder. Each of the Companies is duly organized, validly existing and in
good standing under the laws of its respective jurisdiction of organization,
with full requisite power and authority to execute and deliver their respective
Guaranty and to perform their respective obligations thereunder. Each of the
Companies has taken all action necessary for the execution and delivery of their
respective Guaranty and for the performance of their respective obligations
thereunder.
Section 6.2.Valid Obligation. This Agreement constitutes, and the Note,
when executed and delivered by the Purchaser, will constitute, the legal, valid
and binding agreement and obligation of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms. Each of the Guarantees
constitutes the legal, valid and binding agreement and obligation of the Company
executing and delivering the same, enforceable against each such Company in
accordance with its terms.
Section 6.3.No Conflicts or Defaults.
(a) The execution and delivery of this Agreement and the Note by the
Purchaser and the performance by the Purchaser of its obligations hereunder and
thereunder do not and will not (i) contravene Purchaser's organizational
documents, including, without limitation, Purchaser's limited liability company
agreement, or (ii) with or without the giving of notice or the passage of time,
(1) violate or conflict with, or result in a breach of, or a default or loss of
rights under, any material agreement, lease, mortgage, instrument, permit or
license, judgment, order, decree, law, rule or regulation to which the Purchaser
is a party or to which the Purchaser is subject or (2) result in the creation
of, or give any party the right to create, any Lien on the Shares (other than
the Lien in favor of the Seller in accordance with Section 1.4).
18
(b) The execution and delivery of the Guarantees by the Companies and the
performance by the Companies of their respective obligations thereunder do not
and will not (i) contravene the organizational documents or by-laws of any of
the Companies, or (ii) with or without the giving of notice or the passage of
time, (1) violate or conflict with, or result in a breach of, or a default or
loss of rights under, any material agreement, lease, mortgage, instrument,
permit or license, judgment, order, decree, law, rule or regulation to which any
of the Companies is a party or to which any of the Companies is subject or (2)
result in the creation of, or give any party the right to create, any Lien on
the Shares (other than the Lien in favor of the Seller in accordance with
Section 1.4).
Section 6.4.Capitalization of the Companies. To the knowledge of the
Purchaser, the representation of the Seller in Section 5.4 is true and correct
in all respects.
Section 6.5.Capitalization of the Purchaser. As of the Closing Date, there
will be 4,900,000 issued and outstanding common membership interests of the
Purchaser (including, without limitation, the DeZara Shares) and 300,000 issued
and outstanding preferred membership interests of the Purchaser; and the
aggregate amount of the capital accounts of members of the Purchaser equals
$300,000. As of the Closing Date, the aggregate amount of indebtedness for
borrowed money (excluding amounts payable to Goldstein pursuant to Section 3(h)
of the Goldstein Employment Agreement) and/or indebtedness evidenced by
promissory notes of the Purchaser will equal $775,000. Other than as set forth
on Schedule 6.5, there are no outstanding options, warrants, rights, conversion
rights, preemptive rights, calls, commitments or demands of any character
obligating the Purchaser or any member of the Purchaser to issue, sell, redeem
or repurchase (other than pursuant to employment agreements to which the
Purchaser is a party and which are effective on the Closing Date) any membership
interests of the Purchaser or securities convertible into membership interests
of the Purchaser, or any other security giving a right to acquire membership
interests of the Purchaser or securities convertible into such membership
interests.
Section 6.6.Authorizations. Any authorization, approval, order, license,
permit or consent of, or filing or registration with, any court or governmental
authority, regulatory entity or official body, and any consent of any other
party, required to be obtained or made by the Purchaser in connection with the
execution and delivery of, and performance of its obligations under, this
Agreement and the Note has been obtained or made.
Section 6.7.Investment Intent.
(a) The Purchaser understands and acknowledges that the Shares have not
been registered under the Securities Act of 1933, as amended ("Act"), or any
state or foreign securities laws. The Purchaser further understands and
acknowledges that the Shares may not be transferred or resold without (i)
registration under the Act and any applicable state or foreign securities laws,
or (ii) an exemption from the registration requirements of the Act and
applicable state securities laws.
(b) The Purchaser is an "accredited investor," as defined in Regulation D
promulgated by the Securities and Exchange Commission under the Act.
19
(c) The Purchaser is acquiring the Shares solely for its own account and
not with a view to, or for resale in connection with, any distribution or public
offering thereof.
Section 6.8.Solvency. After giving effect to the transactions contemplated
by this Agreement, as of the Effective Date and as of the Closing Date (i) the
fair salable value of the Purchaser's assets at a fair valuation will exceed the
indebtedness and liabilities (contingent or otherwise) of the Purchaser, (ii)
the present fair salable value of the assets of the Purchaser will be greater
than the amount that will be required to pay the probable liability of the
Purchaser on its indebtedness and liabilities as they become absolute and
matured, (iii) the Purchaser is able to pay its indebtedness and liabilities as
they become absolute and matured, (iv) the Purchaser does not intend to, and
does not believe that it will, incur indebtedness or liabilities beyond its
ability to pay such indebtedness and liabilities as they become absolute and
matured, and (v) the Purchaser is not engaged in a business or transaction, and
is not about to engage in a business or transaction, the result of which is
reasonably likely to result in the Purchaser having unreasonably small capital.
