<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 7, 1998
COMPLETE BUSINESS SOLUTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-22141 38-2606945
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
32605 WEST TWELVE MILE ROAD, SUITE 250, FARMINGTON HILLS, MI 48334
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(248) 488-2088
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 2. ACQUISITIONS AND DISPOSITIONS OF ASSETS
On January 7, 1998 Complete Business Solutions, Inc. ("CBSI") signed a
definitive Merger Agreement with privately held c.w. Costello & Associates,
Inc. ("Costello"). Completion of the merger is subject to the approval of the
Costello shareholders, the completion of CBSI's due diligence process and
making the appropriate governmental filings.
The Merger Agreement requires CBSI to convert all outstanding Costello options
into CBSI options and exchange 1,681,545 shares of CBSI common stock for all
of the outstanding common stock of Costello. In addition, Costello will
appoint two directors to the CBSI Board of Directors.
In negotiating the purchase price, the Company considered the current market
value of its common stock, Costello's reputation as a premiere provider of IT
services to large and mid-sized corporations, the minimal overlap of Costello
and CBSI clients, the broad range of IT services provided by Costello,
Costello's 750 IT professionals and the opportunity to improve
Costello's margins.
The Merger Agreement provides that the closing of the transaction occur as
soon as practicable but no later than January 31, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
Financial Statements and Pro Forma Information.
As provided under Item 7(a)(4) of Form 8-K, the Company will file the required
financial statements and pro forma financial information regarding the acquired
assets and business formerly operated by Costello within 60 days of the date
when this initial report must be filed because providing such statements and
information at this time is impracticable. It is expected that such statements
and information will be filed, by amendment, on or before March 23, 1998.
Exhibit No. Description
- ----------- -----------
10.1 Agreement and Plan of Merger dated as of January 7, 1998 between
Costello, CBSI Acquisition Corporation
II and Complete Business Solutions, Inc.
10.2 Registration Rights Agreement by and among Complete Business
Solutions, Inc., and the shareholders of Costello.
<PAGE> 3
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Complete Business Solutions, Inc.
Dated: January 22, 1998
By: /s/ Timothy S. Manney
-------------------------
Timothy S. Manney
Executive Vice President for Finance and
Administration
<PAGE> 4
EXHIBIT INDEX
10.1 Agreement and Plan of Merger dated as of January 7, 1998 between
Costello, CBSI Acquisition Corporation II and
Complete Business Solutions, Inc.
10.2 Registration Rights Agreement by and among Complete Business Solutions,
Inc., and the shareholders of Costello.
<PAGE> 1
EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of January 7, 1998 (this
"Agreement") among C. W. Costello & Associates, Inc., a Delaware corporation
("Merging Company"), CBSI Acquisition Corporation II, a Michigan corporation
("Acquisition Company"), and Complete Business Solutions, Inc., a Michigan
corporation ("Acquiror"). Unless otherwise defined in this Agreement,
capitalized terms used in this Agreement shall have the meanings given in
Section 1.
WITNESSETH:
WHEREAS, the respective Boards of Directors of Merging Company,
Acquisition Company and Acquiror deem it advisable to merge Merging Company
with and into Acquisition Company, whereby the holders of shares of Merging
Company Common Stock which are outstanding as of the Effective Time shall be
entitled to receive shares of Acquiror Common Stock for shares of Merging
Company Common Stock, in the manner and upon the terms and conditions set forth
herein;
WHEREAS, the respective Boards of Directors of each of the Constituent
Corporations have approved and adopted this Agreement as a plan of
reorganization under Section 368(a) of the Code; and the parties intend that
the Merger will be accounted for as a pooling of interests;
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the conditions and promises herein contained, and intending to be legally bound
hereby, Merging Company, Acquisition Company and Acquiror hereby adopt and
approve this Agreement and agree as follows:
SECTION 1 DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "ACQUIROR" means Complete Business Solutions, Inc., a Michigan
corporation.
1.2 "ACQUIROR COMMON STOCK" means the common stock, without par value, of
Acquiror.
1.3 "ACQUISITION COMPANY" means CBSI Acquisition Corporation II, a
Michigan corporation.
1.4 "ACQUISITION COMPANY COMMON STOCK" means the common stock, without par
value, of Acquisition Company.
<PAGE> 2
1.5 "AFFILIATE" of a person means: (1) any person which, directly or
indirectly, controls, is controlled by or is under common control with such
person; (2) any member of a controlled group of corporations or a group of
trades or businesses under common control with the person; and (3) any director
or executive officer of such person. "Control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
in this Section 1.5, means the possession, directly or indirectly, of the power
in any form to direct or cause the direction of the management and policies of
the person in question.
1.6 "AGREEMENT" means this Agreement and Plan of Merger, as same may be
amended in accordance with its terms.
1.7 "ARBITRATOR" means the arbitrator(s) selected to arbitrate a dispute
under Section 4.2.1 in Detroit, Michigan.
1.8 "AUDITOR" means Arthur Andersen LLP.
1.9 "BALANCE SHEET" means the unaudited balance sheet dated as of November
30, 1997, prepared in accordance with generally accepted accounting principles
consistently applied, attached hereto as Exhibit 1.9.
1.10 "BALANCE SHEET DATE" means the date of the Balance Sheet.
1.11 "BENEFIT PLAN" means all pension, retirement, supplemental
retirement, deferred compensation, excess benefit, profit sharing, bonus,
incentive stock, stock purchase, stock ownership, stock option, stock
appreciation right, employment, severance, salary continuation, termination,
change-of-control, health, life, disability, group insurance, vacation,
sick-pay, holiday, and fringe benefit plans, policies, contracts, or
arrangements maintained, contributed to or required to be contributed to by
Merging Company or any Affiliate of Merging Company, other than a Multiemployer
Plan, Pension Plan, or Welfare Plan.
1.12 "CERTIFICATE OF MERGER" means a Certificate of Merger implementing
the Merger in accordance with the terms of this Agreement and Section 707 of
the Michigan Business Corporation Act, in substantially the form attached to
this Agreement as Exhibit 2.1.
1.13 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute.
1.14 "COMPUTER SYSTEMS" means all computer systems used by or for the
benefit of Merging Company at any time, including computer processors,
associated and peripheral equipment, computer programs, technical and other
documentation, created by the foregoing from time to time, but excluding any
computer systems owned by clients of Merging Company or provided by such
clients for use by Merging Company.
2
<PAGE> 3
1.15 "CONFIDENTIAL INFORMATION" means trade secrets, know-how, inventions,
techniques, processes, algorithms, software programs, schematics, designs,
contracts, customer lists, financial information, sales and marketing plans,
business information, and all non-public information.
1.16 "CONSTITUENT CORPORATIONS" means Acquisition Company and Merging
Company.
1.17 "EFFECTIVE TIME" means the time at which the Certificate of Merger
is filed by the Michigan Department of Consumer and Industry Services.
1.18 "EMPLOYMENT AGREEMENT" means an employment agreement in the form
attached to this Agreement as Exhibit 4.1.5 to be entered into between
Acquisition Company and the Executives, pursuant to Section 4.1.5.
1.19 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
1.20 "ESCROW AGENT" means NBD Bank, N.A., which shall act as escrow agent
under the Escrow Agreement.
1.21 "ESCROW AGREEMENT" means the agreement in the form attached to this
Agreement as Exhibit 4.1.3 among Acquisition Company, Acquiror, Merging
Shareholders' Representative, and the Escrow Agent entered into pursuant to
Section 4.1.3 which sets forth the duties and responsibilities of the Escrow
Agent in respect of holding and distributing shares of Acquiror Common Stock to
the Merging Company Shareholders, or Acquiror.
1.22 "ESCROW SHARES" means the shares of Acquiror Common Stock delivered
to the Escrow Agent by Acquisition Company and Acquiror on behalf of the
Merging Company Shareholders pursuant to Section 4.1.4.
1.23 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any substituted federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
1.24 "EXECUTIVES" means, collectively, employees of Merging Company at
Level 6 and above.
1.25 "FINAL RELEASE CERTIFICATE" means the certificate, in the form
attached to this Agreement, as Exhibit 4.2.1.
1.26 "FINAL RELEASE CERTIFICATE DELIVERY DATE" means 15 days prior to the
Final Release Delivery Date.
1.27 "FINAL RELEASE DELIVERY DATE" means the earlier of 12 months after
the Effective Time or the date of the delivery of the audited financial
statements of the Acquiror for the year
3
<PAGE> 4
ended December 31, 1998 (which financial statements shall include the Surviving
Corporation) by the Auditor to Acquiror, which shall be the date upon which the
Escrow Agent shall deliver Escrow Shares to the Merging Company Shareholders or
Acquiror (if any); provided that the Escrow Agent has received a fully executed
Final Release Certificate.
1.28 "FINAL RELEASE SHARES" means the Escrow Shares to be released to a
Merging Company Shareholder or Surviving Corporation or Acquiror (if any) on
the Final Release Delivery Date.
1.29 "FINANCIAL STATEMENTS" means the following financial statements: (1)
the audited balance sheets, statements of income and stockholders equity, and
statements of cash flows of Merging Company, prepared in accordance with
generally accepted accounting principles, consistently applied, for the years
ended December 31, 1995, December 31, 1996 and December 31, 1997; (2) 1996 and
1997 unaudited quarterly financial information of Merging Company; and (3) the
unaudited balance sheet, statement of income and stockholders equity, and
statement of cash flows for the eleven month period ended November 30, 1997.
1.30 "HAZARDOUS MATERIAL" means any hazardous substance, pollutant,
contaminant, waste or other material regulated under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq.; petroleum, natural gas, natural gas liquids, liquefied natural gas and
synthetic gas usable for fuel; asbestos and asbestos-containing materials; urea
formaldehyde; polychlorinated biphenyls and other substances regulated under
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; pesticides
regulated under the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. Section 136 et seq.; radioactive materials regulated under the Atomic
Energy Act, 42 U.S.C. Section 2014 et seq., or the Nuclear Waste Policy Act,
42 U.S.C. Section 10101 et seq.; and chemicals subject to the Occupational
Safety and Health Act Hazard Communications Standard, 29 C.F.R. Section
1910.1200 et seq.
1.31 "LIENS" means liens, landlord liens, easements, mortgages, pledges,
agreements and rights of others on, in or with respect to the real and personal
properties owned by Merging Company.
1.32 "MERGER" means the merger of Merging Company with and into
Acquisition Company as contemplated by this Agreement.
1.33 "MERGER CONSIDERATION" means 1.77841 shares of Acquiror Common Stock
for each share of Merging Company Common Stock. This will be equal to the
number of shares of Acquiror Common Stock obtained by dividing 1,710,000 by the
sum of (a) the number of shares of Merging Company Common Stock outstanding
plus (b) the number of shares subject to purchase under existing and
outstanding options of Merging Company Common Stock as of the Effective Time.
1.34 "MERGER DATE STOCK PRICE" means the average of the closing price of
Acquiror Common Stock on NASDAQ-NMS as reported in the Wall Street Journal for
the five trading days preceding the Effective Time.
4
<PAGE> 5
1.35 "MERGING COMPANY" means C. W. Costello & Associates, Inc., a Delaware
corporation.
1.36 "MERGING COMPANY COMMON STOCK" means the common stock of Merging
Company.
1.37 "MERGING COMPANY PHANTOM STOCK RIGHTS" means the Merging Company's
deferred compensation plan whereby a participant is entitled to receive an
amount of compensation measured by the book value of the Merging Company Common
Stock upon termination of employment with Merging Company or upon termination
of the plan.
1.38 "MERGING COMPANY SHAREHOLDERS" means, collectively, all of the
holders of all of the issued and outstanding Merging Company Common Stock.
1.39 "MERGING COMPANY TRANSACTION COSTS" means costs and expenses of
Merging Company relating to the Merger and paid or to be paid by Merging
Company to third parties, including without limitation the fees and expenses of
investment bankers, accountants, attorneys and consultants.
1.40 "MERGING SHAREHOLDERS' REPRESENTATIVE" means Charles W. Costello or
his successor.
1.41 "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Merging Company or any Affiliates
contribute, is required to contribute, or has contributed within the
immediately preceding six years.
1.42 "NASDAQ-NMS" means the National Association of Securities Dealers
Automated Quotation System National Market System.
1.43 "NON-COMPETE AGREEMENT" means the non-compete agreement in the form
attached to this Agreement as Exhibit 8.1 which has been used by Merging
Company with its employees.
1.44 "PBGC" means the United States Pension Benefit Guaranty Corporation.
1.45 "PENSION PLAN" means a pension plan as defined in Section 3(2) of
ERISA (other than a Multiemployer Plan) in respect of which the Merging Company
or any Affiliate of Merging Company is, or within the immediately preceding six
years was, an "employer" as defined in Section 3(5) of ERISA.
1.46 "PLAN" means a Benefit Plan, a Pension Plan, a Multiemployer Plan or
a Welfare Plan, as the case may be.
1.47 "REAL PROPERTY" means the real property occupied by Merging Company.
5
<PAGE> 6
1.48 "REGISTRATION RIGHTS AGREEMENT" means the agreement in the form
annexed hereto as Exhibit 9.3.6.
