<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
- ---
OF 1934
For the quarterly period ended June 30, 1997
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-21485
SUPERIOR CONSULTANT HOLDINGS CORPORATION
(exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-3306717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Town Center, Suite 1100 Southfield, Michigan 48075
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248 ) 386-8300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
As of July 30, 1997, 7,634,325 shares of the registrants common stock (par
value $.01) were outstanding.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION
QUARTER ENDED JUNE 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 3
30, 1997 and December 31, 1996 (unaudited)
Condensed Consolidated Statements of Operations 4
for the three and six months ended June 30, 1997
and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
for the six months ended June 30, 1997 and
1996 (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
-------- -----------
<S> <C> <C>
Current assets
Cash $ 383 $ 2,076
Short-term investments 31,596 34,554
Accounts receivable, net 10,554 9,918
Prepaid Taxes 67 0
Accrued interest receivable and prepaid expenses 377 456
-------- -------
Total current assets 42,977 47,004
Property and equipment, net 4,055 2,598
Deferred income taxes 89 0
Goodwill, net 4,872 0
-------- -------
Total Assets $ 51,993 $49,602
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,568 $ 2,271
Accrued liabilities 3,539 3,235
Deferred revenue 1,118 1,286
Income taxes payable - 584
-------- -------
Total current liabilities 6,225 7,376
Deferred income taxes - 198
Deferred performance bonuses 580 580
Stockholders' equity
Preferred stock; authorized, 1,000,000 shares of
$.01 par value; no shares issued or outstanding - -
Common stock; authorized, 30,000,000 shares of
$.01 par value; issued and outstanding, 7,634,325 as of
June 30, 1997 and 7,559,735 as of December 31, 1996 76 76
Additional paid-in capital 42,548 40,986
Retained earnings 3,262 1,084
Stockholders' notes receivable (698) (698)
-------- -------
Total stockholders' equity 45,188 41,448
-------- -------
Total Liabilities and Stockholders' Equity $ 51,993 $49,602
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 14,013 $ 8,385 $ 25,974 $ 16,547
Costs and expenses
Cost of services 7,067 4,273 12,963 8,197
Selling, general and administrative expenses 5,328 3,172 9,925 6,250
Executive compensation expense 221 1,164 444 2,600
--------- --------- -------- --------
Total costs and expenses 12,616 8,609 23,332 17,047
--------- --------- -------- --------
Earnings (loss) from operations 1,397 (224) 2,642 (500)
Other income, principally interest income 425 5 976 6
--------- --------- -------- --------
Earnings (loss) before income taxes 1,822 (219) 3,618 (494)
Income taxes 730 - 1,440 13
--------- --------- -------- --------
Net earnings (loss) $ 1,092 $ (219) $ 2,178 $ (507)
========= ========= ======== ========
Net earnings per share $ 0.14 - $ 0.28 -
========= ========
Pro forma earnings data
Loss before income taxes, as reported $ (219) $ (494)
Adjustment for executive compensation expense 899 2,070
--------- --------
Pro forma earnings before income taxes 680 1,576
Pro forma income tax expense 269 625
--------- --------
Pro forma net earnings $ 411 $ 951
========= ========
Pro forma net earnings per share $ 0.09 $ 0.20
Weighted average number of common ========= ========
and common equivalent shares outstanding 7,752 4,824 7,688 4,824
========= ========= ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,178 $ (507)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation 450 204
Amortization of goodwill 97 -
Bad debt expense 157 59
Deferred income taxes (287) (17)
Changes in operating assets and liabilities:
Accounts receivable (793) (1,799)
Accrued interest receivable and prepaid expenses 79 (51)
Accounts payable (703) (72)
Accrued liabilities 304 2,270
Deferred revenue (168) (526)
Income taxes payable (651) 30
--------- ------
Net cash provided by (used in) operating activities 663 (409)
Cash flows used in investing activities:
Purchase of The Kaufman Group (3,407) -
Purchases of property and equipment (1,907) (479)
--------- ------
Net cash used in investing activities (5,314) (479)
Cash flows from financing activities:
Proceeds from lines of credit, net - 630
Repayment of note payable to stockholder - (83)
Principal payments on stockholders' notes receivable - 1
--------- ------
Net cash provided by financing activities - 548
--------- ------
Net decrease in cash (4,651) (340)
Cash and cash equivalents, beginning of period 36,630 455
--------- ------
Cash and cash equivalents, end of period $ 31,979 $ 115
========= ======
Supplemental disclosure of cash flow information:
Interest expense - $ 12
Income tax payments $ 2,374 $ 12
Non-cash acquisition costs (issuance of common stock
for The Kaufman Group) $ 1,600 -
</TABLE>
See notes to condensed consolidated financial statements.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals and estimated
provisions for bonus and profit-sharing arrangements) considered necessary for
a fair presentation have been included. Operating results for the three-month
and six-month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in the
Company's 1996 annual report on Form 10-K filed by the Company with the
Securities and Exchange Commission on March 31, 1997.
NOTE 2 - PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS
The following pro forma adjustments have been made to the 1996 historical
results of operations to make the presentation more comparable in relation to
1997's actual results:
(a) Elimination of executive compensation expense (including bonuses) in
excess of the amount that would have been paid had the compensation limiting
agreements, for the majority stockholder and two other executive officers,
which became effective concurrent with the closing of the Company's initial
public offering of common stock on October 16, 1996 ("IPO"), been effective
throughout such periods.
(b) Computation of federal income taxes assuming an effective tax rate of
40% for the three months and six months ended June 30, 1996, which would have
been recorded had one of the Company's subsidiaries, Superior Consultant
Company, Inc., been a C corporation and after eliminating the executive
compensation expense in (a).
NOTE 3 - PRO FORMA NET EARNINGS PER SHARE
Pro forma net earnings per share is computed based on the weighted average
number of shares of Common Stock outstanding during the respective periods, and
includes the dilutive effect of unexercised stock options using the treasury
stock method.
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NOTE 4 - ACQUISITION
Effective March 12, 1997, the Company purchased a healthcare consulting
business in California, The Kaufman Group, for $3.2 million in cash, $1.6
million of newly-issued common stock, and a maximum additional payment of $1.45
million in cash over a three-year period. The acquisition is recorded using
the purchase method of accounting. The entire purchase price has been
allocated to goodwill and will be amortized over 15 years.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share, which is effective
for financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The adoption of this new standard is not expected to have a material
impact on the disclosure of earnings per share in the financial statements. The
effect of adopting this new standard has not been determined.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. Forward-looking statements may
be identified by words including "anticipate," "believe," "intends,"
"estimates," "expect" and similar expressions. The Company cautions readers
that forward-looking statements, including without limitation, those relating
to the Company's future business prospects, revenues, working capital,
liquidity, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the SEC, including the risk factors identified in
the Company's Registration Statement on Form S-1 (File No. 333-10213).
The Company conducts business through its two wholly-owned operating
subsidiaries, Superior Consultant Company Inc. ("Superior") and Enterprise
Consulting Group ("Enterprise", formerly "Unitive Corporation"). Superior is a
leading healthcare consulting firm that provides a wide range of information
technology (IT) consulting and strategic and operations management consulting
services to a broad cross-section of healthcare industry participants and
healthcare information system vendors. Enterprise assists clients in various
industries in developing, designing, implementing and maintaining groupware and
intranet and web based information systems and solutions, as well as enterprise
messaging and custom applications and legacy systems integration.
The Company derives substantially all of its revenues from fees for
professional services, the substantial majority of which are billed at
contracted hourly rates. The Company establishes standard billing guidelines
based on the type and level of service offered. Actual billing rates are
established on a project by project basis and may vary from the standard
guidelines. Billings are typically made on a bi-weekly basis to monitor client
satisfaction and manage outstanding accounts receivable balances. Revenue on
time and materials contracts is recognized as the services are provided. A
portion of the Company's projects are billed on a fixed-fee basis, which is
distinguishable from the Company's general method of billing on a time and
materials basis. The Company recognizes revenue on fixed fee projects using
the percentage of completion basis. To date in 1997, the Company has increased
the number and size of projects billed on a fixed-fee basis. Increased use of
fixed-fee contracts subjects the Company to increased risks, including cost
overruns. To date in 1997, the Company has been awarded two significant
contracts to provide healthcare IT outsourcing services. There can be no
assurance that the Company will be able to achieve profit margins on
outsourcing contracts which are consistent with its historical levels of
profitability.
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The Company's historical revenue growth is attributable to various factors,
including an increase in the number of projects for existing and new clients,
and expanded geographic presence. In addition, the Company seeks to increase
revenues by expanding its range of specialty services. The Company manages its
client development efforts through several strategic services groups, each
having specific geographic responsibility and focus.
The Company's most significant expense is cost of services, which consists
primarily of consultant salaries and benefits. In recent years, consultant
compensation expense has grown faster than consultant billing rates, resulting
in an increase in the Company's cost of services as a percentage of revenues.
The Company has sought to address this issue by adding an additional variable
portion of compensation payable upon the achievement of measurable performance
goals.
The Company's cost of services as a percentage of revenues is also impacted
by its consultant utilization. The Company manages utilization by monitoring
project requirements and timetables. The number of consultants assigned to a
project will vary according to the size, complexity, duration and demands of
the project. Project terminations, completions and scheduling delays may
result in periods when consultants are not fully utilized. An unanticipated
termination of a significant project could cause the Company to experience
lower consultant utilization, resulting in a higher than expected number of
unassigned consultants. In addition, the establishment of new practice areas
and the hiring of consultants in peak hiring periods have resulted in periods
of lower consultant utilization (and resulting downward pressure on margins)
until project volume increases in these new areas. In the future, the
establishment of new practice areas, as well as further geographic expansion,
could from time to time adversely affect utilization. Variations in consultant
utilization would result in quarterly variability of the Company's cost of
services as a percentage of revenues. The Company's consultants are generally
employed on a full-time basis, and therefore the Company will, in the short
run, incur substantially all of its employee-related costs even during periods
of low utilization.
Selling, general and administrative expenses include the costs of
recruiting, continuing education, marketing, facilities, equipment
depreciation, and administration, including compensation and benefits.
Selling, general and administrative expenses as a percentage of total revenues
has decreased over the past three full fiscal years as the Company has
leveraged its infrastructure expense across its growing revenue base.
Prior to the IPO, executive compensation expense consisted of salaries,
formula bonuses and discretionary bonuses paid to the majority stockholder and
two other key executives. The Company's historical levels of executive
compensation were related primarily to the Company's status as a Subchapter S
corporation and period to period increases in executive compensation expense
were related primarily to the Company's period to period earnings growth. The
Company has entered into agreements with these individuals effective upon the
closing of the IPO through December 31, 1997, which provide maximum annual
compensation in an aggregate amount of $1,060,000 for these three key
executives, comprised of base salary, and bonus amounts to be awarded based on
the attainment of certain financial performance criteria. The foregoing
compensation arrangements for these three officers did not apply to amounts
paid on or prior to the closing of the IPO.
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The pro forma statement of operations data reflects an adjustment for
executive officer compensation for the three months and six months ended June
30, 1996 to eliminate the amount by which key executive compensation paid in
such periods was in excess of the estimated compensation that would have been
paid under the recently adopted executive compensation agreements, as if such
agreements were in place throughout such periods. The estimated amount payable
under the executive compensation agreements was calculated by assuming the
payment to the executive officers of their base salaries plus 100% of their
potential bonus for the applicable period.
From January 1, 1987 to October 9, 1996 Superior was treated as a
Subchapter S corporation for federal income tax purposes under Subchapter S of
the Internal Revenue Code and for certain state income tax purposes. As a
result, substantially all of the income of Superior during this period was
taxed directly to its stockholders rather than Superior. In addition, prior to
January 1, 1995, Enterprise was taxed as a Subchapter S corporation and
thereafter as a Subchapter C corporation. Since the IPO, the Company, Superior
and Enterprise were subject to corporate federal income taxation on a
consolidated basis as Subchapter C corporations.
The pro forma statement of operations data reflects an adjustment to
federal income taxes for the three months and six months ended June 30, 1996,
assuming Superior had been operating as a C corporation during such periods,
and reflects an effective tax rate of 40.0%, after giving effect to the
executive officer compensation expense adjustments.
In connection with the termination of Superior's S corporation status, in
the fourth quarter of 1996 the Company recorded deferred income taxes of
approximately $130,000 in accordance with Statement of Financial Accounting
Standards No. 109," Accounting for Income Taxes." This income tax expense was
in addition to income tax expense otherwise incurred in such quarter and was
incurred upon termination of the Company's S corporation status.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues. Revenues increased by $5.6 million, or 67.1%, to $14.0 million
for the three months ended June 30, 1997, as compared to $8.4 million for the
three months ended June 30, 1996. The revenue increase was due primarily to
continued strong growth in core lines of business, as well as a full quarter of
activity from the two new outsourcing contracts and The Kaufman Group, all of
which closed in the first quarter of 1997.
Cost of Services. Cost of services increased by $2.8 million, or 65.4%,
to $7.1 million for the three months ended June 30, 1997, as compared to $4.3
million for the three months ended June 30, 1996. The increase was due to the
hiring of additional consultants required to support the Company's revenue
growth, as well as the costs of services associated with the two new
outsourcing agreements and The Kaufman Group activity. Cost of services as a
percentage of revenue decreased to 50.4% for the three months ended June 30,
1997, as compared to 51.0% for the three months ended June 30, 1996. This
slight reduction was caused by an increase in average consultant utilization
due to the activity associated with the two new outsourcing agreements.
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
(CONTINUED)
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $2.1 million, or 68.0%, to $5.3 million
for the three months ended June 30,1997, as compared to $3.2 million for the
three months ended June 30, 1996. This increase was due to incentive and other
compensation expenses associated with the addition of key personnel during the
first quarter in the areas of business development, outsourcing, and legal
services to pursue the Company's multi-faceted growth strategies, as well as
higher recruiting and training expenses consistent with the Company's growth.
Selling, general and administrative expenses as a percentage of revenues
increased slightly to 38.0% from 37.8% primarily due to the inclusion of
goodwill amortization related to the acquisition of The Kaufman Group.
Executive compensation expense. Executive compensation expense decreased
by $943,000 to $221,000 for the three months ended June 30, 1997, as compared
to $1,164,000 for the three months ended June 30, 1996. As discussed
previously, prior to the IPO, the Company's historical levels of executive
compensation were related primarily to the Company's status as a Subchapter S
corporation and executive compensation expense was related primarily to the
Company's earnings.
Other income. Other income increased by $420,000 to $425,000 for the
three months ended June 30, 1997, as compared to $5,000 for the three months
ended June 30, 1996. This increase was due primarily to interest earned on the
investment of the majority of the net proceeds of approximately $39.7 million
from the IPO in October, 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues increased by $9.5 million, or 57.0%, to $26.0 million
for the six months ended June 30, 1997, as compared to $16.5 million for the
six months ended June 30, 1996. The revenue growth was due primarily to strong
growth in core lines of business, and activity associated with both the two
new outsourcing contracts and The Kaufman Group.
Cost of Services. Cost of services increased by $4.8 million, or 58.1%, to
$13.0 million for the six months ended June 30, 1997, as compared to $8.2
million for the six months ended June 30, 1996. The increase was due to the
hiring of additional consultants required to support the Company's revenue
growth, as well as the costs of services associated with the two new
outsourcing agreements and The Kaufman Group activity. Cost of services as a
percentage of revenue increased to 49.9% for the six months ended June 30,
1997, as compared to 49.5% for the six months ended June 30, 1996. This
increase is attributable to the increase in the Company's consultant base which
grew by approximately 40% during the first six months of 1997. This resulted
in slightly lower consultant utilization during start-up, which was partially
offset by the variable portion of compensation payable to these consultants,
which is contingent upon achievement of measurable performance goals.
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
(CONTINUED)
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.6 million, or 58.8%, to $9.9 million
for the six months ended June 30,1997, as compared to $6.3 million for the six
months ended June 30, 1996. This increase was due to incentive and other
compensation expenses associated with the addition of key personnel during the
first quarter in the areas of business development, outsourcing, and legal
services to pursue the Company's multi-faceted growth strategies, as well as
higher recruiting and training expenses consistent with the Company's growth.
Selling, general and administrative expenses as a percentage of revenues
increased to 38.2% for the six months ended June 30, 1997, as compared to 37.8%
for the six months ended June 30, 1996. This increase was due to the
inclusion of goodwill amortization relating to the acquisition of The Kaufman
Group.
Executive compensation expense. Executive compensation expense decreased by
$2,156,000 to $444,000 for the six months ended June 30, 1997, as compared to
$2,600,000 for the six months ended June 30, 1996. As discussed previously,
prior to the IPO, the Company's historical levels of executive compensation
were related primarily to the Company's status as a Subchapter S corporation
and executive compensation expense was related primarily to the Company's
earnings.
Other Income. Other income increased by $970,000 to $976,000 for the six
months ended June 30, 1997, as compared to $6,000 for the six months ended June
30, 1996. This increase was due primarily to interest earned on the investment
of the majority of the net proceeds of approximately $39.7 million from the IPO
in October, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the growth in working
capital required to support its growth in revenues. Prior to the IPO, the
Company's primary source of liquidity was cash flow from operations. The
Company believes that funds generated from operations, together with the
remaining proceeds received from its IPO and available credit under its bank
credit facility, will be sufficient to finance its working capital and capital
expenditure requirements for at least the next 12 months.
At June 30, 1997, the Company had cash and cash equivalents of $32.0
million and working capital of $36.8 million. Working capital at June 30, 1997
represents a decrease of $2.9 million from December 31, 1996 resulting
primarily from purchases of property and equipment and the acquisition of The
Kaufman Group in March, 1997.