Section 6.9.First Year Budget. The First Year Budget accurately represents
the Purchaser's reasonable expectations and forecasts of revenue and
expenditures to be received or incurred, as applicable, in the operations of the
Companies during the 2003 calendar year; provided that, although such
expectations and forecasts are based on assumptions which the Purchaser believes
are reasonable, there can be no assurance that the actual revenues and
expenditures will not vary substantially and materially from those set forth in
the First Year Budget.
Article VII
NON-COMPETITION AND CONFIDENTIALITY; REPAYMENT COVENANT
Section 7.1.Non-Competition by the Seller. The Seller hereby acknowledges
that the Purchaser would not enter into this Agreement unless this Agreement
included the provisions set forth in this Section 7.1. In order to induce the
Purchaser to consummate the transactions contemplated by this Agreement and in
consideration of the premises and of the mutual covenants and agreements
contained in this Agreement, the Seller agrees as follows: During the Term
(except that Seller shall not be bound by the provisions of this Section 7.1 if
a Default shall have occurred), the Seller shall not, directly or indirectly, on
its own behalf or on behalf of any other person or entity as an independent
contractor, partner, joint venturer, associate, manager, agent, principal,
investor, consultant or controlling person or in any other capacity, without the
prior consent of the Purchaser, which may be withheld in Purchaser's sole
discretion:
(a) compete with the Business engaged in by the Companies on the Closing
Date (it being understood that the Business being acquired by Purchaser is
worldwide and, to the fullest extent allowable by applicable law, this
restriction shall apply on a global basis);
(b) solicit business for the services offered by the Companies on the
Closing Date from any person, firm, corporation or other business entity which
20
did business with, or was a customer or account of, any of the Companies during
the two-year period preceding the Closing Date or hereafter; or
(c) solicit any employee of, or consultant to, any of the Companies to
terminate his, her or its employment therewith or consultancy thereto, or
otherwise knowingly interfere with the relations of any of the Companies with
its employees or consultants.
Nothing in this Section 7.1 shall be deemed to prohibit the Seller from
owning the securities of any corporation whose securities are listed for trading
on a national stock exchange or traded in the over the counter market, if such
investment or interest does not exceed one percent of the outstanding securities
of any class of such corporation. Nothing in this Section 7.1 shall be deemed to
prohibit the acquisition of the Seller or the Seller's assets by a person or
entity even if such person or entity is engaged in a business that competes with
the Business.
Section 7.2 Non-Competition by the Purchaser and the Companies. The
Purchaser hereby acknowledges that the Seller would not enter into this
Agreement unless this Agreement included the provisions set forth in this
Section 7.2. In order to induce the Seller to consummate the transactions
contemplated by this Agreement and in consideration of the premises and of the
mutual covenants and agreements contained in this Agreement, the Purchaser
agrees as follows: During the Term (except that Purchaser shall not be bound by
the terms of this Section 7.2 if the Seller is in breach of the provisions of
Section 7.1), the Purchaser shall not and the Purchaser shall cause the
Companies to not, directly or indirectly, on its or their own behalf or on
behalf of any other person or entity as an independent contractor, partner,
joint venturer, associate, manager, agent, principal, investor, consultant or
controlling person or in any other capacity, without the prior consent of the
Seller, which may be withheld in Seller's sole discretion:
(a) compete with the staffing and temporary worker placement business
engaged in by the Seller on the Closing Date (it being understood that such
business is worldwide and, to the fullest extent allowable by applicable law,
this restriction shall apply on a global basis);
(b) solicit business for the services offered by the Seller in connection
with its staffing and temporary worker placement business on the Closing Date
from any person, firm, corporation or other business entity which did business
with, or was a customer or account of, of the Seller during the two-year period
preceding the Closing Date or hereafter; or
(c) solicit any employee of, or consultant to, the Seller to terminate his,
her or its employment therewith or consultancy thereto, or otherwise knowingly
interfere with the relations of the Seller with its employees or consultants.
Nothing in this Section 7.2 shall be deemed to prohibit the Purchaser or
the Companies from owning the securities of any corporation whose securities are
listed for trading on a national stock exchange or traded in the over the
counter market, if such investment or interest does not exceed one percent of
the outstanding securities of any class of such corporation. Nothing in this
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Section 7.2 shall be deemed to prohibit the acquisition of the Purchaser or any
of the Companies or their respective assets by a person or entity even if such
person or entity is engaged in a business that competes with the staffing and
temporary worker placement business of the Seller; provided that any such
acquirer assumes all then remaining payment obligations of the Purchaser under
this Agreement and the Note and all then remaining obligations of the Companies
under each Guaranty.
