<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-37205
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COMPASS INTERNATIONAL SERVICES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7322 22-3540815
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NO.)
ORGANIZATION)
5 INDEPENDENCE WAY, SUITE 300, PRINCETON, NEW JERSEY 08540; (609) 514-5156
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL J. CUNNINGHAM
5 INDEPENDENCE WAY
SUITE 300
PRINCETON, NEW JERSEY 08540
(609) 514-5156
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
HOWARD S. LANZNAR, ESQ. NEIL GOLD, ESQ.
MARGUERITE M. ELIAS, ESQ. CAROLINE AIKEN KOSTER, ESQ.
KATTEN MUCHIN & ZAVIS FULBRIGHT & JAWORSKI L.L.P.
525 WEST MONROE STREET 666 FIFTH AVENUE
SUITE 1600 31ST FLOOR
CHICAGO, ILLINOIS 60661 NEW YORK, NEW YORK 10103
(312) 902-5200 (212) 318-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [_] .
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [_] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [X].
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF AMOUNT PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE MAXIMUM AGGREGATE REGISTRATION
REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............ 4,715,000 shares(1) $12.00 per share(2) $56,580,000(2) $17,146(3)
- ---------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes 615,000 shares to be offered upon exercise of the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
(3) Previously paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1997
4,100,000 SHARES
LOGO
COMPASS INTERNATIONAL SERVICES CORPORATION
COMMON STOCK
All of the 4,100,000 shares of Common Stock offered hereby are being sold by
the Company.
Prior to this offering (the "Offering") there has been no public market for
the Common Stock of the Company. It is currently estimated that the initial
public offering price of the Common Stock will be between $ and $ per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price. Application has been made to
have the Common Stock approved for quotation on the Nasdaq National Market
under the symbol "CMPS."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
- --------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........... $ $ $
Total(3)............ $ $ $
- --------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $3,000,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 615,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities, Inc., on or about
, 1997.
-----------
NationsBanc Montgomery Securities, Inc.
Lehman Brothers
, 1997
<PAGE>
The inside front cover of the Prospectus contains five photographs depicting
the various operations of the Company. In the upper left corner is the Company's
logo.
----------------
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
2
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of the Offering made by
this Prospectus, Compass will acquire five business services outsourcing
companies (the "Founding Companies"), in separate transactions (collectively,
the "Acquisitions"), in exchange for cash and shares of its Common Stock.
Unless otherwise indicated, all references to the "Company" herein include the
Founding Companies and references to "Compass" shall mean Compass International
Services Corporation prior to the effectiveness of the Acquisitions. For more
information about the Acquisitions, see "Certain Transactions."
The following summary is qualified in its entirety by, and should be read in
conjunction with, the detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all such financial information and share and per share data in this
Prospectus (i) have been adjusted to give effect to the Acquisitions, (ii) give
effect to the approximate 112.185-for-1 stock split to be effected prior to the
consummation of the Offering, and (iii) assume that the Underwriters' over-
allotment option is not exercised.
THE COMPANY
Compass was organized to create a leading provider of outsourced business
services to public and private entities throughout the sales cycle (as
illustrated below, the "Sales Cycle"). The five Founding Companies collectively
provide accounts receivable management services, mailing services and
teleservices to clients in a broad range of sectors including
telecommunications, financial services, insurance, healthcare, education,
government and utilities. In addition, through its proprietary Accelerated
Payment Systems ("APS") process, one of the Founding Companies is a leading
provider of telephonic check drafting services which enable clients to accept
payments through checks authorized by phone. The Founding Companies, each of
which has been in business for more than ten years, have collectively achieved
substantial growth in recent years. On a pro forma combined basis, the Founding
Companies' revenues increased from $30.9 million in 1992 to $71.8 million in
1996, representing a compound annual growth rate of 23.5%. Revenues of the
Founding Companies for the nine months ended September 30, 1997 totaled $63.6
million on a pro forma combined basis.
Upon the consummation of the Acquisitions, the Company's accounts receivable
management services will include the recovery of traditional delinquent
accounts from both consumer and commercial debtors and the management of early
stage delinquencies. Mailing services will include lead generating direct mail,
often to prompt inbound sales calls, and direct mail for billing, payment
processing or collection purposes. Mailing services will also include
presorting, freight and drop shipping, data processing, laser printing, mailing
list rental and order fulfillment. Teleservices will include outbound
telemarketing, inbound customer service and inbound sales. Each of the services
to be provided by the Company, including APS, can be utilized at various stages
of the Sales Cycle. Upon completion of the Offering, the Company will be one of
the largest providers of its services in the United States in terms of
revenues, servicing clients from 12 call centers in ten states equipped with a
total of approximately 980 workstations, a mail processing center in Texas,
four sales centers in the United States and one sales center in the United
Kingdom.
Companies are increasingly outsourcing to third party experts a variety of
non-core business functions throughout the Sales Cycle, and the Company
believes, although there can be no assurance, that this trend toward
outsourcing will continue. In addition to the general trend toward outsourcing,
management believes that a number of significant factors and trends are
creating opportunities in the Company's businesses. Both the accounts
receivable management industry and the direct marketing industry have
experienced significant growth in recent years. The American Collectors
Association estimates that consumer receivables outsourced to third parties for
management and recovery in the United States increased from approximately $43.7
billion in 1990 to approximately $84.3 billion in 1995, a compound annual
growth rate of 14.0%. The Direct Marketing
3
<PAGE>
Association estimates that direct marketing advertising expenditures in the
United States for telemarketing increased from approximately $42.4 billion in
1991 to $57.8 billion in 1996, a compound annual growth rate of 6.4%, while
direct mail advertising expenditures increased from approximately $24.5 billion
to $34.6 billion during the same period, a compound annual growth rate of 7.1%.
Each of the accounts receivable management, direct mail and teleservices
industries is highly fragmented, includes a large number of small, independent
businesses and is currently experiencing consolidation. The Company believes
significant opportunities are available to a well capitalized company providing
a broad offering of outsourced business services with a high level of customer
service.
Compass believes that companies are increasingly seeking partners who can
provide a comprehensive set of outsourced services, spanning the entire Sales
Cycle, while maintaining a high level of client service. The diagram below
illustrates the processes that comprise the Sales Cycle, from direct marketing
through accounts receivable collection, and the services to be provided by the
Company that can be utilized at various stages throughout the Sales Cycle.
LOGO
The Company's goal is to become a leading, single-source provider of
outsourced business services throughout the Sales Cycle. In order to achieve
this goal, the Company intends to: (i) provide a broad array of complementary
business services; (ii) focus on high quality client service; (iii) leverage
and expand its technology and operational infrastructures; and (iv) operate
with a decentralized management structure.
The Company intends to implement a focused internal growth strategy and
pursue an aggressive acquisition program.
INTERNAL GROWTH STRATEGY. While the Company intends to acquire additional
outsourcing services companies, strong internal growth remains the core of the
Company's growth strategy. A key element of the internal growth strategy is to
capitalize on significant cross-selling opportunities. Each of the Founding
Companies is a specialist in the services it provides and has many long
standing relationships with large clients that have multiple outsourcing needs.
Combining the Founding Companies will enable the Company to capitalize on
existing clients' desires for a single point of service, and to offer bundled
services by leveraging the Founding Companies' client relationships and
reputations for quality. The Company expects to use the expertise of the
Founding Companies as a point of entry with new clients. In addition, the
Company intends to: (i) implement an aggressive, coordinated marketing program;
(ii) selectively expand its service offerings with the goal of providing
integrated "end-to-end" services to clients throughout the Sales Cycle; (iii)
implement best practices throughout the Company's operations; (iv) achieve
economies of scale; and (v) pursue opportunities in the growing international
market.
4
<PAGE>
ACQUISITION STRATEGY. Compass believes that industry trends toward
consolidation and increased acceptance of outsourcing create opportunities for
expansion of the Company's business. The Company intends to capitalize on the
highly fragmented nature of the industries in which it competes by implementing
an aggressive strategic acquisition program following the Offering. Using the
Founding Companies as platforms for growth and consolidation, the Company will
pursue acquisitions within the industry segments and markets currently served
by the Founding Companies to add to the growth of its existing businesses and
gain market share. In addition, the Company plans to acquire additional
companies that broaden and complement its menu of services and the markets it
serves.
The Company's ability to successfully execute its internal growth and
acquisition strategies is subject to certain risks. See "Risk Factors"
beginning on page 9 of this Prospectus.
THE ACQUISITIONS
Compass has conducted no operations and generated no revenues to date, and
its management group was assembled only recently, in June 1997. Compass has
entered into agreements to acquire all of the outstanding capital stock of each
of the Founding Companies. The aggregate consideration to be paid by Compass
consists of approximately $20.0 million in cash and 5,435,691 shares of Common
Stock. The cash consideration to be paid for each Founding Company is subject
to possible post-closing adjustment based upon adjusted 1997 earnings. The
maximum possible increase and decrease in the cash consideration to be paid by
Compass is approximately $4.3 million and $8.5 million, respectively. Pursuant
to the Acquisitions, the Company will assume the outstanding indebtedness of
the Founding Companies. The consummation of each Acquisition is contingent upon
the consummation of the Offering and customary closing conditions. The
Acquisition Agreements contain covenants not to compete and require certain
executives of the Founding Companies to enter into employment agreements with
their respective Founding Companies upon consummation of the Acquisitions. One
executive from each of the Founding Companies will be appointed to Compass'
Board of Directors following the consummation of the Offering. See "The
Company," "Management--Executive Compensation; Employment Agreements; Covenants
Not to Compete" and "Certain Transactions."
The Company's executive offices are located at 5 Independence Way, Suite 300,
Princeton, New Jersey 08540, and its telephone number is (609) 514-5156. The
Company intends to relocate its headquarters to the metropolitan New York area
after the consummation of the Offering.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company........................... 4,100,000 shares
Common Stock to be outstanding
after the Offering................ 11,218,460 shares(1)
Use of proceeds.................... To pay the cash portion of the purchase
price for the Founding Companies, to retire
certain outstanding indebtedness of the
Founding Companies, and for working capital
and general corporate purposes, including
future acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................ CMPS
</TABLE>
- --------
(1) Does not include: (i) up to 1,000,000 additional shares reserved for
issuance pursuant to the Company's 1997 Employee Incentive Compensation
Plan (the "Incentive Plan"), of which options to purchase 690,000 shares of
Common Stock will be granted under the Incentive Plan concurrently with the
Offering at an exercise price equal to the initial public offering price;
(ii) 500,000 additional shares reserved for issuance under the Company's
Employee Stock Purchase Plan; or (iii) 100,000 shares of Common Stock
issuable upon the exercise of warrants to be issued concurrently with the
Offering. See "Management--1997 Employee Incentive Compensation Plan" and
"--Employee Stock Purchase Plan" and "Certain Transactions."
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Compass will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, The Mail Box, Inc., one of the Founding Companies, has
been designated as the accounting acquiror. The following unaudited summary pro
forma combined financial data present certain data for the Company as adjusted
to give effect to (i) the consummation of the Acquisitions, (ii) certain pro
forma adjustments to the historical financial statements, including adjustments
for three acquisitions completed by Bomar (as defined below under the heading
"The Company") since August 1996, and (iii) the consummation of this Offering
and the application of the net proceeds therefrom. See the Unaudited Pro Forma
Combined Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA COMBINED
----------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------ ---------------------
1996 1996 1997
------------ ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues.................................... $71,783 $52,043 $63,619
Operating expenses.......................... 44,474 31,868 38,905
---------- ---------- ----------
Gross profit.............................. 27,309 20,175 24,714
Selling, general and administrative expenses
(2)........................................ 20,115 14,909 17,148
Amortization of goodwill and other
intangibles (3)............................ 1,271 966 916
---------- ---------- ----------
Income from operations.................... 5,923 4,300 6,650
Other expense, net (4)...................... 210 209 496
---------- ---------- ----------
Income before income taxes.................. 5,713 4,091 6,154
Provision for income taxes (5)............ 2,794 2,023 2,828
---------- ---------- ----------
Net income.................................. $ 2,919 $ 2,068 $ 3,326
========== ========== ==========
Net income per share........................ $ 0.28 $ 0.20 $ 0.32
========== ========== ==========
Shares used in computing net income per
share (6).................................. 10,287,710 10,287,710 10,287,710
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------
PRO FORMA AS
COMBINED (7) ADJUSTED (8)
------------ -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................... $(23,477)(9) $
Total assets........................................ 72,109
Total long-term debt, net of current portion........ 7,832
Stockholders' equity................................ 19,672
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1996, are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be
construed as representative of future operating results. The summary pro
forma combined statement of operations data should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements and the notes
thereto and the historical financial statements of Compass and the Founding
Companies and the notes thereto included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data reflect reductions in
salaries, bonuses and benefits to the stockholders of the Founding
Companies to which they have agreed prospectively in the employment
agreements to be entered into upon consummation of the Offering (the
"Compensation Differential"). The Compensation Differential was
approximately $3.5 million, $2.5 million and $3.2 million for the year
ended December 31, 1996 and the nine months ended September 30, 1996 and
1997, respectively.
6
<PAGE>
(3) Reflects (i) the amortization of goodwill of $36.4 million to be recorded
as a result of the Acquisitions over periods ranging from 15 to 40 years;
and (ii) the amortization of $1.0 million in intangible assets over a
period of 15 years.
(4) Reflects a reduction of interest expense associated with long term debt to
be repaid from the proceeds of the Offering of $271,000 for the year ended
December 31, 1996, and $178,000 and $345,000 for the nine months ended
September 30, 1996 and 1997, respectively and a reduction of interest
income of $61,000 for the year ended December 31, 1996 and $47,000 and
$54,000 for the nine-month periods ended September 30, 1996 and 1997,
respectively, relating to stockholder notes to be paid off upon
consummation of the Offering.
(5) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(6) Includes: (i) 1,682,769 shares issued to BGL Capital Partners, L.L.C.
("BGL"), and management of Compass; (ii) 5,435,691 shares issued to owners
of the Founding Companies in connection with the Acquisitions; and (iii)
3,169,250 shares representing the number of shares sold in the Offering
necessary to pay the cash portion of the consideration for the
Acquisitions, to pay the underwriting discount and estimated expenses of
the Acquisitions and the Offering, and to repay certain indebtedness
assumed by Compass in the Acquisitions, net of repayment of stockholder
receivables. See "Certain Transactions."
(7) The pro forma combined balance sheet data assume that the Acquisitions were
consummated on September 30, 1997, are not necessarily indicative of the
financial position that would have been achieved had these events actually
then occurred and should not be construed as representative of future
financial position. The summary pro forma balance sheet data should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the notes thereto and the historical financial statements of Compass
and the Founding Companies and the notes thereto included elsewhere in this
Prospectus.
(8) Adjusted to reflect the sale of the 4,100,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(9) Includes $20.0 million payable to stockholders of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions to
be paid from the net proceeds of the Offering. See "Use of Proceeds" and
"Notes to Unaudited Pro Forma Combined Financial Statements."
7
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary operating data for each of the Founding
Companies (see "The Company" for the complete names of each Founding Company)
on a historical basis for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,(1) SEPTEMBER 30,(1)
------------------------------ ------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
MAIL BOX:
Revenues.................. $ 15,354 $ 17,370 $ 26,156 $ 18,472 $ 23,188
Operating expenses........ 11,168 12,402 17,953 12,816 15,286
--------- --------- --------- -------- --------
Gross profit.............. 4,186 4,968 8,203 5,656 7,902
Selling, general and
administrative expenses.. 3,442 4,370 5,891 4,185 5,642
--------- --------- --------- -------- --------
Income from operations.... $ 744 $ 598 $ 2,312 $ 1,471 $ 2,260
========= ========= ========= ======== ========
NCMC(2):
Revenues.................. $ 8,874 $ 12,287 $ 13,579 $ 10,055 $ 11,759
Operating expenses........ 4,550 6,322 7,945 5,806 7,314
--------- --------- --------- -------- --------
Gross profit.............. 4,324 5,965 5,634 4,249 4,445
Selling, general and
administrative expenses.. 3,400 4,328 4,798 3,680 5,065
--------- --------- --------- -------- --------
Income from operations.... $ 924 $ 1,637 $ 836 $ 569 $ (620)
========= ========= ========= ======== ========
BOMAR:
Revenues.................. $ 6,859 $ 7,416 $ 9,597 $ 7,040 $ 10,268
Operating expenses........ 3,952 4,229 5,814 4,318 5,914
--------- --------- --------- -------- --------
Gross profit.............. 2,907 3,187 3,783 2,722 4,354
Selling, general and
administrative expenses.. 2,490 2,934 3,458 2,458 3,705
--------- --------- --------- -------- --------
Income from operations.... $ 417 $ 253 $ 325 $ 264 $ 649
========= ========= ========= ======== ========
MID-CONTINENT:
Revenues.................. $ 9,086 $ 8,763 $ 9,038 $ 6,810 $ 7,066
Operating expenses........ 2,963 2,851 2,875 2,210 2,294
--------- --------- --------- -------- --------
Gross profit.............. 6,123 5,912 6,163 4,600 4,772
Selling, general and
administrative expenses.. 5,862 5,974 6,054 4,509 4,677
--------- --------- --------- -------- --------
Income (loss) from
operations............... $ 261 $ (62) $ 109 $ 91 $ 95
========= ========= ========= ======== ========
IMPACT(3):
Revenues.................. $ 6,698 $ 8,748 $ 8,869 $ 5,950 $ 8,958
Operating expenses........ 4,705 6,108 6,961 4,356 6,708
--------- --------- --------- -------- --------
Gross profit.............. 1,993 2,640 1,908 1,594 2,250
Selling, general and
administrative expenses.. 1,787 2,590 2,108 1,597 2,089
--------- --------- --------- -------- --------
Income (loss) from
operations............... $ 206 $ 50 $ (200) $ (3) $ 161
========= ========= ========= ======== ========
</TABLE>
- --------
(1) Selling, general and administrative expenses for the Founding Companies for
each of the years in the three-year period ended December 31, 1996 and for
the nine months ended September 30, 1996 and 1997 do not include a
reduction for the Compensation Differential as indicated below. The
historical Compensation Differential shown for Bomar does not include
$86,000, $73,000, $169,000, $67,000 and $64,000, for the years ended
December 31, 1994, 1995 and 1996, for the nine months ended September 30,
1996 and the eight months ended August 31, 1997 respectively, related to
Bomar's acquisition of FCCI which was completed in September 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- -----------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
MAIL BOX....................... $ 152 $ 310 $ 875 $ 520 $ 1,299
NCMC........................... 75 169 210 161 90
BOMAR.......................... 516 718 1,046 875 760
MID-CONTINENT.................. 981 1,057 1,161 868 968
IMPACT......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total......................... $ 1,724 $ 2,254 $ 3,292 $ 2,424 $ 3,117
======== ======== ======== ======== ========
</TABLE>
(2) NCMC's operating data for the nine months ended September 30, 1997 includes
a compensation charge of approximately $1.3 million associated with the
issuance of NCMC shares to certain key employees.
(3) Impact's operating data for the years ended December 31, 1994 and 1995
reflect the operating results for the year ended September 30 for its
affiliate, Impact Tele-marketing, Inc.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following factors should be considered carefully
before purchasing any of the shares of Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
Compass was recently formed and has conducted no operations and generated no
revenues to date. Compass has entered into agreements to acquire the Founding
Companies simultaneously with and as a condition to the closing of the
Offering. Approximately $31.9 million of the net proceeds from the Offering
will be used to pay the cash portion of the purchase price for the Founding
Companies and to repay certain indebtedness assumed by the Company in the
Acquisitions. The Founding Companies have been operating as separate
independent entities. Currently, the Company has no centralized financial
reporting system and will initially rely on the existing reporting systems of
the Founding Companies. The success of the Company will depend, in part, on
the Company's ability to integrate the operations of the Founding Companies,
including centralizing certain functions to achieve cost savings and
developing programs and processes that will promote cooperation and the
sharing of opportunities and resources among the Founding Companies. The
Company's management group has been assembled only recently and there can be
no assurance that the management group will effectively be able to oversee the
combined entity and implement the Company's operating or growth strategies.
Further, to the extent that the Company is able to implement its acquisition
strategy, the resulting growth of the Company will place significant demands
on management and on the Company's internal systems and controls. There can be
no assurance that the newly assembled management group will effectively be
able to direct the Company through a period of significant growth.
A number of the Founding Companies offer different services, employ
different technologies and operating systems and target different markets and
client segments. These differences increase the risk inherent in successfully
completing integration of the Founding Companies. Further, there can be no
assurance that the Company's integration strategy will be successful, or that
the clients of the Founding Companies will accept the Company as a provider of
a variety of outsourced business services. In addition, there can be no
assurance that the operating results of the Company will match or exceed the
combined individual operating results achieved by the Founding Companies prior
to the Offering.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
The Company expects to grow internally and through acquisitions. The Company
expects to expend significant time and effort in expanding existing businesses
and identifying, completing and integrating acquisitions. The Company's
ability to manage growth successfully will require the Company to continue to
improve its operations, management and financial systems and controls as well
as expand its employee work force. Any future growth can be expected to place
significant additional responsibilities on the Company's management,
operations, employees and resources. There can be no assurance the Company
will be able to maintain or accelerate its current growth, effectively manage
its expanding operations or achieve planned growth on a timely or profitable
basis. To the extent that the Company is unable to manage its growth
efficiently and effectively, the Company's business, financial condition and
results of operations could be materially adversely affected. See "Business--
Growth Strategy" and "Management."
RISKS ASSOCIATED WITH INTERNAL GROWTH AND OPERATING STRATEGIES
A key element of the Company's strategy is to generate internal growth by
capitalizing on cross-selling opportunities, generating new clients through
aggressive marketing and expanding its service offerings. Internal growth will
depend upon factors including the effective initiation, development and
maintenance of client
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relationships; the expansion of marketing operations; the Company's ability to
maintain the high quality of the services and products it offers and to expand
such services and products; and the recruitment, motivation and retention of
qualified management and other personnel. Sustaining growth will also require
continued access by the Company to capital, the successful cross-selling of
products and services among the Founding Companies and realization by the
Company of economies of scale. There can be no assurance that the Company's
strategies will continue to generate internal growth or that it will be able
to generate cash flow adequate for its operations and to support growth. A key
component of the Company's strategy is to operate the Founding Companies and
subsequently acquired businesses on a decentralized basis, with local
management retaining responsibility for day-to-day operations, profitability
and the growth of the business. If proper overall business controls are not
implemented, this decentralized operating strategy could result in
inconsistent operating and financial practices at the Founding Companies and
subsequently acquired businesses and the Company's overall profitability could
be adversely affected. See "Business--Growth Strategy."
RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION STRATEGY AND FINANCING OF
ACQUISITIONS
A significant element in the Company's growth strategy is the acquisition of
additional outsourced business services companies that will add to the growth
of or complement its existing businesses. There can be no assurance that the
Company will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that the Company will be able to
profitably manage additional businesses or successfully integrate such
additional businesses into the Company without substantial costs, delays or
other problems. In addition, acquisitions may involve a number of special
risks, including adverse short-term effects on the Company's reported
operating results; diversion of management's attention; dependence on
retention, hiring and training of key personnel; unanticipated problems or
legal liabilities; and amortization of acquired intangible assets. Some or all
of these risks could have a material adverse effect on the Company's
operations and financial performance. In addition, increased competition for
attractive acquisition candidates may develop, in which case there may be
fewer acquisition opportunities available to the Company as well as high
acquisition prices. There can be no assurance that the Founding Companies or
other businesses acquired in the future will achieve anticipated revenues or
earnings.
The Company currently intends to finance future acquisitions by using its
Common Stock for all or a portion of the consideration to be paid. In the
event that the Common Stock does not maintain sufficient value, or potential
acquisition candidates are unwilling to accept Common Stock as consideration
for the sale of their businesses, the Company may be required to utilize more
of its cash resources, if available, in order to continue its acquisition
program. If the Company does not have sufficient cash resources, its growth
could be limited unless it is able to obtain capital through additional debt
or equity financings. There can be no assurance that such debt or equity
financings will be obtained or that, if obtained, such financing will be on
terms that are favorable to the Company or sufficient for the Company's needs.
If the Company is unable to obtain sufficient financing, it may be unable to
fully implement its acquisition strategy.
MATERIAL AMOUNT OF INTANGIBLE ASSETS
Approximately $40.5 million, or 50.2%, of the Company's as adjusted pro
forma total assets as of September 30, 1997, represents goodwill subsequent to
the Acquisitions. Goodwill is an intangible asset that represents the
difference between the aggregate purchase price for the assets acquired and
the amount of such purchase price allocated to such assets for purposes of the
Company's pro forma balance sheet. The Company will amortize the goodwill from
the Acquisitions over periods ranging from 15 to 40 years with the amount
amortized in a particular period constituting an expense that reduces the
Company's net income for that period. The amount amortized, however, will not
give rise to a deduction for tax purposes. In addition, the Company will be
required to amortize the goodwill, if any, from any future acquisitions. Under
accounting rules, the Company is required to periodically evaluate if goodwill
has been impaired by reviewing the cash flows of acquired companies and
comparing such amounts with the carrying value of the associated goodwill. If
goodwill
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is impaired, the Company would be required to write down goodwill and incur a
related charge to its income. A reduction in net income resulting from the
amortization or writedown of goodwill could have an adverse impact upon the
market price of the Common Stock.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Results for any quarter are not necessarily indicative of the results that
the Company may achieve for any subsequent quarter or a full fiscal year.
Quarterly results may vary materially as a result of the timing and structure
of acquisitions, the timing and magnitude of costs related to such
acquisitions or the gain or loss of material client relationships. Since a
significant portion of the Company's revenues are generated on a project-by-
project basis, the timing or completion of material projects could result in
fluctuations in the Company's results of operations for particular quarterly
periods. Because the anticipated financial benefits of the combination of the
Founding Companies may not be generated immediately, if at all, the Company's
initial results as a combined company may reflect corporate overhead that
exceeds the realized benefits. Unexpected variations in quarterly results
could also adversely affect the price of the Common Stock, which in turn could
limit the ability of the Company to make acquisitions.
PATENT LITIGATION; DEPENDENCE ON PROPRIETARY TECHNOLOGY
The success of the Company's APS business is dependent in part upon a patent
covering the APS process (the "APS Patent") that was purchased by and assigned
to the Company in 1996. NCMC is currently engaged in several disputes with
respect to the APS Patent. NCMC has filed suit against the former owner and
inventor of the APS Patent (collectively, the "Defendants"), alleging that the
Defendants have breached the agreement between NCMC and the Defendants and
violated NCMC's exclusive rights to the APS Patent and related intellectual
property used in the APS portion of NCMC's business. The Defendants have filed
a counterclaim that seeks, among other things, rescission of the agreement
under which NCMC purchased the APS Patent, restoration of a prior agreement
pursuant to which the Defendants licensed the APS Patent to NCMC, return of
the APS Patent to the Defendants and unspecified damages. There can be no
assurances that Defendants will not prevail with respect to some or all of
their counterclaims. If the purchase agreement is rescinded and the prior
license agreement restored, the royalties payable by NCMC would be higher than
those currently being paid, damages could be assessed and the ownership of the
APS Patent would be transferred to the Defendants. See "Business--Litigation."
NCMC is currently a plaintiff in two other lawsuits in which NCMC is
alleging that a competitor and a former customer are infringing the APS
Patent. These defendants have denied any infringement and filed counterclaims
seeking a declaration that the APS Patent is invalid. There can be no
assurances that NCMC will prevail in these or other patent infringement
actions it may pursue, that the APS Patent will not be declared invalid or
that the loss of either of these two lawsuits or the defendants' counterclaims
will not have a material adverse effect on the Company's business, results of
operations or financial condition. See "Business--Litigation." In addition,
there can be no assurances that the Company's competitors will not be able to
develop similar or better technology than the APS Patent.
DEPENDENCE ON LABOR FORCE
The Company's success depends in part on its ability to recruit, hire, train
and retain qualified employees. The Company's operations are very labor
intensive and have experienced high personnel turnover. A significant increase
in the Company's employee turnover rate could increase the Company's
recruiting and training costs and decrease operating efficiencies and
productivity. If the Company's growth strategy is successful, the Company will
be required to recruit, hire and train qualified personnel at an accelerated
rate. There can be no assurance that the Company will be able to hire, train
and retain a sufficient labor force of qualified employees. Because a
significant portion of the Company's operating costs consist of wages to
hourly workers, an increase in wages, costs of employee benefits or employment
taxes could have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, certain of the Company's
facilities are located in geographic areas with relatively low unemployment
rates, thus potentially making it more difficult and costly to hire qualified
personnel.
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DEPENDENCE ON CERTAIN SECTORS; CONTRACT RISKS
Most of the Company's revenues are derived from clients in the
telecommunications, financial services, education, healthcare, retail and
commercial, insurance, government and utilities sectors. A significant
reduction in expenditures in these sectors or trends to reduce or eliminate
the use of third-party services could have a materially adverse impact on the
Company's business, results of operations and financial condition. The Company
enters into contracts with most of its clients which define, among other
things, general fee arrangements, the basic scope of services and termination
provisions. Clients may usually terminate such contracts on short notice.
Accordingly, there can be no assurance that existing clients will continue to
use the Company's services at historical levels, if at all. The Company's 10
largest clients in 1996 accounted for approximately 39.8% of the Company's
revenues on a pro forma combined basis. During 1996 and the nine months ended
September 30, 1997, VarTec Telecom, Inc. ("VarTec") accounted for 11.2% and
17.6%, respectively, of the Company's revenues on a pro forma combined basis.
The Company's contract with VarTec allows for termination on short notice. A
significant reduction in business from VarTec could have a material adverse
effect on the Company's business, results of operations and financial
condition. See "Business--Client Relationships."
COMPETITION
The markets in which the Company competes are highly competitive, and the
Company expects competition to persist and intensify in the future. The
Company's competitors include small firms offering specific business services,
divisions of large entities, large independent firms and, most significantly,
the in-house operations of clients or potential clients. Some of the Company's
competitors have substantially greater financial, marketing and other
resources, offer more diversified services and operate in broader geographic
areas than the Company. There can be no assurance that additional competitors
with greater resources than the Company will not enter the Company's markets.
All of the services offered by the Company may be performed in-house. Many
larger clients retain multiple service providers which exposes the Company to
continuous competition in order to remain a preferred vendor. There can be no
assurance that outsourcing of the services performed by the Company will
continue or that existing Company clients will not bring some or all of such
services in-house.
RELIANCE ON MANAGEMENT
The Company's operations are dependent on the efforts of Michael J.
Cunningham, its Chief Executive Officer, Mahmud U. Haq, its President and
Chief Operating Officer, and Richard A. Alston, its Chief Financial Officer,
as well as the senior management of the Founding Companies. Furthermore, the
Company will likely be dependent on the senior management of any businesses
acquired in the future. If any of these individuals becomes unable to continue
his role, the Company's business or prospects could be adversely affected.
There can be no assurance that such individuals will continue in their present
capacities for any particular period of time. The Company does not intend to
obtain key man life insurance covering any of its executive officers or
members of senior management of the Founding Companies. See "Management--
Executive Officers and Directors" and "--Executive Compensation; Employment
Agreements; Covenants Not to Compete."
DEPENDENCE ON TELEPHONE AND POSTAL SERVICE
The Company's business is materially dependent upon service provided by
various local and long distance telephone companies and the United States
Postal Service. Rate increases imposed by telephone companies would increase
the Company's operating expenses and adversely affect its operating results to
the extent that the Company is unable to pass the increases through to its
clients. A significant increase in postage rates could adversely affect the
demand for the mailing services provided by the Company. Any significant
interruption or capacity limitation in either service would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Services Offered."
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. The Company is subject to
the Fair Debt Collection Practices Act (the "FDCPA") and various state debt
collection laws, which, among other things, establish specific guidelines and
procedures debt collectors
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must follow in communicating with consumer debtors, including the time, place
and manner of such communications. The accounts receivable management business
is also subject to state regulation, and some states require that the Company
be licensed as a debt collection company. The Company is also subject to the
Fair Credit Reporting Act (the "FCRA"), which regulates the consumer credit
reporting industry and which may impose liability on the Company to the extent
that the adverse credit information reported on a consumer to a credit bureau
is false, inaccurate or outside of the scope of the Company's transactions
with such consumers. With respect to the other teleservices offered by the
Company, including telemarketing, the Telemarketing and Consumer Fraud and
Abuse Prevention Act of 1994 broadly authorizes the Federal Trade Commission
(the "FTC") to issue regulations prohibiting misrepresentations in
telemarketing sales. The FTC's telemarketing sales rules, among other things,
limit the hours during which telemarketers may call, prohibit
misrepresentations of the cost, terms, restrictions, performance or duration
of products or services offered by telephone solicitation and specifically
address other perceived telemarketing abuses in the offering of prizes and the
sale of investment opportunities. In addition, the Telephone Consumer
Protection Act of 1991 (the "TCPA") restricts the use of automated telephone
equipment for telemarketing purposes, including limiting the hours during
which telemarketers may call consumers and prohibiting the use of automated
telephone dialing equipment to call certain telephone numbers. A number of
states also regulate telemarketing and some states have enacted restrictions
similar to the TCPA. The failure to comply with applicable statutes and
regulations could have a materially adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
additional federal or state legislation, or changes in regulatory
implementation, would not limit the activities of the Company in the future or
significantly increase the cost of regulatory compliance.
Several of the industries served by the Company are also subject to varying
degrees of government regulation. Although compliance with these regulations
is generally the responsibility of the Company's clients, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations.
RISK OF BUSINESS INTERRUPTION
The Company's operations are dependent upon its ability to protect its call
centers, computer and telecommunications equipment and software systems
against damage from fire, power loss, telecommunications interruption or
failure, natural disaster and other similar events. In the event the Company
experiences a temporary or permanent interruption through casualty, operating
malfunction or otherwise, the Company's business could be materially adversely
affected and the Company may be required to pay contractual damages to some
clients or allow some clients to terminate or renegotiate their contracts with
the Company. The Company's property and business interruption insurance may
not adequately compensate the Company for all losses that it may incur.
RISKS ASSOCIATED WITH RAPIDLY CHANGING TECHNOLOGY
The Company's business is highly dependent on its computer and
telecommunications equipment and software systems. The Company's failure to
maintain its technological capabilities or to respond effectively to
technological changes could have a material adverse effect on the Company's
business, results of operations or financial condition. The Company's future
success also will be highly dependent upon its ability to enhance existing
services and introduce new services to respond to changing technological
developments. There can be no assurance that the Company can successfully
develop and bring to market any new services in a timely manner, that such
services or products will be commercially successful or that competitors'
technologies or services will not render the Company's products or services
noncompetitive or obsolete.
CONTROL OF THE COMPANY BY INITIAL STOCKHOLDERS
Following the completion of the Offering, the directors and executive
officers of the Company and their affiliates and the former stockholders of
the Founding Companies (collectively, the "Initial Stockholders") will
beneficially own approximately 63.5% of the then outstanding shares of Common
Stock (60.2% if the
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Underwriters' over-allotment option is exercised in full). These persons, if
acting in concert, will have the ability to exercise substantial control over
the Company's affairs and would likely be able to elect a sufficient number of
directors to control the Board and to approve or disapprove any matter
submitted to a vote of stockholders. The Initial Stockholders have entered
into an agreement whereby each party has agreed, for the five years following
the Offering, to vote all shares of Common Stock held by them (i) for the
nomination and reelection of the directors serving at the time of the Offering
or such successors as shall be nominated in accordance with the agreement and
(ii) as to any other matter brought to a stockholder vote, in accordance with
the recommendation of the then-incumbent Board of Directors. The ownership
position of the Initial Stockholders may have the effect of delaying,
deferring or preventing a change in control of the Company. See "Certain
Transactions," "Principal Stockholders" and "Description of Capital Stock--
Stockholders' Agreement."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $20.0 million, or %, of the net proceeds of the Offering
will be used to pay the cash portion of the purchase price for the Founding
Companies. Some of the recipients of these funds will become directors and/or
officers of the Company and/or holders of more than 5.0% of the shares of
Common Stock outstanding after the Offering. Certain of the Founding Companies
have incurred an aggregate of $4.0 million of indebtedness which is personally
guaranteed by their principal stockholders and will be repaid from the net
proceeds of the Offering. In addition, BGL, which will own 10.0% of the shares
of Common Stock outstanding after the Offering, has paid $1.8 million of
expenses in connection with the Company's formation, the Offering and the
Acquisitions. This amount and any additional amounts advanced by BGL prior to
the consummation of the Offering, together with interest thereon at 8.0% per
annum, will be repaid from the net proceeds of the Offering. See "Certain
Transactions."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of Common Stock of the Company in
the public market following the Offering. The 4,100,000 shares of Common Stock
being sold in the Offering will be freely tradeable unless acquired by
affiliates (as that term is defined under the rules and regulations of the
Securities Act of 1933, as amended (the "Securities Act")) of the Company,
which shares will be subject to the resale limitations of Rule 144 ("Rule
144") promulgated under the Securities Act.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering will own 7,118,460 shares of Common Stock,
including (i) the stockholders of the Founding Companies who will receive, in
the aggregate, 5,435,691 shares in connection with the Acquisitions and (ii)
BGL and members of management who own 1,682,769 shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold
unless registered under the Securities Act or sold pursuant to an exemption
from registration, such as the exemption provided by Rule 144. Furthermore,
these stockholders have agreed with Compass not to sell, transfer or otherwise
dispose of any of these shares of Common Stock for a one-year period following
the Offering. Such stockholders have certain piggyback registration rights
beginning one year after the Offering and one demand registration right for
the six month period beginning twenty months after the Offering with respect
to their shares of Common Stock.
The Company and the holders of all shares outstanding prior to the Offering
(including the holders of shares issued in connection with the Acquisitions)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities, Inc. except for: (i) in the case of the Company, Common Stock
issued pursuant to any employee or director plan described herein or in
connection with acquisitions; (ii) in the case of all such holders, the
exercise of stock options pursuant to benefit plans described herein and
shares of Common Stock disposed of as bona fide gifts; and (iii) in the case
of BGL, distributions of Common Stock to its members, subject, in each case,
to any remaining portion of the 180-day period applying to any shares so
issued or transferred. See "Shares Eligible for Future Sale" and
"Underwriting."
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The Company plans to register an additional 3,000,000 shares of its Common
Stock under the Securities Act after completion of the Offering for use by the
Company as consideration for future acquisitions. Upon such registration,
these shares will generally be freely tradable after issuance, unless the
resale thereof is contractually restricted. The registration rights described
above will not apply to the registration statement to be filed with respect to
these 3,000,000 shares. It is contemplated that the shares issued as
consideration for future acquisitions will be subject to restrictions at least
as restrictive as those described in the preceding paragraph. See "Shares
Eligible for Future Sale."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common
Stock will develop or continue after the Offering. The initial public offering
price for the Common Stock will be determined by negotiation between the
Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after the
Offering. See "Underwriting" for the factors to be considered in determining
the initial public offering price. After the Offering, the market price of the
Common Stock may be subject to significant fluctuations in response to
numerous factors, including variations in the annual or quarterly financial
results of the Company or its competitors, changes by financial research
analysts in their estimates of the earnings of the Company or the failure of
the Company to meet such estimates, conditions in the economy in general or in
the industries in which the Company competes, unfavorable publicity or changes
in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the industries in which the
Company competes. From time to time, the stock market experiences significant
price and volume volatility, which may affect the market price of the Common
Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of
approximately $ per share. In the event the Company issues additional
Common Stock in the future, including shares which may be issued in connection
with future acquisitions, purchasers of Common Stock in this Offering may
experience further dilution. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized to issue preferred stock
in one or more series without stockholder action. The Board of Directors of
the Company serve staggered terms. The existence of this "blank-check"
preferred stock and the staggered Board of Directors could render more
difficult or discourage an attempt to obtain control of the Company by means
of a tender offer, merger, proxy contest or otherwise. Certain provisions of
the Delaware General Corporation Law may also discourage takeover attempts
that have not been approved by the Board of Directors. See "Management--Board
of Directors" and "Description of Capital Stock."
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THE COMPANY
Compass was formed to create a leading provider of outsourced business
services to public and private entities throughout the Sales Cycle. Although
it has conducted no operations to date, Compass has entered into agreements
(the "Acquisition Agreements") to acquire the five Founding Companies
simultaneously with, and as a condition to, the closing of the Offering. A
brief description of each Founding Company is set forth below.
THE MAIL BOX, INC.
The Mail Box, Inc. (together with its subsidiary, "Mail Box"), founded in
1971, provides direct mailing services, billing services, mail presorting,
freight and drop shipping, data processing, laser printing, mailing list
rental and other related services to companies located principally in the
southwest United States. Mail Box also provides order fulfillment services and
sells printed materials such as letterhead, envelopes and business forms. Mail
Box is headquartered in Dallas where its operations are housed in four
buildings containing approximately 338,000 square feet. In the twelve months
ended June 30, 1997, Mail Box processed approximately 840 million pieces of
mail, utilizing sophisticated technology in its lettershop, data processing
and presort facilities. Mail Box has received the Mail Advertising Service
Association's Award for Excellence in Education in 1996 for establishing the
industry's first full-time training facility. In addition, Kenneth W. Murphy,
Mail Box's chief executive officer, received in 1992 the United States Postal
Service Industry Excellence Award which recognizes individuals who set
standards for excellence in the mailing industry. Significant clients of Mail
Box include VarTec Telecom, Inc., Medic Computer Systems, Inc., Sears Roebuck
& Co., Advantis Business Services, Inc., The Army and Air Force Exchange
Services and Southwestern Bell Mobile Systems, Inc. Mail Box's revenues were
$26.2 million in 1996 and $23.2 million in the nine months ended September 30,
1997.
NATIONAL CREDIT MANAGEMENT CORPORATION
National Credit Management Corporation (together with its subsidiary,
"NCMC"), founded in 1984, provides accounts receivable management services
and, through its patented Accelerated Payment Systems ("APS") technology,
telephonic check drafting services. NCMC is based in Hunt Valley, Maryland (a
suburb of Baltimore), where it operates a call center and sales office, and
operates an additional call center and sales office in Las Vegas. NCMC
provides traditional delinquency collection services, as well as an early
receivables management service, primarily to clients in the education,
utilities, government and healthcare industries and its APS check drafting
services primarily to clients in the financial services and utilities sectors.
Significant clients of NCMC include University Support Services, MBNA America
Bank, N.A., the State of Maryland and General Electric Capital Services, Inc.
NCMC's revenues were $13.6 million in 1996 and $11.8 million in the nine
months ended September 30, 1997.
B.R.M.C. OF DELAWARE, INC.
B.R.M.C. of Delaware, Inc. (together with its subsidiaries, "Bomar"),
founded in 1984, provides accounts receivable management services, primarily
for clients in the telecommunications, insurance, financial services and
healthcare industries. Bomar is based in Destin, Florida, and conducts
operations in Atlanta, Phoenix, Houston and Tampa. Since August 1996, Bomar
has acquired three accounts receivable management companies. In August 1996
Bomar acquired a 75% interest in Advanced Credit Services, Inc. ("ACS"), in
November 1996 it acquired Clayton-Parker & Associates ("CPA") and in September
1997 it acquired Financial Claims Control, Inc. ("FCCI"). Bomar derives the
substantial majority of its revenues from primary, secondary and tertiary
consumer collections. In addition, Bomar collects subrogated accounts for
insurance companies and recently began providing early receivables management
services. Significant clients of Bomar include Bellsouth Telecommunications,
Inc., AT&T Wireless Services, MD Anderson Cancer Hospital, The FACS Group
(Federated Department Stores, Inc.) and Capital One Financial Corporation.
Bomar's revenues were $9.6 million in 1996 and $10.3 million in the nine
months ended September 30, 1997.
MID-CONTINENT AGENCIES, INC.
Mid-Continent Agencies, Inc. (together with its subsidiaries, "Mid-
Continent"), founded in 1932, provides accounts receivable management services
primarily to companies in the manufacturing, insurance, wholesale
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distribution and commercial sectors. Mid-Continent was one of the first
companies in its industry to provide early receivables management services. It
derives the substantial majority of its revenues from commercial collections
with the balance derived from consumer collections. Mid-Continent is based in
Rolling Meadows, Illinois (a suburb of Chicago) where it operates a call
center, and has additional call centers in Louisville and Buffalo. Mid-
Continent also has an office in the United Kingdom which specializes in
commercial debt recovery and international credit reporting services. In a
December 1996 survey prepared by the Institute of Management & Administration,
Inc., an independent industry trade publication, Mid-Continent was ranked
first by companies comparing the services and results provided by commercial
collection agencies. Mid-Continent's significant clients include Beverly
Enterprises, Inc., CNA Insurance, Reynolds and Reynolds, Sentry Insurance and
seven state workers' compensation funds. Mid-Continent's revenues were $9.0
million in 1996 and $7.1 million in the nine months ended September 30, 1997.
IMPACT TELEMARKETING GROUP, INC.
Impact Telemarketing Group, Inc. and Impact Tele-marketing, Inc.
(collectively, "Impact"), founded in 1984, provides primarily outbound
telemarketing services to national and regional companies in the insurance,
financial services, telecommunications and utilities industries. To a lesser
extent, Impact also provides inbound telemarketing and ancillary services.
Impact is based in Woodbury, New Jersey (a suburb of Philadelphia), and
operates approximately 379 call stations from its two New Jersey call centers.
In addition, Impact has an arrangement to use 160 additional call stations
located in North Dakota, as needed. Impact has been named one of Telemarketing
Magazine's Top Fifty Service Agencies every year since 1991. Impact's major
clients include MemberWorks, Inc., the Telecommunication Division of AT&T,
Gerber Life Insurance Co. and MBNA America Bank, N.A. Impact's revenues were
$8.9 million in 1996 and $9.0 million in the nine months ended September 30,
1997.
THE ACQUISITIONS
Simultaneously with, and as a condition to, the closing of the Offering,
Compass will acquire all of the outstanding capital stock of each of the
Founding Companies. The aggregate consideration to be paid by Compass consists
of approximately $20.0 million in cash and 5,435,691 shares of Common Stock.
Pursuant to the Acquisitions, the Company will assume the outstanding
indebtedness of the Founding Companies. The consideration to be paid for the
Founding Companies was determined through arm's-length negotiations among
Compass and representatives of the Founding Companies. For a description of
the Acquisitions, see "Certain Transactions."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,100,000 shares of
Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in
full). Of the net proceeds, approximately $20.0 million will be used to pay
the cash portion of the purchase price for the Founding Companies, of which
approximately $15.4 million will be paid to former stockholders of the
Founding Companies who will become officers, directors or holders of more than
5% of the shares of Common Stock outstanding after the Offering. Such cash
portion will vary depending on the initial public offering price. In addition,
the consideration to be paid to the Founding Companies is subject to post-
closing adjustment. Approximately $11.9 million of the net proceeds will be
used to repay certain indebtedness assumed by the Company in the Acquisitions.
See "Certain Transactions." The indebtedness to be repaid from the proceeds of
the Offering bears interest at effective rates up to 10.95%, with a weighted
average interest rate of 8.4%. Such indebtedness would otherwise mature at
various dates through 2006.
The remaining $ million of net proceeds will be used for working
capital and general corporate purposes, including future acquisitions. The
Company continues to review various strategic acquisition opportunities.
Except for the Acquisitions, the Company is not currently involved in
negotiations and is not a party to any current arrangements, agreements or
understandings with respect to any acquisitions. Pending such uses, the net
proceeds will be invested in short-term, interest-bearing, investment grade
securities.
In addition to the net proceeds of the Offering, the Company will retain the
cash balances of the Founding Companies. Such balances totaled approximately
$2.5 million as of September 30, 1997. The Company is seeking to obtain a bank
line of credit in an amount up to $35 million. No commitment has been
obtained, and there can be no assurance that the Company will be able to
obtain this line of credit, or other financing it may need, on terms the
Company deems acceptable.
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the expansion
of its business and for general corporate purposes and therefore does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that
the Company's Board of Directors deems relevant. In addition, in the event the
Company is successful in obtaining one or more lines of credit, it is likely
that any such facility will include restrictions on the Company's ability to
pay dividends without the consent of the lender.
18
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at September 30, 1997: (i) on a pro forma combined basis to give
effect to the Acquisitions; and (ii) as further adjusted to give effect to the
Offering and the application of the estimated net proceeds therefrom. This
table should be read in conjunction with the Unaudited Pro Forma Combined
Financial Statements of the Company and the notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-----------------
PRO AS
FORMA(1) ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (2).......................................... $ 9,993 $
======= =======
Long-term debt, net of current portion (2)................... $ 7,832 $
Stockholders' equity:
Preferred Stock, par value $0.01 per share, 10,000,000
shares authorized; none issued or outstanding............. --
Common Stock, par value $0.01 per share, 50,000,000 shares
authorized; 7,118,460 shares issued and outstanding, pro
forma; 11,218,460 shares issued and outstanding, as
adjusted (3).............................................. 71
Additional paid-in-capital................................. 17,099
Retained earnings............................................ 2,502
------- -------
Total stockholders' equity............................... 18,875
------- -------
Total capitalization................................... $27,504 $
======= =======
</TABLE>
- --------
(1) Combines the respective accounts of Compass and the Founding Companies at
September 30, 1997 and gives effect to the reclassification of the capital
structures of NCMC, Bomar, Mid-Continent and Impact as additional paid-in-
capital.
(2) For a description of the Company's debt, see Notes to the Financial
Statements of the Founding Companies.
(3) Does not include: (i) up to 1,000,000 additional shares reserved for
issuance pursuant to the Incentive Plan, of which options to purchase
690,000 shares of Common Stock will be granted concurrently with the
Offering at an exercise price equal to the initial public offering price;
(ii) 500,000 additional shares reserved for issuance under the Company's
Employee Stock Purchase Plan; or (iii) 100,000 shares of Common Stock
issuable upon the exercise of warrants to be issued concurrently with the
Offering. See "Management-- 1997 Employee Incentive Compensation Plan" and
"--Employee Stock Purchase Plan" and "Certain Transactions."
19
<PAGE>
DILUTION
The deficit in pro forma net tangible book value of the Company as of
September 30, 1997 was approximately $23.8 million or $3.34 per share of
Common Stock, after giving effect to the Acquisitions. The deficit in pro
forma net tangible book value per share represents the Company's pro forma net
tangible assets less total liabilities divided by the number of shares of
Common Stock to be outstanding after giving effect to the Acquisitions. After
giving effect to the sale of the 4,100,000 shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share less
the underwriting discount and estimated offering expenses) and the application
of the net proceeds therefrom, the Company's pro forma net tangible book value
at September 30, 1997 would have been approximately $ , or $
per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing the shares in the
Offering. The following table illustrates this pro forma dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $
Pro forma deficit in net tangible book value per share
before the Offering..................................... $(3.34)
Increase in pro forma net tangible book value per share
attributable to new investors...........................
------
Pro forma net tangible book value per share after the
Offering..................................................
--------
Dilution per share to new investors........................
========
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Acquisitions as of September 30, 1997, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders (after giving effect to the
Acquisitions) and the new investors purchasing shares of Common Stock from the
Company in the Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
------------------ TOTAL PRICE
NUMBER PERCENT CONSIDERATION PER SHARE
---------- ------- ------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders............. 7,118,460 63.5%
New investors..................... 4,100,000 36.5%
---------- ------ -------
Total........................... 11,218,460 100.0%
========== ====== =======
</TABLE>
20
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Compass will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Mail Box has been identified as the accounting
acquiror. The following selected historical financial data of Mail Box as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996 have been derived from the audited financial statements of Mail Box
included elsewhere in this Prospectus. The following selected historical
financial data for Mail Box as of December 31, 1992, 1993 and 1994 and as of
September 30, 1997, for the years ended December 31, 1992 and 1993 and for the
nine months ended September 30, 1996 and 1997 have been derived from unaudited
financial statements of Mail Box, which have been prepared on the same basis
as the audited financial statements and, in the opinion of Mail Box, reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of such data. The selected unaudited pro forma
combined financial data present data for the Company, adjusted for (i) the
consummation of the Acquisitions; (ii) certain pro forma adjustments to the
historical financial statements, including adjustments for three acquisitions
completed by Bomar since August 1996; and (iii) the consummation of this
Offering and the application of the net proceeds therefrom. See the Unaudited
Pro Forma Combined Financial Statements and the notes thereto and the
historical Financial Statements of Mail Box and the other Founding Companies
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
MAIL BOX
Revenues............... $10,688 $14,314 $15,354 $17,370 $ 26,156 $ 18,472 $ 23,188
Operating expenses..... 8,236 11,286 11,168 12,402 17,953 12,816 15,286
------- ------- ------- ------- ----------- ----------- -----------
Gross profit........... 2,452 3,028 4,186 4,968 8,203 5,656 7,902
Selling, general and
administrative
expenses.............. 2,589 2,957 3,442 4,370 5,891 4,185 5,642
------- ------- ------- ------- ----------- ----------- -----------
Income (loss) from
operations............ (137) 71 744 598 2,312 1,471 2,260
Other expense.......... 182 128 212 302 337 254 310
------- ------- ------- ------- ----------- ----------- -----------
Income (loss) before
income taxes.......... (319) (57) 532 296 1,975 1,217 1,950
Provision (benefit) for
income taxes.......... (86) (13) 206 134 700 432 697
------- ------- ------- ------- ----------- ----------- -----------
Net (loss) income ..... $ (233) $ (44) $ 326 $ 162 $ 1,275 $ 785 $ 1,253
======= ======= ======= ======= =========== =========== ===========
PRO FORMA COMBINED (1):
Revenues................................................ $ 71,783 $ 52,043 $ 63,619
Operating expenses...................................... 44,474 31,868 38,905
----------- ----------- -----------
Gross profit........................................... 27,309 20,175 24,714
Selling, general and administrative expenses (2)........ 20,115 14,909 17,148
Goodwill and intangible amortization (3)................ 1,271 966 916
----------- ----------- -----------
Income from operations.................................. 5,923 4,300 6,650
Interest and other expense, net (4)..................... 210 209 496
----------- ----------- -----------
Income before income taxes.............................. 5,713 4,091 6,154
Provision for income taxes (5).......................... 2,794 2,023 2,828
----------- ----------- -----------
Net income.............................................. $ 2,919 $ 2,068 $ 3,326
=========== =========== ===========
Net income per share.................................... $ 0.28 $ .20 $ .32
=========== =========== ===========
Shares used in computing net income per share (6)....... 10,287,710 10,287,710 10,287,710
</TABLE>
<TABLE>
<CAPTION>
MAIL BOX COMBINED COMPANIES
---------------------------------------------------- ----------------------
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1997
-------------------------------------- ------------- ----------------------
PRO
FORMA AS
1992 1993 1994 1995 1996 1997 COMBINED ADJUSTED (8)
------ ------ ------ ------ ------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit)............. $ (488) $ (587) $ (218) $ 36 $ 272 $ 37 $(23,477)
Total assets........... 4,267 4,374 5,481 7,425 12,539 12,421 72,109
Long-term debt, net of
current portion....... 1,022 582 871 1,485 1,266 1,855 7,832
Stockholders' equity... 253 191 642 995 2,206 2,555 19,672
</TABLE>
- --------
(1) The pro forma combined statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1996, are not
necessarily indicative of the operating results that would have
21
<PAGE>
been achieved had these events actually then occurred and should not be
construed as representative of future operating results. The summary pro
forma combined statement of operations data should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements and the notes
thereto and the historical financial statements of Compass and the Founding
Companies and the notes thereto included elsewhere in this Prospectus.
(2) The pro forma combined statement of operations data reflect reductions in
salaries, bonuses and benefits to the stockholders of the Founding
Companies to which they have agreed prospectively in the employment
agreements to be entered into upon consummation of the Offering (the
"Compensation Differential"). The Compensation Differential was
approximately $3.5 million, $2.5 million and $3.2 million, respectively,
for 1996 and the nine months ended September 30, 1996 and 1997.
(3) Reflects: (i) the amortization of goodwill of $36.4 million to be recorded
as a result of the Acquisitions; and (ii) the amortization of $1.0 million
in intangible assets over a period of 15 years.
(4) Reflects a reduction of interest expense associated with long term debt to
be repaid from the proceeds of the Offering of $271,000 for the year ended
December 31, 1996, and $178,000 and $345,000 for the nine months ended
September 30, 1996 and 1997, respectively, and a reduction of interest
income of $61,000 for the year ended December 31, 1996 and $47,000 and
$54,000 for the nine-month periods ended September 30, 1996 and 1997,
respectively, relating to stockholder notes to be paid off upon
consummation of the Offering.
(5) Assumes that all income is subject to a corporate income tax rate of 40%
and that all goodwill is non-deductible.
(6) Includes: (i) 1,682,769 shares issued to BGL and management of Compass;
(ii) 5,435,691 shares issued to owners of the Founding Companies in
connection with the Acquisitions; and (iii) 3,169,250 shares representing
the number of shares sold in the Offering necessary to pay the cash
portion of the consideration for the Acquisitions, to pay the underwriting
discount and estimated expenses of the Acquisitions and the Offering, and
to repay certain indebtedness assumed by Compass in the Acquisitions, net
of repayment of stockholder receivables. See "Certain Transactions."
(7) The pro forma combined balance sheet data assume that the Acquisitions
were consummated on September 30, 1997, are not necessarily indicative of
the financial position that would have been achieved had these events
actually then occurred and should not be construed as representative of
future financial position. The summary pro forma balance sheet data should
be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the notes thereto and the historical financial statements
of Compass and the Founding Companies and the notes thereto included
elsewhere in this Prospectus.
(8) Adjusted to reflect the sale of the 4,100,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
(9) Includes $20.0 million payable to stockholders of the Founding Companies,
representing the cash portion of the consideration for the Acquisitions to
be paid from a portion of the net proceeds of the Offering. See "Use of
Proceeds" and "Notes to Unaudited Pro Forma Combined Financial
Statements."
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result
of certain of the factors set forth under "Risk Factors" and elsewhere in this
Prospectus. The following should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
General
The Company was established to create a leading provider of outsourced
business services to public and private entities throughout the Sales Cycle.
The five Founding Companies collectively provide accounts receivable
management services, mailing services and teleservices to clients in a broad
range of sectors including telecommunications, financial services, insurance,
healthcare, education, government and utilities. Upon consummation of the
Offering, the Founding Companies will be acquired by Compass.
Compass was formed in April 1997 and has conducted no operations and
generated no revenues to date. Unless otherwise indicated, all references to
the "Company" in the following discussion include the Founding Companies as if
the Acquisitions had occurred during all periods discussed and references to
"Compass" shall mean Compass International Services Corporation prior to the
effectiveness of the Acquisitions.
The Company's revenues are derived from the recovery of delinquent accounts
receivable and providing mailing services and teleservices. The Company
generally charges its clients for accounts receivable management services on a
contingency fee basis, with the amount of the fee determined by the length of
the delinquency of the accounts and the extent to which prior collection
efforts have been made. Revenue is earned and recognized upon collection of
accounts receivable. The Company provides a variety of mailing services
including the mailing of direct marketing materials, billing services, mail
presorting, freight and drop shipping, data processing, mailing list rental,
and other services related to mail handling. Typically, the Company charges a
fixed fee per piece for processing mail. These fees are earned and recognized
as revenue upon delivery to the United States Postal Service. Postage expenses
are passed directly through to the Company's clients and are not recognized as
revenues or expenses on the Company's financial statements. Revenues for
outbound and inbound teleservices consist of hourly rate charges and incentive
based commissions that are recognized as these services are provided. The
Company also generates revenue from APS which enables clients to accept
payments through checks authorized by phone. Clients are typically charged an
initial setup fee and a transaction fee for each usage of the APS service.
Revenues are recognized for APS when services are provided.
The Company and most of its clients enter into contracts which define, among
other things, fee arrangements, scope of services and termination provisions.
In most cases, clients may terminate contracts with 30 or 60 days notice.
The Company's operating expenses consist primarily of payroll,
telecommunications expense and postage expense (other than client postage
relating to mailing services). Payroll consists of wages and salaries,
commissions, bonuses and benefits for all employees of the Company directly
involved in providing services to clients. Telecommunications expense includes
telephone costs associated with inbound and outbound teleservice and
collection activities. Postage expense is related primarily to the mailing of
collection notices and APS check confirmation letters. Selling, general and
administrative expenses include management salaries, selling commissions,
occupancy and other facilities costs, equipment maintenance and depreciation,
and data processing costs.
Following the Acquisitions, the Company expects to realize certain savings
as a result of: (i) consolidation of telecommunications, postage, systems and
other operating expenses; (ii) consolidation of insurance, employee benefits
and other administrative expenses; and (iii) the Company's ability to borrow
at interest rates lower than those at which most of the Founding Companies
have borrowed historically. The Company has not and cannot quantify these
savings until completion of the Acquisitions. The Company also expects to
incur additional costs associated with public ownership and the new management
team. These costs cannot be quantified precisely. Accordingly, neither the
expected savings nor the expected costs have been included in the pro forma
combined financial information of the Company.
23
<PAGE>
Since August 1996, Bomar has made three acquisitions, two in 1996 and one in
the third quarter of 1997. As a result of these acquisitions, the Company has:
(i) expanded its geographic presence in the accounts receivable collection
market; (ii) gained access to new information systems and customer service
capabilities; and (iii) expanded its secondary and tertiary collection
capabilities. The acquisitions have been accounted for using the purchase
method of accounting with the results of the acquired companies included in
Bomar's statements of income beginning on the respective dates of the
acquisitions. The Unaudited Pro Forma Combined Financial Statements give
effect to these acquisitions as if they had occurred on January 1, 1996.
In July 1996, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 97 ("SAB 97") relating to business combinations immediately prior
to an initial public offering. SAB 97 requires the application of purchase
accounting when three or more substantive operating entities combine in a
single business combination effected by the issuance of stock just prior to or
contemporaneously with an initial public offering and the combination does not
meet the pooling-of-interests criteria of Accounting Principles Board Opinion
No. 16. In accordance with SAB 97, Mail Box has been designated as the
accounting acquiror. Accordingly, the excess purchase price over the fair
value of the net assets acquired from NCMC, Bomar, Mid-Continent and Impact of
approximately $36.4 million, and goodwill of approximately $1.0 million
recorded as a result of an acquisition by Bomar in September 1997, will be
amortized over periods ranging from 15 to 40 years as a non-cash charge to the
Company's income statement. This amortization, including the amortization of
an intangible asset associated with a patent at NCMC over a 15-year period, is
approximately $1.2 million per year. The amount of goodwill to be recorded and
the related amortization expense will depend in part on the initial public
offering price. See "Certain Transactions--The Acquisitions."
The Compensation Differential
The Founding Companies have operated as independent, privately-owned
entities throughout the periods presented. Their results from operations
reflect varying historical levels of owners' compensation. The owners and key
employees of the Founding Companies have agreed to certain reductions of their
salaries, bonuses, and benefits in connection with the Acquisitions (the
"Compensation Differential"). Pursuant to the Acquisition Agreements, members
of senior management of the Founding Companies have agreed, simultaneously
with the closing of the Acquisitions, to enter into employment agreements with
their respective Founding Companies that provide for specified annual salaries
in addition to certain benefits including vacation, health and insurance
benefits. Such agreements also provide for the payment of annual bonuses if
specified performance criteria are achieved. See "Management--Executive
Compensation; Employment Agreements; Covenants Not to Compete." Certain other
employees of the Founding Companies, who will not enter into contracts with
the Company, have orally agreed to reductions in their compensation. The
Compensation Differential was approximately $3.5 million, $2.5 million and
$3.2 million for 1996 and the nine months ended September 30, 1996 and 1997,
respectively. Additionally, the results for the nine months ended September
30, 1997 include a compensation charge of $1.3 million for NCMC associated
with the issuance of NCMC shares to certain employees of NCMC. These amounts
have been reflected as a pro forma adjustment in the Unaudited Pro Forma
Combined Statement of Operations. The Unaudited Pro Forma Combined Statement
of Operations includes a provision for income tax as if all Founding Companies
had been subject to applicable federal and state statutory tax rates.
Amortization of Intangible Assets
Approximately $40.5 million, or 50.2%, of the Company's pro forma total
assets as of September 30, 1997 consists of goodwill subsequent to the
Acquisitions. Goodwill is an intangible asset that represents the difference
between the aggregate purchase price for the assets acquired and the amount of
such purchase price allocated to such assets for purposes of the Company's pro
forma balance sheet. The Company is required to amortize the goodwill from the
Acquisitions over a period of time, with the amount amortized in a particular
period constituting an expense that reduces the Company's net income for that
period. The amount amortized, however, will not give rise to a deduction for
tax purposes. In addition, the Company will be required to amortize the
goodwill, if any, from any future acquisitions.
The Company plans to amortize goodwill associated with the acquisitions of
the Founding Companies over periods ranging from 15 to 40 years. The Company
plans to evaluate continually whether events or circumstances have occurred
that indicate that the remaining useful life of goodwill may warrant revision.
Additionally, in
24
<PAGE>
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company will evaluate any potential goodwill
impairments by reviewing the future cash flows of the respective acquired
entities' operations and comparing these amounts with the carrying value of the
associated goodwill.
Recently Issued Accounting Standards
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No.
128 "Earnings Per Share." SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997; earlier
application is not permitted. SFAS No. 128 requires restatement of all prior-
period EPS data presented. The implementation of SFAS No. 128 is not expected
to have a material effect on the Company's earnings per share as determined
under current accounting rules.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The Company
intends to adopt SFAS No. 130 in 1998.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following table provides the pro forma operating results of the Company
for the year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997. For a discussion of the pro forma adjustments, see the Unaudited
Pro Forma Combined Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED 30,
DECEMBER 31, ----------------------------
1996 1996 1997
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $71,783 100.0% $52,043 100.0% $63,619 100.0%
Operating expenses................ 44,474 62.0 31,868 61.2 38,905 61.2
------- ----- ------- ----- ------- -----
Gross profit...................... 27,309 38.0 20,175 38.8 24,714 38.8
Selling, general and
administrative expenses.......... 20,115 28.0 14,909 28.6 17,148 26.9
Goodwill amortization............. 1,271 1.8 966 1.9 916 1.4
------- ----- ------- ----- ------- -----
Income from operations............ $ 5,923 8.2% $ 4,300 8.3% $ 6,650 10.5%
======= ===== ======= ===== ======= =====
</TABLE>
PRO FORMA COMBINED RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenues. Revenues increased $11.6 million, or 22.2%, from $52.0 million for
the nine months ended September 30, 1996 to $63.6 million for the nine months
ended September 30, 1997. The increase was primarily attributable to increased
business from existing clients of Mail Box, Impact and NCMC, as well as growth
within ACS and CPA, companies acquired by Bomar in 1996 and 1997.
Operating expenses. Operating expenses increased $7.0 million, or 22.0%, from
$31.9 million for the nine months ended September 30, 1996 to $38.9 million for
the nine months ended September 30, 1997. As a percentage of revenues,
operating expenses remained unchanged at 61.2% for the nine months ended
September 30, 1996 and 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.2 million, or 15.0%, from $14.9 million
for the nine months ended September 30, 1996 to $17.1 million for the nine
months ended September 30, 1997. Selling, general and administrative expenses
decreased as a percentage of revenues from 28.7% for the nine months ended
September 30, 1996 to 26.9% for the nine months ended September 30, 1997 as the
costs of management and administrative personnel were spread over a larger
revenue base.
25
<PAGE>
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Company is a holding company that conducts all of its operations through
its subsidiaries. Accordingly, the primary internal source of the Company's
liquidity is the cash flow of its subsidiaries. After the consummation of the
Acquisitions and the Offering, the Company will have approximately $ million
of cash. It is expected that certain short and long term debt of the Founding
Companies, totaling $7.7 million at September 30, 1997, will be repaid either
from the net proceeds of the Offering or the line of credit described below.
The Company is seeking to obtain a bank line of credit of up to $35 million.
No commitment has been obtained, and there can be no assurance that the
Company will be able to obtain this line of credit, or other financing it may
need, on terms the Company deems acceptable. It is expected that the line of
credit, if obtained, will require the Company to comply with various loan
covenants including: (i) maintenance of certain financial ratios including
minimum tangible net worth; (ii) restriction on additional indebtedness; and
(iii) restrictions on liens, guarantees, advances, and dividends. The facility
is intended to be used for acquisitions, capital expenditures, and general
corporate purposes.
The Company believes that its cash flow from operations will provide cash in
excess of the Company's expected working capital needs, debt service
requirements and planned capital expenditures. The Company made capital
expenditures of $2.0 million in 1996 and $3.4 million during the nine months
ended September 30, 1997. Each of the Founding Companies has upgraded its
information systems over the past two years. In addition, Mail Box has
invested in new intelligent inserting and sorting equipment to upgrade and
expand its mail services capabilities. As a result, the Company does not
expect to have significant capital expenditures for information systems in the
next two years, other than as may be required to integrate the systems of the
Founding Companies and to upgrade and integrate companies that are acquired in
the future. After the consummation of the Acquisitions, the Company intends to
study the feasibility of integrating the systems of the Founding Companies.
Consequently, the Company has not yet established its capital needs for such
integration, which capital requirements are likely to change as the Company
acquires other companies in the future.
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition efforts is unpredictable.
Accordingly, the Company is unable to accurately estimate its expected capital
commitments. Funding for future acquisitions will likely come from a
combination of proceeds of the Offering, cash flow from operations, borrowings
under the proposed credit facility and the issuance of additional equity. The
Company plans to register an additional 3,000,000 shares of its Common Stock
under the Securities Act after completion of the Offering for use by the
Company as consideration for future acquisitions.
RESULTS OF OPERATIONS--MAIL BOX
Mail Box provides direct mailing services, billing services, mail
presorting, freight and drop shipping, data processing, laser printing,
mailing list rental and order fulfillment to companies located principally in
the southwest United States.