The Company has an unsecured line of credit arrangement at Comerica Bank
N.A. of $3.0 million, which bears interest at the current prime rate. As of
June 30, 1997, the Company had no amounts outstanding under this line of credit
arrangement.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash provided by operating activities for the six months ended June 30,
1997 was $663,000, compared with net cash used in operations of $409,000 for
the six months ended June 30,1996. The increase in cash provided by operations
is primarily due to higher earnings before depreciation and goodwill in the
current period; partially offset by an increase in accounts receivable and
decreases in accounts payable and income taxes payable.
Net cash used in investing activities of $5.3 million during the six months
ended June 30, 1997 consists of additions to property and equipment and the
acquisition of The Kaufman Group.
Net cash provided by financing activities during the six months ended June
30, 1996 was principally the result of borrowings on the Company's lines of
credit to fund operations and purchases of property and equipment. There were
no cash flows from financing activities during the six months ended June 30,
1997.
The company does not believe that inflation has had a material effect on
the results of its operations in the past three years.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On May 14, 1997 the Company held its annual meeting of stockholders.
Stockholders of the Company voted in favor of the election of Douglas S. Peters
and Bernard J. Lachner to the Company's board of directors. Mr. Peters and Mr.
Lachner were each elected to serve a three-year term expiring at the Company's
annual meeting in 2000. In the election of Mr. Peters, 6,895,149 total votes
were cast in favor and 4,890 votes were withheld. In the election of Mr.
Lachner, 6,895,149 total votes were cast in favor and 4,890 votes were
withheld. In addition to Mr. Peters and Mr. Lachner, the other directors
serving on the Company's six-person board of directors are Donald Simborg, M.D.
and Reginald Ballantyne III (each with terms continuing until 1998), and Richard
Helppie, Jr. and Richard Saslow (each with terms continuing until 1999).
Item 5. Other Information
On July 29, 1997, the Company completed a business combination with COMSUL,
Ltd., a California corporation specializing in information systems,
telecommunications, and corporate facilities and organizational design for a
wide range of clients ("Comsul"). The business of Comsul will be combined with
the business of the Company's Enterprise Consulting Group, Inc. subsidiary. The
transaction was consummated as a merger involving the issuance of shares of the
Company's Common Stock having a value of approximately $8.3 million based on a
market trading average over a period ending immediately prior to the first
public announcement of the transaction on June 24, 1997. Reference is made to
the Agreement and Plan of Merger, a copy of which is filed as an exhibit hereto.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.17* Plan and Agreement of Merger, dated July 28, 1997, among
Superior Consultant Holdings Corporation, CMSL Acquisition
Corp., COMSUL, LTD., and certain shareholders of COMSUL, LTD.
27* Financial Data Schedule for the Quarter Ended June 30, 1997
99.2* Press Release dated July 29, 1997
(b) Form 8-K/A
The Company filed a Current Report on Form 8-K/A, dated May 27,
1997, relating to Form 8-K, dated March 26, 1997
announcing the acquisition by the Company's wholly-owned
subsidiary, Superior Consultant Company, Inc., of all the
outstanding securities of The Kaufman Group, a healthcare
consulting corporation organized under the laws of California.
The Current Report on Form 8 K/A included required financial
statements with respect to The Kaufman Group for the year ended
December 31, 1996 and pro forma financial information for the year
ended December 31, 1996 presenting the historical results of the
Company combined with The Kaufman Group and the pro forma
adjustments as if the acquisition had been made at the beginning
of the period presented.
___________________
* Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
Superior Consultant Holdings Corporation
Date August 6, 1997 By: /s/ Richard D. Helppie, Jr.
------------------ ---------------------------
Richard D. Helppie, Jr,
President, Chief Executive Officer
(Principal Executive Officer)
Date August 6, 1997 By: /s/ James T. House
------------------ ---------------------------
James T. House
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10.17 Plan and Agreement of Merger, dated July 28, 1997, among
Superior Consultant Holdings Corporation, CMSL
Acquisition Corp., COMSUL, LTD., and certain
shareholders of COMSUL, LTD.
27 Financial Data Schedule for the Quarter Ended June 30,
1997
99.2 Press Release dated July 29, 1997
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EXHIBIT 10.17
PLAN AND AGREEMENT OF MERGER
AMONG
SUPERIOR CONSULTANT
HOLDINGS CORPORATION, A
DELAWARE CORPORATION,
CMSL ACQUISITION CORP.,
A DELAWARE CORPORATION,
COMSUL, LTD.,
A CALIFORNIA CORPORATION,
AND
CERTAIN SHAREHOLDERS OF COMSUL, LTD.
DATED AS OF JULY 28, 1997
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PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "AGREEMENT") is made and entered
into as of July 28, 1997, by and among Superior Consultant Holdings
Corporation, a Delaware corporation ("SUPERIOR"), CMSL Acquisition Corp., a
Delaware corporation and a new wholly-owned, direct subsidiary of Superior
("ACQUISITION"), COMSUL, LTD., a California corporation ("COMSUL" or, the
"COMPANY"), and those shareholders of the Company identified on the signature
page hereto (individually, a "PRINCIPAL SHAREHOLDER" and collectively, the
"PRINCIPAL SHAREHOLDERS"). Superior, Acquisition, the Company and the
Principal Shareholders are sometimes referred to herein individually as a
"PARTY" and collectively as the "PARTIES."
RECITALS
A. The respective boards of directors of Superior, Acquisition and the
Company have approved the transactions contemplated hereby and have determined
that it is advisable and in their respective best interests to consummate the
merger described in Article 2 (the "MERGER").
B. As a result of the Merger, Acquisition will be merged with and into the
Company, all of the outstanding capital stock of the Company will be converted
into the right to receive Superior Common (as defined herein), and the Company
will be the surviving corporation, all on the terms and subject to the
conditions set forth in this Agreement.
C. For Federal income tax purposes, the Parties intend that the Merger
shall qualify as a reorganization within the meaning of Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code (as defined herein) and any comparable provision
of applicable foreign, state or local law.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the Parties hereby agree as follows:
1. DEFINITIONS
"ACTUAL KNOWLEDGE", when used herein, means in the case of an individual,
such individual's actual knowledge without investigation, and in the case of
the Company, the Actual Knowledge of its executive officers and vice
presidents.
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"AFFILIATE" means, with respect to any particular Person, any Person
controlling, controlled by or under common control with such Person, whether by
ownership or control of voting securities, by contract or otherwise.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504 of the Code.
"ADVERSE CONSEQUENCES" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, costs of defense,
judgments, orders, decrees, stipulations, injunctions, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities, Taxes,
Security Interests, losses, expenses, and fees, including all attorneys' fees
and court costs.
"AVERAGE STOCK PRICE" means $31.44.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"CGCL" means the California General Corporation Law.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission or any successor
agency.
"COMPANY COMMON" means the Company's Common Stock, par value $0.05 per
share.
"COMPANY OPTION" means an option to purchase Company Common.
"COMPANY SHARES DEEMED OUTSTANDING" means the sum of (i) the number of
shares of Company Common actually issued and outstanding as of the Effective
Time, plus (ii) the total shares of Company Common obtainable upon exercise of
all Company Options outstanding as of the Effective Time (whether or not then
vested or exercisable).
"CONFIDENTIAL INFORMATION" means any information concerning the businesses
and affairs of a Party other than any such information that (i) is generally
available to or known by the public immediately prior to the time of disclosure
(except through the actions or inactions of the Person to whom disclosure has
been made) or (ii) has been acquired or developed independent from such Party.
"DELAWARE GCL" means the General Corporation Law of the State of Delaware.
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"DETERMINATION DATE" means June 20, 1997, being the second trading day
prior to the first public announcement of the parties intent to complete the
transactions contemplated hereby.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any corporation or other business entity that is
included in a controlled group of corporations within which the Company is also
included, as provided in Section 414(b) of the Code; or which is a trade or
business under common control with the Company, as provided in Section 414(c)
of the Code; or which constitutes a member of an affiliated service group
within which the Company is also included, as provided in Section 414(m) of the
Code; or which is required to be aggregated with the Company pursuant to
Section 414(o) of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING COMPANY DOCUMENTS" means, collectively, the Employment
Agreements between the Company and each of the Principal Stockholders, and the
Corporate Buy-Sell Agreement, dated as of March 31, 1988, among the Company and
each of the Principal Stockholders.
"FINAL STOCK PRICE" shall mean the last sale price per share of Superior
Common as reported by the Nasdaq National Market on the date of the Closing.
"GAAP" means generally accepted accounting principles as in effect on the
date hereof applied consistently.
"INDEBTEDNESS" of any Person means all obligations of such Person which in
accordance with GAAP should be classified upon a balance sheet of such Person
as liabilities of such entity, and in any event, regardless of how classified
in accordance with GAAP, shall include (i) all obligations of such Person for
borrowed money or which have been incurred in connection with the acquisition
of property or assets, (ii) obligations secured by any Security Interest upon
property or assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations, (iii) obligations
created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person, notwithstanding the
fact that the rights and remedies of the seller, lender or lessor under such
agreement in the event of default are limited to repossession or sale of the
property, and (iv) that portion of capitalized lease obligations properly
classified as a liability on a balance sheet in accordance with GAAP.
"KNOWLEDGE" means, in the case of any individual, knowledge that a
reasonable person under similar circumstances would have after reasonable
investigation, and in the case of a corporation, the knowledge (under the same
standard as described immediately above) of the executive officers of the
corporation and, in the case of the Company, its executive officers and vice
presidents.
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"LIABILITY" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), obligation or Indebtedness, including, any liability for Taxes.
"MATERIAL ADVERSE EFFECT" means a material adverse effect or impact upon
the assets, financial condition, results of operations or business of the
Company or on the ability of the Parties to consummate the transactions
contemplated hereby.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business of the
Company, Superior, Acquisition or the Surviving Corporation, consistent with
past custom and practice of the Company, Superior, Acquisition or the Surviving
Corporation, respectively, as the context herein may require (including with
respect to quantity and frequency).
"PERSON" means any individual, trust, corporation, partnership, limited
partnership, limited liability company or other business association or entity,
court, governmental body or governmental agency.
"PLANS" means: (i) all employee benefit plans as defined in Section 3(3)
of ERISA; and (ii) all other severance pay, deferred compensation, excess or
supplemental benefit, vacation, stock, stock option, and incentive plans,
programs, funds, or arrangements of any kind; whether written or oral,
qualified or nonqualified, funded or unfunded, and including any that have been
frozen or terminated, which pertain to any employee, former employee, director,
officer, shareholder, consultant, or independent contractor of the Company or
any ERISA Affiliate of the Company and (a) to which the Company or any ERISA
Affiliate of the Company is or has been a party or by which any of them is or
has been bound or (b) with respect to which the Company or any ERISA Affiliate
of the Company has made any payments or contributions since December 31, 1990
(including any such plan or arrangement formerly maintained by the Company or
any ERISA Affiliate of the Company).
"PRO RATA PERCENTAGE" means, with respect to each Principal Shareholder,
the percentage equivalent of a fraction, the numerator of which shall be the
number of shares of Superior Common issued to such Principal Shareholder in the
Merger, and the denominator of which shall be all shares of Superior Common
issued to the Principal Shareholders in the Merger.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security interest, charge,
lien or other encumbrance or right of any third party, other than the
following: (i) liens for Taxes and assessments or governmental charges or
liens securing claims or demands of mechanics and materialmen that, in each
case, are not yet due and payable or that are being contested in good faith
(provided that, with respect to such liens, claims or demands that are being
contested, adequate reserves therefor have been established on the Latest
Balance Sheet); and (ii) liens
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incidental to the conduct of business or the ownership of assets in the
Ordinary Course of Business (e.g., statutory, landlords' liens) and deposits,
pledges or liens to secure the performance of statutory obligations or made
under worker compensation laws, unemployment insurance laws or similar
legislation or to secure the payment of contested Taxes, incurred, in each
case, in the Ordinary Course of Business and not in connection with the
borrowing of money.
"SUBSIDIARY" means any corporation, limited liability company, limited
partnership, partnership, trust or other entity with respect to which another
person has the power, directly or indirectly through one or more
intermediaries, to vote or direct the voting of sufficient securities or
interests to elect a majority of the directors or management committee or
similar governing body.
"TAX" or "TAXES" means any Federal, state, local, or foreign income, gross
receipts, licenses, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"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.
"SUPERIOR COMMON" means the Common Stock, par value $0.01 per share, of
Superior.
"VALUATION PER COMPANY SHARE" shall equal the dollar amount per share
resulting when the sum of (a) $8,370,124.58 is divided by the aggregate number
of Company Shares Deemed Outstanding and rounded to the nearest $.01.
INDEX TO OTHER DEFINED TERMS
----------------------------
Term Section Reference
---- -----------------
Acquiring Parties 5.5(b)
Acquisition Introduction
Agreement Introduction
Agreement of Merger 2.1
California Department 2.2
Certificates 2.9
Company Introduction
COMSUL Introduction
COMSUL One Year Representations 5.5(a)
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COMSUL Indemnifiable Losses 5.5(d)
COMSUL Disclosure Schedule 3.1
Certificate of Merger 2.2
Closing 2.3
Deductible 5.5(c)(i)
Delaware Department 2.2
Effective Time 2.2
Employment Agreements 4.1(f)
Enterprise 4.1(f)
Exchange Agent 2.9
Exchange Ratio 2.7(a)
Financial Statements 3.2(f)(i)
Indemnified Party 5.5(f)
Indemnifying Party 5.5(f)
Latest Balance Sheet 3.2(f)(i)
Latest Balance Sheet Date 3.2(h)
Lock-up Period 5.2(e)
Material Fixed Rate Engagement 3.2(l)(i)
Merger Recitals
Merger Agreement 3.1(e)
Most Recent Fiscal Year End 3.2(f)(i)
Option Holders 3.2(d)
Party Introduction
Pending Claims 5.5(g)
Pre-collected Revenue 3.2(l)(i)
Principal Shareholder(s) Introduction
Proprietary Rights 3.2(k)
Prospective Client 5.4(b)
Pension Plan 3.2(q)
Property Leases 3.2(j)(ii)
Registration Agreement 4.1(l)
Released Parties 5.3
Releasing Parties 5.3
Restricted Period 5.4(b)
Related Agreement 3.1(b)
Shareholder Individual Representations 5.5(b)
Substituted Option Introduction
Superior Introduction
Superior Option 5.1
Survival Period 5.5(a)
Surviving Corporation 2.4(a)
Superior SEC Reports 3.3(f)
Superior Preferred Stock 3.3(g)(i)
Superior Adverse Effect 3.3(c)
Superior Indemnifiable Losses 5.5(b)
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Superior Financial Statement 3.3(f)
Superior Representations 5.5(a)
Third Party Claims 5.5(f)(i)
Unpaid Claims 5.5(g)
Value 5.5(g)
Welfare Plans 3.2(q)(iii)
2. - THE MERGER
2.1. In connection with the Merger, the respective boards of directors and
shareholders of Acquisition and the Company have, approved this Agreement as
the Plan of Reorganization within the meaning of Sections 354, 361 and 368(a)
of the Code, as an "AGREEMENT OF MERGER" with the meaning of Section 1101 of
the CGCL and as a "merger" within the meaning of Section 252 of the Delaware
GCL.
2.2. Certificate of Merger. Subject to the provisions of this Agreement,
an executed copy of this Agreement, certified by a president or any vice
president and the secretary or assistant secretary of each of Acquisition and
the Company in accordance with Section 1103 of the CGCL, and a certificate of
merger prepared in accordance with Section 252 of the Delaware GCL
(collectively, the "CERTIFICATES OF MERGER"), shall be duly prepared, executed
and acknowledged by the Company, Acquisition and such other parties as may be
appropriate, and thereafter the applicable Certificate of Merger shall be
delivered to the Secretary of State of the State of California (the "CALIFORNIA
DEPARTMENT"), as provided in Section 1103 of the CGCL, and the Secretary of
State of the State of Delaware (the "DELAWARE DEPARTMENT"), in each case for
filing as soon as practicable on or after the date on which the Closing occurs.
The Merger shall become effective on the date and at the time of the acceptance
of the respective Certificates of Merger by the California Department and
Delaware Department or at such time thereafter as is provided in the
Certificate of Merger (the "EFFECTIVE TIME").
2.3. Closing. The closing of the Merger (the "CLOSING") will take place
commencing at 10:00 a.m. on July 28, 1997, or as soon as practicable after the
closing conditions set forth in Article 5 have been met or waived as provided
in Article 5, at the offices of Sachnoff & Weaver, Ltd., 30 South Wacker Drive,
Chicago, Illinois, unless another time, date or place is agreed to by the
Parties.
2.4. Effects of the Merger.
(a) At the Effective Time, the separate corporate existence of Acquisition
shall cease and Acquisition shall be merged with and into the Company and the
Company., as the surviving corporation in the Merger (the "SURVIVING
CORPORATION"), under the name "Comsul, Ltd." shall continue its corporate
existence under the laws of the State of California.
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(b) At and after the Effective Time, the Merger will have the effects set
forth in the applicable provisions of Articles 11 and 12 of the CGCL, and
Sections 258 through 260 of the Delaware GCL.
2.5. Articles of Incorporation and Bylaws. The Articles of Incorporation
of the Company, as in effect immediately prior to the Effective Time, shall
remain the Articles of Incorporation of the Surviving Corporation immediately
after the Effective Time and shall thereafter continue to be its Articles of
Incorporation until amended as provided therein and under the CGCL. The ByLaws
of Acquisition, as in effect immediately prior to the Effective Time, shall
become the ByLaws of the Surviving Corporation immediately after the Effective
Time and shall thereafter continue to be its ByLaws until amended as provided
therein and under the CGCL.
2.6. Directors and Officers. The directors of Acquisition holding office
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation immediately after the Effective Time. The officers of Acquisition
holding office immediately prior to the Effective Time shall be the officers of
the Surviving Corporation immediately after the Effective Time.