Section 7.3 Business Efforts and Non-Competition by Goldstein. As a
material inducement to the Seller to enter into the transactions contemplated
hereby, Goldstein represents, warrants and covenants to and for the benefit of
the Seller that during the Term he will devote his business efforts and
substantially all of his business time to the operations of the Companies and
the conduct of the Companies' Business. Goldstein further agrees that, subject
to Section 1.4(f), during the Term (irrespective of whether a Default has
occurred or whether the Seller has exercised any of its remedies under Section
1.4, except that Goldstein shall not be bound by the terms of this Section 7.3
if Seller is in breach of the provisions of Section 7.1) he shall not, directly
or indirectly, on his own behalf or on behalf of any other person or entity as
an officer, director, employee, independent contractor, partner, joint venturer,
associate, manager, agent, principal, investor, consultant or controlling person
or in any other capacity, without the prior consent of the Seller, which may be
withheld in Seller's sole discretion:
(a) compete with the Business engaged in by the Companies on the Closing
Date or compete with the staffing and temporary worker placement business
engaged in by the Seller on the Closing Date (it being understood that both such
businesses are worldwide and, to the fullest extent allowable by applicable law,
this restriction shall apply on a global basis);
(b) solicit business for the services offered by any of the Companies on
the Closing Date from any person, firm, corporation or other business entity
which did business with, or was a customer or account of, any of the Companies
during the two-year period preceding the Closing Date or hereafter;
(c) solicit business for the services offered by the Seller in connection
with its staffing and temporary worker placement business on the Closing Date
from any person, firm, corporation or other business entity which did business
with, or was a customer or account of, of the Seller during the two-year period
preceding the Closing Date or hereafter; or
(d) solicit any employee or consultant of any of the Companies or the
Seller to terminate his, her or its employment therewith or consultancy thereto,
or otherwise knowingly interfere with the relations of any of the Companies or
the Seller with its employees or consultants.
Nothing in this Section 7.3 shall be deemed to prohibit Goldstein from
owning the securities of the Seller and/or any corporation whose securities are
listed for trading on a national stock exchange or traded in the over the
counter market, if such investment or interest does not exceed one percent of
the outstanding securities of any class of such corporation. Notwithstanding any
restrictive covenants contained in the Goldstein Employment Agreement, which may
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or may not be more restrictive than the provisions set forth in this Section
7.3, Goldstein, each of the Companies and the Purchaser confirm and agree that
the Seller is the primary beneficiary of the covenants set forth in this Section
7.3 and that the Seller is entitled to the full compliance by Goldstein with the
terms and provisions of this Section 7.3.
Section 7.4 Confidentiality.
(a) After the Closing Date, the Seller shall not (and shall cause its
subsidiaries not to), directly or indirectly, divulge or communicate to any
third party, or use for its own benefit, any trade secrets, methods, know-how,
customer lists, data or other proprietary information, whether or not patentable
or copyrightable, insofar as such information either specifically relates to the
products or services offered by, or the operation of the Business of, any of the
Companies or was originated or developed in connection therewith; provided that
the foregoing obligations shall not apply to any information that is or shall
hereafter become part of public or industry knowledge or literature (other than
as a result of the Seller's actions following the Closing Date), or that is
required to be disclosed by order of any court or governmental agency of
competent jurisdiction.
(b) After the Closing Date, the Purchaser shall not, and shall cause the
Companies to not, directly or indirectly, divulge or communicate to any third
party, or use for its or their own benefit, any trade secrets, methods,
know-how, customer lists, data or other proprietary information, whether or not
patentable or copyrightable, insofar as such information either specifically
relates to the products or services offered by, or the operation of the business
of, the Seller or was originated or developed in connection therewith; provided
that the foregoing obligations shall not apply to any information that is or
shall hereafter become part of public or industry knowledge or literature (other
than as a result of the actions of any Purchaser or any of the Companies
following the Closing Date), or that is required to be disclosed by order of any
court or governmental agency of competent jurisdiction.
Section 7.5 Restrictions Reasonable; Injunctive Relief.
(a) The Seller acknowledges that the restrictions imposed on it by Sections
7.1 and 7.4(a) are reasonable (including without limitation as to duration,
territory and scope) and are necessary for the protection of the Purchaser and
the Companies' Business. Goldstein acknowledges that the restrictions imposed on
him by Section 7.3 are reasonable (including without limitation as to duration,
territory and scope) and are necessary for the Seller to enjoy the full benefit
of the transactions contemplated by this Agreement; Goldstein further confirms
that such restrictions will not prevent him from earning a living. The Purchaser
acknowledges that the restrictions imposed upon it and the Companies by Sections
7.2 and 7.4(b) are reasonable (including without limitation as to duration,
territory and scope) and are necessary for the protection of the Seller's
business.