1.49 "SECURITIES ACT" means the Securities Act of 1933, as amended, or any
substituted federal statute and the rules and regulations thereunder, all as
the same shall be in effect from time to time.
1.50 "SHAREHOLDER INDEMNIFICATION AND ACKNOWLEDGMENT AGREEMENT" means the
agreement in the form annexed hereto as Exhibit 8.14.
1.51 "SUBSIDIARY" OR "SUBSIDIARIES" means and includes any entity or
enterprise controlled by Merging Company either directly or indirectly through
one or more intermediaries, excluding C.W. Costello Realty Group, a
partnership.
1.52 "SURVIVING CORPORATION" means Acquisition Company, as merged with
Merging Company from and after the Effective Time.
1.53 "WELFARE PLAN" means any employee welfare benefit plan as defined in
Section 3(1) of ERISA which the Merging Company or any Affiliate sponsors or to
which the Merging Company is or within the immediately preceding six years was,
an "employer", as defined in Section 3(5) of ERISA.
SECTION 2 THE MERGER
2.1 THE MERGER. In accordance with the terms and conditions of this
Agreement, the Michigan Business Corporation Act and the Delaware General
Corporation Law, Merging Company shall be merged with and into Acquisition
Company, which shall be the corporation surviving the Merger. Except as
specifically set forth in this Agreement, the identity, existence, corporate
organization, purposes, powers, objects, franchises, privileges, rights and
immunities of Merging Company shall be merged with and into Acquisition Company
and Acquisition Company shall, as Surviving Corporation, be fully vested with
such characteristics. The separate existence and the corporate organization of
Merging Company, except insofar as they may continue by statute, shall cease as
of the Effective Time. As soon as practicable after the satisfaction and/or
waiver of all the terms and conditions of this Agreement, a Certificate of
Merger shall be executed by all the Constituent Corporations and filed with the
Michigan Department of Consumer and Industry Services and, not more than 30
days thereafter, with the Delaware Secretary of State. The Merger shall be
effective as of the Effective Time.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of Acquisition Company shall continue in full force and effect, from
and after the Effective Time, as the Articles of Incorporation and Bylaws of
Surviving Corporation.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Acquisition
Company shall, from and after the Effective Time, be the directors and officers
of Surviving Corporation, and all
6
<PAGE> 7
such directors and officers shall hold office from and after the Effective Time
until their respective successors are duly elected or appointed and qualify in
the manner provided in the Bylaws of Surviving Corporation or as otherwise
provided by law.
2.4 TAKING OF NECESSARY ACTION. Merging Company, Acquisition Company and
Acquiror shall take all such actions as may be reasonably necessary or
appropriate in order to effectuate the transactions contemplated hereby and to
make the Merger effective as of the Effective Time. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Surviving Corporation with full title to
all properties, assets, rights, approvals, privileges, immunities and
franchises of either Merging Company or Acquisition Company, the officers and
directors of such corporation, at the expense of Surviving Corporation, shall
take all such necessary or appropriate action.
SECTION 3 EFFECT OF MERGER ON CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
3.1 MERGING COMPANY COMMON STOCK. Each share of Merging Company Common
Stock which is outstanding as of the Effective Time shall, as of the Effective
Time, and by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and exchanged for the Merger Consideration.
Any fractional shares shall be paid in cash at the Merger Date Stock Price.
Subject to the requirement to deliver the Escrow Shares to the Escrow Agent
pursuant to Section 4.1.4, each holder of Merging Company Common Stock shall be
entitled to receive the Merger Consideration. The right of the Merging Company
Shareholders to receive the Escrow Shares shall be subject to the provisions of
Section 4.2. Each share of Merging Company Common Stock which is outstanding as
of the Effective Time shall, as of the Effective Time, and by virtue of the
Merger and without any action on the part of the holder, be canceled and shall
be without further rights or obligations, except that the holders of such
shares shall be entitled to surrender such shares in exchange for the Merger
Consideration.
3.2 STOCK OPTIONS. Each issued and outstanding option to acquire Merging
Company Common Stock held by employees, directors and officers of Merging
Company (the "Merging Company Options") which is outstanding as of the
Effective Time, automatically and without further action on the part of any
holder thereof, is assumed by the Acquiror and converted into an option to
purchase that number of shares of Acquiror Common Stock which equals the Merger
Consideration multiplied by the number of shares subject to purchase under such
Merging Company Option as of the Effective Time. The exercise price per share
of such option to acquire shares of Acquiror Common Stock will be equal to the
exercise price per share under such Merging Company Option divided by 1.77841.
Each such option to acquire shares of Acquiror Common Stock shall become
exercisable at the same time as the Merging Company Option from which it was
converted.
3.3 ACQUISITION COMPANY COMMON STOCK. Each share of the Acquisition
Company Common Stock which is outstanding as of the Effective Time and without
further action on the part of the holder thereof, shall be converted into and
become one validly issued, fully paid and non-assessable share of the common
stock, without par value, of Surviving Corporation.
7
<PAGE> 8
3.4 MERGING COMPANY STOCK TRANSFER BOOKS. The stock transfer books of
Merging Company are closed as of the Effective Time, and no transfer of shares
of Merging Company Common Stock shall be made or consummated thereafter except
by Surviving Corporation.
SECTION 4 ACTIONS TO BE TAKEN AS OF OR BEFORE THE EFFECTIVE TIME OF THE MERGER
4.1 THE CLOSING. The surrender of the shares of Merging Company Common
Stock and the payment of the Merger Consideration shall take place on or before
the Effective Time at the offices of Butzel Long, 150 W. Jefferson, Suite 900,
Detroit, Michigan 48226 (the "Closing"). Notwithstanding any provisions of
this Agreement to the contrary, the Closing shall take place on January 14,
1998, at 10:00 a.m. eastern standard time or at such other time Acquiror and
Acquisition Company may select, but not later than January 31, 1998 (the
"Closing Date"). At the Closing:
4.1.1 the Merging Company Shareholders shall surrender to Acquisition
Company certificates representing all of the issued and outstanding shares of
Merging Company Common Stock;
4.1.2 Acquisition Company shall deliver to each Merging Company
Shareholder the number of shares of Acquiror Common Stock set forth on Schedule
4.1.2 opposite such Merging Company Shareholder's name under the heading
"Shares Delivered at Closing";
4.1.3 Acquiror, Acquisition Company, Merging Shareholders' Representative
and Escrow Agent shall execute and deliver the Escrow Agreement, in the form
attached hereto as Exhibit 4.1.3;
4.1.4 Surviving Corporation shall deliver to the Escrow Agent the number
of shares of Acquiror Common Stock set forth on Schedule 4.1.2 opposite such
Merging Company Shareholder's name under the heading "Escrow Shares;" the
Merging Shareholders' Representative shall execute and deliver to the Escrow
Agent a blank stock power to permit the Escrow Agent to effect the transfer and
delivery of the Escrow Shares (not in excess of 171,000 such shares) in
accordance with the terms and conditions of the Escrow Agreement; and
4.1.5 each Executive and the employees listed on Schedule 9.2.11 shall
execute and deliver to Surviving Corporation an Employment Agreement, in the
form attached to this Agreement as Exhibit 4.1.5.
4.2 THE ESCROW. At Closing, the Escrow Shares shall be deposited with the
Escrow Agent pursuant to Section 4.1.4 and shall be held by the Escrow Agent
and released from escrow pursuant to this Section 4.2. Ownership rights in the
Escrow Shares shall be fully vested in the manner and to the extent provided in
Section 4.2.1, 4.2.2 and 4.2.3.
8
<PAGE> 9
4.2.1 (A) FINAL RELEASE FROM ESCROW. Surviving Corporation and Acquiror
shall use the Escrow Shares to satisfy claims for which it is entitled to
indemnification from the Merging Company pursuant to Section 7.1 of this
Agreement. Surviving Corporation and Acquiror will promptly notify the Merging
Shareholders' Representative in writing if Surviving Corporation or Acquiror
desires to reduce the number of Final Release Shares to be released to Merging
Company Shareholders in order to satisfy any such claims, which notice will
state the claim and the dollar amount thereof. The Merging Shareholders'
Representative will have fifteen (15) days from the date of his receipt of such
notice ("Final Release Objection Date") to object in a writing delivered to
Surviving Corporation and Acquiror to the claim or the dollar amount thereof.
If both Surviving Corporation and Acquiror receive no written objection from
the Merging Shareholders' Representative by the Final Release Objection Date,
Surviving Corporation and Acquiror may utilize the dollar amount of such claim
to reduce the number of Final Release Shares to be released to Merging Company
Shareholders. For purposes of calculating the value of the Final Release
Shares, the parties will utilize the Merger Date Stock Price.
(b) If the Merging Shareholders' Representative timely objects to the
validity or amount of any claim and Surviving Corporation, Acquiror and the
Merging Shareholders' Representative are unable to agree to the claim or the
dollar amount thereof, Surviving Corporation, Acquiror and the Merging
Shareholders' Representative shall, within thirty (30) days after the Final
Release Objection Date, submit such disputed claim to final, binding
arbitration in Detroit, Michigan, to be conducted by JAMS/Endispute, a
nationally recognized dispute resolution organization, pursuant to and in
accordance with the then applicable Arbitration Rules and Procedures of
JAMS/Endispute and the United States Arbitration Act, 9 U.S.C. Section 1-16.
Surviving Corporation, Acquiror and the Merging Shareholders' Representative
will cooperate with JAMS/Endispute and each other to select an arbitrator from
JAMS/Endispute's panel of neutral arbitrators and in scheduling the arbitration
proceeding. Surviving Corporation and Acquiror on the one hand and the
Merging Shareholders' Representative on the other hand, in his representative
capacity, agree to share equally the cost of JAMS/Endispute as used in
accordance herewith. The decision of the Arbitrator with respect to such
disputed claim will be final and binding on the parties.
(c) Immediately after resolution of such dispute, the parties shall
execute and deliver to the Escrow Agent the Final Release Certificate
reflecting the Arbitrator's decision. The Arbitrator is authorized to execute
and deliver such Final Release Certificate on behalf of any party who shall
fail to do so.
(d) On or before the Final Release Certificate Delivery Date, Surviving
Corporation and the Merging Shareholders' Representative shall execute and
deliver to the Escrow Agent the Final Release Certificate in the form attached
hereto as Exhibit 4.2.1 indicating the number of Final Release Shares
deliverable to the Merging Company Shareholders and Surviving Corporation or
Acquiror (if any) by the Final Release Delivery Date. The Final Release
Certificate shall reflect a reduction in the amount of the Final Release Shares
as a result of any claims for which the Surviving Corporation or Acquiror shall
be entitled to indemnification under Section 7. On the Final Release Delivery
Date, the Escrow Agent shall deliver the Final Release Shares to
9
<PAGE> 10
each Merging Company Shareholder and, if any, to Surviving Corporation or
Acquiror, in the amounts indicated in the Final Release Certificate.
4.2.2 VOTING. Each Merging Company Shareholder shall have the right to
vote the Escrow Shares owned by such shareholder while such shares are held in
escrow pursuant to this Section 4.2 on any matter coming before the holders of
Acquiror Common Stock for a vote.
4.2.3 DIVIDENDS AND OTHER DISTRIBUTIONS. Any and all cash dividends paid
with respect to any Escrow Shares while such shares are held in escrow pursuant
to this Section 4.2 shall be paid by Acquiror directly to each Merging Company
Shareholder as the record owner of such Escrow Shares. Any dividends or other
distributions consisting of shares of Acquiror Common Stock, other securities
or other property paid or made with respect to any Escrow Shares while such
shares are held in escrow pursuant to this Section 4.2 shall be delivered by
Acquiror or the Merging Company Shareholders to the Escrow Agent and shall be
held in escrow pursuant to this Section 4.2 in the same manner and for so long
as the Escrow Shares with respect to which such dividends or distributions were
paid or made are so held. For so long as they are held in escrow, the Escrow
Shares shall bear such legend as shall be required by the transfer agent of the
Acquiror Common Stock to facilitate the implementation of the provisions of
this Section 4.2.3.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF MERGING COMPANY
Merging Company represents and warrants to Acquisition Company and
Acquiror as follows:
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Section 5 or made by Merging Company in or
pursuant to this Agreement shall not expire as of the Effective Time and shall
survive the consummation of the Merger until the Final Release Delivery Date.
5.2 ORGANIZATION AND GOOD STANDING. Merging Company is a corporation
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and is qualified to transact business and is in
good standing as a foreign corporation in the jurisdictions where it is
required to be so qualified in order to conduct its business as presently
conducted.
5.3 CORPORATE POWER AND AUTHORITY. Merging Company has the corporate
power and authority to own, lease and operate its properties, to carry on its
business as presently conducted and to enter into and perform this Agreement.
5.4 CONSENTS AND AUTHORIZATIONS. Merging Company may execute, deliver
and perform this Agreement without the necessity of Merging Company obtaining
any consent, approval, authorization or waiver or giving any notice, except for
such consents, approvals, authorizations, waivers and notices: (1) which have
been obtained or given and are unconditional and are in full force and effect;
or (2) where the failure to obtain or give would not result in any
10
<PAGE> 11
material adverse effect on the ability of Merging Company to consummate the
transactions contemplated in this Agreement.