The following table sets forth certain selected financial data for Mail Box
on a historical basis and as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31, 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $15,354 100.0% $17,370 100.0% $26,156 100.0% $18,472 100.0% $23,188 100.0%
Operating expenses...... 11,168 72.7 12,402 71.4 17,953 68.6 12,816 69.4 15,286 65.9
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............ 4,186 27.3 4,968 28.6 8,203 31.4 5,656 30.6 7,902 34.1
Selling, general and
administrative
expenses............... 3,442 22.4 4,370 25.2 5,891 22.5 4,185 22.6 5,642 24.4
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 744 4.8% $ 598 3.4% $ 2,312 8.8% $ 1,471 8.0% $ 2,260 9.7%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
26
<PAGE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996--MAIL BOX
Revenues. Revenues increased $4.7 million, or 25.5%, from $18.5 million for
the nine months ended September 30, 1996 to $23.2 million for the nine months
ended September 30, 1997, primarily due to new mailing programs initiated by
existing customers. Mail volume increased in the nine months ended September
30, 1997 compared to the nine months ended September 30, 1996 primarily due to
increased volume with existing clients.
Operating expenses. Operating expenses increased approximately $2.5 million,
or 19.3%, from $12.8 million for the nine months ended September 30, 1996 to
$15.3 million for the nine months ended September 30, 1997. As a percentage of
revenues, operating expenses decreased from 69.4% in the nine months ended
September 30, 1996 to 65.9% in the nine months ended September 30, 1997,
primarily due to improved efficiency in mailing operations and revenue mix
changes, with higher margin list rental revenues growing as a percentage of
revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.5 million, or 34.8%, from $4.2 million
for the nine months ended September 30, 1996 to $5.6 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling, general
and administrative expenses increased from 22.6% in the nine months ended
September 30, 1996 to 24.4% in the nine months ended September 30, 1997.
Excluding Compensation Differential of $520,000 for the nine months ended
September 30, 1996 and $1.3 million for the nine months ended September 30,
1997, selling, general and administrative expenses decreased from 19.8% of
revenues to 18.7% of revenues, respectively.
RESULTS FOR 1996 COMPARED TO 1995--MAIL BOX
Revenues. Revenues increased $ 8.8 million, or 50.6%, from $17.4 million in
1995 to $26.2 million in 1996, primarily due to expanded volume with existing
customers. In addition, Mail Box generated an additional $2.3 million in
revenues from a new client in the medical claims industry. Mail volume
increased from approximately 500 million pieces in 1995 to approximately 840
million pieces in 1996.
Operating expenses. Operating expenses increased approximately $5.6 million,
or 44.8%, from $12.4 million in 1995 to $18.0 million in 1996. As a percentage
of revenues, operating expenses decreased from 71.4% in 1995 to 68.6% in 1996,
primarily due to improved efficiency in mailing operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.5 million, or 34.8%, from $4.4 million in
1995 to $5.9 million in 1996. As a percentage of revenues, selling, general
and administrative expenses decreased from 25.2% in 1995 to 22.5% in 1996.
Excluding Compensation Differential of $310,000 in 1995 and $875,000 in 1996,
selling, general and administrative expenses decreased from 23.4% of revenues
to 19.2% of revenues, respectively. This decrease as a percentage of revenues
was the result of spreading fixed expenses over a larger revenue base.
RESULTS FOR 1995 COMPARED TO 1994--MAIL BOX
Revenues. Revenues increased $2.0 million, or 13.1%, from $15.4 million in
1994 to $17.4 million in 1995, primarily due to expanded volume with existing
clients, including large telecommunication service providers, and growth
within Mail Box's data processing and freight services. Mail volume increased
from approximately 440 million pieces in 1994 to approximately 500 million
pieces in 1995.
Operating expenses. Operating expenses increased approximately $1.2 million,
or 11.0%, from $11.2 million in 1994 to $12.4 million in 1995. Operating
expenses as a percentage of revenues decreased from 72.7% in 1994 to 71.4% in
1995. The primary cause of this improvement was a change in revenue mix to
higher margin services, specifically an increase in mailing services and a
decrease in laser printing as a percentage of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $928,000, or 27.0%, from $3.4 million in
1994 to $4.4 million in 1995. As a percentage of revenues, selling, general
and administrative expenses increased from 22.4% in 1994 to 25.2% in 1995.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES--MAIL BOX
Mail Box provided $2.9 million of cash from operating activities in 1996. In
the nine months ended September 30, 1997, Mail Box provided $1.4 million of
cash from operating activities. Net cash provided by operations is primarily
comprised of net income, non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily
routine fluctuations in trade accounts receivable and payable, postage on hand
and postage advances and deposits). Capital expenditures for the purchase of
property and equipment totaled $1.0 million and $1.2 million for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. Mail Box used cash of $473,000 and $900,000 for financing
activities during 1996 and the nine-month period ended September 30, 1997,
respectively, primarily in connection with the net repayment of various
borrowings and, in the latter period, the repurchase of treasury stock in the
amount of $1.0 million.
RESULTS OF OPERATIONS--NCMC
NCMC provides accounts receivable management services primarily to clients
in the education, utilities, government and healthcare industries. NCMC also
provides APS check drafting services initiated by telephone instruction
primarily to clients in the financial services and utilities sectors.
The following table sets forth certain selected financial data for NCMC on a
historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -----------------------------
1994 1995 1996 1996 1997
------------ ------------- ------------- ------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $8,874 100.0% $12,287 100.0% $13,579 100.0% $10,055 100.0% $11,759 100.0%
Operating expenses...... 4,550 51.3 6,322 51.5 7,945 58.5 5,806 57.7 7,314 62.2
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Gross profit............ 4,324 48.7 5,965 48.5 5,634 41.5 4,249 42.3 4,445 37.8
Selling, general and
administrative
expenses............... 3,400 38.3 4,328 35.2 4,798 35.3 3,680 36.6 5,065 43.1
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Income from operations.. $ 924 10.4% $ 1,637 13.3% $ 836 6.2% $ 569 5.7% $ (620) (5.3)%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996--NCMC
Revenues. Revenues increased approximately $1.7 million, or 16.9%, from
$10.1 million for the nine months ended September 30, 1996 to $11.8 million
for the nine months ended September 30, 1997, primarily due to increased
transaction volume with existing APS customers and increased collections
business from existing customers. APS check transaction volume increased from
3.8 million checks for the nine months ended September 30, 1996 to 6.8 million
checks for the nine months ended September 30, 1997. While transaction volume
grew 78.9%, per check prices decreased 32.2% as a result of increased
competition.
Operating expenses. Operating expenses increased approximately $1.5 million,
or 26.0%, from $5.8 million for the nine months ended September 30, 1996 to
$7.3 million for the nine months ended September 30, 1997. As a percentage of
revenues, operating expenses increased from 57.7% for the nine months ended
September 30, 1996 to 62.2% for the nine months ended September 30, 1997,
primarily due to a $428,000 increase in mailing costs associated with APS
check confirmation letters, without a commensurate increase in revenues. Costs
were also unfavorably impacted by one-time non-recurring expenses including
$160,000 of compensation related expenses, $104,000 of relocation expenses and
executive search fees, and $76,000 of legal expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased approximately $1.4 million, or 37.6%, from
$3.7 million for the nine months ended September 30, 1996 to $5.1 million for
the nine months ended September 30, 1997. As a percentage of revenues,
selling, general and administrative expenses increased from 36.6% for the nine
months ended September 30, 1996 to 43.1% for the nine months ended
September 30, 1997. Excluding $1.3 million of compensation expense recognized
in the third quarter of 1997 relating to shares issued to key employees,
selling, general and administrative expenses decreased from 36.6% to 31.6% for
the nine months ended September 30, 1996 and 1997, respectively.
28
<PAGE>
RESULTS FOR 1996 COMPARED TO 1995--NCMC
Revenues. Revenues increased $1.3 million, or 10.5%, from $12.3 million in
1995 to $13.6 million in 1996, primarily due to expanded APS check volume with
existing customers. APS transaction volume increased from approximately 3.6
million checks in 1995 to approximately 5.5 million checks in 1996. This 52.8%
increase was partly offset by a 21.2% average APS per check price decrease
during 1996 as a result of increased competition. Receivables management
revenues grew modestly during 1996 as NCMC restructured its operations and
sales management.
Operating expenses. Operating expenses increased approximately $1.6 million,
or 25.7%, from $6.3 million in 1995 to $7.9 million in 1996. As a percentage
of revenues, operating expenses increased from 51.5% in 1995 to 58.5% in 1996,
primarily due to increased mailing costs associated with APS check
confirmation letters and growth in direct payroll. As a percentage of
revenues, mailing costs increased from 10.7% in 1995 to 12.3% in 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $470,000, or 10.9%, from $4.3 million in
1995 to $4.8 million in 1996. As a percentage of revenues, selling, general
and administrative expenses increased from 35.2% in 1995 to 35.3% in 1996.
RESULTS FOR 1995 COMPARED TO 1994--NCMC
Revenues. Revenues increased $3.4 million, or 38.5%, from $8.9 million in
1994 to $12.3 million in 1995 primarily due to expanded volume with existing
customers as well as the addition of new customers. Expanded APS check volume
with large credit card issuers accounted for most of the increase. APS check
volume increased from approximately 1.5 million checks in 1994 to
approximately 3.6 million checks in 1995. Receivables management revenues grew
$395,000, or 6.1%, from $6.5 million in 1994 to $6.9 million in 1995. This
increase was primarily attributable to new customer activity.
Operating expenses. Operating expenses increased approximately $1.8 million,
or 38.9%, from $4.6 million in 1994 to $6.3 million in 1995. As a percentage
of revenues, operating expenses increased from 51.3% in 1994 to 51.5% in 1995,
primarily due to increased payroll and other direct operating expenses.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $928,000, or 27.3%, from $3.4 million in
1994 to $4.3 million in 1995. As a percentage of revenues, selling, general
and administrative expenses decreased from 38.3% in 1994 to 35.2% in 1995.
This decrease resulted from lower management salaries and depreciation as a
percentage of revenues.
LIQUIDITY AND CAPITAL RESOURCES--NCMC
NCMC provided $566,000 of cash from operating activities in 1996. In the
nine months ended September 30, 1997, NCMC provided $1.8 million of cash from
operating activities. Net cash provided by operations is primarily comprised
of net income, non-cash expenses (primarily depreciation and amortization) and
changes in operating assets and liabilities (primarily routine fluctuations in
trade accounts receivable and payable and prepaid expenses). Net cash used for
purchases of property and equipment totaled $164,000 and $1.9 million for the
year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. NCMC used cash of $420,000 for financing activities during 1996,
primarily for the payments under its line of credit and capital leases. NCMC
received $315,000 from financing activities during the nine-month period ended
September 30, 1997, primarily in connection with line of credit borrowings.
RESULTS OF OPERATIONS--BOMAR
Bomar provides accounts receivable management services primarily for clients
in the telecommunications, insurance, financial services and healthcare
industries.
29
<PAGE>
The following table sets forth certain selected financial data for Bomar on
a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $6,859 100.0% $7,416 100.0% $9,597 100.0% $7,040 100.0% $10,268 100.0%
Operating expenses...... 3,952 57.6 4,229 57.0 5,814 60.6 4,318 61.3 5,914 57.6
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Gross profit............ 2,907 42.4 3,187 43.0 3,783 39.4 2,722 38.7 4,354 42.4
Selling, general and
administrative
expenses............... 2,490 36.3 2,934 39.6 3,458 36.0 2,458 34.9 3,705 36.1
------ ----- ------ ----- ------ ----- ------ ----- ------- -----
Income from operations.. $ 417 6.1% $ 253 3.4% $ 325 3.4% $ 264 3.8% $ 649 6.3%
====== ===== ====== ===== ====== ===== ====== ===== ======= =====
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996--BOMAR
Revenues. Revenues increased $3.2 million, or 45.9%, from $7.0 million for
the nine months ended September 30, 1996 to $10.3 million for the nine months
ended September 30, 1997, primarily due to the acquisitions of ACS in August
1996 and CPA in November 1996 and FCCI in September 1997 which added revenues
of $392,000, $294,000 and $298,000, respectively, in the nine months ended
September 30, 1997. Additionally, revenues grew as a result of increased
business from existing clients.
Operating expenses. Operating expenses increased approximately $1.6 million,
or 37.0%, from $4.3 million for the nine months ended September 30, 1996 to
$5.9 million for the nine months ended September 30, 1997. As a percentage of
revenues, operating expenses decreased from 61.3% for the nine months ended
September 30, 1996 to 57.6% for the nine months ended September 30, 1997,
primarily due to a decrease as a percentage of revenues in collector salaries
and incentives and telephone expense.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.2 million, or 50.7%, from $2.5 million
for the nine months ended September 30, 1996 to $3.7 million for the nine
months ended September 30, 1997. As a percentage of revenues, selling, general
and administrative expenses increased from 34.9% for the nine months ended
September 30, 1996 to 36.1% for the nine months ended September 30, 1997. This
increase as a percentage of revenues was primarily the result of selling,
general and administration expenses of acquired operations that were higher as
a percentage of revenue than Bomar's operations.
RESULTS FOR 1996 COMPARED TO 1995--BOMAR
Revenues. Revenues increased $2.2 million, or 29.4%, from $7.4 million in
1995 to $9.6 million in 1996, due in part to the acquisitions of ACS and CPA,
which together contributed over $300,000 of revenues in 1996, and in part to
business from new clients.
Operating expenses. Operating expenses increased approximately $1.6 million,
or 37.5%, from $4.2 million in 1995 to $5.8 million in 1996. As a percentage
of revenues, operating expenses increased from 57.0% in 1995 to 60.6% in 1996,
primarily due to higher collector salaries which increased $1.1 million from
$2.1 million to $3.2 million as a result of an increase in full time employees
in the second half of 1996. The acquired companies also had higher operating
expenses as a percentage of revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $524,000, or 17.9%, from $2.9 million in
1995 to $3.5 million in 1996. As a percentage of revenues, selling, general
and administrative expenses decreased from 39.6% in 1995 to 36.0% in 1996.
RESULTS FOR 1995 COMPARED TO 1994--BOMAR
Revenues. Revenues increased $557,000, or 8.1%, from $6.9 million in 1994 to
$7.4 million in 1995, primarily due to increased business from existing
clients.
30
<PAGE>
Operating expenses. Operating expenses increased approximately $277,000, or
7.0%, from $4.0 million in 1994 to $4.2 million in 1995. As a percentage of
revenues, operating expenses decreased from 57.6% in 1994 to 57.0% in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $444,000, or 17.8%, from $2.5 million in
1994 to $2.9 million in 1995. As a percentage of revenues, selling, general
and administrative expenses increased from 36.3% in 1994 to 39.6% in 1995.
This increase resulted from a $202,000 increase in management compensation in
1995, as well as increased occupancy costs as a result of new space for call
centers. Excluding Compensation Differential of $516,000 in 1994 and $718,000
in 1995, selling, general and administrative expenses as a percentage of
revenues increased from 28.8% in 1994 to 30.0% in 1995.
LIQUIDITY AND CAPITAL RESOURCES--BOMAR
Bomar provided $412,000 of cash from operating activities in 1996. In the
nine months ended September 30, 1997, Bomar provided $580,000 of cash from
operating activities. Net cash provided by operations is primarily comprised
of net income, non-cash expenses (primarily depreciation and amortization) and
changes in operating assets and liabilities (primarily routine fluctuations in
commissions receivable and trade accounts payable). Net cash used in investing
activities totaled $1.4 million (including $791,000 for acquisitions) and $3.8
million (including $3.7 million for acquisitions) for 1996 and the nine months
ended September 30, 1997, respectively. Bomar had cash inflows of $920,000 and
$3.4 million for financing activities during 1996 and the nine-month period
ended September 30, 1997, respectively, primarily in connection with the net
borrowings under Bomar's line of credit and issuances of long-term debt.
RESULTS OF OPERATIONS--MID-CONTINENT
Mid-Continent provides accounts receivable management services primarily to
companies in the manufacturing, insurance, wholesale distribution and
commercial sectors. Mid-Continent's business is comprised of contingency fee
collections and outsourced collection services.
The following table sets forth certain selected financial data for Mid-
Continent on a historical basis and as a percentage of revenues for the
periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- --------------------------
1995 1996 1996 1997
------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $8,763 100.0% $9,038 100.0% $6,810 100.0% $7,066 100.0%
Operating expenses...... 2,851 32.5 2,875 31.8 2,210 32.5 2,294 32.5
------ ----- ------ ----- ------ ----- ------ -----
Gross profit............ 5,912 67.5 6,163 68.2 4,600 67.5 4,772 67.5
Selling, general and
administrative
expenses............... 5,974 68.2 6,054 67.0 4,509 66.2 4,677 66.2
------ ----- ------ ----- ------ ----- ------ -----
Income (loss) from
operations............. $ (62) (0.7)% $ 109 1.2% $ 91 1.3% $ 95 1.3%
====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED
SEPTEMBER 30, 1996--MID-CONTINENT
Revenues. Revenues increased $256,000, or 3.8%, from $6.8 million for the
nine months ended September 30, 1996 to $7.1 million for the nine months ended
September 30, 1997, primarily due to increased volume from new clients.
Operating expenses. Operating expenses increased $84,000, or 3.8%, from $2.2
million for the nine months ended September 30, 1996 to $2.3 million for the
nine months ended September 30, 1997, primarily due to increased collector
costs. As a percentage of revenues, operating expenses remained flat between
the periods.
31
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $168,000, or 3.7%, from $4.5 million for the
nine months ended September 30, 1996 to $4.7 million for the nine months ended
September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses were the same in both periods.
RESULTS FOR 1996 COMPARED TO 1995--MID-CONTINENT
Revenues. Revenues increased $275,000, or 3.1%, from $8.8 million in 1995 to
$9.0 million in 1996, primarily due to increased contingency fee business from
existing clients.
Operating expenses. Operating expenses increased approximately $24,000, or
0.8%, from $2.8 million in 1995 to $2.9 million in 1996. As a percentage of
revenues, operating expenses decreased from 32.5% in 1995 to 31.8% in 1996, as
a result of an increase in revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $80,000, or 1.3%, from $6.0 million in 1995
to $6.1 million in 1996. As a percentage of revenues, selling, general and
administrative expenses decreased from 68.2% in 1995 to 67.0% in 1996.
Excluding the Compensation Differential in both years, selling, general and
administrative expenses as a percentage of revenues decreased from 56.1% in
1995 to 54.1% in 1996.
LIQUIDITY AND CAPITAL RESOURCES--MID-CONTINENT
Mid-Continent provided $176,000 of cash from operating activities in 1996.
In the nine months ended September 30, 1997, Mid-Continent provided $1,000 of
cash from operating activities. Net cash provided by operations is primarily
comprised of net income, non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily
routine fluctuations in trade accounts receivable and payable and accrued
expenses). Net cash used for purchases of property and equipment totaled
$49,000 and $55,000 for the year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively. Mid-Continent used cash of $131,000
and received cash of $168,000 for financing activities during 1996 and the
nine-month period ended September 30, 1997, respectively, primarily in
connection with borrowing activity and advances to stockholders.
RESULTS OF OPERATIONS--IMPACT
Impact provides primarily outbound telemarketing services to national and
regional companies in the insurance, financial services, telecommunications
and utilities industries.
The following table sets forth certain selected financial data for Impact on
a historical basis and as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------- ----------------------------
1996 1996 1997
------------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $8,869 100.0% $5,950 100.0% $8,958 100.0%
Operating expenses............... 6,961 78.5 4,356 73.2 6,708 74.9
------ ----- ------ ----- ------ -----
Gross profit..................... 1,908 21.5 1,594 26.8 2,250 25.1
Selling, general and
administrative expenses......... 2,108 23.8 1,597 26.9 2,089 23.3
------ ----- ------ ----- ------ -----
Income (loss) from operations.... $ (200) (2.3)% $ (3) (.1)% $ 161 1.8%
====== ===== ====== ===== ====== =====
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1996--IMPACT
Revenues. Revenues increased $3.0 million, or 50.6%, from $6.0 million for
the nine months ended September 30, 1996 to $9.0 million for the nine months
ended September 30, 1997, primarily due to increased business from existing
clients.
32
<PAGE>
Operating expenses. Operating expenses increased approximately $2.4 million,
or 54.0%, from $4.4 million for the nine months ended September 30, 1996 to
$6.7 million for the nine months ended September 30, 1997. As a percentage of
revenues, operating expenses increased from 73.2% for the nine months ended
September 30, 1996 to 74.9% for the nine months ended September 30, 1997,
primarily due to personnel and expenses related to the recent increase in
Impact's call center capacity.
Selling, general, and administrative expenses. Selling, general and
administrative expenses increased $492,000, or 30.8%, from $1.6 million for
the nine months ended September 30, 1996 to $2.1 million for the nine months
ended September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 26.9% for the nine months ended
September 30, 1996 to 23.3% for the nine months ended September 30, 1997. This
decrease as a percentage of revenues was the result of spreading fixed
expenses over a larger revenue base.
LIQUIDITY AND CAPITAL RESOURCES--IMPACT
Impact provided $96,000 of cash from operating activities in 1996. In the
nine months ended September 30, 1997, Impact used $411,000 of cash from
operating activities. Net cash provided by operations is primarily comprised
of net income (loss), non-cash expenses (primarily depreciation and
amortization) and changes in operating assets and liabilities (primarily
routine fluctuations in trade accounts receivable and payable and accrued
liabilities). Net cash provided by investing activities totaled $2,000 in 1996
and net cash used in investing activities totaled $52,000 for the nine months
ended September 30, 1997, respectively. Impact used cash of $90,000 and
received cash of $399,000 for financing activities during 1996 and the nine-
month period ended September 30, 1997, respectively, primarily in connection
with the net repayment of various borrowings and distributions to
stockholders.
33
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BUSINESS
INTRODUCTION
Compass was organized to create a leading provider of outsourced business
services to public and private entities throughout the Sales Cycle. The five
Founding Companies collectively provide accounts receivable management
services, mailing services and teleservices to clients in a broad range of
sectors including telecommunications, financial services, insurance,
healthcare, education, government and utilities. In addition, through its
proprietary Accelerated Payment Systems ("APS") process, one of the Founding
Companies is a leading provider of telephonic check drafting services which
enable clients to accept payments through checks authorized by phone. The
Founding Companies, each of which has been in business for more than ten years,
have collectively achieved substantial growth in recent years. On a pro forma
combined basis, the Founding Companies' revenues increased from $30.9 million
in 1992 to $71.8 million in 1996, representing a compound annual growth rate of
23.5%. Revenues of the Founding Companies for the nine months ended September
30, 1997 totaled $63.6 million on a pro forma combined basis.
Upon the consummation of the Acquisitions, the Company's accounts receivable
management services will include the recovery of traditional delinquent
accounts from both consumer and commercial debtors and the management of early
stage delinquencies. Mailing services will include lead generating direct mail,
often to prompt inbound sales calls, and direct mail for billing, payment
processing or collection purposes. Mailing services will also include
presorting, freight and drop shipping, data processing, laser printing, mailing
list rental and order fulfillment. Teleservices will include outbound
telemarketing, inbound customer service and inbound sales. Each of the services
to be provided by the Company, including APS, can be utilized at various stages
of the Sales Cycle. Upon completion of the Offering, the Company will be one of
the largest providers of its services in the United States in terms of
revenues, servicing clients from 12 call centers in ten states equipped with a
total of approximately 980 workstations, a mail processing center in Texas,
four sales centers in the United States and one sales center in the United
Kingdom.
Compass believes that companies are increasingly seeking partners who can
provide a comprehensive set of outsourcing services, spanning the entire Sales
Cycle, while maintaining a high level of client service. The diagram below
illustrates the processes that comprise the Sales Cycle, from direct marketing
through accounts receivable collection, and the services of the Company that
can be utilized at various stages throughout the Sales Cycle.
LOGO
Following the Offering, the Company will become a single source provider of
outsourced business services throughout the Sales Cycle. The Company intends to
leverage the strong client relationships developed by the Founding Companies to
cross-sell additional services to existing clients and to use the expertise of
the Founding Companies as a point of entry with new clients. In addition, the
Company intends to pursue an aggressive acquisition program to broaden the
services it offers, expand its client base and gain access to new markets.
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INDUSTRY OVERVIEW
Companies are increasingly outsourcing to third party experts a variety of
non-core business functions throughout the Sales Cycle. The Company believes,
although there can be no assurance, that this trend toward outsourcing will
continue due to a number of factors. Outsourcing allows companies to focus on
strategic issues and redirect resources to core business activities while
having operational details assumed by a third party provider. In addition, by
partnering with specialized outsourcing providers, a company gains access to
new technology, tools and techniques that it may not possess internally. By
outsourcing functions previously performed in-house, companies can convert the
fixed costs associated with investments in equipment, processes, technology
and personnel into variable costs incurred only when such functions are
needed, and can perform these functions more cost effectively.
In addition to the general trend toward outsourcing, management believes
that a number of significant factors and trends are creating opportunities in
the Company's businesses. In particular, both the accounts receivable
management industry and the direct marketing industry have experienced
significant growth in recent years.
The American Collectors Association ("ACA"), an industry trade group,
estimates that consumer receivables outsourced to third parties for management
and recovery in the United States increased from approximately $43.7 billion
in 1990 to approximately $84.3 billion in 1995, a compound annual growth rate
of 14.0%. The Company believes that this growth results in large part from a
combination of increasing delinquent consumer debt and the increasing trend of
companies and government entities to outsource collection of such debt to
third parties. According to the Federal Reserve Board, consumer debt increased
from approximately $3.6 trillion in 1990 to nearly $5.0 trillion in 1995. As
debt levels have increased, companies are outsourcing more as a result of the
(i) increased investment associated with large-scale collection efforts, (ii)
ability to use a third party agency to collect funds thereby minimizing the
negative impact on customer relations and (iii) increasing complexity of the
collection process. Based on ACA estimates and industry assumptions that three
percent of consumer debt becomes delinquent, the percentage of delinquent debt
referred for collection increased from 41.5% in 1990 to 57.0% in 1995. The
Company also believes, based on its recent experience, that companies are
beginning to utilize third party service providers earlier in the collection
cycle.
According to the Direct Marketing Association ("DMA"), a trade association,
overall media spending for direct marketing initiatives totalled $144.5
billion in 1996, a 6.3% increase from 1995. The DMA estimates that direct
marketing advertising expenditures in the United States for telemarketing (the
largest component of total direct marketing expenditures) increased from
approximately $42.4 billion in 1991 to $57.8 billion in 1996, a compound
annual growth rate of 6.4%. Direct mail advertising expenditures, which
constitute the second largest (after telemarketing) component of total direct
marketing expenditures, increased from approximately $24.5 billion in 1991 to
$34.6 billion in 1996, a compound annual growth rate of 7.1%. Management
believes that direct marketing will continue to grow, due in part to the
increasing cost effectiveness of direct marketing as compared to other
marketing methods, increased competition in the telecommunications industry
and rapidly changing, complex technology. Although a very small percentage of
teleservices and direct mail business is currently being outsourced, the
Company believes that the percentage of the market that is outsourced will
also increase as businesses continue to recognize the benefits of outsourcing.
Each of the accounts receivable management, direct mail and teleservices
industries is highly fragmented, includes a large number of small, independent
businesses and is currently experiencing consolidation. As companies seek to
focus on their core competencies and maximize asset utilization, they are
increasingly turning to outside parties who have the technological expertise,
service focus and full range of capabilities necessary to efficiently perform
complex or large projects on a multi-regional or national basis. In addition,
management believes that companies are increasingly seeking to limit the
number of vendors that satisfy their outsourcing needs by finding vendors that
can provide multiple outsourcing services. Compass believes that outsourcing
35
<PAGE>
companies will require significant capital to grow and to deploy state-of-the-
art technology in order to meet the demands of their clients. As a result, the
Company believes significant opportunities are available to a well capitalized
company providing a broad offering of outsourced business services with a high
level of customer service.
BUSINESS STRATEGY
The Company's goal is to become a leading, single-source provider of
outsourced business services throughout the Sales Cycle. In order to achieve
this goal, the Company intends to pursue the following strategy:
Provide Broad Array of Complementary Services. Each of the Founding
Companies has developed extensive expertise and a strong reputation with
respect to the services it provides. Upon completion of the Offering, the
Company will be able to provide clients with a broad range of services. The
Company expects to offer bundled and complementary services to companies that
are currently outsourcing to multiple vendors or performing such functions in-
house. In response to the particular needs of each client, the Company will
develop customized, coordinated solutions, such as a package of direct
marketing, mail fulfillment, billing, customer service and accounts receivable
management services. Management believes that companies that can provide a
broad array of complementary business services are well positioned for growth
as clients are increasingly demanding strategic business partnerships with
their vendors, including a single point of contact for many services. In
addition, management believes that the Company's reputation for and focus on
creating individual business solutions will help it to compete on a basis
other than price.
Focus on High Quality Client Service. The Company believes that maintaining
high levels of service and satisfaction is integral to attracting and
retaining clients. In addition to the importance of customized, value-added
solutions, client and end-user satisfaction is an important differentiating
factor in vendor selection. Each Founding Company has a strong commitment to
quality and satisfaction, and conducts regular client performance reviews. For
example, Impact has dedicated account teams who implement an extensive quality
process that includes validation of the data sent by a client, constant
monitoring of the phone conversations done on-site or at the client's location
to ensure that scripts are properly executed, and an internally designed
verification process to ensure that all of the client's requirements have been
fulfilled.
Leverage and Expand Technology and Operational Infrastructures. A key
element of the Company's strategy will be to capitalize on the investments
made by the Founding Companies in technology and the development of
operational processes in order to deliver the most effective client solutions.
The Company intends to continue to invest in sophisticated telecommunications,
mail center and information technology. Continued investment in technology
will facilitate the Company's ability to integrate its existing service
offerings and expand its menu of services. In addition, the Company will
review technology and operational practices across its businesses with the
goal of leveraging the best platforms and processes, optimizing MIS
capabilities and sharing technologies.
Operate with Decentralized Management Structure. Compass believes that the
experienced local management teams at the Founding Companies have a valuable
understanding of their respective markets and businesses and strong client
relationships upon which they may capitalize. Accordingly, the Company intends
to operate with a decentralized management strategy. Senior management at the
Founding Companies will continue to make day-to-day operating decisions and
will be responsible for the profitability and growth of their business. The
Company's executive management team will work closely with the Founding
Companies to coordinate, integrate and expand their service offerings. The
Company intends to utilize stock ownership, as well as appropriate incentive
compensation, to ensure that the objectives of local management are aligned
with those of the Company.
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GROWTH STRATEGY
The Company believes that there are significant opportunities to expand its
business and to further penetrate the market for outsourced business services.
The key elements of its growth strategy are as follows:
Implement Internal Growth Strategy. While the Company intends to acquire
additional outsourcing services companies, strong internal growth remains the
core of the Company's growth strategy. The key elements of the Company's
internal growth strategy include the following:
Capitalize on Cross-Selling Opportunities. Each of the Founding Companies
is a specialist in the services it provides, and each has many long
standing relationships with large clients who have multiple outsourcing
needs. Combining the Founding Companies will enable the Company to
capitalize on clients' desires for a single point of service, and to offer
bundled services by leveraging the Founding Companies' client relationships
and reputations for quality. For example, the Company will offer follow-up
teleservices to its direct mailing services clients, utilizing identical
databases for both processes. The Company also intends to offer accounts
receivable management services to its billing services clients.
Generate New Clients Through an Aggressive Marketing Program. The Company
intends to expand its client base by capitalizing on the breadth of its
services, its size, financial resources and geographic scope. The Company
will establish a coordinated marketing strategy to effectively market and
sell the services of all Founding Companies on a national basis.
Expand Service Offerings. The Company expects to continue to selectively
expand its service offerings, with the goal of providing integrated "end-
to-end" services to clients throughout the Sales Cycle. New services will
be complementary to and further leverage the Company's current offerings.
Implement Best Practices. The Company will identify best practices at
each of the Founding Companies that can be implemented throughout the
Company. For example, the Company intends to identify and utilize the most
effective call center management programs, collection techniques, mail
services and technologies. In addition, the Company intends to focus on the
most effective hiring, training, benefits and employee retention programs
of the Founding Companies and implement those practices throughout its
operations.
Achieve Economies of Scale. The Company believes that it can achieve
significant cost savings as a result of the Acquisitions, as well as future
acquisitions. The Company expects to benefit from greater purchasing power
in such key expense areas as telecommunications, postage, credit bureau
reports, insurance and employee benefits. The Company believes that it can
reduce the total operating expenses of the Founding Companies and other
acquired businesses by eliminating or consolidating certain duplicative
administrative functions. In addition, the Company expects to realize cost
savings and maximize capacity utilization by shifting work among its
locations as appropriate.
Pursue International Opportunities. Management believes that
international markets for accounts receivable management and teleservices
are growing rapidly in conjunction with the growth of overall credit card
spending and the expansion of the business of major credit card issuers
overseas. Management also believes that the United States is significantly
more advanced in outsourcing technology and procedures than the rest of the
world. Accordingly, the Company intends to pursue opportunities in
international markets in order to provide services to its multinational
clients. In addition, the Company may pursue other expansion overseas as
attractive opportunities arise. Where appropriate, the Company may enter
into a strategic partnership with an existing local business to facilitate
entry into a new international market. The Company believes that it is
well-positioned to capitalize on international opportunities through its
existing relationships with multinational clients as well as the expertise
and reputations of the Founding Companies.
Pursue an Aggressive Acquisition Program. Compass believes that industry
trends toward consolidation and increased acceptance of outsourcing create
opportunities for expansion of the Company's business. The Company intends to
capitalize on the highly fragmented nature of the industries in which it
competes by implementing an aggressive strategic acquisition program following
the Offering. Using the Founding Companies as platforms for growth and
consolidation, the Company will pursue acquisitions within the industry
37
<PAGE>
segments and markets currently served by the Founding Companies to add to the
growth of its existing businesses and gain market share. In addition, the
Company plans to acquire additional companies that broaden and complement the
Company's menu of services and the markets it serves. In analyzing acquisition
candidates, the Company will look for profitable companies with strong
management teams and a reputation for high quality client service. The Company
may also consider acquiring companies that possess technology or proprietary
rights to functions or services that would significantly enhance the value
provided by the Company to its clients.
The Company believes that the opportunity to be acquired by Compass will be
attractive to many specialized outsourcing companies. The Company offers
owners of potential acquisition candidates: (i) significant opportunities to
enhance the growth of their businesses through cross-selling the Company's
wide range of outsourced services; (ii) access to sophisticated technology and
operational processes; (iii) the Company's financial strength and visibility
as a public company; (iv) a decentralized management structure; and (v) near-
term liquidity.
In selecting the Founding Companies, Compass analyzed significant data on
outsourced business services companies and met with owners of many individual
companies. In addition, the owners of the Founding Companies have extensive
industry knowledge and strong reputations and have developed relationships
with other companies in their industry sectors, and the Company believes that
this will be of significant value in the Company's acquisition program. The
Company continues to review various strategic acquisition opportunities. Other
than the Acquisitions, the Company is not currently involved in negotiations
and is not a party to any current arrangements, agreements or understandings
regarding any acquisitions.
As consideration for future acquisitions, the Company intends to use various
combinations of Common Stock, cash and notes. Following the Offering, the
Company plans to register an additional 3,000,000 shares of its Common Stock
under the Securities Act for use by the Company as all or a portion of the
consideration to be paid in future acquisitions.
The Company's ability to successfully execute its growth strategy is subject
to certain risks. See "Risk Factors" beginning on page 9 of this Prospectus.
SERVICES OFFERED BY THE COMPANY
The Company provides a broad array of complementary business services which
can be utilized by its clients throughout the Sales Cycle. These services
include accounts receivable management services, mailing services and
teleservices. In addition, the Company provides telephonic check drafting
services through its APS service bureau. The services related to accounts
receivable management include recovery of early and later stage delinquent
consumer and commercial accounts. Mailing services include data processing,
printing, addressing, inserting, presorting and other aspects of mail
handling. Teleservices include telemarketing, customer service, market
research and lead generation activities. Several of the Company's services,
such as customer service and APS, can be utilized at multiple stages of the
Sales Cycle.
Accounts Receivable Management Services
The Company, through NCMC, Bomar and Mid-Continent, provides a wide range of
accounts receivable management services with respect to the collection of both
consumer and commercial accounts. The Company primarily provides services
related to the recovery of traditional delinquent accounts which can be
categorized as primary (generally 90 to 360 days past due), secondary
(generally 12 to 18 months past due with some previous collection efforts) and
tertiary (generally more than 18 months past due with extensive previous
collection efforts). The Company also provides recovery services for early
stage delinquencies (generally less than 90 days past due) at either the
client's location or the Company's location, sometimes on an outsourced basis.
The Company generally charges its clients on a contingency fee basis at
various rates depending on the category of debt. Generally, the Company
charges (i) 2% to 25% of the amount collected for early stage delinquencies;
(ii) 25% to 35% for primary accounts; (iii) 35% to 50% for secondary accounts
and (iv) 50% to 70% for tertiary accounts.
Recovery activities begin with the Company working with a client to design a
customized recovery solution based upon various factors including age and size
of the account, type and source of debt, and the client's specific
38
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requirements and standards. After the Company and the client have determined
the approach, the Company electronically or manually transfers data provided
by the client onto its system. The Company then searches various databases,
public records and other sources to locate customers whose telephone numbers
or addresses are not available from the client. Once the customer is located,
the Company forwards a past due notification letter which serves as official
notification to the customer under the FDCPA. The Company continues the
recovery process through notifications by mail and/or telephone, based on the
nature of the account, during which time the Company's telephone
representatives continue the dialogue with customers to seek immediate payment
or develop a payment program. At the client's request, the Company will report
delinquent accounts to one or more of the national credit bureaus. Payments
collected by the Company are either remitted to the client net of the
Company's fee or remitted in full, with the Company billing the client for its
services. The Company also provides litigation management services for clients
with respect to certain accounts. Such services include managing the attorney
relationships and facilitating the transfer of necessary documentation.
Throughout this process, the Company provides activity reports to the client.
Mailing Services
The Company, through Mail Box, provides direct mailing services and billing
services, mail presorting, freight and drop shipping, data processing, laser
printing, mailing list rental and other services related to mail handling.
Mailing services involve the high speed inserting, addressing and stamping of
mail. Utilizing the Company's inserting machines and addressing and stamping
systems, the Company processed approximately 840 million pieces of mail during
the twelve months ended June 30, 1997. The Company also provides mail
presorting services (i.e., combining volumes of like mail and presorting and
bar coding it to United States Postal Service specifications), which are
designed to generate significant postal discounts for its customers. Utilizing
the Company's sophisticated technology, mail can be presorted to the walk
sequence of a specific mail carrier. The mail which is presorted includes both
mail processed by other vendors and mail processed by the Company. Fees
charged for mailing and presorting are based on the number of pieces
processed. Another service offered by the Company which is designed to
generate postage savings is drop shipping, whereby the Company, instead of
sending mail from its Dallas location, transports the mail to other locations
in order to be mailed. The fee charged for drop shipping is a percentage of
the postal savings realized by the client.
Data processing and laser printing services include converting data sent by
the client and processing it to produce a letter or a bill. For example, if a
client transfers billing information and a corresponding mailing list, the
Company standardizes the mailing list in order to reduce postage costs (e.g.,
deleting duplicative addresses, correcting street names and obtaining current
addresses through its change-of-address technology) and merges the list with
the bills to be mailed. Data processing services also include state of the art
predictive modeling and analysis for market segmentation to achieve higher
response rates for direct marketing campaigns. The fee charged for data
processing is based on the number of pieces processed. The Company also rents
mailing lists, which the Company customizes for a particular client utilizing
lists purchased from other sources. Other services of the Company include
order fulfillment and sales of printed material such as letterhead, envelopes
and forms.
Teleservices
The Company, through Impact, provides primarily outbound business-to-
consumer teleservices where telephone representatives place calls to parties
targeted by the client to offer products or services or to obtain information.
The Company currently has a total of approximately 379 call stations, all of
which are available for outbound telemarketing. The Company has an arrangement
to use 160 additional call stations located in North Dakota, as needed. The
Company outsources additional business during peak periods. At the beginning
of a typical outbound program, the Company receives customer data files that
the client has selected to match the demographic profile of the targeted
customer for the product or service being offered. These files contain each
targeted customer's name, address, phone number and other relevant data. The
Company's data management system checks the files for duplicate information,
updates for recent area code changes and otherwise modifies the information as
needed. Prior to the beginning of the calling effort, the Company works with
the client to develop a script appropriate to the specific program.
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Actual telephone calling at the centers is controlled by computerized call
management systems that utilize a predictive dialing system to automatically
dial the telephone numbers in the files. The call management system then
forwards all connected calls, along with the customer's name and other
information, to the workstation of a telephone representative who has been
trained for the client's program. The telephone representative uses the
customized script to solicit an order for the product or service or to request
information that will be added to the client's database. Information regarding
sales and other aspects of the program is captured, processed and verified by
software systems and made available to clients in customized report formats.
The Company charges its outbound teleservices clients on a commission basis,
at an hourly rate or through a combination of both.
Inbound teleservices account for a small percentage of the Company's
teleservices revenues, although the Company intends to expand this business.
Forty of the Company's call stations may be used for inbound teleservices
which involve the processing of incoming calls, often placed by customers
using toll-free numbers, to a customer service representative for service,
order fulfillment or product information. Inbound teleservices include
activities such as customer care services, credit card and loan application
processing and catalog sales. More sophisticated inbound programs assist
clients in responding to customer inquiries, offering technical and product
support services and assessing overall customer satisfaction. Inbound
teleservices are normally billed at an hourly or cost-per-minute rate.
Accelerated Payment Systems
Accelerated Payment Systems ("APS") was introduced to the market by NCMC in
1992 and patented in 1996. It was originally developed to service the "urgency
payment" market in the collections industry by allowing consumers to resolve
delinquencies on mortgage, telephone, utility, credit card or other recurring
bills through telephonic authorization of a payment by check. The use of APS
has since expanded to retail, telecommunications, utilities, banking, sales
and other industries as clients have begun to appreciate the advantages of
telephonically authorized payments by check as compared to other methods of
immediate payment such as wire transfers, money orders, overnight mail, credit
cards and debit cards. Compass believes that the advantages include the
following: (i) APS does not require written authorization; (ii) APS checks can
be printed at the client's location for same day deposit; and (iii) credit
cards are not a payment option in the urgency payment market for certain
receivables such as credit card debt.
The APS procedure begins when the client's representative obtains verbal
authorization and checking account, bank and other information from the
customer. The client enters such information into the computer where the APS
software has been installed, and transmits the data to the APS service bureau.
APS receives the transmission and either prints the checks on site for
overnight delivery to the client or a designated bank or provides the client
access to print the checks at the client's location for same day deposit.
The Company charges its APS clients a one-time setup fee as well as a per
transaction fee. APS includes a license to use its proprietary software, bank
and zip code database updates, software upgrades, data backup and service
bureau support including a client help desk and consumer hotline. Management
believes that the combination of the Founding Companies creates a significant
opportunity to apply APS beyond the urgency payment market. For example, the
Company intends to offer APS to its clients as a payment option to improve
response rates on outbound telemarketing calls.
CLIENT RELATIONSHIPS
The Company provides its services to clients in a broad range of sectors
including telecommunications, financial services, insurance, healthcare,
education, government and utilities. The Company's 10 largest clients in 1996
accounted for approximately 39.8% of the Company's revenues on a pro forma
combined basis. In 1996 and the nine months ended September 30, 1997, VarTec
Telecom, Inc. ("VarTec") accounted for approximately 11.2% and 17.6% of the
Company's revenues on a pro forma combined basis. Other than VarTec, no client
accounted for more than 10% of the Company's revenues on a pro forma combined
basis in such periods.
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The Company enters into contracts with most of its clients which define,
among other things, fee arrangements, scope of services and termination
provisions. Clients may usually terminate such contracts on short notice.
The following table sets forth a list of certain of the Company's
representative clients:
<TABLE>
<CAPTION>
FINANCIAL
SERVICES EDUCATION HEALTHCARE
--------- --------- ----------
<S> <C> <C>
Capital One
Financial Columbia University Beverly Enterprises, Inc.
Corporation DeVRY, INC. MD Anderson Cancer Hospital
General
Electric
Capital
Services, Loyola University of Chicago Medical Resource Systems, Inc.
Inc. Roosevelt College Medic Computer Systems, Inc.
MBNA America University Support Services
Bank, N.A.
Fleet Bank
<CAPTION>
GOVERNMENT
AND
UTILITIES TELECOMMUNICATIONS RETAIL AND COMMERCIAL
---------- ------------------ ---------------------
<S> <C> <C>
The Army and AT&T Corporation Advantis Business Services, Inc.
Air Force AT&T Wireless Services Circuit City, Inc.
Exchange
Services
Baltimore Bellsouth Telecommunications, Inc. The FACS Group (Federated
Gas & Southwestern Bell Mobile Systems, Inc. Department Stores, Inc.)
Electric
Company
Georgia VarTec Telecom, Inc.
Power Co. MemberWorks, Inc.
State of
Maryland Sears Roebuck & Co.
Nevada Power
Company
</TABLE>
QUALITY ASSURANCE AND CLIENT SERVICE
The Company's reputation for quality service is critical to acquiring and
retaining clients and the Company has a strong commitment to quality and
client satisfaction. With respect to the Company's telephone representatives,
the Company and its clients monitor such representatives for compliance with
the clients' specifications and the Company's policies. The Company regularly
measures the quality of its services by capturing and reviewing such
information as the amount of time spent talking with clients' customers, level
of customer complaints and a variety of other operating measures. In order to
provide ongoing improvement in the performance of the Company's telephone
representatives and to assure compliance with the Company's policies and
standards, quality assurance personnel monitor each telephone representative
on a regular basis and provide ongoing training to the representative based on
this review. The Company's information systems enable it to provide clients
with reports as to the status of their accounts. In some cases, clients can
choose to network with the Company's computer system to access such
information directly.
The Company believes that extensive training of employees is essential in
providing high quality service. For example, Mail Box established the Mail Box
Academy, a dedicated training facility at which all new mailing service
employees must complete a six-week program that includes training in United
States postal regulations, data processing and operation of inserting and
presorting machines.
SALES AND MARKETING
Each Founding Company has dedicated sales personnel who work directly with
clients and potential clients to develop solutions to satisfy their
outsourcing needs and cultivate successful, long term relationships.
Historically, the Founding Companies have acquired new clients and marketed
services by pursuing client referrals, responding to requests for proposals,
attending trade and industry conferences and using targeted direct marketing
efforts. As of September 30, 1997, the Company's sales force included 40
direct sales employees and six independent contractors.
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The Company intends to continue the Founding Companies' emphasis on
developing and maintaining long-
term client relationships. The Company will implement a marketing strategy
which: (i) provides a broad range of high quality, complementary services;
(ii) expands service offerings; and (iii) enables the cross-selling of
services to existing and new clients. Marketing strategies will be coordinated
to optimize the sales force efforts and prioritize new client acquisitions of
major national accounts.
TECHNOLOGY AND INFRASTRUCTURE
Accounts Receivable Management Services
The Company has made a substantial investment in its client/server and
local- and wide-area networks which run its collection agency software and
call management systems such as predictive dialers, automated call
distribution systems and digital switching.
The Company utilizes predictive dialers to address its low balance, high
volume accounts. These systems scan the Company's database and simultaneously
initiate calls on all available telephone lines and determine if a live
connection is made. Upon determining that a live connection has been made, the
computer immediately switches the call to an available representative and
instantaneously displays the associated account record on the telephone
representative's workstation. Calls that reach other signals, such as a busy
signal, telephone company intercept or no answer, are tagged for statistical
analysis and placed in priority recall queues or multiple-pass calling cycles.
The system also automates virtually all recordkeeping and follow-up activities
including letter and report generation. The Company's automated operations
improve the productivity of the Company's collection staff.
Mailing Services
The Company utilizes software and technology in its lettershop, presort, and
data processing facilities. For data processing, the Company utilizes an IBM
mainframe and sophisticated letter processing and database management systems
to provide high speed data manipulation, flexibility in letter text setup and
predictive modeling and analysis. In addition, the Company is able to use its
data processing technology to reduce postage costs for clients by deleting
duplicative addresses, correcting street names and obtaining current addresses
through its change-of-address technology. In the lettershop, the Company has
64 inserting machines, including intelligent inserting machines which burst,
fold, select, match or handle multiple page inserts, and 20 addressing and
stamping systems which allows the Company to process high volumes of mail in a
short period of time. For mail presorting, the Company utilizes multiline
optical character readers which read the address, cross reference the National
Postal Database and encode the corresponding bar code.
Teleservices
The Company provides its teleservices through call stations which utilize
sophisticated call management systems including a predictive dialing system,
automated call distribution systems and digital switching which are integrated
with database management systems and local and wide area networks. In
addition, the Company uses proprietary software for customizing scripts used
by its telephone representatives. The Company's predictive dialing system was
designed to be used in conjunction with its scripting and data capture
software, while allowing for the import of data in any standardized format.
This system can run up to 128 campaigns simultaneously and was designed to
allow the Company to increase capacity rapidly and cost effectively.
The Company has implemented procedures to protect the loss of data against
power loss, fire and other casualty. In addition, the Company has installed a
security system to protect the integrity and confidentiality of its computer
system and data.
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COMPETITION
The markets in which the Company competes are highly competitive, and the
Company expects competition to persist and intensify in the future. As a
result, the Company faces aggressive price competition in most of its
businesses and expects price competition to continue. The Company's
competitors include small firms offering specific applications, divisions of
large entities, large independent firms and, most significantly, the in-house
operations of clients or potential clients. Some of the Company's competitors
have substantially greater financial, marketing and other resources, offer
more diversified services and operate in broader geographic areas than the
Company. There can be no assurance that additional competitors with greater
resources than the Company will not enter the Company's markets. All of the
services offered by the Company may be performed in-house. Many larger clients
retain multiple accounts receivable management providers which exposes the
Company to continuous competition in order to remain a preferred vendor. There
can be no assurance that outsourcing of the services performed by the Company
will continue or that existing Company clients will not bring some or all of
such services in-house. The Company competes primarily on performance, client
service, range of services offered and price.
GOVERNMENT REGULATION
The accounts receivable management and telemarketing industries are
regulated under various federal and state statutes. The Company is subject to
the FDCPA and various state debt collection laws, which, among other things,
establish specific guidelines and procedures debt collectors must follow in
communicating with consumer debtors, including the time, place and manner of
such communications. The accounts receivable management business is also
subject to state regulation, and some states require that the Company be
licensed as a debt collection company. The Company is also subject to the
FCRA, which regulates the consumer credit reporting industry and which may
impose liability on the Company to the extent that the adverse credit
information reported on a consumer to a credit bureau is false, inaccurate or
outside of the scope of the Company's transactions with such consumers. With
respect to the other teleservices offered by the Company, including
telemarketing, the Telemarketing and Consumer Fraud and Abuse Prevention Act
of 1994 broadly authorizes the FTC to issue regulations prohibiting
misrepresentations in telemarketing sales. The FTC's telemarketing sales
rules, among other things, limit the hours during which telemarketers may
call, prohibit misrepresentations of the cost, terms, restrictions,
performance or duration of products or services offered by telephone
solicitation and specifically address other perceived telemarketing abuses in
the offering of prizes and the sale of business opportunities or investments.
In addition, the TCPA restricts the use of automated telephone equipment for
telemarketing purposes, including limiting the hours during which
telemarketers may call consumers and prohibiting the use of automated
telephone dialing equipment to call certain telephone numbers. A number of
states also regulate telemarketing and some states have enacted restrictions
similar to the TCPA. The failure to comply with applicable statutes and
regulations could have a materially adverse effect on the Company's business,
results of operations and financial condition. There can be no assurance that
additional federal or state legislation, or changes in regulatory
implementation, would not limit the activities of the Company in the future or
significantly increase the cost of regulatory compliance.
Several of the industries served by the Company are also subject to varying
degrees of government regulation. Although compliance with these regulations
is generally the responsibility of the Company's clients, the Company could be
subject to a variety of enforcement or private actions for its failure or the
failure of its clients to comply with such regulations.
The Company devotes significant and continuous efforts, through training of
personnel and monitoring of compliance, to ensure that it is in compliance
with all federal and state regulatory requirements. The Company believes that
it is in material compliance with all such regulatory requirements.
EMPLOYEES
As of September 30, 1997, the Founding Companies employed a total of 1,028
full-time and 337 part-time employees, of whom 625 were employed in connection
with accounts receivable management services, 387 were employed in connection
with teleservices and 353 were employed in connection with mailing services.
In
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addition, the Company uses independent contractors and hires temporary
employees as needed. None of the Company's employees is represented by a labor
union. The Company believes that its relations with its employees are good.
FACILITIES
The Company currently operates 15 leased facilities. The chart below sets
forth certain information regarding such facilities.
<TABLE>
<CAPTION>
LOCATION OF APPROXIMATE
FACILITY COMPANY AND OPERATIONS CONDUCTED SQUARE FEET
----------- -------------------------------- -----------
<S> <C> <C>
Atlanta, GA Bomar--Accounts receivable management 3,000
Buffalo, NY Mid-Continent--Accounts receivable management, sales and administrative 7,700
Destin, FL Bomar--Administrative 1,200
Dallas, TX Mail Box--Mailing services and administrative 338,000
Houston, TX Bomar--Accounts receivable management 2,800
Hunt Valley, MD NCMC--Accounts receivable management and administrative 18,600
Las Vegas, NV NCMC--Accounts receivable management 3,000
Louisville, KY Mid-Continent--Accounts receivable management, sales and administrative 5,500
Norcross, GA Bomar--Accounts receivable management and sales 22,700
Phoenix, AZ Bomar--Accounts receivable management 4,000
Princeton, NJ (1) Compass--Corporate headquarters 1,000
Rolling Meadows, IL Mid-Continent--Accounts receivable management, sales and administrative 17,000
Tampa, FL Bomar--Accounts receivable management 8,000
Voorhees, NJ Impact--Outbound telemarketing 16,000
Woodbury, NJ Impact--Telemarketing, data processing and administrative 8,500
</TABLE>
- --------
(1) The Company intends to relocate its headquarters from Princeton, New
Jersey to the metropolitan New York area after consummation of the
Offering.
LITIGATION
The Company is engaged in certain disputes concerning a patent (the "APS
Patent") owned by the Company and used in its APS process to provide
telephonic check drafting services. The following is a summary of such
disputes:
In January 1994, NCMC entered into an Intellectual Property Licensing
Agreement (the "1994 Agreement") with Autoscribe Corporation ("ASC") and
Robert E. Pollin (the "Inventor"). Pursuant to the 1994 Agreement, NCMC was
granted, with certain exceptions, the exclusive right to use certain
intellectual property that was at the time the subject of a patent
application. In March 1996, NCMC purchased the intellectual property from ASC
and the Inventor pursuant to an Intellectual Property Purchase and License
Agreement (the "1996 Agreement") that superseded the 1994 Agreement. The APS
Patent was issued in April 1996 and assigned to NCMC.
NCMC is a plaintiff in two lawsuits (the "Patent Infringement Lawsuits")
alleging that a competitor and a former customer willfully infringed the APS
Patent. In June 1996, NCMC filed a lawsuit against Western Union Financial
Services, Inc. in the United States District Court for the Southern District
of New York, and in September 1996, NCMC filed suit against Discover Card
Services, Inc., Novus Services, Inc. and Dean Witter, Discover & Co. in the
United States District Court for the District of Maryland. NCMC's claims
against the defendants seek lost profits, damages, attorneys' fees and costs,
treble damages for willful infringement and punitive damages. The defendants
in the Patent Infringement Lawsuits have denied infringing the APS Patent and
have challenged the validity of the APS Patent in a counterclaim. Management
believes that the counterclaim is without merit. Compass has entered into an
agreement with NCMC and its stockholders with respect to the allocation of
damages, if any, awarded to NCMC in the Patent Infringement Lawsuits. See
"Certain Transactions."
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<PAGE>
In April 1997, ASC and the Inventor filed an arbitration claim against NCMC
seeking rescission of the 1996 Agreement and certain monetary damages. In May
1997, NCMC filed a lawsuit against ASC and the Inventor in the Circuit Court
for Montgomery County, Maryland alleging that ASC and the Inventor have
violated NCMC's ownership rights to the APS Patent and exclusive rights to use
the intellectual property by continuing to solicit maintenance customers and
provide maintenance services in contravention of the 1996 Agreement. NCMC
seeks unspecified damages and injunctive relief. ASC and the Inventor have
denied NCMC's claims and have filed a counterclaim seeking rescission of the
1996 Agreement, reassignment of the APS Patent to the Inventor, reinstatement
of the 1994 Agreement, the ability to participate as a plaintiff in the Patent
Infringement Lawsuits, unspecified damages and other relief. ASC and the
Inventor allege that the 1996 Agreement should be rescinded because the
Inventor lacked the capacity to sign the 1996 Agreement and because the 1996
Agreement was the product of misrepresentations and duress and is not
supported by adequate consideration. ASC and the Inventor also allege that (i)
NCMC was and is required under the 1996 Agreement to pay royalties at a rate
equal to 7.25% of NCMC's APS-related revenues rather than the 4.5% rate at
which they have been paid; (ii) NCMC improperly offset against the royalties
certain litigation expenses incurred by it in the Patent Infringement
Lawsuits; and (iii) NCMC failed to properly prosecute the Patent Infringement
Lawsuits. NCMC intends to deny these allegations.
While NCMC believes that the counterclaims are without merit, there can be
no assurance that ASC and the Inventor will not prevail with respect to some
or all of their counterclaims. In the event that ASC and the Inventor are
successful in their counterclaims, both an award of damages and rescission of
the 1996 Agreement could occur, with the future rights of the parties being
determined by the 1994 Agreement. If the 1994 Agreement were reinstated, NCMC
would be required to pay royalties at the rate of 7.25% of its APS-related
revenues rather than the 4.5% rate at which royalties are being paid under the
1996 Agreement. Management does not believe that a decision adverse to NCMC in
this dispute would have a material adverse effect on the Company's business,
results of operations or financial condition.
The Company is not involved in any other legal proceedings material to the
financial condition or results of operations of the Company.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning the Company's
directors, executive officers and certain key employees, as well as those
persons who will become directors and executive officers upon consummation of
the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael J. Cunningham... 40 Chairman of the Board and Chief Executive Officer
Mahmud U. Haq........... 38 President and Chief Operating Officer; Director
Richard A. Alston....... 42 Chief Financial Officer
Kenneth W. Murphy....... 58 Chief Executive Officer--Mail Box; Director
Leeds Hackett........... 57 Chief Executive Officer--NCMC; Director
John Maloney............ 52 Chief Operating Officer--Bomar; Director
Les J. Kirschbaum....... 55 Chief Executive Officer--Mid-Continent; Director
Edward A. DuCoin........ 32 Co-President--Impact; Director
Howard L. Clark, Jr..... 53 Director
Scott H. Lang........... 51 Director
Tomasso Zanzotto........ 55 Director
Gene Collins............ 55 Chief Executive Officer--Bomar
David T. DuCoin......... 39 Co-President--Impact
</TABLE>
MICHAEL J. CUNNINGHAM joined Compass in June 1997 and has served as a
director since September 1997. Prior to joining the Company, Mr. Cunningham
held various senior executive positions at American Express Company ("American
Express"). From 1992 until June 1997, Mr. Cunningham was Vice President--
Operations of the Travel Related Services division of American Express where
he was responsible for management of the billing and payment processes for all
domestic credit card holders, as well as the collection agency management
function. He also chaired the steering committee and managed the group that
develops and enhances the global system that generates Travel Related Services
customer statements throughout the world. From 1988 to 1992, Mr. Cunningham
was the Vice President of Finance of the Travel Related Services division and
from 1984 to 1988 he served as Director of Corporate Financial Analysis for
American Express. Mr. Cunningham formerly served on the Advisory Council for
the National Foundation for Consumer Credit.
MAHMUD U. HAQ joined Compass in April 1997 and has served as a director
since October 1997. From December 1996 until joining the Company, Mr. Haq was
the Executive Vice President of Global Business Development at Nationwide
Credit, Inc., one of the nation's largest accounts receivable management
companies. From 1985 to 1996, Mr. Haq held various senior executive positions
at American Express, including Vice President--Risk Management of Global
Collections for the Travel Related Services division (1994-1996) and Vice
President and Controller--Consumer Card Group Operations for the Travel
Related Services division (1992-1994). Mr. Haq formerly served on the Board of
Directors of the Consumer Credit Association.
RICHARD A. ALSTON joined Compass in June 1997. From December 1994 to March
1997, Mr. Alston served as the Executive Vice President--Finance and Corporate
Development at National Processing, Inc., the nation's second largest credit
card processing company. From 1991 to 1994, Mr. Alston was the President of
Alston Associates which provided strategic and operations consulting services
to Fortune 500 clients. From 1986 to 1991, Mr. Alston was a Senior Vice
President at Sealy, Inc. where he oversaw the implementation of new
manufacturing and financial systems throughout the Company and was responsible
for the Company's international licensing activities and contract sales.
KENNETH W. MURPHY will become a director of the Company after the
consummation of the Offering. Mr. Murphy has served as the President and Chief
Executive Officer of Mail Box since its founding in 1971. Mr. Murphy was the
Chairman of the Board of Directors of The Mail Advertising Service
Association, International
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<PAGE>
("MASA"), a mailing industry trade association, from 1987 to 1993. He is
currently a member of the Board of Directors of MASA-Southwest and a member of
the Advertising Mail Marketing Association, the Direct Marketing Association
of North Texas and the Dallas-Fort Worth and Austin Postal Customer Councils.
LEEDS HACKETT will become a director of the Company after the consummation
of the Offering. Mr. Hackett has served as the Chairman and Chief Executive
Officer of NCMC since 1991. From 1989 to 1991, Mr. Hackett was Executive Vice
President and Chief Financial Officer of The Union Corporation, a New York
Stock Exchange company, which has subsidiaries in the debt collection
business. From 1987 to 1989, he was the President and Chief Executive Officer
of The Park Avenue Bank, N.A. and from 1965 to 1986, he held various
management positions at Marine Midland Bank.
JOHN MALONEY will become a director of the Company after the consummation of
the Offering. Mr. Maloney has served as the Chief Operating Officer of Bomar
since its founding in 1986. In such position, Mr. Maloney manages all of
Bomar's operations and production processes. He has played an integral role in
Bomar's strategic planning and development since its formation.
LES J. KIRSCHBAUM will become a director of the Company after the
consummation of the Offering. Mr. Kirschbaum has served as President of Mid-
Continent since 1974 and became Chief Executive Officer in 1995. Mr.
Kirschbaum served as the Chairman of the Commercial Agency Section ("CAS") of
the Commercial Law League of America ("CLLA") from 1986 to 1988, and was the
CAS representative on the Board of Governors of the CLLA from 1991 to 1994.
The CLLA is a trade association of commercial attorneys and commercial
collection agencies with approximately 6,000 members.
EDWARD A. DUCOIN will become a director of the Company after the
consummation of the Offering. Mr. DuCoin founded Impact in 1984 and serves as
its Co-President with his brother, David T. DuCoin. He was a member of the
Board of Directors of the American Telemarketing Association from 1992 to 1993
and has been a national speaker on the subject of telemarketing.
HOWARD L. CLARK, JR. will become a director of the Company after the
consummation of the Offering. Mr. Clark has served as Vice Chairman of Lehman
Brothers Inc. since 1993. He was Chairman, President and Chief Executive
Officer of Shearson Lehman Brothers Holdings, Inc. from 1990 until he assumed
his current position. Prior thereto, Mr. Clark was Executive Vice President
and Chief Financial Officer of American Express, having held various positions
with that firm since 1981. He is also a director of Lehman Brothers Inc., Fund
American Enterprises Holdings, Inc., The Maytag Corporation, Walter
Industries, Inc. and Plasti-Line Inc. Lehman Brothers Inc. is a co-managing
underwriter for the Offering.
SCOTT H. LANG became a director of the Company in April 1997. Since 1996,
Mr. Lang has been a managing member of BGL Management Company, LLC, which is
the managing member of BGL Capital Partners, LLC ("BGL"), a merchant banking
firm which originates and finances industry consolidations. Mr. Lang is also a
Managing Director and Principal of Brown, Gibbons, Lang & Company, L.P., an
investment banking firm, a position he has held since 1995. From 1985 to 1995,
he served as Executive Vice President and Managing Director of Investment
Banking at Rodman & Renshaw, Inc., a Chicago-based securities firm.
TOMMASO ZANZOTTO will become a director of the Company after the
consummation of the Offering. Mr. Zanzotto is the President of Toscana Ville
E. Castelli, a real estate development company which owns and operates
residential and commercial properties in the lodging and hotel industry. From
1994 to 1996, he was the Chairman and Chief Executive Officer of Hilton
International. From 1969 to 1993, Mr. Zanzotto held various positions with
American Express Travel Related Services including President International,
American Express Financial and Travel Services (1990-1993); President,
American Express Corporate Card Division (1987-1990); and President, American
Express Travelers Cheques (Europe, Africa, Middle East). He is also a director
of Travel Services International, Inc., a distributor of specialized leisure
travel services.
47
<PAGE>
GENE COLLINS has served as the Chief Executive Officer of Bomar since its
founding in 1986. In such position, he manages the marketing efforts and
business development of the organization. In addition, Mr. Collins is
responsible for Bomar's financial planning and works closely with Mr. Maloney
in determining the company's strategic plan.
DAVID T. DUCOIN became actively involved with Impact in 1986 and has served
as its Co-President since 1993. He has been instrumental in the development of
Impact's proprietary predictive dialing system as well as the integration of
inbound and outbound technology in a shared database environment. Prior to
joining Impact, Mr. DuCoin was involved in television production and was the
Senior Editor and Chief Engineer for a variety of programs including major
league sports broadcasts.
MANAGEMENT OF THE COMPANY FOLLOWING THE ACQUISITIONS
Upon the consummation of the Offerings, the Company intends to operate with
a decentralized management strategy. Messrs. Cunningham, Haq and Alston will
manage the Company's operations and be responsible for areas including
strategic planning, resource allocation, capital financing, financial
reporting, marketing efforts and human resources. They will work closely with
the Founding Companies to coordinate, integrate and expand their service
offerings. Messrs. Murphy, Hackett, Maloney, Kirschbaum, Collins, Edward A.
DuCoin and David T. DuCoin will continue to make day-to-day operating
decisions and be primarily responsible for the operations of their respective
Founding Companies.
BOARD OF DIRECTORS
After consummation of the Acquisitions, the Board of Directors of the
Company will consist of ten directors divided into three classes with each
class serving for a term of three years. At each annual meeting of
stockholders, directors will be elected by the holders of the Common Stock to
succeed those directors whose terms are expiring. Directors whose terms will
expire in 1998 are: Mahmud U. Haq, Les J. Kirschbaum, Edward A. DuCoin and
Tomasso Zanzotto; directors whose terms will expire in 1999 are: John Maloney,
Scott H. Lang and Howard L. Clark, Jr.; directors whose terms will expire in
2000 are: Leeds Hackett, Kenneth W. Murphy and Michael J. Cunningham. The
Initial Stockholders have entered into an agreement with respect to nominating
and electing directors in the five years following the Offering. See
"Description of Capital Stock--Stockholders' Agreement." The Company expects
that the Board of Directors will establish an Audit Committee, a Compensation
Committee, and such other committees as the Board may determine. The members
of each committee are expected to be determined at the first meeting of the
Board of Directors following the consummation of the Acquisitions. Directors
elected by the Company's stockholders may be removed only for cause.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive compensation for serving as directors. Each director who is not
an employee of the Company or one of its subsidiaries receives a fee of $2,000
for attendance at each Board of Directors' meeting and $1,000 for each
committee meeting (unless held on the same day as a Board of Directors'
meeting). Directors are also reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof or
otherwise incurred in their capacity as directors. Upon the consummation of
the Offering, each non-employee director will be granted options to purchase
10,000 shares of Common Stock at an exercise price equal to the initial public
offering price. See "--1997 Employee Incentive Compensation Plan."
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
Compass was incorporated in April 1997 and has conducted no operations and
generated no revenue to date. BGL has entered into agreements with Messrs.
Cunningham, Haq and Alston, dated April 28, 1997, March 31, 1997 and May 28,
1997, respectively, pursuant to which Messrs. Cunningham, Haq and Alston
provide
48
<PAGE>
consulting services to BGL in connection with the Acquisitions and the
Offering. As compensation for these consulting services, Messrs. Cunningham,
Haq and Alston are receiving annual consulting fees of $225,000, $200,000 and
$200,000, respectively. Such fees will remain in effect until the earliest of
the closing of the Offering, the execution of an employment agreement with
Compass, as described below, or termination of the consulting agreement.
Amounts paid by BGL pursuant to the consulting agreements, together with
interest thereon at 8% per annum, will be repaid by Compass to BGL from the
net proceeds of the Offering.
Prior to the consummation of the Offering, Messrs. Cunningham, Haq and
Alston will enter into three-year employment agreements with the Company
providing for annual base salaries of $225,000 for Mr. Cunningham and $200,000
for each of Mr. Haq and Mr. Alston. Each agreement provides that the executive
is eligible to earn an annual bonus of up to 100% of his salary based upon
specified performance criteria. Unless terminated or not renewed by the
Company or the executive, the term of each such employment agreement will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. Each employment agreement will contain a
covenant not to compete with the Company for a period of one year following
termination of employment. Under this covenant, the executive is prohibited
from: (i) engaging in any business in competition with the Company anywhere in
the United States; (ii) enticing a managerial employee of the Company away
from the Company; (iii) soliciting or selling any competitive products or
services to any person or entity which is, or has been within one year prior
to the date of termination, a customer of the Company, or that was actively
solicited by the Company during such period; or (iv) calling upon a
prospective acquisition candidate which the employee knew was approached or
analyzed by the Company, for the purpose of acquiring the entity. The covenant
may be enforced by injunctions or restraining orders and shall be construed in
accordance with the changing activities, business and location of the Company.
Each employment agreement requires the executive to devote his full time to
the Company.