(b) Because no party hereto would have an adequate remedy at law to protect
its interests from any breach of the provisions of Sections 7.1 through 7.4, the
Purchaser, on the one hand, and the Seller, on the other hand, shall be
entitled, in the event of such a breach or threatened breach by the Seller, on
the one hand, or the Purchaser or Goldstein, on the other hand, to injunctive
relief in addition to such other remedies and relief that would be available to
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the Purchaser or the Seller, as the case may be. In the event of such a breach,
in addition to any other remedies, the Seller and the Purchaser shall be
entitled to receive from such breaching party payment of, or reimbursement for,
their reasonable attorneys' fees and disbursements incurred in successfully
enforcing any such provision. The provisions of this Article VII shall survive
the Closing Date.
Section 7.6 Goldstein agrees to use any and all Goldstein Additional
Compensation Payments and Goldstein 2003 Advances to make payments in respect of
the scheduled maturity of any third party debt of Goldstein existing as of the
Closing Date.
Article VIII
INDEMNIFICATION
Section 8.1.Obligations of the Seller. The Seller shall indemnify, defend
and hold harmless the Purchaser and its officers, directors, advisory executive
committee members, employees, agents, shareholders, members, managers,
successors and assigns from and against any Losses (as defined in Section 8.3)
in connection with:
(a) any breach of any representation, warranty or agreement of the Seller
contained in this Agreement (subject, in the case of a breach of a
representation or warranty, to the limitation set forth in Section 8.6);
(b) any and all Taxes (as defined in Section 8.3) attributable to the
operations of any of the Companies on or prior to the Effective Date;
(c) any failure by the Seller to satisfy the obligations assumed by it (if
any) to make up a shortfall in the Net Working Capital pursuant to Section 3.5;
and
(d) any claim or allegation that the transactions contemplated by this
Agreement were not fair, from a financial point of view, to the Seller's
stockholders or creditors; and
(e) any allegation by any third party of a state of facts, which, if proven
to exist on or prior to the Effective Date, would constitute a breach of any
representation or warranty of the Seller contained in this Agreement.
Section 8.2 Obligations of the Purchaser. The Purchaser shall indemnify,
defend and hold harmless the Seller and its officers, directors, employees,
agents, shareholders, successors and assigns from and against any Losses in
connection with:
(a) any breach of any representation, warranty or agreement of the
Purchaser contained in this Agreement (subject, in the case of a breach of a
representation or warranty, to the limitation set forth in Section 8.6);
(b) any and all Taxes attributable to the operations of any of the
Companies following the Effective Date;
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(c) any allegation by any third party of a state of facts, which, if proven
to exist on or prior to the Effective Date, would constitute a breach of any
representation or warranty of the Purchaser contained in this Agreement;
(d) any Third Avenue Lease Obligations; and
(e) any obligations arising out of the operation of the Companies' Business
after the Effective Date, including without limitation bonuses, salary,
commissions and severance payments (including any of the foregoing arising in
respect of periods prior to the Effective Date and unpaid as of the Effective
Date).
Section 8.3 Definitions. For purposes of this Article VIII: "Losses" means
any loss, liability, damage or expense suffered or incurred by a party in
connection with the matters described in Section 8.1 or Section 8.2, 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 either such Section, or
incident to any allegations or claims which, if true, would give rise to Losses
subject to indemnification hereunder, or incident to the enforcement by the
party of its rights and remedies under this Article VIII.
Section 8.4 Procedure.
(a) Any party (or parties) entitled to indemnification under this Article
VIII (the "party to be indemnified") shall give notice to the party (or parties)
from whom indemnification is sought (the "indemnifying party") as promptly as
practicable of (i) the allegation by it of any breach or failure referred to in
Section 8.1(a), Section 8.1(c) or Section 8.2(a), as applicable, setting forth
to the extent known the amount of indemnification claimed; (ii) the incurrence
of any Taxes referred to in Section 8.1(b) or Section 8.2(b) or any liability
under Sections 8.2(d) or 8.2(e), as applicable; or (iii) the allegation by any
third party of the existence of any matter or state of facts referred to in
Section 8.1(d), Section 8.1(e), Section 8.2(c), Section 8.2(d) or Section
8.2(e), as applicable; provided that the rights of the party to be indemnified
shall not be affected by any delay in providing such notice except to the extent
that the indemnifying party is actually prejudiced thereby.