5.5 AUTHORIZATION, BINDING EFFECT, NO VIOLATION. This Agreement has been
duly authorized, executed and delivered by Merging Company and constitutes the
legal, valid and binding obligation of Merging Company, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency and similar laws of general application
relating to or affecting the enforcement of rights of creditors. The
execution, delivery and performance of this Agreement by the Merging Company
does not and will not:
5.5.1 constitute a violation of the Certificate of Incorporation or the
Bylaws of Merging Company; or
5.5.2 constitute a violation of any statute, judgment, order, decree or
regulation of any governmental authority or arbitrator or any rule of any court
applicable to the Merging Company or the business of Merging Company.
5.6 MINUTE BOOKS. The minute books and stock books and records of Merging
Company are accurate and complete and fairly reflect the corporate actions
heretofore taken by the board of directors and the shareholders of Merging
Company.
5.7 FINANCIAL STATEMENTS AND FINANCIAL CONDITION. The Financial
Statements have been prepared in conformity with generally accepted accounting
principles.Those for the period ending December 31, 1997, will have been
prepared in accordance with regulation S-X under the Securities Act. Those for
the periods ending December 31, 1996, and December 31, 1995, have been prepared
along with Regulation S-X Complaint Schedules. All Financial Statements are
correct and complete in all material respects and fairly present the financial
position of Merging Company as of the dates thereof and the results of
operations of Merging Company for the periods covered by the Financial
Statements. All accounts, books and ledgers; and all written communications
and schedules provided to the independent certified public accountants of
Merging Company: (i) are complete and have been accurately maintained, are in
the possession of Merging Company and contain complete and accurate records of
all matters required by law to be entered therein; (ii) do not contain or
reflect any material inaccuracies or discrepancies; and (iii) give and reflect
a complete and fair view of the matters which ought to appear therein and no
notice or allegation that any of the records is incorrect or should be
rectified has been received.
5.8 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent reflected or
reserved against in the Balance Sheet or a Schedule to this Agreement, Merging
Company, as of the Balance Sheet Date, has no liabilities or obligations of any
nature, whether accrued, absolute, contingent, or otherwise, including without
limitation, tax liabilities due or to become due, and whether incurred in
respect of or measured by Merging Company's income prior to the Balance Sheet
Date or arising out of transactions entered into, or any state of facts
existing, prior to the Balance Sheet Date. Merging Company does not know or
have reasonable grounds to know of any basis for the assertion against Merging
Company, as of the Balance Sheet Date, of any
11
<PAGE> 12
liability of any nature not fully reflected or reserved against in the Balance
Sheet or in a Schedule to this Agreement.
5.9 ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date, there has
been no change in, and there have been no material adverse events with respect
to, the business, operations, financial condition or results of operations of
Merging Company, or the assets or properties owned by Merging Company or leased
or used by Merging Company. Since the Balance Sheet Date, except as indicated
on Schedule 5.9, Merging Company has not:
5.9.1 made or agreed to make any material capital expenditure or
commitment for additions to property, plant or equipment;
5.9.2 conducted its business or operations otherwise than in the ordinary
course;
5.9.3 borrowed or raised any money, except under its existing line of
credit in the ordinary course of business;
5.9.4 issued any shares of capital stock or securities convertible into or
exchangeable for capital stock;
5.9.5 entered into any material transaction or entered into any material
contract, or amended or terminated any such transaction or contract;
5.9.6 increased or experienced any material adverse change in any
assumption underlying any method of calculating bad debts, contingencies or
other reserves from that reflected in the Financial Statements;
5.9.7 failed to pay its creditors within the times agreed with such
creditors, so that there are no debts outstanding which are in default;
5.9.8 canceled or waived any claim or right of substantial value, or sold,
transferred, distributed or otherwise disposed of any of its assets, except for
a fair consideration in the ordinary course of business;
5.9.9 paid any management fee or made any distribution of its property or
assets to its shareholders in their capacity as such, or declared, paid or set
aside for payment any dividend (of any kind or nature) or distribution with
respect to shares of its capital stock; or
5.9.10 agreed to do any of the foregoing.
5.10 ACCOUNTS RECEIVABLE. Merging Company will deliver at the Closing a
complete and current schedule of its accounts receivable existing as of the
Closing Date, Schedule 5.10, which will be good and collectable in the ordinary
course of business (subject to 110% of Merging Company's normal reserve for
uncollected accounts) and not subject to any defense, right of set-off or
counterclaim of any kind and no amount of any account receivable included in
12
<PAGE> 13
the Financial Statements has been released for an amount less than the value at
which it was included in the Financial Statements or is now regarded by Merging
Company as irrecoverable in whole or in part. Merging Company has not factored
or discounted any of their accounts receivable or agreed to do so.
5.11 TITLE TO ASSETS. All assets of any nature used in or necessary for
the conduct of the business of Merging Company are included in the Balance
Sheet, except to the extent sold or disposed of in the ordinary course of
business since the Balance Sheet Date. Merging Company has good and marketable
title to its real and personal properties owned by it, and good title to its
leasehold estates in all real and personal property used by it, in each case
free and clear of Liens, other than any Liens securing any indebtedness set
forth on or disclosed in the Financial Statements. Since the Balance Sheet
Date, except for dispositions in the ordinary course of its business, the
assets of Merging Company have been in the possession of, or under the control
of, Merging Company. Except for leased assets listed on Schedule 5.11, no
asset is shared by Merging Company with any other person and Merging Company
does not depend for its business upon any assets, facilities or services owned
or supplied by any other entity. Since the Balance Sheet Date, none of the
assets of Merging Company has been affected by any fire, accident, act of God
or any other casualty.
5.12 MATTERS AFFECTING REAL PROPERTY. Merging Company does not own any
real estate. To the best of Merging Company's knowledge, none of the Real
Property or any part thereof is affected by any of the following matters or is
likely to become so affected: (1) any outstanding dispute, notice or complaint
or any exception, reservation, right, covenant, restriction or condition which
is of an unusual nature or which materially adversely affects or might in the
future so affect the use of any of the Real Property for the purpose for which
it is now used or which affects or might in the future affect the value of the
Real Property; and (2) any forgiveness or agreement for the forgiveness of
rent, or payment of rent in advance of the due dates of payment thereof. All
of the Real Property is in good repair and condition. All restrictions
conditions and covenants imposed by or pursuant to any lease affecting any of
the Real Property have been observed and performed and no notice of any breach
of any of the same has been received. The use of the Real Property and all
machinery and equipment owned or leased by the Merging Company and the conduct
of any business therein complies to the knowledge of the Merging Company in all
respects with all relevant statutes and all rules and regulations thereunder,
and all necessary licenses and consents required thereunder have been obtained.
5.13 PROPERTIES PREVIOUSLY OCCUPIED. Merging Company has no existing or
contingent liabilities in respect of any real property previously occupied by
it.
5.14 LITIGATION Except as disclosed on Schedule 5.14, there are no
actions, suits or proceedings, whether in equity or at law, or governmental or
administrative investigations pending or threatened against Merging Company.
There are no facts known to Merging Company which are likely to give rise to
any litigation or arbitration and Merging Company has not been a party to any
undertaking or assurance given to any court or governmental agency or the
subject of any injunction which is still in force.
13
<PAGE> 14
5.15 COMPLIANCE. To its best knowledge, Merging Company is in compliance
with, and is not in default or violation under, any law, regulation, decree or
order applicable to the businesses or operations of Merging Company, including
without limitation all environmental, safety and health laws, rules and
regulations. Merging Company is not subject to any judgment, order or decree
entered in any lawsuit or proceeding.
5.16 TAXES. Merging Company has paid or made adequate provision on its
books and records for the payment of all federal, state, local and foreign
taxes, penalties or other payments in respect of its businesses, assets and
employees, and it is not in default in payment of any such tax and has duly
filed all tax reports and returns required in connection therewith to be filed
by it. The taxable income of Merging Company has not at any time been included
in any consolidated federal income tax return, or in any state or local income
or franchise tax return filed on a combined, consolidated or unitary basis,
filed by any corporation, person or other entity other than a group the common
parent of which was Merging Company. Merging Company has not received notice of
any tax deficiency outstanding, proposed or assessed against it, nor has it
executed any waiver of any statute of limitations on the assessment or
collection of any tax or executed or filed with the Internal Revenue Service or
any other taxing authority any agreement now in effect extending the period for
assessment or collection of any taxes. There are no tax liens upon, pending
against or threatened against any asset of Merging Company. Merging Company's
status as a small business corporation under Subchapter S of the Code is in
full force and effect as of the date hereof. Other than the execution,
delivery and performance of this Agreement, no event has occurred and no act
has been taken or been omitted to have been taken by Merging Company or the
Merging Company Shareholders which will adversely affect such status.
5.17 ERISA. Neither Merging Company nor any Affiliate maintains,
contributes to, participates in, or has any obligations under, any Plan, or has
at any time in the past maintained, contributed to, participated in, or had any
obligations under, any Plan, other than those listed on Schedule 5.17. Each
Plan is in compliance with ERISA, the Code and all applicable law, and neither
Merging Company nor any Affiliate has received any notice asserting that a Plan
is not in compliance with ERISA, the Code or any applicable law. Each Plan
which is intended to be a qualified Plan has been determined by the IRS to be
qualified under Section 401(a) of the Code as currently in effect and has been
operated in compliance with Code Section 401(a) through the date hereof and
will be through the Effective Time, and each trust related to such Plan has
been determined to be exempt from federal income tax under Section 501(a) of
the Code. Neither Merging Company nor any Affiliate, nor any other
"party-in-interest" or "disqualified person" has engaged in a "prohibited
transaction," as such terms are defined in Section 4975 of the Code and Section
406 of ERISA, in connection with any Plan which would subject a
party-in-interest or disqualified person (after giving effect to any exemption)
to the tax on prohibited transactions imposed by Section 4975 of the Code or
any other liability.
5.18 SUBSIDIARIES. The Merging Company has no Subsidiaries.
5.19 GOVERNMENT GRANTS. Except as listed on Schedule 5.19, Merging
Company has not applied for or received any financial assistance from any
supranational, national or local authority or government agency.
14
<PAGE> 15
5.20 INSURANCE. All material information concerning all of Merging
Company's insurance policies (including, without limitation, the limits of
coverage and the basis of coverage under each policy and the amount of any
deductible applicable thereto) has been provided to Acquiror and Acquisition
Company and the insurance policies which are maintained by Merging Company
afford it adequate coverage against such risks as companies carrying on the
same type of business as Merging Company customarily insure against and in
particular: (i) the assets of Merging Company are insured against fire in their
full replacement value; (ii) the Computer Systems are adequately insured for
all material risks; and (iii) Merging Company is now, and has at all times
been, adequately covered against accident, damage, injury, third party loss
(including product liability), loss of profits and other risks normally covered
by insurance. All insurance policies of Merging Company (details of which have
been disclosed to Acquiror during due diligence) are in full force and effect.
To the best knowledge of Merging Company, there are no circumstances which
might lead to any liability under any such insurance policies being avoided by
the insurers or the premiums being materially increased. There are no special
or unusual terms, restrictions or rates of premium with respect to such
insurance policies and all premiums for such policies have been paid on time;
and there is no claim outstanding under any such insurance policy nor are there
any circumstances presently known that are reasonably likely to give rise to a
claim.
5.21 CAPITALIZATION. The authorized capital stock of Merging Company
consists of 750,000 shares of Class A common stock and 750,000 shares of Class
B common stock and there are 471,388.25 Shares of Class A common stock and
435,843.3 shares of Class B common stock issued and outstanding. The record
owners of such outstanding common stock and the number of shares owned by each
are listed on Schedule 5.21.1. There are presently outstanding options to
acquire shares of Merging Company Common Stock, 38,300 of which are presently
exerciseable and 16,000 of which are exerciseable after the Closing Date, and
all of which were properly issued in accordance with Merging Company's stock
option plans and are listed on Schedule 5.21.2. All outstanding shares of the
capital stock of Merging Company have been duly authorized and are validly
issued, fully paid and nonassessable, and no liability attaches to the
ownership thereof. Except as indicated on Schedule 5.21.3, there are no
authorized, outstanding or existing: (1) proxies, voting trusts or other
agreements or understandings with respect to the voting of any capital stock of
Merging Company; (2) securities convertible into or exchangeable for any
capital stock of Merging Company; (3) options, warrants or other rights to
purchase or subscribe for any capital stock of Merging Company or securities
convertible into or exchangeable for any capital stock of Merging Company; (4)
agreements of any kind relating to the issuance of any capital stock of Merging
Company, any such convertible or exchangeable securities or any such options,
warrants or rights; or (5) agreements of any kind which may obligate Merging
Company to issue or purchase any of its securities.