Each of these employment agreements will provide that, in the event of a
termination of employment by the Company without cause during the term of the
agreement, the Company will pay to the executive, as severance compensation,
(i) his then current salary plus the bonus paid to him the last fiscal year
for a period of two years following the date of termination and (ii) his bonus
for the current year prorated through the termination date. Payment is due in
equal installments on the Company's normal payroll payment dates during the
severance period. The employment agreements will further provide that in the
event of a change in control of the Company (as defined in the employment
agreements), the executive will have the right, following such change in
control, to terminate his employment for Good Reason (or, in the 60 days
immediately following such change in control, for any reason) and be entitled
to receive severance benefits as described above. So long as the executive
does not engage in conduct giving rise to the right to terminate employment
for cause, Good Reason includes (i) the failure to elect the executive to the
office previously held, the removal of the executive from his position or the
assignment to the executive of any additional duties or responsibilities or a
reduction in executive's duties or responsibilities which, in either case, are
inconsistent with those customarily associated with such position and (ii) a
relocation by the Company of the executive's place of employment beyond a
specified area.
Upon the consummation of the Acquisitions, the Founding Companies will enter
into five-year employment agreements with certain of their executive officers,
including Messrs. Murphy, Hackett, Maloney, Kirschbaum, Collins, Edward A.
DuCoin and David T. DuCoin. Each agreement requires the executive to devote
his full time to the Founding Company, specifies an annual base salary and
provides that the executive is eligible to earn an annual bonus of up to 100%
of salary upon specified performance criteria. The Founding Companies will
also enter into employment agreements with other key employees for terms
ranging from one to five years. Unless terminated or not renewed by the
Founding Companies or the employee, the term of each employment agreement will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. Each employment agreement will contain a
covenant not to compete whereby, for a two-year period following termination
of employment (one year with respect to employees other than executive
officers), the employee is prohibited from (i) engaging in any business in
competition with the business in which the applicable Founding Company engages
anywhere in the United States, (ii) enticing a managerial employee of the
Founding Company away from the Founding Company, (iii) soliciting or selling
any competitive products or services to any person or entity which is, or has
been within one year prior to the date of termination, a customer of the
Founding
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<PAGE>
Company, or that was actively solicited by the Founding Company during such
period, or (iv) calling upon a prospective acquisition candidate which the
employee knew was approached or analyzed by the Company, for the purpose of
acquiring the entity. Each agreement will provide that upon termination of
employment by the Founding Company without cause, the employee will be
entitled to receive from the Company his or her annual salary for a period of
two years following termination (one year with respect to employees other than
executive officers) plus his or her bonus for the current year prorated
through the termination date.
Upon the consummation of the Offering, certain of the executive officers of
the Company will be granted options to purchase Common Stock at an exercise
price equal to the initial public offering price. See "--1997 Employee
Incentive Compensation Plan."
1997 EMPLOYEE INCENTIVE COMPENSATION PLAN
Prior to the consummation of the Offering, the Board of Directors and the
Company's stockholders are expected to approve the Company's 1997 Employee
Incentive Compensation Plan (the "Plan"). The purpose of the Plan is to
provide directors, officers, employees, consultants and independent
contractors with additional incentives by increasing their ownership interests
in the Company. Individual awards under the Plan may take the form of one or
more of: (i) either incentive stock options ("ISOs") or non-qualified stock
options ("NQSOs"); (ii) stock appreciation rights ("SARs"); (iii) restricted
or deferred stock; (iv) dividend equivalents; and (v) cash awards or other
awards not otherwise provided for, the value of which is based in whole or in
part upon the value of the Common Stock. The Compensation Committee will
administer the Plan and generally select the individuals who will receive
awards and the terms and conditions of those awards.
The Company has reserved 1,000,000 shares of Common Stock for use in
connection with the Plan. Beginning with the Company's first fiscal quarter
after the closing of the Offering and continuing each fiscal quarter
thereafter, the number of shares available for use in connection with the Plan
will be the greater of 1,000,000 shares or 10% of the aggregate number of
shares of Common Stock outstanding on the last day of the preceding calendar
quarter. Shares of Common Stock which are attributable to awards which have
expired, terminated or been canceled or forfeited are available for issuance
or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the Offering, NQSOs to purchase a total of 690,000 shares
of Common Stock will be granted. Of this amount, options to purchase 350,000
shares of Common Stock will be granted to management of the Company, including
150,000 options to Mr. Cunningham and 100,000 options to each of Messrs. Haq
and Alston, an aggregate of 65,000 options will be granted to other employees
of the Company and an aggregate of 275,000 options will be granted to certain
employees of the Founding Companies. The grants of all of the foregoing
options will be effective as of the date of the Offering and each option will
have an exercise price equal to the initial public offering price per share in
the Offering. These options will vest in three equal annual installments
commencing on the first anniversary of the grant, and will expire 10 years
from the date of grant or three months following termination of employment.
The Plan also provides for: (i) the automatic grant to each non-employee
director (a "Participant") serving at the commencement of the Offering of an
option to purchase 10,000 shares of Common Stock; and thereafter (ii) the
automatic grant to each Participant of an option to purchase 10,000 shares
upon such person's initial election as a director. In addition, the Plan
provides for an automatic annual grant to each Participant of an option to
purchase 5,000 shares at each annual meeting of stockholders following the
Offering, provided, however, that if the first annual meeting of stockholders
following a person's initial election as a non-employee director is within
three months of the date of such election or appointment, such person will not
be granted an option to
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purchase 5,000 shares of Common Stock at such annual meeting. These options
will have an exercise price per share equal to the fair market value of a
share at the date of grant. Options granted under the Plan will expire at the
earlier of 10 years from the date of grant or one year after termination of
service as a director, and options will be immediately exercisable.
The Plan affords the Compensation Committee discretion to fashion
performance awards for eligible participants with incentives the Compensation
Committee deems appropriate. It permits the issuance of awards based on the
satisfaction of specific performance criteria in cash or Common Stock. The
performance goals for any year may be based on a broad array of performance
measures as selected by the Compensation Committee, including financial
results on a consolidated basis or an operating unit basis depending on the
responsibility of the participant, as well as achievement of personal
performance goals. The maximum value of such awards for any participant in any
year is 100% of such participant's salary. In addition, the Compensation
Committee has discretion to pay, cancel or provide for the substitution or
assumption of such bonus awards.
EMPLOYEE STOCK PURCHASE PLAN
Prior to consummation of the Offering, the Company will adopt the Employee
Stock Purchase Plan (the "Stock Purchase Plan"), pursuant to which a total of
500,000 shares of Common Stock will be reserved for issuance. The Stock
Purchase Plan, which is intended to qualify under Section 423 of the Code,
permits eligible employees of the Company to purchase Common Stock through
payroll deductions with all such deductions credited to an account under the
Stock Purchase Plan. Payroll deductions may not exceed $25,000 for all
purchase periods ending with any Plan Year (as hereinafter defined).
The Stock Purchase Plan operates on a calendar year basis (the "Plan Year").
To be eligible to participate during a Plan Year, an employee must file all
requisite forms prior to a specified due date known as the "Grant Date."
Generally the first day of each Plan Year will be the Grant Date and the last
day of each Plan Year will be an Exercise Date (the "Exercise Date"). The
determination of the Grant Date and the Exercise Dates are completely within
the discretion of the Plan Committee. On each Exercise Date, participants'
payroll deductions credited to their accounts will be automatically applied to
the purchase price of Common Stock at a price per share which is the lesser of
eighty-five percent (85%) of the fair market value of the Common Stock on the
Grant Date or on the Exercise Date. Employees may end their participation in
the Stock Purchase Plan at any time during an offering period, and their
payroll deductions to date will be refunded. Participation ends automatically
upon termination of employment with the Company.
Employees are eligible to participate in the Stock Purchase Plan if they are
customarily employed by the Company or a designated subsidiary for at least 20
hours per week and for more than five months in any calendar year. No person
will be able to purchase Common Stock under the Stock Purchase Plan if such
person, immediately after the purchase, would own stock possessing 5% or more
of the total combined voting power or value of all outstanding shares of all
classes of stock of the Company.
51
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Company was formed in April 1997. The Company was initially capitalized
by BGL and Messrs. Cunningham, Haq and Alston. Mr. Lang, a director of the
Company, is a managing member of BGL Management Company, LLC, which is the
managing member of BGL. Following the approximate 112.185-for-one stock split
to be effected prior to the consummation of the Offering, the 15,000 shares of
Common Stock initially issued by the Company to its founders will total
1,682,769 shares. Shortly after the consummation of the Offering, the Company
expects that BGL will distribute its shares of Common Stock to its members.
THE ACQUISITIONS
The aggregate consideration to be paid by Compass in the Acquisitions
consists of approximately $20.0 million in cash and 5,435,691 shares of Common
Stock. The following table sets forth the consideration to be paid to the
stockholders of each of Founding Companies and the debt of each Founding
Company to be assumed by Compass in the Acquisitions.
<TABLE>
<CAPTION>
SHARES OF
COMMON DEBT
FOUNDING COMPANY CASH(1) STOCK(1) ASSUMED(2)
---------------- ------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mail Box..................................... $ 9,847 2,461,852 $ 3,213
NCMC......................................... 2,897 965,801 826
Bomar........................................ 4,607 1,151,787 5,497
Mid-Continent................................ 1,869 467,127 4,458
Impact....................................... 824 389,124 1,440
------- --------- -------
Total...................................... $20,044 5,435,691 $15,434
======= ========= =======
</TABLE>
- --------
(1) The number of shares of Common Stock to be issued to the stockholders of
the Founding Companies is fixed. If the initial public offering price is
higher or lower than the assumed price, the cash consideration will vary
proportionately. For example, a $1.00 per share increase or decrease from
the assumed offering price will result in a $1.7 million increase or
decrease, respectively, in the aggregate cash consideration paid to
Founding Company stockholders.
(2) Reflects: (i) debt of the Founding Companies, including capital leases and
lines of credit; and (ii) debt incurred by Mid-Continent in connection
with a stock redemption.
The consideration to be paid for each Founding Company is subject to
possible post-closing adjustment based upon adjusted 1997 earnings. If a
Founding Company's adjusted earnings exceed current estimates of adjusted
earnings by more than five percent, Compass will pay the former stockholders
of such Founding Company additional cash consideration equal to five percent
of the total consideration previously paid for such Founding Company in the
Acquisition. The maximum possible increase in the consideration paid by
Compass for all Founding Companies is approximately $4.3 million. The
potential increase in goodwill due to this increase in consideration is
approximately $2.3 million, with associated amortization of approximately
$69,000 per year. If a Founding Company's adjusted 1997 earnings are less than
current estimates of adjusted earnings by more than five percent, the former
stockholders of such Founding Company will be required to repay to Compass in
cash up to ten percent of the total consideration previously paid to them in
the Acquisition. The maximum possible decrease in the consideration paid by
Compass for all Founding Companies is approximately $8.5 million. The
potential decrease in goodwill due to this decrease in consideration is
approximately $4.6 million, with an associated reduction in amortization of
approximately $138,000 per year.
The consideration for each Founding Company was determined through arm's
length negotiations between Compass and representatives of each Founding
Company, and based on a uniform formula, applied to each of the Founding
Companies in the same manner reflecting primarily their respective operating
incomes, as adjusted to reflect long-term debt assumed, contractually agreed
upon compensation adjustments, to eliminate the effects
52
<PAGE>
of certain non-recurring expenses, and to reflect certain other agreed upon
matters. No independent appraisals of any Founding Company were obtained. Each
Founding Company was represented by independent counsel in the negotiation of
the terms and conditions of the Acquisitions.
Each Acquisition Agreement contains standard representations and warranties
of each party as well as indemnification provisions in the event of a breach
of any representations and warranties made by any party to the agreement.
Furthermore, each Acquisition Agreement provides that the consummation of the
acquisition is subject to customary conditions. These conditions include,
among others, (i) the continuing material accuracy on the closing date of the
Acquisitions of the representations and warranties of the Founding Company,
the stockholders of the Founding Company and Compass; (ii) the performance of
all covenants included in the Acquisition Agreements; (iii) the absence of a
material adverse change in the results of operations, financial condition or
business of the Founding Company; and (iv) the simultaneous closing of all of
the Acquisitions. There are no other material conditions to the closing of the
Acquisitions.
Pursuant to each Acquisition Agreement, the principal stockholders of the
Founding Companies have agreed not to compete with the Company for five years
following the closing of the Acquisitions wherever the Company conducts
business.
In connection with the Acquisitions, and as consideration for their
interests in the Founding Companies, certain officers, directors and holders
of more than 5% of the outstanding shares of the Company will receive cash and
shares of Common Stock of the Company as follows:
<TABLE>
<CAPTION>
SHARES OF
COMMON
NAME CASH STOCK
---- ---------- ---------
<S> <C> <C>
Kenneth W. Murphy(1)................................ $7,102,836 1,587,000
Leeds Hackett....................................... 832,932 393,329
Gene Collins........................................ 2,121,672 530,418
Mary Maloney........................................ 2,121,672 530,418
Les J. Kirschbaum................................... 1,868,508 467,127
Edward A. DuCoin.................................... 412,013 194,562
David T. DuCoin..................................... 412,013 194,562
</TABLE>
- --------
(1) Includes cash and shares of Common Stock to be received by a trust
established for the benefit of Mr. Murphy's children.
The Company intends to repay certain indebtedness of the Founding Companies
from the net proceeds of the Offering, including approximately $4.0 million of
indebtedness that is personally guaranteed by certain stockholders of the
Founding Companies. As of June 30, 1997, the approximate aggregate amount of
such guarantees for each of such individuals was as follows: Kenneth W.
Murphy--$2.0 million of Mail Box indebtedness; Gene Collins and John Maloney--
$530,000 of Bomar indebtedness; Les J. Kirschbaum--$747,000 of Mid-Continent
indebtedness; and Edward A. DuCoin and David T. DuCoin--$675,000 of NCMC
indebtedness.
The Company will pay a finders' fee of $440,000 from the net proceeds of the
Offering to an unaffiliated business broker in connection with the Bomar
acquisition.
OTHER TRANSACTIONS
As of September 30, 1997, BGL had paid $1.8 million in connection with
Compass' formation, the Offering and the Acquisitions. This amount includes
(i) payment of certain expenses and (ii) payment of consulting fees to Messrs.
Cunningham, Haq and Alston under their consulting agreements. See
"Management." The Company anticipates that additional amounts will be advanced
by BGL on Compass' behalf prior to the consummation of the Offering. All
amounts advanced by BGL to Compass and paid by BGL under the consulting
agreements, together with interest thereon at 8% per annum, will be repaid by
Compass from the net proceeds of the Offering.
53
<PAGE>
Mail Box owns a 50% interest in MB Strategic, Ltd. ("MBS"), a database
management company which commenced operations in February 1997. Mail Box
provided MBS with $20,000 in start-up capital and continues to fund monthly
operating expenses of $15,000 for a total commitment of $185,000, which is
intended to cover compensation paid to the president of MBS. Mail Box provides
MBS space within its facilities and the use of data management systems, and
pays the salaries and benefits of MBS' clerical employees. Mail Box is
entitled to receive 20% of gross monthly revenues of MBS, in addition to 50%
of its operating profits and losses.
Since 1982, Mail Box has leased its corporate headquarters and certain of
its mailing facilities from TDC #12, Ltd. ("TDC") pursuant to a lease which
expires in October 2002. Mr. Murphy is a 50% limited partner of TDC. The
annual rent under this lease was approximately $290,000 in 1996 and will total
approximately $321,000 in 1997.
From April 1996 through August 1996, Mail Box leased certain inserting
machines from a partnership, the partners of which include certain
stockholders of Mail Box. The cost of the equipment was $223,000 and in
September 1997, Mail Box exercised its option to purchase the equipment for
$130,000.
In connection with the Patent Infringement Lawsuits, Compass has entered
into an agreement with NCMC and its former stockholders whereby any monetary
settlement or judgement in NCMC's favor will be allocated: first, to the
Company in an amount necessary to pay income or other taxes arising therefrom;
second, to the Company in an amount necessary to reimburse it for all fees and
costs incurred in pursuing the litigation; third, to certain individuals in
amounts to be determined by Leeds Hackett with the approval of the Company
(such individuals are expected to include Mr. Hackett and other former
stockholders of NCMC) to the extent that the amounts remaining are paid with
respect to infringement occurring prior to the closing of the Acquisitions;
and fourth, all remaining amounts to the Company. Mr. Hackett, a director of
the Company and a former stockholder of NCMC, is a party to this agreement.
See "Business--Litigation."
Impact leases office space on a month to month basis from a partnership
owned by Edward and David DuCoin. Total rent expense was $139,000 and $89,000
for 1996 and the nine months ended September 30, 1997, respectively. Effective
July 1, 1997, the annual rent was reduced to $84,000.
At December 31, 1996 and September 30, 1997, the outstanding balance of
advances made by Impact to Edward and David DuCoin and to Woodbury Executive
Center and Eastern Shore Travel, which are partnerships owned by the DuCoins,
was $188,000. These advances will be repaid in full simultaneously with the
closings of the Acquisitions.
At December 31, 1995 and 1996 and September 30, 1997, the outstanding
balance of loans made by Mid-Continent to Les J. Kirschbaum totaled $710,000,
$751,000 and $808,000, respectively. These loans accrue interest at the short-
term annual Applicable Federal Rate prescribed by the Internal Revenue
Service, with the balance of principal and interest due upon demand.
Immediately prior to the closing of the Acquisitions, Mid-Continent will
redeem certain of Mr. Kirschbaum's shares in retirement of his loans.
Mid-Continent Agencies of New York, Inc. ("MCNY"), a subsidiary of Mid-
Continent, leases office space from William J. Vallecourse, a stockholder of
MCNY, pursuant to a lease that expires in May 2004. Annual rent under this
lease is approximately $90,000.
COMPANY POLICY
Certain related-party transactions described above under "Other
Transactions" were not negotiated on an arm's-length basis. It is the
Company's policy that any future transactions with officers, directors and
affiliates will be approved by a majority of the Board, including a majority
of the disinterested members of the Board, and will be made on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, after giving effect to the Acquisitions,
certain information with respect to the beneficial ownership of the Company's
Common Stock by: (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; (ii) each director and
person who is or will become a director upon consummation of the Offering;
(iii) each executive officer; and (iv) all executive officers and directors as
a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
------------------------------
SHARES OF
NAME AND ADDRESS OF BENEFICIAL COMMON
OWNER(1) STOCK BEFORE OFFERING AFTER OFFERING
------------------------------ --------- --------------- --------------
<S> <C> <C> <C>
Kenneth W. Murphy(2).................. 1,587,000 22.3% 14.1%
Leeds Hackett......................... 393,329 5.5% 3.5%
Gene Collins.......................... 530,418 7.5% 4.7%
Mary Maloney.......................... 530,418 7.5% 4.7%
John Maloney(3)....................... 530,418 7.5% 4.7%
Les J. Kirschbaum..................... 467,127 6.6% 4.2%
Edward A. DuCoin...................... 194,562 2.7% 1.7%
David T. DuCoin....................... 194,562 2.7% 1.7%
Michael J. Cunningham................. 252,415 3.5% 2.3%
Mahmud U. Haq......................... 196,323 2.8% 1.8%
Richard A. Alston..................... 112,185 1.6% 1.0%
Howard L. Clark, Jr.(4)............... 10,000 * *
Scott H. Lang(4)(5)(6)................ 1,131,846 15.9% 10.1%
Tomasso Zanzotto(4)................... 10,000 * *
BGL Capital Partners, L.L.C.(5)(6).... 1,121,846 15.8% 10.0%
All directors and officers as a group
(eleven persons)(2)(3)(4)(5)......... 5,610,185 78.5% 49.9%
</TABLE>
- --------
* Less than 1.0%.
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
Compass, 5 Independence Way, Suite 300, Princeton, New Jersey 08540.
(2) Certain of these shares are owned by the Kenneth W. Murphy Childrens
Trust.
(3) Includes 530,418 shares of Common Stock owned by Mr. Maloney's spouse, of
which he may be deemed the beneficial owner.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of
options which will be granted and vest upon the closing of the Offering.
(5) Includes 1,121,846 shares held by BGL. Mr. Lang is a managing member of
BGL Management Company, L.L.C., which is the managing member of BGL. BGL
intends to distribute its shares of Common Stock to its members following
the consummation of the Offering.
(6) The address of each of Mr. Lang and BGL is 225 W. Washington Street, 16th
Floor, Chicago, Illinois 60606.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, and 10,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Stock").
COMMON STOCK
Of the 50,000,000 shares of Common Stock authorized, 11,218,460 shares will
be outstanding upon consummation of the Offering. Subject to the rights of the
holders of Preferred Stock, the holders of outstanding shares of Common Stock
are entitled to share ratably in dividends declared out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time lawfully determine. Each holder of Common Stock is
entitled to one vote for each share held. Subject to the rights of holders of
any outstanding Preferred Stock, upon liquidation, dissolution or winding up
of the Company, any assets legally available for distribution to stockholders
as such are to be distributed ratably among the holders of the Common Stock
then outstanding. All shares of Common Stock currently outstanding are, and
all shares of Common Stock offered hereby when duly issued and paid for will
be, fully paid and nonassessable. Shares of Common Stock are not subject to
any redemption provisions and are not convertible into any other securities of
the Company.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management--Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of Directors whose
terms are then expiring.
PREFERRED STOCK
The Amended and Restated Certificate of Incorporation of the Company
authorizes the Board of Directors to issue preferred stock in classes or
series and to establish the designations, preferences, qualifications,
limitations or restrictions of any class or series with respect to, among
other things, the rate and nature of dividends, the price, terms and
conditions on which shares may be redeemed, the terms and conditions for
conversion or exchange into any other class or series of the stock and voting
rights. The Company will have authority, without approval of the holders of
Common Stock, to issue preferred stock that has voting, dividend or
liquidation rights superior to the Common Stock and that may adversely affect
the rights of holders of Common Stock. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company
currently has no plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest,
merger or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of the Preferred Stock pursuant to the
Board of Directors' authority described above may adversely affect the rights
of the holders of Common Stock. For example, Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
STOCKHOLDERS' AGREEMENT
In connection with the Acquisitions, the Initial Stockholders entered into
an agreement (the "Stockholders' Agreement") with respect to nominating and
electing Directors to the Board of Directors of the Company. The
56
<PAGE>
Stockholders' Agreement sets forth the manner and terms by which the
stockholders of the Founding Companies and founders of Compass may nominate
Directors in each of the Classes. Each of the parties to the Stockholders'
Agreement has agreed to vote its Common Stock (i) for the reelection of the
incumbent directors of the Company or their successors as described below and
(ii) with respect to any matter put to a stockholder vote, in accordance with
the recommendation of the incumbent Board of Directors. In the event that an
incumbent director who is a former shareholder of a Founding Company is unable
to or does not stand for reelection, the former shareholders of such Founding
Company may designate his successor for nomination. Should Mr. Lang be unable
to or not stand for reelection, BGL may designate his successor. Nominees for
other vacancies will be selected by a majority of the then-incumbent Board of
Directors. The Stockholders' Agreement terminates immediately following the
Company's annual meeting of stockholders relating to fiscal year 2002 (but
occurring in fiscal year 2003). The Stockholders' Agreement may be amended by
the holders of a majority of the aggregate number of shares of outstanding
Common Stock then held by the Initial Stockholders.
CERTAIN PROVISIONS AFFECTING STOCKHOLDERS
Delaware, like many other states, permits a corporation to adopt a number of
measures through amendment of the corporate charter or bylaws or otherwise,
which may have the effect of delaying or deterring any unsolicited takeover
attempts. In addition, Section 203 of the Delaware General Corporation Law
restricts certain "business combinations" with "interested stockholders"
(generally a holder of 15% or more of the Company's voting stock) for three
years following the date that person becomes an interested stockholder. By
delaying or deterring unsolicited takeover attempts, these provisions could
adversely affect prevailing market prices for the Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is First
Chicago Trust Company of New York.
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the Company will have outstanding 11,218,460 shares of
Common Stock. The 4,100,000 shares being sold in the Offering are freely
tradable without restriction unless acquired by affiliates of the Company.
None of the remaining 7,118,460 outstanding shares of Common Stock has been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act,
including the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing
90 days after the date of the Prospectus relating to the Offering, a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of the Common Stock, or the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the proposed sale is sent to the Commission. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of the
acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an affiliate
of the Company at any time for 90 days preceding a sale would be entitled to
sell such shares under Rule 144 without regard to the volume limitations,
manner of sale provisions or notice requirements.
Upon completion of the Offering, the holders of Common Stock who did not
purchase shares in the Offering will own 7,118,460 shares of Common Stock,
including the stockholders of the Founding Companies who will receive, in the
aggregate, 5,435,601 shares in connection with the Acquisitions and founders
and executive
57
<PAGE>
officers of Compass who own 1,682,769 shares. These shares have not been
registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, the
stockholders of the Founding Companies have agreed with the Company not to
sell, transfer or otherwise dispose of any of these shares for a one-year
period following the Offering. The stockholders of the Founding Companies have
certain piggyback registration rights beginning one year after the Offering
and one demand registration right for the six-month period beginning twenty
months after the Offering with respect to these shares.
The Company and the holders of all shares outstanding prior to the Offering
(including the holders of shares issued in connection with the Acquisitions)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock, or any securities convertible into or exercisable or
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities, Inc. except for: (i) in the case of the Company, Common Stock
issued pursuant to any employee or director plan described herein or in
connection with acquisitions; (ii) in the case of all such holders, the
exercise of stock options pursuant to benefit plans described herein and
shares of Common Stock disposed of as bona fide gifts; and (iii) in the case
of BGL, distributions of Common Stock to its members, subject, in each case,
to any remaining portion of the 180-day period applying to any shares so
issued or transferred. In evaluating any request for a waiver of the 180-day
lock-up period, NationsBanc Montgomery Securities, Inc. will consider, in
accordance with their customary practice, all relevant facts and circumstances
at the time of the request, including, without limitation, the recent trading
market for the Common Stock, the size of the request and, with respect to a
request by the Company to issue additional equity securities, the purpose of
such an issuance.
The 3,000,000 shares of Common Stock to be registered pursuant to the
Company's shelf registration statement will be, upon issuance thereof, freely
tradable unless acquired by parties to the acquisition or affiliates of such
parties, other than the issuer, in which case they may be sold pursuant to
Rule 145 under the Securities Act. Rule 145 permits such persons to resell
immediately securities acquired in transactions covered under the Rule,
provided such securities are resold in accordance with the public information,
volume limitations and manner of sale requirements of Rule 144. If a period of
one year has elapsed since the date such securities were acquired in such
transaction and if the issuer meets the public information requirements of
Rule 144, Rule 145 permits a person who is not an affiliate of the issuer to
freely resell such securities. The Company intends to contractually restrict
the sale of shares issued in connection with future acquisitions. The
registration rights described above do not apply to such shelf registration
statement.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
58
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities, Inc. and Lehman Brothers Inc. (the
"Representatives"), have severally agreed, subject to the terms and conditions
in the underwriting agreement (the "Underwriting Agreement"), by and between
the Company and the Underwriters, to purchase from the Company the number of
shares of Common Stock indicated below opposite its name, at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock, if
they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities, Inc..........................
Lehman Brothers Inc.............................................
---------
Total....................................................... 4,100,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the public offering,
the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to a
maximum of 615,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent the Underwriters exercise such over-allotment
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise this
over-allotment option only to cover over-allotments made in connection with
the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company's officers and directors and all of the stockholders of the
Company prior to the Offering (including the holders of shares issued in
connection with the Acquisitions) have agreed that for a period of 180 days
after the date of this Prospectus they will not, without the prior written
consent of NationsBanc Montgomery Securities, Inc. directly or indirectly
sell, offer, contract or grant any option to sell, pledge, transfer, establish
an open put equivalent position or otherwise dispose of any shares of Common
Stock, options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock,
except for the exercise of stock options, shares of Common Stock disposed of
as bona fide gifts and in the case of BGL, distributions of Common Stock to
its members, subject in each case to any remaining portion of the 180-day
period applying to shares issued or transferred. The Company has also agreed
not to issue, offer, sell, grant options to purchase or otherwise dispose of
any of the Company's equity securities for a period of 180 days after the
effective date of this Offering without the prior written consent of
NationsBanc Montgomery Securities, Inc. except for securities issued by the
Company in connection with acquisitions and for grants and exercises of stock
options, subject in each case to any remaining portion of the 180-day period
applying to shares issued or transferred. In evaluating any request for a
waiver of the 180-day lock-up period, NationsBanc Montgomery Securities, Inc.
will consider, in accordance with their customary practice, all relevant facts
and circumstances at the time of the request, including, without limitation,
the recent trading market for the Common Stock, the size of the request and,
with respect to a request by the Company to issue additional equity
securities, the purpose of such an issuance.
59
<PAGE>
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities and Exchange Act
of 1934, as amended, pursuant to which such persons may bid for or purchase
Common Stock for the purpose of stabilizing its market price. The Underwriters
also may create a short position for the account of the Underwriters by
selling more Common Stock in connection with the Offering than they are
committed to purchase from the Company and, in such case, may purchase Common
Stock in the open market following completion of the Offering to cover all or
a portion of such short position. The Underwriters may also cover all or a
portion of such short position, up to 615,000 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, NationsBanc Montgomery Securities, Inc. on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Stock that is distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price was determined
by negotiations between the Company and the Representatives. Among the factors
considered in such negotiations were the history of and prospects for the
Company and the industries in which it operates, an assessment of the
Company's management, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state
of the Company's development, the general condition of securities markets at
the time of the Offering and the market price of publicly traded stock of
comparable companies in recent periods.
The Company has agreed to issue warrants (the "Warrants") to purchase an
aggregate of 100,000 shares of Common Stock to Catamount Capital, L.L.C. as a
fee for consulting services in connection with the acquisition of NCMC.
Affiliates of Catamount Capital, L.L.C. may participate as underwriters in the
Offering. The Warrants will be exercisable for a period of five years
commencing on the first anniversary of the Offering, at a price equal to 120%
of the initial public offering price, subject to adjustment in certain events.
Each Warrant contains certain piggyback registration rights relating to the
shares issuable thereunder.
CERTAIN LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Katten Muchin & Zavis, Chicago, Illinois. Certain
partners of Katten Muchin & Zavis are investors in BGL, which will own 10.0%
of the shares of Common Stock outstanding upon completion of the Offering.
Certain legal matters in connection with this offering will be passed upon for
the Underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The balance sheet of Compass as of September 30, 1997 included in this
Prospectus has been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts
in auditing and accounting.
The consolidated financial statements of The Mail Box, Inc. as of December
31, 1995 and 1996 and September 30, 1997 and for each of the three years in
the period ended December 31, 1996 and the nine months ended September 30,
1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
60
<PAGE>
The audited consolidated financial statements of National Credit Management
Corporation and Subsidiary as of September 30, 1997 and December 31, 1996 and
1995 and for the nine months ended September 30, 1997 and for each of the
years in the three-year period ended December 31, 1996, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
The consolidated financial statements of B.R.M.C. of Delaware, Inc. at
September 30, 1997 and December 31, 1996 and 1995 and for the nine months
ended September 30, 1997 and for each of the three years in the period ended
December 31, 1996 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report, given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements of Mid-Continent Agencies, Inc. as of
December 31, 1995 and 1996 and September 30, 1997 and for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997,
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The combined financial statements of Impact Telemarketing Group, Inc. as of
and for the year ended December 31, 1996 and as of and for the nine months
ended September 30, 1997, included in this Prospectus have been so included in
reliance on the report (which contains an explanatory paragraph relating to
Impact Telemarketing Group, Inc.'s ability to continue as a going concern as
described in Note 1 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which term shall encompass any and all amendments thereto) under the
Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document are not necessarily complete and in each instance reference is made
to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. For further information with respect to the Company, reference
is hereby made to the Registration Statement and such exhibits and schedules
filed as a part thereof, which may be inspected without charge, at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission maintains a web site that contains reports,
proxy and information statements regarding registrants that file
electronically with the SEC. The address of this web site is
http://www.sec.gov. Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the Commission, upon
payment of the prescribed fees.
The Company intends to furnish its stockholders with an annual report
containing audited financial statements and an opinion thereon expressed by
independent auditors for each fiscal year and with quarterly reports
containing unaudited summary information for the first three quarters of each
fiscal year.
61
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPASS INTERNATIONAL SERVICES CORPORATION UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Combined Financial Statements...... F-2
Unaudited Pro Forma Combined Balance Sheet............................. F-3
Unaudited Pro Forma Combined Statements of Operations.................. F-4
Notes to Unaudited Pro Forma Combined Financial Statements............. F-7
COMPASS INTERNATIONAL SERVICES CORPORATION:
Report of Independent Accountants...................................... F-11
Balance Sheet.......................................................... F-12
Notes to Financial Statement........................................... F-13
THE MAIL BOX, INC.:
Report of Independent Accountants...................................... F-15
Consolidated Balance Sheet............................................. F-16
Consolidated Statement of Operations................................... F-17
Consolidated Statement of Stockholders' Equity......................... F-18
Consolidated Statement of Cash Flows................................... F-19
Notes to Consolidated Financial Statements............................. F-20
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY:
Report of Independent Public Accountants............................... F-27
Consolidated Balance Sheets............................................ F-28
Consolidated Statements of Operations.................................. F-29
Consolidated Statements of Stockholders' Equity........................ F-30
Consolidated Statements of Cash Flows.................................. F-31
Notes to Financial Statements.......................................... F-32
B.R.M.C. OF DELAWARE INC.:
Report of Independent Auditors......................................... F-39
Consolidated Balance Sheet............................................. F-40
Consolidated Statement of Operations................................... F-41
Consolidated Statement of Stockholders' Equity......................... F-42
Consolidated Statement of Cash Flows................................... F-43
Notes to Consolidated Financial Statements............................. F-44
MID-CONTINENT AGENCIES, INC.:
Report of Independent Accountants...................................... F-50
Consolidated Balance Sheet............................................. F-51
Consolidated Statement of Operations................................... F-52
Consolidated Statement of Stockholders' Equity......................... F-53
Consolidated Statement of Cash Flows................................... F-54
Notes to Consolidated Financial Statements............................. F-55
IMPACT TELEMARKETING GROUP, INC.:
Report of Independent Accountants...................................... F-62
Combined Balance Sheet................................................. F-63
Combined Statement of Operations....................................... F-64
Combined Statement of Stockholders' Equity............................. F-65
Combined Statement of Cash Flows....................................... F-66
Notes to Combined Financial Statements................................. F-67
</TABLE>
F-1
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Compass International Services Corporation ("Compass")
of the outstanding capital stock of The Mail Box, Inc. ("Mail Box"), National
Credit Management Corp. ("NCMC"), B.R.M.C. of Delaware, Inc. ("Bomar"), Mid-
Continent Agencies, Inc. ("Mid-Continent") and Impact Telemarketing Group,
Inc. ("Impact") (together, the "Founding Companies"). These acquisitions (the
"Acquisitions") will occur simultaneously with the closing of Compass's
initial public offering (the "Offering") and will be accounted for using the
purchase method of accounting. In accordance with the provisions of Securities
and Exchange Commission Staff Accounting Bulletin No. 97, Mail Box is deemed
to be the accounting acquiror as the stockholders of Mail Box will receive the
largest portion of the voting rights in the combined corporation.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on September 30, 1997.
The unaudited pro forma combined statement of operations gives effect to the
Acquisitions as if they had occurred on January 1, 1996, reflects reductions
in salaries, bonuses and certain benefits to the owners of the Founding
Companies to which they have agreed prospectively, reflects reductions in
interest expense associated with reductions in debt and gives effect to the
three acquisitions by Bomar as if they had occurred on January 1, 1996.
With respect to other potential cost savings, Compass has not and cannot
quantify these savings until completion of the Acquisitions of the Founding
Companies. It is anticipated that these savings will be offset by costs
related to Compass' new corporate management and by the costs associated with
being a public company. However, these costs, like the savings they offset,
cannot be accurately quantified at this time. Neither the expected savings nor
the anticipated costs have been included in the pro forma combined financial
information of Compass.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma combined financial data do not purport to represent
what Compass' financial position or results of operations would actually have
been if such transactions in fact had occurred on those dates and are not
necessarily representative of Compass' financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
combined financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
See "Risk Factors" included elsewhere herein.
F-2
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION OFFERING
ADJUSTMENTS PRO ADJUSTMENTS
MID- (SEE NOTE FORMA (SEE NOTE
ASSETS COMPASS MAIL BOX NCMC BOMAR CONTINENT IMPACT 3) COMBINED 3) AS ADJUSTED
- ------ ------- -------- ------ ------ --------- ------ ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ -- $ 675 $1,361 $ 243 $ 114 $ 102 $ 770 $ 3,265 $ 10,549 $13,814
Cash held for clients... -- -- -- 797 -- -- -- 797 -- 797
Commissions/accounts
receivable, net........ -- 3,888 2,303 1,462 518 1,912 -- 10,083 -- 10,083
Due from related parties
and stockholders....... -- -- -- -- 1,495 188 (1,650) 33 -- 33
Inventories............. -- 781 -- -- -- -- -- 781 -- 781
Postage on hand......... -- 2,442 -- -- -- -- -- 2,442 -- 2,442
Prepaid expenses and
other.................. -- 102 842 35 142 27 -- 1,148 -- 1,148
Deferred offering costs. 1,941 -- -- -- -- -- -- 1,941 (1,941) --
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total current assets. 1,941 7,888 4,506 2,537 2,269 2,229 (880) 20,490 8,608 29,098
Property and equipment,
net.................... -- 4,258 2,478 894 159 844 -- 8,633 -- 8,633
Goodwill, net........... -- -- -- 4,088 -- -- 36,405 40,493 -- 40,493
Other assets............ -- 275 275 707 214 22 1,000 2,493 -- 2,493
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total assets......... $1,941 $12,421 $7,259 $8,226 $2,642 $3,095 $36,525 $72,109 $ 8,608 $80,717
====== ======= ====== ====== ====== ====== ======= ======= ======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term debt......... $1,791 $ 1,358 $ 374 $4,695 $ 808 $ 967 $ -- $ 9,993 $ (7,991) $ 2,002
Accounts payable and
accrued expenses....... -- 2,424 2,740 940 479 1,499 440 8,522 (440) 8,082
Collections due to
clients................ -- -- -- 797 -- -- -- 797 -- 797
Checks issued in excess
of cash balance........ -- -- -- 308 -- -- -- 308 -- 308
Postage allowances and
deposits............... -- 3,719 -- -- -- -- -- 3,719 -- 3,719
Income taxes payable.... -- 350 -- 234 -- -- -- 584 -- 584
Payable to Founding
Company stockholders... -- -- -- -- 51 -- 19,993 20,044 (20,044) --
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total current
liabilities......... 1,791 7,851 3,114 6,974 1,338 2,466 20,433 43,967 (28,475) 15,492
Long-term debt.......... -- 1,133 256 419 -- -- 4,250 6,058 (5,717) 341
Capital lease
obligations............ -- 722 196 383 -- 473 -- 1,774 -- 1,774
Deferred income taxes... -- 160 192 47 -- -- -- 399 -- 399
Other................... -- -- -- 47 183 -- -- 230 -- 230
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total liabilities.... 1,791 9,866 3,758 7,870 1,521 2,939 24,683 52,428 (34,192) 18,236
Minority interest in
subsidiary............. -- -- -- 9 -- -- -- 9 -- 9
Stockholders' equity:
Common stock........... 17 14 2 1 10 91 (64) 71 41 112
Additional paid-in
capital............... 133 1,126 2,097 60 73 -- 13,610 17,099 42,759 59,858
Retained earnings...... -- 2,502 1,402 286 1,051 65 (2,804) 2,502 -- 2,502
Unrealized loss on
securities............ -- -- -- -- (13) -- 13 -- --
Less: Treasury stock... -- (1,087) -- -- -- -- 1,087 -- -- --
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total stockholders'
equity.............. 150 2,555 3,501 347 1,121 156 11,842 19,672 42,800 62,472
------ ------- ------ ------ ------ ------ ------- ------- -------- -------
Total liabilities and
stockholders'
equity.............. $1,941 $12,421 $7,259 $8,226 $2,642 $3,095 $36,525 $72,109 $ 8,608 $80,717
====== ======= ====== ====== ====== ====== ======= ======= ======== =======
</TABLE>
F-3
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
OTHER FORMA
ACQUISI- ADJUST-
TIONS MENTS
MAIL MID- (SEE (SEE PRO FORMA
BOX NCMC BOMAR CONTINENT IMPACT NOTE 4) NOTE 5) COMBINED
------- ------- ------ --------- ------ -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $26,156 $13,579 $9,597 $9,038 $8,869 $4,544 -- $71,783
Operating expenses...... 17,953 7,945 5,814 2,875 6,961 2,926 -- 44,474
------- ------- ------ ------ ------ ------ ------- ----------
Gross profit........... 8,203 5,634 3,783 6,163 1,908 1,618 -- 27,309
Selling, general and
administrative
expenses............... 5,891 4,798 3,458 6,054 2,108 1,328 $(3,461)(A) 20,115
-- -- -- -- -- -- (61)(C) --
Goodwill and intangible
amortization........... -- -- -- -- -- 120 1,151 (D) 1,271
------- ------- ------ ------ ------ ------ ------- ----------
Income (loss) from
operations............ 2,312 836 325 109 (200) 170 2,371 5,923
Other (income) expense:
Interest expense....... 337 79 122 68 30 36 (271)(E) 401
Interest income........ -- (46) -- (117) -- (2) 61 (F) (104)
Other, net............. -- 15 -- 3 (105) -- -- (87)
------- ------- ------ ------ ------ ------ ------- ----------
Income (loss) before
income taxes.......... 1,975 788 203 155 (125) 136 2,581 5,713
Provision for income
taxes.................. 700 335 73 107 -- -- 1,579 (G) 2,794
------- ------- ------ ------ ------ ------ ------- ----------
Net income (loss)....... $ 1,275 $ 453 $ 130 $ 48 $ (125) $ 136 $ 1,002 $ 2,919
======= ======= ====== ====== ====== ====== ======= ==========
Net income per share.... $ 0.28
==========
Shares used in computing
pro forma net income
per share (See Note 6). 10,287,710
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-4
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER
ACQUISI-
TIONS PRO FORMA
MID- (SEE ADJUST-MENTS PRO FORMA
MAIL BOX NCMC BOMAR CONTINENT IMPACT NOTE 4) (SEE NOTE 5) COMBINED
-------- ------- ------ --------- ------ -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $18,472 $10,055 $7,040 $6,810 $5,950 $3,716 -- $52,043
Operating expenses...... 12,816 5,806 4,318 2,210 4,356 2,362 -- 31,868
------- ------- ------ ------ ------ ------ ------- ----------
Gross profit........... 5,656 4,249 2,722 4,600 1,594 1,354 20,175
Selling, general and
administrative......... 4,185 3,680 2,458 4,509 1,597 1,019 $(2,491)(A) 14,909
-- -- -- -- -- -- (48)(C) --
Goodwill and intangible
amortization........... -- -- -- -- -- 103 863 (D) 966
------- ------- ------ ------ ------ ------ ------- ----------
Income from operations. 1,471 569 264 91 (3) 232 1,676 4,300
Other (income) expense:
Interest expense....... 254 61 76 53 12 15 (178)(E) 293
Interest income........ -- (36) -- (98) -- -- 47 (F) (87)
Other, net............. -- -- -- 3 -- -- -- 3
------- ------- ------ ------ ------ ------ ------- ----------
Income before income
taxes.................. 1,217 544 188 133 (15) 217 1,807 4,091
Provision for income
taxes................. 432 256 42 87 -- -- 1,206 (G) 2,023
------- ------- ------ ------ ------ ------ ------- ----------
Net income.............. $ 785 $ 288 $ 146 $ 46 $ (15) $ 217 $ 601 $ 2,068
======= ======= ====== ====== ====== ====== ======= ==========
Net income per share.... $ 0.20
==========
Shares used in computing
pro forma net income
per share
(See Note 6)........... 10,287,710
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-5
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
OTHER PRO FORMA
ACQUISITIONS ADJUSTMENTS
MID- (SEE (SEE NOTE PRO FORMA
MAIL BOX NCMC BOMAR CONTINENT IMPACT NOTE 4) 5) COMBINED
-------- ------- ------- --------- ------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $23,188 $11,759 $10,268 $7,066 $8,958 $2,380 -- $63,619
Operating expenses...... 15,286 7,314 5,914 2,294 6,708 1,389 -- 38,905
------- ------- ------- ------ ------ ------ ------- ----------
Gross profit........... 7,902 4,445 4,354 4,772 2,250 991 -- 24,714
Selling, general and
administrative
expenses............... 5,642 5,065 3,705 4,677 2,089 522 $(3,181)(A) 17,148
-- -- -- -- -- -- (1,345)(B) --
-- -- -- -- -- -- (26)(C) --
Goodwill and intangible
amortization........... -- -- -- -- -- 53 863 (D) 916
------- ------- ------- ------ ------ ------ ------- ----------
Income (loss) from
operations............ 2,260 (620) 649 95 161 416 3,689 6,650
Other (income) expense:
Interest expense....... 310 45 185 60 74 1 (345)(E) 330
Interest income........ -- (35) -- (52) -- -- 54 (F) (33)
Other, net............. -- 199 -- -- -- -- -- 199
------- ------- ------- ------ ------ ------ ------- ----------
Income (loss) before
income taxes........... 1,950 (829) 464 87 87 415 3,980 6,154
Provision (benefit) for
income taxes.......... 697 (267) 222 68 -- -- 2,108 (G) 2,828
------- ------- ------- ------ ------ ------ ------- ----------
Net income (loss)....... $ 1,253 $ (562) $ 242 $ 19 $ 87 $ 415 $ 1,872 $ 3,326
======= ======= ======= ====== ====== ====== ======= ==========
Net income per share.... $ 0.32
==========
Shares used in computing
pro forma net income
per share (See Note 6). 10,287,710
==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-6
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1--GENERAL
Compass International Services Corporation ("Compass") was organized to
create a leading provider of outsourced business services to public and
private entities. Compass has conducted no operations to date and will acquire
the Founding Companies concurrently and as a condition with the closing of
this Offering.
The historical financial statements reflect the financial position and
results of operations of Compass and the Founding Companies and were derived
from the respective financial statements. The periods included in these
financial statements for all of the individual Founding Companies and Compass
are for the year ended December 31, 1996 and for the nine months ended
September 30, 1996 and as of and for the nine months ended September 30, 1997.
The audited historical financial statements included elsewhere herein have
been included in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 80.
NOTE 2--ACQUISITION OF FOUNDING COMPANIES
Concurrently and as a condition with the closing of this Offering, Compass
will acquire all of the outstanding capital stock of the Founding Companies.
The Acquisitions will be accounted for using the purchase method of accounting
with Mail Box treated as the accounting acquiror.
The following table sets forth the consideration to be paid in cash and in
shares of Common Stock to the common stockholders of each of the Founding
Companies, as well as finders' fees payable in cash and warrants to purchase
Common Stock as described elsewhere in this Prospectus under "Certain
Transactions" and "Underwriting." For purposes of computing the estimated
purchase price for accounting purposes, the value of shares is based upon the
assumed initial public offering price of $12.00, less a 25% discount of the
assumed offering price due to the restrictions on the transferability of the
Common Stock to be acquired by the stockholders of the Founding Companies.
<TABLE>
<CAPTION>
SHARES OF VALUE BROKER TOTAL
CASH(1) COMMON STOCK OF SHARES WARRANTS FEE CONSIDERATION
------- ------------ --------- -------- ------ -------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Mail Box....... $ 9,847 2,461,852 $22,157 $32,004
NCMC........... 2,897 965,801 8,692 $50 11,639
Bomar.......... 4,607 1,151,787 10,366 $440 15,413
Mid-Continent.. 1,869 467,127 4,204 6,073
Impact......... 824 389,124 3,502 4,326
------- --------- ------- --- ---- -------
Total.......... $20,044 5,435,691 $48,921 $50 $440 $69,455
======= ========= ======= === ==== =======
</TABLE>
- --------
(1) The number of shares of Common Stock to be paid to the stockholders of the
Founding Companies is fixed. If the initial public offering price is
higher or lower than the assumed price, the cash consideration will vary
proportionately. For example, a $1.00 per share increase or decrease from
the assumed offering price will result in a $1.7 million increase or
decrease, respectively, in the aggregate cash consideration paid to
Founding Company stockholders.
The above purchase price consideration has been allocated to the assets and
liabilities acquired based on their respective carrying values, with the
exception of a patent developed at one of the entities, as these carrying
values are deemed to represent fair market value of these assets and
liabilities. The fair market value of the patent was determined based on the
present value of the incremental revenue stream that is estimated to be
realized over the 15 year life of the patent.
The allocation of the purchase price is considered preliminary until such
time as the closing of transaction and consummation of the Acquisitions. The
Company does not anticipate that the final allocation of purchase price will
differ significantly from that presented.
<TABLE>
<CAPTION>
TOTAL INTANGIBLE NET ASSETS
CONSIDERATION IDENTIFIABLE ASSETS ACQUIRED GOODWILL
------------- ------------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NCMC.................. $11,639 $1,000 $3,501 $ 7,138
Bomar................. 15,413 347 15,066
Mid-Continent......... 6,073 (3,958) 10,031
Impact................ 4,326 156 4,170
------- ------ ------ -------
$37,451 $1,000 $ 46 $36,405
======= ====== ====== =======
</TABLE>
F-7
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The consideration to be paid for each Founding Company is subject to
possible post-closing adjustment based upon adjusted 1997 earnings. If a
Founding Company's adjusted earnings exceed current estimates of adjusted
earnings by more than five percent, Compass will pay the former stockholders
of such Founding Company additional cash consideration equal to five percent
of the total consideration previously paid for such Founding Company in the
Acquisition. The maximum possible increase in the consideration paid by
Compass for all Founding Companies is approximately $4.3 million. The
potential increase in goodwill due to this increase in consideration is
approximately $2.3 million, with associated amortization of approximately
$69,000 per year. If a Founding Company's adjusted 1997 earnings are less than
current estimates of adjusted earnings by more than five percent, the former
stockholders of such Founding Company will be required to repay to Compass in
cash up to ten percent of the total consideration previously paid to them in
the Acquisition. The maximum possible decrease in the consideration paid by
Compass for all Founding Companies is approximately $8.5 million. The
potential decrease in goodwill due to this decrease in consideration is
approximately $4.6 million, with an associated reduction in amortization of
approximately $138,000 per year.
NOTE 3--UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
ACQUISITION OFFERING TOTAL
ASSETS ADJUSTMENTS TOTAL ADJUSTMENTS OFFERING
------ --------------------- ACQUISITION ----------------- ADJUST-
(A) (B) (C) ADJUSTMENTS (D) (E) MENTS
----- ------- ----- ----------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $ -- $ -- $ 770 $ 770 $42,950 $(32,401) $10,549
Due from stockholders... (829) -- (821) (1,650) -- -- --
Deferred offering costs. -- -- -- -- (1,941) -- (1,941)
----- ------- ----- ------- ------- -------- -------
Total current assets. (829) -- (51) (880) 41,009 (32,401) 8,608
Goodwill, net........... -- 36,405 -- 36,405 -- -- --
Other assets............ -- 1,000 -- 1,000 -- -- --
----- ------- ----- ------- ------- -------- -------
Total assets......... $(829) $37,405 $ (51) $36,525 $41,009 $(32,401) $ 8,608
===== ======= ===== ======= ======= ======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short term debt......... $ -- $ -- $ -- $ -- $(1,791) $ (6,200) $(7,991)
Accounts payable and
accrued expenses....... -- 440 -- 440 -- (440) (440)
Payable to Founding
Company stockholders... -- 20,044 (51) 19,993 -- (20,044) (20,044)
----- ------- ----- ------- ------- -------- -------
Total current
liabilities......... -- 20,484 (51) 20,433 (1,791) (26,684) (28,475)
Long-term debt.......... -- 4,250 -- 4,250 -- (5,717) (5,717)
----- ------- ----- ------- ------- -------- -------
Total liabilities.... -- 24,734 (51) 24,683 (1,791) (32,401) (34,192)
Stockholders' equity:
Common stock........... -- (64) -- (64) 41 -- 41
Additional paid-in
capital............... -- 13,610 -- 13,610 42,759 -- 42,759
Retained earnings...... (829) (1,975) -- (2,804) -- -- --
Unrealized loss on
securities............ -- 13 -- 13 -- -- --
Treasury stock......... -- 1,087 -- 1,087 -- -- --
----- ------- ----- ------- ------- -------- -------
Total stockholders'
equity.............. (829) 12,671 -- 11,842 42,800 -- 42,800
----- ------- ----- ------- ------- -------- -------
Total liabilities and
stockholders'
equity.............. $(829) $37,405 $ (51) $36,525 $41,009 $(32,401) $ 8,608
===== ======= ===== ======= ======= ======== =======
</TABLE>
- --------
(A) Reflects the exclusion of a note receivable from a stockholder of Mid-
Continent which will be retained by the stockholder.
(B) Records the Acquisitions of the Founding Companies including: (i)
establishment of the liability for the cash portion of the consideration
to be paid to the stockholders of the Founding Companies of $20.0 million
and a broker fee of $440,000; (ii) the issuance of 5,435,691 shares of
Common Stock to the stockholders of the Founding Companies; (iii) the
assumption of $4.3 million of debt as part of the consideration for Mid-
Continent; (iv) the allocation of the purchase price to the Company's
historical assets and liabilities based
F-8
<PAGE>
on their respective carrying values and to an identifiable intangible
associated with a patent at NCMC of $1 million; and (v) the recognition of
goodwill representing the excess of the purchase price over the fair value
of net assets acquired. The Common Stock consideration was valued at $9.00
per share, which represents a 25% discount of the assumed offering price of
$12.00 due to the restrictions on the transferability of the Common Stock
to be acquired by the stockholders of the Founding Companies.
(C) Represents the settlement of certain stockholder receivables and payables
pursuant to the Acquisition Agreements (comprised of a $633,000
stockholder receivable at Mid-Continent, a stockholder receivable of
$188,000 at Impact and a stockholder payable of $51,000 of Mid-Continent).
(D) Records the cash proceeds from the issuance of 4,100,000 shares of Common
Stock, net of estimated Offering costs (based on an assumed initial public
offering price of $12.00 per share). Offering costs primarily consist of
the underwriting discount, accounting, legal and consulting fees and
printing expenses.
(E) Records the use of Offering proceeds to pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Acquisitions, including the $4.3 million of debt
assumed as part of the consideration for Mid-Continent, to repay certain
long-term and short-term debt of the Founding Companies (comprised of
$1,490,000 at Mail Box, $365,000 at NCMC, $4,878,000 at Bomar, $808,000 at
Mid-Continent and $126,000 at Impact) and to pay certain Acquisition-
related liabilities.
NOTE 4--OTHER ACQUISITIONS
Gives effect to two acquisitions of Bomar consummated in fiscal 1996 and the
acquisition by Bomar of Financial Claims Control, Inc. ("FCCI") in September
1997, as if these acquisitions were consummated on January 1, 1996, including
the amortization of approximately $3.2 million of goodwill over 40 years.
NOTE 5--UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
(A) Reflects the reduction in salaries, bonuses and benefits to the owners of
the Founding Companies to which they have agreed prospectively pursuant to
agreements and, in nearly all cases, as a condition of the Acquisitions,
as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
FOR THE YEAR ENDED -------------------
DECEMBER 31, 1996 1996 1997
------------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Mail Box........................... $ 875 $ 520 $ 1,299
NCMC............................... 210 161 90
Bomar.............................. 1,046 875 760
Mid-Continent...................... 1,161 868 968
Impact............................. -- -- --
Other Acquisitions................. 169 67 64
------ --------- ---------
$3,461 $ 2,491 $ 3,181
====== ========= =========
</TABLE>
Pursuant to the terms of employment agreements to be entered into upon
consummation of the Acquisitions, the owners of the Founding Companies will
be eligible for performance-based bonuses of up to 100% of their respective
annual base salaries. Bonuses under the employment agreements will be
awarded based upon substantial improvement in the operating performance of
both the Founding Companies and Compass. The bonuses paid historically to
the owners of the Founding Companies were not awarded based upon the same
performance criteria and compensation expense has been reduced accordingly
in the pro forma adjustments. Whether the bonuses that may be awarded under
the new employment agreements will be earned cannot be determined at this
time and therefore are not reflected in the pro forma adjustments. If
bonuses are awarded, compensation expense would increase.
(B) Reflects elimination of NCMC compensation expense recognized during the
third quarter of 1997 in connection with the issuance of shares of common
stock to certain employees in connection with the termination of a stock
option plan. The termination of the stock option plan was done in
preparation for the planned Acquisitions.
(C) Reflects a reduction in rent expense related to a lease on a building
controlled by a stockholder of Impact which has been agreed to
prospectively as a condition of the Acquisition.
F-9
<PAGE>
(D) Reflects (i) the amortization of $36.4 million of goodwill to be recorded
as a result of these Acquisitions over the respective goodwill lives
attributed to each Founding Company, as follows: NCMC, 40 years; Bomar, 40
years; Mid-Continent, 40 years; Impact, 15 years, and (ii) the
amortization of a $1.0 million intangible asset associated with a patent
at NCMC amortized over 15 years.
(E) Reflects the net reduction in interest expense associated with long-term
debt to be paid from the proceeds of the Offering, as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
FOR THE YEAR ENDED -------------------
DECEMBER 31, 1996 1996 1997
------------------ --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Mail Box........................... $128 $ 76 $ 137
NCMC............................... -- -- 5
Bomar.............................. 60 40 135
Mid-Continent...................... 68 53 61
Impact............................. 15 9 7
---- --------- ---------
$271 $ 178 $ 345
==== ========= =========
</TABLE>
(F) Reflects a net reduction of interest income on stockholder loans of Mid-
Continent.
(G) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments and for income
taxes on S Corporation income.
NOTE 6--NET INCOME PER SHARE
The shares used in computing net income per share include: (i) 1,682,769
shares issued to BGL Capital Partners, L.L.C. and management of Compass; (ii)
5,435,691 shares to be issued to the stockholders of the Founding Companies in
connection with the Acquisitions; (iii) 2,240,333 shares representing the
number of shares sold in the Offering necessary to pay the $20.0 million cash
portion of the consideration for the Acquisitions and to pay the estimated
underwriting discount and other acquisition and offering related costs; and
(iv) 928,917 shares to be issued in connection with the offering necessary to
fund approximately $11.9 million of debt to be repaid from proceeds of the
Offering, net of repayments from stockholder receivables.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Compass International Services Corporation
The Stock Split described in Note 1 to the financial statements has not been
consummated at November 5, 1997. When it has been consummated, we will be in a
position to furnish the following report:
"In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Compass International Services
Corporation at September 30, 1997, in conformity with generally accepted
accounting principles. This financial statement is the responsibility of the
Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above."
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
November 5, 1997
F-11
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1997
------ -------------
<S> <C>
Deferred offering costs.......................................... $1,941
------
Total assets................................................. $1,941
======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Notes payable.................................................... $1,791
Stockholders' equity:
Preferred Stock, 10,000,000 shares authorized, no shares issued
or outstanding;
Common Stock, 50,000,000 authorized, $.01 par value, 1,682,769
shares issued and outstanding................................. 17
Additional paid-in-capital..................................... 133
------
Total stockholders' equity................................... 150
------
Total liabilities and stockholders' equity................... $1,941
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENT
NOTE 1--BUSINESS AND ORGANIZATION
Compass International Services Corporation, a Delaware corporation
("Compass" or the "Company") was founded in April 1997 to create a leading
provider of outsourced business services to public and private entities
throughout the United States upon consummation of an initial public offering
(the "Offering") of its common stock.
In connection with the organization and initial capitalization of Compass,
in April 1997 the Company issued 1,570,584 shares (post split) of common stock
for $140,000 and in May 1997 issued 112,185 shares (post split) for $10,000.
On October 1, 1997, the Board of Directors approved several actions in
connection with the Offering. These actions included the approval of a
112.185-for-1 stock split which will occur prior to the effectiveness of the
Company's Registration Statement. All common stock related information
included in the financial statements has been adjusted to reflect this split.
Compass has not conducted any operations, and all activities to date have
related to the Offering and the Acquisitions. Expenditures have been funded by
advances from BGL Capital Partners, which are payable upon consummation of the
Offering, with interest at 8%. Accordingly, statements of operations and cash
flows for this period would not provide meaningful information and have been
omitted. As of September 30, 1997, approximately $1,941,000 has been incurred
in connection with the Offering and the Company has capitalized these costs as
Deferred Offering Costs. These costs include legal and accounting fees which
will be offset against the proceeds of the Offering at closing. Compass is
dependent upon the Offering to execute the pending Acquisitions. There is no
assurance that the pending Acquisitions discussed will be completed or that
Compass will be able to generate future operating revenues.
NOTE 2--NEW ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," allows entities to choose between a fair value
based method of accounting for employee stock options or similar equity
instruments and the intrinsic value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"). Entities electing
to remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method
of accounting has been applied. The Company will provide pro forma disclosure
of net income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 128 "Earnings per Share" ("SFAS No.
128"). For the Company, SFAS No. 128 will be effective for the year ended
December 31, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully diluted earnings per
share with a presentation of basic earnings per share ("basic EPS") and
diluted earnings per share ("diluted EPS"). Basic EPS excludes dilution and is
determined by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities and other
contracts to issue common stock were exercised or converted into common stock.
Diluted EPS is computed similarly to fully diluted earnings per share under
current accounting rules. The implementation of SFAS No. 128 is not expected
to have a material effect on the Company's earnings per share as determined
under current accounting rules.
F-13
<PAGE>
COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO FINANCIAL STATEMENT--(CONTINUED)
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The Statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Statement is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements
for earlier periods provided for comparative purposes is required. The Company
intends to adopt SFAS No. 130 in 1998.
NOTE 3--SUBSEQUENT EVENTS
Compass has signed definitive agreements to acquire all of the outstanding
capital stock of five companies ("Founding Companies") to be consummated
contemporaneously with the Offering. The Founding Companies are The Mail Box,
Inc. (Mail Box), National Credit Management Corp. (NCMC), BRMC of Delaware,
Inc. (Bomar), Mid-Continent Agencies, Inc. (Mid-Continent) and Impact
Telemarketing Group, Inc. (Impact). The aggregate consideration that will be
paid by Compass to acquire the Founding Companies is approximately $20.0
million in cash and 5,435,691 shares of Common Stock. The consideration to be
paid for each Founding Company is subject to possible post-closing adjustment
based on adjusted 1997 earnings.
The following table reflects the consideration to be paid in cash and shares
of Common Stock:
<TABLE>
<CAPTION>
SHARES OF
COMMON
FOUNDING COMPANY CASH STOCK
---------------- ------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Mail Box................................................ $ 9,847 2,461,852
NCMC.................................................... 2,897 965,801
Bomar................................................... 4,607 1,151,787
Mid-Continent........................................... 1,869 467,127
Impact.................................................. 824 389,124
------- ---------
Total............................................... $20,044 5,435,691
======= =========
</TABLE>
On October 6, 1997, Compass filed a registration statement on Form S-1 for
the Offering.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
The Mail Box, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of The
Mail Box, Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc.
(the "Company") at December 31, 1995 and 1996 and September 30, 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996 and the nine months ended September 30,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
November 5, 1997
F-15
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ ------- -------------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash.......................................... $ 16 $ 1,419 $ 675
Accounts receivable, net of allowance for
doubtful accounts of
$116, $81 and $125, respectively............. 3,397 3,419 3,888
Inventories................................... 490 708 781
Postage on hand............................... 887 3,593 2,442
Prepaid expenses and other current assets..... 78 69 58
Deferred income taxes......................... 74 26 44
------ ------- -------
Total current assets........................ 4,942 9,234 7,888
Property and equipment, net..................... 2,374 3,205 4,258
Other assets.................................... 109 100 275
------ ------- -------
Total assets................................ $7,425 $12,539 $12,421
====== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Line of credit................................ $ 439 $ 569 $ 125
Note payable, current portion................. -- -- 329
Secured equipment financing facilities,
current portion.............................. 251 327 487
Capitalized lease obligations, current
portion...................................... 254 450 417
Accounts payable.............................. 1,114 1,450 1,314
Accrued expenses and other liabilities........ 594 824 1,110
Income taxes payable.......................... 214 524 350
Postage advances and deposits................. 2,040 4,818 3,719
------ ------- -------
Total current liabilities................... 4,906 8,962 7,851
Long-term liabilities:
Note payable, net of current portion.......... -- -- 466
Secured equipment financing facilities, net of
current portion.............................. 792 616 667
Capitalized lease obligations, net of current
portion...................................... 693 650 722
Deferred income taxes......................... 39 105 160
------ ------- -------
Total liabilities........................... 6,430 10,333 9,866
Commitments and contingencies
Stockholders' equity:
Common stock, $.10 par value, 500,000 shares
authorized,
132,900, 132,900 and 138,900 shares issued,
and 129,300, 129,300 and 102,900 shares
outstanding at December 31, 1995 and 1996 and
September 30, 1997, respectively............. 13 13 14
Additional paid-in-capital.................... 947 947 1,126
Treasury stock, at cost, 3,600, 3,600 and
36,000 shares at
December 31, 1995 and 1996 and September 30,
1997, respectively........................... (100) (100) (1,087)
Retained earnings............................. 135 1,346 2,502
------ ------- -------
Total stockholders' equity.................. 995 2,206 2,555
------ ------- -------
Total liabilities and stockholders' equity.. $7,425 $12,539 $12,421
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------------
1994 1995 1996 1996 1997
------- ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $15,354 $17,370 $26,156 $18,472 $23,188
Operating expenses................. 11,168 12,402 17,953 12,816 15,286
------- ------- ------- ------- -------
Gross profit..................... 4,186 4,968 8,203 5,656 7,902
Selling, general and administrative
expenses.......................... 3,442 4,370 5,891 4,185 5,642
------- ------- ------- ------- -------
Income from operations........... 744 598 2,312 1,471 2,260
Other expense:
Interest expense................. 212 302 337 254 310
------- ------- ------- ------- -------
Income before income taxes......... 532 296 1,975 1,217 1,950
Provision for income taxes......... 206 134 700 432 697
------- ------- ------- ------- -------
Net income......................... $ 326 $ 162 $ 1,275 $ 785 $ 1,253
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED
-------------- PAID-IN- TREASURY ESOP RETAINED
SHARES AMOUNT CAPITAL STOCK COMPENSATION EARNINGS TOTAL
------- ------ ---------- -------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994..... 102,900 $10 $ 622 $ (61) $(113) $ (268) $ 190
Net income................. 326 326
ESOP compensation.......... 20 68 88
Capital contribution....... 50 50
Sales of treasury stock.... 12 12
Cash dividends, $.25 per
share..................... (25) (25)
------- --- ------ ------- ----- ------ ------
Balance, December 31, 1994.. 102,900 10 692 (49) (45) 33 641
Net income................. 162 162
ESOP compensation.......... 32 45 77
Capital contribution....... 86 86
Purchases of treasury
stock..................... (51) (51)
Cash dividends, $.50 per
share..................... (60) (60)
Sale of common stock....... 30,000 3 137 140
------- --- ------ ------- ----- ------ ------
Balance, December 31, 1995.. 132,900 13 947 (100) -- 135 995
Net income................. 1,275 1,275
Cash dividends, $.50 per
share..................... (64) (64)
------- --- ------ ------- ----- ------ ------
Balance, December 31, 1996.. 132,900 13 947 (100) -- 1,346 2,206
Net income................. 1,253 1,253
Purchases of treasury
stock .................... (987) (987)
Cash dividends, $1.00 per
share..................... (97) (97)
Common stock issued on
exercise of options....... 6,000 1 179 180
------- --- ------ ------- ----- ------ ------
Balance, September 30, 1997. 138,900 $14 $1,126 $(1,087) $ -- $2,502 $2,555
======= === ====== ======= ===== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
THE MAIL BOX, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- ------------------
1994 1995 1996 1996 1997
---- ----- ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................... $326 $ 162 $1,275 $ 785 $1,253
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 400 616 768 534 744
ESOP compensation................. 88 77 -- -- --
Employee stock compensation....... 50 86 -- -- --
Provision for doubtful accounts... 47 60 82 60 70
Change in deferred taxes.......... 98 (48) 114 101 37
Changes in operating assets and
liabilities:
Accounts receivable............... (456) (862) (104) (461) (538)
Inventories....................... (23) (322) (218) (148) (73)
Postage on hand................... (387) (65) (2,706) (1,961) 1,151
Prepaid expenses and other assets. (13) 47 18 14 (165)
Accounts payable and accrued
expenses......................... 45 340 566 192 148
Postage advances and deposits..... (50) 1,328 2,778 3,676 (1,099)
Federal income taxes payable...... 107 107 310 54 (174)
---- ----- ------ ------ ------
Net cash provided by operating
activities..................... 232 1,526 2,883 2,846 1,354
Cash flows from investing activities:
Purchases of property and equipment. (486) (810) (1,007) (579) (1,236)
Proceeds from disposal of property
and equipment...................... -- -- -- -- 38
---- ----- ------ ------ ------
Net cash used in investing
activities..................... (486) (810) (1,007) (579) (1,198)
Cash flows from financing activities:
Net borrowings (payments) on line of
credit............................. 97 (725) 130 (438) (443)
Repayments of capital lease
obligations........................ (217) (321) (439) (327) (561)
Proceeds from long-term debt........ 585 692 161 161 1,517
Repayment of long-term debt......... (214) (360) (261) (185) (509)
Proceeds from issuance of common
stock.............................. 12 140 -- -- 180
Repurchases of treasury stock....... -- (51) -- -- (987)
Cash dividends paid................. -- (85) (64) (64) (97)
---- ----- ------ ------ ------
Net cash provided by (used in)
financing activities........... 263 (710) (473) (853) (900)
Net increase (decrease) in cash....... 9 6 1,403 1,414 (744)
Cash at beginning of period........... 1 10 16 16 1,419
---- ----- ------ ------ ------
Cash at end of period................. $ 10 $ 16 $1,419 $1,430 $ 675
==== ===== ====== ====== ======
Supplemental disclosure of cash flow
information:
Cash paid for interest.............. $213 $ 302 $ 338 $ 254 $ 310
Cash paid for taxes................. -- 74 276 276 833
Noncash investing and financing
activities:
Equipment acquired under capital
leases............................. 267 551 592 513 600
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS
The Mail Box, Inc. and its wholly owned subsidiary Mail Box Data Services,
Inc. (collectively the "Company") provide direct mailing services, billing
services, mail presorting, freight and drop shipping, data processing, laser
printing, mailing list rental and order fulfillment to companies based
primarily in the southwestern United States. The Company operates from a
single location in Dallas, Texas.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ from those estimates. Estimates are
made when accounting for the allowance for doubtful accounts, inventories,
depreciation and amortization and income taxes.