(b) Upon receipt of a notice as provided in paragraph (a) above, the
indemnifying party shall have 30 days in which to dispute the claim asserted by
sending written notice thereof to the party to be indemnified (a "Dispute
Notice"). The indemnifying party shall not be entitled to dispute a claim based
on a final judgment or order of a court of competent jurisdiction. If no Dispute
Notice is received prior to the expiration of the 30-day period, the party to be
indemnified shall be entitled to receive full payment of the amount of the
claim, subject to the limitations set forth in Sections 8.5 and 8.6. If a
Dispute Notice is received prior to the expiration of the 30-day period, the
party to be indemnified and the indemnifying party shall negotiate in good faith
to resolve the dispute. If the party to be indemnified and the indemnifying
party are unable to resolve the dispute within 30 days of the receipt of the
Dispute Notice, the dispute shall be submitted to arbitration. Such arbitration
shall be conducted according to the applicable rules of the American Arbitration
Association and shall take place in New York, New York before a single
arbitrator, who shall be designated by party to be indemnified and the
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indemnifying party or, if they are unable to agree within 10 days after the
dispute is submitted to arbitration, by the American Arbitration Association.
The decision of the arbitrator shall be final and binding upon the parties
hereto.
(c) With respect to any claim, demand, action, suit, proceeding or
investigation involving Taxes referred to in Section 8.1(b) or Section 8.2(b) or
the matters set forth in Section 8.1(d), Section 8.1(e), Section 8.2(c) or
Section 8.2(e), the indemnifying party shall have the right to control the
defense of any such claim with counsel reasonably acceptable to the party to be
indemnified at the cost and expense of the indemnifying party. No settlement of
any such claim or payment in connection with any such settlement shall be made
unless (1) the settlement contains an unconditional release of the party to be
indemnified and specifically provides that the party to be indemnified does not
admit to any wrongdoing or (2) the party to be indemnified shall have consented
to such settlement, which consent shall not be unreasonably withheld.
(d) The party to be indemnified to make available to the indemnifying
party, upon reasonable notice, all records in such party's possession and all
personnel with knowledge relating to a matter for which indemnification is
claimed by the party to be indemnified; provided that access to personnel shall
not materially interfere with the ability of such personnel to conduct the
business of the party to be indemnified.
Section 8.5 Limitations on Indemnification. Neither party shall have
liability for indemnification of any Losses under this Article VIII in excess of
$3,500,000; provided that the foregoing limitation shall not apply (i) in the
event of fraud or willful misconduct by the indemnifying party and (ii) to
Losses incurred in connection with (A) intentionally knowing breaches of any of
the representations or warranties of a party to this Agreement, (B) intentional
breaches of any covenant of any party to this Agreement, and/or (C) the breach
of the representations and warranties set forth in Section 5.6.
Section 8.6 Survival of Representations and Warranties. All representations
and warranties made by the parties in this Agreement shall survive for a period
of one year after the Closing Date, other than (a) the representation of the
Seller in Section 5.6, which shall survive for a period of three years after the
Closing Date and (b) the representation of the Seller in Section 5.4 and the
representations of the Purchaser in Sections 6.4 and 6.6, which shall survive
indefinitely.
Section 8.7 Right of Offset.
(a) At its option, Purchaser shall have the right to offset, against either
any Earnout payment obligations or any obligations to make payments under the
Note (or a combination thereof), any Losses suffered by the Purchaser with
respect to which Seller is required to provide indemnification pursuant to this
Article VIII. It is understood that this right of offset is for the convenience
of the Purchaser and is not the Purchaser's exclusive remedy with respect to
Losses suffered by it.
(b) If the Purchaser believes it has suffered Losses and desires to offset
all or a portion of such Losses against its obligations to pay the Earnout or to
make payments under the Note, the Purchaser shall so notify the Seller in the
26
notice to be delivered to the Seller pursuant to Section 8.4(a). If the Seller
shall not have delivered a Dispute Notice pursuant to Section 8.4(b) within the
time period prescribed therein, the Purchaser may so offset such Losses in
accordance with the notice so delivered to the Seller. If the Seller delivers a
Dispute Notice with respect to such Losses, then the Purchaser shall not be
relieved of its obligation to pay sums due under the Earnout or pursuant to the
Note (and shall make all such payments to the Seller) until the dispute relating
to such Losses shall have been finally resolved in the manner specified in
Section 8.4(b). Upon such adjudication, resolution or other conclusive
determination of the amount (if any) of Losses in dispute, the Purchaser may
thereafter offset any such Losses as so finally determined against its
obligations under the Earnout or the Note.
Article IX
ADDITIONAL AGREEMENTS
Section 9.1.Share Issuances. During the Term, the Purchaser shall cause the
Companies not to issue or sell any shares of stock, convertible securities,
convertible debt, options, warrants or other rights to purchase or acquire
shares of stock or convertible securities, without the prior written consent of
the Seller, which may be withheld in Seller's sole discretion.
Section 9.2.Budgets and Cash Restrictions. During the Term, the Purchaser
shall, and the Purchaser shall cause the Companies to, abide by the budget
preparation, financial statement preparation and cash use covenants set forth in
Exhibit J hereto.