5.22 INTANGIBLE ASSETS. Schedule 5.22.1 contains a complete listing and
description of: (1) all patents, patent applications, trademarks, trademark
registrations, applications for trademark registrations, trade names and
copyrights which Merging Company owns or in which Merging Company has any
proprietary interest; and (2) all license agreements with respect to any of the
foregoing as to which Merging Company is licensor or licensee. There are no
patents, trademarks,
15
<PAGE> 16
trade names or copyrights, other than those set forth on Schedule 5.22.1 which
are necessary in connection with the conduct of the business of Merging
Company. All the intellectual property used by Merging Company is owned or
properly licensed by it and it does not use any intellectual property in
respect of which any third party has any right, title or interest. None of the
processes or products of Merging Company infringes any right of any other
person relating to intellectual property or involves the unlicensed use of
confidential information disclosed to Merging Company by any person in
circumstances which might entitle that person to a claim against Merging
Company. Except as listed on Schedule 5.22.2, there are no outstanding claims
against Merging Company for infringement of any intellectual property used (or
which has been used) by it and no such claims have been settled by the giving
of any undertakings which remain in force. Merging Company is not in breach of
any confidentiality agreements with any of its customers. Any computer
software licensed by Merging Company for use by third parties has and is being
used by those third parties within and in accordance with any conditions
imposed by such license. Merging Company does not trade under any name other
than "C.W. Costello", "Costello" or "COSTELLO & Associates".
5.23 INFRINGEMENT. Except as described on Schedule 5.23, there are no
claims, and no valid basis exists for any claims: (1) pending or threatened
against Merging Company by any person relating to any of the patents, patent
applications, trademarks, trademark registrations, applications for trademark
registrations, trade names or copyrights which Merging Company owns or in which
Merging Company has any proprietary interest; or (2) of infringement by Merging
Company on the rights of any person.
5.24 LABOR RELATIONS. Except as indicated on Schedule 5.24, no employees
of Merging Company are now or have ever been covered by any collective
bargaining agreement. There are no representation questions, arbitration
proceedings, labor strikes, slowdowns or stoppages, material grievances or
other labor troubles pending or threatened with respect to the employees of
Merging Company.
5.25 CUSTOMERS AND SUPPLIERS. Since the Balance Sheet Date, there has not
been any loss, and there is currently no threatened loss, of any customer
(whose annual billings have exceeded $50,000 in any of the three prior years),
supplier or account of Merging Company. Except as disclosed on Schedule
5.25.1, Merging Company has not experienced any material cost overrun on any
customer project. Merging Company is not performing any customer project for
which there will be any material unreimbursed or uncompensated cost or
expenditure by Merging Company. Except as listed on Schedule 5.25.2, Merging
Company does not have any customer projects which are operating at gross profit
margins which are materially less than Merging Company's normal gross profit
margin.
5.26 ENVIRONMENTAL MATTERS. Merging Company is in full compliance with
all federal, state and municipal environmental laws, ordinances, rules,
regulations and requirements and Merging Company has not spilled, discharged or
released any Hazardous Material at or from the premises of Merging Company.
Merging Company has no liabilities (direct or indirect, contingent or
otherwise), relating to or arising from any environmental matters, other than
the obligations to comply with normal permitting and other regulations after
the Effective Time. Merging Company
16
<PAGE> 17
has not received any communication from any competent authority in respect of
Merging Company's business, which the failure to comply with would constitute
breach of any statutory requirements or which the compliance with could be
secured by further proceedings. To Merging Company's knowledge, there are no
circumstances which might give rise to any such communication being received.
5.27 CONTRACTS; LEASES; FRANCHISES. Schedule 5.27 sets forth and
discloses all currently existing contracts, obligations, agreements, plans,
arrangements, commitments or the like (written or oral) of Merging Company
which are not agreements with customers and which (1) involve the payment of
consideration by any party of $50,000 or more or (2) which cannot be terminated
by Merging Company without liability on 90 days or less notice, including
without limitation the following:
5.27.1 employment, bonus or consulting agreements, pension, profit
sharing, deferred compensation, stock bonus, retirement, stock option, stock
purchase, phantom stock or similar plans, including agreements evidencing
rights to purchase securities of the Merging Company and agreements among
shareholders and Merging Company;
5.27.2 loan or other agreements, notes, indentures, or instruments
relating to or evidencing indebtedness for borrowed money, or mortgaging,
pledging or granting or creating a lien or security interest or other
encumbrance on any of Merging Company's property or any agreement or instrument
evidencing any guaranty by Merging Company of payment or performance by any
other person;
5.27.3 agreements with any labor union or collective bargaining
organization or other labor agreements;
5.27.4 any indenture, agreement or other document (including private
placement brochures) relating to the sale or repurchase of shares of capital
stock;
5.27.5 any joint venture, contract or arrangement or other agreement
involving a sharing of profits or expenses;
5.27.6 agreements limiting the right of Merging Company to compete in any
line of business or in any geographic area or with any person;
5.27.7 agreements providing for disposition or acquisition of the
business, assets or capital stock of Merging Company, agreements of merger or
consolidation to which Merging Company is a party or letters of intent with
respect to the foregoing;
5.27.8 leases showing the amounts of rents and descriptions of the leased
property;
5.27.9 all franchises, permits, licenses and similar authority and
applications therefor owned, held, used, leased, relied upon, licensed or
asserted by Merging Company, together
17
<PAGE> 18
with a description of any payment which any person has asserted Merging Company
is or hereafter may be obligated to pay in order to use any such right.
5.28 BURDENSOME CONTRACTS. Except as set forth in Schedule 5.28, Merging
Company is not a party to or subject to any agreement, transaction,
obligation, commitment, arrangement or liability which:
5.28.1 is incapable of complete performance in accordance with its terms
within thirty-six months after the date on which it was entered into or
undertaken; or
5.28.2 is likely to result in a loss to Merging Company on completion of
performance; or
5.28.3 involves or is likely to involve obligations, restrictions,
expenditures or receipts not in the ordinary course of Merging Company's
business; or
5.28.4 involves or is likely to involve the supply of services by or to
Merging Company the aggregate sales value of which will represent in excess of
5% of the revenues of Merging Company for its last fiscal year; or
5.28.5 in any material way restricts Merging Company's right to carry on
any of its business in any part of the world in such manner as it thinks fit;
or
5.28.6 is hedging, futures, options or other derivative contracts; or
5.28.7 is a contract for the sale of shares or assets (other than third
party applications software) which contains warranties or indemnities.
5.29 NO DEFAULT. Except as set forth on Schedule 5.29, Merging Company is
not, nor to its knowledge, is any other party to any agreement with Merging
Company, in default of any agreement to which Merging Company is a party, nor
are there any circumstances presently known which are reasonably likely to give
rise to a default.
5.30 SURETIES. No person other than Merging Company has given any
guarantee of or security for any overdraft loan or loan facility granted to
Merging Company.
5.31 POWERS OF ATTORNEY. No powers of attorney given by Merging Company
(other than to the holder of an encumbrance solely to facilitate its
enforcement) are now in force. No person, as agent or otherwise, is entitled
or authorized to bind or commit Merging Company to any obligation not in the
ordinary course of Merging Company's business, and no person is purporting to
do so.
5.32 INSIDER CONTRACTS. Except for the contracts listed on Schedule 5.32:
18
<PAGE> 19
5.32.1 there is not outstanding, and there has not at any time during
the last three (3) years been outstanding, any agreement or arrangement to which
Merging Company is a party and in which, either directly or beneficially any
Merging Company Shareholder, any officer or director of Merging Company or any
person connected with any of them as defined in Section 267 of the Code, or any
entity in which any such person owns or controls an interest of more than five
percent has directly or indirectly any interest;
5.32.2 Merging Company is not a party to, nor have its profits or
financial position during the last three (3) years been affected by, any
agreement or arrangement which does not reflect the fair market value of any
property or services involved; and
5.32.3 all costs incurred by Merging Company (other than Merging
Company Transaction Costs) have been charged to Merging Company and not borne
by any other Affiliate of Merging Company.
5.33 TENDERS. No offer, tender, or the like is outstanding which is
capable of being converted into an obligation of Merging Company by an
acceptance or other act of some other person.
5.34 EMPLOYEES, INDEPENDENT CONTRACTORS AND CONSULTANTS, STOCK RIGHTS AND
STOCK OPTIONS. Schedule 5.34 lists and describes all currently effective
written or oral consulting, independent contractor or employment agreements and
other material agreements concluded with individual employees, independent
contractors or consultants to which Merging Company is a party. True and
correct copies of all such written agreements have been provided to Acquiror.
All salaries, wages and other compensation or benefits paid or provided by
Merging Company are in compliance in all material respects with all Plans,
applicable laws, including, but not limited to, Title VII of the Civil Rights
Act, Age Discrimination in Employment Act, Americans With Disabilities Act,
Rehabilitation Act of 1973, Family and Medical Leave Act, Consolidated Omnibus
Budget Reconciliation Act, Fair Labor Standards Act, Equal Pay Act,
Portal-to-Portal Act, Davis-Bacon Act, Service Contract Act, Contract Work
Hours and Safety Standards Act, Walsh-Healey Government Contracts Act, ERISA,
Executive Order 11246, Vietnam Veterans Readjustment Assistance Act, and any
other applicable State, Federal, or local law concerning age, race, sex,
religion, national origin, handicap, or any other form of discrimination or
harassment, and wage and hour laws. Merging Company also warrants that it is
in compliance with all provisions of the above acts and laws. Except as
disclosed in Schedule 5.34, to the best knowledge of Merging Company, none of
the level 4 or higher employees of Merging Company will terminate their
employment as a result of the Merger. Also shown on Schedule 5.34 are the
names of all persons whose annual rate of compensation, including bonuses and
other payments of any kind, is in excess of $50,000 and the names of all
employees with a title of "Director" of a department or above and the salaries
for each such person. Merging Company's aggregate accrued vacation as of the
Balance Sheet Date was approximately $600,000 and aggregate accrued severance
pay as of the Balance Sheet Date was approximately $200,000.
19
<PAGE> 20
5.35 COMPLIANCE WITH IMMIGRATION LAWS. Except as set forth on Schedule
5.35, forms I-9 have been properly completed for all current and former
employees of Merging Company pursuant to the Immigration Reform and Control Act
and the regulations thereunder. Merging Company has also complied with all
Form I-9 record keeping requirements under such statute and regulations.
5.36 POOLING OF INTERESTS. The Merging Company has not taken through the
date of this Agreement and will not, through the Effective Time, take or agree
to take any action which would prevent Surviving Corporation from accounting
for the business combination to be effected by the Merger as a pooling of
interests and no such party will do so after the Effective Time.
5.37 MERGING COMPANY SHAREHOLDER'S COMPETITIVE INTERESTS. Except as set
forth on Schedule 5.37, the Merging Company Shareholders do not have any
interest, direct or indirect, in any business other than that now carried on by
the Merging Company which is or is likely to be or become competitive with the
business of the Merging Company (other than the ownership of 5% or less of the
shares of a corporation or other entity which is traded on any national
securities exchange). None of the Merging Company Shareholders has any claim
against Merging Company except for matters, in the ordinary course of business,
relating to the compensation of those Merging Company Shareholders who are also
employees of the Merging Company, all of which matters are appropriately
reflected in Merging Company's books and records and the Financial Statements.
5.38 LICENSES. All material necessary licenses, consents, permits and
authorizations (public and private) known to be required by the management of
Merging Company have been obtained by Merging Company to enable it to carry on
its business effectively in the places and in the manner in which such business
is now carried on and all such licenses, consents, permits and authorities are
valid and Merging Company knows of no reason why any of them should be
suspended, canceled or revoked as a result of the Merger or otherwise.
5.39 INSOLVENCY. No order has been issued or petition presented or
resolution passed for the winding up of Merging Company, nor has any process
been levied against Merging Company or action taken to repossess goods in
Merging Company's possession. No steps have been taken for the appointment of
a conservator or receiver of any part of Merging Company's property. Merging
Company has not been notified that it is a party to any transaction which could
be avoided in a bankruptcy or insolvency proceeding. Merging Company has not
made or proposed any arrangement or composition with its creditors or any class
of its creditors.
5.40 LIABILITY FOR DEFECTIVE PRODUCTS OR SERVICES. Merging Company has
not provided any services which are or were below the standard of services
generally provided within the industry sector in which the Merging Company
operates and all such services provided by Merging Company comply or complied
in all material respects with any warranties or representations expressly or
impliedly made by Merging Company or with all applicable regulations, standards
and requirements in respect thereof. Except as set forth in Schedule 5.40,
20
<PAGE> 21
Merging Company has not undertaken any contract where a customer has challenged
or is challenging the quality standards or cost estimates provided by Merging
Company.
5.41 INDUCEMENTS. No officer, agent or employee of Merging Company has
made any improper payment or used any of Merging Company's assets unlawfully to
obtain an advantage for any person.
5.42 MACHINERY AND EQUIPMENT. The machinery and equipment, including all
vehicles, the Computer Systems and other office equipment currently used in
connection with the business of Merging Company:
5.42.1 are (subject to normal wear and tear) in good repair and
condition and in satisfactory working order;
5.42.2 to Merging Company's best knowledge, are capable, and will
(subject to normal wear and tear) be capable, over the period of time during
which it will be written down to zero value in the accounts of Merging Company,
of doing the work for which it was designed or purchased;
5.42.3 are not surplus to Merging Company's requirements in the
ordinary course of its business; and
5.42.4 are in the possession and control of Merging Company, and
are the absolute property free from any encumbrance except for those items
held under lease and listed on Schedule 5.42.4.