2.7. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Acquisition, the Company or the
holders of any of the following securities, the following securities will be
converted in the manner set forth below:
(a) (i) Each share of Company Common which is issued and outstanding
immediately prior to the Effective Time (other than treasury shares and any
shares held by a shareholder who has notified the Company of such shareholder's
intent to exercise his or her right to dissent) shall be canceled and
extinguished and converted into and become a right to receive 0.15 shares of
Superior Common (which number (the "EXCHANGE RATIO") was determined by dividing
the Valuation Per Company Share by the Average Stock Price and rounding to the
nearest $0.01); provided, that if as the result of the conversion of the shares
of Company Common held by any shareholder of the Company upon consummation of
the Merger, a fractional interest in a share of Superior Common would be
deliverable under this Section 2.7(a), in lieu of a fractional share being
delivered therefor, such fractional interest shall automatically be converted
into the right to receive an amount in cash (without interest) equal to the
product of the last sale price of Superior Common as reported by the Nasdaq
National Market on the Determination Date, multiplied by the amount of such
fractional interest. No such holder will be entitled to dividends, voting
rights or any other rights as a shareholder in respect of any fractional share.
(b) Each share of Common Stock, par value $.01 per share, of Acquisition
issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable share of Common
Stock, par value $.01 per share, of the Surviving Corporation.
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(c) Each Company Option identified on Schedule 5.1 attached hereto shall
be converted into a Superior Option in accordance with the provisions of
Section 5.1(a) of this Agreement.
2.8. Closing of Company Transfer Books. Immediately prior to the Effective
Time, the stock transfer books of the Company shall be closed and no transfer
of shares of Company Stock shall thereafter be made or recognized. After the
Effective Time valid Certificates previously representing shares of Company
Common which are surrendered for exchange in accordance with this Agreement
shall be exchanged as provided in Sections 2.7(b) and 2.9.
2.9. Exchange of Certificates. Prior to the Effective Time, Superior shall
designate Harris Trust and Savings Bank to act as exchange agent in the Merger
(the "EXCHANGE AGENT"). As soon as practical after the Effective Time, the
Exchange Agent shall mail to each record holder of certificates that
immediately prior to the Effective Time represented shares of Company Common
("CERTIFICATES") the following: (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in a form and have such other provisions as Superior shall
reasonably specify), (ii) instructions for use in effecting the surrender of
the Certificates in exchange for the shares of Superior Common as specified in
this Agreement, and (iii) the notice of approval of the Merger and accompanying
statutory materials, information and instruction as required by Section 1301(a)
of the CGCL. Upon surrender of a Certificate for cancellation to the Exchange
Agent (either at or after the Closing, as applicable) together with such letter
of transmittal duly executed and such other documents as the Exchange Agent may
reasonably require, the Exchange Agent shall issue or pay, as applicable, to
such holder (a) a certificate or certificates representing the shares of
Superior Common to be issued to such holder with respect to the Company Common
formerly represented by such Certificate pursuant to Section 2.7(a), to be
delivered to or at the direction of such holder and, (b) in the case of payment
for any fractional interest in Superior Common, a check payable to the holder
with respect to the Company Common formerly represented by such Certificate.
Surrendered Certificates shall forthwith be canceled. Superior shall not be
obligated to deliver the consideration to which any former holder of Company
Common is entitled as a result of the Merger until such holder surrenders such
holder's Certificate or Certificates representing shares of Company Common for
exchange as provided in this Section 2.9; provided, however, that procedures
allowing for payment against receipt of customary and appropriate
certifications and reasonable indemnities, shall be provided with respect to
lost or destroyed Certificates. If any Certificate to be issued in the name of,
or directed to an account in the name of, a Person other than the Person in
whose name the Certificates are registered, it shall be a condition of the
exchange that the Certificate shall be properly endorsed or otherwise be in
proper form for transfer and that the Person requesting such exchange shall pay
to Superior any transfer or other Taxes required by reason of the issuance of
such Certificate and delivery of the Merger consideration to and in the name of
a Person other than the registered owner of the Certificates surrendered, or
shall establish to the satisfaction of Superior that such Tax has been paid or
is not applicable. Until so surrendered and exchanged, each such Certificate
shall represent solely the right to receive the shares of Superior Common to be
issued pursuant to Section 2.7(a) in
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exchange for the shares of Company Common represented by such surrendered
Certificate and the right to receive any fractional share payment to be paid
pursuant to Section 2.7(a), without interest, and Superior shall not be
required to instruct or permit the Exchange Agent to issue to such holder the
stock to which such holder otherwise would be entitled; provided, that
reasonable procedures allowing for payment against receipt of customary and
appropriate certifications and indemnities shall be provided with respect to
lost or destroyed Certificates.
2.10. Rights of the Company Shareholders. From and after the Effective
Time, the holders of shares of the Company Common issued and outstanding at the
Effective Time shall have no rights with respect to such shares other than to
surrender the Certificate or Certificates representing such shares pursuant to
Section 2.9.
2.11. Taking of Necessary Action; Further Action. Superior and Acquisition
on the one hand, and the Company and the Principal Shareholders, on the other
hand, shall use reasonable efforts to take all such action (including action to
cause the satisfaction of the conditions to the Merger) as may be necessary or
appropriate in order to effectuate the Merger as promptly as possible. If, at
any time after the Effective Time, any further action is necessary or desirable
to vest the Surviving Corporation with full possession of all the rights,
privileges, immunities and franchises of the Company and Acquisition, the
officers of the Surviving Corporation are fully authorized in the name of
either the Company or Acquisition or otherwise to take, and shall take, all
such action.
3. - REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Principal Shareholders. As a
material inducement to Superior and Acquisition to enter into this Agreement
and consummate the transactions contemplated hereby, each Principal Shareholder
hereby severally represents and warrants to Superior and Acquisition that all
of the statements contained in this Section 3.1 are correct and complete with
respect to such Principal Shareholder as of the date of this Agreement, except
as set forth in the schedule attached to this Agreement setting forth
exceptions to the representations and warranties set forth herein (the "COMSUL
DISCLOSURE SCHEDULE"):
(a) Such Principal Shareholder has valid title to the shares of Company
Common which are to be exchanged by such Principal Shareholder pursuant to this
Agreement, free and clear of any and all Security Interests, option or rights
of any nature. Section 3.2(d) of the COMSUL Disclosure Schedule sets forth a
true and correct description of all shares of Company Common owned by such
Principal Shareholder.
(b) Such Principal Shareholder has the full right, power and authority to
execute and deliver this Agreement and all other agreements entered into in
connection herewith by such Principal Shareholder, if any ("RELATED
AGREEMENTS"), to perform such Principal Shareholder's obligations hereunder and
thereunder, and to vote such Principal Shareholder's shares of Company Common
in favor of the Merger. This Agreement and the Related
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Agreements to which such Principal Shareholder is a party constitute the valid
and legally binding obligations of such Principal Shareholder enforceable
against such Principal Shareholder in accordance with their respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the rights of creditors generally and by general equitable
principals.
(c) Such Principal Shareholder is not a party to, subject to or bound by
any agreement or any judgment, order, writ, prohibition, injunction or decree
of any court or other governmental body which would prevent the execution or
delivery of this Agreement by such Principal Shareholder, such Principal
Shareholder's approval of the Merger or the conversion of such Principal
Shareholder's shares of Company Common pursuant to the Merger.
(d) All existing agreements between such Principal Shareholder and the
Company have been (or on or prior to the Effective Time will be) terminated and
such Principal Shareholder is not a party to, subject to or bound by any
agreement, commitment or understanding whatsoever between such Principal
Shareholder and the Company, except such as will be terminated on or prior to
the Effective Time;
(e) Such Principal Shareholder understands that: (i) the Superior Common
to be issued pursuant to the Merger has not been, and as of the Effective Time
will not be, registered under the Securities Act or under any state securities
laws; (ii) the Superior Common is being offered and issued in reliance upon
federal and state exemptions for transactions not involving any public
offering; (iii) a "stop transfer" order will be placed against the certificates
representing shares of Superior Common issued pursuant to the Merger; and (iv)
such certificates will (until such time as (A) the registration statement
initially required to be filed pursuant to the Registration Agreement has been
declared effective by the Commission (to the extent the Registration Statement
covers such shares), (B) such Superior Common is otherwise registered for
resale under the Securities Act or, an exemption is available under Rule 144
promulgated under the Securities Act under which all of the shares covered by
such certificate could be sold in a single transaction without registration, or
(C) if later, until the expiration of the Lock-Up Period (as defined in Section
5.2(e)), in addition to any legends required pursuant to the Registration
Agreement (as defined below), bear on their face the following legend:
"The shares evidenced by this certificate have not
been registered under the Securities Act of 1933, as
amended, or any applicable state securities laws. No
transfer or sale of these shares or any interest
therein may be made without such registration and
qualification unless the issuer has received an opinion
of counsel satisfactory to it that a proposed transfer
or sale does not require registration or qualification
under applicable law.
The shares evidenced by this certificate were issued
pursuant to an Agreement and Plan of Merger, dated as
of July 28, 1997, among the issuer, COMSUL, LTD., CMSL
Acquisition Corp. and the
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original holder of the such shares and certain other
parties (the "MERGER AGREEMENT"). A copy of the
Merger Agreement is on file at the offices of the issuer.
The Merger Agreement provides for, among other things,
certain restrictions upon transfer of the shares evidenced
by this certificate. By accepting such shares, the holder
agrees to be bound by all such transfer restrictions in
the Merger Agreement."
(f) Such Principal Shareholder further represents that: (i) such
Principal Shareholder is acquiring the Superior Common to be acquired by such
Principal Shareholder pursuant to the Merger solely for such Principal
Shareholder's own account for investment purposes and not with a view to the
distribution thereof within the meaning of the Securities Act; (ii) such
Principal Shareholder is a sophisticated investor with knowledge and experience
in business and financial matters; (iii) such Principal Shareholder has had
access to all Superior SEC Reports (as hereinafter defined) filed by Superior
during the current year and the year preceding the current year, and has had
the opportunity to obtain additional information and ask questions and receive
answers as desired in order to evaluate the merits and risks inherent in
holding the Superior Common; (iv) such Principal Shareholder has not been
offered the Superior Common by any form of general advertising or general
solicitation; and (v) such Principal Shareholder is able to bear the economic
risk and lack of liquidity inherent in holding the Superior Common. Such
Principal Shareholder further represents that he has no present plan or
intention to sell, exchange or otherwise dispose of a number of shares of
Superior Common to be received in the Merger that would reduce the Principal
Shareholders' collective ownership of Superior Common to a number of shares
having a value, as of the Effective Time, of less than fifty percent (50%) of
the value of all of the shares of Company Common outstanding as of the
Effective Time. In addition, each Principal Shareholder, represents that he
has no intention or binding commitment to sell any shares of the Superior
Common to be received in the Merger prior to the Lock-Up Period.
3.2. Representations and Warranties Concerning the Company. As a material
inducement to Superior and Acquisition to enter into this Agreement and
consummate the transactions contemplated hereby, the Company and the Principal
Shareholders hereby jointly and severally represent and warrant to Superior and
Acquisition that all of the statements contained in this Section 3.2 are
correct and complete as of the date of this Agreement, except as set forth in
the COMSUL Disclosure Schedule. The COMSUL Disclosure Schedule will be
arranged in sections corresponding to the numbered and lettered sections
contained in this Section 3.2.
(a) Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate power
and authority to carry on the business in which it is engaged and to own and
use the properties owned and used by it. True and correct copies of the
Company's Articles of Incorporation and By-Laws, in each case as amended to
date, have been delivered to Superior. The Company is qualified to conduct
business and is in good
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standing under the laws of each jurisdiction wherein the nature of its business
or its ownership of property requires it to be so qualified, except where the
failure to be so qualified, would not individually or in the aggregate, have a
Material Adverse Effect. Section 3.2(a) of the COMSUL Disclosure Schedule
lists all jurisdictions in which the Company is qualified to do business.
(b) Authorization of Transaction. The Company has all requisite corporate
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. Without limiting the generality of the prior sentence,
the Board of Directors and the shareholders of the Company have duly authorized
the execution, delivery and performance of this Agreement and the consummation
of the Merger by the Company (and all applicable notice requirements of Section
603 of the CGCL with respect to such approval have been satisfied). This
Agreement constitutes the valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the rights of creditors generally and by general equitable
principals..
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will
(i) to the Knowledge of the Company and each of the Principal Shareholders
(based on discussions with counsel to the Company), violate or conflict in any
way with any applicable statute, regulation, law, rule or common law doctrine,
(ii) violate or conflict in any way with any judgment, order, decree,
stipulation, injunction, charge or other restriction of any governmental body,
governmental agency or court to which the Company is subject or any provision
of the Articles of Incorporation or By-Laws of the Company, or (iii) conflict
with, result in a breach of, constitute a default under (with or without notice
or lapse of time, or both), result in the acceleration of, create in any party
the right to accelerate, terminate, modify or cancel, or require any notice
under, or result in the creation of any Security Interest upon any of the
Company's assets pursuant to the terms of, any contract, agreement, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement for
borrowed money, instrument of indebtedness, Security Interest or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets are subject. Except as disclosed in Section 3.2(c) of the
COMSUL Disclosure Schedule or as otherwise have been obtained prior to the date
hereof, the Company is not required to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government,
governmental agency or court, or any other Person in order for the parties to
consummate the Merger and the transactions contemplated by this Agreement and
in order that the Merger and such transactions not constitute a breach or
violation of, or result in a right of termination or acceleration or any
encumbrance on any of the Company's assets pursuant to the provisions of, any
agreement, arrangement or understanding or any license, franchise or permit,
except for the filing of the applicable Certificates of Merger with the
California Department and Delaware Department.
(d) Capitalization. The authorized capital stock of the Company consists
of (A) 4,000,000 shares of Company Common, of which 1,731,463 shares are issued
and outstanding on the date hereof and 65,702 shares are reserved for issuance
under options currently
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<PAGE> 15
outstanding. Set forth on Section 3.2(d) of the COMSUL Disclosure Schedule is
(i) the names and address (and with respect to the Principal Shareholders,
social security number) of each owner of record of issued and outstanding
shares of Company Common, (ii) the number of shares of Company Common owned of
record by each such shareholder and the certificate numbers of the stock
certificates representing such shares, (iii) the name, current address and
social security number of each of the holders of outstanding options to acquire
shares of Company Common (collectively, the "OPTION HOLDERS"), (iv) with
respect to each Option Holder, the number of Company Options held by such
holder, the number of shares of Company Common subject to each such Company
Option and the exercise price, vesting schedule, if applicable, and expiration
date for each such Company Option, and (v) a list of all of the current
directors and officers of the Company. The Company has never authorized,
offered, sold or issued capital stock other than the Company Common. To the
Knowledge of each of the Company and the Principal Shareholders (with respect
to all shares other than those held by the Principal Shareholders, with respect
to which this representation is absolute and made without regard to when such
shares were issued), all offerings, sales and issuances by the Company of any
Company Common within the past five years have been conducted in compliance
with and in accordance with or in reliance upon exemptions from the
registration and qualification requirements all applicable federal and state
securities laws and all applicable state corporation laws. All of the issued
and outstanding shares of Company Common have been duly authorized and validly
issued and are fully paid, and nonassessable, and not subject to any preemptive
rights. Except for the Company Options described on Section 3.2(d) of the
COMSUL Disclosure Schedule there are no currently outstanding or authorized
options, warrants, contracts, rights of first refusal or first offer, calls,
puts, rights to subscribe, conversion rights, or other agreements or
commitments to which the Company is a party or which are binding upon the
Company providing for the issuance, disposition, or acquisition of any of its
capital stock or securities convertible or exchangeable for its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to the Company and, except as provided in
the Existing Company Documents, there are no contractual or statutory
preemptive rights or similar restrictions with respect to the issuance or
transfer of any shares of Company Common. To the knowledge each of the Company
and the Principal Shareholders, except as provided in the Existing Company
Documents, there are no voting trusts, proxies, or any other agreements,
restrictions or understandings with respect to the voting of any of the capital
stock of the Company, except for those agreements expressly contemplated
hereby.
(e) No Subsidiaries. The Company does not own or control any direct or
indirect equity interest or participation in any corporation, partnership,
limited liability company, trust, or other business association or Subsidiary.
(f) Financial Statements; Books and Records.
(i) The Company has provided Superior with the following financial
statements, copies of which are set forth on Section 3.2(f) of the COMSUL
Disclosure Schedule (collectively the "FINANCIAL STATEMENTS"): (A)
unaudited balance sheet and related statements of income, changes in
stockholders' equity and cash flows for the
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<PAGE> 16
Company) as of and for each of the fiscal years ended December 31, 1994,
1995 and 1996 (the "MOST RECENT FISCAL YEAR END"), and (B) the unaudited
balance sheet as of June 30, 1997 (the "LATEST BALANCE SHEET") and
related statement of income for the six months then ended. Except as set
forth in Section 3.2(f) of the COMSUL Disclosure Schedule, the Financial
Statements have been prepared in accordance with GAAP and fairly present
the financial condition and results of operations of the Company as of
the times and for the periods referred to therein, subject in the case of
the Latest Balance Sheet and related statements of income for the six
months then ended to normal year-end adjustments and the absence of
certain footnote information.
(ii) As of the date hereof, the tangible net worth of the Company
(determined in accordance with GAAP) is not less than the tangible net
worth of the Company set forth on the Latest Balance Sheet. The income
projections attached hereto as Schedule 3.3(f) for the business conducted
and to be conducted by the Company for the year ending December 31, 1997,
contain adequate accruals, for all compensation payable for the remainder
of 1997 to Persons who are employees of the Company as of the Efffective
Time ("EXISTING EMPLOYEES") and up to twenty six (26) new employees that
may be hired for the conduct of the business of the Company after the
Effective Time, based on the Company's existing compensation plans,
programs, agreements and arrangements and the reasonable expectations of
the Company's Existing Employees consistent with total compensation paid
by the Company for the fiscal year ended December 31, 1996.