Principles of Consolidation
The consolidated financial statements include the accounts of The Mail Box,
Inc. and its wholly-owned subsidiary, Mail Box Data Services, Inc. All
significant inter-company transactions have been eliminated.
Revenue Recognition
Revenues are recognized when services are rendered and are presented in the
financial statements net of sales allowances. The Company's services are
considered rendered when all printing, sorting, labeling and ancillary
services have been provided and the mailing material has been received and
accepted by the United States Postal Service.
Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and
amortization. Depreciation, and amortization of assets recorded under capital
leases, is provided using the straight-line method over estimated useful lives
of each class of assets, or, if shorter, the terms of leases for capital
leases. Leasehold improvements are amortized using the straight-line method
over the shorter of the estimated useful life of the asset or the term of the
lease. Average useful lives range from 5 to 7 years. Expenditures for
maintenance and repairs are charged to expense as incurred.
Inventories
Inventories consist of work in progress, spare parts, and paper and envelope
stock, recorded at cost not to exceed market. The cost of work in process
includes the costs of completed but unmailed production.
Income Taxes
The Company records income taxes using the liability method, under which
deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis, using enacted tax rates.
Accounting for Stock Based Compensation
The Company accounts for its employee stock options under Accounting
Principles Board Opinion No. 25 (APB 25).
F-20
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Earnings Per Share
Earnings per share for the Company have not been presented in the
accompanying financial statements because such disclosure is not deemed
meaningful considering the proposed transaction discussed in Note 14.
Unaudited Interim Financial Information
The interim financial information as of September 30, 1996 and for the nine
month period ended September 30, 1996 has been prepared from the unaudited
financial records of the Company and in the opinion of management, reflects
all adjustments, consisting only of normal recurring items, necessary for a
fair presentation of the financial position and results of operations and of
cash flows for the interim period.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable. The Company
performs ongoing credit evaluations of its customers' financial condition and
requires no collateral from its customers. The allowance for doubtful accounts
is maintained based upon the expected collectability of the accounts
receivable.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and long-term debt, approximate fair
value.
NOTE 3--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Work in progress.............................. $294 $466 $481
Spare parts................................... 103 130 231
Paper and envelope stock...................... 93 112 69
---- ---- ----
$490 $708 $781
==== ==== ====
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures................... $ 538 $ 552 $ 663
Plant equipment.......................... 2,812 3,996 5,226
Computer equipment and software.......... 3,321 3,654 3,728
Leasehold improvements................... -- 70 452
------- ------- -------
6,671 8,272 10,069
Accumulated depreciation and
amortization............................ (4,297) (5,067) (5,811)
------- ------- -------
$ 2,374 $ 3,205 $ 4,258
======= ======= =======
</TABLE>
Depreciation and amortization expense was $400,000, $616,000 and $768,000
for the years ended December 31, 1994, 1995 and 1996 and $744,000 for the nine
months ended September 30, 1997.
F-21
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued compensation.............................. $263 $314 $ 465
Accrued vacation.................................. 184 214 229
Other liabilities................................. 147 296 416
---- ---- ------
Total accrued expenses and other liabilities...... $594 $824 $1,110
==== ==== ======
</TABLE>
NOTE 6--NOTE PAYABLE AND CREDIT FACILITIES
Obligations under long term note payable and credit facilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to financial institution,
interest at 30 day commercial rate plus
2.8% (8.3% at September 30, 1997),
principal payment of $27,000 due monthly,
balance due on January 1, 2000............ $ -- $ -- $ 795
Secured equipment financing facilities
payable to financial institutions. Monthly
fixed payments ranging from $1,000 to
$14,000. Interest rates ranging from 8.98%
to 10.95%. Maturity dates ranging from
1998 to 2001.............................. 1,043 943 1,154
Less: Current portion...................... (251) (327) (816)
------ ----- ------
$ 792 $ 616 $1,133
====== ===== ======
</TABLE>
The Company's note payable to a financial institution is secured by the
personal guarantee of its principal stockholder.
As of September 30, 1997, approximately $459,000 of these balances may not
be prepaid prior to February 27, 1998; thereafter, such balances may be
prepaid, subject to declining prepayment penalties. Other balances may be
prepaid at any time subject to a 2% prepayment penalty.
The following summarizes the Company's required annual principal payments
under note payable and secured equipment financing facilities at December 31,
1996 and September 30, 1997 for the next five years:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997........................................... $327 $ --
1998........................................... 335 816
1999........................................... 205 674
2000........................................... 76 378
2001........................................... -- 81
---- ------
$943 $1,949
==== ======
</TABLE>
Revolving Credit Facility
The Company has a revolving credit facility with a financial institution
which provides for borrowings of $2,250,000 at December 31, 1996 and September
30, 1997 to be utilized for working capital purposes. The facility matures on
October 31, 1998. The line of credit is collateralized by certain property and
equipment, and accounts receivable of the Company. Borrowings outstanding are
also secured by a pledge of all of the
F-22
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's common stock owned by the principal stockholder. Borrowings
outstanding from time to time bear interest at a short term floating interest
rate (8.6%, 8.8% and 8.3% at December 31, 1995 and 1996, and September 30,
1997, respectively.)
The revolving credit facility contains, among other provisions, requirements
to maintain defined levels of working capital, net worth, various financial
ratios, limit capital expenditures, and restricts distributions to
stockholders. At September 30, 1997, the Company was in compliance with all
covenants.
The Company leases certain equipment under agreements which are classified
as capital leases. The following is a schedule of capital leases by asset
class:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures...................... $ 71 $ 71 $ 155
Plant equipment............................. 216 799 1,119
Computer equipment and software............. 1,426 959 530
------ ------ ------
1,713 1,829 1,804
Accumulated amortization.................... (800) (669) (497)
------ ------ ------
Total..................................... $ 913 $1,160 $1,307
====== ====== ======
</TABLE>
The following is a schedule of future annual minimum lease payments due
under capital lease obligations at December 31, 1996 and September 30, 1997,
together with the present value of the future minimum lease payments for the
years ended:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997.......................................... $ 568 $ --
1998.......................................... 395 501
1999.......................................... 255 422
2000.......................................... 77 253
2001.......................................... 11 93
2002.......................................... -- 26
------ ------
Total future minimum lease payments......... 1,306 1,295
Less: Amount representing interest............ (206) (156)
------ ------
Present value of future minimum lease
payments................................... $1,100 $1,139
====== ======
</TABLE>
The Company also leases certain facilities and equipment under non-
cancelable operating leases. The facilities leases provide that the Company
pay the taxes, insurance and maintenance expenses related to the leased
facilities. Certain of the facilities are leased from a related party as
discussed more fully in Note 9. Future annual minimum payments, by year and in
the aggregate, under these non-cancelable operating leases with initial or
remaining terms of one year or more consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997........................................... $1,561 $ --
1998........................................... 1,754 2,078
1999........................................... 1,386 1,755
2000........................................... 1,064 1,362
2001........................................... 857 919
2002........................................... 350 610
Thereafter..................................... -- 84
------ ------
$6,972 $6,808
====== ======
</TABLE>
F-23
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense was $1,086,000, $1,390,000, $1,534,000 and $1,410,000 for the
years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997, respectively.
NOTE 7--INCOME TAXES
The Company's provision for income taxes is comprised of the following for
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current tax expense......................... $108 $182 $586 $660
Deferred tax expense (benefit).............. 98 (48) 114 37
---- ---- ---- ----
Total provision for income taxes............ $206 $134 $700 $697
==== ==== ==== ====
</TABLE>
The effective income tax rate for the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1997 varied from the federal
statutory rate as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax provision computed at statutory rate
of 35%................................... $187 $104 $694 $682
Nondeductible expenses and other.......... 1 (1) 6 15
Employee stock compensation expense....... 18 31 -- --
---- ---- ---- ----
$206 $134 $700 $697
==== ==== ==== ====
</TABLE>
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
----------- SEPTEMBER 30,
1995 1996 1997
---- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation........................ $ 35 $ -- $ --
Allowance for doubtful accounts.............. 39 26 44
Other........................................ -- 4 4
---- ----- -----
74 30 48
Deferred tax liabilities:
Depreciation and amortization................ (39) (109) (164)
---- ----- -----
Net deferred tax asset (liability)......... $ 35 $ (79) $(116)
==== ===== =====
</TABLE>
NOTE 8--EMPLOYEE BENEFIT PLANS
The Company sponsors a savings plan under Section 401(k) of the Internal
Revenue Code (the "Plan"), which was adopted in 1996 to provide employees an
opportunity to rollover their vested accounts received in connection with the
termination of the Company's leveraged employee stock ownership plan ("ESOP"),
as discussed below. The Plan allows all eligible employees to defer up to 8%
of their base salary on a pretax basis through contributions to the Plan, and
the Company will match on a discretionary basis, 25% of the first 5% of such
employee contributions. The Company made contributions to the Plan of $0 and
$51,000 for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively.
F-24
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, 1995, and 1996, the Company sponsored the ESOP, which covered
all full time employees. The Company made contributions to the ESOP equal to
scheduled debt payments plus discretionary contributions based on results of
operations. As services were rendered by plan participants, the Company
recorded compensation expense equal to the average fair value of the shares
allocated to participant accounts during the period. ESOP compensation expense
was $152,000, $215,000, and $108,000 for 1994, 1995, and 1996, respectively.
The ESOP was terminated in 1996 and all shares (32,400) were repurchased by
the Company for $987,000 in the first quarter of 1997. The Company funded the
termination with a three-year amortizing loan from a financial institution in
the amount of $987,000 and recorded the reacquisition of shares as treasury
stock.
NOTE 9--RELATED PARTIES
The Company leases its main office and certain mailshop facilities from a
partnership in which the Company's principal stockholder is a limited partner.
Included in rent expense for each of the three years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1997, is $290,000,
$290,000, $290,000 and $235,000, respectively, for payments under this lease.
Future annual minimum lease payments under this agreement are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997................................................. $ 321 $ --
1998................................................. 343 343
1999................................................. 343 343
2000................................................. 343 343
2001................................................. 343 343
2002................................................. 143 229
Thereafter........................................... -- --
------ ------
$1,836 $1,601
====== ======
</TABLE>
In August 1997, the Company purchased certain equipment previously leased
from a partnership, the partners of which include certain Company
stockholders. The equipment was purchased for $130,000.
NOTE 10--CAPITAL TRANSACTIONS
In 1995, the Company purchased into treasury from the majority stockholder,
1,600 shares of common stock for $51,000.
In 1994 and 1995, certain employees were awarded an aggregate of 1,600
shares and 2,500 shares of common stock, respectively, with an aggregate value
of $50,000 and $86,000, respectively. The shares were granted to the employees
by the majority stockholder and were accounted for as capital contributions
and employee stock compensation expense.
In December 1996, the Company granted to a certain employee-stockholder an
option to purchase 6,000 shares at $30.00 per share, the approximate fair
value at the date of grant. The option was exercised on July 17, 1997. In view
of the terms of this option, the fair value is not deemed to be significantly
different from the intrinsic value.
NOTE 11--CONCENTRATION OF CREDIT RISK
The Company had two customers that accounted for 11.5% and 14.5% of 1994
revenues, respectively, two customers that accounted for 15.5% and 11.7% of
1995 revenues, respectively, one customer that accounted for 30.9% of 1996
revenues, and one customer that accounted for 48.2% of revenues for the nine
months ended September 30, 1997.
F-25
<PAGE>
THE MAIL BOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1996 and September 30, 1997, approximately 11.0%,
11.5% and 48.0%, respectively, of the Company's total accounts receivable
balance was due from a single customer.
NOTE 12--INVENTORIES HELD IN TRUST FOR CUSTOMERS
In the ordinary course of the Company's business activities as a mailing
service company, the Company receives and stores customers' letter, statement
and paper and form stock for use in customers' mailing production processes.
The Company does not take legal title to the inventories, and accordingly,
these inventories are not carried on the Company's financial statements. The
Company maintains casualty risk insurance in amounts sufficient to cover
potential damages arising from the Company's custody of such inventories,
which varies from time to time but, according to management estimates, does
not exceed $11.0 million.
NOTE 13--COMMITMENTS AND CONTINGENCIES
The Company is party from time to time to various legal proceedings
incidental to its business. In the opinion of management, the resolution of
these items, individually or in the aggregate, would not have a significant
effect on the financial position, results of operations, or cash flows of the
Company.
NOTE 14--SUBSEQUENT EVENTS
The Company and its stockholders have entered into a definitive agreement
with Compass International Services Corporation ("Compass") pursuant to which
Compass will acquire all outstanding shares of the Company's common stock in
exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
National Credit Management Corporation and Subsidiary
We have audited the accompanying consolidated balance sheets of National
Credit Management Corporation and Subsidiary (a Maryland corporation), as of
December 31, 1995 and 1996, and September 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1994, 1995 and 1996, and the nine months ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Credit Management Corporation and Subsidiary as of December 31, 1995 and 1996,
and September 30, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1994, 1995 and 1996, and the nine months
ended September 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
October 17, 1997
F-27
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
ASSETS 1995 1996 1997
------ ------ ------ -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................ $1,167 $1,149 $1,361
Accounts receivable, net of allowance for
doubtful accounts of $113, $88 and $117,
respectively.................................... 1,994 2,141 2,303
Prepaid expenses and other....................... 129 361 699
Deferred tax asset............................... 106 73 143
------ ------ ------
Total current assets........................... 3,396 3,724 4,506
Property and equipment, net........................ 1,084 1,053 2,478
Other assets, net of accumulated amortization of
$271, $272 and $278, respectively................. 69 73 275
------ ------ ------
Total assets................................... $4,549 $4,850 $7,259
====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Current portion of term note..................... $ $ $ 60
Current portion of note payable.................. -- -- 49
Trade accounts payable........................... 220 356 1,455
Client payables.................................. 600 484 639
Accrued compensation and related benefits........ 248 500 439
Current portion of capital lease obligations..... 274 327 265
Other accrued expenses........................... 360 185 207
------ ------ ------
Total current liabilities...................... 1,702 1,852 3,114
Deferred tax liability............................. 81 96 192
Long-term portion of note payable.................. -- -- 16
Borrowings under line of credit.................... 100 -- --
Long-term portion of term note..................... -- -- 240
Long-term capital lease obligations................ 401 184 196
------ ------ ------
Total liabilities.............................. 2,284 2,132 3,758
------ ------ ------
Commitments and contingencies
Stockholders' equity:
Common stock--Class A, $.01 par value, 5,000,000
shares authorized, 231,500 shares issued and
outstanding..................................... 2 2 2
Common stock--Class B, $.01 par value, 250 shares
authorized, no shares issued and outstanding.... -- -- --
Additional paid-in-capital....................... 752 752 2,097
Retained earnings................................ 1,511 1,964 1,402
------ ------ ------
Total stockholders' equity..................... 2,265 2,718 3,501
------ ------ ------
Total liabilities and stockholders' equity..... $4,549 $4,850 $7,259
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-28
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1994 1995 1996 1996 1997
------ ------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $8,874 $12,287 $13,579 $10,055 $11,759
Operating expenses.............. 4,550 6,322 7,945 5,806 7,314
------ ------- ------- ------- -------
Gross profit.................. 4,324 5,965 5,634 4,249 4,445
Selling, general and
administrative expenses........ 3,400 4,328 4,798 3,680 5,065
------ ------- ------- ------- -------
Income (loss) from operations. 924 1,637 836 569 (620)
------ ------- ------- ------- -------
Other (income) expense:
Interest income............... (18) (62) (46) (36) (35)
Interest expense.............. 60 90 79 61 45
Other......................... (3) 5 15 -- 199
------ ------- ------- ------- -------
Total other expense, net.... 39 33 48 25 209
------ ------- ------- ------- -------
Income (loss) before income
taxes.......................... 885 1,604 788 544 (829)
Provision (benefit) for income
taxes.......................... 354 648 335 256 (267)
------ ------- ------- ------- -------
Net income (loss)............... $ 531 $ 956 $ 453 $ 288 $ (562)
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-29
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------------ ------------------ ADDITIONAL TOTAL
SHARES SHARES PAID-IN RETAINED STOCKHOLDERS'
OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL EARNINGS EQUITY
----------- ------ ----------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 210 $-- -- $-- $ 754 $ 24 $ 778
One thousand for one
stock split.......... 209,790 2 -- -- (2) -- --
Net income............ -- -- -- -- -- 531 531
------- ---- --- ---- ------ ------ ------
Balance, December 31,
1994................... 210,000 2 -- -- 752 555 1,309
Net income............ -- -- -- -- -- 956 956
------- ---- --- ---- ------ ------ ------
Balance, December 31,
1995................... 210,000 2 -- -- 752 1,511 2,265
Net income............ -- -- -- -- -- 453 453
------- ---- --- ---- ------ ------ ------
Balance, December 31,
1996................... 210,000 2 -- -- 752 1,964 2,718
Stock tendered pursuant
to termination of stock
option plan............ 21,500 -- -- -- 1,345 -- 1,345
Net loss.............. -- -- -- -- -- (562) (562)
------- ---- --- ---- ------ ------ ------
Balance, September 30,
1997................... 231,500 $ 2 -- $-- $2,097 $1,402 $3,501
======= ==== === ==== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-30
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- --------------------
1994 1995 1996 1996 1997
------ ------ ------ ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss).............. $ 531 $ 956 $ 453 $ 288 $ (562)
Adjustments to reconcile net
income (loss) to net cash
flows provided by operating
activities--
Stock tendered pursuant to
termination of stock option
plan........................ -- -- -- -- 1,345
Loss from disposal of
property and equipment...... -- 20 15 -- 199
Change in deferred taxes..... (23) 59 48 81 26
Depreciation and
amortization................ 310 322 337 252 309
(Increase) decrease in
accounts receivable......... (498) (653) (147) 30 (162)
Decrease (increase) in
prepaid expenses and other.. 73 (39) (232) (274) (338)
Increase in other assets..... (10) (11) (5) (9) (208)
Increase (decrease) in trade
accounts payable and other
accrued expenses............ 198 204 (39) 47 1,121
(Decrease) increase in client
payables.................... (132) 56 (116) (65) 155
Increase (decrease) in
accrued compensation and
related benefits............ 192 (192) 252 146 (61)
------ ------ ------ ------ --------
Net cash flows provided by
operating activities...... 641 722 566 496 1,824
------ ------ ------ ------ --------
Cash flows from investing
activities:
Additions to property and
equipment..................... (104) (194) (164) (256) (1,927)
------ ------ ------ ------ --------
Net cash flows used in
investing activities...... (104) (194) (164) (256) (1,927)
------ ------ ------ ------ --------
Cash flows from financing
activities:
Repayment on borrowings from
line of credit, net of
proceeds...................... (30) (200) (100) -- 300
Increase in notes payable...... -- -- -- (100) 65
Principal payments under
capital lease obligations..... (171) (223) (320) (86) (50)
------ ------ ------ ------ --------
Net cash flows used in
financing activities...... (201) (423) (420) (186) 315
------ ------ ------ ------ --------
Net (decrease) increase in
cash and cash equivalents. 336 105 (18) 54 212
Cash and cash equivalents,
beginning of period............. 726 1,062 1,167 1,167 1,149
------ ------ ------ ------ --------
Cash and cash equivalents, end of
period.......................... $1,062 $1,167 $1,149 $1,221 $ 1,361
====== ====== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
National Credit Management Corporation, a Maryland corporation, and
Subsidiary (the "Company") provides accounts receivable management services
and, through its patented Accelerated Payment Systems ("APS") process,
telephonic check drafting services. The Company's collection services are
provided to a broad range of clients and industries. In addition to standard
contingency fee collections, the Company provides early-stage accounts
receivable management services to clients in the education, utilities,
government and healthcare sectors through its wholly-owned subsidiary, Total
Early Receivables Management Corporation.
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Interim Financial Statements
The consolidated financial statements for the nine months ended September
30, 1996, are unaudited but, in the opinion of management, such financial
statements have been presented on the same basis as the audited consolidated
financial statements and include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position, and results of operations and cash flows for these periods.
Contemplated Initial Public Offering
The Company and its stockholders have entered into a definitive agreement
with Compass International Services Corporation ("Compass") pursuant to which
Compass will acquire all of the outstanding shares of the Company's common
stock in exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable, borrowings under line of credit and capital
lease obligations, all of which approximate fair value.
Cash and Cash Equivalents
Cash and cash equivalents consist primarily of cash and overnight
investments stated at cost which approximate market value.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<S> <C>
Computer hardware and software..................... 3-5 years
Office furniture and equipment..................... 4-8 years
Leasehold improvements............................. Life of related leases
Property and equipment held under capital leases... 3-8 years
</TABLE>
F-32
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Assets
Other assets consist of security deposits on leases, patent costs and other
intangible assets.
Client Payables
The Company, which is licensed as a collection agency in many states,
regularly receives payments on behalf of its clients which are deposited in
bank accounts. The Company has recorded a liability for the portion of
payments which are owed to clients as of year-end.
Income Taxes
Income taxes have been accounted for in accordance with Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes." Under
Statement 109, the liability method is used in accounting for income taxes.
Deferred tax liabilities are determined based on differences between financial
reporting and tax basis of assets and liabilities and are measured using tax
rates and laws that are expected to be in effect when the differences are
scheduled to reverse.
Revenue Recognition
The Company recognizes revenues in its collections business at the time a
payment is received on an account directly from the debtor, or when reported
as paid by the client. Revenue is typically based upon contractual percentages
of amounts collected. Revenues for the Company's accounts receivable
management services are recognized based upon completion of services performed
for the client. The APS division of the Company recognizes revenue based upon
the number of transactions processed for each client during the month, as well
as certain supplementary services.
Significant Customers
University Support Services represented approximately 22%, 16%, 16% and 18%
of the Company's total revenues for the years ended December 31, 1994, 1995
and 1996, and the nine months ended September 30, 1997, respectively.
2. PROPERTY AND EQUIPMENT, NET
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer hardware and software................ $1,583 $1,754 $2,377
Office furniture and equipment................ 826 892 1,139
Leasehold improvements........................ 81 81 86
------ ------ ------
2,490 2,727 3,602
Less--accumulated depreciation................ 1,406 1,674 1,124
------ ------ ------
Property and equipment, net................... $1,084 $1,053 $2,478
====== ====== ======
</TABLE>
3. BORROWINGS UNDER LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS:
Borrowings Under Line of Credit
The Company has a line of credit agreement with a bank dated October 4,
1995, which was to expire May 15, 1997. The balance outstanding under this
agreement as of December 31, 1995 and 1996 and September 30,
F-33
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1997, is $100,000, $0 and $0, respectively. On January 23, 1997, the line of
credit agreement was modified to increase available borrowings to $1,250,000
and extend the expiration date to May 15, 1999. The agreement was further
modified on September 17, 1997, to require interest to be paid at variable
rates at the borrower's option, as well as to amend certain financial
covenants. The line of credit has available borrowings of $750,000 as of
December 31, 1995 and 1996 and $1,250,000 as of September 30, 1997.
Under the line of credit agreement, substantially all of the Company's
assets are pledged as collateral.
On August 14, 1997, the Company purchased an interest rate cap. The term of
the interest rate cap is three years beginning September 15, 1997 and
terminating on September 15, 2000. The cost of the cap was $12,663, which will
be amortized over the life of the cap.
Term Note
On September 17, 1997, the Company entered into a term note with a bank
which expires on October 15, 2003. The Company may borrow up to $1,500,000
under the note. The note bears interest at LIBOR plus 2.0%. Principal
repayments begin October 15, 1998 and continue monthly. As of September 30,
1997, the Company has outstanding borrowings under the note of $300,000.
Future payments under the term note as of September 30, 1997 are as follows
(in thousands):
<TABLE>
<S> <C>
1998................................................................ $ 60
1999................................................................ 200
2000................................................................ 40
----
300
Less-current portion of term note................................... 60
----
Long-term portion of term note.................................... $240
====
</TABLE>
Under the term note agreement, substantially all of the Company's assets are
pledged as collateral.
Capital Lease Obligations
Certain property and equipment leases have been capitalized using interest
rates ranging from approximately 8.75% to 16.0%. Future payments on capital
lease obligations as of December 31, 1996, and September 30, 1997 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997.......................................... $375 $ 0
1998.......................................... 145 298
1999.......................................... 50 157
2000.......................................... 0 53
---- ----
Total payments................................ 570 508
Less--amount representing interest............ 59 47
---- ----
511 461
Less--current portion of capital lease
obligation................................... 327 265
---- ----
Long-term capital lease obligations......... $184 $196
==== ====
</TABLE>
F-34
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
Operating Leases and Service Contract Commitments
The Company leases its office space under operating leases which expire
through August 2001. In addition, the Company has service contracts on certain
office equipment and computer systems held under capital leases. Total rental
expense under these agreements was approximately $225,000 $195,000, $325,000
and $272,000 for the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997, respectively. Future minimum payments on
operating leases and service contract commitments as of December 31, 1996 and
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997........................................... $ 355 $ --
1998........................................... 341 384
1999........................................... 337 376
2000........................................... 293 332
2001........................................... 238 298
2002 and thereafter............................ 0 50
------ ------
Total........................................ $1,564 $1,440
====== ======
</TABLE>
Litigation
Lawsuits and claims are filed from time to time against the Company in the
ordinary course of business. The Company, after reviewing developments to date
with legal counsel, is of the opinion that the outcome of such matters will
not have a material adverse effect on the Company's financial position.
Accordingly, no amounts have been provided for these claims in the
accompanying financial statements.
In May 1997, the Company filed suit against the former owner and inventor of
the APS patent (collectively, the "Defendants"), alleging that the Defendants
have breached the agreement between the Company and the Defendants and
violated the Company's exclusive rights to the APS patent and related
intellectual property used in the APS portion of the Company's business. The
Defendants have filed a counterclaim that seeks, among other things,
rescission of the agreement under which the Company purchased the APS patent,
restoration of a prior agreement pursuant to which the Defendants licensed the
APS patent to the Company, return of the APS patent to the Defendants and
unspecified damages. Although the Company believes that the counterclaims are
without merit, there can be no assurance that the Defendants will not prevail
with respect to some or all of their counterclaims. Management does not
believe that a decision adverse to the Company in this dispute would have a
material adverse effect on the Company's business, results of operations or
financial condition.
5. INCOME TAXES:
The components of the Company's income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current income tax provision (benefit):
Federal.................................. $308 $487 $268 $(237)
State.................................... 70 102 59 (45)
---- ---- ---- -----
378 589 327 (282)
---- ---- ---- -----
Deferred income tax provision (benefit):
Federal.................................. (21) 51 7 13
State.................................... (3) 8 1 2
---- ---- ---- -----
(24) 59 8 15
---- ---- ---- -----
Total income tax provision (benefit)... $354 $648 $335 $(267)
==== ==== ==== =====
</TABLE>
F-35
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities result from differences in timing of the
recognition of certain items for tax and financial accounting purposes. The
sources of the deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER
31,
------------ SEPTEMBER 30,
1995 1996 1997
----- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Property and equipment........................ $(117) $(144) $(151)
Net operating loss carryforwards.............. 62 35 43
Nondeductible reserves........................ 52 66 63
Other......................................... 28 20 (4)
----- ----- -----
Deferred tax asset (liability), net......... $ 25 $ (23) $ (49)
===== ===== =====
</TABLE>
The net deferred tax (liability) asset consists of the following items
included on the accompanying balance sheets as of December 31, 1995 and 1996
and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER
31,
---------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax asset.............................. $106 $ 73 $143
Deferred tax liability.......................... (81) (96) (192)
---- ---- ----
$ 25 $(23) $(49)
==== ==== ====
</TABLE>
The difference between the recorded income tax provision and the federal
statutory tax rate is mainly due to lobbying expenses, premiums paid for
officers' life insurance, travel and entertainment expenses and other
nondeductible differences.
As of December 31, 1995, 1996 and September 30, 1997, the Company has net
operating loss (NOL) carryforwards of approximately $160,000, $91,000 and
$110,000 respectively, to offset future taxable income. These loss
carryforwards will expire during various periods through 2007. The utilization
of these NOL's may be limited pursuant to Internal Revenue Code Section 382.
6. ADVERTISING EXPENSES:
The Company incurs advertising expenses related to promoting its services to
potential clients. These costs are expensed as incurred. The Company
recognized advertising expenses of approximately $40,000, $251,000 and
$228,000 and $56,000 for the years ended December 31, 1994, 1995, 1996, and
the nine months ended September 30, 1997, respectively.
7. STATEMENTS OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:
During 1994, 1995 and 1996 and the nine months ended September 30, 1997, the
Company paid interest of approximately $60,000, $90,000, $79,000 and $45,000,
respectively. In addition, the Company paid income taxes of approximately
$188,000, $595,000, $498,000 and $210,000 during 1994, 1995, 1996 and the nine
months ended September 30, 1997, respectively.
Noncash transactions during 1994, 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------- SEPTEMBER 30,
1994 1995 1996 1997
---- ---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Property acquired under capital lease
obligations............................... $60 $673 $157 $207
</TABLE>
F-36
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLAN:
The Company provides a 401(k) plan (the Plan) for eligible employees of the
Company. Beginning in 1995, the Board of Directors approved discretionary
contributions to the Plan. In 1996, contributions were made by the Company at
the rate of 25% of employee contributions up to a maximum amount of $1,400 per
individual. The Company's contribution, including plan administrative expense,
was $22,000, $39,000 and $36,000 for the years ended December 31, 1995, 1996,
and the nine months ended September 30, 1997, respectively.
9. STOCK OPTION AGREEMENTS:
On August 14, 1994, the Company instituted a stock option plan whereby the
Board of Directors, at its discretion, can award employees options to purchase
shares of the Company's common stock. Unvested options granted under this plan
expire upon termination of the employee. Fully vested options expire ten years
from the date of grant. No option is exercisable until the employee has been
an employee of the Company for at least one year on a full-time salaried
basis. Typically, one-third of the options granted are vested immediately upon
grant. The remaining two-thirds of the options generally become vested
proportionately over a two-year period. The Company has reserved 23,331 shares
of common stock for these options.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock Based Compensation," which defines a fair value based
method of accounting for an employee stock option or similar equity
instrument. This statement allows an entity to continue to measure
compensation cost for those plans using the method of accounting prescribed by
the Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees." Entities electing to remain with the accounting in
APB No. 25 must make pro forma footnote disclosures of net income, as if the
fair value based method of accounting defined in SFAS No. 123 has been
applied.
The Company has elected to account for its stock-based compensation plans in
accordance with APB No. 25, under which no compensation cost has been
recognized. The Company has computed for pro forma disclosure purposes the
value of all options granted during 1995 and 1996, using the Black-Scholes
option pricing model as prescribed by SFAS No. 123 and the following weighted
average assumptions used for grants:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1996
------- -------
<S> <C> <C>
Risk-free interest rate................................. 5.85% 5.20%
Expected dividend yield................................. -- % -- %
Expected lives.......................................... 2 years 2 years
</TABLE>
Options were assumed to be exercised upon vesting for the purposes of this
valuation. Adjustments are made for options forfeited prior to vesting. Had
compensation costs for this plan been determined consistent with SFAS No. 123,
the Company's net income reflected on the accompanying statements of
operations would have been reduced to the following "pro forma" amounts:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Net Income:
As reported............................................... $ 956 $ 453
Pro forma................................................. $ 952 $ 432
</TABLE>
F-37
<PAGE>
NATIONAL CREDIT MANAGEMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes all stock option and purchase right activity
for the two years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997.
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
OPTIONS SHARE
--------- -----------
<S> <C> <C>
Outstanding as of December 31, 1994................. 6,800 $12.03
Granted........................................... 7,500 22.75
------ -----------
Outstanding as of December 31, 1995................. 14,300 12.03-22.75
Granted........................................... 9,300 40.12
Repurchased....................................... (8,400) 12.03-40.12
------ -----------
Outstanding as of December 31, 1996................. 15,200 12.03-40.12
Granted........................................... 6,300 39.22
------ -----------
Outstanding as of September 30, 1997................ 21,500 12.03-40.12
====== ===========
</TABLE>
On September 30, 1997, the Company elected to terminate its stock option
plan and issue 21,500 shares of common stock to the former stock option
holders. As a result, the Company recorded compensation expense in the third
quarter of approximately $1.3 million. On October 2, 1997, the Company issued
the shares of common stock based upon this decision.
F-38
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
B.R.M.C. of Delaware, Inc.
We have audited the accompanying consolidated balance sheets of B.R.M.C. of
Delaware, Inc. as of December 31, 1996 and 1995 and September 30, 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996, and
the nine months ended September 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of B.R.M.C. of Delaware, Inc. at December 31, 1996 and 1995 and September 30,
1997, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, and the nine
months ended September 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
October 24, 1997
Atlanta, Georgia
F-39
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
ASSETS 1995 1996 1997
------ ------ ------ -------------
<S> <C> <C> <C>
Current assets:
Cash............................................ $ 107 $ 6 $ 243
Cash held for clients........................... 690 743 797
Commissions receivable, net..................... 1,015 1,021 1,462
Receivable from related parties................. -- 53 --
Other assets.................................... -- 39 35
------ ------ ------
Total current assets.......................... 1,812 1,862 2,537
Furniture and equipment, net...................... 291 866 894
Goodwill.......................................... -- 873 4,088
Non-compete agreement, net........................ -- -- 497
Other assets...................................... 56 141 210
------ ------ ------
Total assets.................................. $2,159 $3,742 $8,226
====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<S> <C> <C> <C>
Current liabilities:
Collections due to clients...................... $ 690 $ 743 $ 797
Checks issued in excess of cash balance......... -- 90 308
Accounts payable and accrued liabilities........ 694 736 940
Income taxes.................................... -- -- 234
Current portion of long-term debt and capital
lease obligations.............................. 307 517 3,195
Borrowings under line of credit................. -- 450 1,500
------ ------ ------
Total current liabilities..................... 1,691 2,536 6,974
Long-term debt, less current portion.............. 341 525 419
Capital lease obligations, less current portion... 205 502 383
Deferred income taxes............................. -- 14 47
Other liabilities................................. -- 56 47
Minority interest in subsidiary................... -- 4 9
Stockholders' equity (deficit):
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding............. 1 1 1
Additional paid-in capital...................... 7 60 60
Retained earnings (accumulated deficit)......... (86) 44 286
------ ------ ------
Total stockholders' equity (deficit).......... (78) 105 347
------ ------ ------
Total liabilities and stockholders' equity.... $2,159 $3,742 $8,226
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ------ ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $6,859 $7,416 $9,597 $7,040 $10,268
Operating expenses.................... 3,952 4,229 5,814 4,318 5,914
------ ------ ------ ------ -------
Gross profit........................ 2,907 3,187 3,783 2,722 4,354
Selling, general and administrative
expenses............................. 2,490 2,934 3,458 2,458 3,705
------ ------ ------ ------ -------
Income from operations.............. 417 253 325 264 649
Other expense:
Interest expense.................... 274 103 122 76 185
------ ------ ------ ------ -------
Income before income taxes............ 143 150 203 188 464
Provision for income taxes............ -- -- 73 42 222
------ ------ ------ ------ -------
Net income............................ $ 143 $ 150 $ 130 $ 146 $ 242
====== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
------------- PAID-IN (DEFICIT) EQUITY
SHARES AMOUNT CAPITAL EARNINGS (DEFICIT)
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.... 1,000 $ 1 $ 7 $(379) $(371)
Net income.................... -- -- -- 143 143
----- --- --- ----- -----
Balance at December 31, 1994.. 1,000 1 7 (236) (228)
Net income.................... -- -- -- 150 150
----- --- --- ----- -----
Balance at December 31, 1995.. 1,000 1 7 (86) (78)
Capital contribution.......... -- -- 53 -- 53
Net income.................... -- -- -- 130 130
----- --- --- ----- -----
Balance at December 31, 1996.. 1,000 1 60 44 105
Net income for the nine months
ended September 30, 1997..... -- -- -- 242 242
----- --- --- ----- -----
Balance at September 30, 1997. 1,000 $ 1 $60 $ 286 $ 347
===== === === ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
B.R.M.C. OF DELAWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -------------------
1994 1995 1996 1996 1997
------- ----- ------ -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income....................... $ 143 $ 150 $ 130 $ 146 $ 242
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 190 177 228 138 334
Minority interest.............. -- -- 4 1 5
Change in operating assets and
liabilities:
Commissions receivable....... (770) 101 (6) (191) (441)
Cash held for clients........ -- -- (53) (91) (54)
Other current assets......... -- -- (39) 3 (93)
Receivable from related
parties..................... -- -- (53) (53) 53
Other assets................. (2) 4 (107) (100) (200)
Accounts payable and accrued
liabilities................. 280 (36) 98 53 430
Due to clients............... -- -- 53 92 54
Deferred revenue............. (30) (65) -- -- --
Deferred income taxes........ -- -- 14 -- 33
Checks issued in excess of
cash........................ 11 (506) 90 281 217
------- ----- ------ -------- ---------
Net cash (used in)
provided by operating
activities............... (178) (175) 359 279 580
Cash flows from investing
activities:
Purchases of furniture and
equipment....................... (118) (60) (589) (445) (90)
Purchases of accounts receivable. (1,718) -- -- -- --
Collections of purchased
receivables..................... 2,101 718 -- -- --
Business combinations net of cash
acquired........................ -- -- (791) -- (3,684)
------- ----- ------ -------- ---------
Net cash provided by (used
in) investing activities. 265 658 (1,380) (445) (3,774)
Cash flows from financing
activities:
Borrowings under line of credit.. 2,699 -- 450 -- 1,050
Additions under capital lease
obligations..................... -- -- 346 419 --
Repayment of line of credit...... (2,627) (777) -- -- --
Principal payments of capital
lease obligations............... (113) (78) (124) (219) (143)
Issuance of long-term debt....... -- 750 466 16 2,785
Principal payments of long-term
debt............................ (46) (271) (271) (210) (261)
Capital contributions............ -- -- 53 53 --
------- ----- ------ -------- ---------
Net cash (used in)
provided by financing
activities............... (87) (376) 920 59 3,431
------- ----- ------ -------- ---------
Net increase (decrease) in cash.... -- 107 (101) (107) 237
Cash at beginning of period........ -- -- 107 107 6
------- ----- ------ -------- ---------
Cash at end of period.............. $ -- $ 107 $ 6 $ -- $ 243
======= ===== ====== ======== =========
Supplemental disclosure of cash
flow information:
Cash paid for interest........... $ 274 $ 100 $ 116 $ 66 $ 160
======= ===== ====== ======== =========
Cash paid for income taxes....... $ -- $ -- $ -- $ -- $ 25
======= ===== ====== ======== =========
Furniture and equipment acquired
through capital lease
obligations..................... $ 153 $ -- $ 542 $ 343 $ --
======= ===== ====== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization of the Company and Nature of Business
BoMar Credit Corporation, formerly Credit Interaction Agency, Inc. was
incorporated on June 1, 1984 under the laws of the state of Georgia. In
February 1988, BoMar was acquired by East Coast Financial Services, Inc., at
which time the name of the company was changed to BoMar Credit Corporation. On
April 22, 1996 BoMar Receivable Management Company (B.R.M.C.) of Delaware,
Inc. was incorporated under the laws of the state of Delaware. As of that
date, the shareholders of BoMar Credit Corporation and BoMar Credit
Corporation of Texas exchanged their shares for those of B.R.M.C. of Delaware
(the "Parent"). The assets and liabilities of BoMar Credit Corporation were
transferred to two newly formed and wholly owned subsidiaries of the Parent,
BoMar Credit Corporation of Georgia and BoMar Credit Corporation of Texas. The
accompanying financial statements reflect the operations of these wholly owned
subsidiaries for the period January 1, 1996 to December 31, 1996 as the above
noted transactions were accounted for in a manner similar to a pooling of
interests. All assets and liabilities were transferred at net book value.
At September 30, 1997, B.R.M.C. of Delaware had five subsidiaries: BoMar
Credit Corporation of Georgia; BoMar Credit Corporation of Texas; Advanced
Credit Services ("ACS"); Clayton-Parker & Associates ("CPA"); and Financial
Claims Control, Inc. ("FCCI"). All subsidiaries are wholly owned by the
Company, with the exception of ACS, of which the Company has 75% ownership.
The accompanying financial statements present the consolidated financial
condition and results of operations of B.R.M.C. of Delaware and subsidiaries
(the "Company"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Company provides accounts receivable management services primarily for
clients in the telecommunications, insurance, financial services and
healthcare industries. The Company is paid a collection fee by the clients
based on a percentage of the dollar amount collected. The Company's operations
are primarily in the continental United States, however, some business is
conducted internationally.
Business Combinations
On August 1, 1996, the Parent acquired a controlling interest in ACS. The
transaction was accounted for as a purchase. The Parent obtained a note
receivable from the sole shareholder of ACS in the amount of $75,000 as the
fair value of liabilities assumed exceeded assets received. As such, no
goodwill was recorded in conjunction with the acquisition. The accompanying
financial statements reflect the results of operations of ACS from the date of
acquisition to December 31, 1996.
On November 26, 1996, the Parent acquired CPA, an Arizona corporation. The
Parent paid cash of $400,000 and issued promissory notes in the amount of
$450,000 in connection with the transaction which was accounted for as a
purchase. Goodwill of $836,000 was recorded in conjunction with the
acquisition. The accompanying financial statements reflect the results of
operations of CPA from the date of acquisition to December 31, 1996. Had the
acquisition of CPA occurred on January 1, 1996, revenues for the consolidated
entity would have increased by approximately $970,000 for the period ended
December 31, 1996. However, net income for the period would not have been
significantly impacted.
On September 1, 1997, the Parent acquired FCCI, a Florida corporation. The
Parent paid cash of $1,000,000 and issued promissory notes in the amount of
$2,750,000 in connection with the transaction which was accounted for as a
purchase. Goodwill of $3,197,593 and non-compete agreements of $500,000 were
recorded in conjunction with the acquisition. The accompanying financial
statements reflect the results of operations of FCCI from the date of
acquisition to September 30, 1997. If the acquisition of FCCI had occurred on
January 1, 1997 revenues and net income for the consolidated entity would have
increased by approximately $2,380,000 and $281,000, respectively, for the nine
months ended September 30, 1997.
F-44
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash Held for Clients and Collections Due to Clients
Cash held for clients and collections due to clients consists of amounts
collected on behalf of the Company's clients, net of the Company's commission.
Commissions Receivable
As of December 31, 1995 and 1996 and September 30, 1997, commissions
receivable from companies in the telecommunications industry totaled
approximately $400,000, $454,000 and $822,000, respectively. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses are provided for in the
financial statements and have been within management's expectations.
Notes Receivable
Included in other assets is a note receivable from a related party in the
amount of $112,619.
Goodwill
Goodwill relates to the excess of purchase price over net assets acquired in
business combinations. Such amounts are amortized over a fifteen year period.
Accumulated amortization as of December 31, 1996 and September 30, 1997 was
$16,000 and $81,000, respectively. Goodwill is measured for possible
impairment periodically and is reduced through a charge to earnings if
impairment exists.
Accounts Receivable Purchased
Accounts receivable purchased consist of receivables purchased from the
Georgia Power Company at a discount from the gross receivable owed to the
client. The Company is guaranteed, by the Georgia Power Company, to collect
16.2% of the gross receivables purchased within one year of the purchase. The
Company initially records receivables purchased at the guaranteed amount. The
guaranteed collection rate of at least 16.2% is approximately 4% above the
average purchase price of the receivables. The uncollected gross amounts of
receivables purchased were $31 million at December 31, 1995.
The contract also provides for profit sharing with the utility if
collections exceed 17.2%, in that the Company agrees to pay the client 32.5%
of such surplus amounts collected.
Deferred Revenue
When receivables were purchased from the Georgia Power Company, the
guaranteed portion of the gross receivable (16.2%) was recorded. Since
accounts are purchased for approximately 12.2%, deferred revenue was
established at the purchase date representing approximately 4% of the gross
receivables purchased. The revenue is deferred as the earnings process was not
complete at the purchase date. Deferred revenue is amortized into income over
a three month period, representing the period the guaranteed amount is earned.
Furniture and Equipment
Furniture and equipment are stated at cost and are depreciated using the
double declining balance method over the estimated useful lives of the
individual assets which range from five to seven years. Included in
depreciation expense is amortization of assets recorded under capital leases.
F-45
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenue (commission income) based on contractual
rates in the period in which collection occurs.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 which requires the liability method of
accounting for income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Interim Statements
The interim financial data for the nine months ended September 30, 1996 is
unaudited; however, in the opinion of management, the interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim periods, on a consistent
basis.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and equipment....................... $1,125 $2,940 $2,205
Less accumulated depreciation................. 834 2,074 1,311
------ ------ ------
$ 291 $ 866 $ 894
====== ====== ======
</TABLE>
Furniture and equipment includes $449,000, $826,000 and $1,090,000 acquired
under various capital leases at December 31, 1995 and 1996 and September 30,
1997, respectively. Accumulated depreciation on this equipment at December 31,
1995 and 1996 and September 30, 1997 was $315,000, $113,000 and $560,000,
respectively. Depreciation expense was $189,000, $176,000, $216,000 and
$266,000 for the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997, respectively.
3. DEBT
Borrowings Under Line of Credit
Borrowings under a line of credit at were as follows:
As of December 31, 1996 and September 30, 1997, borrowings under a
$1,500,000 line of credit totaled $450,000 and $1,500,000, respectively.
The line of credit is payable on September 30, 1998 and is secured by
substantially all assets of the Company, with simple interest payable
monthly at a rate of 9.75%.
F-46
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable, interest at 10.5% per annum;
secured by substantially all of the assets of
the Company, payable in equal monthly
installments through March 1998................. $583 $340 $ 141
Note payable, interest at 19.5% per annum;
payable in equal monthly installments through
March 2000...................................... -- 51 --
Note payable, interest at 8% per annum;
payable in equal monthly installments through
March 2000...................................... -- -- 39
Note payable to related party, interest at 8.0%
per annum;
interest payable monthly; due January 1998...... -- -- 2,750
Note payable, interest at 9.5% per annum;
payable in equal monthly installments through
September 1998.................................. -- -- 19
Note payable, interest at 8.9% per annum; payable
in equal monthly installments through December
2006............................................ -- -- 428
Note payable, interest at 8.0% per annum
payable in equal monthly installments through
December 2006................................... -- 450 --
---- ---- ------
$583 $841 $3,377
==== ==== ======
</TABLE>
Principal maturities of long-term debt at December 31, 1996 were as follows
(in thousands):
<TABLE>
<S> <C>
1997................................................................. $316
1998................................................................. 120
1999................................................................. 52
2000................................................................. 43
2001................................................................. 42
Thereafter........................................................... 268
----
$841
====
</TABLE>
Principal maturities of long-term debt at September 30, 1997 were as follows
(in thousands):
<TABLE>
<S> <C>
For the twelve months ending September 30:
1998.............................................................. $2,959
1999.............................................................. 51
2000.............................................................. 46
2001.............................................................. 42
2002.............................................................. 45
Thereafter........................................................ 234
------
$3,377
======
</TABLE>
4. LEASES AND OTHER COMMITMENTS
The Company leases office space for its operations in Arizona, Georgia,
Florida and Texas under noncancelable operating lease agreements. Certain
leases have escalation clauses which provide for increases in annual rentals.
The leases for office space expire in years through fiscal 2002.
F-47
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum rental payments required under the operating lease agreements
at December 31, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 399
1998............................................................... 389
1999............................................................... 376
2000............................................................... 344
2001............................................................... 243
Thereafter......................................................... 3
------
$1,754
======
</TABLE>
Future minimum rental payments required under the operating lease agreements
at September 30, 1997 were as follows (in thousands):
<TABLE>
<S> <C>
For the twelve months ending September 30:
1998.............................................................. $ 524
1999.............................................................. 521
2000.............................................................. 491
2001.............................................................. 378
2002.............................................................. 21
Thereafter........................................................ --
------
$1,935
======
</TABLE>
Total rent expense was $187,000, $280,000, $319,000 and $328,000 for the
years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997, respectively.
In addition, the Company has entered into various capital leases to finance
equipment. Future minimum lease payments under capital leases are as follows
(in thousands):
<TABLE>
<S> <C>
For the twelve months ending December 31:
1997................................................................ $244
1998................................................................ 201
1999................................................................ 189
2000................................................................ 99
2001................................................................ 43
Thereafter.......................................................... --
----
$776
====
</TABLE>
<TABLE>
<S> <C>
For the twelve months ending September 30:
1998................................................................ $284
1999................................................................ 197
2000................................................................ 129
2001................................................................ 58
2002................................................................ --
Thereafter.......................................................... --
----
$668
====
</TABLE>
Obligations under capital leases as scheduled above include imputed interest
of approximately $48,000.
In addition to the lease commitments above, the Company entered into an
agreement to pay a minimum of $360,000 annually for certain telecommunications
services. The agreement expires July 15, 1998.
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan which permits
substantially all employees to make tax deferred contributions of up to 15% of
their annual compensation. The Company currently makes a discretionary
matching contribution of 25% of the employee contribution. The Company
contributed approximately $9,000, $11,000, $7,000 and $16,000 in 1994, 1995,
1996 and the nine months ended September 30, 1997, respectively.
F-48
<PAGE>
B.R.M.C. OF DELAWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition, the Company sponsors a Medical Plan. The Company voluntarily
contributes approximately 50% of the premiums for all employees who elect to
participate in the Medical Plan. The Company contributed approximately
$48,000, $54,000, $91,000 and $51,000 in 1994, 1995, 1996 and the nine months
ended September 30, 1997, respectively.
6. INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal............................ $49 $164
State.............................. 3 31
--- ----
52 195
Deferred:
Federal............................ 20 23
State.............................. 1 4
--- ----
21 27
--- ----
Provision for income taxes........... $73 $222
=== ====
</TABLE>
Income tax expense differs from income taxes computed at statutory rates due
to certain non-deductible expenses and the effect of net operating loss
carryforwards. The most significant of these differences is non-deductible
goodwill.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets at December 31, 1995 and
1996 and September 30, 1997 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation............................... $ -- $ 10 $27
Capitalized leases......................... -- 11 20
------ ------ ---
Total deferred tax liabilities............... -- 21 47
Deferred tax assets.......................... 25 -- --
------ ------ ---
Net deferred tax assets (liabilities)........ $ 25 $ (21) $47
====== ====== ===
</TABLE>
The Company's deferred income taxes in 1995 consist of net operating loss
(NOL) carryforwards of approximately $72,000 at December 31, 1995. The NOL
amounts result in deferred tax assets of approximately $25,000 at December 31,
1995. A valuation allowance was established for the total deferred NOL
carryforward amounts for 1995. The Company utilized approximately $143,000 and
$150,000 of their NOL carryforwards in 1994 and 1995, respectively. Deferred
tax assets and valuation allowances were reduced by approximately $50,000 and
$52,000 during 1994 and 1995, respectively. No tax expense was recorded for
the years ended December 31, 1994 and 1995.
The Company utilized $32,000 in net operating losses during the year ended
December 31, 1996. There are no remaining NOL carryforwards. During 1996, the
Company reversed a previously recorded deferred tax asset valuation allowance
of approximately $28,000.
7. SUBSEQUENT EVENTS
The Company and its stockholders have entered into a definitive agreement
with Compass International Services Corporation ("Compass") pursuant to which
Compass will acquire all outstanding shares of the Company's common stock in
exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass. In
connection with the acquisition, certain employees of the Company, at and
contingent upon Closing, are entitled to additional compensation, which may be
material to the future operating results of the Company.
F-49
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Mid-Continent Agencies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Mid-
Continent Agencies, Inc. and its subsidiaries at December 31, 1995 and 1996
and September 30, 1997, and the results of their operations and their cash
flows for the years and the nine months then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Chicago, Illinois
October 31, 1997
F-50
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
ASSETS 1995 1996 1997
------ ------ ------ -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 1 $ -- $ 114
Accounts receivable, trade...................... 535 546 518
Receivables due from stockholders............... 1,297 1,421 1,495
Prepaid expenses and other current assets....... 159 165 142
------ ------ ------
Total current assets.......................... 1,992 2,132 2,269
Funds held in trust for clients
Property and equipment, net....................... 165 146 159
Deferred income tax benefit....................... 54 70 73
Other assets...................................... 132 136 141
------ ------ ------
Total assets.................................. $2,343 $2,484 $2,642
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses........... $ 492 $ 590 $ 479
Notes payable to stockholders................... 51 51 51
Notes payable, current portion.................. 232 388 808
------ ------ ------
Total current liabilities..................... 775 1,029 1,338
Funds held in trust for clients
Notes payable..................................... 340 178 --
Deferred compensation............................. 158 174 183
------ ------ ------
Total liabilities............................. 1,273 1,381 1,521
------ ------ ------
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 10,000 shares
authorized, 1,000 shares issued and
outstanding.................................... 10 10 10
Additional paid-in capital...................... 73 73 73
Retained earnings............................... 984 1,032 1,051
Unrealized gain (loss) on securities............ 3 (12) (13)
------ ------ ------
Total stockholders' equity.................... 1,070 1,103 1,121
------ ------ ------
Total liabilities and stockholders' equity........ $2,343 $2,484 $2,642
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-51
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- ------------------
1995 1996 1996 1997
------ ------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................... $8,763 $9,038 $6,810 $7,066
Operating expenses......................... 2,851 2,875 2,210 2,294
------ ------ ------ ------
Gross profit............................. 5,912 6,163 4,600 4,772
Selling, general and administrative
expenses.................................. 5,974 6,054 4,509 4,677
------ ------ ------ ------
Income (loss) from operations............ (62) 109 91 95
Other (income) expense:
Interest and investment income........... (99) (117) (98) (52)
Interest expense......................... 48 68 53 60
Loss on disposal of property and
equipment............................... -- 3 3 --
------ ------ ------ ------
(51) (46) (42) 8
------ ------ ------ ------
Income (loss) before income taxes.......... (11) 155 133 87
Provision for income taxes................. 34 107 87 68
------ ------ ------ ------
Net income (loss).......................... $ (45) $ 48 $ 46 $ 19
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-52
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- UNREALIZED
NUMBER RETAINED GAIN (LOSS)
OF SHARES AMOUNT PAID-IN-CAPITAL EARNINGS ON SECURITIES TOTAL
--------- ------ --------------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 10 $10 $73 $1,029 $-- $1,112
Net loss............... -- -- -- (45) -- (45)
Change in unrealized
gain on securities.... -- -- -- -- 3 3
--- --- --- ------ ---- ------
Balance, December 31,
1995................... 10 10 73 984 3 1,070
Net income............. -- -- -- 48 -- 48
Change in unrealized
gain (loss) on
securities............ -- -- -- -- (15) (15)
--- --- --- ------ ---- ------
Balance, December 31,
1996................... 10 10 73 1,032 (12) 1,103
Net income............. -- -- -- 19 -- 19
Change in unrealized
gain (loss) on
securities............ -- -- -- -- (1) (1)
--- --- --- ------ ---- ------
Balance, September 30,
1997................... 10 $10 $73 $1,051 $(13) $1,121
=== === === ====== ==== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE>
MID-CONTINENT AGENCIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER NINE MONTHS ENDED
31, SEPTEMBER 30,
------------ -----------------
1995 1996 1996 1997
----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ (45) $ 48 $ 46 $ 19
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 44 64 46 42
Loss on disposal of property and
equipment............................. -- 3 3 --
Changes in deferred taxes.............. (13) (2) (54) (3)
Changes in operating assets and
liabilities:
Accounts receivable, trade............ (106) (11) 52 28
Prepaid expenses and other current
assets............................... 39 (6) 19 23
Accounts payable and accrued expenses. (60) 68 25 (111)
Deferred compensation................. 21 16 12 9
Other assets.......................... (54) (4) (10) (6)
----- ----- ----- -----
Net cash provided by (used in)
operating activities............. (174) 176 139 1
Cash flows from investing activities:
Purchase of property and equipment...... (89) (49) (38) (55)
Proceeds from sale of property and
equipment.............................. -- 3 3 --
----- ----- ----- -----
Net cash used in investing
activities....................... (89) (46) (35) (55)
Cash flows from financing activities:
Proceeds from notes payable............. 600 250 250 800
Payments of notes payable............... (376) (257) (136) (558)
Payments of notes payable to
stockholders........................... (10) -- -- --
Proceeds from notes receivable from
stockholders........................... (159) (124) (94) (74)
----- ----- ----- -----
Net cash provided by (used in) financing
activities............................... 55 (131) 20 168
Net increase (decrease) in cash........... (208) (1) 124 114
Cash and cash equivalents at beginning of
period................................... 209 1 1 --
----- ----- ----- -----
Cash and cash equivalents at end of
period................................... $ 1 $ -- $ 125 $ 114
===== ===== ===== =====
Supplemental disclosure of cash flow
information:
Cash paid for interest.................. $ 48 $ 69 $ 53 $ 57
Cash paid for income taxes.............. 46 90 67 76
Increase (decrease) in funds held in
trust for clients...................... (53) (253) (45) 196
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS
Mid-Continent Agencies, Inc. ("MCA") and subsidiaries (collectively referred
to as the "Company") provides accounts receivable management services
primarily to companies in the manufacturing, insurance, wholesale distribution
and commercial sectors. The Company has three domestic offices located in
Chicago, IL, Louisville, KY and Buffalo, NY and an office in the United
Kingdom.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include accounts of MCA and its
subsidiaries. All intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents are highly liquid unrestricted investments with
original maturities of three months or less. Cash equivalents are stated at
cost which approximates market.
Accounts Receivable, Trade
The Company remits collections to clients either on the net method, in which
funds are remitted to the client net of the related earned commission or on
the gross method, in which all collected funds are remitted to the client and
the Company bills the client separately for its earned commission, resulting
in a trade account receivable. Due to the nature of the trade accounts
receivable, no allowance is provided and the carrying value is considered to
estimate the fair value.
Funds Held in Trust for Clients
Funds held in trust for clients consists of funds collected on behalf of
clients, net of the Company's commission. These funds are held in segregated
accounts and are regularly remitted to clients. Funds held in trust of
$1,468,000, $1,214,000 and $1,410,000 at December 31, 1995 and 1996 and
September 30, 1997, respectively, and their offsetting liability are presented
net for financial statement presentation purposes.
The Company is entitled to invest these funds in specified marketable debt
and equity instruments. Amounts not invested in marketable debt and equity
instruments are invested in cash equivalents (See Note 4). Investments in
marketable securities are accounted for in accordance with Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Management has classified all marketable securities as
"available for sale" and accordingly, net unrealized gains and losses are
presented, net of tax, as a separate component of equity. Realized gains are
computed based on cost of investments sold.
F-55
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Property and Equipment
Property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to
productivity or extend the economic lives of the assets, are capitalized at
cost and depreciated using an accelerated depreciation method, the results of
which are not materially different from the straight-line method, over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures..................................... 5 to 7 years
Equipment.................................................. 5 to 7 years
Leasehold improvements..................................... Term of lease
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Deferred Compensation
Deferred compensation represents executive termination benefits for four key
officers of the Company. Deferred compensation is determined generally by the
formulas specified in the officers' employment agreements. Deferred
compensation is charged to income currently.
Income Taxes
Provisions are made to record deferred income taxes for items reported in
different periods for financial reporting purposes than for federal and state
income tax purposes. The Company records deferred income taxes using the
liability method in accordance with Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes".
Concentration of Credit Risk
The Company has over 300 commercial insurance clients which accounted for
38%, 30% and 25% of its revenues at December 31, 1995 and 1996 and September
30, 1997. No one client represents more than 5% of revenues.
Revenue Recognition
The Company generates revenues from contingency fees and contractual
services. Contingency fee revenue is recognized as a contractual percentage of
the net funds collected on behalf of clients, in the period the collection
occurs. Contractual services revenue is deferred and recognized over the
period in which the services are performed.
Unaudited Interim Financial Information
The interim financial information for the nine month period ended September
30, 1996 has been prepared from unaudited financial records of the Company
and, in the opinion of management, reflects all adjustments consisting only of
normal recurring items, necessary for a fair presentation of the financial
position and results of operations and of cash flows for the respective
interim periods.
F-56
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--RECEIVABLES DUE FROM STOCKHOLDERS
Receivables due from stockholders includes demand notes receivable with
aggregate principal and interest amounts of $1,297,000, $1,371,000 and
$1,495,000 at December 31, 1995 and 1996 and September 30, 1997, respectively.
The notes receivable accrue interest at the short-term annual Applicable
Federal Rate prescribed by the Internal Revenue Service, with the balance of
principal and interest due upon demand. Due to the demand provision,
management estimates the carrying value of the notes receivable from
stockholders approximates fair value.
NOTE 4--MARKETABLE SECURITIES
The following is a summary of the marketable debt and equity instruments of
the funds held in trust:
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
HOLDING HOLDING FAIR
COST GAIN LOSS VALUE
----- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1995:
Equity securities..................... $ 21 $ 2 $ (5) $ 18
Debt securities issued by the U.S.
Treasury and other U.S. government
agencies............................. 196 -- (10) 186
Debt securities issued by foreign
governments.......................... 2 -- -- 2
Corporate debt securities............. 150 6 -- 156
Mortgage-backed securities............ 139 -- (7) 132
Other debt securities................. 264 19 (1) 282
----- ----- ----- -----
$ 772 $ 27 $ (23) $ 776
===== ===== ===== =====
DECEMBER 31, 1996:
Equity securities..................... $ 11 $ -- $ (4) $ 7
Debt securities issued by the U.S.
Treasury and other U.S. government
agencies............................. 195 -- (15) 180
Debt securities issued by foreign
governments.......................... 2 -- -- 2
Corporate debt securities............. 202 4 (1) 205
Mortgage-backed securities............ 107 -- (4) 103
Other debt securities................. 294 -- -- 294
----- ----- ----- -----
$ 811 $ 4 $ (24) $ 791
===== ===== ===== =====
SEPTEMBER 30, 1997:
Equity securities..................... $ -- $ -- $ -- $ --
Debt securities issued by the U.S.
Treasury and other U.S. government
agencies............................. 195 -- (13) 182
Debt securities issued by foreign
governments.......................... 2 -- -- 2
Corporate debt securities............. 202 4 -- 206
Mortgage-backed securities............ 107 -- (3) 104
Other debt securities................. 67 -- -- 67
----- ----- ----- -----
$ 573 $ 4 $ (16) $ 561
===== ===== ===== =====
</TABLE>
Net realized (losses)/gains from the sale of investment securities were
$(6,000), $12,000 and $(18,000) for the years ended December 31, 1995 and
1996, and the nine months ended September 30, 1997, respectively.
F-57
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost and estimated fair value of available for sale securities by
contractual maturity at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
---- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less................................... $151 $154
Due after one year through five years..................... 53 55
Investment funds or mortgage-backed securities not due
at a single maturity date................................ 369 352
---- ----
Total................................................. $573 $561
==== ====
</TABLE>
Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
NOTE 5--PROPERTY AND EQUIPMENT, NET
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures.................... $ 491 $ 480 $ 480
Equipment................................. 793 798 853
Leasehold improvements.................... 40 40 40
------- ------- -------
1,324 1,318 1,373
Accumulated depreciation.................. (1,159) (1,172) (1,214)
------- ------- -------
Property and equipment, net............... $ 165 $ 146 $ 159
======= ======= =======
</TABLE>
Depreciation expense aggregated $44,000, $64,000 and $42,000 for the years
ended 1995 and 1996 and the nine months ended September 30, 1997,
respectively.
NOTE 6--OTHER ASSETS
Other assets consist of:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash value of life insurance...................... $ 28 $ 31 $ 35
Deposits.......................................... 99 101 101
Other............................................. 5 4 5
---- ---- ----
$132 $136 $141
==== ==== ====
</TABLE>
NOTE 7--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts payable.................................. $104 $136 $170
Accrued salaries.................................. 82 130 105
Accrued bonus..................................... 114 93 39
Accrued vacation.................................. 111 127 135
Income taxes payable.............................. 11 32 24
Other............................................. 70 72 6
---- ---- ----
$492 $590 $479
==== ==== ====
</TABLE>
The fair value of accounts payable and accrued expenses are considered to
approximate carrying value based on the short term nature of the accounts.
F-58
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--NOTE PAYABLE TO STOCKHOLDERS
The Company has entered into a note payable agreement with its stockholders.
The note payable is unsecured, accrues interest at prime plus 0.5% and is due
on demand. The outstanding balance under the note at each of December 31, 1995
and 1996 and September 30, 1997 was $51,000. No interest was accrued on the
note at December 31, 1995. Interest of $6,000, $5,000 and $ for the years
ended December 31, 1995 and 1996 and the nine months ended September 30, 1997,
respectively, was paid by the stockholders. Due to the demand provision,
management estimates the carrying value of the notes payable to stockholders
approximates fair value.
NOTE 9--NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER
31,
------------ SEPTEMBER 30,
1995 1996 1997
----- ----- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable consist of the following:
Notes payable to bank, interest at prime plus
0.5%, extinguished January 15, 1996............ $ 5 $ -- $ --
Notes payable to bank, interest at prime plus
0.5%, extinguished December 16, 1996........... 100 -- --
Note payable to bank, interest at prime plus
0.5% (9.0% at September 30, 1997), principal
payments of $10,000 due monthly, balance due
November 15, 1997.............................. 140 100 20
Note payable to bank, interest at prime plus
0.5% (9.0% at September 30, 1997), principal
payments of $22,000 due quarterly, balance due
January 15, 1998............................... 327 241 175
Note payable to bank, interest at prime plus
0.5% (9.0% at September 30, 1997), principal
payments of $13,000 due monthly, balance due
February 28, 1998.............................. -- 175 63
Notes payable to bank, interest at prime plus
0.5%, extinguished September 15, 1997.......... -- 50 --
Notes payable to bank, interest at prime plus
0.5% (9.0% at September 30, 1997), principal
amount due October 31, 1997.................... -- -- 300
Notes payable to bank, interest at prime plus
0.5% (9.0% at September 30, 1997), principal
amount due December 31, 1997................... -- -- 250
----- ----- -----
572 566 808
Current portion of long-term debt............... (232) (388) (808)
----- ----- -----
Long-term debt.................................. $ 340 $ 178 $ --
===== ===== =====
</TABLE>
All notes payable are payable to American National Bank and Trust Company of
Chicago and are secured by the assets of the Company and by personal
guarantees of the two stockholders. Due to the short maturities, management
estimates the carrying value of the notes payable approximates fair value.
Aggregate maturities of notes payable at December 31, 1996 and September 30,
1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997................................................. $388 $630
1998................................................. 178 178
---- ----
$566 $808
==== ====
</TABLE>
F-59
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
Federal................................... $ 37 $ 90 $56
State & local............................. 10 19 12
------ ------ ---
47 109 68
Deferred tax expense (benefit)
Federal................................... (11) (1) 1
State & local............................. (2) (1) (1)
------ ------ ---
(13) (2) --
------ ------ ---
Total....................................... $ 34 $ 107 $68
====== ====== ===
</TABLE>
The provision for income taxes differs from the amount computed as the
statutory rates as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income at statutory rate............. $ (4) $ 53 $29
State income taxes, net of federal benefit... 5 12 8
Nondeductible expenses....................... 41 41 31
Federal surtax exemption..................... (9) (2) (3)
Change in valuation allowance................ 1 3 3
----- ------ ---
Total...................................... $ 34 $ 107 $68
===== ====== ===
</TABLE>
The significant items giving rise to the deferred tax assets and
(liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax asset--non-current:
Deferred compensation.................... $ 60 $ 67 $ 70
Unrealized loss on securities............ -- 8 8
Charitable contribution carryforward..... 10 13 16
Deferred tax asset valuation allowance... (10) (13) (16)
------ ------ ----
Net deferred tax asset--non-current.... 60 75 78
Deferred tax liability--non-current:
Unrealized gain on securities............ (2) -- --
Property plan & equipment................ (4) (5) (5)
------ ------ ----
Net deferred tax liability--non-
current............................... (6) (5) (5)
------ ------ ----
Total.................................... $ 54 $ 70 $ 73
====== ====== ====
</TABLE>
The valuation allowance has been provided due to uncertainty surrounding the
realizability of charitable contribution carryforwards, which expire in years
1998 to 2002. Net operating loss carryforwards for state tax
F-60
<PAGE>
MID-CONTINENT AGENCIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purposes exist in the aggregate of approximately $1.2 million. No benefit has
been recognized for these carryforwards.
Due to the fact that the Company has filed tax returns based on a fiscal
year ending April 30, certain estimates have been used in deriving the
provisions for income taxes contained herein.
NOTE 11--EMPLOYEE BENEFIT PLANS
The Company has established a defined contribution and profit sharing plan
under Section 401(k) of the Internal Revenue Code (the "Plan") which covers
substantially all employees. Discretionary contributions to the plan were
$13,000, $26,000 and $20,000, for the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997, respectively.
NOTE 12--COMMITMENTS AND CONTINGENCIES
The Company is party from time to time to various legal proceedings
incidental to its business. In the opinion of management none of these items
individually or in the aggregate would have a significant effect on the
financial position, results of operations, or cash flows of the Company.