Section 9.3.Transition Services. For a period of ninety (90) days after the
Effective Date, which period may be extended by Purchaser for an additional
thirty (30) days, the Seller shall provide to the Companies certain transition
services, in exchange for certain payments, in each case as more particularly
set forth in Exhibit K hereto; provided that the Purchaser and/or the Companies
may terminate such services by giving written notice to the Seller at least five
business days prior to such termination.
Section 9.4.Third Avenue Lease.
(a) Without limiting the obligation of the Purchaser to pay the Third
Avenue Lease Obligations (as may be limited by Section 3.5 above), the Seller
may, but is not required to, surrender, assign or otherwise dispose of the Third
Avenue Lease in any transaction that either (i) eliminates or materially reduces
any obligations of the Seller thereunder or (ii) in which an entity satisfactory
to the Seller assumes all or substantially all obligations thereunder. In any
such event, the Purchaser shall, and shall cause the Companies to, execute and
deliver any documents reasonably required to effect such transfer and shall
vacate the premises leased under the Third Avenue Lease within 90 days after
receipt of written notice to such effect from the Seller. Upon vacating the
premises leased under the Third Avenue Lease after such 90-day period, the
Purchaser shall be relieved of its obligations to pay the Third Avenue Lease
Obligations. The Purchaser shall not assign the Third Avenue Lease Obligations
or sublease, or otherwise permit any other person to use, any portion of the
premises leased under the Third Avenue Lease. The Seller and the Purchaser agree
to share evenly all net consideration and/or net remuneration after payment of
27
costs in accordance with this Section 9.4, from the landlord, a new tenant
and/or subtenant to Seller, Purchaser, and/or the Companies in respect of the
Third Avenue Lease whether the result of "key money" or otherwise; provided,
however, that all consideration and/or remuneration received in respect of
assets on the books of the Purchaser or any of the Companies, whether furniture,
fixtures, art work or otherwise, shall be retained in full by the Purchaser or
any of the Companies, as the case may be. The Seller and the Purchaser agree to
share evenly in any costs associated with disposing of the Third Avenue Lease,
including without limitation brokers' fees. Seller shall have the sole right to
select any broker. Purchaser agrees to take all actions, including without
limitation executing all documents and instruments, necessary in connection with
any such disposition of the Third Avenue Lease.
(b) Promptly on the Closing Date, Purchaser agrees to provide written
notice to Citigate that payments in respect of Citigate's sublease shall be made
directly to Seller and Purchaser further agrees that it shall forward, or cause
the Companies to forward, to Seller any payments made by Citigate to the
Purchaser or the Companies after the Closing Date.
Section 9.5.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 written approval of the other party, 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.
Section 9.6.Intercompany Debt. Any intercompany debt owed by any of the
Companies to the Seller prior to January 1, 2003 shall be contributed to the
capital of such Company and any intercompany debt owed by the Seller to any of
the Companies shall be contributed to the capital of the Seller. To the extent
that any intercompany debt has been provided by Seller to any of the Companies
from and after January 1, 2003 ("New Intercompany Debt") it shall remain
outstanding and not be cancelled by the Seller and shall be included in the
calculation of Net Working Capital. The Purchaser shall cause New Intercompany
Debt in excess of any amount of such New Intercompany Debt necessary to raise
Net Working Capital to $1,000,000 pursuant to Section 3.5 to be repaid to Seller
within 60 days after the Closing Date.
Section 9.7.Accounts Receivable. The Seller shall promptly turn over to the
Purchaser any amounts paid to Seller in respect of the accounts receivable of
the Business on or after the Closing Date.
Section 9.8.Tax Matters.
Allocation of Purchase Price. The Purchaser and the Seller shall allocate
the aggregate purchase price among the Tyzak Shares, the Whitney Shares, the
Carlyle Shares and the Whitney Interests (and, as to that allocated to the
Whitney Interests, among the various assets of Whitney LLC) in a manner required
by applicable tax laws and agreed upon, in writing, by Seller and Purchaser
within thirty (30) days after the Closing Date (the "Allocation"). The Purchaser
and the Seller agree to update the Allocation in a reasonable manner to reflect
payments made by the Purchaser to the Seller pursuant to the Earnout (and any
adjustments to the purchase price hereunder). The Allocation shall be binding on
the Purchaser, the Companies and the Seller for all purposes, including, without
limitation, financial and tax reporting purposes, and each of Seller and
Purchaser agrees to timely file Internal Revenue Service Form 8594 consistent
28
with such Allocation. In tax years subsequent to the tax year that includes the
Closing Date, the Seller and the Purchaser shall file supplemental Internal
Revenue Service Forms 8594 to reflect payments made by the Purchaser to the
Seller pursuant to the Earnout.