5.43 COMPUTER SYSTEMS. The Computer Systems have been satisfactorily
maintained and supported. The Computer Systems have adequate capability and
capacity for the current requirements of Merging Company or the processing and
other functions required to be performed for the purposes of the business of
Merging Company. The Computer Systems are not Year 2000 compliant but disaster
recovery plans are in effect and are adequate to ensure that the Computer
Systems can be replaced or substituted without material disruption to the
business of Merging Company. Annexed hereto as Exhibit 5.43 is a detailed
description of the failure of the Computer Systems to be Year 2000 compliant
and a detailed description of the steps that need to be taken and the amount of
the costs thereof to obtain such compliance. This Section 5.43 shall be
breached if that amount is not sufficient to obtain such compliance. Merging
Company has sufficient technically competent and trained employees to ensure
proper handling, operation, monitoring and use of the Computer Systems. Merging
Company has adequate procedures to ensure internal and external security of the
Computer Systems, including procedures for taking and storing on-site and
off-site back-up copies of computer programs and data. Where any of the
records of Merging Company are kept on Computer Systems, Merging Company is the
owner of all hardware and is the licensee of software licenses necessary to
enable it to keep, copy, maintain and use the records in the ordinary course of
its business and does not share any hardware or software relating to the
records with any person.
21
<PAGE> 22
5.44 NO BROKER. Except for the fees and expenses of Donaldson, Lufkin &
Jenrette, Merging Company and the Merging Company Shareholders have no
obligation or liability to any broker or finder by reason of the transactions
which are the subject of this Agreement.
5.45 BANKS. Schedule 5.45 is a true and complete list showing the name
and location of each bank in which Merging Company has an account or a safe
deposit box and the names of all persons authorized to draw on or have access
to such account or safe deposit box.
5.46 AFFILIATE STATUS. The Merging Company Shareholders include the only
"affiliates" of Merging Company as that term is defined in the Securities Act.
5.47 DISCLOSURE. No representation or warranty by Merging Company in this
Agreement, nor any statement, Schedule or certificate furnished or to be
furnished to Acquisition Company or Acquiror pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein and
therein not misleading. There is no fact known to the Merging Company which
materially adversely affects or which Merging Company believes may in the
future adversely affect, the business, operations, affairs, prospects or
condition of Merging Company which has not been disclosed in this Agreement or
in the Schedules to this Agreement.
5.48 RELIANCE. The foregoing representations and warranties are made by
Merging Company with the knowledge and expectation that Acquiror and
Acquisition Company are placing complete reliance thereon.
5.49 EMPLOYEE COVENANTS. Except as set forth on Schedule 5.49, each
employee of Merging Company has executed and delivered to Merging Company a
Non-Compete Agreement.
5.50 OPTIONS. At the Effective Time there will be no currently
exercisable options to acquire Merging Company Common Stock.
5.51 VALUE. The Merging Company has made a determination that the fair
market value of Class A and Class B shares is equal and that in the event of a
merger, the price received for each Class A and Class B share would be equal.
5.52 CUSTOMER AGREEMENTS. Schedule 5.52.1 sets forth and discloses all
agreements with customers not terminable without liability on notice of 90 days
or less, and Schedule 5.52.2 sets forth and discloses all written agreements
with customers (excluding, however, purchase orders).
22
<PAGE> 23
SECTION 6 REPRESENTATIONS AND WARRANTIES OF ACQUISITION COMPANY AND ACQUIROR
Acquisition Company and Acquiror, jointly and severally, represent and
warrant to Merging Company as follows.
6.1 ORGANIZATION AND GOOD STANDING. Acquisition Company and Acquiror are
each corporations validly existing and in good standing under the laws of the
State of Michigan.
6.2 CONSENTS AND AUTHORIZATIONS. Acquisition Company and Acquiror may
execute, deliver and perform this Agreement without the necessity of
Acquisition Company and Acquiror obtaining any consent, approval, authorization
or waiver or giving any notice, except for such consents, approvals,
authorizations, waivers and notices: (1) which have been obtained or given and
are unconditional and are in full force and effect; or (2) where the failure
to obtain or give would not result in any material adverse effect on the
ability of Acquisition Company or Acquiror to consummate the transactions
contemplated in this Agreement.
6.3 AUTHORIZATION, BINDING EFFECT, NO VIOLATION. This Agreement has been
duly authorized, executed and delivered by Acquisition Company and Acquiror and
constitutes the legal, valid and binding obligation of Acquisition Company and
Acquiror, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, reorganization, insolvency and
similar laws of general application relating to or affecting the enforcement of
rights of creditors. The execution, delivery and performance of this Agreement
by Acquisition Company and Acquiror do not and will not:
6.3.1 constitute a violation of the Articles of Incorporation or
Bylaws of Acquisition Company or Acquiror; or
6.3.2 constitute a violation of any statute, judgment order, decree or
regulation of any governmental authority or arbitrator or any rule of any court
applicable to Acquisition Company or Acquiror, which violation would result in
any material adverse effect on the ability of Acquisition Company or Acquiror
to consummate the transactions contemplated in this Agreement.
6.4 NO BROKER. Acquisition Company and Acquiror have no obligation or
liability to any broker or finder by reason of the transactions which are the
subject of this Agreement. Acquisition Company and Acquiror shall indemnify
Merging Company and Merging Company Shareholders against, and hold them
harmless from, at all times after the date of this Agreement, any and all
liabilities and expenses (including without limitation legal fees) resulting
from, related to or arising out of any final judgment obtained by any person
claiming brokerage commissions or finder's fees, or rights to similar
compensation, on account of services purportedly rendered on their behalf in
connection with this Agreement or the transactions contemplated hereby.
6.5 FILING UNDER THE HART-SCOTT-RODINO ANTI-TRUST IMPROVEMENTS ACT. No
filing is required under the Hart-Scott-Rodino Anti-Trust Improvements Act in
connection with this Merger.
23
<PAGE> 24
6.6 FORM S-4. The contents of Acquior's Form S-4 Registration Statement,
filed with the Securities and Exchange Commission, are true and complete,
including the description of litigation, as of the date it was filed. All
filings of Acquior pursuant to the Securities Act and the Securities Exchange
Act of 1934 are complete and accurate as of the date they were filed.
6.7 ACQUIROR SHARES FREELY TRADEABLE. Except for the restrictions on
resale by an affiliate (as that term is defined in the Securities Act) of
Merging Company under Rule 145 of the Securities Act, the shares of Acquior
Common Stock received by the Merging Company Shareholders as a result of the
Merger may be resold by such persons without registration under the Securities
Act. In addition to the foregoing restrictions, there are additional
restrictions on the resale of such shares pursuant to Section 6.3 of the
Shareholder Indemnification and Acknowledgment Agreement.
6.8 OWNERSHIP. Acquiror directly owns all of the issued and outstanding
capital stock of Acquisition Company.
SECTION 7 INDEMNIFICATION
7.1 INDEMNIFICATION BY MERGING COMPANY. Merging Company indemnifies
and holds harmless Surviving Corporation and Acquiror against and in respect
of the following:
7.1.1 any damage or deficiency resulting from any misrepresentation,
breach of warranty, or nonfulfillment of any agreement on the part of Merging
Company under this Agreement or from any misrepresentation in or omission from
any certificate or other instrument furnished or to be furnished to Surviving
Corporation under this Agreement;
7.1.2 all damages and liabilities of every kind and nature related to
undisclosed claims under customer contracts and any claims with respect to
Merging Company Phantom Stock Rights or any other deferred compensation or
stock ownership plan other than claims by any person identified in writing by
Merging Company on or before the Effective Time with respect to any such plan
so identified; and
7.1.3 all actions, suits, proceedings, demands, assessments,
judgments, reasonable legal fees, costs and expenses incident to any of the
foregoing.
7.2 LIMITATIONS ON INDEMNIFICATION BY MERGING COMPANY. Notwithstanding
anything to the contrary contained in this Section 7, Merging Company shall not
be required to pay any claim or claims for indemnity to which the Surviving
Corporation or the Acquiror shall be entitled under this Section 7, unless:
(1) an individual claim exceeds $50,000 (net of tax effects as provided in
Section 7.7); or (2) the aggregate of all claims under this Section 7 exceeds
$250,000 (net of tax effects as provided in Section 7.7). Once any such claim
or claims exceed the foregoing limitations, the Surviving Corporation or the
Acquiror, as the case may be, shall be entitled to receive 100% of the amount
in excess of the applicable $50,000 or $250,000 amount. The right to indemnity
of the Surviving Corporation and the Acquiror shall survive Closing until
24
<PAGE> 25
the Final Release Delivery Date and the aggregate amount of such claims for
indemnity shall not exceed the amount represented by the Escrow Shares. For
purposes of payment hereunder, Acquiror Common Stock shall be valued at the
Merger Date Stock Price, notwithstanding that its value at the time of payment
may be higher or lower.
7.3 INDEMNIFICATION BY SURVIVING CORPORATION AND ACQUIROR. Surviving
Corporation and Acquiror shall, jointly and severally, indemnify and hold
harmless Merging Company and the Merging Company Shareholders against and in
respect of the following:
7.3.1 any damage or deficiency resulting from any misrepresentation,
breach of warranty, or nonfulfillment of any agreement on the part of
Acquisition Company or Acquiror under this Agreement or from any
misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished by Acquisition Company or Acquiror to Merging
Company or the Merging Company Shareholders under this Agreement; and
7.3.2 all actions, suits, proceedings, demands, assessments,
judgments, reasonable legal fees, costs and expenses incident to any of the
foregoing.
7.4 LIMITATIONS ON INDEMNIFICATION BY SURVIVING CORPORATION AND ACQUIROR.
Notwithstanding anything to the contrary contained in this Section 7, neither
Surviving Corporation nor the Acquiror shall be required to pay any claim or
claims for indemnity to which the Merging Company or Merging Company
Shareholders shall be entitled under this Section 7, unless: (1) an individual
claim exceeds $50,000 (net of tax effects as provided in Section 7.7); or (2)
the aggregate of all claims under this Section 7 exceeds $250,000 (net of tax
effects as provided in Section 7.7). Once any claim or claims exceed the
foregoing limitations, the Merging Company or Merging Company Shareholders, as
the case may be, shall be entitled to receive 100% of the amount in excess of
the applicable $50,000 or $250,000 amount. In addition, the aggregate amount of
any claims for indemnity under Section 7.2 shall not exceed ten percent (10%)
of the Merger Consideration. All claims by Merging Company must be brought on
or before the Final Release Delivery Date.
7.5 REIMBURSEMENT ON DEMAND. Except as provided with respect to claims
against the Release Shares pursuant to Section 4.2.1, the indemnifying party
shall reimburse the party to be indemnified under this Section 7, on demand,
for any payment to be made in respect of any liability, obligation or claim to
which the foregoing indemnities relate.
7.6 NOTICE. No party shall be entitled to indemnification under this
Agreement unless it shall have given notice to the other parties within 20 days
after the party seeking indemnification has received notice of the assertion of
any claim or demand or the institution of any action, suit or proceeding which
entitles such party to indemnification under this Agreement.
7.7 TAX EFFECTS. The amount of any indemnity payment under this Section 7
shall be adjusted to reflect the actual net damages suffered by the party to be
indemnified after taking into account the net aggregate reduction (or increase)
in taxes payable by the party to be indemnified as a result of the claimed loss
and the amount of any indemnity payment.
25
<PAGE> 26
SECTION 8 CERTAIN COVENANTS
8.1 COVENANT NOT TO COMPETE. In order to protect Surviving Corporation
and the goodwill of the business of Merging Company to be acquired pursuant to
this Agreement, Merging Company covenants that it shall cause each employee of
Merging Company and each Merging Company Shareholder, except as provided on
Schedule 8.1, to be a party to the Non-Compete Agreement attached to this
Agreement as Exhibit 8.1.
8.2 ACCESS TO RECORDS AND PROPERTIES. From the date of this Agreement to
the Closing Date, the Merging Company shall provide to the Acquisition Company
and Acquiror, such access to the premises, books, and records of the Merging
Company and to cause the officers and employees of the Merging Company to
furnish such financial information and operating data and other financial
information with respect to the Merging Company as the Acquisition Company or
the Acquiror shall require.