(iii) Since January 1, 1994, the Company's books and records are and
have been properly prepared and maintained to fairly and accurately
reflect in all material respects all of the assets and Liabilities of the
Company and all contracts and transactions to which the Company is or was
a party or by which the Company or any of its business or assets is or
was affected. The corporate minute books of the Company, copies of which
have been made available to Superior, correctly reflect the minutes of
all meetings and actions by written consent of the directors (including
committees thereof) and the shareholders of the Company since October 1,
1995. Except as disclosed in Section 3.2(f)(iii) of the COMSUL
Disclosure Schedule, the stock transfer books and stock ledger of the
Company are complete and correctly reflect all issuances and transfers of
the capital stock of the Company.
(g) Recent Events. Since the Most Recent Fiscal Year End, the Company has
not experienced or suffered any Material Adverse Effect. Without limiting the
generality of the foregoing, except as set forth on the Latest Balance Sheet or
in Section 3.2(g) of the COMSUL Disclosure Schedule, since the date of the
Latest Balance Sheet, the Company has not done or committed to do any of the
following:
(i) sold, leased, transferred or assigned any of its assets,
tangible or intangible, other than in the Ordinary Course of Business;
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<PAGE> 17
(ii) accelerated, terminated, modified, canceled or committed any
breach of any contract, lease, sublease, license, or sublicense (or
series of related contracts, leases, subleases, licenses, and
sublicenses) either involving more than $25,000 or outside of the
Ordinary Course of Business;
(iii) canceled, compromised, waived, or released any right or claim
(or series of related rights and claims) either involving more than
$25,000 or outside of the Ordinary Course of Business;
(iv) experienced any damage, destruction, or loss to its property in
excess of $10,000 (whether or not covered by insurance);
(v) created or suffered to exist any Security Interest upon any of
its assets, tangible or intangible, outside the Ordinary Course of
Business in the aggregate in excess of $5,000;
(vi) issued, sold, or otherwise disposed of any of its capital
stock, or granted any options, warrants, or other rights to purchase or
obtain (including upon conversion or exercise) any of its capital stock,
or any securities convertible or exchangeable into any of its capital
stock;
(vii) declared, set aside, or paid any dividend or distribution with
respect to its capital stock (whether in cash or in kind) or redeemed,
purchased, or otherwise acquired any of its capital stock, other than the
spin-off of the Company's interest in WorkSmart, L.L.C. and Sweet Deal 1,
Inc.;
(viii) entered into any transaction, arrangement or contract with,
or distributed or transferred any property or other assets to, any
officer, director, shareholder or Affiliate of the Company (other than
salaries, bonus and commissions and employee benefits in the Ordinary
Course of Business under Plans disclosed and described on Section 3.2(q)
of the COMSUL Disclosure Schedule).
(ix) made or committed to make any capital expenditures,
individually in excess of $25,000 or in the aggregate in excess of
$100,000, or entered into any other material transaction outside the
Ordinary Course of Business.
(x) amended or modified in any respect any Plan (beyond any
amendments and modifications reflected in true and complete copies of
such Plans delivered to Superior);
(xi) entered into any employment agreement or collective bargaining
agreement or granted any increase in excess of $5,000 in the base salary
of any officer of the Company or paid or committed to pay any bonus to
any officer or employee outside the Ordinary Course of Business;
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<PAGE> 18
(xii) changed the manner in any material respect in which the
business has been conducted, including, without limitation, billing of
clients or collection of accounts receivable, purchases of goods and
services or payment of accounts payable;
(xiii) changed the accounting principles, methods or practices or
any change in the depreciation or amortization policies or rates; or
(xiv) changed the relationships with any client, contractor or
supplier which might reasonably be expected to result in a Material
Adverse Effect.
(h) Undisclosed Liabilities. The Company has no Liability except for (i)
Liabilities set forth on the face of the Latest Balance Sheet, (ii) Liabilities
which have arisen after the date of the Latest Balance Sheet (the "LATEST
BALANCE SHEET DATE") in the Ordinary Course of Business (none of which relates
to any breach of contract, breach of warranty, tort, infringement, or violation
of law or arose out of any charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand) and (iii) obligations to be performed
after the Effective Time (but not due before or arising out of breaches prior
to the Effective Time), under contracts, leases or other agreements expressly
disclosed in this Agreement or on the COMSUL Disclosure Schedule.
(i) Tax Matters. Except as set forth in Section 3.2(i) of the Comsul
Disclosure Schedule:
(i) The Company has filed all Tax Returns that it was required to
file on or prior to the date hereof (taking into account any and all
extensions). All such Tax Returns were correct and complete in all
material respects. The Company's Liability for unpaid Taxes, whether to
any governmental authority or to another Person such as under a tax
sharing agreement, for all periods ending on or before the Effective Time
do not exceed the amount of the Liability accruals for Taxes (excluding
reserves for deferred Tax assets or deferred Tax Liabilities established
to reflect timing differences between book and Tax income) on the Latest
Balance Sheet adjusted for the passage of time through the Effective Time
in accordance with the past practice and custom of the Company. Neither
the Company, nor any of the Principal Shareholders have received written
notice or have actual Knowledge of any claim made by an authority in a
jurisdiction where the Company does not file Tax Returns that the Company
is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax when due
except for Security Interests for ad valorem Taxes not yet delinquent.
(ii) The Company has withheld and paid when due all Taxes required
to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor, or other third party.
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(iii) Neither the Company nor any of the Principal Shareholders has
Actual Knowledge of any Basis on which any taxing authority could assess
any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the
Company either (A) claimed or raised by any taxing authority in writing
or (B) as to which any of the Principal Shareholders or the Company has
actual knowledge. The Company has previously provided to Superior
correct copies of all Federal, state, local, and foreign income Tax
Returns filed with respect to the Company for all taxable periods
beginning after December 31, 1993 and all personal property Tax Returns
filed with respect to the Company for the taxable years 1996 and 1997.
None of such Tax Returns have been audited, and none currently are the
subject of audit, and there are no examination reports or statements of
deficiencies assessed against or agreed to by the Company for such
taxable periods.
(iv) The Company has not filed a consent under Section 341(f) of the
Code concerning collapsible corporations. The Company has not made any
material payments, is not obligated to make any material payments, and is
not a party to any agreement that would obligate it to make any material
payments that will not be deductible under Section 280G of the Code. The
Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Sec. 897(c)(A)(ii) of the Code. Except for the
leases of real or personal property by or to the Company set forth in
Sections 3.2(j) and 3.2(l) of the Comsul Disclosure Schedule, the Company
is not a party to any tax allocation or sharing agreement. The Company
never has been a member of an Affiliated Group which filed federal income
tax returns, other than a group of which the Company was the common
parent. Except for Taxes in connection with the leases of real or
personal property set forth in Sections 3.2(j) and 3.2(l) of the Comsul
Disclosure Schedule, the Company has no Liability for Taxes owed by any
Person (other than the Company), including without limitation, (A) as a
transferee, assignee or other successor or (B) pursuant to a Tax sharing
agreement or other contract.
(v) The Company has not waived any statute of limitations in respect
of Taxes which have not expired or agreed to any extension of time with
respect to any Tax assessment or deficiency which have not expired.
(j) Title and Condition of Properties.
(i) No Owned Real Property. The Company does not own any real
property.
(ii) Leased Real Property. The leases listed in Section 3.2(j) of
the COMSUL Disclosure Schedule (the "PROPERTY LEASES") cover the real
estate leased, used or occupied by the Company which individually require
annual lease payments in excess of $1,200 (and the annual rentals under
all those leases below such amount does not in the aggregate exceed
$10,000 annually). Each of the Property Leases is in full force and
effect and the Company holds a valid and existing leasehold interest
under each of such
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Property Leases. The Company has delivered or made available to Superior
copies of each of the Property Leases and none of such Property Leases
has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to Superior. The
Company is not in default, and no circumstances exist which would result
in such default (including upon the giving of notice or the passage of
time, or both), under any of such Property Leases, and no other party
thereto has the right to terminate, accelerate performance under or
otherwise modify any of such leases. To the Knowledge of the Company and
the Principal Shareholders, no lessor under any such lease is in default
under any of such leases in its duties to the lessee. The Company has
not assigned, transferred, conveyed, subjected to a Security Interest, or
otherwise encumbered any interest in any of the Property Leases.
(iii) Title to Assets. The Company owns valid title, free and clear
of all Security Interests, to all of the personal property and assets
reflected on the Latest Balance Sheet or acquired after the Latest
Balance Sheet Date, except for (1) assets with an aggregate original
purchase price of less than $10,000 in the aggregate which have been
disposed of to non-affiliated third parties since the Most Recent Fiscal
Year End in the Ordinary Course of Business, (2) Security Interests
securing liabilities reflected on the Latest Balance Sheet and (3)
Security Interests for current Taxes not yet delinquent.
(iv) Condition and Sufficiency of Assets. The Company's computer
hardware, equipment and other tangible personal property and assets are
in good condition and repair, except for ordinary wear and tear not
caused by neglect, and are useable in the Ordinary Course of Business.
The personal property and assets shown on the Latest Balance Sheet or
acquired after the Latest Balance Sheet, the lease rights under the
Property Leases and leases of personal property and the Intellectual
Property owned or used by the Company under valid license, collectively
include all assets necessary to the conduct of the Company's business as
presently conducted.
(k) Intellectual Property. Section 3.2(k) of the Company Disclosure
Schedule sets forth all of the Company's right, title and interest in and to
all patents, copyrights, trade secrets, trademarks, tradenames, service marks,
logos, secret processes, formulas, methods, information, know-how and other
intellectual properties and proprietary information and the tangible media on
which such items are embodied (collectively, the "PROPRIETARY RIGHTS"). There
are no claims or demands, and, to the Knowledge of the Company and the
Principal Shareholders, no reasonable basis for any such claim or demand, of
any Person that any of the Proprietary Rights or any processes or equipment
used by the Company, or any provision of the Company's services by it or
others, and no software or other proprietary rights or intellectual property
developed by the Company, infringes or conflicts in any way with any copyright,
patent, trademark, service mark, trade name, trade secret, license, application
or other right of any other Person, or makes unauthorized use of any secret
process, formula, method, information, know-how or any other proprietary
information, including, without limitation, any software or software
documentation, of any other Person. The Company owns all right, title and
interest in and to the Proprietary Rights, other than the computer software
listed on Section
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3.2(k) of the Company Disclosure Schedule which is not expressly denominated
"OWNED SOFTWARE," as to which the Company has a valid license. All of the
Company's interests in the Proprietary Rights are free and clear of all liens
and other encumbrances, and are not currently being challenged or, to the
Knowledge of the Principal Shareholders or the Company, infringed in any way or
involved in any pending legal or administrative proceedings before any court or
governmental agency. No current licenses for the use of any such rights have
been granted by the Company to any third parties, and none of the
Proprietary Rights is being used by any other Person.
(l) Contracts. (i) Section 3.2(l)(i) of the COMSUL Disclosure Schedule
lists each of the twenty (20) largest current customers of the Company (based
on gross revenue from January 1, 1995 through December 31, 1996) and existing
contracts with such customers under which the Company is providing services as
of June 30, 1997. Except for those Contracts set forth on Sections 3.2(1)(i)
and 3.2(l)(ii)(D) of the COMSUL Disclosure Schedule (the "MATERIAL FIXED RATE
ENGAGEMENTS"), the Company is not a party to any fixed fee or capped price
contracts or engagement arrangements involving, to the Knowledge of the Company
and the Principal Stockholders, original contract amounts in excess of
$100,000, nor does the Company have any outstanding offers, bids or proposals
to perform any services on a fixed fee or capped basis exceeding such amount.
Sections 3.2(1)(i) and 3.2(l)(ii)(D) of the COMSUL Disclosure Schedule identify
each Material Fixed Rate Engagement and set forth the amount of fees
uncollected with respect thereto as of June 30, 1997. Section 3.2(1)(i) of the
Disclosure Schedule also sets forth the amount, to the Knowledge of the Company
and the Principal Shareholders, of client payments to the Company through the
June 30, 1997 with respect to services not yet performed by the Company
("PRE-COLLECTED REVENUE");
(ii) Section 3.2(ii) of the COMSUL Disclosure Schedule also lists each of
the following contracts, agreements, and other written arrangements to which
the Company, as of June 30, 1997, is a party:
(A) any written arrangement (or group of
related written arrangements) for the lease of personal
property from or to third parties with annual payments
exceeding $25,000 (and the aggregate amount of all
leases for personal property does not exceed $100,000);
(B) any written arrangement concerning a
partnership or joint venture;
(C) any written arrangement (or group of
related written arrangements) under which the Company
has (A) created, incurred, assumed, or guaranteed (or
may create, incur, assume, or guarantee) indebtedness
for borrowed money or lease obligations in excess of
$25,000 or (B) imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
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(D) each client service contracts and engagements under
which the Company's work is not yet complete and which
has produced or, during the period beginning March 31,
1997 and ending December 31, 1997, is expected to
produce revenue in excess of $100,000;
(E) any written arrangement concerning
confidentiality or any written arrangement concerning
non-competition other than written arrangements with
clients that require the Company to maintain
confidentiality with respect to confidential information
obtained by the Company from such client relating to
such client's business;
(F) any written arrangement not disclosed
in the COMSUL Disclosure Schedule pursuant to any other
provision in this Section 3.2 under which the
consequences of a default or termination could have a
Material Adverse Effect on the Company;
(G) any written contracts covered in
Section 3.2(p) for the employment by the Company of any
officer, individual employee or other Person on a full
time, part time or consulting basis, and any written
contract for the engagement by the Company of any
consultants or independent contractors;
(H) any guaranty of any obligation for
borrowed money or otherwise, other than endorsements
made for collection in the Ordinary Course of Business,
or any agreement or commitment with respect to the
lending or investing of funds to or in other Persons;
(I) without duplication of subparagraph
(A) and Section 3.2(j)(ii) above, any contract or group
of related contracts with the same party (or group of
related parties) for or relating to the purchase of
products or services by the Company, either (X) which is
not terminable by the Company on sixty (60) days or less
notice or (Y) under which the undelivered balance of
products and services has a selling price in excess of
$25,000;
(J) any written agreement with any
employee, the benefits of which are contingent or the
terms of which are materially altered upon the
occurrence of a transaction of the nature contemplated
by this Agreement involving the Company; and
(K) any written agreement or Plan the
benefits of which will be increased or accelerated by
the occurrence of the transactions contemplated by this
Agreement.
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(iii) The Company has delivered or otherwise made available to Superior a
copy of each written arrangement (including all amendments thereto) listed in
Section 3.2(l) of the COMSUL Disclosure Schedule. With respect to each written
arrangement so listed: (A) the written arrangement is legal, valid, binding,
enforceable against the Company (and to the Knowledge of the Company and the
Principal Shareholders, the other parties thereto), in each case except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganizations, moratorium, fraudulent conveyance or other similar laws
affecting the rights of creditors generally and by general equitable
principles, and in full force and effect; (B) the written arrangement will
continue to be legal, valid, binding, and enforceable, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganizations, moratorium, fraudulent conveyance or other similar laws
affecting the rights of creditors generally and by general equitable
principles, and in full force and effect on identical terms immediately after
the Effective Time; (C) neither the Company (nor, to the Knowledge of the
Company and the Principal Shareholders, any other party) is in material breach
or default (including, with respect to any express or implied warranty), and no
event has occurred which with notice or lapse of time or both would constitute
a material breach or default or permit termination, modification, or
acceleration, under the written arrangement, except for any breaches, defaults,
terminations, modifications or accelerations which have been cured or waived;
and (D) no party has repudiated any provision of any such written arrangement.
The Company is not a party to any oral contract, agreement, or other
arrangement which, if reduced to written form, would be required to be listed
in the COMSUL Disclosure Schedule under the terms of this Section 3.2(l).
Copies of the general forms of client engagement and services used by the
Company have been delivered to Superior.
(m) Notes and Accounts Receivable. All notes and accounts receivable of
the Company are reflected properly on its books and records, such receivables
are valid receivables subject to no set-offs or counterclaims, are collectible
in the aggregate amount shown, and will be collected at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Latest
Balance Sheet, as adjusted for operations and transactions through the
Effective Date in accordance with the past custom and practice of the Company.
Set forth in Section 3.2(m) of the COMSUL Disclosure Schedule is the Company's
accounts receivable aging report as of June 30, 1997.
(n) Powers of Attorney; Bank Accounts. There are no outstanding powers of
attorney executed by or on behalf of the Company. Section 3.2(n) of the COMSUL
Disclosure Schedule lists each bank account and credit arrangement maintained
by the Company (together with relevant account information, authorized
signatories and account users).
(o) Litigation. Section 3.2(o) of the COMSUL Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any unsatisfied
judgment, order, decree, stipulation, injunction or charge or (ii) is a party
to or, to the Knowledge of any of the Principal Shareholders or the Company, is
threatened to be made a party to, any charge, complaint, action, suit,
proceeding, hearing, or investigation of or in any court or quasi-judicial or
administrative agency of any Federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the
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charges, complaints, actions, suits, proceedings, hearings, and investigations
set forth in Section 3.2(o) of the COMSUL Disclosure Schedule could reasonably
be expected to result in any Material Adverse Effect. None of the Principal
Shareholders or the Company has any Knowledge of any Basis on which such
charge, complaint, action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
(p) Employees; Employment Matters.