The Company leases office space and equipment under operating leases and had
not entered into any capital lease transactions for the years ended December
31, 1995 and 1996. Minimum future rentals under non-cancelable operating
leases with initial or remaining terms of one year or more consist of the
following at December 31, 1996 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
1997........................................... $ 56 $ 149
1998........................................... 511 566
1999........................................... 456 513
2000........................................... 394 452
2001........................................... 339 397
Thereafter..................................... 644 663
------ ------
$2,400 $2,740
====== ======
</TABLE>
Rent expense was $510,000, $468,000 and $348,000 for the years ended
December 31, 1995 and 1996 and the nine months ended September 30, 1997,
respectively.
NOTE 13--SUBSEQUENT EVENTS (UNAUDITED)
The Company and its stockholders have entered into a definitive agreement
with Compass International Services Corporation ("Compass") pursuant to which
Compass will acquire all outstanding shares of the Company's common stock in
exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Impact Telemarketing Group, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Impact
Telemarketing Group, Inc. and affiliated companies at December 31, 1996 and
September 30, 1997 and the results of their operations and their cash flows
for the year ended December 31, 1996 and the nine month period ended September
30, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses from operations and is
not in compliance with certain covenants contained in its loan agreement. As a
result, the Company is limited in its ability to obtain additional borrowings
on its line of credit to fund operations. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Price Waterhouse LLP
Chicago, Illinois
November 6, 1997
F-62
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1996 1997
------ ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................... $ 166 $ 102
Accounts receivable, trade, net of allowance for
doubtful accounts of $40 and $66, respectively... 1,618 1,912
Related party receivables......................... 188 188
Prepaid expenses and other current assets......... 4 27
------ ------
Total current assets............................ 1,976 2,229
Property and equipment, net......................... 573 844
Other assets........................................ 27 22
------ ------
$2,576 $3,095
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt................. $ 153 $ 126
Borrowings on line of credit...................... 80 650
Current portion of capitalized lease obligations.. 119 191
Accounts payable.................................. 1,605 1,319
Accrued expenses.................................. 209 180
------ ------
Total current liabilities....................... 2,166 2,466
Capitalized lease obligations, net of current
portion............................................ 293 473
------ ------
Total liabilities............................... 2,459 2,939
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 2,500 and 2,500 shares
authorized, 100 and 2,489 shares issued and
outstanding for Impact Telemarketing Group, Inc.
and Impact Telemarketing, Inc.................... 91 91
Retained earnings................................. 26 65
------ ------
Total stockholders' equity...................... 117 156
------ ------
$2,576 $3,095
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ ----------- ------
(UNAUDITED)
<S> <C> <C> <C>
Revenues..................................... $8,869 $5,950 $8,958
Operating expenses........................... 6,961 4,356 6,708
------ ------ ------
Gross profit............................... 1,908 1,594 2,250
Selling, general and administrative.......... 2,108 1,597 2,089
------ ------ ------
Income (loss) from operations.............. (200) (3) 161
Other (income) expense:
Interest expense........................... 30 12 74
Gain on sale of property and equipment..... (105) -- --
------ ------ ------
Net income (loss)............................ $ (125) $ (15) $ 87
====== ====== ======
Pro forma tax provision (Unaudited) (See Note
2):
Income (loss) before income taxes.......... $ (125) $ (15) $ 87
Pro forma provision for income taxes....... (50) (6) (35)
------ ------ ------
Pro forma net income (loss)................ $ (75) $ (9) $ 52
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... 100 $ -- $91 $191 $282
Net loss........................... -- -- -- (125) (125)
Distributions to stockholders...... -- -- -- (40) (40)
--- ----- --- ---- ----
Balance, December 31, 1996.......... 100 -- 91 26 117
Net income......................... -- -- -- 87 87
Distributions to stockholders...... -- -- -- (48) (48)
--- ----- --- ---- ----
Balance, September 30, 1997......... 100 $ -- $91 $ 65 $156
=== ===== === ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1996 1996 1997
------------ ----------- -----
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $(125) $ (15) $ 87
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 128 80 129
Gain on sale of property and equipment...... (105) -- --
Provision for doubtful accounts............. 77 8 26
Changes in operating assets and liabilities:
Accounts receivable, trade................ 443 873 (320)
Prepaid expenses and other current assets. 7 (10) (23)
Related party receivables................. (72) (61) --
Due from affiliate........................ -- (47) --
Other assets.............................. (12) 15 5
Accounts payable and accrued liabilities.. (245) (754) (315)
----- ----- -----
Net cash provided by (used in) operating
activities............................. 96 89 (411)
Cash flows from investing activities:
Proceeds from sale of property and equipment.. 157 -- --
Purchase of property and equipment............ (155) (78) (52)
----- ----- -----
Net cash provided by (used in) investing
activities............................. 2 (78) (52)
Cash flows from financing activities:
Net borrowings on line of credit.............. 80 50 570
Payments on notes payable..................... (45) (43) (173)
Payments on capital lease obligations......... (85) (64) (96)
Borrowings under term loan.................... -- -- 146
Distributions to stockholders................. (40) (40) (48)
----- ----- -----
Net cash provided by (used in) financing
activities............................. (90) (97) 399
Net increase (decrease) in cash................. 8 (86) (64)
Cash and cash equivalents at beginning of year.. 158 158 166
----- ----- -----
Cash and cash equivalents at end of year........ $ 166 $ 72 $ 102
===== ===== =====
Supplemental disclosure of cash flow
information:
Cash paid for interest........................ $ 30 $ 23 $ 67
Noncash investing and financing activities:
Property acquired under capital leases...... $ 330 $ 26 $ 348
Assumption of North Dakota debt by third
party in conjunction with the sale of North
Dakota assets.............................. $ 67 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1--NATURE OF OPERATIONS
The affiliated companies of Impact Telemarketing Group, Inc. ("Impact" or
the "Company") are individually incorporated companies owned by the same
stockholders. Each of the companies is engaged in providing primarily outbound
telemarketing services to national and regional companies in the insurance,
financial services, telecommunications and utilities industries. The
affiliated companies are comprised of Impact Telemarketing Group, Inc.
("Group"), Impact Telemarketing, Inc. ("Inc."), and Impact Telemarketing of
North Dakota, Inc. ("North Dakota"). The Company's headquarters are in
Woodbury, New Jersey.
The results of operations for the year ended December 31, 1996 include the
expenses of North Dakota. North Dakota provided telemarketing services to
Group only. North Dakota's net assets were sold to a third party on December
31, 1996 for $157,000 in cash and the assumption of $67,000 in liabilities. A
gain of $105,000 has been recognized for the difference between the total
purchase price and the net book value of the assets that were sold.
At September 30, 1997, the Company has a working capital deficit of $237,000
and is not in compliance with certain covenants contained in its loan
agreement with a bank. Total amounts outstanding as of September 30, 1997
under the Company's term loan and line of credit of $116,000 and $650,000,
respectively, are currently due and payable at the discretion of the bank. The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. Even with income from operations, the Company may
require additional financing to achieve its plans for 1997 and beyond.
However, should the Company be unable to obtain such financings, the Company
will be required to reduce discretionary spending. Management believes that it
will be able to reduce discretionary spending if required. The accompanying
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Combination
The combination of the financial statements includes the accounts of all the
affiliated companies (Group, Inc. and North Dakota) in which the principal
stockholders exercised similar control and which had similar operations. All
significant inter-company transactions have been eliminated.
Revenue Recognition
The Company recognizes revenues on programs as services are performed,
generally based on hours incurred.
Major Customers and Concentration of Credit Risk
For the year ended December 31, 1996, one customer accounted for
approximately 51% of revenues. For the nine months ended September 30, 1996,
two customers accounted for 51% and 14% of revenues, respectively. For the
nine months ended September 30, 1997, three customers accounted for 52%, 13%
and 12% of revenues, respectively. The loss of the Company's major customer
could have a material adverse effect on the Company's business.
F-67
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. The Company holds deposits in money market accounts. The Company's
accounts receivable are derived from sales to customers located in the United
States. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral for its accounts receivable. The Company
maintains reserves for potential credit losses based upon the expected
collectibility of all accounts receivable. At December 31, 1996, one customer
accounted for approximately 81% of accounts receivable. At September 30, 1997,
two customers accounted for approximately 63% and 13% of accounts receivable,
respectively.
Cash and Cash Equivalents
Cash includes cash and highly liquid investments purchased with an original
maturity of three months or less.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation
and amortization. Depreciation is computed using the straight-line method over
the estimated useful lives of the respective assets, generally five to seven
years. Leasehold improvements are amortized over the lesser of the estimated
useful lives of the equipment or the lease term, generally ten years.
Income Taxes
The affiliated companies include separate legal entities that are controlled
by common shareholders. These entities file separate tax returns. Two
companies elected to be treated as an S Corporation for federal and state
income tax purposes and accordingly any liabilities for income taxes are the
direct responsibility of the stockholders. The other entity is a tax paying
entity which accounts for income taxes using the asset and liability method,
whereby deferred income tax assets and liabilities are determined based on the
differences between financial reporting and tax bases of assets and
liabilities and are measured using currently enacted tax rates and laws.
The taxable entity incurred losses for the year ended December 31, 1996 and
for the nine months ended September 30, 1997. The differences between
financial reporting and tax basis of assets and liabilities are not
significant. As of September 30, 1997, Inc. had net operating loss
carryforwards of approximately $472,000 each for federal and state. These
carryforwards expire from 2003 through 2011. Management believes sufficient
uncertainty exists with regard to the realization of these carryforwards.
Accordingly, a full valuation allowance has been provided as of September 30,
1997.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as if the Company had been
subject to federal and state income taxes for the entire periods presented.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued liabilities are
reflected in the financial statements at fair value due to the short-term
nature of those instruments. The carrying amount of the long-term debt and
capitalized lease obligations approximates fair value at September 30, 1997.
F-68
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Unaudited Interim Financial Information
The interim financial information as of September 30, 1996 and for the nine
months ended September 30, 1996 has been prepared from the unaudited financial
records of the Company and, in the opinion of management, reflect all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the financial position and results of operations and of cash
flows for the respective interim periods.
NOTE 3--RELATED PARTY TRANSACTIONS
The Company rents office space owned by a partnership whose partners are the
sole stockholders of the Company. The office space is rented on a month to
month basis at above market rates. Total rent expense was $139,000 for the
year ended December 31, 1996 and $111,000 and $89,000 for the nine months
ended September 30, 1996 and 1997, respectively.
As of September 30, 1997, the Company has total loans receivable from its
sole stockholders and partnerships owned by the Company's sole stockholders of
$188,000. There are no scheduled dates of repayment or interest rates
associated with these loans.
NOTE 4--PROPERTY AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Furniture and fixtures..................... $ 144 $ 243
Computer equipment and software............ 752 1,053
Leasehold improvements..................... 81 81
----- ------
$ 977 $1,377
Less: Accumulated depreciation............. (404) (533)
----- ------
$ 573 $ 844
===== ======
</TABLE>
Depreciation expense was $75,000 for the year ended December 31, 1996 and
$47,000 and $27,000 for the nine months ended September 30, 1996 and 1997,
respectively.
Included in fixed assets shown above as of September 30, 1997 are fixed
assets under capital leases with a gross amount of $880,000. Total
amortization expense was $53,000 for the year ended December 31, 1996 and
$33,000 and $102,000 for the nine months ended September 30, 1996 and 1997,
respectively.
NOTE 5--NOTES PAYABLE
In December 1996, the Company entered into a Loan Agreement (the
"Agreement") with a bank which provided for a $650,000 line of credit and a
$150,000 term loan (the "Term Loan"). Borrowings on the line of credit are
limited to 75% of eligible accounts receivable, as defined. Principal
outstanding on the line of credit and Term Loan bear interest at the bank's
prime rate, as defined, plus .50% (9.0% as of September 30, 1997). The line of
credit expires December 1, 1997 and is secured by substantially all of the
Company's assets. Payments are due monthly for accrued interest only beginning
on March 1, 1997. All principal and remaining interest is due and payable on
December 1, 1997. Amounts outstanding under this line of credit are $30,000
and $650,000 as of December 31, 1996 and September 30, 1997, respectively. The
Agreement contains restrictive covenants, which, among other things, require
the maintenance of a debt service ratio, limitations on debt and dividends and
minimum tangible net worth, as defined in the Agreement.
F-69
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In May 1997, the Company's line of credit under the Agreement was increased
to $850,000. In June 1997, the line of credit was reduced to $650,000 as a
result of the Company's default on certain covenants contained in the
Agreement.
In April 1997, the Company obtained a $100,000 letter of credit facility
under the Agreement. Borrowings under the letter of credit facility are due
upon demand, bear interest at the bank's prime rate, as defined, plus 2%
(10.5% as of September 30, 1997) and are secured by substantially all of the
Company's assets. No borrowings were outstanding under this letter of credit
facility as of September 30, 1997.
At December 31, 1996, the Company had a $100,000 revolving line of credit
agreement with a bank. Borrowings bear interest at the bank's prime rate, as
defined, plus 1.5% (9.75% at December 31, 1996). The balance outstanding under
this line of $50,000 at December 31, 1996 was repaid in January 1997 upon
termination of the line of credit agreement.
Notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Term loan payable to a bank, secured by
substantially all of the Company's assets,
payable in equal monthly installments of
$4,000 over 36 months..................... -- $116
Installment note payable to a bank, secured
by accounts receivable, furniture and
fixtures, and liens on personal assets of
stockholders, payable in equal monthly
installments of $3,000, including interest
at 9.5% through
May 2001.................................. $143 --
Note payable to a relative of the
stockholders. No stated maturity date or
interest rate............................. 10 10
---- ----
$153 $126
==== ====
</TABLE>
The installment note payable was repaid in January 1997 with borrowings
obtained from the term loan.
NOTE 6--CAPITAL LEASES
The Company leases certain equipment under capital leases. The Company's
weighted average interest rate was 12% as of September 30, 1997. Future
minimum lease payments as of September 30, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................ $ 69
1998................................................................ 250
1999................................................................ 200
2000................................................................ 163
2001................................................................ 110
2002................................................................ 28
----
Total minimum obligations........................................... $820
Less interest....................................................... 156
----
Present value of minimum lease payments............................. 664
Less: Current portion............................................... 191
----
$473
====
</TABLE>
F-70
<PAGE>
IMPACT TELEMARKETING GROUP, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 7--EMPLOYEE BENEFIT PLANS
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code (the "Plan"). The Plan allows all eligible employees to defer up to 15%
of their income on a pretax basis through contributions to the Plan. As of
September 30, 1997, the Company has not made any contributions under the Plan.
NOTE 8--COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities and equipment under noncancelable
operating leases through the year 2002. Future minimum payments, by year and
in the aggregate, under noncancelable operating leases with initial or
remaining terms of one year or more consist of the following at September 30,
1997 (in thousands):
<TABLE>
<S> <C>
1997............................................................... $ 57
1998............................................................... 230
1999............................................................... 234
2000............................................................... 239
2001............................................................... 243
Thereafter......................................................... 174
------
$1,177
======
</TABLE>
Rent expense was $182,000 for the year ended December 31, 1996 and $120,000
and $202,000 for the nine months ended September 30, 1996 and 1997,
respectively.
Subcontractor Arrangements
Impact has guaranteed the payments of telephone charges incurred by its
major subcontractors with the telephone company. This guaranty arrangement
expires in March, 1998, and to date, no amounts have been claimed by the
telephone company under this arrangement. Impact has a contractual right to
offset any claims by the telephone company against amounts owed by Impact to
these subcontractors.
Legal Matters
The Company became a party to certain lawsuits and claims arising out of the
conduct of its business. While the ultimate outcome of these matters cannot be
predicted with certainty, management expects that these matters will not have
a material adverse effect on the financial position or results of the Company.
NOTE 9--SUBSEQUENT EVENT (UNAUDITED)
The Company and its stockholders have entered into a definitive agreement
with Compass International Services Corporation ("Compass") pursuant to which
Compass will acquire all outstanding shares of the Company's common stock in
exchange for cash and common stock of Compass, concurrent with the
consummation of the initial public offering of the common stock of Compass.
F-71
<PAGE>
The inside back cover of the Prospectus contains a map of the United States
and an inset map of the United Kingdom in the upper right corner, with all of
the Company's locations represented by dots. In the lower right corner is the
Company's logo.
Offices: US: Atlanta, GA, Buffalo, NY, Destin, FL, Dallas, TX. Houston, TX, Hunt
Valley, MD, Las Vegas, NV, Louisville, KY, Norcross, GA, Phoenix, AZ,
New York, NY, Rolling Meadows, IL, Tampa, FL, Voorhees, NJ, Woodbury,
NJ.
Office U.K.: Manchester
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the Of-
fering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or the Underwriters. This Prospectus does not consti-
tute an offer to sell or a solicitation of any offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or solici-
tation would be unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create implication that there
has been no change in the affairs of the Company or that information contained
herein is correct as of any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
The Company............................................................... 16
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Financial Data................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 34
Management................................................................ 46
Certain Transactions...................................................... 52
Principal Stockholders.................................................... 55
Description of Capital Stock.............................................. 56
Shares Eligible for Future Sale........................................... 57
Underwriting.............................................................. 59
Certain Legal Matters..................................................... 60
Experts................................................................... 60
Additional Information.................................................... 61
Index to Financial Statements............................................. F-1
</TABLE>
-------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,100,000 SHARES
LOGO
COMPASS INTERNATIONAL
SERVICES CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
NationsBanc
Montgomery
Securities, Inc.
Lehman Brothers
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The
Company will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee........... $ 17,146
NASD filing fee............................................... 6,158
Nasdaq National Market listing fee............................ 47,084
Accountants' fees and expenses................................ 900,000
Blue Sky fees and expenses.................................... 10,000
Legal fees and expenses....................................... 900,000
Transfer Agent and Registrar fees and expenses................ 10,000
Printing and engraving........................................ 200,000
Miscellaneous expenses........................................ 909,612
----------
Total....................................................... $3,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company shall, to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, as amended from time to time, indemnify all
persons whom it may indemnify pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees, or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to
a matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to be indemnified for such expenses despite
such adjudication of liability.
The Company's Amended and Restated Certificate of Incorporation provides
that the Company's directors will not be personally liable to the Company or
its stockholders for monetary damages resulting from breaches of their
fiduciary duty as directors except (a) for any breach of the duty of loyalty
to the Company or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) under Section 174 of the Delaware General Corporation Law, which makes
directors liable for unlawful dividends or unlawful stock repurchase or
redemptions or (d) for transactions from which directors derive improper
personal benefit.
II-1
<PAGE>
Upon the effectiveness of this Registration Statement the Company will enter
into indemnification agreements with its directors and officers. The form of
such agreement is filed as an Exhibit hereto. The Company expects to have
director and officer insurance coverage concurrently with the consummation of
the Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold by the Company since inception that were not registered under the
Securities Act:
The Company was organized in April 1997 and issued 15,000 shares of its
Common Stock to its founders at a price of $10.00 per share. Of such shares,
10,000 were issued to BGL Capital Partners, LLC, 2,250 were issued to Michael
J. Cunningham, 1,750 were issued to Mahmud U. Haq and 1,000 were issued to
Richard A. Alston. The offer and sale of these shares was exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"),
in reliance on the exemption provided by Section 4(2) thereof. Prior to the
consummation of the Offering, the number of these shares will be increased to
1,682,769 by a 112.185-to-1 stock split.
See "Certain Transactions" for a discussion of the shares of Common Stock to
be issued in connection with the Acquisitions. It is anticipated these
transactions will be completed without registration under the Securities Act
in reliance on the exemption provided by Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Stock Purchase Agreement dated as of October 3, 1997 by and
among the Registrant, The Mail Box, Inc. and the Stockholders
named therein.
2.2 Stock Purchase Agreement dated as of October 3, 1997 by and
among the Registrant, National Credit Management Corporation,
and the Stockholders named therein.
2.3 Stock Purchase Agreement dated as of October 3, 1997 by and
among the Registrant, BRMC of Delaware, Inc. and the
Stockholders named therein.
2.4 Stock Purchase Agreement dated as of October 3, 1997 by and
among the Registrant, Mid-Continent Agencies, Inc. and the
Stockholder named therein.
2.5 Stock Purchase Agreement dated as of October 3, 1997 by and
among the Registrant, Impact Telemarketing Group, Inc. and the
Stockholders named therein.
3.1 Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2** Bylaws of the Registrant.
4.1* Specimen stock certificate representing Common Stock.
5* Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent).
10.1* Form of 1997 Employee Incentive Compensation Plan.
10.2* Form of Employee Stock Purchase Plan.
10.3* Form of Employment Agreement between the Registrant and Michael
J. Cunningham.
10.4* Form of Employment Agreement between the Registrant and Mahmud
U. Haq.
10.5* Form of Employment Agreement between the Registrant and Richard
A. Alston.
10.6 Form of Employment Agreement between The Mail Box, Inc. and
Kenneth W. Murphy.
10.7 Form of Stockholders' Agreement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.8 Bonus Agreement dated as of October 2, 1997 among the
Registrant, National Credit Management Corporation and the
Stockholders named therein.
10.9** Form of Indemnification Agreement between the Registrant and its
officers and directors.
10.10 Form of Employment Agreement between National Credit Management
Corp. and Leeds Hackett.
10.11 Form of Employment Agreement between B.R.M.C. of Delaware, Inc.
and John Maloney.
10.12 Form of Employment Agreement between B.R.M.C. of Delaware, Inc.
and H. Gene Collins.
10.13 Form of Employment Agreement between B.R.M.C. of Delaware, Inc.
and Mary Maloney.
10.14 Form of Employment Agreement between Mid-Continent Agencies,
Inc. and Leslie J. Kirschbaum.
10.15 Form of Employment Agreement between Impact Telemarketing Group,
Inc. and Edward A. DuCoin.
10.16 Form of Employment Agreement between Impact Telemarketing Group,
Inc. and David T. DuCoin.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Ernst & Young LLP.
23.4* Consent of Katten Muchin & Zavis (contained in its opinion to be
filed as Exhibit 5 hereto).
23.5** Consent to be named as prospective director (Kenneth W. Murphy).
23.6** Consent to be named as prospective director (Leeds Hackett)
23.7** Consent to be named as prospective director (John Maloney)
23.8** Consent to be named as prospective director (Leslie J.
Kirschbaum)
23.9** Consent to be named as prospective director (Edward A. DuCoin)
23.10 Consent to be named as prospective director (Tomasso Zanzotto)
23.11 Consent to be named as prospective director (Howard L. Clark,
Jr.)
24 Power of Attorney (see signature page).
</TABLE>
- --------
*To be filed by amendment
**Previously filed
(b) FINANCIAL STATEMENT SCHEDULES.
Not Applicable.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-3
<PAGE>
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter had been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois on the 11th day of November, 1997.
Compass International Services
Corporation
/s/ Michael J. Cunningham
By: _________________________________
Michael J. Cunningham
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Michael J. Cunningham his true and lawful attorney-in-fact and agent, to sign
on his behalf, individually and in each capacity stated below, all amendments
and post-effective amendments to this Registration Statement on Form S-1 and
to file the same, with all exhibits thereto and any other documents in
connection therewith, with the Commission under the Securities Act of 1933,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as each might
or could do in person, hereby ratifying and confirming each act that said
attorneys-in-fact and agent may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael J. Cunningham Chairman and Chief Executive November 11, 1997
____________________________________ Officer (Principal
Michael J. Cunningham Executive Officer)
/s/ Richard A. Alston Chief Financial Officer November 11, 1997
____________________________________ (Principal Financial and
Richard A. Alston Accounting Officer)
/s/ Scott H. Lang Director November 11, 1997
____________________________________
Scott H. Lang
/s/ Mahmud U. Haq Director November 11, 1997
____________________________________
Mahmud U. Haq
</TABLE>
II-5
<PAGE>
EXHIBIT 2.1
_____________________________
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES CORPORATION,
THE MAIL BOX, INC.,
KENNETH W. MURPHY CHILDRENS TRUST
AND
THE STOCKHOLDERS OF THE MAIL BOX, INC.
DATED AS OF OCTOBER 3, 1997
_____________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
THE PURCHASE AND SALE OF STOCK........................................................ 2
ARTICLE II
CONSIDERATION......................................................................... 2
2.1 Purchase Price.............................................................. 2
2.2 Exchange of Certificates for Consideration.................................. 2
2.3 Payment of Aggregate Cash Consideration..................................... 2
2.4 Post-Closing Adjustment..................................................... 3
ARTICLE III
THE CLOSING AND CLOSING DATE.......................................................... 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS.................................................................. 4
4.1 Organization and Qualification.............................................. 4
4.2 Capitalization.............................................................. 5
4.3 Company Subsidiaries........................................................ 5
4.4 Authority; Non-Contravention; Approvals..................................... 5
4.5 Financial Statements........................................................ 7
4.6 Absence of Undisclosed Liabilities.......................................... 7
4.7 Accounts and Notes Receivable............................................... 7
4.8 Absence of Certain Changes or Events........................................ 7
4.9 Litigation.................................................................. 10
4.10 Compliance with Applicable Laws............................................. 10
4.11 Licenses and Permits........................................................ 11
4.12 Material Contracts.......................................................... 11
4.13 Properties.................................................................. 13
4.14 Intellectual Property....................................................... 17
4.15 Minute Books and Stock Records.............................................. 18
4.16 Taxes....................................................................... 18
4.17 Employee Benefit Plans; ERISA............................................... 19
4.18 Labor Matters............................................................... 21
4.19 Environmental Matters....................................................... 21
4.20 Insurance................................................................... 22
4.21 Interest in Customers and Suppliers; Affiliate Transactions................. 22
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
4.22 Business Relationships...................................................... 22
4.23 Compensation................................................................ 23
4.24 Bank Accounts............................................................... 23
4.25 Deemed Earnings Estimate.................................................... 23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS............................................. 23
5.1 Organization and Qualification.............................................. 23
5.2 Capitalization.............................................................. 24
5.3 No Subsidiaries............................................................. 24
5.4 Authority; Non-Contravention; Approvals..................................... 24
5.5 Absence of Undisclosed Liabilities.......................................... 26
5.6 Litigation.................................................................. 26
5.7 Compliance with Applicable Laws............................................. 26
5.8 Other Agreements............................................................ 26
ARTICLE VI
CERTAIN COVENANTS AND OTHER........................................................... 26
6.1 Conduct of Business Pending the Purchase.................................... 26
6.2 No - Shop................................................................... 29
6.3 Schedules................................................................... 30
ARTICLE VII
ADDITIONAL AGREEMENTS................................................................. 31
7.1 Access to Information....................................................... 31
7.2 Registration Statement...................................................... 32
7.3 Expenses and Fees........................................................... 33
7.4 Agreement to Cooperate...................................................... 33
7.5 Public Statements........................................................... 34
7.6 Preparation and Filing of Tax Returns....................................... 34
7.7 Registration Rights......................................................... 34
7.8 Rule 144 Reporting.......................................................... 36
7.9 Release of Guarantees....................................................... 37
7.10 Lock-Up Agreement........................................................... 37
7.11 Obligations of Stockholders................................................. 37
ARTICLE VIII
INDEMNIFICATION....................................................................... 37
8.1 Indemnification by the Stockholders and the Company......................... 37
8.2 Indemnification by Compass.................................................. 39
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
8.3 Indemnification Procedure for Third Party Claims............................ 40
8.4 Direct Claims............................................................... 41
8.5 Failure to Give Timely Notice............................................... 42
8.6 Reduction of Loss........................................................... 42
8.7 Limitation on Indemnities................................................... 42
8.8 Survival of Representations, Warranties and Covenants of the Stockholders
and the Company; Time Limits on Indemnification Obligations................. 44
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
Limits on Indemnification Obligations....................................... 44
8.10 Defense of Claims; Control of Proceedings................................... 45
8.11 Indemnification Exclusive Remedy............................................ 45
8.12 Manner of Satisfying Indemnification Obligations............................ 45
ARTICLE IX
CLOSING CONDITIONS.................................................................... 45
9.1 Conditions to Each Party's Obligation to Effect the Purchase................ 45
9.2 Conditions to Obligation of the Company to Effect the Purchase.............. 46
9.3 Conditions to Obligations of Compass to Effect the Purchase................. 47
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER..................................................... 49
10.1 Termination................................................................. 49
10.2 Effect of Termination....................................................... 50
10.3 Amendment................................................................... 50
10.4 Waiver...................................................................... 50
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS.................................... 50
11.1 Economic Risk; Sophistication............................................... 50
11.2 Transfer Restrictions....................................................... 51
11.3 Compliance with Law......................................................... 51
ARTICLE XII
NONCOMPETITION........................................................................ 52
12.1 Prohibited Activities....................................................... 52
12.2 Damages..................................................................... 52
12.3 Reasonable Restraint........................................................ 52
12.4 Severability; Reformation................................................... 53
12.5 Independent Covenant........................................................ 53
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
12.6 Materiality................................................................. 53
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION............................................. 53
13.1 Stockholders' Covenant...................................................... 53
13.2 Damages..................................................................... 54
13.3 Survival.................................................................... 54
ARTICLE XIV
GENERAL PROVISIONS.................................................................... 54
14.1 Brokers..................................................................... 54
14.2 Notices..................................................................... 55
14.3 Interpretation.............................................................. 56
14.4 Certain Definitions......................................................... 56
14.5 Entire Agreement; Assignment................................................ 56
14.6 Applicable Law.............................................................. 56
14.7 Counterparts................................................................ 56
14.8 Parties in Interest......................................................... 56
14.9 Severability................................................................ 56
</TABLE>
(iv)
<PAGE>
LIST OF SCHEDULES
Schedule A Stockholders of Company
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and Company
Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Property
Schedule 4.13.1-2(a) Pending Proceedings to Reduce General Real Estate Taxes
Schedule 4.13.1-2(b) Matters Relating to Leased Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16.1 Tax Audits
(v)
<PAGE>
Schedule 4.17.1 Exceptions Regarding Employee Plans
Schedule 4.17.2 Description of Unwritten Employee Plans
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate
Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.3 Compass Subsidiaries
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 7.9 Stockholders' Guarantees
Schedule 8.7.1-1 Major Stockholders
Schedule 8.7.1-2 Minor Stockholders
Schedule 11.1 Non-Accredited Investors
(vi)
<PAGE>
Schedule 14.1-1 Company's and Stockholders' Broker
Schedule 14.1-2 Compass' Broker
Schedule 14.2.3 Stockholders and their Counsel
(vii)
<PAGE>
LIST OF EXHIBITS
Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e) Employment Agreement for Murphy
Exhibit 9.2(h) Stockholders Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholders' Release
(viii)
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS
<S> <C>
ADA.................................................. Section 4.13.1(h)
Affiliate............................................ Section 14.4
Affiliate Transactions............................... Section 4.2.1
Aggregate Cash Consideration......................... Section 2.1
Aggregate Purchase Consideration..................... Section 2.1
Agreement............................................ Introduction
Business............................................. Section 4.12
Cap Amount........................................... Section 8.7.4
Claims............................................... Section 4.9.1
Closing.............................................. Article III
Closing Date......................................... Article III
Code................................................. Introduction
Company.............................................. Introduction
Company Material Adverse Effect...................... Section 4.8(r)
Company Representatives.............................. Section 7.1.1
Company Stock........................................ Article I
Company Subsidiaries................................. Section 4.1
Compass.............................................. Introduction
Compass Common Stock................................. Section 2.1
Compass Indemnified Parties.......................... Section 8.1
Compass Indemnified Party............................ Section 8.1
</TABLE>
(ix)
<PAGE>
<TABLE>
<S> <C>
Compass Material Adverse Effect...................... Section 5.4.3
Compass Representatives.............................. Section 7.1.1
Compass Required Statutory Approvals................. Section 5.4.3
Contracts............................................ Section 4.12
Copyrights........................................... Section 4.14
Deemed Earnings Actuals.............................. Section 2.4(b)
Deemed Earnings Estimate............................. Section 2.4(a)
Deemed Earnings Excess............................... Section 2.4(f)
Deemed Earnings Shortfall............................ Section 2.4(g)
Defense Notice....................................... Section 8.3.1
Demand Registration.................................. Section 7.7.2
Direct Claim......................................... Section 8.4
Employee Plan........................................ Section 4.17.5(a)
Environmental and Safety Requirements................ Section 4.19
ERISA................................................ Section 4.17.5(b)
Excess Indemnity..................................... Section 8.12
Final Deemed Earnings Actuals........................ Section 2.4(e)
Financial Statements................................. Section 4.5.1
First Person......................................... Section 4.17.5(c)
Founding Companies................................... Introduction
Governmental Authority............................... Section 4.4.2
Hazardous Materials.................................. Section 4.19
</TABLE>
(x)
<PAGE>
<TABLE>
<S> <C>
herein............................................... Section 14.3
hereof............................................... Section 14.3
hereunder............................................ Section 14.3
Indemnified Party.................................... Section 8.3.1
Indemnifying Party................................... Section 8.3.1
Insurance Policies................................... Section 4.20
Intellectual Property................................ Section 4.14
Intellectual Property Licenses....................... Section 4.14
IPO.................................................. Introduction
IT................................................... Introduction
ITG.................................................. Introduction
Latest Balance Sheet................................. Section 4.5.1
Laws................................................. Section 4.10
Leased Property...................................... Section 4.13.1
Licenses............................................. Section 4.11
Liens................................................ Section 4.2.1
Loss................................................. Section 8.1
Losses............................................... Section 8.1
Market Price......................................... Section 8.12
Marks................................................ Section 4.14
Major Stockholders................................... Section 8.7.1
Minor Stockholders................................... Section 8.7.1
</TABLE>
(xi)
<PAGE>
<TABLE>
<S> <C>
Material Contracts................................... Section 4.12
Minimum Value........................................ Section 8.7.2
Murphy............................................... Section 9.2(e)
1933 Act............................................. Section 4.4.3
1934 Act............................................. Section 7.8(b)
Notice Period........................................ Section 2.4(c)
Other Agreements..................................... Introduction
Other Founding Companies............................. Section 8.1
Other Stock Purchase Agreements...................... Introduction
Other Purchases...................................... Introduction
Owned Property....................................... Section 4.13.1
Patents.............................................. Section 4.14
person............................................... Section 14.4
Plan Affiliate....................................... Section 4.17.5(c)
Prospectus........................................... Section 7.2.1
Purchase............................................. Introduction
Real Property........................................ Section 4.13.1
Registration Statement............................... Section 4.4.3
Representatives...................................... Section 7.1.1
Returns.............................................. Section 4.16.1
Schedules............................................ Section 6.3
SEC.................................................. Section 4.4.3
</TABLE>
(xii)
<PAGE>
<TABLE>
<S> <C>
Stockholder Indemnified Party........................ Section 8.2
Stockholders......................................... Introduction
Stockholders Agreement............................... Section 9.2(h)
Stockholders Notice.................................. Section 2.4(c)
Taxes................................................ Section 4.16.2
Territory............................................ Section 12.1(a)
Third Party Claim.................................... Section 8.3.1
Threshold Amount..................................... Section 8.7.2
to the knowledge of the Stockholders or the Company.. Section 14.4
Trade Secrets........................................ Section 4.14
Underwriters......................................... Section 7.1.1
</TABLE>
(xiii)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), The Mail Box, Inc., a Texas corporation (the
"Company"), and the stockholders of the Company identified on Schedule A to this
Agreement (the "Stockholders").
WITNESSETH:
WHEREAS, the Stockholders desire to sell to Compass, and Compass desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of the Company for the consideration and on the terms set forth in
this Agreement (the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of BRMC of Delaware, Inc., a Delaware corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), Mid-Continent Agencies,
Inc., an Illinois corporation, and National Credit Management Corp., a Maryland
corporation (which companies together with the Company are collectively referred
to herein as the "Founding Companies") and their respective stockholders, which
agreements provide for the purchase (collectively, the "Other Purchases") of all
of the issued and outstanding shares of capital stock of such companies
simultaneously with the Purchase;
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
THE PURCHASE AND SALE OF STOCK
Upon the terms and subject to the conditions of this Agreement, at the
Closing (hereinafter defined), the Stockholders shall sell to Compass, and
Compass shall purchase from Stockholders, all of the outstanding shares of
capital stock of the Company, consisting of 102,900 shares of Common Stock, par
value $0.01 per share, of the Company (the "Company Stock").
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price for the shares of Company Stock
--------------
shall be as follows: At the Closing, for each share of Company Stock issued and
outstanding immediately prior to the Closing, the Stockholders shall be entitled
to receive from Compass (i) that number of shares of Common Stock, par value
$0.01 per share, of Compass ("Compass Common Stock") set forth in Schedule 2.1
------------
and (ii) the amount of cash determined in accordance with the formula set forth
in Schedule 2.1 (the aggregate amount of cash so to be paid in respect of all of
------------
the Company Stock is herein referred to as the "Aggregate Cash Consideration")
and subject to the adjustment provided for in Section 2.4 below. The sum of (i)
-----------
the Aggregate Cash Consideration and (ii) the value (determined as set forth on
Schedule 2.1) of all shares of Compass Common Stock so to be issued to the
- ------------
Stockholders is herein referred to as "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholders shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholders or accompanied by
blank stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholders of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholders agree promptly to cure any deficiencies with
- ---
respect to the endorsement of the certificates or other documents of conveyance
with respect to such Company Stock. The certificates representing Compass
Common Stock to be delivered pursuant to this Article II shall bear a legend as
----------
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and each of the Stockholders
holding a certificate representing any such shares of Company Stock shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass
---------------------------------------
shall pay to the Stockholders, by certified check, cashier's check or wire
transfer of immediately available funds to a bank account or bank accounts
specified by Stockholders in writing at least three (3) business days prior to
the Closing Date, an amount equal to the Aggregate Cash Consideration.
2
<PAGE>
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall
-----------------------
be subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate of
-----------------
the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholders in accordance with the procedure
set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Estimate"), and utilized in
-----------------
calculating the Aggregate Purchase Consideration as set forth in Schedule 2.1.
------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholders a calculation of the Company's actual earnings for the calendar
year ended on December 31, 1997, prepared by Price Waterhouse in accordance with
the procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Actuals").
-----------------
(c) If the Stockholders wish to assert in good faith that the Deemed
Earnings Actuals have not been determined in accordance with the procedure set
forth in Schedule 2.4(a)-1, the Stockholders shall notify Compass in writing
-----------------
thereof (the "Stockholders Notice") within fifteen (15) days after delivery of
the Deemed Earnings Actuals to the Stockholders (the "Notice Period"). The
Stockholders Notice shall set forth in reasonable detail the alleged non-
conformance and the disputed amount. If the Stockholders do not deliver the
Stockholders Notice within the Notice Period, the Deemed Earnings Actuals shall
become final and binding upon all parties.
(d) If the Stockholders Notice is delivered within the Notice Period,
the Stockholders and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholders are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholders Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholders, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are at
- --------------- --- ---
least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of the Deemed Earnings Estimate, then no
further payments by Compass or the Stockholders shall be due pursuant to this
Section 2.4.
- -----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay to
the Stockholders, in the manner provided in Section 2.3 above, an amount in cash
-----------
equal to the Aggregate Purchase
3
<PAGE>
Consideration payable on account of the Deemed Earnings Excess (hereinafter
defined). The amount to paid to the Stockholders pursuant to this Section 2.4(f)
--------------
shall be calculated by utilizing the formulae set forth on Schedule 2.1. As used
------------
herein, "Deemed Earnings Excess" shall mean an amount equal to five (5) percent
of the Deemed Earnings Estimate.
(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholders shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholders' liability pursuant to this Section
2.4(g) exceed ten percent (10%) of the Aggregate Purchase Consideration.
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
- ---------- --
Agreement (the "Closing") shall take place at the offices of Katten Muchin &
Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Each of the Company and Stockholders hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
- -----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Texas. Each of the Company's subsidiaries (collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation set forth on Schedule
--------
4.3. Each of the Company and the Company Subsidiaries has the requisite
- ---
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, and is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary. True, accurate and complete
copies of the Company's and each Company Subsidiary's Articles of Incorporation
and By-laws, in each case as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Compass.
4
<PAGE>
4.2 Capitalization.
--------------
4.2.1 The authorized capital stock of the Company consists of
1,000,000 shares of Company Stock, of which 102,900 shares are issued and
outstanding. All of such issued and outstanding shares are validly issued
and are fully paid, nonassessable and free of preemptive rights. The
Stockholders own beneficially and of record all of the issued and
outstanding shares of the Company Stock as set forth in Schedule 4.2, which
------------
constitute all of the outstanding shares of capital stock of the
Company, in each case free and clear of all claims, liens, charges,
encumbrances, pledges, conditional sales contracts, equity charges,
restrictions or security interests of any nature (collectively, "Liens").
Each Stockholder has good and marketable title to the Company Stock owned
by such Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or a Company
Subsidiary or obligating the Company or a Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Stockholders to convey or transfer any Company Stock. There are no voting
trusts, proxies or other agreements or understandings to which the Company
or any Stockholder is a party or is bound with respect to the voting of any
shares of capital stock of the Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
-------------------- ------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The
outstanding capital stock of each Company Subsidiary which is owned by the
Company is validly issued, fully paid and non-assessable. Except as set forth
on Schedule 4.3, the Company does not, directly or indirectly, own, of record or
------------
beneficially, or control any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, partnership, joint
venture or limited liability company.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholders and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the Stockholders,
and no other corporate proceedings on the part of the Company are necessary
to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery
hereof by Compass, constitutes a valid and legally binding agreement of the
Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency,
5
<PAGE>
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
4.4.2 The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, any of the terms, conditions or provisions of
(i) the Articles of Incorporation or By-laws of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to any
Stockholder, the Company, any Company Subsidiary, or the business,
properties or assets of the Company or any Company Subsidiary, (iii) any
note, bond, mortgage, indenture or deed of trust, or (iv) any material
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company, any
Company Subsidiary or any of the Stockholders is a party or by which any of
the Stockholders, the Company, any Company Subsidiary or any of the
properties or assets of the Company or any Company Subsidiary may be bound
or affected. The consummation by the Company and the Stockholders of the
transactions contemplated hereby will not result in a violation, conflict,
breach, right of termination or acceleration, or creation of Liens, under
the terms, conditions or provisions of the items described in clauses (i)
through (iv) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clauses (iii) and (iv)
above, to obtaining (prior to the Closing) consents required from, or
giving notices required to be provided to, commercial lenders, lessors or
other third parties, all of which required consents and notices are listed
on Schedule 4.4.2.
--------------
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company and the Stockholders or the consummation by
the Company and the Stockholders of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
audited consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31 in each of the years 1994 through 1996, and
the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the
6
<PAGE>
fiscal years then ended, including all notes thereto, and the unaudited
consolidated balance sheet of the Company and the Company Subsidiaries as
of June 30, 1997 (the "Latest Balance Sheet") and the related consolidated
statement of income, stockholders equity and cash flows for the six (6)
months then ended (collectively, the "Financial Statements"). Each of the
Financial Statements is accurate and complete in all material respects, is
consistent with the books and records of the Company and the Company
Subsidiaries (which, in turn, are accurate and complete in all material
respects), and fairly presents the financial condition, assets and
liabilities of the Company and the Company Subsidiaries as of its date and
the results of operations and cash flows for the periods related thereto,
in each case in accordance with generally accepted accounting principles
applied on a consistent basis, subject, in the case of the unaudited
interim financial statements, to normal and customary year-end adjustments.
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
- ---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
- ---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.8,
------------
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer
or supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by
the Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $100,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any
7
<PAGE>
Company Subsidiary of any right, power, claim, debt, asset or property
(having a replacement cost or fair market value in excess of $100,000.00 in
the aggregate), except in the ordinary course of business consistent with
past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute or similar occurrence that might
reasonably be expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholders or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholders or the Company, threatened material reduction in revenues
from, any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
8
<PAGE>
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or liability,
other than current liabilities paid in its ordinary course of business
consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets or
disclosure of any proprietary confidential information of the Company or
any Company Subsidiary to any person other than Compass, and the other
Founding Companies and their respective officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or
any Company Subsidiary in excess of $100,000.00 individually or $200,000.00
in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of the Company or any Company Subsidiary (a
"Company Material Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
- ------------
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholders or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholders or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental
9
<PAGE>
Authority or arbitrator (collectively, "Claims"), other than collection
actions by the Company or any Company Subsidiary in the ordinary course of
business (i) on its own behalf, none of which is greater than $10,000.00
and which in the aggregate do not exceed $50,000.00, and (ii) on behalf of
third parties; nor, to the knowledge of the Stockholders or the Company, is
there any basis for any such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
Company Subsidiary in the ordinary course of business, none of which is
greater than $10,000.00 and which in the aggregate do not exceed
$50,000.00, and for which the amount in dispute is presently ascertainable
with certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $10,000.00 and which in the aggregate do not
exceed $50,000.00, and (ii) on behalf of third parties, and, in either
case, for which the amount in dispute is presently ascertainable with
certainty, Schedule 4.9 sets forth all closed litigation matters to which
------------
the Company or any Company Subsidiary was a party during the five (5) years
preceding the Closing Date, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts paid
in settlement or judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules
------------------------------- ---------
4.10 and 4.19, each of the Company and the Company Subsidiaries has complied in
- ---- ----
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders (collectively, "Laws") applicable to it or to the
operation of the Business, and has not received any notice of any alleged claim
or threatened claim, violation of or liability or potential responsibility under
any such Law which has not heretofore been cured and for which there is no
remaining liability and, to the knowledge of the Stockholders or the Company, no
event has occurred or circumstances exist that (with or without notice or lapse
of time) may constitute or result in a violation in any material respect by the
Company or any Company Subsidiary of any Law or may give rise to any material
liability on the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Each
of the Company and the Company Subsidiaries possesses all of the Licenses which
are necessary to enable it to carry on the Business as presently
10
<PAGE>
conducted. All such Licenses are valid, binding and in full force and effect.
The execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not adversely affect any such
Licenses. The Company and the Company Subsidiaries have taken all necessary
action to maintain such Licenses. No loss or expiration of any such License is
pending or, to the knowledge of the Stockholders or the Company, threatened or
reasonably anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $100,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $100,000.00);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
11
<PAGE>
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original value in excess of $100,000.00;
(j) any Contract under which the Company or any Company Subsidiary
has granted or received a license or sublicense or under which it is
obligated to pay or has the right to receive a royalty, license fee or
similar payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other than as
provided in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $100,000.00;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
--------------
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $100,000.00.
The Company and the Stockholders have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholders or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as
set forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be
12
<PAGE>
performed by it as of the date hereof and will have performed all obligations
required to be performed by it as of the Closing Date under each Material
Contract and neither the Company or Company Subsidiary, as applicable, nor, to
the knowledge of the Stockholders or the Company, any other party to any
Material Contract is in breach or default thereunder, and, to the knowledge of
the Stockholders or the Company, there exists no condition which would, with or
without the lapse of time or the giving of notice, or both, constitute a breach
or default thereunder. The Company has not been notified that any party to any
Material Contract intends to cancel, terminate, not renew, or exercise an option
under any Material Contract, whether in connection with the transactions
contemplated hereby or otherwise.
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a
-----------------
brief description of, all real estate in which the Company or any of the
Company Subsidiaries has an ownership interest (the "Owned Property") and
all real property leased by the Company (the "Leased Property"), and all
facilities thereon. Except as lessee of Leased Property, neither the
Company nor any Company Subsidiary is a lessee under or otherwise a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which another person or entity has granted to
the Company or any Company Subsidiary the right to use or occupy all or any
portion of any real property.
The Company or one of the Company Subsidiaries has good and
marketable fee simple title to the Owned Property and, assuming good title
in the Landlord, a valid leasehold interest in the Leased Property (the
Owned Property and the Leased Property being sometimes referred to herein
as "Real Property"), in each case free and clear of all Liens, assessments
or restrictions (including, without limitation, inchoate liens arising out
of the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, and (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto,
or impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto. The Real Property
constitutes all real properties reflected on the Financial Statements or
used or occupied by the Company or any Company Subsidiary in connection
with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
13
<PAGE>
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the knowledge of the Stockholders or
the Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
not, to the knowledge of the Stockholders or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholders or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation, building, environmental, land use or
other ordinances, laws, codes or regulations that affects the Company's or
any Company Subsidiary's use of such Owned Property (without regard to any
non-conforming use or other so-called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and correct description of all
--------------------
pending proceedings to reduce the general real estate taxes against the
Owned Property; none of the Owned Property is located in a special service
district, special service area, tax increment financing district or similar
district or area, or to the knowledge of the Stockholders or the Company,
subject to a threatened special assessment; and, to the knowledge of the
Stockholders or the Company, none of the Owned Property is located in an
area for which federal flood risk insurance is necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholders or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholders, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
14
<PAGE>
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether written or oral, pursuant to which the Company or
Company Subsidiary has granted to any party or parties the right to use or
occupy all or any portion of the Owned Property;
(h) to the knowledge of the Stockholders or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
(i) there are no material defects in any improvements on or to the
Owned Property;
(j) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures, and fixtures on the Owned
Property are free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
-----------
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholders or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholders or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholders or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
15
<PAGE>
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of the
Business, and such Leased Property is, to the knowledge of the Stockholders
or the Company, maintained in all material respects in accordance with all
Laws applicable to the Company, any Company Subsidiary or the Leased
Property;
(v) none of the Stockholders, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or users of properties adjacent to the Leased Property relating
to the use, operation or maintenance of such facility or any adjacent real
property;
(vi) neither the Company nor any Company Subsidiary is a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholders or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholders or the Company,
there are no material defects in any improvements on or to the Leased
Property;
(ix) to the knowledge of the Stockholders or the Company, the
Leased Property is free from regulated quantities of asbestos; and
(x) to the knowledge of the Stockholders or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflects all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholders or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered
16
<PAGE>
trademarks, trade names, company names, fictional business names and service
marks (collectively, the "Marks"), (iii) copyrights (the "Copyrights"), and (iv)
know how, trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans and drawings
(collectively, the "Trade Secrets") owned, used or licensed by the Company or
any Company Subsidiary (collectively, the "Intellectual Property") are all those
necessary to enable the Company and the Company Subsidiaries to conduct and to
continue to conduct the Business as it is currently conducted. Schedule 4.14
-------------
contains a complete and accurate list of all material Patents, Marks and
Copyrights and a description of all material Trade Secrets owned or used by the
Company or any Company Subsidiary, and a list of all material license agreements
and arrangements with respect to any of the Intellectual Property to which the
Company or any Company Subsidiary is a party, whether as licensee, licensor or
otherwise (the "Intellectual Property Licenses"). Except as set forth on
Schedule 4.14, (i) all of the Intellectual Property is owned, or used under a
- -------------
valid Intellectual Property License, by the Company or one of the Company
Subsidiaries, and, is free and clear of all Liens and other adverse claims; (ii)
to the knowledge of the Stockholders or the Company, neither the Company nor any
Company Subsidiary has infringed on or misappropriated, is now infringing on or
misappropriating, or has received any notice that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the knowledge of
the Stockholders or the Company, threatened against the Company or any Company
Subsidiary with respect to the alleged infringement or misappropriation by the
Company or Company Subsidiary, or a conflict with, any intellectual property
rights of others; (iv) to the knowledge of the Stockholders or the Company, the
operation of any aspect of the Business in the manner in which it has heretofore
been operated or is presently operated does not give rise to any such
infringement or misappropriation; and (v) to the knowledge of the Stockholders
or the Company, there is no infringement or misappropriation of the Intellectual
Property by a third party or claim, pending or threatened, against any third
party with respect to the alleged infringement or misappropriation of the
Intellectual Property by such third party.
4.15 Minute Books and Stock Records. Except as set forth on Schedule
------------------------------ --------
4.15, (i) the minute books and stock records of the Company and each Company
- ----
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects, the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and
17
<PAGE>
correct and are not or will not be subject to adjustment by the applicable
taxing authority. The Company has delivered to Compass true and complete
copies of all Returns referred to in the first sentence of this Section
-------
4.16.1 (including any amendments thereof) for the five (5) most recent
------
taxable years. Neither the Company nor any Company Subsidiary is delinquent
in the payment of any Tax, and no deficiencies for any Tax, assessment or
governmental charge have been threatened, claimed, proposed or assessed, in
each case in writing received by the Company or Company Subsidiary. No
waiver or extension of time to assess any Taxes has been given or
requested. No written claim, or any other claim, by any taxing authority in
any jurisdiction where the Company or any Company Subsidiary does not file
Tax returns is pending pursuant to which the Company or Company Subsidiary,
as applicable, is subject to taxation by that jurisdiction. The Company's
and the Company Subsidiaries' Returns were last audited by the Internal
Revenue Service or comparable state, local or foreign agencies on the dates
set forth on Schedule 4.16.1.
---------------
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability) whether direct or indirect (and regardless of whether
it would be derived from a current or former Plan Affiliate (hereinafter
defined)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA", including, but not limited to, any medical plan,
life insurance plan, short-term or long-term disability plan or dental
plan; (ii) any "employee pension benefit plan," as defined in Section 3(2)
of ERISA, including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of
18
<PAGE>
any and all determination letters, rulings or notices issued by a
Governmental Authority with respect to such plan; a copy of the Form 5500
Annual Report for the three (3) most recent plan years; and a copy of each
and any general explanation or communication which was required to be
distributed or otherwise provided to participants in such plan and which
describes all or any relevant aspect of each plan, including summary plan
descriptions and/or summary of material modifications, have been made
available to Compass. A description of each unwritten Employee Plan,
including a description of eligibility, participation, benefits, funding
arrangements and assets or other relevant aspects of the obligation, is set
forth in Schedule 4.17.2.
---------------
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such terms
are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company or the Company Subsidiaries (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, Company Subsidiary or a Plan
Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
---------------
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
19
<PAGE>
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended; and
(c) with respect to any person or entity ("First Person"),
the term "Plan Affiliate" shall mean any other person or entity with
whom the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no,
------------- -------------
and within the last three (3) years neither the Company nor any Company
Subsidiary has experienced any, strike, picketing, boycott, work stoppage or
slowdown or other labor dispute, union organizational activity or charge, or, to
the knowledge of the Stockholders or the Company, allegation or complaint, of
unfair labor practice, employment discrimination or other matters relating to
the employment of labor pending or, to the knowledge of the Stockholders or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholders or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholders or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholders or the Company, no key employee and no group of employees has any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company or any Company Subsidiary has complied in all material respects
with all applicable Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholders or the Company, the Leased Property (other than those present
in normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in
20
<PAGE>
compliance in all material respects with applicable Environmental and Safety
Requirements; and (iv) to the knowledge of the Stockholders or the Company,
there are and have been no facts, events, occurrences or conditions at or
related to the Real Property or any other facility formerly owned or operated by
the Company or any Company Subsidiary that could cause or give rise to
liabilities or response obligations under any Environmental and Safety
Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances", as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. ' 9601 et
seq., "hazardous wastes", as defined by the Resource Conservation Recovery Act,
42 U.S.C. ' 6901 et seq., asbestos in any form or condition, polychlorinated
biphenyls and any other material, substance or waste to which liability or
standards of conduct may be imposed under any Environmental and Safety
Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholders or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
- ----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, all amounts owed by a
Stockholder, any Affiliate of a Stockholder or any Affiliate of the Company or
any Company Subsidiary to the Company or any Company Subsidiary, and all amounts
owed by the Company or any Company Subsidiary to a Stockholder, any Affiliate of
a Stockholder or any Affiliate of the Company or any Company Subsidiary, shall
have been settled and satisfied.
21
<PAGE>
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary representing,
individually, five percent (5%) or more of the Company's or Company
Subsidiary's, as applicable, revenues for the twelve (12) months ended December
31, 1996 and for the period commencing on January 1, 1997 and ending on the date
of the Latest Balance Sheet. Except as set forth on Schedule 4.22, since the
-------------
date of the Latest Balance Sheet, none of such clients has canceled or
substantially reduced its business with the Company or Company Subsidiary, as
applicable, nor, to the knowledge of the Stockholders or the Company, are any of
such clients threatening or expected to do so. To the knowledge of the
Stockholders or the Company, no client or supplier of the Company or any Company
Subsidiary will cease to do business with, or substantially reduce its business
with, the Company or Company Subsidiary, as applicable, after the consummation
of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
------------- -------------
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
persons authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholders as
follows:
22
<PAGE>
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. True,
accurate and complete copies of each of Compass's Certificate of
Incorporation and By-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to the
Closing Date, the authorized capital stock of Compass will consist of
50,000,000 shares of Compass Common Stock, of which the number of shares
set forth in the Registration Statement will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Compass
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement and (ii) shares of Compass Common Stock issued in
accordance with the Purchase and the Other Purchases, no shares of Compass
Common Stock will be issued prior to the consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Compass to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Compass or obligating Compass to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which
Compass is a party or is bound with respect to the voting of any shares of
capital stock of Compass. The shares of Compass Common Stock to be issued
to the Stockholders pursuant to this Agreement and to be issued to the
stockholders of the Other Founding Companies in the Other Purchases will as
of the Closing be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and Liens (other than Liens, if
any, due to acts of the Stockholders).
5.3 No Subsidiaries. Except as set forth on Schedule 5.3, Compass does
--------------- ------------
not own any capital stock of any corporation or any interest in any partnership,
joint venture or limited liability company.
23
<PAGE>
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors and
stockholders of Compass, and no other corporate proceedings on the part of
Compass are necessary to authorize the execution and delivery of this
Agreement or the consummation by Compass of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Compass,
and, assuming the due authorization, execution and delivery hereof by the
Company and the Stockholders, constitutes a valid and legally binding
agreement of Compass, enforceable against Compass in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing) Compass Required Statutory Approvals
(hereinafter defined) and, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing) consents required from commercial lenders, lessors
or other third parties, all of which required consents are listed on
Schedule 5.4.2.
--------------
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which,
24
<PAGE>
if not made or obtained, as the case may be, would not, in the aggregate,
have a material adverse effect on the business, operations, properties,
assets, condition (financial or other), results of operations or prospects
of Compass (a "Compass Material Adverse Effect").
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
- ---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those incurred in connection
with the Purchase, this Agreement, the Other Stock Purchase Agreements and the
IPO. Except as contemplated by the foregoing, Compass has not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is either of them bound by any obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation, claim
----------
or order pending or, to the knowledge of Compass, threatened against Compass or
which may affect its assets or business, before any court, Governmental
Authority or any arbitrator that seek to restrain or enjoin the consummation of
the Purchase, Other Purchases or the IPO or which is likely, either alone or in
the aggregate with all such claims, actions or proceedings, to have a Compass
Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law. Without
limiting the generality of the foregoing, except as set forth on Schedule 5.7,
------------
Compass has complied in all respects with all applicable federal, state and
local Laws relating to antitrust and trade regulations.
5.8 Other Agreements. True and correct copies of the Other Stock Purchase
----------------
Agreements have been delivered to the Stockholders and the Company. Compass will
not agree to any material amendment of or waive any material right or waive any
material condition to its obligations under any of the Other Stock Purchase
Agreements without the written consent of a majority of the Founding Companies
whose agreements have not been and will not be amended in a similar manner. For
purposes of determining a majority of the Founding Companies under this Section
-------
5.8, IT and ITG, collectively, shall only be counted as one (1) Founding
- ---
Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing or earlier termination of this
Agreement, unless Compass shall
25
<PAGE>
otherwise agree in writing (which agreement shall not be unreasonably
withheld), the Company shall, and shall cause each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practices;
(b) not (i) amend its charter or by-laws, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare, set
aside or pay any dividend or distribution payable in cash, stock,
property or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business or (B) borrowings to refinance existing
indebtedness on terms comparable with or more favorable than those at
the date hereof, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (iii) sell, pledge,
dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with clients and others having business relationships
with it and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of,
or enter into any new bonus or incentive agreement or arrangement
with, any of its employees, except as consistent with past practices
of the Company or Company Subsidiary, as applicable, (ii) pay or agree
to pay any additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such employee, whether past or
present, other than as required pursuant to the terms thereof, (iii)
enter into any new employment, severance, consulting, or other
compensation agreement with any of its existing employees, (iv) amend
or
26
<PAGE>
enter into a new Employee Plan (except as required by Law) or amend or
enter into a new collective bargaining agreement, or (v) engage in any
new Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any businesses or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets not in the ordinary course of business in each case
which are material to it;
(j) not sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the
Business consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
(a) not (i) amend its charter or by-laws (provided, however,
that Compass shall prior to the Closing, file an amended and restated
charter in substantially the form attached hereto as Exhibit
-------
6.1.2(a)), (ii) split, combine or reclassify its outstanding capital
---------
stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
option, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (ii) sell, pledge, dispose
of or encumber any assets or businesses other than
27
<PAGE>
dispositions in the ordinary course of business or (iii) enter into
any contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(d) comply in all material respects with all applicable Laws;
and
(e) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any businesses or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets not in the ordinary course of business in each case
which are material to it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholders shall (i)
not, and the Company shall use its best efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
the Company or any Company Subsidiary not to, initiate, solicit, negotiate,
encourage, or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business and properties of the Company or any Company Subsidiary, or any
capital stock of the Company or any Company Subsidiary, whether by merger,
purchase of stock or assets or otherwise, whether for cash, securities or
any other consideration or combination thereof, or enter into any joint
venture or partnership or similar arrangement, and (ii) promptly advise
Compass of the terms of any communications the Stockholders or the Company
may receive or become aware of relating to any bid for part or all of the
Company or any Company Subsidiary.
(b) The Company and the Stockholders (i) acknowledge that a breach
of any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other
28
<PAGE>
parties all of their respective schedules to this Agreement (the "Schedules") to
correct any matter which would constitute a breach of any such party's
representations and warranties herein; provided, that no amendment, supplement
to or addition of a Schedule that constitutes or reflects a Company Material
Adverse Effect or affects Schedules 4.2, 4.3 or 7.9 may be made unless Compass
------------- --- ---
and a majority of the other Founding Companies consent to such amendment,
supplement or addition, and no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Compass Material Adverse Effect or
affects Schedule 5.2 may be made unless a majority of the Founding Companies
------------
consent to such amendment, supplement or addition. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 9.2 and 9.3 have been fulfilled, the
------------ ---
Schedules hereto shall be deemed to be the Schedules as amended, supplemented or
added pursuant to this Section 6.3. In the event that (i) one of the other
-----------
Founding Companies seeks to amend, supplement or add a Schedule pursuant to
Section 6.3 of one of the Other Stock Purchase Agreements, (ii) such amendment,
- -----------
supplement or addition constitutes or reflects a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise),
operating results, liabilities, employee, customer or supplier relations or
business prospects of such other Founding Company or any of its subsidiaries or
affects Schedules 4.2, 4.3 or 7.9 of such Other Stock Purchase Agreement, and
------------- --- ---
(iii) Compass and a majority of the Founding Companies (other than the Founding
Company providing such amended, supplemented or added Schedule) consent to such
amendment, supplement or addition, but the Company and the Stockholders do not,
or if any Other Stock Purchase Agreement is terminated by any party thereto
pursuant to Section 6.3 of such Other Stock Purchase Agreement or otherwise, the
-----------
Company and the Stockholders may terminate this Agreement at any time prior to
the Closing Date. In the event that (i) the Company seeks to amend, supplement
or add a Schedule pursuant to this Section 6.3, (ii) such amendment, supplement
-----------
or addition constitutes or reflects a Company Material Adverse Effect or affects
Schedules 4.2, 4.3 or 7.9, and (iii) Compass and a majority of the Founding
- ------------- --- ---
Companies do not consent to such amendment, supplement or addition, this
Agreement shall be deemed terminated as set forth in Section 10.1 hereof. No
------------
party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 6.3, unless this
-----------
Agreement is so terminated in connection with an amendment of, supplement to or
addition of a Schedule relating to a breach of a representation or warranty as
of the date of this Agreement. No amendment of, supplement to or addition of a
Schedule shall be made later than five (5) business days prior to the
anticipated effectiveness of the Registration Statement. For purposes of
determining a majority of the Founding Companies under this Section 6.3, IT and
-----------
ITG, collectively, shall only be counted as one (1) Founding Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, Montgomery
Securities, Inc. and Lehman Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in
29
<PAGE>
connection with the IPO (the "Underwriters") and counsel for the
Underwriters (collectively, the "Compass Representatives"), and to the
other Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Compass shall afford to the Stockholders and
the Company and their accountants, counsel, financial advisors and other
representatives (collectively, the "Company Representatives") full access
during normal business hours throughout the period prior to the Closing to
all of their respective properties, books, contracts, commitments and
records (including, but not limited to, financial statements and Tax
Returns) and, during such period, shall furnish promptly to one another all
due diligence information requested by the other party. Compass shall hold
and shall use its reasonable best efforts to cause the Compass
Representatives to hold, and the Stockholders and the Company shall hold
and shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement or any of the Other Agreements, except that each of Compass, the
Stockholders and the Company may disclose any information that it is
required by law or judicial or administrative order to disclose, provided
it gives prior prompt written notice to the other party. In addition,
Compass will cause each of the other Founding Companies and their
stockholders to enter into a provision similar to this Section 7.1
-----------
requiring each such Founding Company to keep confidential and to use their
reasonable best efforts to cause their respective accountants, counsel,
financial advisors and other representatives to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholders shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the
30
<PAGE>
Stockholders shall furnish or cause to be furnished to Compass and the
Representatives all of the information concerning the Company, the Company
Subsidiaries and the Stockholders required for inclusion in, the
Registration Statement and the prospectus included therein (the
"Prospectus"); including, without limitation, audited consolidated balance
sheets of the Company as of September 30, 1997, and the related audited
consolidated statements of income, stockholders' equity and cash flow for
the nine (9) months then ended (including all notes thereto), which shall
be furnished to Compass and the Underwriters no later than November 1,
1997. The Company and the Stockholders will cooperate with Compass and the
Representatives in the preparation of the Registration Statement and the
Prospectus. All financial statements provided by the Company for inclusion
in the Registration Statement and Prospectus shall (i) be accurate and
complete in all material respects, (ii) be consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, shall
be accurate and complete in all material respects), and (iii) fairly
present the financial condition, assets and liabilities of the Company and
Company Subsidiaries as of their respective dates and the results of
operations and cash flows for the respective period, in accordance with
generally accepted accounting principles applied on a consistent basis. All
information provided and to be provided by Compass and the Company,
respectively, for use in the Registration Statement (including, without
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholders agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholders
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholders, each of the Company and the Stockholders
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholders as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
31
<PAGE>
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3) business
days immediately preceding the filing of the initial Registration Statement
and any amendment thereto, the Company and its counsel shall be obligated
to respond to the proposed changes electronically transmitted to them
within two (2) hours from the time of the completion of the transmission of
the proposed changes to the Company's counsel, provided that Compass has
provided to the Company or Company's counsel reasonably adequate advance
notice of the need for the Company and its counsel to respond to such
proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO. Neither the Company nor the Stockholders will be liable for any portion of
the above expenses in the event the IPO is not closed. Compass shall also pay
(i) the underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by
32
<PAGE>
taxing authorities and relevant records concerning the ownership and tax
basis of property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis, at its cost,
to provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party required to file returns pursuant to
this Agreement shall bear all costs of filing such returns.
7.6.2 Each of the Company, Compass and the Stockholders shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders
given within thirty (30) days after receipt of such notice, Compass will
use its best efforts to cause to be included in such registration all of
the Compass Common Stock which any such Stockholder requests, provided that
Compass shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel reasonably acceptable to the stockholders of the
Founding Companies, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
-----------
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate of
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Stock Purchase Agreements may request in writing that Compass file a
registration statement under the 1933 Act covering the registration of the
shares of Compass Common Stock so issued and then held by such stockholders
(a "Demand Registration"). Such request shall specify the intended method
of disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the
33
<PAGE>
Founding Companies and shall use its best efforts to effect as soon as
practicable a registration under the 1933 Act that will permit the
disposition of the shares in accordance with the method specified in the
request. Compass shall be obligated to effect only one Demand Registration
pursuant to this Section 7.7.2. Compass may register in the same process
-------------
other unregistered, previously issued Compass Common Stock; provided,
however, that the registration of such other unregistered, previously
issued Compass Common Stock shall not reduce the number of shares of
Compass Common Stock of stockholders of the Founding Companies requested to
be registered pursuant to this Section 7.7.2.
-------------
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as
soon as reasonably practicable, a registration statement with respect
to the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by any Stockholder at any time when (i) the Compass
Common Stock is listed
34
<PAGE>
on a recognized national or regional securities exchange or traded in the
NASDAQ national market, and (ii) the resale provisions of Rule 144(k)
promulgated under the 1933 Act are available to such Stockholder.
7.7.6 In consideration of the granting to the Stockholders of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholders agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale arrangements,
shares of Compass Common Stock in the ten (10) days prior to the
effectiveness of any registration of Compass Common Stock for sale to the
public and for up to ninety (90) days following the effectiveness of such
registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholders shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
35
<PAGE>
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholders released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all such guarantees on
------------
indebtedness being assumed by Compass, if necessary to achieve such releases.
In the event that Compass cannot obtain such releases from the lenders of any
such guaranteed indebtedness, Compass will defend, indemnify and hold harmless
the Stockholders against any and all claims made by lenders under such
guarantees which arise as a result of Compass' failure to cause such guarantees
to be released, including, without limitation, if a Claim for payment is made
with respect to such guarantee subsequent to the Closing.
7.10 Lock-Up Agreement. Each Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, such Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of Montgomery Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of Stockholders. At or prior to the Closing, the
---------------------------
Stockholders shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholders and the Company. The Stockholders
---------------------------------------------------
and the Company agree to indemnify, defend and save the Compass Indemnified
Parties (hereinafter defined), and each of them, harmless from and against, and
to promptly pay to a Compass Indemnified Party or reimburse a Compass
Indemnified Party for, any and all Losses (hereinafter defined) sustained or
incurred by any Compass Indemnified Party relating to, resulting from, arising
out of or otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholders or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholders to observe or
perform any of their covenants and agreements set forth herein; and
(c) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the
36
<PAGE>
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission to state therein a material fact relating to the Company or
the Stockholders required to be stated therein or necessary to make the
statements therein not misleading, and not provided to Compass or its
counsel by the Company or the Stockholders; provided, however, that such
indemnity shall not inure to the benefit of any Compass Indemnified Party
to the extent that such untrue statement (or alleged untrue statement) was
made in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.1(c).