8.3 Intentionally omitted.
8.4 CONDUCT OF BUSINESS. From the date of this Agreement, except as
expressly contemplated by this Agreement or to the extent that the Acquiror
shall consent in writing, the Merging Company shall operate it business, as
presently operated, and only in the ordinary course, and, consistent with such
operations, Merging Company shall, use its best efforts to preserve the present
employees, reputation, and business organization of the Merging Company with
persons having business dealings with the Merging Company. Merging Company
shall refrain from taking any action which would render any representation and
warranty contained in Section 5 inaccurate at any time from the date of this
Agreement to the time as of the time immediately before the Effective Time and
shall promptly advise Acquisition Company and Acquiror of any breach of any
representation and warranty covenant, condition, or obligation of merging
Company contained in this Agreement. From the date of this Agreement to the
time immediately before the Effective Time, except as expressly contemplated by
this Agreement or to the extent that the Acquiror shall consent in writing,
Merging Company shall not:
8.4.1 effect any amendment to its Certificate of Incorporation or
Bylaws;
8.4.2 authorize, cause, or permit the issuance of any additional
shares of the capital stock or equity interests, or securities convertible
into or entitling the holder thereof to acquire any capital stock or equity
interests in Merging Company or take any action effecting any stock split,
combination, or reclassification, or take any action affecting the
capitalization of the Merging Company;
8.4.3 set aside or pay any dividend payable in cash, stock or property
with respect to its capital stock, or redeem, purchase or otherwise acquire
directly or indirectly any shares of the capital stock of Merging Company; or
26
<PAGE> 27
8.4.4 acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or make any investment with respect thereto.
8.5 CONSENTS AND NOTICES. Promptly after the date of this Agreement,
Merging Company shall obtain all consents, waivers, approvals, and
authorizations which may be necessary to effectuate this Agreement and to
consummate the transactions contemplated hereby in accordance with the terms of
this Agreement and continue in effect all the benefits of the material
contracts, leases, agreements, instruments, licenses, permits, authorizations,
commitments and orders of the Merging Company and shall give notices to third
parties required by Merging Company to consummate the transactions contemplated
by this Agreement.
8.6 REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS. Subject to the
terms and conditions of this Agreement, the parties shall prepare, file, and
cooperate in the preparation and filing of: (i) any necessary filings with
respect to the Merger and this Agreement under the Securities Act, the Exchange
Act and applicable blue sky or similar securities laws and any required
approvals and clearances with respect thereto and any additional information
requested in connection therewith; (ii) any merger notification or other
appropriate filings with federal, state or local governmental bodies or
applicable foreign governmental agencies and any required approvals and
clearances with respect thereto and any additional information requested in
connection therewith; and (iii) any consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger.
8.7 NO SHOPPING. Merging Company shall not directly or indirectly through
any officer, director, agent, financial advisor, or otherwise, solicit,
initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or a portion of the assets of,
or any equity interest in, Merging Company or any business combination with
Merging Company.
8.8 PUBLIC ANNOUNCEMENTS. The parties shall make no public announcement
concerning this Agreement, their discussions or any other memos, letters or
agreements between the parties relating to the Merger until such time as they
agree to the contents of a mutually satisfactory press release which they
intend to publicly-release following execution and delivery of this Agreement.
Any party, but only after reasonable consultation with the others, may make
disclosure if required under applicable law.
8.9 BEST EFFORTS TO SATISFY CONDITIONS. Merging Company shall use its
best efforts to cause the conditions to the obligations of Acquisition Company
and Acquiror contained in Section 9.2 to be satisfied to the extent that the
satisfaction of such conditions is in the control of Merging Company or the
Merging Company Shareholders, and Acquisition Company and Acquiror shall use
their best efforts to cause the conditions to the obligations of Merging
Company contained in Section 9.3 to be satisfied to the extent that the
satisfaction of such conditions is in the control of Acquisition Company or
Acquiror; however, the foregoing shall not constitute a limitation upon the
covenants and obligations of the parties hereto otherwise expressly set forth
in this Agreement.
27
<PAGE> 28
8.10 POOLING OF INTERESTS ACCOUNTING. From the date of this Agreement,
to, and after the Effective Time, the parties shall use their best efforts to
cause the business combination to be effected by the Merger to be accounted for
as a pooling of interests and Merging Company shall take no actions to affect
the Subchapter S status of the Merging Company.
8.11 FURTHER ASSURANCES. After the Effective Time, Merging Company
Shareholders shall cooperate fully with Acquiror and Acquisition Company,
execute and deliver such further instruments, documents and agreements and give
such further written assurances, as may be reasonably requested by Acquiror or
Acquisition Company to better evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intent and purposes
of this Agreement.
8.12 ELECTION OF ACQUIROR DIRECTORS. The Board of Directors of Acquiror
shall, at its first board meeting after the Effective Time, elect one person,
designated by Merging Company a Class III Director of Acquiror and shall elect
one person designated by Merging Company a Class I Director of Acquiror. As
provided in Article II, Section 3 of Acquiror's Bylaws, the term of each such
newly elected director shall expire at the next election of directors by the
Acquiror shareholders. At that time, the Board of Directors of Acquiror shall
nominate the newly elected Class III Director to serve for one year (the
balance of the term for Class III Directors) and shall nominate the newly
elected Class I Director to serve for two years (the balance of the term for
Class I Directors).
8.13 SCHEDULES AND EXHIBITS. Merging Company shall provide all Schedules
and Exhibits to this Agreement that it is responsible to provideon or before
the execution hereof.
8.14 SHAREHOLDER INDEMNIFICATION. Merging Company shall cause each of the
Merging Company Shareholders to execute and deliver to Surviving Corporation,
on or before the Closing Date, the Shareholder Indemnification and
Acknowledgment Agreement in the form attached hereto as Exhibit 8.14.
8.15 PARTICIPATION IN 401(K) PLAN. Acquiror and Surviving Corporation
promptly after Closing shall take all necessary actions to permit the employees
of the Surviving Corporation to participate in Acquiror's 401(k) plan and grant
such employees credit for service with Merging Company for all purposes under
said plan as soon as permissible.
8.16 TERMINATION. Merging Company shall have terminated all phantom
stock plans.
SECTION 9 CONDITIONS TO CONSUMMATION OF THE MERGER
9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or, where permissible under applicable law, waiver prior to the
Effective Time, of the following conditions:
28
<PAGE> 29
9.1.1 APPROVAL OF THE MERGING COMPANY'S SHAREHOLDERS. This Agreement
shall have been adopted by the Merging Company Shareholders in accordance with
Delaware General Corporation Law.
9.1.2 REGULATORY FILINGS. All applicable waiting periods with
respect to regulatory filings made pursuant to Section 8.6 hereof shall have
expired or been terminated.
9.1.3 NO CHANGE IN LAW, ETC. No statute, rule, regulation, executive
order, decree, injunction, or restraining order shall have been enacted,
entered, promulgated, or enforced by any court of competent jurisdiction or
governmental authority which prohibits the consummation of the Merger or which
would make such consummation illegal.
9.2 CONDITIONS TO OBLIGATIONS OF ACQUISITION COMPANY AND ACQUIROR TO
EFFECT THE MERGER. The obligations of the Acquisition Company and Acquiror to
effect the Merger are also subject to the satisfaction or waiver, as of
immediately prior to the Effective Time, of the following conditions:
9.2.1 REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF OBLIGATIONS
OF THE MERGING COMPANY. The representations and warranties of Merging Company
set forth in Section 5 and in all the agreements, documents, and instruments
executed and delivered pursuant to this Agreement or in connection with the
consummation of the transactions contemplated under this Agreement shall be
true and correct in all material respects. Merging Company shall have
performed, in all material respects, all necessary agreements, covenants, and
obligations.
9.2.2 CONSENTS. All consents required of the Merging Company shall
have been obtained by Merging Company.
9.2.3 OPINION OF COUNSEL TO MERGING COMPANY. Acquisition Company and
Acquiror shall have received an opinion, dated as of the Closing Date, of
counsel for Merging Company, in form and substance reasonably satisfactory to
Acquisition Company and Acquiror, substantially in the form of Exhibit 9.2.3.
9.2.4 OPINION OF AUDITORS FOR MERGING COMPANY. Acquisition Company and
Acquiror shall have received, an opinion, dated as of the Closing Date, of the
auditors for Merging Company, in form and substance reasonably satisfactory to
Acquisition Company and Acquiror, substantially in the form of Exhibit 9.2.4,
to the effect that Merging Company is a "poolable entity."
9.2.5 ESCROW AGREEMENT. The Escrow Agreement shall have been
executed and delivered by the Escrow Agent, Merging Company, Acquisition
Company and Merging Shareholders' Representative.
9.2.6 SECRETARY'S CERTIFICATE. The Secretary of Merging Company shall
have executed and delivered to Acquisition Company a Certificate in the form
attached hereto as Exhibit 9.2.6.
29
<PAGE> 30
9.2.7 OFFICER'S CERTIFICATE. The President of Merging Company shall
have executed and delivered to Acquisition Company a Certificate in the form
attached hereto as Exhibit 9.2.7.
9.2.8 ACTIONS AND PROCEEDINGS. All actions, proceedings, instruments
and documents required to carry out the transactions contemplated under this
Agreement shall have been executed, delivered, and completed, to the reasonable
satisfaction of legal counsel of Acquisition Company and Acquiror, and Merging
Company shall have executed and delivered such additional certificates and
other documents, to the reasonable satisfaction of legal counsel of Acquisition
Company and Acquiror, as Acquisition Company and Acquiror shall have
reasonably requested.
9.2.9 DUE DILIGENCE. Acquisition Company and Acquiror shall be
satisfied, in their sole discretion, with the due diligence inspection of the
books, records, financial and other data relating to the condition, financial
and otherwise, of the Merging Company; provided, however, that if Acquisition
Company and/or Acquiror invokes this condition and all other conditions to
Acquiror's and/or Acquisition Company's obligation to close have been
materially fulfilled, then they shall pay Merging Company's reasonable legal
and accounting fees incurred in connection with this transaction from November
6, 1997, to the date when this provision is invoked. The obligation to pay
such amount shall be in full and final satisfaction of all obligations of
Acquisition Company and/or Acquiror hereunder.
9.2.10 401(K) TERMINATION. Merging Company shall have adopted a
resolution appropriately terminating its existing 401(k) Benefit Plan effective
on or prior to the Closing Date.
9.2.11 RETENTION LETTER. The Executives and the employees listed on
Schedule 9.2.11 shall have executed and delivered to Acquisition Company the
Bonus Letter and the Retention Letter in substantially the form attached to
this Agreement as Exhibit 9.2.11.1 and 9.2.11.2.
9.3 CONDITIONS TO OBLIGATIONS OF MERGING COMPANY TO EFFECT THE MERGER. The
obligations of the Merging Company to effect the Merger are also subject to the
satisfaction or waiver, as of immediately prior to the Effective Time, of the
following conditions:
9.3.1 REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF OBLIGATIONS
OF THE MERGING COMPANY. The representations and warranties of the Acquisition
Company and the Acquiror set forth in Section 6 and in all the agreements,
documents, and instruments executed and delivered pursuant to this Agreement
or in connection with the consummation of the transactions contemplated under
this Agreement shall be true and correct in all material respects. Acquisition
Company and Acquiror shall have performed, in all material respects, the
necessary agreements, covenants, and obligations.
9.3.2 CONSENTS. All consents required of the Acquisition Company and
the Acquiror shall have been obtained by Acquisition Company and the Acquiror.
30
<PAGE> 31
9.3.3 OPINION OF COUNSEL TO ACQUISITION COMPANY AND ACQUIROR.
Acquisition Company and Acquiror shall have caused to be delivered to Merging
Company an opinion, dated as of the Closing Date, of counsel in form and
substance reasonably satisfactory to Merging Company, substantially in the
form of Exhibit 9.3.3.
9.3.4 MERGER CONSIDERATION. Acquisition Company and Acquiror shall
have delivered to the Escrow Agent the shares of Acquiror Common Stock as
provided by Section 4.1.4.
9.3.5 ACTIONS AND PROCEEDINGS. All actions, proceedings,
instruments and documents required to carry out the transactions contemplated
hereunder shall have been executed, delivered, and completed, to the reasonable
satisfaction of counsel to Merging Company, and Acquisition Company and
Acquiror shall have delivered, to the reasonable satisfaction of counsel to
Merging Company, such additional certificates and other documents as Merging
Company shall have reasonably requested. In particular, at least three
business days prior to the Closing, and prior to the time the approval of the
Merger by the Merging Company Shareholders is solicited, Merging Company and
the Merging Company Shareholders shall have received from Acquiror, shall have
had a reasonable opportunity to review and shall be satisfied with the final
amendment to Acquiror's Form 8-K, which Form 8-K was originally filed with the
Securities and Exchange Commission on December 2, 1997.
9.3.6 REGISTRATION RIGHTS AGREEMENT. Acquiror and Merging Company
Shareholders shall have executed and delivered the Registration Rights
Agreement.
SECTION 10 TERMINATION; AMENDMENT; WAIVER
10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated by this Agreement abandoned, at any time prior to the Effective
Time:
10.1.1 by the mutual consent of the Boards of Directors of the
Merging Company, the Acquisition Company and the Acquiror;
10.1.2 by the Board of Directors of the Merging Company, on the one
hand, or the Boards of Directors of the Acquiror and the Acquisition Company,
on the other hand, if there has been a material breach of a representation,
warranty, or covenant or other term or condition of this Agreement by any
party (or an event occurs which with the passage of time would result in the
breach of this Agreement on or before Closing), provided that such breach was
not the direct result of action or inaction by the party seeking to terminate
this Agreement.