(i) No key employee or group of employees (including, without
limitation, any branch manager) has informed the Company or any of the
Principal Shareholders of any plans to terminate their employment with
the Company generally or as a result of the transactions contemplated
hereby or otherwise. The Company is not a party to or bound by any
collective bargaining agreement, and the Company has not experienced any
strikes, grievances, other collective bargaining disputes or, to the
Knowledge of any of the Principal Shareholders or the Company, claims of
unfair labor practices. Neither the Company nor any of the Principal
Shareholders has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect
to employees of the Company.
(ii) Section 3.2(p) of the COMSUL Disclosure Schedule contains a
true, correct and complete list setting forth the names and current
salaries or rates of compensation and current bonus plans and bonus
compensation structure of all current employees of the Company and
current independent contractors who render services to the Company on
more than a single occasion. Except as disclosed on Section 3.2(p) of
the COMSUL Disclosure Schedule, the Company has no unsatisfied Liability
to any previously terminated employee or independent contractor. The
Company has disclosed all written employee handbooks, policies, programs
and arrangements to Superior.
(iii) All employees of the Company are employed on an at will basis.
(iv) Except as disclosed in Section 3.2(p)(iv) of the COMSUL
Disclosure Schedule, the Company has complied in all material respects
with all applicable laws relating to labor, including, without
limitation, any provisions thereof relating to wages, termination pay,
vacation pay, fringe benefits, collective bargaining and the payment
and/or accrual of the same.
(v) Each Person whom the Company has retained as an independent
contractor during the past five years qualifies, as an independent
contractor and not as an employee of the Company, under the Code and all
applicable state laws. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby shall cause the
Company to be in breach of any agreement with any employee, contractor or
consultant or cause the Company to be liable to pay any severance or
other amount to any employee, contractor or consultant of the Company.
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(q) Employee Benefit Plans.
(i) All Plans are listed and briefly described in Section 3.2(q) of
the COMSUL Disclosure Schedule. Each Plan is in material compliance with
its terms and with ERISA and other applicable laws (including, without
limitation, compliance in all material respects with the health care
continuation requirements of COBRA and any state insurance continuation
laws, where applicable) and all agreements and instruments applicable to
any Plan. Section 3.2(q) of the COMSUL Disclosure Schedule sets forth
each former employee of the Company entitled to COBRA benefits and the
remaining period of such benefits. The Company and each applicable ERISA
Affiliate of the Company have received favorable determination letters as
to the qualification under the Code of each Plan that is intended to
qualify under Section 401(a) of the Code, and there have been no Plan
amendments or other developments since the date of such determination
letters which would cause the loss of such qualified status. No material
violation of ERISA has at any time occurred in connection with the
administration of any of the Plans, and there are no actions, suits, or
claims (other than routine, non-contested claims for benefits) pending or
threatened against the Plans, or any administrator or fiduciary thereof,
which could result in any Liability. The Company has made available to
Superior true and correct copies of all written (and accurate summaries
of all oral) Plans.
(ii) With respect to all present Plans, the Company and all ERISA
Affiliates of the Company have heretofore delivered to Superior true and
complete copies of each of the following (including descriptions of
vacation, severance pay, sickness, and separation policies):
(A) the Plan documents (and any applicable trust agreement or
insurance contract);
(B) the most recent Internal Revenue Service determination
letter relating to each of the Pension Plans, if any;
(C) the summary plan description (as currently in effect) and
any summary of material modification for each of the Plans, if any;
(D) the most recent Annual Report (Form 5500 Series), and
accompanying schedules, filed for each of the Plans, if any, and
the most recent summary annual report furnished for each of the
Plans;
(E) the latest financial statements for each of the Plans; and
(F) all documents filed with the Internal Revenue Service or
Department of Labor since January 1, 1991, if any.
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There is and has been no material violation of ERISA known to the Company or
any ERISA Affiliate of the Company with respect to the filing of applicable
reports, documents, and notices regarding such past or present Plans with the
Secretary of Labor or the Secretary of the Treasury or the furnishing of such
documents to the participants or beneficiaries of such Plans.
(iii) Each Plan is maintained by the Company or any ERISA Affiliate
of the Company under a plan document which does not provide for other
participating employers except for the Company or any ERISA Affiliate of
the Company and no Plan provides or has provided credit with respect to
service other than with the Company or any ERISA Affiliate of the
Company.
(iv) Neither the Company nor any ERISA Affiliate of the Company nor
any of their employees, shareholders, or directors have engaged in any
transaction in connection with which any of them would be subject either
to a civil penalty assessed pursuant to Section 502 of ERISA or a tax
imposed by Section 4975 of the Code.
(v) None of the assets of any of the Plans is or has been invested
in any property constituting employer real property or any employer
security within the meaning of Section 407(d) of ERISA.
(vi) No Plan that was a pension plan as defined in Section 3(2) of
ERISA or trust created under any such Plan has, since September 2, 1974,
been terminated in whole or in part.
(vii) Full payment as of the Effective Time will have been made of
all amounts which the Company and any ERISA Affiliate of the Company are
required, under the terms of all Plans, to have paid as contributions to
such Plans as of the last day of the most recent fiscal year prior to the
Effective Time.
(viii) The execution and performance of this Agreement will not
constitute a stated triggering event under any Plan or employment
agreement that will result in any payment (whether of severance pay or
otherwise) becoming due to any employee of the Company or ERISA
Affiliate.
(ix) Neither the Company nor any ERISA Affiliate provides, nor have
they at any time provided, coverage under any welfare plan (as defined in
Section 3(l) of ERISA) (including, but not limited to, life insurance,
disability, medical, dental, prescription drugs, or accidental death or
dismemberment) to any of their retirees, other than any continuation or
conversion coverage which any such retiree may have purchased at his own
expense.
(x) Neither the Company nor any ERISA Affiliate has ever maintained,
had an obligation to contribute to, contributed to, or incurred any
liability with respect to, a pension plan that is or was subject to Title
IV of ERISA or Section 412 of the Code.
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(r) Licenses, Permits and Approvals. The Company has all regulatory
licenses, permits and approvals necessary to the conduct of the Company's
business in all material respects in accordance with past practices. To the
Knowledge of each of the Company and the Principal Shareholders, all such
licenses, permits and approvals are in full force and effect. There are no
material violations by the Company of, or any claims or proceedings, pending
or, to the Knowledge of any of the Principal Shareholders or the Company,
threatened, challenging the validity of or seeking to discontinue, any such
licenses, permits or approvals.
(s) Unlawful Payments. To the Knowledge of each of the Company and the
Principal Shareholders, no payments of either cash or other consideration have
been made to any Person by the Company or any Principal Shareholder or, to the
Knowledge of any of the Principal Shareholders or the Company, on behalf of the
Company by any agent, employee, officer, director, shareholder or other Person,
that were unlawful under the laws of the United States or any state or any
other foreign or municipal government authority having appropriate jurisdiction
over the Company.
(t) Compliance with Laws. The Company is in compliance in all material
respects with and has in the past complied in all material respects with, all
applicable laws, rules and regulations of any Federal, state, local or foreign
government or agency thereof, including without limitation, environmental laws
and laws relating to labor and employment, and no notice, claim, charge,
complaint, action, suit, proceeding, investigation or hearing has been received
by the Company or filed, commenced or, to the Knowledge of the Company or any
of the Principal Shareholders threatened against the Company alleging any
violations thereof.
(u) Suppliers and Clients. Section 3.2(u) of the COMSUL Disclosure
Schedule lists all clients with whom the Company has had engagements from
January 1, 1995 through June 30, 1997. Since the Latest Balance Sheet Date, no
material licensor, vendor, supplier or licensee, or any client of the Company
with a contract involving an amount in excess of $100,000, has canceled or
otherwise reduced the scope of its engagement with the Company and, to the
Knowledge of the Company or any of the Principal Shareholders, no such Person
has any intention to do so, and, to the Knowledge of the Company or any of the
Principal Shareholders, there are no disputes or problems or notices of
dissatisfaction with or from any client of the Company and, to the Knowledge of
the Company and the Principal Shareholders, the consummation of the
transactions contemplated hereby shall not adversely affect any relationships
with such clients.
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(v) Insurance.
(i) Section 3.2(v) of the COMSUL Disclosure Schedule lists each
insurance policy to which the Company is a party, named insured or
otherwise the beneficiary of the coverage, the name, address and
telephone number of the agent, the name of each covered insured, the
policy number and the period of coverage, and the scope (i.e., claims
made, occurrence or other basis) and amount (including a description of
the method of calculating deductibles and ceilings) of coverage.
(ii) With respect to each such insurance policy: (A) the policy is
legal, valid, binding, enforceable, and in full force and effect; (B) the
policy will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms immediately following the
consummation of the transactions contemplated hereby; (C) neither the
Company nor, to the Knowledge of the Company or the Principal
Shareholders, any other party to the policy, is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, or both, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. The Company
has notified the agent for its professional and general liability
insurance carriers as to the facts described on Section 3.2(o) of the
Company Disclosure Schedule, which agent has advised the Company that it
has so notified the appropriate carriers.
(w) Warranty; Unbillable Work. All services rendered by the Company under
completed contracts have been in material conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no Liability for damages in connection therewith, subject only to the
reserve for customer claims set forth on the face of the Latest Balance Sheet
as adjusted for the passage of time through the Effective Time in accordance
with the past custom and practice of the Company. The Company is not obligated
to perform Unbillable services or client work in order to correct work
previously performed that was incorrect or deficient or to complete work in
excess of the fixed rate limit with respect to a particular project or
otherwise, other than reasonable and customary efforts to maintain client
satisfaction consistent with the size and scope of the particular project and
consistent with maintaining the reasonable profitability of the project.
(x) Transaction-Related Tax and Accounting Matters. Neither the Company
nor any Principal Shareholder has taken or agreed to take any action, nor does
the Company nor any Principal Shareholder have any Knowledge of any fact or
circumstance, that would (i) prevent the transactions contemplated hereby,
including the Merger, from qualifying as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (and any comparable
provision of foreign, state or local law), or (ii) prevent the transactions
contemplated hereby, including the Merger, from being accounted for as a
pooling of interests in accordance with GAAP.
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(y) Brokers' Fees. Neither the Company nor any of the Principal
Shareholders has any Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement for which Superior or Acquisition could become liable or
otherwise obligated.
(z) Potential Conflicts of Interest. Except as set forth in Schedule
3.2(y) of the COMSUL Disclosure Schedule no officer, director or Principal
Shareholder of the Company: (i) owns, directly or indirectly, any interest in
(excepting not more than 2% stock holdings for investment purposes in
securities of publicly held and traded companies) or is a director, employee or
consultant of any Person which is a competitor, lessor, lessee, customer or
supplier of the Company; (ii) owns, directly or indirectly, in whole or in
part, any interest in Intellectual Property which the Company is using or the
use of which is necessary for the business of the Company; (iii) has any loan
outstanding to or any cause of action or other claim whatsoever against the
Company, except for claims in the Ordinary Course of Business, such as for
accrued salary, bonus, vacation pay and benefits under Benefit Plans and
similar matters and agreements existing on the date hereof; (iv) has made, on
behalf of the Company, any payment or commitment to pay any commission, fee or
other amount to, or purchase or obtain or otherwise contract to purchase or
obtain any goods or services from, any corporation or other Person of which any
officer or director of the Company, or, a relative of any of the foregoing, is
a partner or shareholder (except stock holdings solely for investment purposes
in securities of publicly held and traded companies).
3.3. Representations and Warranties of Acquisition and Superior.
Acquisition and Superior hereby jointly and severally represent and warrant to
the Company and to each of the Principal Shareholders that the statements
contained in this Section are correct and complete as of the date of this
Agreement.
(a) Organization. Superior is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware.
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of California.
(b) Authorization of Transaction. Each of Acquisition and Superior has
all requisite corporate power and authority to execute and deliver this
Agreement and to perform their respective obligations hereunder. Without
limiting the generality of the prior sentence, the Board of Directors of
Superior and the Board of Directors and sole stockholder of Acquisition have
duly authorized the execution, delivery and performance of this Agreement by
Superior and Acquisition, respectively, and the consummation of the Merger by
Acquisition. This Agreement constitutes the valid and legally binding
obligation of each of Superior and Acquisition, enforceable against each of
them, respectively, in accordance with its terms.
(c) Noncontravention. Neither the execution, delivery performance of this
Agreement, nor the consummation of the transactions contemplated hereby will
(i) violate or conflict in any way with any statute, regulation, law, rule or
common law doctrine, (ii) violate or conflict in any way with any judgment,
order, decree, stipulation, injunction, charge or other
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restriction of any government, governmental agency or court to which Superior
or Acquisition is subject or any provision of the respective Certificate or
Articles of Incorporation, as applicable, and By-Laws of Superior and
Acquisition, or (iii) conflict with, result in a breach of, constitute a
default under (with or without notice or lapse of time, or both), result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under, any contract, agreement, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement for
borrowed money, instrument of indebtedness, Security Interest or other
arrangement to which Superior or Acquisition is a party or by which either of
them is bound or to which any of their respective assets are subject, except
where such violations, conflicts, breaches, defaults or other events would not,
individually or in the aggregate, result in a or impact upon the assets,
business, financial condition or results of operations of Superior and its
Subsidiaries, taken as a whole (a "SUPERIOR ADVERSE EFFECT") or prevent or
materially delay the consummation of the transactions contemplated hereby.
Neither Superior nor Acquisition is required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government, governmental agency or court, or any other Person in order for the
parties to consummate the transactions contemplated by this Agreement and in
order that the Merger and such transactions shall not constitute a breach or
violation of, or result in a right of termination or acceleration or any
encumbrance on any of Superior's assets pursuant to the provisions of, any
agreement, arrangement or understanding or any license, franchise or permit,
except for the filing of the Certificate of Merger with the California
Department.
(d) Superior Common. Superior has taken all actions necessary to
authorize and approve the issuance of the Superior Common, and as of the
Effective Time the Superior Common will, when issued in accordance herewith, be
duly authorized, validly issued, fully paid and nonassessable. There are no
statutory or contractual shareholders' preemptive rights or rights of refusal
with respect to the issuance of the Superior Common upon consummation of the
Merger.
(e) Brokers' Fees. Neither Superior nor Acquisition has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which any of the
Principal Shareholders is or could become liable or obligated.
(f) Commission Filings. Superior has filed and made available to the
Company and the Principal Shareholders all forms, reports and documents
required to be filed by Superior with the commission under the Exchange Act and
the Securities Act during the one year period ending on the date hereof
(collectively, the "SUPERIOR SEC REPORTS"). The Superior SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be,
and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in such Superior SEC Reports or necessary in order
to make the statements in such Superior SEC Reports, in the light of the
circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of Superior included in the
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<PAGE> 31
Superior SEC Reports (the "SUPERIOR FINANCIAL STATEMENTS") complied when filed
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, and
were, when filed, in accordance with the books and records of Superior,
complete and accurate in all material respects, and presented fairly the
consolidated financial position and the consolidated results of operations,
changes in stockholders' equity and cash flows of Superior and its Subsidiaries
as of the dates and for the periods indicated, in accordance with generally
accepted accounting principles, consistently applied, subject in the case of
interim financial statements to normal year-end adjustments and the absence of
certain footnote information.
(g) Capital Structure.
(i) The authorized capital stock of Superior consists of 30,000,000
shares of Superior Common and 7,000,000 shares of preferred stock, par
value $0.01 per share ("SUPERIOR PREFERRED STOCK"). As of June 30, 1997,
7,634,325 shares of Superior Common and no shares of Superior Preferred
Stock were issued and outstanding, and 450,522 shares of Common were
reserved for issuance under outstanding options. All outstanding shares
of Superior's outstanding capital stock are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive
rights.
(ii) Except for Superior's Rights Plan and for options granted in
the normal course pursuant to Superior's stock option plans and employee
stock purchase plan, as described in Superior SEC Reports, and except as
contemplated herein, there are no options, warrants, calls, rights,
commitments or agreements of any character to which Superior or any
Subsidiary of Superior is a party or by which any of them is bound
obligating Superior or any Subsidiary of Superior or any securities or
rights convertible into or exchangeable for any such capital stock.
(h) No Material Adverse Changes. Since the date of the most recent
Superior SEC Report, no event has occurred which has had a Superior Adverse
Effect and no action, suit, claim or proceeding has been filed, or threatened,
which if adversely determined, would result in a Superior Adverse Effect.
(i) Transaction-Related Tax and Accounting Matters. Neither Superior nor
Acquisition has taken or agreed to take any action, nor does Superior or
Acquisition have any Knowledge of any fact or circumstance, that would (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code (and any comparable provision of foreign, state or
local law), or (ii) prevent the transactions contemplated hereby, including the
Merger, from being accounted for as a pooling of interests in accordance with
GAAP.