--------------
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
------------
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
------------
set forth in this Article VIII, the Other Founding Companies, and each of their
------------
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save each of the Stockholders and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any
37
<PAGE>
Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by Compass or any action, demand or claim by
any third party against or affecting any Stockholder Indemnified Party
which, if successful, would give rise to a breach of any such
representation or warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other
federal or state law or regulation, at common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be
stated therein or necessary to make the statements therein not misleading,
to the extent such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.2(d).
--------------
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is
38
<PAGE>
required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice thereof together
with a statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such shorter time as may be necessary, in the Indemnified Party's
reasonable judgment, to give the Indemnifying Party a reasonable
opportunity to respond to and defend such claim); provided, however, that
the failure to give such notice shall not affect the right to indemnity
hereunder except to the extent the Indemnifying Party is prejudiced by such
delay. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The Indemnifying Party
shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint
39
<PAGE>
representation would be inappropriate (and in each case the cost of such
defense shall constitute an amount for which the Indemnified Party is
entitled to indemnification hereunder); provided, however, that the
Indemnifying Party shall have the right to settle such claim only with the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. If an offer is made to settle a Third
Party Claim which all parties to such Third Party Claim (including the
Indemnifying Party) are prepared to settle and which offer the Indemnifying
Party is permitted to settle under this Section 8.3.2 only upon the prior
-------------
written consent of the Indemnified Party, the Indemnifying Party will give
prompt written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within (30) calendar
days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
- ---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party
-----------------
is reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of
40
<PAGE>
such Loss, and the Indemnified Party shall have no obligation, hereunder or
otherwise, to pursue payment under or from any insurer or third party in respect
of such Loss. The Indemnified Party shall cooperate, at no expense to the
Indemnified Party, in any reasonable efforts of the Indemnifying Party in
pursuing such payments, including expressly acknowledging the Indemnifying
Party's right and standing to pursue such payments, and the Indemnified Party
will use its customary efforts short of litigating with an insurer or third
party to collect amounts due from such insurer or third party. If any insurance
or third party reimbursement is obtained subsequent to payment by an
Indemnifying Party in respect of a Loss, such reimbursement (to the extent of
amounts theretofore paid by the Indemnifying Party on account of such Loss)
shall be promptly paid over to the Indemnifying Party. The liability of the
Indemnifying Party with respect to any Direct Claim or Third Party Claim shall
be reduced by the income tax benefit actually realized by the Indemnified Party
as a result of any Losses upon which such Direct Claim or Third Party Claim is
based. An income tax benefit shall only be treated as realized if a Loss is
deductible in the income tax return for the taxable year of such Loss and if
such deduction produces an actual reduction of taxes paid for such year.
Calculation of the income tax benefit shall be made by a comparison of the
income taxes actually due with the tax returns and the income taxes that would
be due if the Loss was not deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Liability Among the Stockholders and the Company. The Company
------------------------------------------------
shall have no liability pursuant to Section 8.1 after the Closing. Prior to
-----------
the Closing, the Stockholders set forth on Schedule 8.7.1-1 (the "Major
----------------
Stockholders") and the Company shall be jointly and severally liable for
all of the Losses pursuant to Section 8.1. Subsequent to the Closing, each
-----------
of the Major Stockholders shall be jointly and severally liable for all of
the Losses pursuant to Section 8.1, up to the amount of Aggregate Purchase
-----------
Consideration received by such Major Stockholder. Prior to and subsequent
to the Closing, each of the Stockholders set forth on Schedule 8.7.1-2 (the
----------------
"Minor Stockholders") shall be severally liable for all of the Losses
pursuant to Section 8.1 in proportion to the percentages set forth opposite
-----------
such Minor Stockholder name on Schedule 8.7.1-2, up to the amount of
----------------
Aggregate Purchase Consideration received by such Minor Stockholder.
8.7.2 Threshold for the Stockholders and the Company. With respect to
----------------------------------------------
representations and warranties, the Stockholders and the Company shall not
have any liability pursuant to Section 8.1(a) hereof unless and until and
--------------
only to the extent that the aggregate amount of Losses accrued pursuant to
Section 8.1(a) exceeds the Threshold Amount (hereinafter defined);
--------------
provided, however, that this threshold shall not apply to Losses arising
out of breaches of representations or warranties contained in Sections 4.2,
------------
4.4.1, 4.16 and 4.25, and the Stockholders shall indemnify the Compass
----- ---- ----
Indemnified Parties for any Losses accruing thereunder in accordance with
this Article VIII without regard to such threshold. As used herein,
------------
"Threshold Amount" shall mean the following amounts (as applicable): (i) in
the event the Agreement is terminated pursuant to Section 10.1 and the
------------
Closing does not occur, one percent (1%) of the "Minimum Value" as set
forth on Schedule 2.1 (the "Minimum Value"), or (ii) subsequent to the
------------
Closing, one percent (1%) of the Aggregate Purchase Consideration.
41
<PAGE>
8.7.3 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained in Sections 5.2
------------
and 5.4.1 and Compass shall indemnify the Stockholder Indemnified Parties
-----
from any Losses occurring thereunder in accordance with this Article VIII
------------
without regard to such threshold.
8.7.4 Limitations on Claims Against the Stockholders and the Company.
--------------------------------------------------------------
The Stockholders' and the Company's liability for misrepresentations and
breaches of representations and warranties under Section 8.1(a) shall be
--------------
limited to the Cap Amount (hereinafter defined) in the aggregate; provided,
however that this limitation shall not apply to Losses arising out of
breaches of representations or warranties contained in Sections 4.2, 4.4.1,
------------ -----
4.16 and 4.25, and any Losses accruing thereunder shall not count towards
---- ----
such limitation. As used herein, "Cap Amount" shall mean the following
amounts (as applicable): (i) in the event the Agreement is terminated
pursuant to Section 10.1 and the Closing does not occur, twenty percent
------------
(20%) of the Minimum Value, or (ii) subsequent to the Closing, the
Aggregate Purchase Consideration.
8.7.5 Limitation on Claims Against Compass. The liability of Compass
------------------------------------
under Section 8.2(a) shall be limited to the Cap Amount in the aggregate;
--------------
provided, however that this limitation shall not apply to Losses arising
out of breaches of representations or warranties in Sections 5.2 and 5.4.1
------------ -----
and any Losses accruing thereunder shall not count towards such limitation.
8.7.6 Limitations Relating to Post-Closing Adjustment. In the event a
-----------------------------------------------
Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholders, the Company and the Stockholders shall not have any liability
for the amount of Losses pursuant to Section 8.1(a) arising out of such
--------------
breach and the amount of such Losses shall not be included in the
calculation of the Threshold Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholders and the Company; Time Limits on Indemnification Obligations.
- ------------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholders, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholders and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholders and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholders' obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
- -------------------
performed by the Stockholders after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
------------------
within the applicable time period as specified
42
<PAGE>
below, shall expire one (1) year after the Closing Date, except with respect to
the Stockholders' obligations arising under or relating to (A) Section 4.16
------------
hereof, which shall survive until the expiration of the applicable periods
(including any extensions) of the respective statutes of limitation applicable
to the payment of the Taxes and (B) Section 4.2 hereof, which shall survive
-----------
indefinitely; and (ii) solely to the extent that Compass actually incurs
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.1(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
----------------------------------------------------------------------
Limits on Indemnification Obligations. All representations, warranties,
- -------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, (i) that Compass'
obligations under Sections 8.2 (a) and (b), other than those relating to
------------------------
covenants and agreements to be performed by Compass after the Closing and other
than with respect to the obligations for which a claim is made as provided in
Section 8.3 or 8.4 hereof within the applicable time period as specified below,
- ------------------
shall expire one (1) year after Closing Date, except with respect to obligations
arising under or relating to Section 5.2 hereof which shall survive
-----------
indefinitely; and (ii) solely to the extent that the Stockholders actually incur
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.2(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything in
-----------------------------------------
this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon fraud
--------------------------------
and except for equitable remedies, the remedies provided in this Article VIII
------------
constitute the sole and exclusive remedies for recovery of Losses against a
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
- -----------
Indemnity"), the Stockholders may satisfy their respective obligations for the
Excess Indemnity (i) by tendering to the Compass Indemnified Parties shares of
Compass Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholders' shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
43
<PAGE>
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholders (valuing the shares of
Compass Common Stock received by the Stockholders at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents and
stockholders approvals required for the consummation of the Purchase or any
of the Other Purchases and the transactions contemplated hereby and by the
Other Stock Purchase Agreements shall have been obtained and be in effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase. Unless
--------------------------------------------------------------
waived by the Company, the obligation of the Company to effect the Purchase
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other
44
<PAGE>
Stock Purchase Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of Compass contained in
this Agreement and each Other Stock Purchase Agreement shall be true and
correct in all material respects on and as of the date made and on and as
of the Closing Date as if made at and as of such date, and the Company
shall have received a certificate of the Chief Executive Officer or
President of Compass to that effect;
(b) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to the Stockholders of the Purchase;
(c) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and the Stockholders;
(d) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholders of
Compass Common Stock to be issued to the Stockholders pursuant to this
Agreement will not be taxable pursuant to Section 351 of the Code;
(e) Kenneth W. Murphy, the Company's Chairman ("Murphy"), shall
have been afforded the opportunity to enter into an employment agreement in
the form attached hereto as Exhibit 9.2(e);
--------------
(f) John Erickson, Robert Meador, Richard Bainter, Lee McNamara,
Jack Podian and Earl Johnson shall have been afforded the opportunity to
enter into mutually agreeable employment agreements with Compass;
(g) Compass shall have delivered to the Company and the
Underwriters a certificate, dated as of a date no later than ten (10) days
prior to the Closing Date, duly issued by the Secretary of State of the
State of Delaware, showing that Compass is in good standing;
(h) each of the Stockholders, the stockholders of the other
Founding Companies who are to receive shares of Compass Common Stock
pursuant to the Other Stock Purchase Agreements, and the other stockholders
of Compass other than those acquiring stock in the IPO shall have entered
into a stockholders agreement (the "Stockholders Agreement") in the form
attached hereto as Exhibit 9.2(h); and
--------------
(i) all conditions to the Other Purchases, on substantially the
same terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
45
<PAGE>
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Compass and the Underwriters shall have
received a Certificate of the Chief Executive Officer or President of the
Company to that effect;
(b) the Stockholders shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and Compass and the Underwriters
shall have received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion
from Jenkens & Gilchrist, counsel to the Company and the Stockholders,
dated the Closing Date, the final form of such opinion to be in form and
substance acceptable to counsel for Compass and the Underwriters;
(d) Murphy, John Erickson, Robert Meador, Richard Bainter, Lee
McNamara, Jack Padian and Earl Johnson shall have executed and delivered
employment agreements referred to in Sections 9.2(e) and 9.2(f);
--------------- ------
(e) Compass and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Compass), with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues and the total
and per share amounts of net income;
(f) the Company shall have delivered to Compass and the
Underwriters a certificate, dated as of a date no later than ten (10) days
prior to the Closing Date, duly issued by the appropriate governmental
authority in the Company's and Company Subsidiary's state of incorporation
and in each state in which the Company or any Company Subsidiary is
authorized to do business, showing the Company or Company Subsidiary (as
applicable) is in good standing;
(g) no Governmental Authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to Compass of the Purchase;
(h) the Stockholders shall have executed the Stockholders Agreement;
46
<PAGE>
(i) the Stockholders shall have delivered to Compass an instrument
in the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholders against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the
Stockholders;
(j) all amounts owed by a Stockholder, any Affiliate of a
Stockholder or any Affiliate of the Company or any Company Subsidiary to
the Company or any Company Subsidiary, and all amounts owed by the Company
or any Company Subsidiary to a Stockholder, any Affiliate of a Stockholder
or any Affiliate of the Company or any Company Subsidiary, shall have been
settled and satisfied; and
(k) the directors of the Company immediately prior to the Closing
shall have delivered to Compass their resignations as directors of the
Company.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholders,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of the Stockholders or any of their affiliates or
associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Compass; or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
47
<PAGE>
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of Compass
or any of its 5% stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Company by
Compass;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Stockholders by
Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholders, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
------------ --------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
- --- --- --- ------------
10.3 Amendment. This Agreement may not be amended except by written
---------
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholders acknowledge that the shares of Compass Common Stock to be
delivered to the Stockholders pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by each
of the Stockholders pursuant to this Agreement is being acquired solely for such
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. Except as set forth on Schedule 11.1,
----------------------------- -------------
each of the Stockholders represents and warrants to Compass that he or she is an
"accredited investor" as
48
<PAGE>
defined in Regulation D promulgated under the 1933 Act; that he or she is able
to bear the economic risk of an investment in the Compass Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of the
proposed investment in the Compass Common Stock; and that he or she has had an
adequate opportunity to ask questions and receive answers from the officers of
Compass concerning all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of Compass, and the plans for of operations of
the business of Compass.
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), and subject to the provisions of Section 7.10, for a period
------------
of one (1) year from the Closing Date, the Stockholders shall not (a) sell,
assign, exchange, transfer, encumber, pledge, distribute or otherwise dispose of
(i) any shares of Compass Common Stock received by the Stockholders pursuant to
this Agreement, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Compass Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(b) engage in any transaction, whether or not with respect to any shares of
Compass Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Compass Common Stock acquired
pursuant to Article II hereof (including, without limitation, engaging in put,
----------
call, short-sale, straddle or similar market transactions). The certificates
evidencing the Compass Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear a legend substantially in the form set
- ----------
forth below and containing such other information as Compass may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO [INSERT FIRST
ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholders covenant, warrant and represent
-------------------
that none of the shares of Compass Common Stock issued to such Stockholders will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All certificates
evidencing Company Common Stock delivered to the Stockholders
49
<PAGE>
pursuant to Article II of this Agreement shall bear the following legend in
----------
addition to the legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE
SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES
WITH THE ACT AND THE APPLICABLE SECURITIES LAW.
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. The Stockholders will not, for a period of
---------------------
five (5) years following the Closing Date, other than for the benefit of
Compass, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the
Territory, an employee of Compass (including the subsidiaries thereof) in a
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of Compass (including the
subsidiaries thereof), or hire such person, provided that any Stockholder
shall be permitted to call upon and hire any member of his or her immediate
family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Compass in the event of breach by such Stockholders,
by injunctions and restraining orders.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on the
-----------
Stockholders in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of
50
<PAGE>
Compass and the Stockholders that such covenants be construed and enforced in
accordance with the changing activities and business of Compass (including the
subsidiaries thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Compass and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Stockholder shall enter into a business or pursue other
activities not in competition with Compass and/or any subsidiary thereof, or
similar activities or business in locations the operations of which, under such
circumstances, does not violate this Article XII and in any event such new
-----------
business, activities or location are not in violation of this Article XII or of
-----------
such Stockholder's obligations under this Article XII, such Stockholder shall
-----------
not be chargeable with a violation of this Article XII if Compass and/or any
-----------
subsidiary thereof shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Article XII, during which the
-----------
agreements and covenants of each Stockholder made in this Article XII shall be
-----------
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Article XII.
-----------
The covenants contained in Article XII shall not be affected by any breach of
-----------
any other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders' Covenant. The Stockholders recognize and acknowledge
----------------------
that they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass'
51
<PAGE>
respective businesses. The Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except
(a) to authorized representatives of Compass,
(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
Compass,
(c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this
Section 13.1,
------------
(d) such information becomes known to the public generally through
no fault of the Stockholders,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure
is required in connection with the defense of a lawsuit against the
disclosing party, or
(g) pursuant to this Agreement or the Other Stock Purchase
Agreements.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as
-------
a result of the breach of the foregoing covenants in Section 13.1, and because
------------
of the immediate and irreparable damage that would be caused for which they
would have no other adequate remedy, the parties hereto agree that, in the event
of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining orders.
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholders, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee (except for the fee described in Schedule
--------
14.1-1) or commission in connection with the
- -------
52
<PAGE>
Purchase or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or the Stockholders. Compass
represents and warrants that no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee (except for the fee described in
Schedule 14.1-2) or commission in connection with the Purchase or the
- ---------------
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Compass or its stockholders (other than underwriting discounts and
commission to be paid in connection with the IPO).
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
225 West Washington Street
Suite 1600
Chicago, Illinois 60606
Attn: Scott H. Lang
Facsimile No.: (312) 368-1988
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
14.2.2 If to the Company, to:
The Mail Box, Inc.
3700 Pipestone Road
Dallas, Texas 75212-6194
Attn: Kenneth W. Murphy
Facsimile No.:(214) 637-4286
with a copy to:
Jenkens & Gilchrist
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202-2799
Attn: L. Steven Leshin, Esq.
Facsimile No.: (214) 855-4300
53
<PAGE>
14.2.3 If to the Stockholders, addressed to them at their addresses
set forth on Schedule 14.2.3, with copies to such counsel as is set forth with
---------------
respect to each Stockholder on such Schedule 14.2.3.
---------------
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term "person"
-------------------
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
1933 Act, and shall include each past and present Affiliate of a person or
entity and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) the term "to the knowledge of the Stockholders or the
Company" or any similar term shall mean actual knowledge of a fact or matter
possessed by any of the Stockholders, by any of the officers or directors of the
Company.
14.5 Entire Agreement; Assignment. This Agreement (including the schedules
----------------------------
and exhibits attached hereto and the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, without the prior written consent of the
parties hereto.
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and except as expressly set forth in
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
- ------------ -----------
Agreement is held invalid or
54
<PAGE>
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or enforceable only in part or degree will remain in full
force and effect to the extent not held invalid or unenforceable.
55
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
------------------------------------
Name: Michael Cunningham
Its: Chairman and CEO
------------------------------------
THE MAIL BOX, INC.
By: /s/ Kenneth W. Murphy
------------------------------------
Name: Kenneth W. Murphy
------------------------------------
Its: President
------------------------------------
/s/ Kenneth W. Murphy
------------------------------------------
KENNETH W. MURPHY
KENNETH W. MURPHY
CHILDRENS TRUST
By: /s/ David L. Mallory
--------------------------------------
Trustee
STOCKHOLDERS
/s/ John Erickson
------------------------------------------
JOHN ERICKSON
/s/ Robert Meador
------------------------------------------
ROBERT MEADOR
/s/ Richard J. Bainter
------------------------------------------
RICHARD J. BAINTER
/s/ Lynn Harris
------------------------------------------
LYNN HARRIS
56
<PAGE>
/s/ Earl Johnson
------------------------------------------
EARL JOHNSON
/s/ Jack Padian
------------------------------------------
JACK PADIAN
/s/ Lee McNamara
------------------------------------------
LEE McNAMARA
/s/ Patty Bond
------------------------------------------
PATTY BOND
57
<PAGE>
EXHIBIT 2.2
---------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES
CORPORATION,
NATIONAL CREDIT MANAGEMENT CORP., AND
THE STOCKHOLDERS OF NATIONAL CREDIT MANAGEMENT CORP.
DATED AS OF OCTOBER 3, 1997
---------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE PURCHASE AND SALE OF STOCK................................ 1
ARTICLE II - CONSIDERATION................................................ 2
2.1 Purchase Price.............................................. 2
2.2 Exchange of Certificates for Consideration.................. 2
2.3 Payment of Aggregate Cash Consideration..................... 2
2.4 Post-Closing Adjustment..................................... 2
ARTICLE III - THE CLOSING AND CLOSING DATE................................ 4
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS...................................................... 4
4.1 Organization and Qualification.............................. 4
4.2 Capitalization.............................................. 4
4.3 Company Subsidiaries........................................ 5
4.4 Authority; Non-Contravention; Approvals..................... 5
4.5 Financial Statements........................................ 6
4.6 Absence of Undisclosed Liabilities.......................... 7
4.7 Accounts and Notes Receivable............................... 7
4.8 Absence of Certain Changes or Events........................ 7
4.9 Litigation.................................................. 9
4.10 Compliance with Applicable Laws............................. 10
4.11 Licenses and Permits........................................ 10
4.12 Material Contracts.......................................... 11
4.13 Properties.................................................. 13
4.14 Intellectual Property....................................... 17
4.15 Minute Books and Stock Records.............................. 17
4.16 Taxes....................................................... 17
4.17 Employee Benefit Plans; ERISA............................... 18
4.18 Labor Matters............................................... 20
4.19 Environmental Matters....................................... 20
4.20 Insurance................................................... 21
4.21 Interest in Customers and Suppliers; Affiliate Transactions. 21
4.22 Business Relationships...................................... 22
4.23 Compensation................................................ 22
4.24 Bank Accounts............................................... 22
4.25 Deemed Earnings Estimate.................................... 22
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF COMPASS..................... 23
5.1 Organization and Qualification.............................. 23
5.2 Capitalization.............................................. 23
5.3 No Subsidiaries............................................. 24
5.4 Authority; Non-Contravention; Approvals..................... 24
5.5 Absence of Undisclosed Liabilities.......................... 25
<PAGE>
5.6 Litigation.................................................. 25
5.7 Compliance with Applicable Laws............................. 25
5.8 Other Agreements............................................ 25
ARTICLE VI - CERTAIN COVENANTS AND OTHER TERMS............................ 26
6.1 Conduct of Business Pending the Purchase.................... 26
6.2 No - Shop................................................... 28
6.3 Schedules................................................... 29
ARTICLE VII - ADDITIONAL AGREEMENTS....................................... 30
7.1 Access to Information....................................... 30
7.2 Registration Statement...................................... 31
7.3 Expenses and Fees........................................... 32
7.4 Agreement to Cooperate...................................... 32
7.5 Public Statements........................................... 32
7.6 Preparation and Filing of Tax Returns....................... 33
7.7 Registration Rights......................................... 33
7.8 Rule 144 Reporting.......................................... 35
7.9 Release of Guarantees....................................... 36
7.10 Lock-Up Agreement........................................... 36
7.11 Obligations of Stockholders................................. 36
ARTICLE VIII - INDEMNIFICATION........................................... 36
8.1 Indemnification by the Stockholders and the Company......... 36
8.2 Indemnification by Compass.................................. 38
8.3 Indemnification Procedure for Third Party Claims............ 39
8.4 Direct Claims............................................... 40
8.5 Failure to Give Timely Notice............................... 41
8.6 Reduction of Loss........................................... 41
8.7 Limitation on Indemnities................................... 42
8.8 Survival of Representations, Warranties and Covenants of the
Stockholders and the Company; Time Limits on Indemnification
Obligations................................................. 43
8.9 Survival of Representations, Warranties and Covenants of
Compass; Time Limits on Indemnification Obligations......... 43
8.10 Defense of Claims; Control of Proceedings................... 43
8.11 Indemnification Exclusive Remedy............................ 43
8.12 Manner of Satisfying Indemnification Obligations............ 43
ARTICLE IX - CLOSING CONDITIONS........................................... 44
9.1 Conditions to Each Party's Obligation to Effect the Purchase 44
9.2 Conditions to Obligation of the Company to Effect the
Purchase.................................................... 45
9.3 Conditions to Obligations of Compass to Effect the Purchase. 46
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER............................. 47
10.1 Termination................................................. 47
10.2 Effect of Termination....................................... 48
(ii)
<PAGE>
10.3 Amendment................................................... 48
10.4 Waiver...................................................... 49
ARTICLE XI - 1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS........... 49
11.1 Economic Risk; Sophistication............................... 49
11.2 Transfer Restrictions....................................... 49
11.3 Compliance with Law......................................... 50
ARTICLE XII - NONCOMPETITION.............................................. 50
12.1 Prohibited Activities....................................... 50
12.2 Damages..................................................... 51
12.3 Reasonable Restraint........................................ 51
12.4 Severability; Reformation................................... 51
12.5 Independent Covenant........................................ 51
12.6 Materiality................................................. 52
ARTICLE XIII - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................. 52
13.1 Stockholders' Covenant...................................... 52
13.2 Damages..................................................... 53
13.3 Survival.................................................... 53
ARTICLE XIV - GENERAL PROVISIONS......................................... 53
14.1 Brokers..................................................... 53
14.2 Notices..................................................... 53
14.3 Interpretation.............................................. 54
14.4 Certain Definitions......................................... 55
14.5 Entire Agreement; Assignment................................ 55
14.6 Applicable Law.............................................. 55
14.7 Counterparts................................................ 55
14.8 Parties in Interest......................................... 55
14.9 Severability................................................ 55
(iii)
<PAGE>
LIST OF SCHEDULES
Schedule A Stockholders of Company
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and Company
Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Properties
Schedule 4.13.1-2(a) Pending Proceeding to Reduce General Real Estate Taxes
Schedule 4.13.1-2(b) Matters Relating to Lease Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16.1 Tax Audits
Schedule 4.17.1 Exceptions Regarding Employee Plans
(iv)
<PAGE>
Schedule 4.17.2 Description of Unwritten Employee Plans
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 7.9 Stockholders' Guarantees
Schedule 11.1 Non-Accredited Investors
Schedule 14.1-1 Company's and Stockholders' Brokers
Schedule 14.1-2 Compass' Brokers
Schedule 14.2.3 Stockholders and their Counsel
(v)
<PAGE>
LIST OF EXHIBITS
Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e) Form of Employment Agreements
Exhibit 9.2(g) Stockholders Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholders' Release
(vi)
<PAGE>
DEFINED TERMS
<TABLE>
<CAPTION>
<S> <C>
ADA.......................................................... Section 4.13.1(h)
Affiliate.................................................... Section 14.4
Affiliate Transactions....................................... Section 4.2.1
Aggregate Cash Consideration................................. Section 2.1(a)
Aggregate Purchase Consideration............................. Section 2.1
Agreement.................................................... Introduction
Business..................................................... Section 4.12
Cap Amount................................................... Section 8.7.3
Claims....................................................... Section 4.9.1
Closing...................................................... Article III
Closing Date................................................. Article III
Code......................................................... Introduction
Company...................................................... Introduction
Company Material Adverse Effect.............................. Section 4.8(r)
Company Representatives...................................... Section 7.1.1
Company Stock................................................ Article I
Company Subsidiaries......................................... Section 4.1
Compass...................................................... Introduction
Compass Common Stock......................................... Section 2.1
Compass Indemnified Party.................................... Section 8.1
Compass Indemnified Parties.................................. Section 8.1
Compass Material Adverse Effect.............................. Section 5.4.3
Compass Representatives...................................... Section 7.1.1
</TABLE>
(vii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Compass Required Statutory Approvals..........................Section 5.4.3
Contracts......................................................Section 4.12
Copyrights.....................................................Section 4.14
Deemed Earnings Actuals......................................Section 2.4(b)
Deemed Earnings Estimate.....................................Section 2.4(a)
Deemed Earnings Excess.......................................Section 2.4(f)
Deemed Earnings Shortfall....................................Section 2.4(g)
Defense Notice................................................Section 8.3.1
Demand Registration...........................................Section 7.7.2
Direct Claim....................................................Section 8.4
Employee Plan.............................................Section 4.17.5(a)
Environmental and Safety Requirements..........................Section 4.19
ERISA.....................................................Section 4.17.5(b)
Excess Indemnity...............................................Section 8.12
Final Deemed Earnings Actuals................................Section 2.4(e)
Financial Statements..........................................Section 4.5.1
First Person..............................................Section 4.17.5(c)
Founding Companies.............................................Introduction
Governmental Authority........................................Section 4.4.2
Hazardous Materials............................................Section 4.19
herein.........................................................Section 14.3
hereof.........................................................Section 14.3
hereunder......................................................Section 14.3
Indemnified Party.............................................Section 8.3.1
</TABLE>
(viii)
<PAGE>
<TABLE>
<S> <C>
Indemnifying Party................................... Section 8.3.1
Insurance Policies................................... Section 4.20
Intellectual Property................................ Section 4.14
Intellectual Property Licenses....................... Section 4.14
IPO.................................................. Introduction
IT................................................... Introduction
ITG.................................................. Introduction
Latest Balance Sheet................................. Section 4.5.1
Laws................................................. Section 4.10
Leased Property...................................... Section 4.13.1
Licenses............................................. Section 4.11
Liens................................................ Section 4.2.1
Loss................................................. Section 8.1
Losses............................................... Section 8.1
Market Price......................................... Section 8.12
Marks................................................ Section 4.14
Material Contracts................................... Section 4.12
Minimum Value........................................ Section 8.7.1
1933 Act............................................. Section 4.4.3
1934 Act............................................. Section 7.8(b)
Notice Period........................................ Section 2.4(c)
Other Agreements..................................... Introduction
Other Founding Companies............................. Section 8.1
Other Stock Purchase Agreements...................... Introduction
</TABLE>
(ix)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Other Purchases.....................................................Introduction
Owned Property..................................................Section 4.13.1-1
Patents.............................................................Section 4.14
person..............................................................Section 14.4
Plan Affiliate.................................................Section 4.17.5(c)
Prospectus.........................................................Section 7.2.1
Purchase............................................................Introduction
Real Property.....................................................Section 4.13.1
Registration Statement.............................................Section 4.4.3
Representatives....................................................Section 7.1.1
Returns...........................................................Section 4.16.1
Schedules............................................................Section 6.3
SEC................................................................Section 4.4.3
Stockholder Indemnified Party........................................Section 8.2
Stockholders........................................................Introduction
Stockholders Agreement............................................Section 9.2(g)
Stockholders Notice...............................................Section 2.4(c)
Taxes.............................................................Section 4.16.2
Territory........................................................Section 12.1(a)
Threshold Amount...................................................Section 8.7.1
Third Party Claim..................................................Section 8.3.1
to the knowledge of the Stockholders or the Company.................Section 14.4
Trade Secrets.......................................................Section 4.14
Underwriters.......................................................Section 7.1.1
</TABLE>
(x)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), National Credit Management Corporation, a Maryland
corporation (the "Company"), and the stockholders of the Company identified on
Schedule A to this Agreement (the "Stockholders").
- ----------
WITNESSETH:
WHEREAS, the Stockholders desire to sell to Compass, and Compass desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of the Company for the consideration and on the terms set forth in
this Agreement (the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of BRMC of Delaware, Inc., a Delaware corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), The Mail Box, Inc., a
Delaware corporation, Mid-Continent Agencies, Inc., an Illinois corporation
(which companies together with the Company are collectively referred to herein
as the "Founding Companies") and their respective stockholders, which agreements
provide for the purchase (collectively, the "Other Purchases") of all of the
issued and outstanding shares of capital stock of such companies simultaneously
with the Purchase;
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE PURCHASE AND SALE OF STOCK
<PAGE>
Upon the terms and subject to the conditions of this Agreement, at the
Closing (hereinafter defined), the Stockholders shall sell to Compass, and
Compass shall purchase from Stockholders, all of the outstanding shares of
capital stock of the Company, consisting of 210,000 shares of Class A common
stock $0.01 per share, par value of the Company (the "Company Stock").
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price for the shares of Company Stock
--------------
shall be as follows: At the Closing, for each share of Company Stock issued and
outstanding immediately prior to the Closing, the Stockholders shall be entitled
to receive from Compass (i) that number of shares of Common Stock, par value
$0.01 per share, of Compass ("Compass Common Stock") set forth in Schedule 2.1
------------
and (ii) the amount of cash determined in accordance with the formula set forth
in Schedule 2.1 (the aggregate amount of cash so to be paid in respect of all of
------------
the Company Stock is herein referred to as the "Aggregate Cash Consideration")
and subject to the adjustment provided for in Section 2.4 below. The sum of (i)
-----------
the Aggregate Cash Consideration and (ii) the value (determined as set forth on
Schedule 2.1) of all shares of Compass Common Stock so to be issued to the
Stockholders is herein referred to as "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholders shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholders or accompanied by
blank stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholders of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholders agree promptly to cure any deficiencies with
- ---
respect to the endorsement of the certificates or other documents of conveyance
with respect to such Company Stock. The certificates representing Compass
Common Stock to be delivered pursuant to this Article II shall bear a legend as
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and each of the Stockholders
holding a certificate representing any such shares of Company Stock shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass
---------------------------------------
shall pay to the Stockholders, by certified check, cashier's check or wire
transfer of immediately available funds to a bank account or bank accounts
specified by Stockholders in writing at least three (3) business days prior to
the Closing Date, an amount equal to the Aggregate Cash Consideration.
2
<PAGE>
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall
-----------------------
be subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate of
-----------------
the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholders in accordance with the procedure
set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Estimate"), and utilized in
-----------------
calculating the Aggregate Purchase Consideration as set forth in Schedule 2.1.
------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholders a calculation of the Company's actual earnings for the calendar
year ended on December 31, 1997, prepared by Price Waterhouse in accordance with
the procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Actuals").
-----------------
(c) If the Stockholders wish to assert in good faith that the Deemed
Earnings Actuals have not been determined in accordance with the procedure set
forth in Schedule 2.4(a)-1, the Stockholders shall notify Compass in writing
-----------------
thereof (the "Stockholders Notice") within fifteen (15) days after delivery of
the Deemed Earnings Actuals to the Stockholders (the "Notice Period"). The
Stockholders Notice shall set forth in reasonable detail the alleged non-
conformance and the disputed amount. If the Stockholders do not deliver the
Stockholders Notice within the Notice Period, the Deemed Earnings Actuals shall
become final and binding upon all parties.
(d) If the Stockholders Notice is delivered within the Notice Period,
the Stockholders and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholders are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholders Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholders, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are at
- --------------- --- ---
least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of the Deemed Earnings Estimate, then, no
further payments by Compass or the Stockholders shall be due pursuant to this
Section 2.4.
- -----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay to
the Stockholders, in the manner provided in Section 2.3 above, an amount in cash
-----------
equal to the
3
<PAGE>
Aggregate Purchase Consideration payable on account of the Deemed Earnings
Excess (hereinafter defined). The amount to be paid to the Stockholders pursuant
to this Section 2.4(f) shall be calculated by utilizing the formulae set forth
--------------
on Schedule 2.1. As used herein, "Deemed Earnings Excess" shall mean an amount
------------
equal to five (5) percent of the Deemed Earnings Estimate.
(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholders shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholders' liability pursuant to this
Section 2.4(g) exceed ten-percent (10%) of the Aggregate Purchase Consideration.
- --------------
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
- ---------- --
Agreement (the "Closing") shall take place at the offices of Katten Muchin &
Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Each of the Company and Stockholders hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
- -----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Maryland. Each of the Company's subsidiaries (collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation set forth on Schedule
--------
4.3. Each of the Company and the Company Subsidiaries has the requisite
- ---
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, and is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary. True, accurate and complete
copies of the Company's and each
4
<PAGE>
Company Subsidiary's Articles of Incorporation and By-laws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Compass.
4.2 Capitalization.
--------------
4.2.1 The authorized capital stock of each Company consists of
5,000,000 shares of Company Stock, of which 210,000 shares are issued and
outstanding, and 250 shares of Class B common stock, par value $0.01 per
share, none of which are issued or outstanding. All of such issued and
outstanding shares are validly issued and are fully paid, nonassessable and
free of preemptive rights. The Stockholders own beneficially and of record
all of the issued and outstanding shares of the Company Stock as set forth
in Schedule 4.2, which constitute all of the outstanding shares of capital
------------
stock of the Company, in each case free and clear of all claims, liens,
charges, encumbrances, pledges, conditional sales contracts, equity
charges, restrictions or security interests of any nature (collectively,
"Liens"). Each Stockholder has good and marketable title to the Company
Stock owned by such Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or a Company
Subsidiary or obligating the Company or a Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Stockholders to convey or transfer any Company Stock. Except as set forth
on Schedule 4.2, there are no voting trusts, proxies or other agreements or
understandings to which the Company or any Stockholder is a party or is
bound with respect to the voting of any shares of capital stock of the
Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
-------------------- ------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The
outstanding capital stock of each Company Subsidiary which is owned by the
Company is validly issued, fully paid and non-assessable. Except as set forth
on Schedule 4.3, the Company does not, directly or indirectly, own, of record or
------------
beneficially, or control any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, partnership, joint
venture or limited liability company.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholders and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the Stockholders,
and no other corporate proceedings on the part of the Company are necessary
to authorize the execution and
5
<PAGE>
delivery of this Agreement or the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and the Stockholders, and, assuming the due
authorization, execution and delivery hereof by Compass, constitutes a
valid and legally binding agreement of the Company and the Stockholders,
enforceable against the Company and the Stockholders in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
4.4.2 The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, any of the terms, conditions or provisions of
(i) the Articles of Incorporation or By-laws of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to any
Stockholder, the Company, any Company Subsidiary, or the business,
properties or assets of the Company or any Company Subsidiary, (iii) any
note, bond, mortgage, indenture or deed of trust, or (iv) any material
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company, any
Company Subsidiary or any of the Stockholders is a party or by which any of
the Stockholders, the Company, any Company Subsidiary or any of the
properties or assets of the Company or any Company Subsidiary may be bound
or affected. The consummation by the Company and the Stockholders of the
transactions contemplated hereby will not result in a violation, conflict,
breach, right of termination or acceleration, or creation of Liens, under
the terms, conditions or provisions of the items described in clauses (i)
through (iv) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clauses (iii) and (iv)
above, to obtaining (prior to the Closing) consents required from, or
giving notices required to be provided to, commercial lenders, lessors or
other third parties, all of which required consents and notices are listed
on Schedule 4.4.2.
--------------
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority
6
<PAGE>
is necessary for the execution and delivery of this Agreement by the
Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
audited consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31 in each of the years 1994 through 1996, and
the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the fiscal years then ended, including all notes
thereto, and the unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of June 30, 1997 (the "Latest Balance Sheet")
and the related consolidated statement of income, stockholders equity and
cash flows for the six (6) months then ended (collectively, the "Financial
Statements"). Each of the Financial Statements is accurate and complete in
all material respects, is consistent with the books and records of the
Company and the Company Subsidiaries (which, in turn, are accurate and
complete in all material respects), and fairly presents the financial
condition, assets and liabilities of the Company and the Company
Subsidiaries as of its date and the results of operations and cash flows
for the periods related thereto, in each case in accordance with generally
accepted accounting principles applied on a consistent basis, subject, in
the case of the unaudited interim financial statements, to normal and
customary year-end adjustments.
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
- ---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
- ---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past
7
<PAGE>
custom and practices. Except as set forth on Schedule 4.8, since the date of the
------------
Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial or
otherwise), operating results, assets, liabilities, employee, customer or
supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by the
Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $50,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, debt, asset
or property (having a replacement cost or fair market value in excess of
$50,000.00 in the aggregate), except in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute or similar occurrence that might
reasonably be expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
(f) notice (formal or otherwise) of any liability, potential liability
or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
8
<PAGE>
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholders or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholders or the Company, threatened material reduction in revenues
from, any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company Subsidiary
of any material liability or encumbrance or payment by the Company or any
Company Subsidiary of any material obligation or liability, other than
current liabilities paid in its ordinary course of business consistent with
past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets or
disclosure of any proprietary confidential information of the Company or
any Company Subsidiary to any person other than Compass, and the other
Founding Companies and their respective officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or any
Company Subsidiary in excess of $50,000.00 individually or $100,000.00 in
the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business,
9
<PAGE>
operations, property, assets, condition (financial or otherwise), operating
results, liabilities, employee, customer or supplier relations or business
prospects of the Company or any Company Subsidiary (a "Company Material
Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
- ------------
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholders or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholders or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority or arbitrator (collectively,
"Claims"), other than collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not
exceed $25,000.00, and (ii) on behalf of third parties; nor, to the
knowledge of the Stockholders or the Company, is there any basis for any
such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
Company Subsidiary in the ordinary course of business, none of which is
greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and for which the amount in dispute is presently ascertainable
with certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and (ii) on behalf of third parties, and in either case, and
for which the amount in dispute is presently ascertainable with certainty,
Schedule 4.9 sets forth all closed litigation matters to which the Company
------------
or any Company Subsidiary was a party during the five (5) years preceding
the Closing Date, the date such litigation was commenced and concluded, and
the nature of the resolution thereof (including amounts paid in settlement
or judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules
------------------------------- ---------
4.10 and 4.19, each of the Company and the Company Subsidiaries has complied in
- ---- ----
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders
10
<PAGE>
(collectively, "Laws") applicable to it or to the operation of the Business, and
has not received any notice of any alleged claim or threatened claim, violation
of or liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
knowledge of the Stockholders or the Company, no event has occurred or
circumstances exist that (with or without notice or lapse of time) may
constitute or result in a violation in any material respect by the Company or
any Company Subsidiary of any Law or may give rise to any material liability on
the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Each
of the Company and the Company Subsidiaries possesses all of the Licenses which
are necessary to enable it to carry on the Business as presently conducted. All
such Licenses are valid, binding and in full force and effect. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not adversely affect any such Licenses.
The Company and the Company Subsidiaries have taken all necessary action to
maintain such Licenses. No loss or expiration of any such License is pending or,
to the knowledge of the Stockholders or the Company, threatened or reasonably
anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $50,000.00);
11
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(d) any Contract other than trade payables in the ordinary course of
business relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original value in excess of $50,000.00;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other person, other than as provided
in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $50,000;
12
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(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
--------------
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $50,000.00.
The Company and the Stockholders have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholders or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as
set forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither the
Company or Company Subsidiary, as applicable, nor, to the knowledge of the
Stockholders or the Company, any other party to any Material Contract is in
breach or default thereunder, and to the knowledge of the Stockholders or the
Company there exists no condition which would, with or without the lapse of time
or the giving of notice, or both, constitute a breach or default thereunder. The
Company has not been notified that any party to any Material Contract intends to
cancel, terminate, not renew, or exercise an option under any Material Contract,
whether in connection with the transactions contemplated hereby or otherwise.
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a brief
-----------------
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"), and all facilities
thereon. Except as lessee of Leased Property, neither the Company nor any
Company Subsidiary is a lessee under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which another person or entity has granted to the Company or
any Company Subsidiary the right to use or occupy all or any portion of any
real property.
13
<PAGE>
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising out of
the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, and (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto,
or impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto. The Real Property
constitutes all real properties reflected on the Financial Statements or
used or occupied by the Company or any Company Subsidiary in connection
with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the knowledge of the Stockholders or
the Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
not, to the knowledge of the Stockholders or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholders or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation,
14
<PAGE>
building, environmental, land use or other ordinances, laws, codes or
regulations that affects the Company's or any Company Subsidiary's use of
such Owned Property (without regard to any non-conforming use or other so-
called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and correct description of all pending
--------------------
proceedings to reduce the general real estate taxes against the Owned
Property; none of the Owned Property is located in a special service
district, special service area, tax increment financing district or similar
district or area, or to the knowledge of the Stockholders or the Company,
subject to a threatened special assessment; and, to the knowledge of the
Stockholders or the Company, none of the Owned Property is located in an
area for which federal flood risk insurance is necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholders or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholders, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether written or oral, pursuant to which the Company or
Company Subsidiary has granted to any party or parties the right to use or
occupy all or any portion of the Owned Property;
(h) to the knowledge of the Stockholders or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
(i) there are no material defects in any improvements on or to the
Owned Property;
15
<PAGE>
(j) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures, and fixtures on the Owned
Property are free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
-----------
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholders or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholders or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholders or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of the
Business, and such Leased Property is, to the knowledge of the Stockholders
or the Company, maintained in all material respects in accordance with all
Laws applicable to the Company, any Company Subsidiary or the Leased
Property;
(v) none of the Stockholders, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or users of properties adjacent to the Leased Property relating
to the use, operation or maintenance of such facility or any adjacent real
property;
16
<PAGE>
(vi) neither the Company nor any Company Subsidiary is a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholders or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholders or the Company,
there are no material defects in any improvements on or to the Leased
Property;
(ix) to the knowledge of the Stockholders or the Company, the
Leased Property is free from regulated quantities of asbestos; and
(x) to the knowledge of the Stockholders or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflects all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholders or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names,
fictional business names and service marks (collectively, the "Marks"), (iii)
copyrights (the "Copyrights"), and (iv) know how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans and drawings (collectively, the "Trade Secrets") owned, used
or licensed by the Company or any Company Subsidiary (collectively, the
"Intellectual Property") are all those necessary to enable the Company and the
Company Subsidiaries to conduct and to continue to conduct the Business as it is
currently conducted. Schedule 4.14 contains a complete and accurate list of all
-------------
material Patents, Marks and Copyrights and a description of all material Trade
Secrets owned or used by the Company or any Company Subsidiary, and a list of
all material license agreements and arrangements with respect to any of the
Intellectual Property to which the Company or any Company Subsidiary is a
17
<PAGE>
party, whether as licensee, licensor or otherwise (the "Intellectual Property
Licenses"). Except as set forth on Schedule 4.14, (i) all of the Intellectual
-------------
Property is owned, or used under a valid Intellectual Property License, by the
Company or one of the Company Subsidiaries, and, is free and clear of all Liens
and other adverse claims; (ii) to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary has infringed on or
misappropriated, is now infringing on or misappropriating, or has received any
notice that it is infringing on, misappropriating, or otherwise conflicting with
the intellectual property rights of any third parties; (iii) there is no claim
pending or, to the knowledge of the Stockholders or the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) to the knowledge
of the Stockholders or the Company, the operation of any aspect of the Business
in the manner in which it has heretofore been operated or is presently operated
does not give rise to any such infringement or misappropriation; and (v) to the
knowledge of the Stockholders or the Company, there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or threatened, against any third party with respect to the alleged infringement
or misappropriation of the Intellectual Property by such third party.
4.15 Minute Books and Stock Records. Except as set forth on Schedule 4.15,
------------------------------ -------------
(i) the minute books and stock records of the Company and each Company
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and correct and are not or will not be subject
to adjustment by the applicable taxing authority. The Company has
delivered to Compass true and complete copies of all Returns referred
to in the first sentence of this Section 4.16.1 (including any amendments
--------------
thereof) for the five (5) most recent taxable years. Neither the Company
nor any Company Subsidiary is delinquent in the payment of any Tax, and no
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing received
by the Company or Company Subsidiary. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the Company
or any Company Subsidiary
18
<PAGE>
does not file Tax returns is pending pursuant to which the Company or
Company Subsidiary, as applicable, is subject to taxation by that
jurisdiction. The Company's and the Company Subsidiaries' Returns were last
audited by the Internal Revenue Service or comparable state, local or
foreign agencies on the dates set forth on Schedule 4.16.1.
---------------
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability) whether direct or indirect (and regardless of whether
it would be derived from a current or former Plan Affiliate (hereinafter
defined)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA", including, but not limited to, any medical plan,
life insurance plan, short-term or long-term disability plan or dental
plan; (ii) any "employee pension benefit plan," as defined in Section 3(2)
of ERISA, including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority
with respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all or
any relevant aspect of each plan, including summary plan descriptions
and/or summary of material modifications, have been made available to
Compass. A description of each unwritten Employee Plan, including a
description of eligibility, participation, benefits,
19
<PAGE>
funding arrangements and assets or other relevant aspects of the
obligation, is set forth in Schedule 4.17.2.
---------------
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company or the Company Subsidiaries (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, Company Subsidiary or a Plan
Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
20
<PAGE>
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
(c) with respect to any person or entity ("First Person"), the
term "Plan Affiliate" shall mean any other person or entity with whom
the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
------------- -------------
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other labor dispute, union organizational activity or charge, or, to the
knowledge of the Stockholders or the Company, allegation or complaint, of unfair
labor practice, employment discrimination or other matters relating to the
employment of labor pending or, to the knowledge of the Stockholders or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholders or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholders or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholders or the Company, no key employee and no group of employees has any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company or any Company Subsidiary has complied in all material respects
with all applicable Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholders or the Company, the Leased Property (other than those present
in normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in compliance in all
material respects with applicable Environmental and Safety Requirements; and
(iv) to the knowledge of the Stockholders or the Company, there are and have
been no facts, events, occurrences or conditions at or related to the Real
Property or any other facility
21
<PAGE>
formerly owned or operated by the Company or any Company Subsidiary that could
cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements. The term "Environmental and Safety
Requirements" means any federal, state and local laws, statutes, regulations or
other requirements relating to the protection, preservation or conservation of
the environment or worker health and safety, all as amended or reauthorized. The
term "Hazardous Materials" means "hazardous substances", as defined by the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S) 9601 et seq., "hazardous wastes", as defined by the Resource Conservation
Recovery Act, 42 U.S.C. (S) 6901 et seq., asbestos in any form or condition,
polychlorinated biphenyls and any other material, substance or waste to which
liability or standards of conduct may be imposed under any Environmental and
Safety Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholders or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
- ----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, all amounts owed by a
Stockholder, any Affiliate of a Stockholder or any Affiliate of the Company or
any Company Subsidiary to the Company or any Company Subsidiary, and all amounts
owed by the Company or any Company Subsidiary to a Stockholder, any Affiliate of
a Stockholder or any Affiliate of the Company or any Company Subsidiary, shall
have been settled and satisfied.
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary representing,
individually, five percent (5%) or more of the Company's or Company
Subsidiary's, as applicable, revenues for the twelve
22
<PAGE>
(12) months ended December 31, 1996 and for the period commencing on January 1,
1997 and ending on the date of the Latest Balance Sheet. Except as set forth on
Schedule 4.22, since the date of the Latest Balance Sheet, none of such clients
- -------------
has canceled or substantially reduced its business with the Company or Company
Subsidiary, as applicable, nor, to the knowledge of the Stockholders or the
Company, are any of such clients threatening or expected to do so. To the
knowledge of the Stockholders or the Company, no client or supplier of the
Company or any Company Subsidiary will cease to do business with, or
substantially reduce its business with, the Company or Company Subsidiary, as
applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank
------------- -------------
in which the Company or any Company Subsidiary has an account or safe deposit
box, the number of each such account or box, and the names of all persons
authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
23
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholders as
follows:
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
True, accurate and complete copies of each of Compass's Certificate of
Incorporation and By-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights.
Immediately prior to the Closing Date, the authorized capital stock of
Compass will consist of 50,000,000 shares of Compass Common Stock, of which
the number of shares set forth in the Registration Statement will be issued
and outstanding, and 10,000,000 shares of Preferred Stock, par value $0.01
per share, none of which will be issued and outstanding. Other than (i)
shares of Compass Common Stock issued pursuant to a split of the shares
outstanding as of the date of this Agreement and (ii) shares of Compass
Common Stock issued in accordance with the Purchase and the Other
Purchases, no shares of Compass Common Stock will be issued prior to the
consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Compass to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Compass or obligating Compass to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which
Compass is a party or is bound with respect to the voting of any shares of
capital stock of Compass. The shares of Compass Common Stock to be issued
to the Stockholders pursuant to this Agreement and to be issued to the
stockholders of the Other Founding Companies in the Other Purchases will as
of the Closing be duly
24
<PAGE>
authorized, validly issued, fully paid and nonassessable and free of
preemptive rights and Liens (other than Liens, if any, due to acts of the
Stockholders).
5.3 No Subsidiaries. Compass does not own any capital stock of any
---------------
corporation or any interest in any partnership, joint venture or limited
liability company.
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors and
stockholders of Compass, and no other corporate proceedings on the part of
Compass are necessary to authorize the execution and delivery of this
Agreement or the consummation by Compass of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Compass,
and, assuming the due authorization, execution and delivery hereof by the
Company and the Stockholders, constitutes a valid and legally binding
agreement of Compass, enforceable against Compass in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing) Compass Required Statutory Approvals
(hereinafter defined) and, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing) consents required from commercial lenders, lessors
or other third parties, all of which required consents are listed on
Schedule 5.4.2.
25
<PAGE>
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Compass (a
"Compass Material Adverse Effect").
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
- ---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those incurred in connection
with the Purchase, this Agreement, the Other Stock Purchase Agreements and the
IPO. Except as contemplated by the foregoing, Compass has not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is either of them bound by any obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation,
----------
claim or order pending or, to the knowledge of Compass, threatened against
Compass or which may affect its assets or business, before any court,
Governmental Authority or any arbitrator that seek to restrain or enjoin the
consummation of the Purchase, the Other Purchases or the IPO or which is likely,
either alone or in the aggregate with all such claims, actions or proceedings,
to have a Compass Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law. Without
limiting the generality of the foregoing, except as set forth on Schedule 5.7,
------------
Compass has complied in all respects with all applicable federal, state and
local Laws relating to antitrust and trade regulations.
5.8 Other Agreements. True and correct copies of the Other Stock
----------------
Purchase Agreements have been delivered to the Stockholders and the Company.
Compass will not agree to any material amendment of or waive any material right
or waive any material condition to its obligations under any of the Other Stock
Purchase Agreements without the written consent of a majority of the Founding
Companies whose agreements have not been and will not be amended in a similar
manner. For purposes of determining a majority of
26
<PAGE>
the Founding Companies under this Section 5.8, IT and ITG, collectively, shall
only be counted as one (1) Founding Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing or earlier termination of this
Agreement, unless Compass shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), the Company shall, and shall cause
each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course
and consistent with past practices;
(b) not (i) amend its charter or by-laws, (ii) split, combine
or reclassify its outstanding capital stock or (iii) declare, set
aside or pay any dividend or distribution payable in cash, stock,
property or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect
to any indebtedness for borrowed money other than (A) borrowings in
the ordinary course of business or (B) borrowings to refinance
existing indebtedness on terms comparable with or more favorable than
those at the date hereof, (ii) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any options,
warrants or rights to acquire any of its capital stock or any security
convertible into or exchangeable for its capital stock, (iii) sell,
pledge, dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its
business organizations and goodwill, keep available the services of
its present officers and key employees, and preserve the goodwill and
business relationships with clients and others having business
relationships with it and not engage in any
27
<PAGE>
action, directly or indirectly, with the intent to adversely impact
the transactions contemplated by this Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of,
or enter into any new bonus or incentive agreement or arrangement
with, any of its employees, except as consistent with past practices
of the Company or Company Subsidiary, as applicable, (ii) pay or agree
to pay any additional pension, retirement allowance or other employee
benefit under any Employee Plan to any such employee, whether past or
present, other than as required pursuant to the terms thereof, (iii)
enter into any new employment, severance, consulting, or other
compensation agreement with any of its existing employees, (iv) amend
or enter into a new Employee Plan (except as required by Law) or amend
or enter into a new collective bargaining agreement, or (v) engage in
any new Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
(i) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any businesses or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets not in the ordinary course of business in each case
which are material to it;
(j) not sell, lease, license, encumber or otherwise dispose
of, or agree to sell, lease, license, encumber or otherwise dispose
of, any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the
Business consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
28
<PAGE>
(a) not (i) amend its charter or by-laws (provided,
however, that Compass shall prior to the Closing, file an
amended and restated charter in substantially the form attached
hereto as Exhibit 6.1.2(a)), (ii) split, combine or reclassify
-----------------
its outstanding capital stock or (iii) declare, set aside or
pay any dividend or distribution payable in cash, stock,
property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to
issue, sell, pledge or dispose of (i) any additional shares of,
or any option, warrants or rights of any kind to acquire any
shares of, its capital stock of any class, (ii) any debt with
voting rights or (iii) any debt or equity securities
convertible into or exchangeable for, or any rights, warrants,
calls, subscriptions, or options to acquire, any such capital
stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to
purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock
or any security convertible into or exchangeable for its
capital stock, (ii) sell, pledge, dispose of or encumber any
assets or businesses other than dispositions in the ordinary
course of business or (iii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(d) comply in all material respects with all applicable
Laws; and
(e) not make any material investment in, directly or
indirectly, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any
other manner, any businesses or any corporation, partnership,
association or other business organization or division thereof
or otherwise acquire or agree to acquire any assets not in the
ordinary course of business in each case which are material to
it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholders shall (i)
not, and the Company
29
<PAGE>
shall use its best efforts to cause the Company Subsidiaries and any
officer, director or employee of, or any attorney, accountant, investment
banker, financial advisor or other agent retained by the Company or any
Company Subsidiary not to, initiate, solicit, negotiate, encourage, or
provide non-public or confidential information to facilitate, any proposal
or offer to acquire all or any substantial part of the business and
properties of the Company or any Company Subsidiary, or any capital stock
of the Company or any Company Subsidiary, whether by merger, purchase of
stock or assets or otherwise, whether for cash, securities or any other
consideration or combination thereof, or enter into any joint venture or
partnership or similar arrangement, and (ii) promptly advise Compass of the
terms of any communications the Stockholders or the Company may receive or
become aware of relating to any bid for part or all of the Company or any
Company Subsidiary.
(b) The Company and the Stockholders (i) acknowledge that a breach
of any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other parties all of their
respective schedules to this Agreement (the "Schedules") to correct any matter
which would constitute a breach of any such party's representations and
warranties herein; provided, that no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Company Material Adverse Effect or
affects Schedules 4.2, 4.3 or 7.9 may be made unless Compass and a majority of
------------- --- ---
the other Founding Companies consent to such amendment, supplement or addition,
and no amendment, supplement to or addition of a Schedule that constitutes or
reflects a Compass Material Adverse Effect or affects Schedule 5.2 may be made
------------
unless a majority of the Founding Companies consent to such amendment,
supplement or addition. For all purposes of this Agreement, including, without
limitation, for purposes of determining whether the conditions set forth in
Sections 9.2 and 9.3 have been fulfilled, the Schedules hereto shall be deemed
--- ---
to be the Schedules as amended, supplemented or added pursuant to this Section
-------
6.3. In the event that (i) one of the other Founding Companies seeks to amend,
- ---
supplement or add a Schedule pursuant to Section 6.3 of one of the Other Stock
-----------
Purchase Agreements, (ii) such amendment, supplement or addition constitutes or
reflects a material adverse effect on the business, operations, property,
assets, condition (financial or otherwise), operating results, liabilities,
employee, customer or supplier relations or business prospects of such other
Founding Company or any of its subsidiaries or affects Schedules 4.2, 4.3 or 7.9
------------- --- ---
of such Other Stock Purchase Agreement, and (iii) Compass and a majority of the
Founding Companies (other than the Founding Company providing such amended,
supplemented or added Schedule) consent to such amendment, supplement or
addition, but the Company and the Stockholders do not, or if any Other Stock
Purchase Agreement is terminated by any party thereto pursuant to Section 6.3 of
-----------
such Other Stock Purchase Agreement or otherwise, the Company and the
Stockholders may terminate this Agreement at any time prior to the Closing Date.
30
<PAGE>
In the event that (i) the Company seeks to amend, supplement or add a Schedule
pursuant to this Section 6.3, (ii) such amendment, supplement or addition
-----------
constitutes or reflects a Company Material Adverse Effect or affects Schedules
4.2, 4.3 or 7.9, and (iii) Compass and a majority of the Founding Companies do
- --- --- ---
not consent to such amendment, supplement or addition, this Agreement shall be
deemed terminated as set forth in Section 10.1 hereof. No party to this
------------
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 6.3, unless this
-----------
Agreement is so terminated in connection with an amendment of, supplement to or
addition of a Schedule relating to a breach of a representation or warranty as
of the date of this Agreement. No amendment of, supplement to or addition of a
Schedule shall be made later than five (5) business days prior to the
anticipated effectiveness of the Registration Statement. For purposes of
determining a majority of the Founding Companies under this Section 6.3, IT and
-----------
ITG, collectively, shall only be counted as one (1) Founding Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, Montgomery
Securities, Inc. and Lehman Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in connection with the IPO
(the "Underwriters") and counsel for the Underwriters (collectively, the
"Compass Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Compass shall afford to the Stockholders and the Company and their
accountants, counsel, financial advisors and other representatives
(collectively, the "Company Representatives") full access during normal
business hours throughout the period prior to the Closing to all of their
respective properties, books, contracts, commitments and records
(including, but not limited to, financial statements and Tax Returns) and,
during such period, shall furnish promptly to one another all due diligence
information requested by the other party. Compass shall hold and shall use
its reasonable best efforts to cause the Compass Representatives to hold,
and the Stockholders and the Company shall hold and shall use their
reasonable best efforts to cause the Company Representatives to hold, in
strict confidence all non-public information furnished to it in connection
with the transactions contemplated by this Agreement or any of the Other
Agreements, except that each of Compass, the Stockholders and the Company
may disclose any information that it is required by law or judicial or
administrative order to disclose, provided it gives prior prompt written
notice to the other party. In addition, Compass will cause each of the
other Founding Companies and their stockholders to enter into a provision
similar to this Section 7.1 requiring each such Founding Company to keep
-----------
confidential and to use their reasonable best efforts to cause their
respective accountants, counsel, financial advisors and other
representatives to keep confidential any information obtained by
31
<PAGE>
such Founding Company in connection with the transactions contemplated by
this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholders shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the Stockholders shall furnish
or cause to be furnished to Compass and the Representatives all of the
information concerning the Company, the Company Subsidiaries and the
Stockholders required for inclusion in, the Registration Statement and the
prospectus included therein (the "Prospectus"); including, without
limitation, audited consolidated balance sheets of the Company as of
September 30, 1997, and the related audited consolidated statements of
income, stockholders' equity and cash flow for the nine (9) months then
ended (including all notes thereto), which shall be furnished to Compass
and the Underwriters no later than November 1, 1997. The Company and the
Stockholders will cooperate with Compass and the Representatives in the
preparation of the Registration Statement and the Prospectus. All financial
statements provided by the Company for inclusion in the Registration
Statement and Prospectus shall (i) be accurate and complete in all material
respects, (ii) be consistent with the books and records of the Company and
the Company Subsidiaries (which, in turn, shall be accurate and complete in
all material respects), and (iii) fairly present the financial condition,
assets and liabilities of the Company and Company Subsidiaries as of their
respective dates and the results of operations and cash flows for the
respective period, in accordance with generally accepted accounting
principals applied on a consistent basis. All information provided and to
be provided by Compass and the Company, respectively, for use in the
Registration Statement (including, without
32
<PAGE>
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholders agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholders
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholders, each of the Company and the Stockholders
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholders as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3) business
days immediately preceding the filing of the initial Registration Statement
and any amendment thereto, the Company and its counsel shall be obligated
to respond to the proposed changes electronically transmitted to them
within two (2) hours from the time of the completion of the transmission of
the proposed changes to the Company's counsel, provided that Compass has
provided to the Company or Company's counsel reasonably adequate advance
notice of the need for the Company and its counsel to respond to such
proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and
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other reasonable, documented fees and expenses associated with the IPO. Neither
the Company nor the Stockholders will be liable for any portion of the above
expenses in the event the IPO is not closed. Compass shall also pay (i) the
underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by taxing authorities
and relevant records concerning the ownership and tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis, at its cost, to
provide explanation of any documents or information so provided. Subject to
the preceding sentence, each party required to file returns pursuant to
this Agreement shall bear all costs of filing such returns.
7.6.2 Each of the Company, Compass and the Stockholders shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
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7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders
given within thirty (30) days after receipt of such notice, Compass will
use its best efforts to cause to be included in such registration all of
the Compass Common Stock which any such Stockholder requests, provided that
Compass shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel reasonably acceptable to the stockholders of the
Founding Companies, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
-----------
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate of
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Stock Purchase Agreements may request in writing that Compass file a
registration statement under the 1933 Act covering the registration of the
shares of Compass Common Stock so issued and then held by such stockholders
(a "Demand Registration"). Such request shall specify the intended method
of disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the Founding Companies and shall use its best efforts to
effect as soon as practicable a registration under the 1933 Act that will
permit the disposition of the shares in accordance with the method
specified in the request. Compass shall be obligated to effect only one
Demand Registration pursuant to this Section 7.7.2. Compass may register
-------------
in the same process other unregistered, previously issued Compass Common
Stock; provided, however, that the registration of such other unregistered,
previously issued Compass Common Stock shall not reduce the number of
shares of Compass Common Stock of stockholders of the Founding Companies
requested to be registered pursuant to this Section 7.7.2.
35
<PAGE>
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as
soon as reasonably practicable, a registration statement with respect
to the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary
to comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by any Stockholder at any time when (i) the Compass
Common Stock is listed on a recognized national or regional securities
exchange or traded in the NASDAQ national market, and (ii) the resale
provisions of Rule 144(k) promulgated under the 1933 Act are available to
such Stockholder.
7.7.6 In consideration of the granting to the Stockholders of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholders agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale
36
<PAGE>
arrangements, shares of Compass Common Stock in the ten (10) days prior to
the effectiveness of any registration of Compass Common Stock for sale to
the public and for up to ninety (90) days following the effectiveness of
such registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholders shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common
Stock, furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholders released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all such guarantees on
------------
indebtedness being assumed by Compass, if necessary to achieve such releases. In
the event that Compass cannot obtain such releases from the lenders of any such
guaranteed indebtedness, Compass will defend, indemnify and hold harmless the
Stockholders against any and all claims made by lenders under such guarantees
which arise as a result of Compass' failure to cause such guarantees to be
released, including, without limitation, if a Claim for payment is made with
respect to such guarantee subsequent to the Closing.
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<PAGE>
7.10 Lock-Up Agreement. Each Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, such Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of Montgomery Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of Stockholders. At or prior to the Closing, the
---------------------------
Stockholders shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholders and the Company. The Stockholders
---------------------------------------------------
and the Company, jointly and severally, agree to indemnify, defend and save the
Compass Indemnified Parties (hereinafter defined), and each of them, harmless
from and against, and to promptly pay to a Compass Indemnified Party or
reimburse a Compass Indemnified Party for, any and all Losses (hereinafter
defined) sustained or incurred by any Compass Indemnified Party relating to,
resulting from, arising out of or otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholders or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholders to observe or
perform any of their covenants and agreements set forth herein;
(c) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein
not misleading, and not provided to Compass or its counsel by the Company
or the Stockholders; provided, however, that such indemnity shall not inure
to the benefit of any Compass Indemnified Party to the extent that such
untrue statement (or
38
<PAGE>
alleged untrue statement) was made in, or omission (or alleged omission)
occurred in, any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.1(c); and
--------------
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
set forth in this Article VIII, the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save each of the Stockholders and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by Compass or any action, demand or claim by
any third party against or
39
<PAGE>
affecting any Stockholder Indemnified Party which, if successful, would
give rise to a breach of any such representation or warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other
federal or state law or regulation, at common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be
stated therein or necessary to make the statements therein not misleading,
to the extent such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.2(d).
--------------
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is
required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice thereof together
with a statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such
40
<PAGE>
shorter time as may be necessary, in the Indemnified Party's reasonable
judgment, to give the Indemnifying Party a reasonable opportunity to
respond to and defend such claim); provided, however, that the failure to
give such notice shall not affect the right to indemnity hereunder except
to the extent the Indemnifying Party is prejudiced by such delay. The
Indemnifying Party shall have the right, upon written notice to the
Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The Indemnifying Party
shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint representation would be inappropriate
(and in each case the cost of such defense shall constitute an amount for
which the Indemnified Party is
41
<PAGE>
entitled to indemnification hereunder); provided, however, that the
Indemnifying Party shall have the right to settle such claim only with the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. If an offer is made to settle a Third
Party Claim which all parties to such Third Party Claim (including the
Indemnifying Party) are prepared to settle and which offer the Indemnifying
Party is permitted to settle under this Section 8.3.2 only upon the prior
-------------
written consent of the Indemnified Party, the Indemnifying Party will give
prompt written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within (30) calendar
days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
- ---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
-----------------
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of such Loss, and the Indemnified Party shall have no obligation,
hereunder or otherwise, to pursue payment under or from any insurer or third
party in respect of such
42
<PAGE>
Loss. The Indemnified Party shall cooperate, at no expense to the Indemnified
Party, in any reasonable efforts of the Indemnifying Party in pursuing such
payments, including expressly acknowledging the Indemnifying Party's right and
standing to pursue such payments, and the Indemnified Party will use its
customary efforts short of litigating with an insurer or third party to collect
amounts due from such insurer or third party. If any insurance or third party
reimbursement is obtained subsequent to payment by an Indemnifying Party in
respect of a Loss, such reimbursement (to the extent of amounts theretofore paid
by the Indemnifying Party on account of such Loss) shall be promptly paid over
to the Indemnifying Party. The liability of the Indemnifying Party with respect
to any Direct Claim or Third Party Claim shall be reduced by the income tax
benefit actually realized by the Indemnified Party as a result of any Losses
upon which such Direct Claim or Third Party Claim is based. An income tax
benefit shall only be treated as realized if a Loss is deductible in the income
tax return for the taxable year of such Loss and if such deduction produces an
actual reduction of taxes paid for such year. Calculation of the income tax
benefit shall be made by a comparison of the income taxes actually due with the
tax returns and the income taxes that would be due if the Loss was not
deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Threshold for the Stockholders and the Company. With respect
----------------------------------------------
to representations and warranties, the Stockholders and the Company shall
not have any liability pursuant to Section 8.1(a) hereof unless and until
--------------
and only to the extent that the aggregate amount of Losses accrued pursuant
to Section 8.1(a) exceeds the Threshold Amount (hereinafter defined);
--------------
provided, however, that this threshold shall not apply to Losses arising
out of breaches of representations or warranties contained in Sections 4.2,
------------
4.4.1, 4.16 and 4.25, and the Stockholders shall indemnify the Compass
----- ---- ----
Indemnified Parties for any Losses accruing thereunder in accordance with
this Article VIII without regard to such threshold. As used herein,
------------
"Threshold Amount" shall mean the following amounts (as applicable): (i) in
the event the Agreement is terminated pursuant to Section 10.1 and the
------------
Closing does not occur, one percent (1%) of the "Minimum Value" as set
forth on Schedule 2.1 (the "Minimum Value"), or (ii) subsequent to the
------------
Closing, one percent (1%) of the Aggregate Purchase Consideration.
8.7.2 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained in Sections 5.2
------------
and 5.4.1 and Compass shall indemnify the Stockholder Indemnified Parties
-----
from any Losses occurring thereunder in accordance with this Article VIII
------------
without regard to such threshold.