10.2 AMENDMENT. This Agreement may be amended by action taken by the
parties hereto at any time before or after adoption of this Agreement by the
Merging Company Shareholders but, after any such adoption. No amendment shall
be made which reduces or changes the amount or form of the Merger
Consideration. Further, no amendments shall be made which adversely affect the
rights of the Merging Company Shareholders without the approval of such
31
<PAGE> 32
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of all the parties hereto.
10.3 EXTENSION; WAIVER. The parties may, at any time subsequent to the
date of this Agreement, extend the time for the performance of any of the
obligations or other acts of the parties to this Agreement or waive compliance
with any of the terms or conditions contained in this Agreement. Any agreement
on the part of any party to any such waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
SECTION 11 GENERAL
11.1 EXPENSES. Except as otherwise specifically provided herein, each of
the parties hereto shall bear their own legal fees and other costs and expenses
with respect to the negotiation, execution and the delivery of this Agreement
and the consummation of the transactions hereunder. Merging Company may pay
reasonable Merging Company Transaction Costs.
11.2 ENTIRE AGREEMENT. This Agreement, which includes the Schedules and
Exhibits hereto and the other documents, agreements and instruments executed
and delivered pursuant to or in connection with this Agreement, contains the
entire agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all prior negotiations,
arrangements or understandings with respect thereto.
11.3 DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
11.4 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, facsimile, or
overnight delivery service addressed as follows:
If to Acquisition Company or Acquiror: With a copy to:
Complete Business Solutions, Inc. Arthur Dudley II, Esq.
32605 West Twelve Mile Road, Suite 250 Butzel Long
Farmington Hills, Michigan 48334 150 W. Jefferson, Suite 900
Attn: President Detroit, MI 48226
If to Merging Company: With a copy to:
C.W. Costello, Inc. Fagel & Haber
Suite 603 140 South Dearborn, Suite 1400
100 Great Meadow Road Chicago, Illinois 60603
Wethersfield, CT 06109 Attention: Joel A. Haber
Attention: President
32
<PAGE> 33
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed.
11.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan without giving effect to
choice of law principles thereof, except to the extent that the Delaware
General Corporation Law shall be applicable. Any action, suit or other
proceeding initiated by any party hereto against any other party hereto under
or in connection with this Agreement may be brought in any federal or state
court in Wayne County, Michigan, as the party bringing such action, suit or
proceeding shall elect, having jurisdiction over the subject matter thereof.
Each of the parties hereto submits itself to the jurisdiction of any such court
and agrees that service of process on them in any such action, suit or
proceeding may be effected by the means by which notices are to be given to it
under this Agreement.
11.6 REMEDIES. The parties hereto acknowledge that the remedy at law for
any beach of the obligations undertaken by the parties hereto is and will be
insufficient and inadequate and that the parties hereto shall be entitled to
equitable relief, in addition to remedies at law. In the event of any action
to enforce the provisions of this Agreement, the parties hereto shall waive the
defense that there is an adequate remedy at law. The parties hereto
acknowledge that the benefits to be obtained by the parties hereto are unique
and cannot be readily obtainable on the open market. Without limiting any
remedies any party may otherwise have, in the event any party refuses to
perform its obligations under this Agreement, the other parties shall have, in
addition to any other remedy at law or in equity, the right to specific
performance.
11.7 SEVERABILITY. In the event that any provision contained in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and the remaining provisions of this Agreement
shall not, at the election of the party for whose benefit the provision exists,
be in any way impaired.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but
one agreement.
11.9 SURVIVAL OF COVENANTS. The provisions of this Agreement which by
their terms contemplate performance after the Effective Time shall survive the
Merger.
[SIGNATURES ON NEXT PAGE]
33
<PAGE> 34
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
MERGING COMPANY
C. W. COSTELLO & ASSOCIATES, INC.
By:_________________________
Name:
Title:
ACQUISITION COMPANY
CBSI ACQUISITION CORPORATION II
By:_________________________
Name:
Title:
ACQUIROR
COMPLETE BUSINESS SOLUTIONS, INC.
By:_________________________
Name:
Title:
34
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
January _____, 1998, by and among COMPLETE BUSINESS SOLUTIONS, INC., a Michigan
corporation (the "Company"), and all of the shareholders of C.W. Costello &
Associates, Inc., a Delaware corporation (individually, "Shareholder" and
collectively, "Shareholders").
WHEREAS, the Company is party to an Agreement and Plan of Merger of even
date herewith (the "Merger Agreement"), pursuant to which C.W. Costello &
Associates, Inc. will be merged into a wholly-owned subsidiary of the Company
and, in connection therewith, the Company shall issue shares of its Common
Stock (as defined below) to each of the Shareholders. Pursuant to the Merger
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. Unless otherwise provided in this Agreement, capitalized
terms used herein shall have the meanings set forth in paragraph 1 hereof.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
meanings ascribed to them below:
(a) "Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day on which banking institutions in the City of Detroit,
Michigan, are authorized by law, regulation or executive order to close.
(b) "Common Stock" means the common stock, no par value, of the Company.
(c) "Costello" means C.W. Costello & Associates, Inc.
(d) "Demand Registration Statement" shall have the meaning set forth in
Section 2.
(e) "Merger Stock" means the shares of Common Stock issued pursuant to the
Merger Agreement.
(f) "Prospectus" has the meaning set forth in Section 5.
(g) "Piggyback Registration Statement" has the meaning set forth in
Section 5.
(h) "Person" means any individual, corporation, partnership, limited
partnership, limited liability company, or other business entity.
<PAGE> 2
(i) "Registrable Securities" means (x) the shares of Merger Stock and (y)
any securities issued or issuable in respect of or in exchange for any of the
shares of Merger Stock referred to in clause (x) by way of a stock dividend or
stock split or in connection with a combination of shares of Merger Stock,
recapitalization, reclassification, merger, consolidation, or exchange offer.
For purposes of this Agreement, a Registrable Security ceases to constitute a
Registrable Security (i) when such Registrable Security shall have been
effectively registered under the Securities Act and disposed of in a public
market transaction pursuant to a Registration Statement, (ii) when such
Registrable Security shall have been sold pursuant to Rule 144 (or any
successor provision) under the Securities Act, (iii) when such Registrable
Security shall have been otherwise transferred and a new certificate for such
Registrable Security not bearing a legend restricting further transfer shall
have been delivered by the Company following the Company's receipt of an
opinion of counsel reasonably satisfactory to it that the issuance and delivery
of such a certificate is legal and proper under this Agreement and applicable
law, (iv) with respect to a particular Shareholder, on the date on which all of
that Shareholder's remaining Registrable Securities could be sold in a single
transaction in compliance with Rule 144 under the Securities Act, or (v) when
such Registrable Security shall have ceased to be outstanding.
(j) "Registration Statement" means a Piggyback Registration Statement or a
Demand Registration Statement.
(k) " Representative" means Charles Costello.
(l) "Securities Act" means the Securities Act of 1933, as amended.
(m) "Termination Date" means the first date on which no Registrable
Securities are outstanding.
(n) Other terms shall have the meaning ascribed to them in the recitals
and other sections of this Agreement.
2. DEMAND REGISTRATION.
a). Demand. Upon repayment of all indebtedness owed to Costello by any
of the Shareholders or any affiliates of the Shareholders, the Shareholders
shall have the right to require the Company to file one registration statement
(the "Demand Registration Statement") with the Securities and Exchange
Commission under the Securities Act, covering the sale of not less than 300,000
and not more than 500,000 shares of Registrable Securities. At the election of
the Shareholders the registration covered by the Demand Registration Statement
(the "Demand Registration") may be an underwritten or non-underwritten
offering. The right of the Shareholders to require the Company to file a
Demand Registration Statement shall be exercised on behalf of the Shareholders
by the Representative giving written notice to the Company indicating the
Shareholders who
2
<PAGE> 3
wish to have Registrable Securities included in the Demand Registration, the
amount of Registrable Securities to be included for each such Shareholder and
whether the offering covered by the Demand Registration Statement will be
underwritten. Upon receipt of such notice the Company will follow the
procedures contained in Sections 5 and 6, provided that, in any event, the
Demand Registration Statement shall be filed with the Securities and Exchange
Commission within 120 days after the Company shall have received such notice
from the Representative. Subject to Section 3(c) below, all of the
Shareholders shall be entitled to participate in the Registration; provided,
however, that the aggregate number of shares to be registered shall not exceed
500,000. If the Demand Registration is an underwritten offering, then
participation shall be conditioned on compliance with Section 9.
(b) Number of Shares. In the event that the Shareholders have sold
Registrable Securities pursuant to a Piggyback Registration Statement prior to
the exercise of the right to a Demand Registration, the maximum amount of
Registrable Securities shares that may be sold pursuant to a Demand
Registration will be reduced from 500,000 shares by the amount of Registrable
Securities sold pursuant to a Piggyback Registration Statement.
(c) Expenses of Demand Registration. Any and all expenses incurred in
the preparation and filing of a Demand Registration including the reasonable
fees of the Company's chosen attorney and accountant will be paid by the
Shareholders.
3. PIGGYBACK REGISTRATIONS.
(a) Notice. Whenever the Company proposes to register any of its Common
Stock under the Securities Act for sale in an underwritten public offering,
other than pursuant to a registration on Form S-8 or Form S-4, or any other
form which in the future may be approved by the SEC in lieu of such forms for
the same purposes (a "Piggyback Registration"), the Company will give prompt
written notice to all holders of Registrable Securities of its intention to
effect such a registration and will, subject to Sections 3(c) and 3(d), include
in such registration all Registrable Securities with respect to which the
Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses, as defined in Section
7(a). of the holders of Registrable Securities will be paid by the Company in
all Piggyback Registrations.
(c) Priority in Primary Registrations. If a Piggyback Registration is an
underwritten offering on behalf of the Company, and the managing underwriters
advise the Company in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can be
sold in such offering without adversely affecting the marketability of the
offering, the Company will include securities in such registration in the
following order of priority: (i) first, the securities the
3
<PAGE> 4
Company proposes to sell, and (ii) second, the Registrable Securities requested
to be included in such registration by the Shareholders and all Common Stock
requested to be included in such registration by other holders of Common Stock
having registration rights (the "Other Common Stock"), pro-rata based on the
respective number of shares of Common Stock held by each Shareholder and other
holder of Common Stock.
(d) Priority in Secondary Registrations. If a Piggyback Registration is
an underwritten secondary offering on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company will include
securities in such registration in the following order of priority: (i) first,
the securities requested to be included in such registration by the holders
requesting such registration, (ii) second, all Other Common Stock requested to
be included in such registration by other holders of Common Stock having
registration rights (except for such Common Stock included in the immediately
preceding clause (i)), pro-rata based on the respective number of shares of
Common Stock held by each Shareholder and other holder of Common Stock, and
(iii) third, additional securities of the Company requested to be included in
such registration.
4. HOLDBACK AGREEMENTS. Each holder of Registrable Securities agrees not to
effect any public sale or distribution (including sales pursuant to Rule144) of
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 90-day period beginning on the effective date of any underwritten
Piggyback Registration in which Registrable Securities are included (except as
part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
5. REGISTRATION PROCEDURES.
(a) Company Procedures.
(i) Whenever this Agreement requires, or the holders of Registrable
Securities have requested (as permitted hereunder), that any Registrable
Securities be registered pursuant to this Agreement, the Company will use all
reasonable efforts to effect the registration and the sale of such Registrable
Securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Company will, as expeditiously as possible, subject to the
requirement set forth in Section 2(a) of the Company filing a Demand
Registration Statement within 120 days:
(A) prepare and file with the Securities and Exchange
Commission a Registration Statement with respect to such
Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective as soon as
practicable thereafter (provided that before filing a registration
statement or prospectus or any amendments
4
<PAGE> 5
or supplements thereto, the Company will furnish, at least five
Business Days prior to such filing, to the counsel selected by the
holders of a majority of securities of the Company covered by such
registration statement, copies of all such documents proposed to
be filed which documents will be subject to the review of such
counsel and which review shall be completed no later than two
Business Days prior to the proposed filing date);
(B) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith (the
"Prospectus") as may be necessary to keep such Registration
Statement effective for a period of not less than ninety (90) days
(plus, in the case of the Demand Registration, any extension
period required pursuant to Section 6(c) plus any period during
which the Shareholders are unable to sell Registrable Securities
due to an event described in Section 5(a)(i)(E)) and comply with
the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration
Statement during such period;
(C) furnish each seller of Registrable Securities such number
of copies of such Registration Statement, each amendment and
supplement thereto, the Prospectus included in such Registration
Statement (including each preliminary Prospectus) and such other
documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by
such seller;
(D) use all reasonable efforts to register and qualify such
Registrable Securities under the securities or blue sky laws of
such states and the District of Columbia as any seller of
Registrable Securities reasonably requests and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in
such states and the District of Columbia of the Registrable
Securities owned by such seller (provided that the Company will
not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process
in any such jurisdiction);
(E) notify each seller of such Registrable Securities of the
happening of any event of which the Company becomes aware, as a
result of which the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading,
and, at the request of any such seller, as promptly as is
practicable, the Company will prepare a
5
<PAGE> 6
supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such
Prospectus will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein
not misleading;
(F) notify each seller of any securities covered by such
Registration Statement (A) when such Registration Statement, or
any post-effective amendment to such Registration Statement, shall
have become effective, or any amendment of or supplement to the
Prospectus used in connection therewith shall have been filed, (B)
of any request by the Securities and Exchange Commission to amend
such Registration Statement or to amend or supplement such
Prospectus or for additional information, (C) of the issuance by
the Securities and Exchange Commission of any stop order
suspending the effectiveness of such Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, (D) of the suspension of the qualification of such
securities for offering or sale in any jurisdiction, or of the
institution of any proceedings for any of such purposes, (E) of
the happening of any event that makes any statement made in such
Registration Statement, any then effective Prospectus or any other
document incorporated therein by reference untrue or that requires
the making of any changes in such Registration Statement,
Prospectus or any document incorporated therein by reference in
order that such documents not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (F) of the Company's determination that a further
post-effective amendment to such Registration Statement would be
appropriate;
(G) use reasonable efforts to cause all such Registrable
Securities to be listed on the NASD automated quotation system;
(H) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Securities and Exchange
Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period
of at least twelve months beginning with the first day of the
Company's first full calendar quarter after the effective date of
the Registration Statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder; and
(I) in the event of the issuance of any stop order suspending
the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related Prospectus or
suspending the qualification of any Common Stock included in such
Registration
6
<PAGE> 7
Statement for sale in any jurisdiction, the Company will use all
reasonable efforts promptly to obtain the withdrawal of such
order.