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4. - CONDITIONS
4.1. Conditions to Obligation of Superior and Acquisition. The obligations
of Superior and Acquisition to effect the Merger are also subject to
satisfaction at or prior to the Effective Time of the following conditions:
(a) The representations and warranties set forth in Sections 3.1 and 3.2
and shall be true and correct in all material respects at and as of the
Effective Time;
(b) Each of the Company and the Principal Shareholders shall have
performed and complied with all of their respective covenants hereunder through
the Effective Time;
(c) The Company shall have delivered to Superior and Acquisition a
certificate signed by an officer of the Company to the effect that each of the
conditions set forth in Section 4.2(a), (b) and (d) are satisfied in all
respects;
(d) There shall not have been, since the Latest Balance Sheet Date, any
change in or effect on the Company's assets, financial condition, operating
results, customer or employee relations which results or may reasonably be
expected to result, in a Material Adverse Effect;
(e) The Company shall have delivered to Superior (i) a copy of the text of
the director and shareholder resolutions by which the corporate action on the
part of the Company necessary to approve this Agreement and the Merger were
taken, certified by the Company's Secretary, (ii) an incumbency certificate
signed by an officer of the Company certifying the signature and office of each
officer executing this Agreement or any other agreement, certificate or other
instrument executed pursuant hereto, (iv) a copy of the Company's Articles of
Incorporation, as amended to date, certified by the California Department, and
(iii) good standing certificates for the Company, issued as of a recent date,
by the Secretaries of State of California and each other jurisdiction in which
the Company is required to be qualified to do business;
(f) Each of the Principal Shareholders and other key Company employees
identified by Superior shall have entered an employment agreement with the
Company and Enterprise Consulting Group, Inc., a Michigan corporation and
wholly-owned subsidiary of Superior ("ENTERPRISE"); in form and substance
acceptable to Superior (the "EMPLOYMENT AGREEMENTS"), and as of the Effective
Time each of the Employment Agreements shall be in full force and effect;
(g) Superior and Acquisition shall have received from Fulbright & Jaworski
L.L.P., counsel to the Company and the Principal Shareholders, a satisfactory
opinion as to legal matters, addressed to Superior and Acquisition and dated as
of the Effective Time;
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(h) The Company shall not have received any demands for appraisal with
respect to the Merger under Article 1300 of the CGCL from any shareholders
holding in the aggregate 7% or more of the Company Shares Deemed Outstanding;
(i) Superior shall have received an opinion or other advice, in form and
substance reasonably satisfactory to Superior, from its accounting
professionals, that the Merger may be accounted for as a "pooling of
interests," in accordance with generally accepted accounting principles and all
rules, regulations and policies of the SEC;
(j) The Company shall have delivered to Superior and Acquisition
certificates, in form and substance reasonably satisfactory to Superior, signed
by the Secretary of the Company, dated as of the Effective Time, identifying
the following documents to be delivered therewith: (i) the minute books of the
Company which, to the Knowledge of the Secretary of the Company, shall contain
minutes of all meetings (or consents to action in lieu thereof) of the
directors and shareholders of the Company from their inception to the date
thereof; (ii) the corporate seal of the Company; (iii) certified copies of the
By-laws of the Company as in effect on the date thereof; (iv) all stock
certificate books and stock ledger of the Company; and (v) such other documents
or instruments as Superior or Acquisition may reasonably request in writing not
less than two days prior to the Effective Date to carry out the intents and
purposes of this Agreement, and such minute books, stock certificate books and
other documents shall be complete, accurate and sufficient, to the reasonable
satisfaction of Superior and its counsel;
(k) No action, suit or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any Federal, state,
local or foreign jurisdiction, to which any of the Parties is a party which
would prevent or inhibit the consummation of the transaction contemplated
hereby or seek to impose any liability on any Party as a result of the
consummation of the Merger, and all necessary regulatory approvals shall have
been obtained.
(l) Superior and each of the Principal Shareholders shall have entered
into a mutually acceptable Registration Rights Agreement (the "REGISTRATION
AGREEMENT"), and as of the Effective Time the Registration Agreement shall be
in full force and effect;
(m) The Company shall have procured all of the consents, if any,
identified in Section 3.2(c) of the COMSUL Disclosure Schedule;
(n) The Existing Company Documents shall have terminated by a written
instrument satisfactory in form and substance to Superior and its counsel;
(o) The respective Boards of Directors of Superior and Acquisition shall
have approved this Agreement and authorized the Merger;
(p) Superior, Acquisition, the Company and the shareholders of the Company
shall have received from Sachnoff & Weaver, Ltd., a satisfactory opinion with
respect to the Tax
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matters, addressed to Superior, Acquisition, the Company and the
shareholders of the Company and dated as of the Effective Time; and
(q) All actions and proceedings hereunder and all documents and other
papers required to be delivered by the Company hereunder or in connection with
the consummation of the transactions contemplated hereby, and all other related
matters, shall have been approved by Sachnoff & Weaver, Ltd., counsel to
Superior, as to their form and substance.
Superior, on behalf of itself and Acquisition, may waive any condition, in
whole or in part, specified in this Section 4.1 if it executes a writing so
stating at or prior to the Effective Time.
4.2 Conditions to Obligations of the Company and the Principal Shareholders.
The obligations of the Company and the Principal Shareholders to effect the
Merger are subject to satisfaction at or prior to the Effective Time of the
following conditions:
(a) The representations and warranties set forth in Section 3.3 above
shall be true and correct at and as of the Effective Time;
(b) Acquisition and Superior shall have performed and complied with all
of their respective covenants hereunder through the Effective Time;
(c) Acquisition and Superior shall have delivered to the Company and the
Principal Shareholders a certificate signed by an officer of Acquisition and
Superior to the effect that each of the conditions specified above in Sections
4.2(a) and (b) are satisfied in all respects;
(d) Acquisition shall have delivered to the Company and the Principal
Shareholders (i) a copy of the text of the director and stockholder resolutions
by which the corporate action on the part of Acquisition necessary to approve
this Agreement and the Merger were taken, certified by Acquisition's corporate
secretary, and (ii) an incumbency certificate signed by an officer of
Acquisition certifying the signature and office of each officer executing this
Agreement or any other agreement, certificate or other instrument executed
pursuant hereto;
(e) Superior shall have delivered to the Company and the Principal
Shareholders (i) a copy of the text of the director resolutions by which the
corporate action on the part of Superior necessary to approve this Agreement
and the Merger were taken, certified by Superior's corporate secretary, (ii) an
incumbency certificate signed by an officer of Superior certifying the
signature and office of each officer executing this Agreement or any other
agreement, certificate or other instrument executed pursuant hereto; and (iii)
certificates representing shares of Superior Common and payment for fractional
interests to be delivered in accordance with Section 2.9;
(f) Superior and Acquisition shall have executed the Registration
Agreement and at the Effective Time the Registration Agreement shall be in full
force and effect;
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(g) The Company and the Principal Shareholders shall have received a
satisfactory opinion as to legal matters from Sachnoff & Weaver, Ltd.,
addressed to the Company and the Principal Shareholders and dated as of the
Effective Time;
(h) No action, suit or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any Federal, state,
local or foreign jurisdiction, to which any of the Parties is a party which
would prevent or inhibit the consummation of the transaction contemplated
hereby or seek to impose any liability on any Party as a result of the
consummation of the Merger, and all necessary regulatory approvals shall have
been obtained;
(i) Each Company Option shall have been converted into a Substituted
Option in accordance with Section 5.1(a);
(j) Superior, Acquisition, the Company and the shareholders of the Company
shall have received from Sachnoff & Weaver, Ltd. a satisfactory legal opinion
with respect to the Tax matters, addressed to Superior, Acquisition, the
Company and the shareholders of the Company and dated as of the Effective Time;
and
(k) All actions and proceedings hereunder and all documents and other
papers required to be delivered by Acquisition and Superior hereunder or in
connection with consummation of the transactions contemplated hereby and all
other related matters shall have been approved by Fulbright & Jaworski L.L.P.,
counsel to the Company, as to their form or substance.
Each of the Company and the Principal Shareholders may waive, in whole or
in part, any condition specified in this Section 4.2 if it executes a writing
so stating at or prior to the Effective Time.
5. - ADDITIONAL AGREEMENTS
5.1. Company Options. At the Effective Time, each Company Option
identified on Schedule 5.1 attached hereto shall be canceled and substituted
with an option to acquire Superior Common (each, a "SUPERIOR OPTION") in
accordance with the following provisions. Each Superior Option shall contain
substantially the same terms and conditions, including vesting schedules, that
were provided as of the Effective Time under the Company Option for which the
Superior option was substituted (the "SUBSTITUTED OPTION"), provided that, to
the extent required to enable the merger to be accounted for as a pooling of
interests, the exercisability of the Superior Option may be suspended until the
end of the Lock-up Period. With respect to each Superior Option granted
hereunder: (i) the number of shares of Superior Common obtainable under such
Superior Option will be determined by multiplying the number of shares of
Company Common obtainable under the related Substituted Option by the Exchange
Ratio, and rounding down to the nearest whole number and (ii) the exercise
price under such Superior Option will be determined by dividing the exercise
price per share in effect immediately prior to the Effective
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Time under the Substituted Option by the Exchange Ratio, and rounding the
exercise price thus determined to the nearest whole cent. After the Effective
Time, Superior shall issue to each holder of a Substituted Option a document
evidencing the foregoing cancellation and substitution by Superior with a
Superior Option.
5.2. Post-Merger Covenants. The Parties agree as follows with respect to
the period following the Effective Time.
(a) General. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification with respect to
such matter under Section 5.5).
(b) Financial Statements. The Principal Shareholders will cooperate
and provide all assistance reasonably requested by Superior's independent
accountants and the Company's independent accountants (including without
limitation, executing any and all customary management representation letters
with respect to the Company's financial statements) in connection with the
preparation and delivery to Superior, if necessary, of audited financial
statements and for the Company as of and for each of the fiscal years ended
December 31, 1994, 1995 and 1996.
(c) Transition. For a period of three years following the Effective
Time, except upon the request or direction of Superior or its Affiliates, none
of the Principal Shareholders will take any action that primarily is designed
or intended to have the effect of discouraging any client, supplier, or other
business partner or affiliate of the Company from maintaining the same business
relationships with the Surviving Company after the Effective Time as it
maintained with the Company prior to the Effective Time. From and after the
Effective Time, for a period of not less than three years following the
Effective Time, each of the Principal Shareholders will refer all inquiries by
current or former clients (as of the Effective Time) of the Company relating to
the Company's business to Superior or its Affiliates, including the Surviving
Company.
(d) Confidentiality. The Principal Shareholders recognize that in the
course of performance of work for the Company, they have had access to
materials and information of the Company, its subsidiaries and affiliates that
constitute trade secrets and proprietary information of the Company, its
subsidiaries and affiliates including, without limitation, descriptions of the
Company's, its subsidiaries' and affiliates' products and services, planned
products and services, business and marketing/sales plans, mergers and
acquisition targets, employee compensation plans, employee medical information,
the identities of suppliers, customers and prospective customers, identities of
employees and prospective employees, prices and pricing policies in whatever
form received by the Principal Shareholders, including, without limitation,
written, voice, electronic or magnetic media or graphic display ("CONFIDENTIAL
INFORMATION").
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Following the Effective Time, the Principal Shareholders shall not utilize any
such Confidential Information for any purpose other than the performance of
their duties as an employee of the Surviving Corporation and shall not disclose
any such Confidential Information to any third party so long as such
Confidential Information is not otherwise published or released into the public
domain by the Surviving Corporation or otherwise through no direct or indirect
fault or involvement of Principal Shareholders. The Principals Shareholders
shall, upon request by the Surviving Corporation, return or destroy, as
directed by the Surviving Corporation, any media in which such Confidential
Information is recorded. The Principal Shareholders shall also observe any
restrictions with respect to the use and disclosure of the Confidential
Information of each of the Surviving Corporation's clients that are specified
in the Surviving Corporation's Service Agreement with such client, or that are
reasonably required by such client. Each of the Principal Shareholders
understand that his obligation of non-disclosure shall survive the Effective
Time and the termination of employment with the Surviving Corporation for any
reason whatsoever.
(e) Transfer of Superior Common.
(i) The Principal Shareholders hereby acknowledge and agree that the
Superior Common may not be transferred except pursuant to (a) a
registered offering under the Securities Act (in which case all transfers
shall be made in accordance with all applicable provisions of the
Registration Agreement), (b) Rule 144 of the Securities and Exchange
Commission (or any similar rule or rules then in force) if available, or
(c) subject to the conditions specified in subparagraph (ii) below, any
other legally available means of transfer.
(ii) In connection with the transfer of any Superior Common (other
than a transfer pursuant to a registered public offering), the holder
thereof shall deliver written notice to Superior describing in reasonable
detail the transfer or proposed transfer, together with an opinion of
securities counsel (with such opinion and such counsel being satisfactory
to Superior (or other written advice reasonably satisfactory to Superior
and its transfer agent to the effect that such transfer of Superior
Common may be effected without registration of such Superior Common under
the Securities Act or any applicable state securities law. In addition,
if the holder of Superior Common delivers to Superior such an opinion
that concludes that no subsequent transfer of such Superior Common will
require registration under the Securities Act or any applicable state
securities law, Superior shall promptly upon such contemplated transfer
deliver new Certificates for such Superior Common which do not bear the
restrictive legend set forth in this Section 5.2(e). If Superior is not
required to deliver new Certificates for such Superior Common not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to Superior in writing its agreement
to be bound by the conditions contained in this Section .
(iii) Each of the Principal Shareholders hereby agrees that such
Principal Shareholder will not (A) take any action that would prevent the
Merger from qualifying as a reorganization within the meaning of Sections
368(a)(1)(A) and
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<PAGE> 38
368(a)(2)(E) of the Code (and any comparable provision of foreign, state
or local law) or prevent the Merger and transactions contemplated hereby
from being accounted for as a pooling of interests under generally
accepted accounting principles or (B) sell, sell options or other rights
against, lend, or otherwise transfer or dispose of any shares of Superior
Common obtained hereunder in violation of Rule 145 under the Securities
Act. Without limiting the generality of the foregoing, each of the
Principal Shareholders who is an Affiliate of the Company agrees that
such Principal Shareholder will not sell, transfer or otherwise dispose
of any Superior Common issued to such Principal Shareholder in the Merger
until Superior has published financial results including at least thirty
(30) days of combined operations with the Surviving Corporation (the
period of prohibition being referred to as the "LOCK-UP PERIOD").
(f) Reorganization and Pooling of Interests Treatments. Superior hereby
agrees that neither Superior nor any of its Affiliates (including after the
Effective Time, the Company) will take any action or fail to take any action
that would prevent or jeopardize the qualification of the Merger and the
transactions contemplated hereunder (i) as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (and any comparable
provision of applicable foreign, state or local law), and (ii) as a "pooling of
interests" for accounting purposes under GAAP. Superior will report the Merger
and the transactions contemplated hereunder on all regulatory filings, Tax
Returns and other relevant documents in a manner consistent with the treatment
of the Merger and the transactions contemplated hereunder as a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code (and
any comparable provision of applicable foreign, state or local law) and as a
"pooling of interests" for accounting purposes under GAAP.
(g) Termination of Company Plans. The Company shall cause each Plan set
forth on the COMSUL Disclosure Schedule to be terminated as of the Effective
Time (except that the Company's 401(k) Plan shall be terminated no later than
the day immediately prior to the Effective Time and participation in such Plan
shall be frozen as of such date). The Company shall be liable for any and all
Liabilities of the Company accrued under such Plans through the Effective Time.
The Company shall terminate the employment of all of its employees effective
as of 11:59 P.M., Eastern Daylight Time, on the day immediately prior to the
Effective Time. Such termination shall be conducted in accordance with all
applicable laws and regulations.
(h) From and after the Effective Time, through and including the third
anniversary thereof, Superior shall maintain liability insurance providing
coverage for errors and omissions arising out of the services performed by the
Company, including, without limitation, continuation of coverage with respect
to claims relating to periods prior to the Effective Time that would have been
covered by the Company's liability insurance as in effect on the Effective Time
but for the termination of such policies pursuant to this Agreement ("LIABILITY
INSURANCE"). Such Liability Insurance shall be similar in scope and coverage
to the insurance policy in effect and maintained by the Company as of the
Closing Date, which is identified and summarized on Schedule 5.5(h) attached
hereto (documentation of which shall have been provided to Superior by the
Company prior to the Effective Time).
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(i) With respect to the post-Closing participation of each employee of the
Company in any of Superior's plans that are health, accident, sickness, or
short-term or long-term disability plans or programs (collectively, the "H&D
PLAN"), Superior will (i) credit all time of service with the Company as
against applicable waiting periods for participation or coverage under
Superior's H&D Plan, (ii) credit all time of service with the Company as
against applicable restrictions and limitations for pre-existing conditions
under Superior's H&D Plan, (iii) credit each employee of the Company with his
or her period of service with the Company for the purpose of determining his
eligibility for benefits under its H&D Plan, and (iv) recognize, in accordance
with its H&D Plan, all health expenses (to the extent documented in a manner
sufficient to meet the requirements of the insurance carriers under the H&D
Plans) that were incurred during 1997 (but prior to the Effective Time) for
purposes of satisfying any deductibles and copayment limitations (but not
premiums) under the H&D Plan for the 1997 calendar year. With respect to the
post-Closing participation of each employee of the Company in the 401(k)
savings plan currently offered by Superior, for purposes of crediting periods
of service for eligibility to participate under such plan, each employee of the
Company shall be given credit for prior service with the Company for purposes
of determining eligibility. In addition, each employee of the Company who has
satisfied the eligibility requirements under such plan shall be entitled to
participate therein on the first day of the calendar month following the
Effective Time; provided, however, that, to the extent permitted under
applicable law, for purposes of determining the appropriate contribution of
such employee to such plan, the employee's compensation, as defined under the
plan, shall be based only upon compensation earned by that employee after the
Effective Time.
(j) Each Principal Shareholder hereby (a) irrevocably agrees that he has
voted and will continue to vote (or, as applicable, execute written consents
with respect to) all shares of Company Common owned or controlled, directly or
indirectly, by such Principal Shareholder in favor of the Merger, this
Agreement and the transactions contemplated at any meeting now or hereafter
held (or any written consent now or hereafter solicited) with respect to the
transactions contemplated hereby, any new or subsequent meeting, consent or
action of shareholders with respect to the transactions contemplated hereby,
and any adjournments, recounts or recasts of any such meeting, consent or
action, and (b) grants to Richard Helppie and Richard Saslow, and either of
them, an irrevocable proxy, as such Principal Shareholder's agent and
attorneys-in-fact (with power of reappointment), in such Principal
Shareholder's name and stead, to vote (or execute written consent with respect
to) all shares of Company Common owned or controlled by such Principal
Shareholder, directly or indirectly, with respect to this Agreement, the Merger
and the transactions contemplated hereby. The Principal Shareholders hereby
acknowledge and agree that such proxy is hereby granted to such Persons in
their capacities as officers of Superior in consideration of Superior's
covenants under this Agreement and the benefits accruing to the Principal
Shareholders hereunder, and that the proxies granted hereby are therefore
irrevocable and coupled with an interest.