8.7.3 Limitations on Claims Against the Stockholders and the Company.
--------------------------------------------------------------
The Stockholders' and the Company's liability for misrepresentations and
breaches of representations and warranties under Section 8.1(a) shall be
--------------
limited to the Cap Amount (hereinafter defined) in the aggregate; provided,
however that this
43
<PAGE>
limitation shall not apply to Losses arising out of breaches of
representations or warranties contained in Sections 4.2, 4.4.1, 4.16 and
------------ ----- ----
4.25, and any Losses accruing thereunder shall not count towards such
----
limitation. As used herein, "Cap Amount" shall mean the following amounts
(as applicable): (i) in the event the Agreement is terminated pursuant to
Section 10.1 and the Closing does not occur, twenty percent (20%) of the
------------
Minimum Value, or (ii) subsequent to the Closing, the Aggregate Purchase
Consideration.
8.7.4 Limitation on Claims Against Compass. The liability of Compass
------------------------------------
under Section 8.2(a) shall be limited to the Cap Amount in the aggregate;
--------------
provided, however that this limitation shall not apply to Losses arising
out of breaches of representations or warranties in Sections 5.2 and 5.4.1
------------ -----
and any Losses accruing thereunder shall not count towards such limitation.
8.7.5 Limitations Relating to Post-Closing Adjustment. In the event
-----------------------------------------------
a Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholders, the Company and the Stockholders shall not have any liability
for the amount of Losses pursuant to Section 8.1(a) arising out of such
--------------
breach and the amount of such Losses shall not be included in the
calculation of the Threshold Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholders and the Company; Time Limits on Indemnification Obligations.
- ------------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholders, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholders and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholders and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholders' obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
- -------------------
performed by the Stockholders after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
----------- ---
within the applicable time period as specified below, shall expire one (1) year
after the Closing Date, except with respect to the Stockholders' obligations
arising under or relating to (A) Section 4.16 hereof, which shall survive until
------------
the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes and (B)
Section 4.2 hereof, which shall survive indefinitely; and (ii) solely to the
- -----------
extent that Compass actually incurs liability under the 1933 Act or the 1934
Act, the obligations under Section 8.1(c) above shall survive until the
--------------
expiration of any applicable statute of limitations with respect to such claims.
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
----------------------------------------------------------------------
Limits on Indemnification Obligations. All representations, warranties,
- -------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the
44
<PAGE>
Closing hereunder; provided, however, (i) that Compass' obligations under
Sections 8.2 (a) and (b), other than those relating to covenants and agreements
- ------------------------
to be performed by Compass after the Closing and other than with respect to the
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
----------- ---
within the applicable time period as specified below, shall expire one (1) year
after Closing Date, except with respect to obligations arising under or relating
to Section 5.2 hereof which shall survive indefinitely; and (ii) solely to the
-----------
extent that the Stockholders actually incur liability under the 1933 Act or the
1934 Act, the obligations under Section 8.2(c) above shall survive until the
--------------
expiration of any applicable statute of limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
-----------------------------------------
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon
--------------------------------
fraud and except for equitable remedies, the remedies provided in this Article
-------
VIII constitute the sole and exclusive remedies for recovery of Losses against a
- ----
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
- -----------
Indemnity"), the Stockholders may satisfy their respective obligations for the
Excess Indemnity (i) by tendering to the Compass Indemnified Parties shares of
Compass Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholders' shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
45
<PAGE>
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder ;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholders (valuing the shares of
Compass Common Stock received by the Stockholders at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents,
stockholders and approvals required for the consummation of the Purchase or
any of the Other Purchases and the transactions contemplated hereby and by
the Other Stock Purchase Agreements shall have been obtained and be in
effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase.
--------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the
Purchase shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other Stock Purchase Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of
Compass contained in this Agreement and each Other Stock Purchase Agreement
shall be true and correct in all material respects on and as of the date
made and on and as of the Closing Date as if made at and as of such date,
and the Company shall have received a certificate of the Chief Executive
Officer or President of Compass to that effect;
46
<PAGE>
(b) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to the Stockholders of the Purchase;
(c) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and the Stockholders;
(d) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholders of
Compass Common Stock to be issued to the Stockholders pursuant to this
Agreement will not be taxable pursuant to Section 351 of the Code;
(e) Leeds Hackett, the Company's Chairman and Chief Executive Officer
("Hackett"), shall have been afforded the opportunity to enter into an
employment agreement in the form attached hereto as Exhibit 9.2(e);
------- ------
(f) Compass shall have delivered to the Company and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the Secretary of State of the State of
Delaware, showing that Compass is in good standing;
(g) each of the Stockholders, the stockholders of the other Founding
Companies who are to receive shares of Compass Common Stock pursuant to the
Other Stock Purchase Agreements, and the other stockholders of Compass
other than those acquiring stock in the IPO shall have entered into a
stockholders agreement (the "Stockholders Agreement") in the form attached
hereto as Exhibit 9.2(g); and
--------------
(h) all conditions to the Other Purchases, on substantially the same
terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Compass and the Underwriters shall have
received a Certificate of the Chief Executive Officer or President of the
Company to that effect;
47
<PAGE>
(b) the Stockholders shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and Compass and the Underwriters
shall have received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion from
Piper & Marbury L.L.C., counsel to the Company and the Stockholders, dated
the Closing Date, in the form attached hereto as Exhibit 9.3(c), the final
--------------
form of such opinion to be in form and substance acceptable to counsel for
Company and the Underwriters;
(d) Hackett shall have executed and delivered employment agreement
referred to in Sections 9.2(e);
---------------
(e) Compass and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Compass), with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues and the total
and per share amounts of net income;
(f) the Company shall have delivered to Compass and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's and Company Subsidiary's state of incorporation and in each state
in which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is in
good standing;
(g) no Governmental Authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to Compass of the Purchase;
(h) the Stockholders shall have executed the Stockholders Agreement;
(i) the Stockholders shall have delivered to Compass an instrument in
the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholders against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the
Stockholders;
(j) all amounts owed by a Stockholder, any Affiliate of a
Stockholder, any Affiliate of the Company or any Company Subsidiary to the
Company or any
48
<PAGE>
Company Subsidiary, and all amounts owed by the Company or any Company
Subsidiary to a Stockholder, any Affiliate of a Stockholder or any
Affiliate of the Company or any Company Subsidiary, shall have been settled
and satisfied;
(k) none of the subscriptions, options, call, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants listed on
Schedule 4.2 shall be outstanding; and
(l) the directors of the Company immediately prior to the Closing
shall delivered to Compass their resignations as directors of the Company.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholders,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or
any of the Stockholders or any of their affiliates or associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Compass; or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable court
order not entered at the request or with the support of Compass or any
of its 5% stockholders or any of their affiliates or associates;
49
<PAGE>
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Company by
Compass;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Stockholders by
Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholders, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
------------ --------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
- --- --- ---
10.3 Amendment. This Agreement may not be amended except by written
---------
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholders acknowledge that the shares of Compass Common Stock to be
delivered to the Stockholders pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by each
of the Stockholders pursuant to this Agreement is being acquired solely for such
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. Except as set forth on Schedule 11.1,
-----------------------------
each of the Stockholders represents and warrants to Compass that he or she is an
"accredited investor" as defined in Regulation D promulgated under the 1933 Act;
that he or she is able to bear the economic risk of an investment in the Compass
Common Stock acquired
50
<PAGE>
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he or she is capable of evaluating the merits and risks of the
proposed investment in the Compass Common Stock; and that he or she has had an
adequate opportunity to ask questions and receive answers from the officers of
Compass concerning all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of Compass, and the plans for of operations of
the business of Compass.
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), and subject to the provisions of Section 7.10, for a period
of one (1) year from the Closing Date, the Stockholders shall not (a) sell,
assign, exchange, transfer, encumber, pledge, distribute or otherwise dispose of
(i) any shares of Compass Common Stock received by the Stockholders pursuant to
this Agreement, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Compass Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(b) engage in any transaction, whether or not with respect to any shares of
Compass Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Compass Common Stock acquired
pursuant to Article II hereof (including, without limitation, engaging in put,
----------
call, short-sale, straddle or similar market transactions). The certificates
evidencing the Compass Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear a legend substantially in the form set
- ----------
forth below and containing such other information as Compass may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO [INSERT FIRST
ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholders covenant, warrant and represent
-------------------
that none of the shares of Compass Common Stock issued to such Stockholders will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All certificates
evidencing Company Common Stock delivered to
51
<PAGE>
the Stockholders pursuant Article II of this Agreement shall bear the following
----------
legend in addition to the legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE
SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER HEREOF COMPLIES
WITH THE ACT AND THE APPLICABLE SECURITIES LAW.
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. Leeds Hackett will not, for a period of
---------------------
five (5) years following the Closing Date, other than for the benefit of
Compass, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of Compass (including the subsidiaries thereof) in a managerial
capacity for the purpose or with the intent of enticing such employee away
from or out of the employ of Compass (including the subsidiaries thereof),
or hire such person, provided that Leeds Hackett shall be permitted to
call upon and hire any member of his or her immediate family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Leeds Hackett from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, Leeds Hackett agrees that the foregoing
covenant may be enforced by Compass in the event of breach by such Stockholders,
by injunctions and restraining orders.
52
<PAGE>
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on Leeds
-----------
Hackett in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of Compass and Leeds
Hackett that covenants be construed and enforced in accordance with the
changing activities and business of Compass (including the subsidiaries thereof)
throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that Leeds
Hackett who has entered into an employment agreement with Compass and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and individual shall enter into a business or pursue other
activities not in competition with Compass and/or any subsidiary thereof, or
similar activities or business in locations the operations of which, under such
circumstances, does not violate this Article XII and in any event such new
-----------
business, activities or location are not in violation of this Article XII or of
-----------
the obligations under this Article XII, Leeds Hackett shall not be chargeable
-----------
with a violation of this Article XII if Compass and/or any subsidiary thereof
-----------
shall thereafter enter the same, similar or a competitive (i) business, (ii)
course of activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Article XII, during which the
-----------
agreements and covenants of Leeds Hackett made in this Article XII shall be
-----------
effective, shall be computed by excluding from such computation any time during
which Leeds Hackett is in violation of any provision of this Article XII.
-----------
The covenants contained in Article XII shall not be affected by any breach of
-----------
any other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and Leeds Hackett hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
53
<PAGE>
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders' Covenant. The Stockholders recognize and acknowledge
-----------------------
that they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass' respective
businesses. The Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except
(a) to authorized representatives of Compass,
(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
Compass,
(c) to counsel and other advisers, provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 13.1,
------------
(d) such information becomes known to the public generally through no
fault of the Stockholders,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, or
(g) pursuant to this Agreement or the Other Stock Purchase
Agreements.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 13.1, and because of
------------
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
54
<PAGE>
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholders, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee (except for the fee described in Schedule
--------
14.1-1) or commission in connection with the Purchase or the transactions
- ------
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or the Stockholders. Compass represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fee described in Schedule 14.1-2) or commission in
---------------
connection with the Purchase or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Compass or its stockholders
(other than underwriting discounts and commission to be paid in connection with
the IPO).
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
225 West Washington Street
Suite 1600
Chicago, Illinois 60606
Attn: Scott H. Lang
Facsimile No.: (312) 368-1988
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
55
<PAGE>
14.2.2 If to the Company, to:
National Credit Management Corp.
11350 McCormick Road
Suite 800, Executive Plaza III
Hunt Valley, Maryland 21031
Attn: Leeds Hackett
Facsimile No.:(410) 584-9164
with a copy to:
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
Attn: Earl S. Wellschlager, Esq.
Facsimile No.: (410) 576-1700
14.2.3 If to the Stockholders, addressed to them at their addresses
set forth on Schedule 14.2.3, with copies to such counsel as is set forth with
---------------
respect to each Stockholder on such Schedule 14.2.3.
---------------
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term "person"
-------------------
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
1933 Act, and shall include each past and present Affiliate of a person or
entity and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) the term "to the knowledge of the Stockholders or the
Company" or any similar term shall mean actual knowledge of a fact or matter
possessed by any of the Stockholders, by any of the officers or directors of the
Company.
14.5 Entire Agreement; Assignment. This Agreement (including the schedules
----------------------------
and exhibits attached hereto and the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, without the prior written consent of the
parties hereto.
56
<PAGE>
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and except as expressly set forth in
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or enforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
57
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
-------------------------------------
Name Michael Cunningham
Its: Chairman and CEO
-------------------------------------
NATIONAL CREDIT MANAGEMENT CORP.
By: /s/ Leeds Hackett
-------------------------------------
Name: Leeds Hackett
-------------------------------------
Its: President
-------------------------------------
/s/ Leeds Hackett
-------------------------------------
LEEDS HACKETT
/s/ Veronica Hackett
-------------------------------------
VERONICA HACKETT
/s/ Thomas Gillespie, Jr.
-------------------------------------
THOMAS GILLESPIE, JR.
/s/ Victoria C. McAndrews
-------------------------------------
VICTORIA C. McAndrews
/s/ Richard M. Fiorito
--------------------------------------
RICHARD M. FIORITO
/s/ Russ C. Causey
--------------------------------------
RUSS C. CAUSEY
/s/ Paul Holt
--------------------------------------
PAUL HOLT
/s/ Sylvia Sorgel
--------------------------------------
SYLVIA SORGEL
58
<PAGE>
EXHIBIT 2.3
__________________________________________
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES CORPORATION,
BRMC OF DELAWARE, INC.
THE STOCKHOLDERS OF BRMC OF DELAWARE, INC.
AND
CERTAIN OTHER PARTIES
DATED AS OF OCTOBER 3, 1997
__________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - THE PURCHASE AND SALE OF STOCK............................. 2
ARTICLE II - CONSIDERATION............................................. 2
2.1 Purchase Price and Exchange Value............................ 2
2.2 Exchange of Certificates for Consideration................... 3
2.3 Payment of Aggregate Cash Consideration...................... 3
2.4 Post-Closing Adjustment...................................... 3
ARTICLE III - THE CLOSING AND CLOSING DATE............................. 5
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS............................... 5
4.1 Organization and Qualification.............................. 5
4.2 Capitalization.............................................. 5
4.3 Company Subsidiaries........................................ 6
4.4 Authority; Non-Contravention; Approvals..................... 6
4.5 Financial Statements........................................ 7
4.6 Absence of Undisclosed Liabilities.......................... 8
4.7 Accounts and Notes Receivable............................... 8
4.8 Absence of Certain Changes or Events........................ 8
4.9 Litigation.................................................. 10
4.10 Compliance with Applicable Laws............................. 11
4.11 Licenses and Permits........................................ 11
4.12 Material Contracts.......................................... 11
4.13 Properties.................................................. 14
4.14 Intellectual Property....................................... 17
4.15 Minute Books and Stock Records.............................. 18
4.16 Taxes....................................................... 18
4.17 Employee Benefit Plans; ERISA............................... 19
4.18 Labor Matters............................................... 21
4.19 Environmental Matters....................................... 21
4.20 Insurance................................................... 22
4.21 Interest in Customers and Suppliers; Affiliate
Transactions................................................ 22
4.22 Business Relationships...................................... 22
4.23 Compensation................................................ 23
4.24 Bank Accounts............................................... 23
4.25 Deemed Earnings Estimate.................................... 23
4.26 Representations and Warranties Regarding the Company's
Subsidiary, Financial Claims Control, Inc................... 23
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF COMPASS.................. 23
5.1 Organization and Qualification............................... 23
5.2 Capitalization............................................... 24
5.3 No Subsidiaries.............................................. 24
5.4 Authority; Non-Contravention; Approvals...................... 24
5.5 Absence of Undisclosed Liabilities........................... 25
5.6 Litigation................................................... 26
5.7 Compliance with Applicable Laws.............................. 26
5.8 Other Agreements............................................. 26
ARTICLE VI - CERTAIN COVENANTS AND OTHER TERMS......................... 26
6.1 Conduct of Business Pending the Purchase..................... 26
6.2 No - Shop.................................................... 29
6.3 Schedules.................................................... 29
ARTICLE VII - ADDITIONAL AGREEMENTS.................................... 30
7.1 Access to Information........................................ 30
7.2 Registration Statement....................................... 31
7.3 Expenses and Fees............................................ 33
7.4 Agreement to Cooperate....................................... 33
7.5 Public Statements............................................ 33
7.6 Preparation and Filing of Tax Returns........................ 33
7.7 Registration Rights.......................................... 34
7.8 Rule 144 Reporting........................................... 36
7.9 Release of Guarantees........................................ 36
7.10 Lock-Up Agreement............................................ 37
7.11 Obligations of Stockholders.................................. 37
ARTICLE VIII - INDEMNIFICATION......................................... 37
8.1 Indemnification by the Stockholders and the Company.......... 37
8.2 Indemnification by Compass................................... 38
8.3 Indemnification Procedure for Third Party Claims............. 39
8.4 Direct Claims................................................ 41
8.5 Failure to Give Timely Notice................................ 41
8.6 Reduction of Loss............................................ 41
8.7 Limitation on Indemnities.................................... 42
8.8 Survival of Representations, Warranties and Covenants of the
Stockholders and the Company; Time Limits on Indemnification
Obligations.................................................. 43
8.9 Survival of Representations, Warranties and Covenants of
Compass; Time Limits on Indemnification Obligations.......... 44
8.10 Defense of Claims; Control of Proceedings.................... 44
8.11 Indemnification Exclusive Remedy............................. 44
8.12 Manner of Satisfying Indemnification Obligations............. 44
9.1 Conditions to Each Party's Obligation to Effect the Purchase 45
9.2 Conditions to Obligation of the Company to Effect the
Purchase..................................................... 45
9.3 Conditions to Obligations of Compass to Effect the
Purchase..................................................... 46
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER......................... 48
10.1 Termination................................................. 48
10.2 Effect of Termination....................................... 49
10.3 Amendment................................................... 49
10.4 Waiver...................................................... 49
ARTICLE XI - 1933 ACT REPRESENTATIONS AND
TRANSFER RESTRICTIONS................................................. 49
11.1 Economic Risk; Sophistication............................... 49
11.2 Transfer Restrictions....................................... 50
11.3 Compliance with Law......................................... 50
ARTICLE XII - NONCOMPETITION.......................................... 51
12.1 Prohibited Activities....................................... 51
12.2 Damages..................................................... 51
12.3 Reasonable Restraint........................................ 51
12.4 Severability; Reformation................................... 52
12.5 Independent Covenant........................................ 52
12.6 Materiality................................................. 52
ARTICLE XIII - NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............. 52
13.1 Stockholders' Covenant...................................... 52
13.2 Damages..................................................... 53
13.3 Survival.................................................... 53
ARTICLE XIV - GENERAL PROVISIONS...................................... 54
14.1 Brokers..................................................... 54
14.2 Notices..................................................... 54
14.3 Interpretation.............................................. 55
14.4 Certain Definitions......................................... 55
14.5 Entire Agreement; Assignment................................ 55
14.6 Applicable Law.............................................. 56
14.7 Counterparts................................................ 56
14.8 Parties in Interest......................................... 56
14.9 Severability................................................ 56
</TABLE>
(iii)
<PAGE>
LIST OF SCHEDULES
Schedule A Stockholders of Company
Schedule B Minority Shareholder
Schedule C Contingent Right Holders
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.5.1 Financial Statements
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and Company
Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Property
Schedule 4.13.1-2(a) Pending Proceedings to Reduce General Real Estate Taxes
Schedule 4.13.1-2(b) Matters Relating to Leased Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
(iv)
<PAGE>
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16.1 Tax Audits
Schedule 4.17.1 Exceptions Regarding Employee Plans
Schedule 4.17.2 Description of Unwritten Employee Plans
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate
Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.3 Compass Subsidiaries
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 6.1 Conduct of Business
Schedule 7.9 Stockholders' Guarantees
Schedule 8.7.1-1 Major Stockholders
Schedule 8.7.1-2 Minor Stockholders
Schedule 11.1 Non-Accredited Investors
Schedule 14.1-1 Company's and Stockholders' Broker
(v)
<PAGE>
Schedule 14.1-2 Compass' Broker
Schedule 14.2.3 Stockholders and their Counsel
(vi)
<PAGE>
LIST OF EXHIBITS
Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e)-1 Employment Agreement of Collins
Exhibit 9.2(e)-2 Employment Agreement of J. Maloney
Exhibit 9.2(e)-3 Employment Agreement of M. Maloney
Exhibit 9.2(g) Stockholders Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholders' Release
(vii)
<PAGE>
DEFINED TERMS
<TABLE>
<S> <C>
ADA Section 4.13.1(h)
Affiliate............................................ Section 14.4
Affiliate Transactions............................... Section 4.2.1
Aggregate Cash Consideration......................... Section 2.1
Aggregate Purchase Consideration..................... Section 2.1
Agreement............................................ Introduction
Business............................................. Section 4.12
Cap Amount........................................... Section 8.7.4
Claims............................................... Section 4.9.1
Closing.............................................. Article III
Closing Date......................................... Article III
Code................................................. Introduction
Collins.............................................. Section 9.2(e)
Company.............................................. Introduction
Company Brokerage Fee................................ Section 14.1
Company Material Adverse Effect...................... Section 4.8(r)
Company Representatives.............................. Section 7.1.1
Company Stock........................................ Article I
Company Stockholders................................. Introduction
Company Subsidiaries................................. Section 4.1
Compass.............................................. Introduction
Compass Common Stock................................. Section 2.1
</TABLE>
(viii)
<PAGE>
<TABLE>
<S> <C>
Compass Indemnified Parties.......................... Section 8.1
Compass Indemnified Party............................ Section 8.1
Compass Material Adverse Effect...................... Section 5.4.3
Compass Representatives.............................. Section 7.1.1
Compass Required Statutory Approvals................. Section 5.4.3
Contingent Rights.................................... Section 1.3
Contingent Right Holders............................. Introduction
Contracts............................................ Section 4.12
Copyrights........................................... Section 4.14
Deemed Earnings Actuals.............................. Section 2.4(b)
Deemed Earnings Estimate............................. Section 2.4(a)
Deemed Earnings Excess............................... Section 2.4(f)
Deemed Earnings Shortfall............................ Section 2.4(g)
Defense Notice....................................... Section 8.3.1
Demand Registration.................................. Section 7.7.2
Direct Claim......................................... Section 8.4
Employee Plan........................................ Section 4.17.5(a)
Environmental and Safety Requirements................ Section 4.19
ERISA................................................ Section 4.17.5(b)
Excess Indemnity..................................... Section 8.12
Final Deemed Earnings Actuals........................ Section 2.4(e)
Financial Statements................................. Section 4.5.1
First Person......................................... Section 4.17.5(c)
Founding Companies................................... Introduction
</TABLE>
(ix)
<PAGE>
<TABLE>
<S> <C>
Governmental Authority............................... Section 4.4.2
Hazardous Materials.................................. Section 4.19
herein............................................... Section 14.3
hereof............................................... Section 14.3
hereunder............................................ Section 14.3
Indemnified Party.................................... Section 8.3.1
Indemnifying Party................................... Section 8.3.1
Insurance Policies................................... Section 4.20
Intellectual Property................................ Section 4.14
Intellectual Property Licenses....................... Section 4.14
IPO.................................................. Introduction
IT................................................... Introduction
ITG.................................................. Introduction
J. Maloney........................................... Section 9.2(e)
Latest Balance Sheet................................. Section 4.5.1
Laws................................................. Section 4.10
Leased Property...................................... Section 4.13.1
Licenses............................................. Section 4.11
Liens................................................ Section 4.2.1
Loss................................................. Section 8.1
Losses............................................... Section 8.1
M. Maloney........................................... Section 9.2(e)
Market Price......................................... Section 8.12
Marks................................................ Section 4.14
</TABLE>
(x)
<PAGE>
<TABLE>
<S> <C>
Major Stockholders................................... Section 8.7.1
Minor Stockholders................................... Section 8.7.1
Minority Shareholder................................. Introduction
Material Contracts................................... Section 4.12
Minimum Value........................................ Section 8.7.2
1933 Act............................................. Section 4.4.3
1934 Act............................................. Section 7.8(b)
Notice Period........................................ Section 2.4(c)
Other Agreements..................................... Introduction
Other Founding Companies............................. Section 8.1
Other Holders........................................ Introduction
Other Stock Purchase Agreements...................... Introduction
Other Purchases...................................... Introduction
Owned Property....................................... Section 4.13.1
Patents.............................................. Section 4.14
person............................................... Section 14.4
Plan Affiliate....................................... Section 4.17.5(c)
Prospectus........................................... Section 7.2.1
Purchase............................................. Introduction
Real Property........................................ Section 4.13.1
Registration Statement............................... Section 4.4.3
Representatives...................................... Section 7.1.1
Returns.............................................. Section 4.16.1
Schedules............................................ Section 6.3
</TABLE>
(xi)
<PAGE>
<TABLE>
<S> <C>
SEC Section 4.4.3
Stockholder Indemnified Party........................ Section 8.2
Stockholders......................................... Introduction
Stockholders Agreement............................... Section 9.2(h)
Stockholders Notice.................................. Section 2.4(c)
Substitute Rights.................................... Section 2.1(c)
Taxes................................................ Section 4.16.2
Territory............................................ Section 12.1(a)
Third Party Claim.................................... Section 8.3.1
Threshold Amount..................................... Section 8.7.2
to the knowledge of the Stockholders or the Company.. Section 14.4
Trade Secrets........................................ Section 4.14
Underwriters......................................... Section 7.1.1
</TABLE>
(xii)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), BRMC of Delaware, Inc., a Delaware corporation (the
"Company"), and the stockholders of the Company identified on Schedule A to this
Agreement (the "Company Stockholders"), the holder of shares of Advance Credit
Services, Inc., a Delaware corporation (other than the Company) identified on
Schedule B to this Agreement (the "Minority Shareholder"), and the holders of
Contingent Rights (hereinafter defined) identified on Schedule C to this
Agreement (the "Contingent Right Holders") (the Minority Shareholder and the
Contingent Right Holders being referred to as the "Other Holders" and the
Company Stockholders and the Other Holders being referred to as the
"Stockholders").
WITNESSETH:
WHEREAS, the Stockholders desire to sell to Compass, and Compass desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of the Company for the consideration and on the terms set forth in
this Agreement (the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of The Mail Box, Inc., a Texas corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), Mid-Continent Agencies,
Inc., an Illinois corporation, and National Credit Management Corp., a Maryland
corporation (which companies together with the Company are collectively referred
to herein as the "Founding Companies") and their respective stockholders, which
agreements provide for the purchase (collectively, the "Other Purchases") of all
of the issued and outstanding shares of capital stock of such companies
simultaneously with the Purchase;
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
THE PURCHASE AND SALE OF STOCK
1.1 Purchase of Company Stock. Upon the terms and subject to the
-------------------------
conditions of this Agreement, at the Closing (hereinafter defined), the Company
Stockholders shall sell to Compass, and Compass shall purchase from Company
Stockholders, all of the outstanding shares of capital stock of the Company,
consisting of 200 shares of Common Stock, no par value, of the Company (the
"Company Stock").
1.2 Purchase of Minority Interest. Upon the terms and subject to the
-----------------------------
conditions of this Agreement, at the Closing, the Minority Shareholder shall
sell to Compass, and Compass shall purchase from the Minority Shareholder, all
of the shares of the common stock of Advanced Credit Services, Inc., a Delaware
corporation, owned by the Minority Shareholder.
1.3 Exchange of Contingent Stock Rights. Upon the terms and subject
-----------------------------------
to the conditions of this Agreement, at the Closing, the Contingent Right
Holders shall transfer and convey to Compass, and Compass shall acquire from the
Contingent Right Holders, all of the contingent rights described in Schedule C
(the "Contingent Rights").
ARTICLE II
CONSIDERATION
2.1 Purchase Price and Exchange Value. The purchase price for the shares
---------------------------------
of Company Stock and Minority Interest and exchange value of the Contingent
Rights shall be as follows:
(a) At the Closing, for each share of Company Stock issued and
outstanding immediately prior to Closing, the Company Stockholders shall be
entitled to receive from Compass (i) that number of shares of Compass Common
Stock set forth in Schedule 2.1 and (ii) the amount of cash determined in
------------
accordance with Schedule 2.1, subject to adjustment as provided in Section 2.4.
------------ -----------
(b) At the Closing, for the Minority Interest, the Minority
Shareholder shall be entitled to received from Compass (i) that number of shares
of Compass Common Stock set forth in Schedule 2.1 and (ii) the amount of cash
------------
determined in accordance with Schedule 2.1, subject to adjustment as provided in
------------
Section 2.4.
- -----------
(c) At the Closing, for the Contingent Rights, the Contingent Rights
Holders shall be entitled to receive from Compass (i) options to purchase the
number of shares of Compass Common Stock determined in accordance with
Schedule 2.1 at an exercise price determined in accordance with Schedule 2.1
- ------------ ------------
(the "Substitute Rights") and (ii) subject to applicable withholding, the amount
of cash determined in accordance with Schedule 2.1, subject to adjustment as
------------
provided in Section 2.4.
-----------
2
<PAGE>
The aggregate amount of cash so to be paid pursuant to the foregoing
Sections 2.1 (a), (b) and (c), as adjusted pursuant to Section 2.4, is herein
- ----------------------------- -----------
referred to as the "Aggregate Cash Consideration." The sum of (i) the Aggregate
Cash Consideration, (ii) the value (determined as set forth in Schedule 2.1) of
------------
all shares of Compass Common Stock so to be issued to the Company Stockholders
and the Minority Shareholder, and (iii) the value (determined as set forth in
Schedule 2.1) of the Substitute Rights to be issued by Compass to Contingent
- ------------
Rights Holders is herein referred to as the "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholders shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholders or accompanied by
blank stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholders of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholders agree promptly to cure any deficiencies with
- ---
respect to the endorsement of the certificates or other documents of conveyance
with respect to such Company Stock. The certificates representing Compass
Common Stock to be delivered pursuant to this Article II shall bear a legend as
----------
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and each of the Stockholders
holding a certificate representing any such shares of Company Stock shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass
---------------------------------------
shall pay to the Stockholders, by certified check, cashier's check or wire
transfer of immediately available funds to a bank account or bank accounts
specified by Stockholders in writing at least three (3) business days prior to
the Closing Date, an amount equal to the Aggregate Cash Consideration.
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall
-----------------------
be subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate
-----------------
of the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholders in accordance with the
procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Estimate"), and
-----------------
utilized in calculating the Aggregate Purchase Consideration as set forth in
Schedule 2.1.
- ------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholders a calculation of the Company's actual earnings for the calendar
year ended on December 31, 1997, prepared by Price Waterhouse in accordance
with the procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings
-----------------
Actuals").
(c) If the Stockholders wish to assert in good faith that the
Deemed Earnings Actuals have not been determined in accordance with the
procedure set forth in Schedule 2.4(a)-1, the Stockholders shall notify Compass
-----------------
in writing thereof (the "Stockholders Notice") within fifteen (15) days after
delivery of the Deemed Earnings Actuals to the
3
<PAGE>
Stockholders (the "Notice Period"). The Stockholders Notice shall set forth in
reasonable detail the alleged non-conformance and the disputed amount. If the
Stockholders do not deliver the Stockholders Notice within the Notice Period,
the Deemed Earnings Actuals shall become final and binding upon all parties.
(d) If the Stockholders Notice is delivered within the Notice Period,
the Stockholders and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholders are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholders Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholders, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are
- --------------- --- ---
at least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of the Deemed Earnings Estimate, then no
further payments by Compass or the Stockholders shall be due pursuant to this
Section 2.4.
- -----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay
to the Stockholders, in the manner provided in Section 2.3 above, an amount
-----------
in cash equal to the Aggregate Purchase Consideration payable on account of the
Deemed Earnings Excess (hereinafter defined). The amount to be paid to the
Stockholders pursuant to this Section 2.4(f) shall be calculated by utilizing
--------------
the formulae set forth on Schedule 2.1. As used herein, "Deemed Earnings Excess"
------------
shall mean an amount equal to five (5) percent of the Deemed Earnings Estimate.
(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholders shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholders' liability pursuant to this Section
2.4(g) exceed ten percent (10%) of the Aggregate Purchase Consideration.
4
<PAGE>
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
- ---------- --
Agreement (the "Closing") shall take place at the offices of Katten Muchin &
Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Each of the Company and Stockholders hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
- -----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company's subsidiaries (collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation set forth on Schedule
--------
4.3. Except as set forth on Schedule 4.3, each of the Company and the Company
- --- ------------
Subsidiaries has the requisite corporate power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's and each Company Subsidiary's
Certificate of Incorporation and By-laws, in each case as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Compass.
4.2 Capitalization.
--------------
4.2.1 The authorized capital stock of the Company consists of 1,500
shares of Company Stock, of which 200 shares are issued and outstanding.
All of such issued and outstanding shares are validly issued and are fully
paid, nonassessable and free of preemptive rights. The Stockholders own
beneficially and of record all of the issued and outstanding shares of the
Company Stock as set forth in Schedule 4.2, which constitute all of the
------------
outstanding shares of capital stock of the Company. Except as set forth on
Schedule 4.2, the Company Stock is in each case free and clear of all
------------
claims, liens, charges, encumbrances, pledges, conditional sales contracts,
equity charges, restrictions or security interests of any nature
(collectively, "Liens"), and each Stockholder has good and marketable title
to the Company Stock owned by such Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights
5
<PAGE>
or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of the
capital stock of the Company or a Company Subsidiary or obligating the
Company or a Company Subsidiary to grant, extend or enter into any such
agreement or commitment or obligating the Stockholders to convey or
transfer an Company Stock. There are no voting trusts, proxies or other
agreements or understandings to which the Company or any Stockholder is a
party or is bound with respect to the voting of any shares of capital stock
of the Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
--------------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The outstanding
capital stock of each Company Subsidiary which is owned by the Company is
validly issued, fully paid and non-assessable. Except as set forth on Schedule
--------
4.3, the Company does not, directly or indirectly, own, of record or
- ---
beneficially, or control any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, partnership, joint
venture or limited liability company.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholders and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the Stockholders,
and no other corporate proceedings on the part of the Company are necessary
to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery
hereof by Compass, constitutes a valid and legally binding agreement of the
Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
4.4.2 Except as set forth on Schedule 4.4.2, the execution and
--------------
delivery of this Agreement by each of the Company and the Stockholders do
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Company
Subsidiary under, any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or By-laws of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to any
Stockholder, the Company, any
6
<PAGE>
Company Subsidiary, or the business, properties or assets of the Company or
any Company Subsidiary, (iii) any note, bond, mortgage, indenture or deed
of trust, or (iv) any material license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which the Company, any Company Subsidiary or any of the Stockholders is a
party or by which any of the Stockholders, the Company, any Company
Subsidiary or any of the properties or assets of the Company or any Company
Subsidiary may be bound or affected. Except as set forth on Schedule 4.4.2,
--------------
the consummation by the Company and the Stockholders of the transactions
contemplated hereby will not result in a violation, conflict, breach, right
of termination or acceleration, or creation of Liens, under the terms,
conditions or provisions of the items described in clauses (i) through (iv)
of the preceding sentence, subject, in the case of the terms, conditions or
provisions of the items described in clauses (ii), (iii) and (iv) above, to
obtaining (prior to the Closing) consents required from, or giving notices
required to be provided to, commercial lenders, lessors or other third
parties, all of which required consents and notices are listed on Schedule
--------
4.4.2.
-----
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company and the Stockholders or the consummation by
the Company and the Stockholders of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
audited consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31 in each of the years 1994 through 1996, and
the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the fiscal years then ended, including all notes
thereto, and the unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of June 30, 1997 (the "Latest Balance Sheet")
and the related consolidated statement of income, stockholders equity and
cash flows for the six (6) months then ended (collectively, the "Financial
Statements"). Except as set forth on Schedule 4.5.1, each of the Financial
--------------
Statements is accurate and complete in all material respects, is consistent
with the books and records of the Company and the Company Subsidiaries
(which, in turn, are accurate and complete in all material respects), and
fairly presents the financial condition, assets and liabilities of the
Company and the Company Subsidiaries as of its date and the results of
operations and cash flows for the periods related thereto, in each case in
accordance with generally accepted accounting principles applied on a
consistent basis, subject, in the case of the unaudited interim financial
statements, to normal and customary year-end adjustments.
7
<PAGE>
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
- ---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
- ---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.8,
------------
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer
or supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by
the Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $50,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, debt, asset
or property (having a replacement cost or fair market value in excess of
$50,000.00 in the aggregate), except in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute or similar occurrence that might
reasonably be expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
8
<PAGE>
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholders or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholders or the Company, threatened material reduction in revenues
from, any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or liability,
other than current liabilities paid in its ordinary course of business
consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or
9
<PAGE>
other intangible assets or disclosure of any proprietary confidential
information of the Company or any Company Subsidiary to any person other
than Compass, and the other Founding Companies and their respective
officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or
any Company Subsidiary in excess of $50,000.00 individually or $100,000.00
in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of the Company or any Company Subsidiary (a
"Company Material Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
- ------------
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholders or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholders or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority or arbitrator (collectively,
"Claims"), other than collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and (ii) on behalf of third parties; nor, to the knowledge of
the Stockholders or the Company, is there any basis for any such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
10
<PAGE>
Company Subsidiary in the ordinary course of business, none of which is
greater than $5,000.00 and which in the aggregate do not exceed $25,000.00,
and for which the amount in dispute is presently ascertainable with
certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000.00 and which in the aggregate do not exceed
$25,000.00, and (ii) on behalf of third parties, and, in either case, for
which the amount in dispute is presently ascertainable with certainty,
Schedule 4.9 sets forth all closed litigation matters to which the Company
------------
or any Company Subsidiary was a party during the five (5) years preceding
the Closing Date, the date such litigation was commenced and concluded, and
the nature of the resolution thereof (including amounts paid in settlement
or judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules
------------------------------- ---------
4.10 and 4.19, each of the Company and the Company Subsidiaries has complied in
- ---- ----
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders (collectively, "Laws") applicable to it or to the
operation of the Business, and has not received any notice of any alleged claim
or threatened claim, violation of or liability or potential responsibility under
any such Law which has not heretofore been cured and for which there is no
remaining liability and, to the knowledge of the Stockholders or the Company, no
event has occurred or circumstances exist that (with or without notice or lapse
of time) may constitute or result in a violation in any material respect by the
Company or any Company Subsidiary of any Law or may give rise to any material
liability on the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Except
as set forth on Schedule 4.11, each of the Company and the Company Subsidiaries
-------------
possesses all of the Licenses which are necessary to enable it to carry on the
Business as presently conducted. Except as set forth on Schedule 4.11, all such
-------------
Licenses are valid, binding and in full force and effect. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not adversely affect any such Licenses.
The Company and the Company Subsidiaries have taken all necessary action to
maintain such Licenses. No loss or expiration of any such License is pending
or, to the knowledge of the Stockholders or the Company, threatened or
reasonably anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
11
<PAGE>
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $50,000.00);
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original value in excess of $50,000.00;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
12
<PAGE>
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other person, other than as provided
in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $50,000.00;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
--------------
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $50,000.00.
The Company and the Stockholders have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholders or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as
set forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither the
Company or Company Subsidiary, as applicable, nor, to the knowledge of the
Stockholders or the Company, any other party to any Material Contract is in
breach or default thereunder, and, to the knowledge of the Stockholders or the
Company, there exists no condition which would, with or without the lapse of
time or the giving of notice, or both, constitute a breach or default
thereunder. The Company has not been notified that any party to any Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
13
<PAGE>
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a brief
-----------------
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"), and all facilities
thereon. Except as lessee of Leased Property, neither the Company nor any
Company Subsidiary is a lessee under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which another person or entity has granted to the Company or
any Company Subsidiary the right to use or occupy all or any portion of any
real property.
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising out of
the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, and (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto,
or impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto. The Real Property
constitutes all real properties reflected on the Financial Statements or
used or occupied by the Company or any Company Subsidiary in connection
with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the knowledge of the Stockholders or
the Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
14
<PAGE>
not, to the knowledge of the Stockholders or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholders or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation, building, environmental, land use or
other ordinances, laws, codes or regulations that affects the Company's or
any Company Subsidiary's use of such Owned Property (without regard to any
non-conforming use or other so-called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and correct description of all pending
--------------------
proceedings to reduce the general real estate taxes against the Owned
Property; none of the Owned Property is located in a special service
district, special service area, tax increment financing district or similar
district or area, or to the knowledge of the Stockholders or the Company,
subject to a threatened special assessment; and, to the knowledge of the
Stockholders or the Company, none of the Owned Property is located in an
area for which federal flood risk insurance is necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholders or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholders, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether written or oral, pursuant to which the Company or
Company Subsidiary has granted to any party or parties the right to use or
occupy all or any portion of the Owned Property;
(h) to the knowledge of the Stockholders or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
15
<PAGE>
(i) there are no material defects in any improvements on or to the
Owned Property;
(j) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures, and fixtures on the Owned
Property are free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
- -----------
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholders or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholders or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholders or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of the
Business, and such Leased Property is, to the knowledge of the Stockholders
or the Company, maintained in all material respects in accordance with all
Laws applicable to the Company, any Company Subsidiary or the Leased
Property;
(v) none of the Stockholders, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or
16
<PAGE>
users of properties adjacent to the Leased Property relating to the use,
operation or maintenance of such facility or any adjacent real property;
(vi) neither the Company nor any Company Subsidiary is a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholders or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholders or the Company,
there are no material defects in any improvements on or to the Leased
Property;
(ix) to the knowledge of the Stockholders or the Company, the
Leased Property is free from regulated quantities of asbestos; and
(x) to the knowledge of the Stockholders or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflects all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholders or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names,
fictional business names and service marks (collectively, the "Marks"), (iii)
copyrights (the "Copyrights"), and (iv) know how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans and drawings (collectively, the "Trade Secrets") owned, used
or licensed by the Company or any Company Subsidiary (collectively, the
"Intellectual Property") are all those necessary to enable the Company and the
Company Subsidiaries to conduct and to continue to conduct the Business as it is
currently conducted. Schedule 4.14 contains a complete and accurate list of all
-------------
material Patents, Marks and Copyrights and a description of all material Trade
Secrets owned or used by the Company or any Company Subsidiary, and a list of
all
17
<PAGE>
material license agreements and arrangements with respect to any of the
Intellectual Property to which the Company or any Company Subsidiary is a party,
whether as licensee, licensor or otherwise (the "Intellectual Property
Licenses"). Except as set forth on Schedule 4.14, (i) all of the Intellectual
-------------
Property is owned, or used under a valid Intellectual Property License, by the
Company or one of the Company Subsidiaries, and, is free and clear of all Liens
and other adverse claims; (ii) to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary has infringed on or
misappropriated, is now infringing on or misappropriating, or has received any
notice that it is infringing on, misappropriating, or otherwise conflicting with
the intellectual property rights of any third parties; (iii) there is no claim
pending or, to the knowledge of the Stockholders or the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) to the knowledge
of the Stockholders or the Company, the operation of any aspect of the Business
in the manner in which it has heretofore been operated or is presently operated
does not give rise to any such infringement or misappropriation; and (v) to the
knowledge of the Stockholders or the Company, there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or threatened, against any third party with respect to the alleged infringement
or misappropriation of the Intellectual Property by such third party.
4.15 Minute Books and Stock Records. Except as set forth on Schedule 4.15,
------------------------------ -------------
(i) the minute books and stock records of the Company and each Company
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects, the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and correct and are not or will not be subject
to adjustment by the applicable taxing authority. The Company has
delivered to Compass true and complete copies of all Returns referred to in
the first sentence of this Section 4.16.1 (including any amendments
--------------
thereof) for the five (5) most recent taxable years. Neither the Company
nor any Company Subsidiary is delinquent in the payment of any Tax, and no
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing received
by the Company or Company Subsidiary. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the Company
or any Company
18
<PAGE>
Subsidiary does not file Tax returns is pending pursuant to which the
Company or Company Subsidiary, as applicable, is subject to taxation by
that jurisdiction. The Company's and the Company Subsidiaries' Returns
were last audited by the Internal Revenue Service or comparable state,
local or foreign agencies on the dates set forth on Schedule 4.16.1.
---------------
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability) whether direct or indirect (and regardless of whether
it would be derived from a current or former Plan Affiliate (hereinafter
defined)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA", including, but not limited to, any medical plan,
life insurance plan, short-term or long-term disability plan or dental
plan; (ii) any "employee pension benefit plan," as defined in Section 3(2)
of ERISA, including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with respect
to such plan; a copy of the Form 5500 Annual Report for the three (3) most
recent plan years; and a copy of each and any general explanation or
communication which was required to be distributed or otherwise provided to
participants in such plan and which describes all or any relevant aspect of
each plan, including summary plan descriptions and/or summary of material
modifications, have been made available to Compass. A description of each
unwritten Employee Plan, including a description of eligibility,
participation, benefits, funding arrangements and assets or other relevant
aspects of the obligation, is set forth in Schedule 4.17.2.
---------------
19
<PAGE>
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company or the Company Subsidiaries (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, Company Subsidiary or a Plan
Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
---------------
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, (vi) provides for post-
retirement medical, life insurance or other welfare-type benefits, or (vii)
any arrangement or agreement which could give rise to a "parachute payment"
subject to an excise tax under Section 4999 of the Code or as defined in
Section 280G of the Code.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
20
<PAGE>
(c) with respect to any person or entity ("First Person"), the
term "Plan Affiliate" shall mean any other person or entity with whom
the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
------------- -------------
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other labor dispute, union organizational activity or charge, or, to the
knowledge of the Stockholders or the Company, allegation or complaint, of unfair
labor practice, employment discrimination or other matters relating to the
employment of labor pending or, to the knowledge of the Stockholders or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholders or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholders or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholders or the Company, no key employee and no group of employees has any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company or any Company Subsidiary has complied in all material respects
with all applicable Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholders or the Company, the Leased Property (other than those present
in normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in compliance in all
material respects with applicable Environmental and Safety Requirements; and
(iv) to the knowledge of the Stockholders or the Company, there are and have
been no facts, events, occurrences or conditions at or related to the Real
Property or any other facility formerly owned or operated by the Company or any
Company Subsidiary that could cause or give rise to liabilities or response
obligations under any Environmental and Safety Requirements. The term
"Environmental and Safety Requirements" means any federal, state and local laws,
statutes, regulations or other requirements relating to the protection,
preservation or conservation of the environment or worker health and safety, all
as amended or reauthorized. The term "Hazardous Materials" means "hazardous
substances", as defined by the Comprehensive Environmental
21
<PAGE>
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., "hazardous
wastes", as defined by the Resource Conservation Recovery Act, 42 U.S.C. (S)
6901 et seq., asbestos in any form or condition, polychlorinated biphenyls and
any other material, substance or waste to which liability or standards of
conduct may be imposed under any Environmental and Safety Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholders or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
- ----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, all amounts owed by a
Stockholder, any Affiliate of a Stockholder or any Affiliate of the Company or
any Company Subsidiary to the Company or any Company Subsidiary, and all amounts
owed by the Company or any Company Subsidiary to a Stockholder, any Affiliate of
a Stockholder or any Affiliate of the Company or any Company Subsidiary, shall
have been settled and satisfied.
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary, representing the top ten
(10) gross revenue producing clients of the respective Company or Company
Subsidiary, as applicable, for the twelve (12) months ended December 31, 1996
and for the period commencing on January 1, 1997 and ending on the date of the
Latest Balance Sheet. Except as set forth on Schedule 4.22, since the date of
-------------
the Latest Balance Sheet, none of such clients has canceled or substantially
reduced its business with the Company or Company Subsidiary, as applicable, nor,
to the knowledge of the Stockholders or the Company, are any of such clients
threatening or expected to do so. To the knowledge of the Stockholders or the
Company, no client or supplier of the
22
<PAGE>
Company or any Company Subsidiary will cease to do business with, or
substantially reduce its business with, the Company or Company Subsidiary, as
applicable, after the consummation of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank
------------- -------------
in which the Company or any Company Subsidiary has an account or safe deposit
box, the number of each such account or box, and the names of all persons
authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
4.26 Representations and Warranties Regarding the Company's Subsidiary,
------------------------------------------------------------------
Financial Claims Control, Inc. The Company closed on the purchase of all of the
- ------------------------------
issued and outstanding stock of Financial Claims Control, Inc., on September 4,
1997. The Company's and the Stockholders' representations and warranties
hereunder regarding such Company Subsidiary are based upon and limited to the
due diligence information and the representations and warranties provided to the
Company by the sellers of such Company Subsidiary stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholders as
follows:
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business
23
<PAGE>
as it is now being conducted. True, accurate and complete copies of each
of Compass's Certificate of Incorporation and By-laws, as in effect on the
date hereof, including all amendments thereto, have heretofore been
delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Compass will consist of
50,000,000 shares of Compass Common Stock, of which the number of shares
set forth in the Registration Statement will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $0.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Compass
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement and (ii) shares of Compass Common Stock issued in
accordance with the Purchase and the Other Purchases, no shares of Compass
Common Stock will be issued prior to the consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Compass to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Compass or obligating Compass to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which
Compass is a party or is bound with respect to the voting of any shares of
capital stock of Compass. The shares of Compass Common Stock to be issued
to the Stockholders pursuant to this Agreement and to be issued to the
stockholders of the Other Founding Companies in the Other Purchases will as
of the Closing be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and Liens (other than Liens, if
any, due to acts of the Stockholders).
5.3 No Subsidiaries. Except as set forth on Schedule 5.3, Compass does
--------------- ------------
not own any capital stock of any corporation or any interest in any partnership,
joint venture or limited liability company.
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors and
stockholders of Compass, and no other corporate proceedings on the part of
Compass are necessary to authorize the execution and delivery of this
Agreement or the consummation by Compass of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by
24
<PAGE>
Compass, and, assuming the due authorization, execution and delivery hereof
by the Company and the Stockholders, constitutes a valid and legally
binding agreement of Compass, enforceable against Compass in accordance
with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing) Compass Required Statutory Approvals
(hereinafter defined) and, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing) consents required from commercial lenders, lessors
or other third parties, all of which required consents are listed on
Schedule 5.4.2.
--------------
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Compass (a
"Compass Material Adverse Effect").
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
- ---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those
25
<PAGE>
incurred in connection with the Purchase, this Agreement, the Other Stock
Purchase Agreements and the IPO. Except as contemplated by the foregoing,
Compass has not engaged in any business activities of any type or kind
whatsoever, nor entered into any agreements nor is either of them bound by any
obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation,
----------
claim or order pending or, to the knowledge of Compass, threatened against
Compass or which may affect its assets or business, before any court,
Governmental Authority or any arbitrator that seek to restrain or enjoin the
consummation of the Purchase or the IPO or which is likely, either alone or in
the aggregate with all such claims, actions or proceedings, to have a Compass
Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 5.7, Compass has complied in all respects with all applicable federal,
- ------------
state and local Laws relating to antitrust and trade regulations.
5.8 Other Agreements. True and correct copies of the Other Stock
----------------
Purchase Agreements have been delivered to the Stockholders and the Company.
Compass will not agree to any material amendment of or waive any material right
or waive any material condition to its obligations under any of the Other Stock
Purchase Agreements without the written consent of a majority of the Founding
Companies whose agreements have not been and will not be amended in a similar
manner. For purposes of determining a majority of the Founding Companies under
this Section 5.8, IT and ITG, collectively, shall only be counted as one (1)
-----------
Founding Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, and except
as set forth on Schedule 6.1, after the date hereof and prior to the
------------
Closing or earlier termination of this Agreement, unless Compass shall
otherwise agree in writing (which agreement shall not be unreasonably
withheld), the Company shall, and shall cause each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practices;
26
<PAGE>
(b) not (i) amend its charter or by-laws, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business or (B) borrowings to refinance existing
indebtedness on terms comparable with or more favorable than those at
the date hereof, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (iii) sell, pledge,
dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with clients and others having business relationships
with it and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of, or
enter into any new bonus or incentive agreement or arrangement with,
any of its employees, except as consistent with past practices of the
Company or Company Subsidiary, as applicable, (ii) pay or agree to pay
any additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such employee, whether past or present,
other than as required pursuant to the terms thereof, (iii) enter into
any new employment, severance, consulting, or other compensation
agreement with any of its existing employees, (iv) amend or enter into
a new Employee Plan (except as required by Law) or amend or enter into
a new collective bargaining agreement, or (v) engage in any new
Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
27
<PAGE>
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the Business
consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
(a) not (i) amend its charter or by-laws (provided, however, that
Compass shall prior to the Closing, file an amended and restated
charter in substantially the form attached hereto as Exhibit
-------
6.1.2(a)), (ii) split, combine or reclassify its outstanding capital
---------
stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
option, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (ii) sell, pledge, dispose
of or encumber any assets or businesses other than dispositions in the
ordinary course of business or (iii) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(d) comply in all material respects with all applicable Laws; and
28
<PAGE>
(e) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholders shall (i)
not, and the Company shall use its best efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
the Company or any Company Subsidiary not to, initiate, solicit, negotiate,
encourage, or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business and properties of the Company or any Company Subsidiary, or any
capital stock of the Company or any Company Subsidiary, whether by merger,
purchase of stock or assets or otherwise, whether for cash, securities or
any other consideration or combination thereof, or enter into any joint
venture or partnership or similar arrangement, and (ii) promptly advise
Compass of the terms of any communications the Stockholders or the Company
may receive or become aware of relating to any bid for part or all of the
Company or any Company Subsidiary.
(b) The Company and the Stockholders (i) acknowledge that a breach of
any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other parties all of their
respective schedules to this Agreement (the "Schedules") to correct any matter
which would constitute a breach of any such party's representations and
warranties herein; provided, that no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Company Material Adverse Effect or
affects Schedules 4.2, 4.3 or 7.9 may be made unless Compass and a majority of
------------- --- ---
the other Founding Companies consent to such amendment,
29
<PAGE>
supplement or addition, and no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Compass Material Adverse Effect or
affects Schedule 5.2 may be made unless a majority of the Founding Companies
------------
consent to such amendment, supplement or addition. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 9.2 and 9.3 have been fulfilled, the
------------ ---
Schedules hereto shall be deemed to be the Schedules as amended, supplemented or
added pursuant to this Section 6.3. In the event that (i) one of the other
-----------
Founding Companies seeks to amend, supplement or add a Schedule pursuant to
Section 6.3 of one of the Other Stock Purchase Agreements, (ii) such amendment,
- -----------
supplement or addition constitutes or reflects a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise),
operating results, liabilities, employee, customer or supplier relations or
business prospects of such other Founding Company or any of its subsidiaries or
affects Schedules 4.2, 4.3 or 7.9 of such Other Stock Purchase Agreement, and
------------- --- ---
(iii) Compass and a majority of the Founding Companies (other than the Founding
Company providing such amended, supplemented or added Schedule) consent to such
amendment, supplement or addition, but the Company and the Stockholders do not,
or if any Other Stock Purchase Agreement is terminated by any party thereto
pursuant to Section 6.3 of such Other Stock Purchase Agreement or otherwise, the
-----------
Company and the Stockholders may terminate this Agreement at any time prior to
the Closing Date. In the event that (i) the Company seeks to amend, supplement
or add a Schedule pursuant to this Section 6.3, (ii) such amendment, supplement
-----------
or addition constitutes or reflects a Company Material Adverse Effect or affects
Schedules 4.2, 4.3 or 7.9, and (iii) Compass and a majority of the Founding
- ------------- --- ---
Companies do not consent to such amendment, supplement or addition, this
Agreement shall be deemed terminated as set forth in Section 10.1 hereof. No
------------
party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 6.3, unless this
-----------
Agreement is so terminated in connection with an amendment of, supplement to or
addition of a Schedule relating to a breach of a representation or warranty as
of the date of this Agreement. No amendment of, supplement to or addition of a
Schedule shall be made later than five (5) business days prior to the
anticipated effectiveness of the Registration Statement. For purposes of
determining a majority of the Founding Companies under this Section 6.3, IT and
-----------
ITG, collectively, shall only be counted as one (1) Founding Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, Montgomery
Securities, Inc. and Lehman Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in connection with the IPO
(the "Underwriters") and counsel for the Underwriters (collectively, the
"Compass Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Compass shall afford to the Stockholders and the Company and their
accountants, counsel, financial advisors and other representatives
(collectively, the "Company Representatives")
30
<PAGE>
full access during normal business hours throughout the period prior to the
Closing to all of their respective properties, books, contracts,
commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly
to one another all due diligence information requested by the other party.
Compass shall hold and shall use its reasonable best efforts to cause the
Compass Representatives to hold, and the Stockholders and the Company shall
hold and shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement or any of the Other Agreements, except that each of Compass, the
Stockholders and the Company may disclose any information that it is
required by law or judicial or administrative order to disclose, provided
it gives prior prompt written notice to the other party. In addition,
Compass will cause each of the other Founding Companies and their
stockholders to enter into a provision similar to this Section 7.1
-----------
requiring each such Founding Company to keep confidential and to use their
reasonable best efforts to cause their respective accountants, counsel,
financial advisors and other representatives to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholders shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the Stockholders shall furnish
or cause to be furnished to Compass and the Representatives all of the
information concerning the Company, the Company Subsidiaries and the
Stockholders required for inclusion in, the Registration Statement and the
prospectus included therein (the "Prospectus"); including, without
limitation, audited consolidated balance sheets of the Company as of
September 30, 1997, and the related audited
31
<PAGE>
consolidated statements of income, stockholders' equity and cash flow for
the nine (9) months then ended (including all notes thereto), which shall
be furnished to Compass and the Underwriters no later than November 1,
1997. The Company and the Stockholders will cooperate with Compass and the
Representatives in the preparation of the Registration Statement and the
Prospectus. All financial statements provided by the Company for inclusion
in the Registration Statement and Prospectus shall (i) be accurate and
complete in all material respects, (ii) be consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, shall
be accurate and complete in all material respects), and (iii) fairly
present the financial condition, assets and liabilities of the Company and
Company Subsidiaries as of their respective dates and the results of
operations and cash flows for the respective period, in accordance with
generally accepted accounting principles applied on a consistent basis.
All information provided and to be provided by Compass and the Company,
respectively, for use in the Registration Statement (including, without
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholders agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholders
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholders, each of the Company and the Stockholders
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholders as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
32
<PAGE>
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3)
business days immediately preceding the filing of the initial Registration
Statement and any amendment thereto, the Company and its counsel shall be
obligated to respond to the proposed changes electronically transmitted to
them within two (2) hours from the time of the completion of the
transmission of the proposed changes to the Company's counsel, provided
that Compass has provided to the Company or Company's counsel reasonably
adequate advance notice of the need for the Company and its counsel to
respond to such proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO. Neither the Company nor the Stockholders will be liable for any portion of
the above expenses in the event the IPO is not closed. Compass shall also pay
(i) the underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by taxing authorities
and relevant records concerning the ownership and tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis, at its cost, to
provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party
33
<PAGE>
required to file returns pursuant to this Agreement shall bear all costs of
filing such returns.
7.6.2 Each of the Company, Compass and the Stockholders shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders
given within thirty (30) days after receipt of such notice, Compass will
use its best efforts to cause to be included in such registration all of
the Compass Common Stock which any such Stockholder requests, provided that
Compass shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel reasonably acceptable to the stockholders of the
Founding Companies, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
-----------
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate of
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Stock Purchase Agreements may request in writing that Compass file a
registration statement under the 1933 Act covering the registration of the
shares of Compass Common Stock so issued and then held by such stockholders
(a "Demand Registration"). Such request shall specify the intended method
of disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the Founding Companies and shall use its best efforts to
effect as soon as practicable a registration under the 1933 Act that will
permit the disposition of the shares in accordance with the method
specified in the request. Compass shall be obligated to effect only one
Demand Registration pursuant to this Section 7.7.2. Compass may
-------------
34
<PAGE>
register in the same process other unregistered, previously issued Compass
Common Stock; provided, however, that the registration of such other
unregistered, previously issued Compass Common Stock shall not reduce the
number of shares of Compass Common Stock of stockholders of the Founding
Companies requested to be registered pursuant to this Section 7.7.2.
-------------
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as
soon as reasonably practicable, a registration statement with respect
to the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by any Stockholder at any time when (i) the Company
Common Stock is listed on a recognized national or regional securities
exchange or traded in the NASDAQ national market, and (ii) the resale
provisions of Rule 144(k) promulgated under the 1933 Act are available to
such Stockholder.
35
<PAGE>
7.7.6 In consideration of the granting to the Stockholders of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholders agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale arrangements,
shares of Compass Common Stock in the ten (10) days prior to the
effectiveness of any registration of Compass Common Stock for sale to the
public and for up to ninety (90) days following the effectiveness of such
registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholders shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common Stock,
furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholders released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all such guarantees on
------------
indebtedness being assumed by Compass, if necessary to achieve such releases.
In the event that Compass cannot obtain such releases from the lenders of any
such
36
<PAGE>
guaranteed indebtedness, Compass will defend, indemnify and hold harmless the
Stockholders against any and all claims made by lenders under such guarantees
which arise as a result of Compass' failure to cause such guarantees to be
released, including, without limitation, if a Claim for payment is made with
respect to such guarantee subsequent to the Closing.
7.10 Lock-Up Agreement. Each Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, such Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of Montgomery Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of Stockholders. At or prior to the Closing, the
---------------------------
Stockholders shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholders and the Company. The Stockholders
---------------------------------------------------
and the Company agree to indemnify, defend and save the Compass Indemnified
Parties (hereinafter defined), and each of them, harmless from and against, and
to promptly pay to a Compass Indemnified Party or reimburse a Compass
Indemnified Party for, any and all Losses (hereinafter defined) sustained or
incurred by any Compass Indemnified Party relating to, resulting from, arising
out of or otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholders or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholders to observe or
perform any of their covenants and agreements set forth herein; and
(c) any liability under the 1933 Act, the 1934 Act or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein
not misleading, and not provided to Compass or its counsel by the Company
or the Stockholders; provided, however, that
37
<PAGE>
such indemnity shall not inure to the benefit of any Compass Indemnified
Party to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company or Stockholders provided, in
writing, corrected information to Compass or its counsel for inclusion in
the final prospectus prior to distributing such prospectus, and such
information was not so included, or (ii) Compass did not provide the
Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.1(c).
--------------
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
------------
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
------------
set forth in this Article VIII, the Other Founding Companies, and each of their
------------
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save each of the Stockholders and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered
38
<PAGE>
hereunder by Compass or any action, demand or claim by any third party
against or affecting any Stockholder Indemnified Party which, if
successful, would give rise to a breach of any such representation or
warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other
federal or state law or regulation, at common law or otherwise, arising out
of or based upon any untrue statement or alleged untrue statement of a
material fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be
stated therein or necessary to make the statements therein not misleading,
to the extent such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.2(d).
--------------
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is required
to provide indemnification under this Agreement (an "Indemnifying Party"),
the Indemnified Party shall give written notice thereof together with a
statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such shorter time as may be necessary, in the Indemnified Party's
reasonable judgment, to give the Indemnifying Party a reasonable
39
<PAGE>
opportunity to respond to and defend such claim); provided, however, that
the failure to give such notice shall not affect the right to indemnity
hereunder except to the extent the Indemnifying Party is prejudiced by such
delay. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The Indemnifying Party
shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint representation would be inappropriate
(and in each case the cost of such defense shall constitute an amount for
which the Indemnified Party is entitled to indemnification hereunder);
provided, however, that the Indemnifying Party shall have the right to
settle such claim only with the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed. If an
offer is made to settle a Third Party
40
<PAGE>
Claim which all parties to such Third Party Claim (including the
Indemnifying Party) are prepared to settle and which offer the Indemnifying
Party is permitted to settle under this Section 8.3.2 only upon the prior
-------------
written consent of the Indemnified Party, the Indemnifying Party will give
prompt written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within (30) calendar
days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
- ---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
-----------------
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of such Loss, and the Indemnified Party shall have no obligation,
hereunder or otherwise, to pursue payment under or from any insurer or third
party in respect of such Loss. The Indemnified Party shall cooperate, at no
expense to the Indemnified Party, in any reasonable efforts of the Indemnifying
Party in pursuing such payments, including expressly acknowledging the
Indemnifying Party's right and standing to pursue such payments, and the
Indemnified Party will
41
<PAGE>
use its customary efforts short of litigating with an insurer or third party to
collect amounts due from such insurer or third party. If any insurance or third
party reimbursement is obtained subsequent to payment by an Indemnifying Party
in respect of a Loss, such reimbursement (to the extent of amounts theretofore
paid by the Indemnifying Party on account of such Loss) shall be promptly paid
over to the Indemnifying Party. The liability of the Indemnifying Party with
respect to any Direct Claim or Third Party Claim shall be reduced by the income
tax benefit actually realized by the Indemnified Party as a result of any Losses
upon which such Direct Claim or Third Party Claim is based. An income tax
benefit shall only be treated as realized if a Loss is deductible in the income
tax return for the taxable year of such Loss and if such deduction produces an
actual reduction of taxes paid for such year. Calculation of the income tax
benefit shall be made by a comparison of the income taxes actually due with the
tax returns and the income taxes that would be due if the Loss was not
deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Liability Among the Stockholders and the Company. The Company
------------------------------------------------
shall have no liability pursuant to Section 8.1 after the Closing. Prior to
-----------
the Closing, the Stockholders set forth on Schedule 8.7.1-1 (the "Major
----------------
Stockholders") and the Company shall be jointly and severally liable for
all of the Losses pursuant to Section 8.1. Subsequent to the Closing, each
-----------
of the Major Stockholders shall be jointly and severally liable for all of
the Losses pursuant to Section 8.1, up to the amount of Aggregate Purchase
-----------
Consideration received by such Major Stockholder. Prior to and subsequent
to the Closing, each of the Stockholders set forth on Schedule 8.7.1-2 (the
----------------
"Minor Stockholders") shall be severally liable for all of the Losses
pursuant to Section 8.1 in proportion to the percentages set forth opposite
-----------
such Minor Stockholder name on Schedule 8.7.1-2, up to the amount of
----------------
Aggregate Purchase Consideration received by such Minor Stockholder.
8.7.2 Threshold for the Stockholders and the Company. With respect
----------------------------------------------
to representations and warranties, the Stockholders and the Company shall
not have any liability pursuant to Section 8.1(a) hereof unless and until
--------------
and only to the extent that the aggregate amount of Losses accrued pursuant
to Section 8.1(a) exceeds the Threshold Amount (hereinafter defined);
--------------
provided, however, that this threshold shall not apply to Losses arising
out of breaches of representations or warranties contained in Sections 4.2,
------------
4.4.1, 4.16, 4.17 and 4.25, and the Stockholders shall indemnify the
----- ---- ---- ----
Compass Indemnified Parties for any Losses accruing thereunder in
accordance with this Article VIII without regard to such threshold. As
------------
used herein, "Threshold Amount" shall mean the following amounts (as
applicable): (i) in the event the Agreement is terminated pursuant to
Section 10.1 and the Closing does not occur, one percent (1%) of the
------------
"Minimum Value" as set forth on Schedule 2.1 (the "Minimum Value"), or (ii)
------------
subsequent to the Closing, one percent (1%) of the Aggregate Purchase
Consideration.
8.7.3 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained
42
<PAGE>
in Sections 5.2 and 5.4.1 and Compass shall indemnify the Stockholder
------------ -----
Indemnified Parties from any Losses occurring thereunder in accordance
with this Article VIII without regard to such threshold.
------------
8.7.4 Limitations on Claims Against the Stockholders and the Company.
--------------------------------------------------------------
The Stockholders' and the Company's liability for misrepresentations and
breaches of representations and warranties under Section 8.1(a) shall be
--------------
limited to the Cap Amount (hereinafter defined) in the aggregate; provided,
however that this limitation shall not apply to Losses arising out of
breaches of representations or warranties contained in Sections 4.2, 4.4.1,
------------ -----
4.16, 4.17 and 4.25, and any Losses accruing thereunder shall not count
---- ---- ----
towards such limitation. As used herein, "Cap Amount" shall mean the
following amounts (as applicable): (i) in the event the Agreement is
terminated pursuant to Section 10.1 and the Closing does not occur, twenty
------------
percent (20%) of the Minimum Value, or (ii) subsequent to the Closing, the
Aggregate Purchase Consideration.
8.7.5 Limitation on Claims Against Compass. The liability of Compass
------------------------------------
under Section 8.2(a) shall be limited to the Cap Amount in the aggregate;
--------------
provided, however that this limitation shall not apply to Losses arising
out of breaches of representations or warranties in Sections 5.2 and 5.4.1
------------ -----
and any Losses accruing thereunder shall not count towards such limitation.
8.7.6 Limitations Relating to Post-Closing Adjustment. In the event
-----------------------------------------------
a Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholders, the Company and the Stockholders shall not have any liability
for the amount of Losses pursuant to Section 8.1(a) arising out of such
--------------
breach and the amount of such Losses shall not be included in the
calculation of the Threshold Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholders and the Company; Time Limits on Indemnification Obligations.
- ------------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholders, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholders and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholders and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholders' obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
- -------------------
performed by the Stockholders after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
------------------
within the applicable time period as specified below, shall expire one (1) year
after the Closing Date, except with respect to the Stockholders' obligations
arising under or relating to (A) Section 4.16 hereof, which shall survive until
------------
the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes and (B)
Section 4.2 hereof, which shall survive indefinitely; and (ii) solely to the
- -----------
extent that Compass actually incurs liability under the 1933
43
<PAGE>
Act or the 1934 Act, the obligations under Section 8.1(e) above shall survive
--------------
until the expiration of any applicable statute of limitations with respect to
such claims.
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
----------------------------------------------------------------------
Limits on Indemnification Obligations. All representations, warranties,
- -------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, (i) that Compass'
obligations under Sections 8.2 (a) and (b), other than those relating to
------------------------
covenants and agreements to be performed by Compass after the Closing and other
than with respect to the obligations for which a claim is made as provided in
Section 8.3 or 8.4 hereof within the applicable time period as specified below,
- ------------------
shall expire one (1) year after Closing Date, except with respect to obligations
arising under or relating to Section 5.2 hereof which shall survive
-----------
indefinitely; and (ii) solely to the extent that the Stockholders actually incur
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.2(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
-----------------------------------------
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon
--------------------------------
fraud and except for equitable remedies, the remedies provided in this Article
-------
VIII constitute the sole and exclusive remedies for recovery of Losses against a
- ----
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
- -----------
Indemnity"), the Stockholders may satisfy their respective obligations for the
Excess Indemnity (i) by tendering to the Compass Indemnified Parties shares of
Compass Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholders' shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
44
<PAGE>
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject
to the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect ;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholders (valuing the shares of
Compass Common Stock received by the Stockholders at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents and
stockholders approvals required for the consummation of the Purchase or any
of the Other Purchases and the transactions contemplated hereby and by the
Other Stock Purchase Agreements shall have been obtained and be in effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase.