(a) Returns for Periods Through the Closing Date. Seller shall, to the
extent required or provided by law, include the income of the Companies
(including any deferred income triggered into income by Treasury Regulation
ss.1.1502-13 and Treasury Regulation ss.1.1502-14 and any excess loss accounts
taken into income under Treasury Regulation ss.1.1502-19) on the Seller's
consolidated federal income Tax Returns for all periods through the Closing Date
and pay any federal income Taxes attributable to such income. Within thirty (30)
days of a written request therefor, the Companies will furnish Tax information
to Seller for inclusion in Seller's federal consolidated income Tax Return for
the period which includes the Closing Date in accordance with the Companies'
past custom and practice. Seller shall take no new position on such returns that
relate to the Companies or the Purchaser that would materially and adversely
affect the Companies or the Purchaser after the Closing Date. The income of the
Companies will be apportioned to the period up to and including the Closing Date
and the period after the Closing Date by closing the books of the Companies as
of the end of the Closing Date. The Seller shall retain all refunds for Taxes
relating to pre-Closing tax periods.
(b) Cooperation. At Seller's request, the Purchaser will cause any of the
Companies to join with the Seller in filing any necessary elections under
Treasury Regulation ss.1.1502-20(g).
Section 9.9.Observer Rights. During the Term, the Seller shall have the
right to designate an observer to the board of directors of each Company and the
board of managers of the Purchaser. The Purchaser shall, and shall cause each
Company to, take such corporate or other actions as are reasonably necessary to
give effect to the preceding sentence. Each observer so designated by the Seller
shall be entitled to participate in all meetings of the board of directors or
board of managers, and any committees thereof, of the Company and/or the
Purchaser to which such observer was designated.
Section 9.10 Third Avenue Lease Obligation Security Deposit. Upon the
latest to occur of (1) the indefeasible payment in full and in cash of the Note,
(2) the indefeasible payment in full and in cash of the payments in respect of
the Earnout, and (3) the indefeasible payment in full and in cash of the Payoff
Amount, Purchaser shall furnish Seller with a security deposit (the "Security
Deposit") in support of the then remaining Third Avenue Lease Obligations in an
amount equal to: the product of (a) forty percent (40%) multiplied by (b) the
then current monthly rental rate multiplied by (c) one-third (1/3) of the then
remaining monthly lease payments due under the Third Avenue Lease up to a
maximum of 36 monthly payments. Seller shall hold the Security Deposit in an
interest bearing escrow account for the benefit of Purchaser such as a
subtenant/tenant of a portion of the Third Avenue Lease premises. The Security
Deposit shall not be deemed pre-paid rent and shall be held in escrow by the
Seller pursuant to an escrow arrangement the terms of which shall be mutually
satisfactory to both the Seller and the Purchaser.
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Section 9.11 Financial Statements.
(a) Monthly Financial Information. As soon as available and in any event
within thirty (30) days after the end of each calendar month, the Purchaser
shall deliver to the Seller a consolidated balance sheet as at the end of such
calendar month, a consolidated statement of income for such calendar month, and
a consolidated statement of changes in working capital for such calendar month,
all prepared in accordance with generally accepted accounting principles
consistently applied.
(b) Quarterly Financial Information. As soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter of the
Purchaser, the Purchaser shall deliver to the Seller the following consolidated
unaudited statements prepared in accordance with generally accepted accounting
principles consistently applied: (1) a balance sheet as at the end of such
quarter, a statement of income for such quarter, and a statement of changes in
working capital for such quarter; and (2) for the period from the beginning of
the then current fiscal year through the end of such quarter, a statement of
income and a statement of changes in working capital, in each case, setting
forth in incorporative form the figures for the same period during the prior
fiscal year.
(c) Year-End Financial Information. As soon as available and in any event
within ninety (90) days after the end of each fiscal year of the Purchaser, the
Purchaser shall deliver to the Seller a consolidated balance sheet as at the end
of such fiscal year, a consolidated statement of income for such fiscal year, a
consolidated statement of shareholders' equity as at such fiscal year's end, and
a consolidated statement of changes in working capital for such fiscal year, all
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in each case in incorporative form the
figures for the previous fiscal year. Such financial statements shall be
reviewed by an accounting firm or independent certified public accountant.
Article X
MISCELLANEOUS
Section 10.1 Entire Agreement; Amendments; No Waivers. This Agreement,
together with the Note and the instruments and agreements to be executed
pursuant to this Agreement, 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 and with respect to any
waiver or modification, in whole or in part, of any provision of this Agreement
the written consent of a majority of the Lenders shall be required in addition
to the 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.
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Section 10.2 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 a recognized 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, however, that any notice of
change of address or facsimile number shall be effective only on receipt.
If to the Seller: with a copy to (which shall not
constitute notice to Seller):
Headway Corporate Resources, Inc. Salans
317 Madison Avenue 620 Fifth Avenue
New York, New York 10017 New York, New York 10020
Attention: Barry Roseman Attention: Richard B. Salomon, Esq.