(k) Superior shall on or prior to the fifth business day following the
Effective time (i) cause each of the Principal Shareholders to be
unconditionally released from their guarantees of
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the indebtedness of the Company listed on Sections 3.2(1)(ii)(C)(1) and
3.2(l)(ii)(C)(2) of the COMSUL Disclosure Schedule, and (ii) pay the amounts
due and outstanding as of immediately after the Effective Time under those
promissory notes identified on Sections 3.2(1)(ii)(C)(2) through 3.2(l)(ii)(C)
(11), inclusive, of the COMSUL Disclosure Schedule.
5.3. Waiver and Release. Each Principal Shareholder, on behalf of himself
and his heirs, executors, administrators, successors and assigns (with respect
to each Principal Shareholder, the "RELEASING PARTIES"), irrevocably and
unconditionally waives and releases any and all rights with respect to, and
releases, forever acquits and discharges each and all of the Company, the
Company's shareholders, directors, officers, employees, agents and other
representatives, and their respective heirs, executors, administrators,
successors and assigns ("RELEASED PARTIES") with respect to, each and all
claims, demands, charges, complaints, obligations, causes of action, suits,
liabilities, indebtedness, sums of money, covenants, agreements, instruments,
contracts (written or oral, express or implied), controversies, promises, fees,
expenses (including attorneys' fees, costs and expenses), damages and
judgments, at law or in equity, in contract or tort, in federal, state or other
judicial, administrative, arbitration or other proceedings, of any nature
whatsoever, known or unknown, suspected or unsuspected, previously, now or
hereafter arising, in each case which arise out of, are based upon or are
connected with facts or events occurring or in existence on or prior to the
date of the Closing ("Released Claims"). Each Principal Shareholder further
represents and warrants that he has not assigned or otherwise transferred any
right or interest in or to any of the Released Claims. This Section 5.3 shall
not apply to any of the following: (i) claims for salaries and benefits
accrued in the Ordinary Course of Business through the Effective Time under the
express terms of the Company's written benefit plans or (b) claims against
either Superior or Acquisition for indemnification pursuant to Section 5.5(d)
herein, to the extent applicable.
5.4. Non-Competition.
(a) In consideration of benefits to be received by the Principal
Shareholders in connection with the Merger, each Principal Shareholder agrees
that (for a period of three years following the Effective Time, or such longer
period as may be specified in any employment agreement between such Principal
Shareholder and the Surviving Corporation (the "RESTRICTED PERIOD"), such
Principal Shareholder shall not recruit on his own behalf or on behalf of any
third party any employees of the Surviving Corporation either directly or
indirectly, specifically including, without limitation, identification of
Surviving Corporation personnel to any third parties, or assisting in the
recruitment or solicitation of employees of the Surviving Corporation or any of
its subsidiaries or affiliates.
(b) In consideration of benefits to be received by the Principal
Shareholders in connection with the Merger, each Principal Shareholder agrees
that during the Restricted Period, he will not, directly or indirectly, on
behalf of himself or others, solicit business and/or perform services via
direct employment or through a party other than the Surviving Corporation, its
subsidiaries or affiliates, for clients of the Surviving Corporation or
prospective clients of the Surviving Corporation, identified during the
Restricted Period, including those of the Company,
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prior to the Merger. However, this prohibition from solicitation of Surviving
Corporation clients shall be reduced to one year following termination of
employment in the event that such Principal Shareholder's employment with the
Surviving Corporation terminates pursuant to Sections 3(d) or 3(e) of the
Employment Agreement of even date herewith between the Principal Shareholder
and Acquisition. For purposes of defining clients and prospective clients
relative to non-competition, a "client" is any entity that the Surviving
Corporation (including the Company prior to the Merger) has provided services
within the thirty-six (36) month period prior to the Effective Time; a
"PROSPECTIVE CLIENT" is any entity that has been subject to documented sales
and marketing activity, other than mass mailings, within twelve (12) months
prior to the Effective Time.
(c) In consideration of benefits to be received by the Principal
Shareholders in connection with the Merger, each Principal Shareholder agrees
that during the Restricted Period, he will not, directly or directly, engage in
business competitive with the Surviving Corporation. However, this prohibition
from Competitive Business involvement shall be reduced to one year following
termination of employment in the event that such Principal Shareholder's
employment with the Surviving Corporation terminates pursuant to Sections 3(d)
or 3(e) of such Principal Shareholder's Employment Agreement.
(d) The parties hereto agree that the Surviving Corporation would suffer
irreparable harm from a breach of any of the covenants or agreements contained
in this Section 5.4. In the event of an alleged or threatened breach by any
Principal Shareholder of any of the provisions of this Section 5.4, the
Surviving Corporation or its successors or assigns may, in addition to all
other rights and remedies existing in its favor, apply to any court of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(including the extension of the Restricted Period with respect to such
Principal Shareholder in breach by a period equal to the length of the
violation of this Section 5.4 and the Restricted Period described above will be
tolled with respect to such Principal Shareholder until such alleged breach or
violation is resolved). The Principal Shareholders agree that the restrictions
in this Section 5.4 are reasonable protections under the circumstances of the
Merger.
(e) If, at the time of enforcement of any of the provisions of this
Section 5.4, a court holds that the restrictions stated herein are unreasonable
under the circumstances then existing, the Principal Shareholders agree that
the maximum period, scope or geographical area reasonable under such
circumstances will be substituted for the stated period, scope or area.
(f) The Principal Shareholders agree that the covenants made in this
Section 5.4 shall be construed as an agreement independent of any provision of
this Agreement and shall survive any order of a court of competent jurisdiction
terminating any other provision of this Agreement.
5.5. Indemnification.
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(a) Survival. Survival Periods Generally. All of the representations and
warranties of the Principal Shareholders contained in Sections 3.1 and 3.2 (the
"COMSUL REPRESENTATIONS"), shall survive the consummation of the Merger and
shall continue in full force and effect for a period of one year thereafter
(the "SURVIVAL PERIOD"); provided that if upon the earlier issuance of
Superior's audited financial statements for the fiscal year ended December 31,
1997, Superior in its discretion determines that all matters with respect to a
particular representation have been resolved by such audit, then the Survival
Period with respect to that representation shall be deemed to have expired as
of the date of the audit report. All of the representations and warranties of
Superior and Acquisition contained in Section 3.3 (the "SUPERIOR
REPRESENTATIONS") shall survive the consummation of the Merger (regardless of
any Knowledge or investigation of the Principal Shareholders or the Company)
and shall continue in full force and effect until the expiration of the
Survival Period. All covenants of the Parties in Article 5 of this Agreement
shall survive the consummation of the Merger and shall continue in full force
thereafter.
(b) Indemnification by the Principal Shareholders. Subject to Section
5.5(c), each of the Principal Shareholders shall jointly and severally
indemnify, defend and hold Superior and the Surviving Corporation, and each of
their directors, officers, employees and agents (collectively, the "ACQUIRING
PARTIES") harmless, from and against the entirety of any Adverse Consequences
any of the Acquiring Parties may suffer, sustain or become subject to, through
and after the date of the claim for indemnification, including any Adverse
Consequences any of the Acquiring Parties may suffer after the end of any
applicable Survival Period, resulting from, arising out of, relating to, in the
nature of, or caused by: (i) any breach or inaccuracy of any representation or
warranty of the Principal Shareholders or the Company in this Agreement or in
the schedules or Certificates delivered by them in connection herewith (other
than the representations and warranties set forth in Section 3.1 of this
Agreement (the "SHAREHOLDER INDIVIDUAL REPRESENTATIONS")), (ii) any
nonfulfillment or breach of any covenant or agreement on the part of the
Principal Shareholders or the Company set forth in this Agreement, (iii)
without limiting the generality of the foregoing, any claim by any Person
asserting any ownership interest in or rights to acquire any capital stock of
the Company, to the extent such ownership interest or rights are not set forth
on Section 3.2(d) of the COMSUL Disclosure Schedule, (iv) without limiting the
generality of Section 5.5(b)(i) and regardless of whether the matter is
disclosed on the COMSUL Disclosure Schedule, any Tax Liabilities arising out of
the operation of the business of the Company prior to the Effective Time, to
the extent not accrued on the Latest Balance Sheet, (v) without limiting the
generality of Section 5.5(b)(i), any Liability payable to any employee of the
Company arising out of such employee's employment with the Company prior to his
or her termination, any Liability existing under any Plan of the Company prior
to the termination of such Plan or arising out of such Plan as a result of the
termination of such employee by the Company in connection with the transactions
contemplated hereby, or any Liability to such employee under any existing
agreement or understanding between the Company or any Principal Shareholder and
such employee, in each case to the extent such Liabilities are not accrued on
the Latest Balance Sheet, or (vi) the costs and expense of defending any
action, demand or claim by any third-party against or affecting any of the
Acquiring Parties which, if true or successful, would give rise to a breach of
any of the representations, warranties or
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covenants of the Company or the Principal Shareholders, even if such action,
demand or claim ultimately proves to be untrue or unfounded. Subject to
Section 5.5(c), each Principal Shareholder shall, severally (in accordance with
their respective Pro Rata Percentages) and not jointly, indemnify, defend and
hold the Acquiring Parties harmless, from and against the entirety of any
Adverse Consequences any of the Acquiring Parties may suffer, sustain or become
subject to, through and after the date of the claim for indemnification,
including any Adverse Consequences any of the Acquiring Parties may suffer
after the end of any applicable Survival Period, resulting from, arising out
of, relating to, in the nature of, or caused by any breach or inaccuracy of any
of the Shareholder Individual Representations made by such Principal
Shareholder or any covenants made by such Principal Shareholder in this
Agreement. All Adverse Consequences for which the Acquiring Parties are
entitled to seek indemnification under this Agreement are referred to herein as
"SUPERIOR INDEMNIFIABLE LOSSES."
(c) Certain Limits On and Provisions Relating to Principal Shareholders'
Indemnification. The obligation of the Principal Shareholders to indemnify the
Acquiring Parties under any provision of this Agreement shall be subject to the
following:
(i) The aggregate liability of each Principal Shareholder hereunder
with respect to all Superior Indemnifiable Losses shall not exceed the
product of such Principal Shareholder's Pro Rata Percentage, multiplied
by the Total Transaction Value.
(ii) No Principal Shareholder will have any obligation to indemnify
the Acquiring Parties from and against any Superior Indemnifiable Losses
(other than Superior Indemnifiable Losses indemnifiable (X) under Section
5.5(b)(iii), 5.5(b)(iv) or 5.5(b)(v), or (Y) with respect to a breach of
any Principal Shareholder Individual Representations or the
representation in Section 3.2(f)(ii), as to which this Section 5.5(c)(ii)
shall not apply) until the Acquiring Parties have first suffered such
aggregate Superior Indemnifiable Losses in excess of $100,000 (the
"DEDUCTIBLE"), after which point the Principal Shareholders shall
indemnify the Acquiring Parties for all further Superior Indemnifiable
Losses; provided that no Superior Indemnifiable Losses arising under
Section 3.2(w) will be indemnifiable or apply towards the Deductible
until the aggregate Superior Indemnifiable Losses under Section 3.2(w)
have exceeded $100,000 or the aggregate of Superior Indemnifiable Losses
under Section 3.2(w) and Superior Indemnifiable Losses under all other
provisions of the Agreement have exceeded $150,000, whichever occurs
first, after which point all further Superior Indemnifiable Losses under
Section 3.2(w) shall be indemnifiable and shall apply towards the
Deductible.
(iii) For purposes of determining liability for Superior Indemniable
Losses arising out of Section 5.5(b)(i) of this Agreement, Sections
3.2(u) and (w) shall be read without reference to or benefit of the
matters disclosed in Sections 3.2(u)(3)-(4) of the COMSUL Disclosure
Schedule.
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(iv) No Principal Shareholder shall have any obligation to indemnify
the Acquiring Parties from and against any Superior Indemnifiable Losses
arising out of the breach of any of the COMSUL Representations, unless
the Acquiring Parties make a written claim within the Survival Period
with respect to the breach which gives rise to such Superior
Indemnifiable Losses.
(d) Indemnification by Superior. Subject to Section 5.5(e), Superior
shall indemnify, defend and hold the Principal Shareholders harmless from and
against the entirety of any Adverse Consequences the Principal Shareholders may
suffer, sustain or become subject to, through and after the date of the claim
for indemnification, including any Adverse Consequences the Principal
Shareholders may suffer after the end of the Survival Period, resulting from,
arising out of, relating to, in the nature of, or caused by: (i) any breach or
inaccuracy of any representation or warranty of Superior or Acquisition in this
Agreement or in the schedules or certificates delivered by them in connection
herewith, (ii) any nonfulfillment or breach of any covenant or agreement on the
part of Superior or Acquisition set forth in this Agreement, (iii) any and all
Liabilities arising out of the operation of the business of the Surviving
Corporation after the Closing Date, (iv) any claim brought against the Company
or any of the Principal Shareholders by an employee of the Company solely and
directly as a result of such employee or any Plans being terminated in
connection with the Merger (but not any Liability payable to any employee of
the Company arising out of such employee's employment with the Company prior to
his or her termination, any Liability existing under any Plan of the Company
prior to the termination of such Plan or arising out of such Plan as a result
of the termination of such employee by the Company in connection with the
transactions contemplated hereby, or any Liability to such employee under any
existing agreement or understanding between the Company or any Principal
Shareholder and such employee), (v) any claim brought against any of the
Principal Shareholders by any other shareholder of the Company identified on
Schedule 3.2(d) of the COMSUL Disclosure Schedule, solely in such other
shareholder's capacity as such, which arises directly as a result of the Merger
and solely by reason of the fact that such Principal Shareholder was an officer
and director of the Company, or (vi) subject to Section 5.5(e), the costs and
expense of defending any action, demand or claim by any third-party against or
affecting any of Principal Shareholders which, if true or successful, would
give rise to a breach of any of the representations, warranties or covenants of
Superior or Acquisition, even if such action, demand or claim ultimately proves
to be untrue or unfounded. All Adverse Consequences for which the Principal
Shareholders may seek indemnification under this Agreement are referred to
herein as the "COMSUL INDEMNIFIABLE LOSSES."
(e) Limits on Superior's Indemnification. The obligation of Superior to
indemnify the Principal Shareholders under this Section 5.5 shall be subject to
the following:
(i) Superior will not have any obligation to indemnify the Principal
Shareholders from and against any COMSUL Indemnifiable Losses (other than
COMSUL Indemnifiable Losses indemnifiable under Sections 5.5(d)(iii),
5.5(d)(iv) or 5.5(d)(v), as to which this Section 5.5(e)(i) shall not
apply), until the Principal Shareholders have first suffered such
aggregate COMSUL Indemnifiable Losses in
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excess of $100,000, after which point Superior shall indemnify the
Principal Shareholders for all further COMSUL Indemnifiable Losses;
(ii) Superior shall have no obligation to indemnify the Principal
Shareholders from and against any COMSUL Indemnifiable Losses arising out
of the breach of any of the Superior Representations unless the Principal
Shareholders make a written claim within the Survival Period with respect
to the breach of which gives rise to such COMSUL Indemnifiable Losses.
(f) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give
rise to a claim by such Indemnified Party for indemnification against any
other Party (the "INDEMNIFYING PARTY") under this Agreement, then the
Indemnified Party shall notify each Indemnifying Party thereof promptly;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party
from any liability or obligation hereunder unless (and then solely to the
extent that) the Indemnifying Party is damaged thereby.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the
Indemnifying Party's choice, reasonably satisfactory to the Indemnified
Party, so long as (A) the Indemnifying Party notifies the Indemnified
Party, within fifteen (15) business days after the Indemnified Party has
given notice of the Third Party Claim to the Indemnifying Party (or by
such earlier date as may be necessary under applicable procedural rules
in order to file a timely appearance and response) that the Indemnifying
Party is assuming the defense of such Third Party Claim and will
indemnify the Indemnified Party against such Third Party Claim in
accordance with the terms and limitations of this Section 5.5, and (B)
the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the conditions set forth in Section 5.5(f)(ii) are
and remain satisfied, then (A) the Indemnifying Party may conduct the
defense of the Third-Party Claim in accordance with Section 5.5(f)(ii),
(B) the Indemnified Party may retain separate co-counsel at its sole cost
and expense (except that the Indemnifying Party will be responsible for
the fees and expenses of the separate co-counsel to the extent the
Indemnified Party reasonably concludes that the counsel the Indemnifying
Party has selected has an actual or potential conflict of interest), (C)
the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (not to be
unreasonably withheld, conditioned or delayed), (D) the Indemnifying
Party will not consent to the entry of any judgment with respect to the
matter, or enter into any settlement which either imposes an injunction
or other equitable relief upon the Indemnified Party or does not include
a provision whereby the plaintiff or claimant in the
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<PAGE> 46
matter releases the Indemnified Party from all Liability with respect
thereto, and (E) the Indemnified Party shall, at the Indemnifying Party's
reasonable request and at the Indemnifying Party's expense, cooperate in
the defense of the matter. In the event that the conditions in Section
5.5(f)(ii) are not or become unsatisfied in the case of any Third Party
Claim, then the Indemnified Party may assume control of the defense of
such claim.
(g) No Contribution. None of the Principal Shareholders shall have any
right of contribution against the Surviving Corporation with respect to any
Indemnifiable Losses.