(b) Shareholder Procedures.
(i) In connection with any Registration Statement, the Company may
require each Shareholder to furnish to the Company such information
regarding such Shareholder and his or her proposed distribution of
Registrable Securities, to the extent necessary to comply with the
Securities Act, as the Company may from time to time reasonably request
in writing.
(ii) Each Shareholder agrees to cooperate and timely provide all
necessary information to the Company in all reasonable respects in
connection with the preparation and filing of each Registration Statement
and any amendment thereof, any Prospectus relating thereto and any
Prospectus supplement relating thereto with respect to the offer and sale
of Registrable Securities of such Shareholder.
6. DEMAND REGISTRATION SELLING RESTRICTIONS. The following provisions shall
apply if the Demand Registration is not an underwritten registration:
(a) Notice to Company. The Representative agrees to notify the Company at
least two (2) Business Days prior to any disposition of Registrable Securities
pursuant to the Demand Registration Statement of a Shareholder's intent to
dispose of such Registrable Securities. Such notice shall be in writing, by
facsimile or by a telephone conversation with either the Company's Chief
Financial Officer, General Counsel or Director of Investor Relations, at the
address, facsimile number or the phone number, as the case may be, of the
Company, all as set forth in Section 11 below. The Company will exert
reasonable efforts to respond to such notice by the next Business Day, but in
any event, the Company shall respond no later than the second Business Day
following the date of receipt. Such response shall consist of one of the
following:
(i) an oral or written confirmation that the Company knows of no
reason why the Shareholder should not proceed with the proposed sale or
disposition; or
(ii) a notification that the proposed disposition must be delayed
for a period of up to thirty (30) days as provided in Section 6(b) or
(iii) a confirmation from either the Chef Financial Officer or the
General Counsel of the Company that the Company requires a limited time,
not to exceed five (5) Business Days following the receipt of the
Company's receipt of the Shareholder's notice, within which to determine
which of the foregoing responses is appropriate under the circumstances.
7
<PAGE> 8
(b) Waiting Period. Each Shareholder agrees to comply with the
restrictions on disposition of any Registrable Securities contained in the
Shareholder Indemnification and Acknowledgment Agreement among the
Shareholders, the Company, Costello and CBSI Acquisition Corporation II (the
"Shareholder Indemnification Agreement") and until the expiration of the time
period, if any, identified by the Company in accordance with the foregoing.
The failure by the Company to respond by the end of the second Business Day
shall be deemed to be no objection to the proposed sale or disposition.
(c) Restriction on Sale. The Company may restrict disposition of such
Registrable Securities, in which event each Shareholder agrees not to dispose
of such Registrable Securities; provided that:
(i) the Company shall have delivered a notice in writing to the
Representative stating that a delay in the disposition of Registrable
Securities is necessary because the Company, in its reasonable judgment,
exercised in good faith, has determined that such sales of Registrable
Securities would require public disclosure by the Company of material
nonpublic information that the Company deems advisable not to disclose;
(ii) in the event of the delivery of the notice described in (i)
above by the Company, the Company shall exert commercially reasonable
efforts to amend the Demand Registration Statement or amend or supplement
the Prospectus, if necessary and to take all other actions necessary to
allow the proposed disposition to take place as promptly as practicable
after the conditions referred to therein have ceased to exist;
(iii) the Company agrees to use all commercially reasonable efforts
to keep the Demand Registration Statement, as amended pursuant to this
Section 6(c), effective for an additional period of time equal to the
period during which sales were restricted pursuant to this Section 6(c).
(d) Discontinuance of Sale. Each Shareholder agrees that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in any of Sections 5(a)(i)(F)(B)-(F), such Shareholder shall forthwith
discontinue all sales and distributions of Registrable Securities pursuant to
the then-current Prospectus until the Representative receives copies of a
supplemental or amended Demand Prospectus as contemplated by Section 6(c)(ii),
or until the Representative is advised in writing by the Company that the use
of the Prospectus may be resumed, and, if so directed by the Company, the
Representative will deliver to the Company all copies then in the possession of
the Shareholders of the Prospectus in effect with respect to the Registrable
Securities at the time of such notice by the Company. The Company shall
promptly take all such action as may be necessary or appropriate, including,
without limitation, the filing of an amendment to the Demand Registration
Statement and/or the filing of an amended Prospectus or a Prospectus
supplement, to limit the duration of any
8
<PAGE> 9
discontinuance with respect to the sale and distribution of Registrable
Securities pursuant to this Section 6(d).
(e) Restrictions Cumulative. The restrictions described herein are in
addition to, and not in limitation of, any other restrictions that may be
applicable to each of the Shareholders, including, without limitation any
restrictions under the terms of the Shareholder Indemnification Agreement and
under applicable securities laws (such as the Company's employee insider
trading policy and general restrictions against trading in Company securities
while in possession of material non-public information concerning the Company).
7. REGISTRATION EXPENSE
(a) Demand Registration
All reasonable expenses incident to the Company's preparing and
filing a Demand Registration Statement including all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws,
listing fees, printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and all independent certified public
accountants, and other Persons retained by the Company (all such expenses
being herein called "Registration Expenses"), will be borne, pro rata, by the
Shareholders on the basis of shares registered for sale; including any
applicable to Registrable Securities sold by them pursuant to this Agreement.
(b) Piggy Back Registration
1). Payment by Company. All Registration Expenses incident to the
Company's preparation and filing of a Piggyback Registration Statement will be
borne by the Company; provided, that the holders of Registrable Securities
shall pay all underwriting discounts and commissions applicable to Registrable
Securities sold by them pursuant to this Agreement.
2) Payment by Selling Shareholders. To the extent Registration
Expenses are not required to be paid by the Company, each holder of securities
included in any registration hereunder will pay those Registration Expenses
allocable on a share-by-share basis to the registration of such holder's
securities so included, and any Registration Expenses not so allocable will be
borne by all sellers of securities included in such registration in proportion
to the aggregate selling price of the securities to be so registered.
8. INDEMNIFICATION.
(a) Company Indemnification. The Company shall indemnify and hold
harmless, to the fullest extent permitted by law, each seller of Registrable
Securities, any underwriter for such registration and each person or entity, if
any, controlling such seller
9
<PAGE> 10
or underwriter within the meaning of the Securities Act or the Exchange Act
against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation and legal expenses) to which such seller,
underwriter or controlling person or entity, as the case may be, may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arise out of or are based upon any of the following
(collectively, "Violations"):
(ii) any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, any Prospectus or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or
(iii) any violation or alleged violation by the Company, in
connection with such registration, of the Securities Act, the Exchange
Act, any state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities law;
provided, however, that the Company shall not be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished for use in connection with such
registration by any such seller, underwriter or controlling person or entity.
(b) Selling Shareholder Indemnification. Each seller of Registrable
Securities shall indemnify and hold harmless, to the fullest extent permitted
by law, the Company, its officers, directors, employees, representatives and
agents, and each Person who controls (within the meaning of the Securities Act)
the Company, against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) resulting from
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus, or any amendment or supplement thereto,
and any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent the
same arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission to state a
material fact in such Registration Statement, Prospectus, amendment or
supplement, as the case may be, made or omitted, as the case may be, in
reliance upon and in conformity with written information furnished to the
Company by such seller for use therein, or if such offering is not an
underwritten offering, by such seller's failure to deliver a copy of the
Registration Statement, Prospectus or any amendment or supplement thereto after
the Company has furnished such seller with a sufficient number of copies of the
same. In no event shall any
10
<PAGE> 11
indemnification obligation under this Section 8(b) or by any seller under
Section 8(d) exceed the net proceeds from the offering received by such seller.
(c) Notice of Claim. Each party entitled to indemnification under this
Section 8 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for
the Indemnifying Party, who will conduct the defense of such claim or
litigation, is approved by the Indemnified Party (whose approval will not be
unreasonably withheld or delayed); and provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations except to the extent that its defense of
the claim or litigation involved is prejudiced by such failure. The
Indemnified Party may participate in such defense at such party's expense. No
Indemnifying Party, in the defense of any such claim or litigation, except with
the consent of each Indemnified Party, shall consent to entry of any judgment
or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of any claim or litigation, and no
Indemnified Party will consent to entry of any judgment or settle any claim or
litigation without the prior written consent of the Indemnifying Party. Each
Indemnified Party shall furnish such information regarding himself, herself or
itself and the claim in question as the Indemnifying Party may reasonably
request and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) Contribution. If for any reason the indemnification provided for in
this Section 8 from an Indemnifying Party, although otherwise applicable by its
terms, is determined by a court of competent jurisdiction to be unavailable to
an Indemnified Party hereunder, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Parties as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of such Indemnifying Party and the Indemnified Parties in
connection with the actions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and the
Indemnified Parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or the Indemnified Parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 8(c), any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
11
<PAGE> 12
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in
any underwritten registration hereunder unless such Person (a) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved by the Company and other Person or Persons entitled hereunder to
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
10. REPORTS UNDER EXCHANGE ACT. With a view to making available to the holders
of the Registrable Securities the benefits of Rule 144 and any other rule or
regulations of the Securities and Exchange Commission that may at any time
permit a holder to sell securities of the Company to the public without
registration, the Company agrees to use its reasonable best efforts to do all
of the following:
(a) Public Information. Make and keep public information available as
contemplated in Rule 144, at all times;
(b) SEC Reports. File with the Securities and Exchange Commission all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) Rule 144 Statement. Furnish to any holder, so long as such holder
owns any of the Registrable Securities, forthwith upon request a written
statement by the Company that it has complied with the reporting requirements
of Rule 144, the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed with the Securities and Exchange Commission by the Company as may be
reasonably requested in availing any holder, under any rule or regulation of
the Securities and Exchange Commission, of the right to sell any such
Registrable Securities without registration.
12. MISCELLANEOUS.
(a) No Inconsistent Agreements. The Company will not hereafter enter into
any agreement with respect to its securities which violates the rights granted
to the holders of Registrable Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for
12
<PAGE> 13
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of at least a majority of the
Registrable Securities.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and permitted assigns. No Shareholder
may assign his or her rights or obligations under this Agreement without the
prior written consent of the Company.
(e) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the
same Agreement.
(g) Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
(h) Governing Law. The corporate law of Michigan will govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto will be governed by the
internal law, and not the law of conflicts, of Michigan.
(i) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, facsimile, or
overnight delivery service addressed as follows:
If to Acquisition Company or Acquiror: With a copy to:
Complete Business Solutions, Inc. Arthur Dudley II, Esq.
32605 West Twelve Mile Road, Suite 250 Butzel Long
Farmington Hills, Michigan 48334 150 W. Jefferson, Suite 900
Attn: President Detroit, MI 48226
13
<PAGE> 14
If to Representative: With a copy to:
5583 Gulf Pointe Drive Fagel & Haber
Sarasota, FL 34243 140 South Dearborn, Suite 140
Chicago, Illinois 60603
Attention: Joel A. Haber
If to a Shareholder: Notice shall be delivered to the last address on
record with the Merging Company.
Any party may by notice change the address to which notice or other
communications to it are to be delivered or mailed.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPLETE BUSINESS SOLUTIONS, INC.
By: ________________________________
Its: ________________________________
Merging Company Shareholders Merging Company Shareholders
Class A Class B
__________________ _______________________
Charles Costello Lauren Hutchinson
__________________ _______________________
Carolyn Costello Peter Mauro
__________________ _______________________
Daniel Robert John Costello
__________________ _______________________
Ralph Durante Thomas Costello
14
<PAGE> 15
__________________ _______________________
Daniel Chacho George Hughes
_______________________
Harold Samson
_______________________
Dan & Agnes Robert
_______________________
Daniel Chacho
_______________________
Frank Sola
_______________________
Ralph Durante
_______________________
Dave Yanik
_______________________
Brad Waugh
15