Fax No.: (212) 672-6699 Fax No.: (212) 632-5555
If to the Purchaser: with a copy to (which shall not
constitute notice to Purchaser):
Whitney Group, LLC
850 Third Avenue Morrison Cohen Singer & Weinstein LLP
New York, New York 750 Lexington Avenue
Attention: Gary Goldstein New York, New York 10022
Fax No.: (212) 508-3540 Attention: Jeffrey P. Englander, Esq.
Robert Londin, Esq.
Fax No.: 212-735-8708
Section 10.3 Further Assurances. Whenever reasonably requested to do so by
a party to this Agreement, on or after the Closing Date, the other party shall
do, execute, acknowledge and deliver all such acts, assignments, confirmations,
consents and any and all such further instruments and documents, in form
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 the Purchaser all of the right, title and interest of the
Seller in the Shares being conveyed to the Purchaser hereunder and the Business
Assets being conveyed to the Purchaser and/or the Companies pursuant to Section
3.4.
Section 10.4 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, except that the Seller may assign
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its rights or delegate its obligations under this Agreement to a Lender or the
Lenders without the written consent of the other parties.
Section 10.5 Expenses. Except as otherwise expressly provided herein or in
the Note, 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 behalf incident to the preparation, execution and delivery of this
Agreement and the Note and the performance of such party's obligations hereunder
and thereunder, 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.
Section 10.6 Brokers and Finders. Each party represents to the other 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.
Section 10.7 Governing Law; Jurisdiction.
(a) 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.
(b) Each of the parties hereby consents to the exclusive jurisdiction of
any state or federal court located within the County of New York, State of New
York and irrevocably agrees that, subject to the specific provisions of this
Agreement providing for alternative dispute resolution, all actions or
proceedings arising out of or relating to this Agreement shall be litigated in
such courts. Each of the parties accepts for each of itself and in connection
with its properties, generally and unconditionally, the exclusive jurisdiction
of the aforesaid courts and waives any defense of forum non convenience, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. All fees and expenses of any proceeding with respect to a
dispute under this Agreement shall be borne by the non-prevailing party. The
non-prevailing party to a proceeding shall bear its own expenses, all court and
administrative fees arising in connection therewith, and the expenses, including
without limitation, attorneys' fees and costs, reasonably incurred by the other
party to the proceeding.
Section 10.8 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 7, including, without limitation, the scope of the territorial and time
restrictions, are reasonable and necessary to protect and preserve the
legitimate interests of the Purchaser and the Seller, as applicable. If the
provisions of Section 7 are held by a court of competent jurisdiction to be in
any respect unreasonable, then such court may reduce the territory or time to
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which they pertain or otherwise modify such provisions to the extent necessary
to render such provisions reasonable and enforceable.
Section 10.9 Counterparts. Telefacsimile transmissions of any executed
original counterpart signature page to this Agreement and/or retransmission of
any executed telefacsimile transmission shall be deemed to be the same as the
delivery of an executed original. At the request of any party hereto, the other
parties hereto shall confirm telefacsimile transmissions by executing duplicate
original documents and delivering the same to the requesting party or parties.
This Agreement may be executed in any number of counterparts and by the parties
hereto in separate counterparts, each of which when so executed shall be deemed
to be an original and all of which taken together shall constitute one and the
same agreement.
Section 10.10 Construction. Headings used in this Agreement are for
convenience only and shall not be used in the interpretation of this Agreement.
References to Sections, Schedules and Exhibits are to the sections, schedules
and exhibits 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.
Section 10.11 No Third Party Beneficiaries. Except as specifically set
forth or referred to herein, nothing herein is intended or shall be construed to
confer upon any person or entity other than the parties hereto and their
successors or assigns, any rights or remedies under or by reason of this
Agreement. The Purchaser acknowledges that, after giving effect to the release
of the liens and security interests of the Lenders in the Shares and the
Business Assets, the Seller's rights and interests under this Agreement
(including, without limitation, the liens and security interest) are subject to
the liens and security interests of the Lenders under the Credit Agreement and
related collateral documents.
Section 10.12 Publicity. Except as may be required by law, no publicly
released announcement, filing or press release concerning this Agreement or the
transactions contemplated hereby shall be issued without advance approval of the
form and substance thereof by Purchaser and the Seller, jointly, which approval
shall not be unreasonably withheld or delayed by either the Purchaser or the
Seller (it being understood that such approval right shall extend to Seller's
Forms 8-K, if any, and exhibits thereto to be filed as a result of this
Agreement and the transactions contemplated hereby, and any amendments thereto).
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
HEADWAY CORPORATE RESOURCES, INC.
By: /s/
WHITNEY GROUP, LLC
/s/
Solely with respect to Sections
7.3, 7.5 and 7.6 above:
/s/ Gary S. Goldstein
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