(h) Share Set Off For Unpaid Claims; Contingent Escrow. In addition to
any other rights Superior may have under this Agreement or otherwise at law or
in equity, Superior shall be entitled to set off the full amount of any claims
for Superior Indemnifiable Losses under Section 5.5 which have theretofore been
resolved against the Principal Shareholders but have not been paid ("UNPAID
CLAIMS"), against any shares of Superior Common held by the Principal
Shareholders, at the times and in accordance with the provisions set forth in
this Section 5.5(h). Each set off shall be effected by way of the return to
Superior without consideration of a number of shares of Superior Common held by
the Principal Shareholders (pro rata in accordance with their respective Pro
Rata Percentages) having any aggregate value (based on the Average Stock Price,
the "VALUE") equal to the amount of such Unpaid Claim. Such share return may
be effected by written notice to the Principal Shareholders and Superior's
stock registrar, and the Principal Shareholders hereby acknowledge and agree
that a copy of this Section 5.5(h) shall serve as sufficient authorization to
Superior's Stock registrar to give effect to any such share return in
accordance herewith. Superior shall be entitled to irrevocably set off the
full amount of any Unpaid Claim promptly following the payment due date in any
judgment or settlement with respect thereto. Notwithstanding the foregoing,
the Principal Shareholders shall have the right to satisfy any Superior
Indemnifiable Losses with either cash or through return of shares of Superior
Common (valued at the Average Stock Price). On the first anniversary of the
Effective Time, if there are any unresolved claims for Superior Indemnifiable
Losses ("PENDING CLAIMS"), the Principal Shareholders shall deposit into escrow
(pro rata in accordance with their respective Pro Rata Percentages) a number of
shares of Superior Common having an aggregate Value equal to Superior's good
faith estimate of the amount of such Pending Claims (but in no event exceeding
$900,000 in the aggregate) pending resolution thereof. The escrow shall be
maintained and administered pursuant to an Escrow Agreement among Superior, the
Principal Shareholders and Harris Trust and Savings bank in the form of Exhibit
A attached hereto.
5.6. Dispute Resolution Regarding Indemnification. In the event that any
dispute should arise among the Parties with respect to any claims under Section
5.5, the Parties shall first use their best efforts to resolve such dispute
among themselves. If the Parties are unable to resolve the dispute within 30
calendar days after the commencement of efforts to resolve the dispute, the
dispute will be submitted to arbitration in accordance with Subsection 5.7
hereof.
5.7. Arbitration.
45
<PAGE> 47
(a) Either Superior or the Principal Shareholders may submit any matter
referred to in Subsection 5.6 hereof to binding arbitration by notifying the
other party hereto, in writing, of such dispute and submission.
(b) Either party requesting arbitration shall serve a written demand for
arbitration on the other party by registered or certified mail. The demand
shall set forth a statement of the nature of the dispute, the amount involved
and the remedies sought. Each party shall have the right to be represented by
counsel and shall have the right to full discovery. Except as specifically
provided herein, the arbitration shall be conducted by and in accordance with
the commercial rules of the American Arbitration Association, and the
arbitrator's ruling shall be in accordance with law and the terms of this
Agreement. The arbitrator shall not have the power to amend this Agreement in
any respect.
(c) No later than twenty (20) calendar days after a demand for arbitration
is served, the parties shall jointly select and appoint a disinterested person
to act as the arbitrator. In the event that the parties do not agree on the
selection of an arbitrator, each party shall select an arbitrator within ten
(10) days after the date on which the parties do not agree on the selection of
a sole arbitrator and the two arbitrators so selected shall select a third
arbitrator within ten (10) days after the parties select their arbitrators; the
provisions set forth herein regarding the single arbitrator shall apply to the
three arbitrators so selected. Any arbitrator designated hereunder shall not
now or in the three years preceding such arbitration be an employee,
consultant, officer, director or shareholder of any party hereto or any
Affiliate of any Party to this Agreement or have now or in the three years
preceding such arbitration any business relationship with any party hereto or
any Affiliate of any party hereto.
(d) No later than ten (10) calendar days after the arbitrator is
appointed, the arbitrator shall schedule the arbitration for a hearing to
commence on a mutually convenient date. The hearing shall commence no later
than thirty (30) calendar days after the arbitrator is appointed and shall
continue from day to day until completed.
(e) Each Party shall direct the arbitrator to use his or her best efforts
to rule on each disputed issue within 30 days after the completion of the
hearings described in paragraph (c) above. The determination of the arbitrator
as to the resolution of any dispute shall be binding and conclusive upon all
Parties; provided, that the arbitrator may not award any punitive damages. All
rulings of the arbitrator shall be in writing, shall set forth the basis for
the decision and shall be delivered to the Parties.
(f) The prevailing party in any arbitration shall be entitled to an award
of reasonable attorneys' fees incurred in connection with the arbitration and
the disputed issues with respect thereto. The non-prevailing party shall pay
such fees, together with the fees of the arbitrator and the costs and expenses
of the arbitration. For purposes hereof, a party seeking payment of any amount
in arbitration shall be deemed to be the prevailing party if it is determined
that such party is entitled to receive at least 75% of the payment initially
claimed by it to be due to such party in such arbitration, and the party from
which such payment is sought
46
<PAGE> 48
shall be deemed to be the "prevailing party" if the other party is not so
deemed to be the prevailing party.
(g) Any arbitration pursuant to this Subsection 5.7 shall be conducted in
the County of Oakland, State of Michigan. Any arbitration award may be entered
in and enforced by any court having jurisdiction thereof and the parties hereby
consent and commit themselves to the jurisdiction of the courts of the State of
Michigan and the United States District Court for the Eastern District of
Michigan, Southern Division at Detroit for purposes of the enforcement of any
arbitration award.
5.8. Miscellaneous.
(a) Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement
without the prior written approval of the other Party; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by law or regulation, including, without limitation, any disclosures made
necessary by Superior's status as a public company (in which case the
disclosing Party will advise the other Party prior to making the disclosure)
and shall insofar as may be practicable reflect on such disclosure
substantially all reasonable comments of the other parties.
(b) No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the other documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, that may have related in any way to the
subject matter hereof. Without limiting the generality of the foregoing, this
Agreement supersedes the letter of intent between Superior and the Company
dated May 8, 1997.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign this Agreement or any of
such Party's rights, interests, or obligations hereunder without the prior
written approval of the other Parties.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) three
(3) business days after it is sent
47
<PAGE> 49
by registered or certified mail, return receipt requested, postage prepaid,
(ii) one day after receipt is electronically confirmed, if sent by fax
(provided that a hard copy shall be promptly sent by first class mail), or
(iii) one (1) business day following deposit with a recognized national
overnight courier service for next day delivery, charges prepaid, and, in each
case, addressed to the intended recipient as set forth below:
If to the Company: With a Copy To:
- ----------------- --------------
COMSUL, Ltd. Fulbright & Jaworski L.L.P.
15995 North Barkers Landing - Suite 111 1301 McKinney Street - Suite 5100
Houston, Texas 77079 Houston, Texas 77010
Fax: (281) 597-1493 Fax: (713) 651-5246
Attn: President Attn: Robert E. Wilson
If to the Principal Shareholders: With a Copy To:
- -------------------------------- --------------
c/o Michael Dillingham Fulbright & Jaworski L.L.P.
COMSUL, Ltd. 1301 McKinney Street - Suite 5100
15995 North Barkers Landing - Suite 111 Houston, Texas 77010
Houston, Texas 77079 Fax: (713) 651-5246
Fax: (281) 597-1493 Attn: Robert E. Wilson
Attn: President
If to Superior or Acquisition: With a Copy To:
- ----------------------------- --------------
Superior Consultant Holdings Corporation Sachnoff & Weaver, Ltd.
4000 Town Center - Suite 1100 30 South Wacker Drive - Suite 2900
Southfield, Michigan 48075 Chicago, Illinois 60611
Fax: (810) 386-8392 Fax: (312) 207-6400
Attn: General Counsel Attn: William E. Doran
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication shall
be deemed to have been duly given unless and until it actually is delivered to
the individual for whom it is intended. Any Party may change the address to
which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other Parties notice in the manner herein set
forth.
(g) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Michigan, without giving
effect to any choice of law or conflict of law provision or rule (whether of
the State of Michigan or any other
48
<PAGE> 50
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Michigan.
(h) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Superior, the Company and each of the Principal Shareholders. The Company may
consent to any such amendment at any time prior to the Effective Time with the
prior authorization of its board of directors; provided, however, that after
the Principal Shareholders have approved the Merger, no amendment may be made
which would have the effect of reducing the amount of Superior Common into
which any share of Company Stock will be converted in the Merger without the
further approval of the Principal Shareholders (or their legal representatives)
holding a majority of the outstanding shares of Company Stock outstanding
immediately prior to the Effective Time. No waiver by any Party of any
default, misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
occurrence of such kind.
(i) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the invalid or unenforceable term or provision in
any other situation or in any other jurisdiction. If a final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(j) Expenses. Except as otherwise explicitly provided in this Agreement,
each of Superior and the Principal Shareholders will bear his or its own direct
and indirect costs and expenses (including fees and expenses of legal counsel,
investment bankers, brokers or other representatives or consultants) incurred
in connection with the negotiation, preparation and execution of this Agreement
and the transactions contemplated hereby, whether or not such transactions are
consummated. If the Merger is consummated, then, the Surviving Corporation
shall pay the expenses incurred by the Company in connection with the Merger
and this Agreement, not to exceed $175,000. Any such expenses in excess of
such amount shall be paid by the Principal Shareholders and shall not be paid
or accrued by the Company or become post-Closing obligations of the Surviving
Corporation. Notwithstanding the foregoing, Superior acknowledges that if the
Merger is consummated, the Surviving Corporation shall pay the accounting fees
and expenses incurred by the Company in connection with the preparation of the
audited financial statements contemplated by Section 5.2. All premium and
termination costs incurred in connection with the termination of the Company's
existing insurance policies (other
49
<PAGE> 51
than the professional liability policy) shall be considered fees and expenses
of the Company for all purposes of this Section 5.8(j); provided, that the
Surviving Corporation gives notice of termination of such policies within five
business days after the Effective Time.
(k) Construction. The Parties have jointly participated in the
negotiation and drafting of this Agreement. In the event of an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumptions or burdens of proof
shall arise favoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any Federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
Parties intend that each representation, warranty and covenant contained herein
shall have independent significance. Each defined term used in this Agreement
has a comparable meaning when used in its plural or singular form. Each
gender-specific term used herein has a comparable meaning whether used in a
masculine, feminine or gender-neutral form. The term "include" and its
derivatives shall have the same construction as the phrase "include, without
limitation," and its derivatives. The section headings contained in this
Agreement are inserted for convenience or reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
(l) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(m) Directly or Indirectly. Where any provision in this Agreement refers
to action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether the action in question is
taken directly or indirectly by such Person.
* * * * *
50
<PAGE> 52
IN WITNESS WHEREOF, the Parties hereto have executed this Plan and
Agreement of Merger as of the date first above written.
CMSL ACQUISITION CORP. COMSUL, LTD.
By: /s/ James T. House By: /s/ Michael Dillingham
-------------------------- --------------------------
Title: Chief Financial Officer Title: Executive Vice President
-------------------------- --------------------------
SUPERIOR CONSULTANT
HOLDINGS CORPORATION
By: /s/ James T. House
------------------------
Title: Chief Financial Officer
------------------------
THE PRINCIPAL SHAREHOLDERS:
--------------------------------
/s/ Michael R. Dillingham
--------------------------------
Michael R. Dillingham
/s/ James D. Posner
--------------------------------
James D. Posner
/s/ John P. Ungar
--------------------------------
John P. Ungar
/s/ Peter B. Valentine
--------------------------------
Peter B. Valentine
51
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS FOR THE 2ND QUARTER ENDED 6/30/97 CONTAINED IN
THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,979
<SECURITIES> 0
<RECEIVABLES> 10,943
<ALLOWANCES> (389)
<INVENTORY> 0
<CURRENT-ASSETS> 42,977
<PP&E> 6,145
<DEPRECIATION> (2,090)
<TOTAL-ASSETS> 51,993
<CURRENT-LIABILITIES> 6,225
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 45,112
<TOTAL-LIABILITY-AND-EQUITY> 51,993
<SALES> 25,974
<TOTAL-REVENUES> 25,974
<CGS> 0
<TOTAL-COSTS> 12,963
<OTHER-EXPENSES> 10,369
<LOSS-PROVISION> 157
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,618
<INCOME-TAX> 1,440
<INCOME-CONTINUING> 2,178
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,178
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<PAGE> 1
EXHIBIT 99.2
NEWS RE:
BULLETIN
SUPERIOR CONSULTANT HOLDINGS CORPORATION
From: 4000 Town Center, Suite 1100
FRB Southfield, MI 48075
NASDAQ: SUPC
________________________________________________________________________________
The Financial Relations Board, Inc.
FOR FURTHER INFORMATION:
<TABLE>
<S> <C>
AT THE COMPANY: AT FRB CHICAGO:
Richard D. Helppie -- Chairman, President & CEO Jim Ketelsen -- General Information
James T. House -- Chief Financial Officer Robb Kristopher -- Analyst Contact
Susan M. Synor -- Chief Administrative Officer Darcy Bretz -- Media Contact
(248) 386-8300 (312) 266-7800
</TABLE>
FOR IMMEDIATE RELEASE
TUESDAY, JULY 29, 1997
SUPERIOR CONSULTANT HOLDINGS CORPORATION ANNOUNCES COMPLETION OF MERGER
ARRANGEMENTS BETWEEN ENTERPRISE CONSULTING GROUP AND COMSUL, LTD.
SOUTHFIELD, MICH., JULY 29,1997-SUPERIOR CONSULTANT HOLDINGS CORPORATION
(NASDAQ: SUPC) today announced that its wholly owned information technology
consulting subsidiary, Enterprise Consulting Group (formerly Unitive Corp.)
acquired, in a merger transaction, COMSUL, Ltd., a nationally recognized
information technology consulting firm specializing in information systems,
telecommunications, and corporate facilities and organizational design for a
wide range of national and international clients. The letter of intent to merge
was released on June 24, 1997. As anticipated, the merger is a pooling
transaction, valued at $8.3 million and is expected to be accretive for 1997.
COMSUL's trailing twelve-month revenues are approximately $7.5 million,
unaudited.
Commenting on the merger, Richard D. Helppie, Superior Consultant Holdings
Corporation's President and CEO, says:
"With industries consolidating at an accelerated rate, our clients
demand that professional service firms maintain highly competent
resources to deliver quality service. The addition of COMSUL, Ltd.
propels Enterprise Consulting Group's telecommunications capabilities
to an even higher level of service. Together--in talent and in scale--
we can offer our cross-industry clients the competitive advantage of a
complete network and telecommunications consulting force."
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<PAGE> 2
SUPERIOR CONSULTANT HOLDINGS CORP.
ADD ONE
COMSUL, Ltd. has provided technology consulting and project management services
for over 3,000 corporate, government, healthcare, academic, and financial
clients since the company's establishment in 1967. COMSUL maintains offices in
San Francisco, Los Angeles, Houston, and New York. COMSUL employs 60 business
and technical specialists with credentials and experience in voice and data
communications systems; call center design; network design; voice, data and
video communications integration; and corporate facilities design. To assist
clients in achieving the greatest economic benefits from their deployment of
technology, the COMSUL work force comprises professionals such as MBAs, CPAs,
Registered Professional Engineers, Registered Communications Distribution
Designers, and Certified Network Engineers.
Douglas W. Ruth, President of Enterprise Consulting Group, adds:
"COMSUL is one of the largest independent telecommunications consulting
firms of its kind in the country, and we are excited about what this
merger will add to our business. As COMSUL joins Enterprise Consulting
Group, our combined operational strengths will be fully equipped to
serve all industries as the sole consulting resource for information
technology success. Our merged capabilities will ensure that all our
clients receive the attention, expertise, and prompt service delivery
they require to remain competitive and to enjoy the best return on
their technology investment."
Peter Valentine, President of COMSUL, Ltd., comments:
"In 1967, COMSUL, Ltd. set a standard to meet and exceed our clients'
needs. By joining Enterprise Consulting Group, we are in the optimal
position to continue to uphold that standard while increasing the scope
and depth of our service capabilities. Like COMSUL, Enterprise seeks to
employ innovative solutions that anticipate clients' needs for both
immediate and long-term success. We are pleased to combine forces with a
firm that shares our commitment to total quality solutions."
This release contains forward-looking statements relating to future
financial results or business expectations. Business plans may change as
circumstances warrant. Actual results may differ materially as a result of
factors over which the company has no control. Such factors include, but are
not limited to: acquisitions contracted or under consideration, significant
client assignments, recruiting and new business solicitation efforts,
regulatory changes and general economic conditions. These risk factors and
additional information are included in the company's reports on file with the
Securities and Exchange Commission.
ABOUT THE CORPORATION
Superior Consultant Holdings Corporation (NASDAQ: SUPC) is a national consulting
firm comprising two subsidiaries: Superior Consultant Company, Inc.
(established in 1984) offers a
MORE...
<PAGE> 3
SUPERIOR CONSULTANT HOLDINGS CORP.
ADD TWO
full array of strategic, managerial, operational and technical services to all
segments of the healthcare industry; and Enterprise Consulting Group
(established in 1993, formerly called Unitive Corporation) extends its service
offerings to clients across a wide range of industries in the development,
design, implementation and maintenance of communications technologies,
groupware and intranet/internet information systems and solutions.
FOR MORE INFORMATION ON SUPERIOR CONSULTANT HOLDINGS CORPORATION
SIMPLY DIAL 1-800-PRO-INFO AND ENTER THE COMPANY TICKER: SUPC
(A NO-COST FAX-ON-DEMAND SERVICE)
OR VISIT THE COMPANY'S WEBSITE AT WWW.SUPERIORCONSULTANT.COM
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