--------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the
Purchase shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other
45
<PAGE>
Stock Purchase Agreement required to be performed on or prior to the
Closing Date and the representations and warranties of Compass contained in
this Agreement and each Other Stock Purchase Agreement shall be true and
correct in all material respects on and as of the date made and on and as
of the Closing Date as if made at and as of such date, and the Company
shall have received a certificate of the Chief Executive Officer or
President of Compass to that effect;
(b) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to the Stockholders of the Purchase;
(c) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and Stockholders;
(d) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholders of
Compass Common Stock to be issued to the Stockholders pursuant to this
Agreement will not be taxable pursuant to Section 351 of the Code;
(e) H. G. Collins ("Collins"), John Maloney ("J. Maloney") and Mary
Maloney ("M. Maloney") shall have been afforded the opportunity to enter
into an employment agreement in the forms attached hereto as Exhibits
--------
9.2(e)-1, 9.2(e)-2 and 9.2(e)-3, respectively;
-------- -------- --------
(f) Compass shall have delivered to the Company and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the Secretary of State of the State of
Delaware, showing that Compass is in good standing;
(g) each of the Stockholders, the stockholders of the other Founding
Companies who are to receive shares of Compass Common Stock pursuant to the
Other Stock Purchase Agreements, and the other stockholders of Compass
other than those acquiring stock in the IPO shall have entered into a
stockholders agreement (the "Stockholders Agreement") in the form attached
hereto as Exhibit 9.2(g); and
--------------
(h) all conditions to the Other Purchases, on substantially the same
terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and
46
<PAGE>
the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of
the date made and on and as of the Closing Date as if made at and as of
such date, and Compass and the Underwriters shall have received a
Certificate of the Chief Executive Officer or President of the Company to
that effect;
(b) the Stockholders shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Stockholders contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and Compass and the Underwriters
shall have received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion from
Emmanuel Sheppard & Condon, counsel to the Company and the Stockholders,
dated the Closing Date, in the form attached hereto as Exhibit 9.3(c);
--------------
(d) Collins, J. Maloney and M. Maloney shall have executed and
delivered employment agreements referred to in Sections 9.2(e) and 9.2(f);
--------------- ------
(e) Compass and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Compass), with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues and the total
and per share amounts of net income;
(f) the Company shall have delivered to Compass and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's and Company Subsidiary's state of incorporation and in each state
in which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is in
good standing;
(g) no Governmental Authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to Compass of the Purchase;
(h) the Stockholders shall have executed the Stockholders Agreement;
(i) the Stockholders shall have delivered to Compass an instrument
in the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholders against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the
Stockholders;
47
<PAGE>
(j) all amounts owed by a Stockholder, any Affiliate of a
Stockholder or any Affiliate of the Company or any Company Subsidiary to
the Company or any Company Subsidiary, and all amounts owed by the Company
or any Company Subsidiary to a Stockholder, any Affiliate of a Stockholder
or any Affiliate of the Company or any Company Subsidiary, shall have been
settled and satisfied; and
(k) the directors of the Company immediately prior to the Closing
shall have delivered to Compass their resignations as directors of the
Company.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholders,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of the Stockholders or any of their affiliates or
associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Compass; or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of Compass
or any of its 5% stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all
48
<PAGE>
material respects within thirty (30) days after written notice of such
default is given to the Company by Compass;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Stockholders by
Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholders, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
------------ --------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
- --- --- --- ------------
10.3 Amendment. This Agreement may not be amended except by written
---------
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholders acknowledge that the shares of Compass Common Stock to be
delivered to the Stockholders pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by each
of the Stockholders pursuant to this Agreement is being acquired solely for such
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. Except as set forth on Schedule 11.1,
----------------------------- -------------
each of the Stockholders represents and warrants to Compass that he or she is an
"accredited investor" as defined in Regulation D promulgated under the 1933 Act;
that he or she is able to bear the economic risk of an investment in the Compass
Common Stock acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the Compass Common Stock; and that he or she
has had an adequate opportunity to ask questions and receive answers from the
officers of Compass
49
<PAGE>
concerning all matters relating to the transactions described herein including,
without limitation, the background and experience of the current and proposed
officers and directors of Compass, and the plans for of operations of the
business of Compass.
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), and subject to the provisions of Section 7.10, for a period
------------
of one (1) year from the Closing Date, the Stockholders shall not (a) sell,
assign, exchange, transfer, encumber, pledge, distribute or otherwise dispose of
(i) any shares of Compass Common Stock received by the Stockholders pursuant to
this Agreement, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Compass Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(b) engage in any transaction, whether or not with respect to any shares of
Compass Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Compass Common Stock acquired
pursuant to Article II hereof (including, without limitation, engaging in put,
----------
call, short-sale, straddle or similar market transactions). The certificates
evidencing the Compass Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear a legend substantially in the form set
- ----------
forth below and containing such other information as Compass may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO [INSERT FIRST
ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF
THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE
THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholders covenant, warrant and represent
-------------------
that none of the shares of Compass Common Stock issued to such Stockholders will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. All certificates
evidencing Company Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear the following legend in addition to the
- ----------
legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE
SOLD OR OTHERWISE
50
<PAGE>
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND
THE APPLICABLE SECURITIES LAW.
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. Collins, J. Maloney and M. Maloney, for a
---------------------
period of five (5) years following the Closing Date, and the Stockholders other
than Collins, J. Maloney and M. Maloney, for a period of one (1) year following
the Closing Date, will not, other than for the benefit of Compass, directly or
indirectly, for themselves or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of Compass (including the subsidiaries thereof) in a managerial
capacity for the purpose or with the intent of enticing such employee away
from or out of the employ of Compass (including the subsidiaries thereof),
or hire such person, provided that any Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Compass in the event of breach by such Stockholders,
by injunctions and restraining orders.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on the
-----------
Stockholders in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of Compass and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities and business of Compass (including the subsidiaries
thereof) throughout the term of this covenant.
51
<PAGE>
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Compass and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Stockholder shall enter into a business or pursue other
activities not in competition with Compass and/or any subsidiary thereof, or
similar activities or business in locations the operations of which, under such
circumstances, does not violate this Article XII and in any event such new
-----------
business, activities or location are not in violation of this Article XII or of
-----------
such Stockholder's obligations under this Article XII, such Stockholder shall
-----------
not be chargeable with a violation of this Article XII if Compass and/or any
-----------
subsidiary thereof shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Article XII, during which the
-----------
agreements and covenants of each Stockholder made in this Article XII shall be
-----------
effective, shall be computed by excluding from such computation any time during
which such Stockholder is in violation of any provision of this Article XII.
-----------
The covenants contained in Article XII shall not be affected by any breach of
-----------
any other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders' Covenant. The Stockholders recognize and acknowledge
-----------------------
that they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass' respective
businesses. The Stockholders agree that they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except
52
<PAGE>
(a) to authorized representatives of Compass,
(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
Compass,
(c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this
Section 13.1,
------------
(d) such information becomes known to the public generally through
no fault of the Stockholders,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, or
(g) pursuant to this Agreement or the Other Stock Purchase
Agreements.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 13.1, and because of
------------
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholders, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee (except for the fee described in Schedule
--------
14.1-1, hereinafter referred to as the "Company Brokerage Fee") or commission in
- ------
connection with the Purchase or the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or the Stockholders.
Compass represents and warrants that no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee (except for the fee described
in
53
<PAGE>
Schedule 14.1-2, hereinafter referred to as the "Compass Brokerage Fee") or
- ---------------
commission in connection with the Purchase or the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Compass or its
stockholders (other than underwriting discounts and commission to be paid in
connection with the IPO). Compass acknowledges and agrees that it shall be
liable for and pay the Company Brokerage Fee, the Compass Brokerage Fee and any
and all other similar fees and commissions based upon arrangements made by or on
behalf of Compass or its Stockholders without any deduction from the Aggregate
Purchase Consideration and/or Final Deemed Earnings Actuals.
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
225 West Washington Street, Suite 1600
Chicago, Illinois 60606
Attn: Scott H. Lang
Facsimile No.: (312) 368-1988
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
14.2.2 If to the Company, to:
BRMC of Delaware, Inc.
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Attn: Mr. H.G. Collins
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
54
<PAGE>
Facsimile No.: (404) 881-4777
and:
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
14.2.3 If to the Stockholders, addressed to them at their
addresses set forth on Schedule 14.2.3, with copies to such counsel as is set
---------------
forth with respect to each Stockholder on such Schedule 14.2.3.
---------------
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term "person"
-------------------
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
1933 Act, and shall include each past and present Affiliate of a person or
entity and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) the term "to the knowledge of the Stockholders or the
Company" or any similar term shall mean actual knowledge of a fact or matter
possessed by any of the Stockholders, by any of the officers or directors of the
Company.
14.5 Entire Agreement; Assignment. This Agreement (including the schedules
----------------------------
and exhibits attached hereto and the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, without the prior written consent of the
parties hereto.
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
55
<PAGE>
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and except as expressly set forth in
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
- ------------ -----------
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or enforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
56
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:/s/ Michael J. Cunningham
------------------------------
Name: Michael J. Cunningham
Its:Chairman and CEO
-----------------------------
BRMC OF DELAWARE, INC.
By:/s/ H. Eugene Collins
------------------------------
Name: H. Eugene Collins
----------------------------
Its: President
-----------------------------
/s/ Mary Maloney
---------------------------------
MARY MALONEY
/s/ H. Eugene Collins
---------------------------------
H. EUGENE COLLINS
ADVANCED CREDIT SERVICES, INC., a
Georgia Corporation
By: /s/ D. Fletcher
-------------------------------
Name: D. Fletcher
-----------------------------
Its: President
------------------------------
/s/ Billy Ray Pitcher
----------------------------------
BILLY RAY PITCHER
/s/ Eddie Newton King, Jr.
----------------------------------
EDDIE NEWTON KING, JR.
57
<PAGE>
/s/ Peter Michael Grossman
----------------------------------
PETER MICHAEL GROSSMAN
/s/ William Dale Graham
----------------------------------
WILLIAM DALE GRAHAM
/s/ Thomas Warren Hester
----------------------------------
THOMAS WARREN HESTER
58
<PAGE>
Exhibit 2.4
------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES CORPORATION,
MID-CONTINENT AGENCIES, INC.
AND
LESLIE J. KIRSCHBAUM
DATED AS OF OCTOBER 3, 1997
------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I - THE PURCHASE AND SALE OF STOCK ................................ 2
ARTICLE II - CONSIDERATION; CONVERSION OF COMPANY STOCK ................... 2
2.1 Purchase Price .................................................. 2
2.2 Exchange of Certificates for Consideration ...................... 2
2.3 Payment of Aggregate Cash Consideration ......................... 3
2.4 Post-Closing Adjustment ......................................... 3
ARTICLE III - THE CLOSING AND CLOSING DATE ................................ 4
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDER ............................................................... 4
4.1 Organization and Qualification .................................. 4
4.2 Capitalization .................................................. 5
4.3 Company Subsidiaries ............................................ 5
4.4 Authority; Non-Contravention; Approvals ......................... 6
4.5 Financial Statements ............................................ 7
4.6 Absence of Undisclosed Liabilities .............................. 7
4.7 Accounts and Notes Receivable ................................... 7
4.8 Absence of Certain Changes or Events ............................ 8
4.9 Litigation ...................................................... 10
4.10 Compliance with Applicable Laws ................................. 10
4.11 Licenses and Permits ............................................ 11
4.12 Material Contracts .............................................. 11
4.13 Properties ...................................................... 13
4.14 Intellectual Property ........................................... 17
4.15 Minute Books and Stock Records .................................. 18
4.16 Taxes ........................................................... 18
4.17 Employee Benefit Plans; ERISA ................................... 18
4.18 Labor Matters ................................................... 20
4.19 Environmental Matters ........................................... 21
4.20 Insurance ....................................................... 21
4.21 Interest in Customers and Suppliers; Affiliate Transactions ..... 22
4.22 Business Relationships .......................................... 22
4.23 Compensation .................................................... 22
4.24 Bank Accounts ................................................... 23
4.25 Deemed Earnings Estimate ........................................ 23
4.26 Redemption Agreement and Creditsafe Agreement ................... 23
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF COMPASS ..................... 23
5.1 Organization and Qualification .................................. 23
5.2 Capitalization .................................................. 23
5.3 No Subsidiaries ................................................. 24
5.4 Authority; Non-Contravention; Approvals ......................... 24
(i)
<PAGE>
5.5 Absence of Undisclosed Liabilities .............................. 25
5.6 Litigation ...................................................... 25
5.7 Compliance with Applicable Laws ................................. 25
5.8 Other Agreements ................................................ 26
ARTICLE VI - CERTAIN COVENANTS AND OTHER TERMS ............................ 26
6.1 Conduct of Business Pending the Purchase ........................ 26
6.2 No - Shop ....................................................... 28
6.3 Schedules ....................................................... 29
6.4 Contribution of Creditsafe Shares ............................... 30
6.5 Redemption of Minority Stockholders ............................. 30
6.6 Creditsafe Acquisition .......................................... 30
6.7 Redemption Agreement and Creditsafe Agreement ................... 30
6.8 Repayment of Stockholder Loan ................................... 30
ARTICLE VII - ADDITIONAL AGREEMENTS ....................................... 30
7.1 Access to Information ........................................... 30
7.2 Registration Statement .......................................... 31
7.3 Expenses and Fees ............................................... 33
7.4 Agreement to Cooperate .......................................... 33
7.5 Public Statements ............................................... 33
7.6 Preparation and Filing of Tax Returns ........................... 33
7.7 Registration Rights ............................................. 34
7.8 Rule 144 Reporting .............................................. 36
7.9 Release of Guarantees ........................................... 36
7.10 Lock-Up Agreement ............................................... 37
7.11 Obligations of the Stockholder .................................. 37
ARTICLE VIII - INDEMNIFICATION ............................................ 37
8.1 Indemnification by the Stockholder and the Company .............. 37
8.2 Indemnification by Compass ...................................... 39
8.3 Indemnification Procedure for Third Party Claims ................ 40
8.4 Direct Claims ................................................... 41
8.5 Failure to Give Timely Notice ................................... 41
8.6 Reduction of Loss ............................................... 42
8.7 Limitation on Indemnities ....................................... 42
8.8 Survival of Representations, Warranties and Covenants of the
Stockholder and the Company; Time Limits on Indemnification
Obligations ..................................................... 43
8.9 Survival of Representations, Warranties and Covenants of
Compass; Time Limits on Indemnification Obligations ............. 44
8.10 Defense of Claims; Control of Proceedings ....................... 44
8.11 Indemnification Exclusive Remedy ................................ 44
8.12 Manner of Satisfying Indemnification Obligations ................ 44
ARTICLE IX - CLOSING CONDITIONS ........................................... 45
9.1 Conditions to Each Party's Obligation to Effect the Purchase .... 45
(ii)
<PAGE>
9.2 Conditions to Obligation of the Company to Effect the Purchase .. 46
9.3 Conditions to Obligations of Compass to Effect the Purchase ..... 47
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER ............................. 48
10.1 Termination ..................................................... 48
10.2 Effect of Termination ........................................... 49
10.3 Amendment ....................................................... 49
10.4 Waiver .......................................................... 49
ARTICLE XI - 1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS ........... 49
11.1 Economic Risk; Sophistication ................................... 50
11.2 Transfer Restrictions ........................................... 50
11.3 Compliance with Law ............................................. 51
ARTICLE XII - NONCOMPETITION .............................................. 51
12.1 Prohibited Activities ........................................... 51
12.2 Damages ......................................................... 51
12.3 Reasonable Restraint ............................................ 52
12.4 Severability; Reformation ....................................... 52
12.5 Independent Covenant ............................................ 52
12.6 Materiality ..................................................... 52
ARTICLE XIII - NONDISCLOSURE OF CONFIDENTIAL INFORMATION .................. 52
13.1 Stockholder Covenant ............................................ 52
13.2 Damages ......................................................... 53
13.3 Survival ........................................................ 53
ARTICLE XIV - GENERAL PROVISIONS .......................................... 54
14.1 Brokers ......................................................... 54
14.2 Notices ......................................................... 54
14.3 Interpretation .................................................. 55
14.4 Certain Definitions ............................................. 55
14.5 Entire Agreement; Assignment .................................... 55
14.6 Applicable Law .................................................. 56
14.7 Counterparts .................................................... 56
14.8 Parties in Interest ............................................. 56
14.9 Severability .................................................... 56
(iii)
<PAGE>
LIST OF SCHEDULES
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and Company
Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Property
Schedule 4.13.1-2(a) Exceptions Regarding Owned Property
Schedule 4.13.1-2(b) Matters Relating to Leased Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16 Tax Audits
Schedule 4.17.1 Exceptions Regarding Employee Plans
Schedule 4.17.2 Description of Unwritten Employee Plans
(iv)
<PAGE>
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate
Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.3 Compass Subsidiaries
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 7.9 Stockholder Guarantees
Schedule 14.1 Compass' Broker
(v)
<PAGE>
LIST OF EXHIBITS
Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e) Form of Employment Agreements
Exhibit 9.2(g) Form of Stockholders' Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholder's Release
(vi)
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS
<S> <C>
ADA........................................................... Section 4.13.1(h)
Affiliate..................................................... Section 14.4
Affiliate Transactions........................................ Section 4.2.1
Aggregate Cash Consideration.................................. Section 2.1
Aggregate Purchase Consideration.............................. Section 2.1
Agreement..................................................... Introduction
Business...................................................... Section 4.12
Cap Amount.................................................... Section 8.7.4
Claims........................................................ Section 4.9.1
Closing....................................................... Article III
Closing Date.................................................. Article III
Code.......................................................... Introduction
Company....................................................... Introduction
Company Material Adverse Effect............................... Section 4.8(r)
Company Representatives....................................... Section 7.1.1
Company Stock................................................. Article I
Company Subsidiaries.......................................... Section 4.1
Compass....................................................... Introduction
Compass Common Stock.......................................... Section 2.1
Compass Indemnified Parties................................... Section 8.1
Compass Indemnified Party..................................... Section 8.1
Compass Material Adverse Effect............................... Section 5.4.3
</TABLE>
(vii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Compass Representatives....................................... Section 7.1.1
Compass Required Statutory Approvals.......................... Section 5.4.3
Contracts..................................................... Section 4.12
Copyrights.................................................... Section 4.14
Deemed Earnings Actuals....................................... Section 2.4(b)
Deemed Earnings Estimate...................................... Section 2.4(a)
Deemed Earnings Excess........................................ Section 2.4(f)
Deemed Earnings Shortfall..................................... Section 2.4(g)
Defense Notice................................................ Section 8.3.1
Demand Registration........................................... Section 7.7.2
Direct Claim.................................................. Section 8.4
Employee Plan................................................. Section 4.17.5(a)
Environmental and Safety Requirements......................... Section 4.19
ERISA......................................................... Section 4.17.5(b)
Excess Indemnity.............................................. Section 8.12
Final Deemed Earnings Actuals................................. Section 2.4(e)
Financial Statements.......................................... Section 4.5.1
First Person.................................................. Section 4.17.5(c)
Founding Companies............................................ Introduction
Governmental Authority........................................ Section 4.4.2
Hazardous Materials........................................... Section 4.19
herein........................................................ Section 14.3
hereof........................................................ Section 14.3
hereunder..................................................... Section 14.3
</TABLE>
(viii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Indemnified Party............................................. Section 8.3.1
Indemnifying Party............................................ Section 8.3.1
Insurance Policies............................................ Section 4.20
Intellectual Property......................................... Section 4.14
Intellectual Property Licenses................................ Section 4.14
IPO........................................................... Introduction
IT............................................................ Introduction
ITG........................................................... Introduction
Latest Balance Sheet.......................................... Section 4.5.1
Laws.......................................................... Section 4.10
Leased Property............................................... Section 4.13.1
Licenses...................................................... Section 4.11
Liens......................................................... Section 4.2.1
Loss.......................................................... Section 8.1
Losses........................................................ Section 8.1
Market Price.................................................. Section 8.12
Marks......................................................... Section 4.14
Material Contracts............................................ Section 4.12
Minimum Value................................................. Section 8.7.2
1933 Act...................................................... Section 4.4.3
1934 Act...................................................... Section 7.8(b)
Notice Period................................................. Section 2.4(c)
Other Agreements.............................................. Introduction
Other Founding Companies...................................... Section 8.1
</TABLE>
(ix)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Other Stock Purchase Agreements............................... Introduction
Other Purchases............................................... Introduction
Owned Property................................................ Section 4.13.1
Patents....................................................... Section 4.14
person........................................................ Section 14.4
Plan Affiliate................................................ Section 4.17.5(c)
Prospectus.................................................... Section 7.2.1
Purchase...................................................... Introduction
Real Property................................................. Section 4.13.1
Redeemed Shares............................................... Section 6.8
Registration Statement........................................ Section 4.4.3
Representatives............................................... Section 7.1.1
Returns....................................................... Section 4.16.1
Schedules..................................................... Section 6.3
SEC........................................................... Section 4.4.3
Stockholder Indemnified Party................................. Section 8.2
Stockholder................................................... Introduction
Stockholder Agreement......................................... Section 9.2(h)
Stockholder Notice............................................ Section 2.4(c)
Taxes......................................................... Section 4.16.2
Territory..................................................... Section 12.1(a)
Third Party Claim............................................. Section 8.3.1
Threshold Amount.............................................. Section 8.7.2
to the knowledge of the Stockholder or the Company............ Section 14.4
</TABLE>
(x)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Trade Secrets................................................. Section 4.14
Underwriters.................................................. Section 7.1.1
</TABLE>
(xi)
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), Mid-Continent Agencies, Inc., an Illinois corporation
(the "Company"), and Leslie J. Kirschbaum (the "Stockholder").
WITNESSETH:
WHEREAS, the Stockholder desires to sell to Compass, and Compass desires to
purchase from the Stockholder, all of the issued and outstanding shares of
capital stock of the Company held of record and beneficially owned by the
Stockholder for the consideration and on the terms set forth in this Agreement
(the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of BRMC of Delaware, Inc., a Delaware corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), The Mail Box, Inc., a
Texas corporation, and National Credit Management Corp., a Maryland corporation
(which companies together with the Company are collectively referred to herein
as the "Founding Companies"), and their respective stockholders which agreements
provide for the purchase (collectively, the "Other Purchases") of all of the
issued and outstanding shares of capital stock of such companies simultaneously
with the Purchase;
WHEREAS, simultaneously herewith and as a condition to the execution by
Compass hereof, the Company has entered into that certain Redemption Agreement,
dated as of even date (the "Redemption Agreement"), with George E. Lodwich
("Lodwich");
WHEREAS, pursuant to the terms and conditions of a Stock Purchase Agreement
to be entered into by and among the Company, Sidney Home and Ann Home (the
"Creditsafe Agreement"), prior to and as a condition to the execution by Compass
hereof, the Company intends to acquire 50 "A" Ordinary Shares of Creditsafe
Limited, a corporation organized and existing under the laws of England,
Registered No. 01815264 ("Creditsafe");
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE PURCHASE AND SALE OF STOCK
Upon the terms and subject to the conditions of this Agreement, at the
Closing (hereinafter defined), the Stockholder shall sell to Compass, and
Compass shall purchase from the Stockholder, all of the then outstanding shares
of capital stock of the Company, consisting of 5,000 shares of common stock, no
par value, of the Company (the "Company Stock") less the Redeemed Shares (as
defined below).
ARTICLE II
CONSIDERATION; CONVERSION OF COMPANY STOCK
2.1 Purchase Price. The purchase price for the shares of Company Stock
--------------
shall be as follows: At the Closing, for each share of Company Stock issued and
outstanding immediately prior to the Closing, the Stockholder shall be entitled
to receive from Compass (i) that number of shares of common stock, par value
$.01 per share, of Compass ("Compass Common Stock") set forth in Schedule 2.1
------------
and (ii) the amount of cash determined in accordance with the formula set forth
in Schedule 2.1 (the aggregate amount of cash so to be paid in respect of all of
------------
the Company Stock is herein referred to as the "Aggregate Cash Consideration")
and subject to the adjustment provided for in Section 2.4 below. The sum of (i)
-----------
the Aggregate Cash Consideration and (ii) the value (determined as set forth on
Schedule 2.1) of all shares of Compass Common Stock so to be issued to the
- ------------
Stockholder is herein referred to as "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholder shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholder or accompanied by blank
stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholder of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholder agrees promptly to cure any deficiencies with respect
- ---
to the endorsement of the certificates or other documents of conveyance with
respect to such Company Stock. The certificates representing Compass Common
Stock to be delivered pursuant to this Article II shall bear a legend as
----------
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and the Stockholder shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2
<PAGE>
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass shall
---------------------------------------
pay to the Stockholder, by certified check, cashier's check or wire transfer of
immediately available funds to a bank account or bank accounts specified by the
Stockholder in writing at least three (3) business days prior to the Closing
Date, an amount equal to the Aggregate Cash Consideration.
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall be
-----------------------
subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate of
-----------------
the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholder in accordance with the procedure
set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Estimate"), and utilized in
-----------------
calculating the Aggregate Purchase Consideration as set forth in Schedule 2.1.
------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholder a calculation of the Company's actual earnings for the calendar year
ended on December 31, 1997, prepared by Price Waterhouse in accordance with the
procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Actuals").
-----------------
(c) If the Stockholder wishes to assert in good faith that the Deemed
Earnings Actuals have not been determined in accordance with the procedure set
forth in Schedule 2.4(a)-1, the Stockholder shall notify Compass in writing
-----------------
thereof (the "Stockholder Notice") within fifteen (15) days after delivery of
the Deemed Earnings Actuals to the Stockholder (the "Notice Period"). The
Stockholder Notice shall set forth in reasonable detail the alleged non-
conformance and the disputed amount. If the Stockholder does not deliver the
Stockholder Notice within the Notice Period, the Deemed Earnings Actuals shall
become final and binding upon all parties.
(d) If the Stockholder Notice is delivered within the Notice Period,
the Stockholder and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholder are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholder Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholder, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are at
- --------------- --- ---
least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of
3
<PAGE>
the Deemed Earnings Estimate, then no further payments by Compass or the
Stockholder shall be due pursuant to this Section 2.4.
-----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay to
the Stockholder, in the manner provided in Section 2.3 above, an amount in cash
-----------
equal to the Aggregate Purchase Consideration payable on account of the Deemed
Earnings Excess (hereinafter defined). The amount to be paid to the Stockholder
pursuant to this Section 2.4(f) shall be calculated by utilizing the formulae
--------------
set forth on Schedule 2.1. As used herein, "Deemed Earnings Excess" shall mean
------------
an amount equal to five (5) percent of the Deemed Earnings Estimate.
(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholder shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholder's liability pursuant to this Section
-------
2.4(g) exceed ten percent (10%) of the Aggregate Purchase Consideration.
- ------
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
- ---------- --
Agreement (the "Closing") shall take place at the offices of Katten Muchin &
Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDER
Each of the Company and the Stockholder hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
- -----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois. Each of the Company Subsidiaries (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation set forth on Schedule 4.3. Each of the Company and
------------
the Company Subsidiaries has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being
4
<PAGE>
conducted, and is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary. True,
accurate and complete copies of the Company's and each Company Subsidiary's
Articles of Incorporation and By-laws, in each case as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Compass. For purposes of this Agreement, the term "Company Subsidiary" means
collectively, all of the Company's Subsidiaries and Creditsafe. For purposes of
this Agreement, the term "Company Subsidiary" means collectively, all of the
Company's subsidiaries and CreditSafe.
4.2 Capitalization.
--------------
4.2.1 As of the date hereof, the authorized capital stock of the
Company consists of 10,000 shares of Company Stock, of which 10,000 shares
are issued and outstanding. All of such issued and outstanding shares are
validly issued and are fully paid, nonassessable and free of preemptive
rights. As of the date hereof, the Stockholder and Lodwich own beneficially
and of record all of the issued and outstanding shares of the Company Stock
as set forth in Schedule 4.2, which constitute all of the outstanding
------------
shares of capital stock of the Company, in the case of the Stockholder,
free and clear of all claims, liens, charges, encumbrances, pledges,
conditional sales contracts, equity charges, restrictions or security
interests of any nature (collectively, "Liens"). Upon giving effect to the
consummation of the transactions contemplated in the Redemption Agreement,
5,000 shares of Company Stock will remain outstanding, and as of the
Closing and upon giving effect to the redemption of shares of Company Stock
provided for in Section 6.8 below, 5,000 shares of Common Stock less the
-----------
Redeemed Shares will remain outstanding, in each case, all of which will be
owned beneficially and of record by the Stockholder, free and clear of all
Liens. The Stockholder has good and marketable title to the Company Stock
owned by the Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or a Company
Subsidiary or obligating the Company or a Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Stockholder to convey or transfer any Company Stock. There are no voting
trusts, proxies or other agreements or understandings to which the Company
or the Stockholder is a party or is bound with respect to the voting of any
shares of capital stock of the Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
-------------------- ------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The outstanding
capital stock of each Company Subsidiary which is owned by the Company is
validly issued, fully paid and non-assessable. Except as set forth on Schedule
--------
4.3, the Company does not, directly or indirectly, own, of record or
- ---
beneficially, or control any
5
<PAGE>
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, partnership, joint venture or limited liability
company. The Stockholder owns beneficially and of record twenty five (25) "B"
Ordinary Shares, (Pounds)1 par value per share, of Creditsafe (the "Creditsafe
Shares"), free and clear of all Liens.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholder and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the stockholders
of the Company, and no other corporate proceedings on the part of the
Company are necessary to authorize the execution and delivery of this
Agreement or the consummation by the Company of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Company and the Stockholder, and, assuming the due authorization,
execution and delivery hereof by Compass, constitutes a valid and legally
binding agreement of the Company and the Stockholder, enforceable against
the Company and the Stockholder in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
4.4.2 The execution and delivery of this Agreement by each of the
Company and the Stockholder do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Company Subsidiary under, any of the terms, conditions or provisions of
(i) the Articles of Incorporation or By-laws of the Company or any Company
Subsidiary, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or federal,
state, provincial, local or foreign government, or any subdivision, agency
or authority of any thereof ("Governmental Authority") applicable to the
Stockholder, the Company, any Company Subsidiary, or the business,
properties or assets of the Company or any Company Subsidiary, (iii) any
note, bond, mortgage, indenture or deed of trust, or (iv) any material
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company, any
Company Subsidiary or the Stockholder is a party or by which the
Stockholder, the Company, any Company Subsidiary or any of the properties
or assets of the Company or any Company Subsidiary may be bound or
affected. The consummation by the Company and the Stockholder of the
transactions contemplated hereby will not result in a violation, conflict,
breach, right of termination or acceleration, or creation of Liens, under
the terms, conditions or provisions of the items described in clauses (i)
through (iv) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clauses (iii) and (iv)
above, to obtaining (prior to the Closing) consents required from, or
giving notices required to be provided to, commercial lenders, lessors or
other third parties, all of which required consents and notices are listed
on Schedule 4.4.2.
--------------
6
<PAGE>
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company and the Stockholder or the consummation by
the Company and the Stockholder of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
reviewed consolidated balance sheets of the Company and the Company
Subsidiaries as of April 30 in each of the years 1994 through 1997, and the
related reviewed consolidated statements of income, stockholders' equity
and cash flow for each of the fiscal years then ended, including all notes
thereto, and the unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of June 30, 1997 (the "Latest Balance Sheet")
and the related consolidated statement of income, stockholders equity and
cash flows for the six (6) months then ended (collectively, the "Financial
Statements"). Each of the Financial Statements is accurate and complete in
all material respects, is consistent with the books and records of the
Company and the Company Subsidiaries (which, in turn, are accurate and
complete in all material respects), and fairly presents the financial
condition, assets and liabilities of the Company and the Company
Subsidiaries as of its date and the results of operations and cash flows
for the periods related thereto, in each case in accordance with generally
accepted accounting principles applied on a consistent basis, subject, in
the case of the unaudited interim financial statements, to normal and
customary year-end adjustments.
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
- ---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
7
<PAGE>
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
- ---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.8,
------------
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer
or supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by
the Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $50,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, debt, asset
or property (having a replacement cost or fair market value in excess of
$50,000.00 in the aggregate), except in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute or similar occurrence that might
reasonably be expected to adversely affect the Company, a Company
Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
8
<PAGE>
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholder or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholder or the Company, threatened material reduction in revenues from,
any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or liability,
other than current liabilities paid in its ordinary course of business
consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets or
disclosure of any proprietary confidential information of the Company or
any Company Subsidiary to any person other than Compass, and the other
Founding Companies and their respective officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or
any Company Subsidiary in excess of $50,000.00 individually or $100,000.00
in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
9
<PAGE>
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of the Company or any Company Subsidiary (a
"Company Material Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholder or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholder or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority or arbitrator (collectively,
"Claims"), other than collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $5,000 and which in the aggregate do not exceed
$25,000, and (ii) on behalf of third parties; nor, to the knowledge of the
Stockholder or the Company, is there any basis for any such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholder or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
Company Subsidiary in the ordinary course of business, none of which is
greater than $5,000 and which in the aggregate do not exceed $25,000, and
for which the amount in dispute is presently ascertainable with certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business, (i) on its own behalf, none
of which is greater than $5,000 and which in the aggregate do not exceed
$25,000, and (ii) on behalf of third parties, and for which the amount in
dispute is presently ascertainable with certainty, Schedule 4.9 sets forth
------------
all closed litigation matters to which the Company or any Company
Subsidiary was a party during the five (5) years preceding the Closing
Date, the date such litigation was commenced and concluded, and the nature
of the resolution thereof (including amounts paid in settlement or
judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules 4.10
--------------
and 4.19, each of the Company and the Company Subsidiaries has complied in all
----
material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders (collectively,
10
<PAGE>
"Laws") applicable to it or to the operation of the Business, and has not
received any notice of any alleged claim or threatened claim, violation of or
liability or potential responsibility under any such Law which has not
heretofore been cured and for which there is no remaining liability and, to the
knowledge of the Stockholder or the Company, no event has occurred or
circumstances exist that (with or without notice or lapse of time) may
constitute or result in a violation in any material respect by the Company or
any Company Subsidiary of any Law or may give rise to any material liability on
the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Except
as described on Schedule 4.11, each of the Company and the Company Subsidiaries
-------------
possesses all of the Licenses which are necessary to enable it to carry on the
Business as presently conducted. All Licenses held by the Company or a Company
Subsidiary are valid, binding and in full force and effect. Except as described
on Schedule 4.11 with respect to any required notices or consents in connection
-------------
with a change in control or as otherwise described on Schedule 4.11, the
-------------
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby will not adversely affect any such
Licenses. The Company and the Company Subsidiaries have taken all necessary
action to maintain such Licenses. No loss or expiration of any such License is
pending or, to the knowledge of the Stockholder or the Company, threatened or
reasonably anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $50,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $50,000.00);
11
<PAGE>
(d) any Contract, other than trade payables in the ordinary course of
business, relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal property, or (B) a lessor of any tangible personal
property owned by the Company or any Company Subsidiary, in either case
having an original value in excess of $50,000.00;
(j) any Contract under which the Company or any Company Subsidiary has
granted or received a license or sublicense or under which it is obligated
to pay or has the right to receive a royalty, license fee or similar
payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
(l) any Contract providing for the indemnification or holding harmless
of any officer, director, employee or other person, other than as provided
in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $50,000.00;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
12
<PAGE>
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $50,000.00.
The Company and the Stockholder have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholder or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as
set forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither the
Company or Company Subsidiary, as applicable, nor, to the knowledge of the
Stockholder or the Company, any other party to any Material Contract is in
breach or default thereunder, and, to the knowledge of the Stockholder or the
Company, there exists no condition which would, with or without the lapse of
time or the giving of notice, or both, constitute a breach or default
thereunder. The Company has not been notified that any party to any Material
Contract intends to cancel, terminate, not renew, or exercise an option under
any Material Contract, whether in connection with the transactions contemplated
hereby or otherwise.
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a brief
-----------------
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"), and all facilities
thereon. Except as lessee of Leased Property, neither the Company nor any
Company Subsidiary is a lessee under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which another person or entity has granted to the Company or
any Company Subsidiary the right to use or occupy all or any portion of any
real property.
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising
13
<PAGE>
out of the provision of labor, services or materials to any such real
estate) other than (a) mortgages shown on the Financial Statements as
securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (b) Liens for current taxes not yet due, and
(c) (i) minor imperfections of title, including utility and access
easements depicted on subdivision plats for platted lots that do not impair
the intended use of the property, if any, none of which is substantial in
amount, materially detracts from the value or impairs the use of the
property subject thereto, or impairs the operations of the Company, and
(ii) zoning laws and other land use restrictions or restrictive covenants
that do not materially impair the present use of the property subject
thereto. The Real Property constitutes all real properties reflected on
the Financial Statements or used or occupied by the Company or any Company
Subsidiary in connection with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned Property and, to the knowledge of the Stockholder or
the Company, there is no threatened condemnation or proceeding with respect
thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
not, to the knowledge of the Stockholder or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholder or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation, building, environmental, land use or
other ordinances, laws, codes or regulations that affects the Company's or
any Company Subsidiary's use of such Owned Property (without regard to any
non-conforming use or other so-called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and
--------------------
14
<PAGE>
correct description of all pending proceedings to reduce the general real
estate taxes against the Owned Property; none of the Owned Property is
located in a special service district, special service area, tax increment
financing district or similar district or area, or to the knowledge of the
Stockholder or the Company, subject to a threatened special assessment;
and, to the knowledge of the Stockholder or the Company, none of the Owned
Property is located in an area for which federal flood risk insurance is
necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholder or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholder, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether written or oral, pursuant to which the Company or
Company Subsidiary has granted to any party or parties the right to use or
occupy all or any portion of the Owned Property;
(h) to the knowledge of the Stockholder or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
(i) there are no material defects in any improvements on or to the
Owned Property;
(j) to the knowledge of the Stockholder or the Company, the buildings,
plants, improvements, structures, and fixtures on the Owned Property are
free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
- -----------
15
<PAGE>
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholder or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholder or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholder or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholder or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection, necessary for the current operation of the
Business, and such Leased Property is, to the knowledge of the Stockholder
or the Company, maintained in all material respects in accordance with all
Laws applicable to the Company, any Company Subsidiary or the Leased
Property;
(v) none of the Stockholder, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or users of properties adjacent to the Leased Property relating
to the use, operation or maintenance of such facility or any adjacent real
property;
(vi) neither the Company nor any Company Subsidiary is a party to
any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholder or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholder or the Company, there
are no material defects in any improvements on or to the Leased Property;
(ix) to the knowledge of the Stockholder or the Company, the
Leased Property is free from regulated quantities of asbestos; and
16
<PAGE>
(x) to the knowledge of the Stockholder or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflect all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholder or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names,
fictional business names and service marks (collectively, the "Marks"), (iii)
copyrights (the "Copyrights"), and (iv) know how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans and drawings (collectively, the "Trade Secrets") owned, used
or licensed by the Company or any Company Subsidiary (collectively, the
"Intellectual Property") are all those necessary to enable the Company and the
Company Subsidiaries to conduct and to continue to conduct the Business as it is
currently conducted. Schedule 4.14 contains a complete and accurate list of all
-------------
material Patents, Marks and Copyrights and a description of all material Trade
Secrets owned or used by the Company or any Company Subsidiary, and a list of
all material license agreements and arrangements with respect to any of the
Intellectual Property to which the Company or any Company Subsidiary is a party,
whether as licensee, licensor or otherwise (the "Intellectual Property
Licenses"). Except as set forth on Schedule 4.14, (i) all of the Intellectual
-------------
Property is owned, or used under a valid Intellectual Property License, by the
Company or one of the Company Subsidiaries, and, is free and clear of all Liens
and other adverse claims; (ii) to the knowledge of the Stockholder or the
Company, neither the Company nor any Company Subsidiary has infringed on or
misappropriated, is now infringing on or misappropriating, or has received any
notice that it is infringing on, misappropriating, or otherwise conflicting with
the intellectual property rights of any third parties; (iii) there is no claim
pending or, to the knowledge of the Stockholder or the Company, threatened
against the Company or any Company Subsidiary with respect to the alleged
infringement or misappropriation by the Company or Company Subsidiary, or a
conflict with, any intellectual property rights of others; (iv) to the knowledge
of the Stockholder or the Company, the operation of any aspect of the Business
in the manner in which it has heretofore been operated or is presently operated
does not give rise to any such infringement or misappropriation; and (v) to the
knowledge of the Stockholder or the Company, there is no infringement or
misappropriation of the Intellectual Property by a third party or claim, pending
or threatened, against any third party with respect to the alleged infringement
or misappropriation of the Intellectual Property by such third party.
17
<PAGE>
4.15 Minute Books and Stock Records. Except as set forth on Schedule 4.15,
------------------------------ -------------
(i) the minute books and stock records of the Company and each Company
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects, the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and correct and are not or will not be subject
to adjustment by the applicable taxing authority. The Company has
delivered to Compass true and complete copies of all Returns referred to in
the first sentence of this Section 4.16.1 (including any amendments
--------------
thereof) for the five (5) most recent taxable years. Neither the Company
nor any Company Subsidiary is delinquent in the payment of any Tax, and no
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing received
by the Company or Company Subsidiary. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the Company
or any Company Subsidiary does not file Tax returns is pending pursuant to
which the Company or Company Subsidiary, as applicable, is subject to
taxation by that jurisdiction. The Company's and the Company Subsidiaries'
Returns were last audited by the Internal Revenue Service or comparable
state, local or foreign agencies on the dates set forth on Schedule 4.16.1.
---------------
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability)
18
<PAGE>
whether direct or indirect (and regardless of whether it would be derived
from a current or former Plan Affiliate (hereinafter defined)) with respect
to any of the following (whether written, unwritten or terminated): (i) any
employee welfare benefit plan, as defined in Section 3(1) of "ERISA",
including, but not limited to, any medical plan, life insurance plan,
short-term or long-term disability plan or dental plan; (ii) any "employee
pension benefit plan," as defined in Section 3(2) of ERISA, including, but
not limited to, any excess benefit plan, top hat plan or deferred
compensation plan or arrangement, nonqualified retirement plan or
arrangement, qualified defined contribution or defined benefit arrangement;
or (iii) any other benefit plan, policy, program, arrangement or agreement,
including, but not limited to, any material fringe benefit plan or program,
personnel policy, bonus or incentive plan, stock option, restricted stock,
stock bonus, holiday pay, vacation pay, sick pay, bonus program, service
award, moving expense, reimbursement program, deferred bonus plan, salary
reduction agreement, change-of-control agreement, employment agreement or
consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority with respect
to such plan; a copy of the Form 5500 Annual Report for the three (3) most
recent plan years; and a copy of each and any general explanation or
communication which was required to be distributed or otherwise provided to
participants in such plan and which describes all or any relevant aspect of
each plan, including summary plan descriptions and/or summary of material
modifications, have been made available to Compass. A description of each
unwritten Employee Plan, including a description of eligibility,
participation, benefits, funding arrangements and assets or other relevant
aspects of the obligation, is set forth in Schedule 4.17.2.
---------------
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such
terms are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in
19
<PAGE>
the Latest Balance Sheets, (ii) which is discretionary or terminable at
will by the Company or one of the Company Subsidiaries without incurring
any such liability, or (iii) which is adequately funded under a funding
arrangement separate from the assets of the Company or the Company
Subsidiaries (and only to the extent of such funding). Any contribution
made or accrued with respect to any Employee Plan is fully deductible by
the Company, Company Subsidiary or a Plan Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
---------------
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended; and
(c) with respect to any person or entity ("First Person"), the
term "Plan Affiliate" shall mean any other person or entity with whom
the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
------------- -------------
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other labor dispute, union organizational activity or charge, or, to the
knowledge of the Stockholder or the Company, allegation or complaint, of unfair
labor practice, employment discrimination or other matters relating to the
employment of labor pending or, to the knowledge of the Stockholder or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholder or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholder or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholder
20
<PAGE>
or the Company, no key employee and no group of employees has any plans to
terminate employment with the Company or any Company Subsidiary. Each of the
Company or any Company Subsidiary has complied in all material respects with all
applicable Laws relating to the employment of labor, including provisions
thereof relating to wages, hours, equal opportunity, collective bargaining and
the payment of social security and other taxes. Neither the Company nor any
Company Subsidiary is liable for any arrears of wages or any taxes or penalties
for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholder or the Company, the Leased Property (other than those present in
normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in compliance in all
material respects with applicable Environmental and Safety Requirements; and
(iv) to the knowledge of the Stockholder or the Company, there are and have been
no facts, events, occurrences or conditions at or related to the Real Property
or any other facility formerly owned or operated by the Company or any Company
Subsidiary that could cause or give rise to liabilities or response obligations
under any Environmental and Safety Requirements. The term "Environmental and
Safety Requirements" means any federal, state and local laws, statutes,
regulations or other requirements relating to the protection, preservation or
conservation of the environment or worker health and safety, all as amended or
reauthorized. The term "Hazardous Materials" means "hazardous substances", as
defined by the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq., "hazardous wastes", as defined by the Resource
Conservation Recovery Act, 42 U.S.C. (S) 6901 et seq., asbestos in any form or
condition, polychlorinated biphenyls and any other material, substance or waste
to which liability or standards of conduct may be imposed under any
Environmental and Safety Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholder or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
- ----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
21
<PAGE>
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, except as described on
Schedule 4.21, all amounts owed by a Stockholder, any Affiliate of a Stockholder
- -------------
or any Affiliate of the Company or any Company Subsidiary to the Company or any
Company Subsidiary, and all amounts owed by the Company or any Company
Subsidiary to a Stockholder, any Affiliate of a Stockholder or any Affiliate of
the Company or any Company Subsidiary, shall have been settled and satisfied.
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary representing,
individually, five percent (5%) or more of the Company's or Company
Subsidiary's, as applicable, revenues for the twelve (12) months ended December
31, 1996 and for the period commencing on January 1, 1997 and ending on the date
of the Latest Balance Sheet. Except as set forth on Schedule 4.22, since the
-------------
date of the Latest Balance Sheet, none of such clients has canceled or
substantially reduced its business with the Company or Company Subsidiary, as
applicable, nor, to the knowledge of the Stockholder or the Company, are any of
such clients threatening or expected to do so. To the knowledge of the
Stockholder or the Company, no client or supplier of the Company or any Company
Subsidiary will cease to do business with, or substantially reduce its business
with, the Company or Company Subsidiary, as applicable, after the consummation
of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
22
<PAGE>
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each bank
------------- -------------
in which the Company or any Company Subsidiary has an account or safe deposit
box, the number of each such account or box, and the names of all persons
authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
4.26 Redemption Agreement and Creditsafe Agreement. True and correct
---------------------------------------------
copies of the Redemption Agreement have been delivered to Compass.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholder as
follows:
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
True, accurate and complete copies of each of Compass's Certificate of
Incorporation and By-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Compass will consist of
50,000,000 shares of Compass Common Stock, of which the number of shares
set forth in the Registration Statement will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Compass
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement and (ii) shares of Compass Common Stock issued in
accordance with the Purchase and the Other Purchases, no shares of Compass
Common Stock will be issued prior to the consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including
23
<PAGE>
any right of conversion or exchange under any outstanding security,
instrument or other agreement obligating Compass to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of the capital
stock of Compass or obligating Compass to grant, extend or enter into any
such agreement or commitment. There are no voting trusts, proxies or other
agreements or understandings to which Compass is a party or is bound with
respect to the voting of any shares of capital stock of Compass. The
shares of Compass Common Stock to be issued to the Stockholder pursuant to
this Agreement and to be issued to the stockholders of the Other Founding
Companies in the Other Purchases will as of the Closing be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights
and Liens (other than Liens, if any, due to acts of the Stockholder).
5.3 No Subsidiaries. Except as set forth on Schedule 5.3, Compass does
--------------- ------------
not own any capital stock of any corporation or any interest in any partnership,
joint venture or limited liability company.
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors and
stockholders of Compass, and no other corporate proceedings on the part of
Compass are necessary to authorize the execution and delivery of this
Agreement or the consummation by Compass of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Compass,
and, assuming the due authorization, execution and delivery hereof by the
Company and the Stockholder, constitutes a valid and legally binding
agreement of Compass, enforceable against Compass in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence,
24
<PAGE>
subject, in the case of the terms, conditions or provisions of the items
described in clause (ii) above, to obtaining (prior to the Closing) Compass
Required Statutory Approvals (hereinafter defined) and, in the case of the
terms, conditions or provisions of the items described in clause (iii)
above, to obtaining (prior to the Closing) consents required from
commercial lenders, lessors or other third parties, all of which required
consents are listed on Schedule 5.4.2.
--------------
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Compass (a
"Compass Material Adverse Effect").
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
- ---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those incurred in connection
with the Purchase, this Agreement, the Other Stock Purchase Agreements and the
IPO. Except as contemplated by the foregoing, Compass has not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is either of them bound by any obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation,
----------
claim or order pending or, to the knowledge of Compass, threatened against
Compass or which may affect its assets or business, before any court,
Governmental Authority or any arbitrator that seek to restrain or enjoin the
consummation of the Purchase, the Other Purchases or the IPO or which is likely,
either alone or in the aggregate with all such claims, actions or proceedings,
to have a Compass Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 5.7, Compass has complied in all respects with all applicable federal,
- ------------
state and local Laws relating to antitrust and trade regulations.
25
<PAGE>
5.8 Other Agreements. True and correct copies of the Other Stock Purchase
----------------
Agreements have been delivered to the Stockholder and the Company. Compass will
not agree to any material amendment of or waive any material right or waive any
material condition to its obligations under any of the Other Stock Purchase
Agreements without the written consent of a majority of the Founding Companies
whose agreements have not been and will not be amended in a similar manner. For
purposes of determining a majority of the Founding Companies under this Section
5.8, IT and ITG, collectively, shall only be counted as one (1) Founding
Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing or earlier termination of this
Agreement, unless Compass shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), the Company shall, and shall cause
each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practices;
(b) not (i) amend its charter or by-laws, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business or (B) borrowings to refinance existing
indebtedness on terms comparable with or more favorable than those at
the date hereof, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (iii) sell, pledge,
dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present
officers and
26
<PAGE>
key employees, and preserve the goodwill and business relationships
with clients and others having business relationships with it and not
engage in any action, directly or indirectly, with the intent to
adversely impact the transactions contemplated by this Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of, or
enter into any new bonus or incentive agreement or arrangement with,
any of its employees, except as consistent with past practices of the
Company or Company Subsidiary, as applicable, (ii) pay or agree to pay
any additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such employee, whether past or present,
other than as required pursuant to the terms thereof, (iii) enter into
any new employment, severance, consulting, or other compensation
agreement with any of its existing employees, (iv) amend or enter into
a new Employee Plan (except as required by Law) or amend or enter into
a new collective bargaining agreement, or (v) engage in any new
Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
(i) except as described in Section 6.5, not make any material
investment in, directly or indirectly, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any businesses or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire
or agree to acquire any assets not in the ordinary course of business
in each case which are material to it;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the Business
consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
27
<PAGE>
(a) not (i) amend its charter or by-laws (provided, however, that
Compass shall prior to the Closing, file an amended and restated
charter in substantially the form attached hereto as Exhibit
-------
6.1.2(a)), (ii) split, combine or reclassify its outstanding capital
--------
stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
option, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (ii) sell, pledge, dispose
of or encumber any assets or businesses other than dispositions in the
ordinary course of business or (iii) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(d) comply in all material respects with all applicable Laws; and
(e) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholder shall (i)
not, and the Company shall use its best efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
the Company or any Company Subsidiary not to, initiate, solicit, negotiate,
encourage, or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business and properties of the Company or any Company Subsidiary, or any
capital stock of the Company or any
28
<PAGE>
Company Subsidiary, whether by merger, purchase of stock or assets or
otherwise, whether for cash, securities or any other consideration or
combination thereof, or enter into any joint venture or partnership or
similar arrangement, and (ii) promptly advise Compass of the terms of any
communications the Stockholder or the Company may receive or become aware
of relating to any bid for part or all of the Company or any Company
Subsidiary.
(b) The Company and the Stockholder (i) acknowledge that a breach of
any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other parties all of their
respective schedules to this Agreement (the "Schedules") to correct any matter
which would constitute a breach of any such party's representations and
warranties herein; provided, that no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Company Material Adverse Effect or
affects Schedules 4.2, 4.3 (other than pursuant to Sections 6.4 and 6.5 below)
------------- --- ------------ ---
or 7.9 may be made unless Compass and a majority of the other Founding Companies
---
consent to such amendment, supplement or addition, and no amendment, supplement
to or addition of a Schedule that constitutes or reflects a Compass Material
Adverse Effect or affects Schedule 5.2 may be made unless a majority of the
------------
Founding Companies consent to such amendment, supplement or addition. For all
purposes of this Agreement, including, without limitation, for purposes of
determining whether the conditions set forth in Sections 9.2 and 9.3 have been
------------ ---
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended,
supplemented or added pursuant to this Section 6.3. In the event that (i) one
-----------
of the other Founding Companies seeks to amend, supplement or add a Schedule
pursuant to Section 6.3 of one of the Other Stock Purchase Agreements, (ii) such
-----------
amendment, supplement or addition constitutes or reflects a material adverse
effect on the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of such other Founding Company or any of its
subsidiaries or affects Schedules 4.2, 4.3 or 7.9 of such Other Stock Purchase
------------------ ---
Agreement, and (iii) Compass and a majority of the Founding Companies (other
than the Founding Company providing such amended, supplemented or added
Schedule) consent to such amendment, supplement or addition, but the Company and
the Stockholder do not, or if any Other Stock Purchase Agreement is terminated
by any party thereto pursuant to Section 6.3 of such Other Stock Purchase
-----------
Agreement or otherwise, the Company and the Stockholder may terminate this
Agreement at any time prior to the Closing Date. In the event that (i) the
Company seeks to amend, supplement or add a Schedule pursuant to this Section
-------
6.3, (ii) such amendment, supplement or addition constitutes or reflects a
- ---
Company Material Adverse Effect or affects Schedules 4.2, 4.3 (other than
------------- ---
pursuant to Sections 6.4 and 6.5 below) or 7.9, and (iii) Compass and a majority
------------ --- ---
of the Founding Companies do not consent to such amendment, supplement or
addition, this Agreement shall be deemed terminated as set forth in Section 10.1
------------
hereof. No party to this Agreement shall be liable to any other party if this
Agreement shall be terminated
29
<PAGE>
pursuant to the provisions of this Section 6.3, unless this Agreement is so
-----------
terminated in connection with an amendment of, supplement to or addition of a
Schedule relating to a breach of a representation or warranty as of the date of
this Agreement. No amendment of, supplement to or addition of a Schedule shall
be made later than five (5) business days prior to the anticipated effectiveness
of the Registration Statement. For purposes of determining a majority of the
Founding Companies under this Section 6.3, IT and ITG, collectively, shall only
-----------
be counted as one (1) Founding Company.
6.4 Contribution of Creditsafe Shares. As soon as practicable after the
---------------------------------
date hereof, but in any event prior to the Closing, the Stockholder shall take
all actions necessary to contribute the Creditsafe Shares to the Company's
capital, free and clear of all Liens.
6.5 Redemption of Minority Stockholders. From and after the date hereof,
-----------------------------------
the Company shall use, and shall cause the appropriate Company Subsidiary to
use, its best efforts to redeem, prior to the Closing, all shares of the Company
Subsidiaries' capital stock which are not held of record and owned beneficially
by the Company, on terms and conditions satisfactory to and subject to the prior
written consent of Compass.
6.6 Creditsafe Acquisition. As promptly as practicable after the date
----------------------
hereof, but in any event prior to the Closing, the Company shall use its best
efforts to negotiate and, subject to the prior written consent by Compass to the
terms thereof, enter into the Creditsafe Agreement and consummate the
transactions contemplated thereunder.
6.7 Redemption Agreement and Creditsafe Agreement. The Company will not
---------------------------------------------
agree to any amendments of or waive any right under the Redemption Agreement
(including without limitation the release and termination to be executed and
delivered thereunder) or, once entered into in accordance with Section 6.6
above, the Creditsafe Agreement without the prior written consent of Compass.
6.8 Repayment of Stockholder Loan. Immediately prior to the Closing, the
-----------------------------
Company shall redeem that number of shares of Company Stock held by the
Stockholder which equals in value the then outstanding balance (and accrued
interest thereon) of the Company's loan to the Stockholder (such value to be
mutually agreed upon by the partners) in full repayment of such indebtedness.
The shares of Company Stock so redeemed are herein referred to as "Redeemed
Shares".
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, Montgomery
Securities, Inc. and Lehman Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in
30
<PAGE>
connection with the IPO (the "Underwriters") and counsel for the
Underwriters (collectively, the "Compass Representatives"), and to the
other Founding Companies and their accountants, counsel, financial advisors
and other representatives, and Compass shall afford to the Stockholder and
the Company and their accountants, counsel, financial advisors and other
representatives (collectively, the "Company Representatives") full access
during normal business hours throughout the period prior to the Closing to
all of their respective properties, books, contracts, commitments and
records (including, but not limited to, financial statements and Tax
Returns) and, during such period, shall furnish promptly to one another all
due diligence information requested by the other party. Compass shall hold
and shall use its reasonable best efforts to cause the Compass
Representatives to hold, and the Stockholder and the Company shall hold and
shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement or any of the Other Agreements, except that each of Compass, the
Stockholder and the Company may disclose any information that it is
required by law or judicial or administrative order to disclose, provided
it gives prior prompt written notice to the other party. In addition,
Compass will cause each of the other Founding Companies and their
stockholders to enter into a provision similar to this Section 7.1
-----------
requiring each such Founding Company to keep confidential and to use their
reasonable best efforts to cause their respective accountants, counsel,
financial advisors and other representatives to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholder shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the
31
<PAGE>
Stockholder shall furnish or cause to be furnished to Compass and the
Representatives all of the information concerning the Company, the Company
Subsidiaries and the Stockholder required for inclusion in, the
Registration Statement and the prospectus included therein (the
"Prospectus"); including, without limitation, audited consolidated balance
sheets of the Company as of September 30, 1997, and the related audited
consolidated statements of income, stockholders' equity and cash flow for
the nine (9) months then ended (including all notes thereto), which shall
be furnished to Compass and the Underwriters no later than November 1,
1997. The Company and the Stockholder will cooperate with Compass and the
Representatives in the preparation of the Registration Statement and the
Prospectus. All financial statements provided by the Company for inclusion
in the Registration Statement and Prospectus shall (i) be accurate and
complete in all material respects, (ii) be consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, shall
be accurate and complete in all material respects), and (iii) fairly
present the financial condition, assets and liabilities of the Company and
Company Subsidiaries as of their respective dates and the results of
operations and cash flows for the respective period, in accordance with
generally accepted accounting principles applied on a consistent basis.
All information provided and to be provided by Compass and the Company,
respectively, for use in the Registration Statement (including, without
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholder agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholder becomes
incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholder, each of the Company and the Stockholder
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholder
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholder as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
32
<PAGE>
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3)
business days immediately preceding the filing of the initial Registration
Statement and any amendment thereto, the Company and its counsel shall be
obligated to respond to the proposed changes electronically transmitted to
them within two (2) hours from the time of the completion of the
transmission of the proposed changes to the Company's counsel, provided
that Compass has provided to the Company or Company's counsel reasonably
adequate advance notice of the need for the Company and its counsel to
respond to such proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO. Neither the Company nor the Stockholder will be liable for any portion of
the above expenses in the event the IPO is not closed. Compass shall also pay
(i) the underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by
33
<PAGE>
taxing authorities and relevant records concerning the ownership and tax
basis of property, which such party may possess. Each party shall make its
employees reasonably available on a mutually convenient basis, at its cost,
to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file returns
pursuant to this Agreement shall bear all costs of filing such returns.
7.6.2 Each of the Company, Compass and the Stockholder shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction
subject to the provisions of Section 351 of the Code.
7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give the Stockholder prompt written notice of its
intent to do so. Upon the written request of the Stockholder given within
thirty (30) days after receipt of such notice, Compass will use its best
efforts to cause to be included in such registration all of the Compass
Common Stock which the Stockholder requests, provided that Compass shall
have the right to reduce the number of shares included in such registration
to the extent that inclusion of such shares could, in the opinion of tax
counsel reasonably acceptable to the stockholders of the Founding
Companies, jeopardize the status of the transactions contemplated hereby
and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Agreements may request in writing that Compass file a registration
statement under the 1933 Act covering the registration of the shares of
Compass Common Stock so issued and then held by such stockholders (a
"Demand Registration"). Such request shall specify the intended method of
disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the Founding Companies and shall use its best efforts to
effect as soon as practicable a registration under the 1933 Act
34
<PAGE>
that will permit the disposition of the shares in accordance with the
method specified in the request. Compass shall be obligated to effect only
one Demand Registration pursuant to this Section 7.7.2. Compass may
-------------
register in the same process other unregistered, previously issued Compass
Common Stock; provided, however, that the registration of such other
unregistered, previously issued Compass Common Stock shall not reduce the
number of shares of Compass Common Stock of stockholders of the Founding
Companies requested to be registered pursuant to this Section 7.7.2.
-------------
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as soon
as reasonably practicable, a registration statement with respect to
the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by the Stockholder at any time when (i) the Compass
Common Stock is listed on a recognized national or regional securities
exchange or traded in the NASDAQ
35
<PAGE>
national market, and (ii) the resale provisions of Rule 144(k) promulgated
under the 1933 Act are available to the Stockholder.
7.7.6 In consideration of the granting to the Stockholder of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholder agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale arrangements,
shares of Compass Common Stock in the ten (10) days prior to the
effectiveness of any registration of Compass Common Stock for sale to the
public and for up to ninety (90) days following the effectiveness of such
registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholder shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common Stock,
furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholder released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all
------------
36
<PAGE>
such guarantees on indebtedness being assumed by Compass, if necessary to
achieve such releases. In the event that Compass cannot obtain such releases
from the lenders of any such guaranteed indebtedness, Compass will defend,
indemnify and hold harmless the Stockholder against any and all claims made by
lenders under such guarantees which arise as a result of Compass' failure to
cause such guarantees to be released, including, without limitation, if a Claim
for payment is made with respect to such guarantee subsequent to the Closing.
7.10 Lock-Up Agreement. The Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, the Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of Montgomery Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of the Stockholder. At or prior to the Closing, the
------------------------------
Stockholder shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholder and the Company. The Stockholder
--------------------------------------------------
agrees to indemnify, defend and save the Compass Indemnified Parties
(hereinafter defined), and each of them, harmless from and against, and to
promptly pay to a Compass Indemnified Party or reimburse a Compass Indemnified
Party for, any and all Losses (hereinafter defined) sustained or incurred by any
Compass Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholder or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholder to observe or
perform any of their covenants and agreements set forth herein;
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholder, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholder required
to be stated therein or
37
<PAGE>
necessary to make the statements therein not misleading, and not provided
to Compass or its counsel by the Company or the Stockholder; provided,
however, that such indemnity shall not inure to the benefit of any Compass
Indemnified Party to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred
in, any preliminary prospectus and (i) the Company or Stockholder provided,
in writing, corrected information to Compass or its counsel for inclusion
in the final prospectus prior to distributing such prospectus, and such
information was not so included, or (ii) Compass did not provide the
Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.1(d); and
--------------
(d) notwithstanding anything contained in this Agreement to the
contrary, (i) the pending litigation matters set forth on Schedule 4.9
------------
(other than ordinary cost of defending such matters), and (ii) any
arrangements made by or on behalf of the Stockholder or the Company in
connection with the Purchase or the transactions contemplated by this
Agreement with respect to brokerage, finders and other fees or commissions,
including without limitation the matter described in Item 5 of Schedule
--------
4.6.
---
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
------------
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
------------
set forth in this Article VIII, the Other Founding Companies, and each of their
------------
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
38
<PAGE>
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save the Stockholder and Lodwich and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by Compass or any action, demand or claim by
any third party against or affecting any Stockholder Indemnified Party
which, if successful, would give rise to a breach of any such
representation or warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading; and
(d) any liability under the 1933 Act, the 1934 Act, or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein
not misleading, to the extent such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company or Stockholders provided, in
writing, corrected information to Compass or its counsel for inclusion in
the final prospectus prior to distributing such prospectus, and such
information was not so included, or (ii) Compass did not provide the
Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.2(d).
--------------
39
<PAGE>
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is required
to provide indemnification under this Agreement (an "Indemnifying Party"),
the Indemnified Party shall give written notice thereof together with a
statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such shorter time as may be necessary, in the Indemnified Party's
reasonable judgment, to give the Indemnifying Party a reasonable
opportunity to respond to and defend such claim); provided, however, that
the failure to give such notice shall not affect the right to indemnity
hereunder except to the extent the Indemnifying Party is prejudiced by such
delay. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the
40
<PAGE>
Indemnified Party is not entitled to indemnification hereunder, or (iii)
such settlement includes a written admission of guilt. The Indemnifying
Party shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint representation would be inappropriate
(and in each case the cost of such defense shall constitute an amount for
which the Indemnified Party is entitled to indemnification hereunder);
provided, however, that the Indemnifying Party shall have the right to
settle such claim only with the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed. If an
offer is made to settle a Third Party Claim which all parties to such Third
Party Claim (including the Indemnifying Party) are prepared to settle and
which offer the Indemnifying Party is permitted to settle under this
Section 8.3.2 only upon the prior written consent of the Indemnified Party,
-------------
the Indemnifying Party will give prompt written notice to the Indemnified
Party to that effect. If the Indemnified Party fails to consent to such
firm offer within (30) calendar days after its receipt of such notice, the
Indemnified Party may continue to contest or defend such Third Party Claim
and, in such event, the maximum liability of the Indemnifying Party as to
such Third Party Claim will not exceed the amount of such settlement offer,
plus costs and expenses paid or incurred by the Indemnified Party through
the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
- ---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
41
<PAGE>
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
-----------------
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of such Loss, and the Indemnified Party shall have no obligation,
hereunder or otherwise, to pursue payment under or from any insurer or third
party in respect of such Loss. The Indemnified Party shall cooperate, at no
expense to the Indemnified Party, in any reasonable efforts of the Indemnifying
Party in pursuing such payments, including expressly acknowledging the
Indemnifying Party's right and standing to pursue such payments, and the
Indemnified Party will use its customary efforts short of litigating with an
insurer or third party to collect amounts due from such insurer or third party.
If any insurance or third party reimbursement is obtained subsequent to payment
by an Indemnifying Party in respect of a Loss, such reimbursement (to the extent
of amounts theretofore paid by the Indemnifying Party on account of such Loss)
shall be promptly paid over to the Indemnifying Party. The liability of the
Indemnifying Party with respect to any Direct Claim or Third Party Claim shall
be reduced by the income tax benefit actually realized by the Indemnified Party
as a result of any Losses upon which such Direct Claim or Third Party Claim is
based. An income tax benefit shall only be treated as realized if a Loss is
deductible in the income tax return for the taxable year of such Loss and if
such deduction produces an actual reduction of taxes paid for such year.
Calculation of the income tax benefit shall be made by a comparison of the
income taxes actually due with the tax returns and the income taxes that would
be due if the Loss was not deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Liability of the Company. The Company shall have no liability
pursuant to Section 8.1 before or after the Closing.
-----------
8.7.2 Threshold for the Stockholder. With respect to representations
-----------------------------
and warranties, the Stockholder shall not have any liability pursuant to
Section 8.1(a) hereof unless and until and only to the extent that the
--------------
aggregate amount of Losses accrued pursuant to Section 8.1(a) exceeds the
--------------
Threshold Amount (hereinafter defined); provided, however, that this
threshold shall not apply to Losses arising out of breaches of
representations or warranties contained in Sections 4.2, 4.4.1, 4.16 and
------------ ----- ----
4.25, and the Stockholder shall indemnify the Compass Indemnified Parties
----
for any Losses accruing thereunder in accordance with this Article VIII
------------
without regard to such threshold. As used herein, "Threshold Amount" shall
mean the following amounts (as applicable): (i) in the event the Agreement
is terminated pursuant to Section 10.1 and the Closing does not occur, one
------------
percent (1%) of the "Minimum Value" as set forth on Schedule 2.1 (the
------------
"Minimum Value"), or (ii) subsequent to the Closing, one percent (1%) of
the sum of (i) the Aggregate Purchase Consideration and (ii) the payment
made by the Company to Lodwich pursuant to Section 1.1(a) of the Redemption
Agreement.
42
<PAGE>
8.7.3 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained in Sections 5.2
------------
and 5.4.1 and Compass shall indemnify the Stockholder Indemnified Parties
-----
from any Losses occurring thereunder in accordance with this Article VIII
without regard to such threshold.
8.7.4 Limitations on Claims Against the Stockholder. The
---------------------------------------------
Stockholder's liability for misrepresentations and breaches of
representations and warranties under Section 8.1(a) shall be limited to the
--------------
Cap Amount (hereinafter defined) in the aggregate; provided, however that
this limitation shall not apply to Losses arising out of breaches of
representations or warranties contained in Sections 4.2, 4.4.1, 4.16 and
------------ ----- ----
4.25, and any Losses accruing thereunder shall not count towards such
----
limitation. As used herein, "Cap Amount" shall mean the following amounts
(as applicable): (i) in the event the Agreement is terminated pursuant to
Section 10.1 and the Closing does not occur, twenty percent (20%) of the
------------
Minimum Value, or (ii) subsequent to the Closing, the Aggregate Purchase
Consideration.
8.7.5 Limitation on Claims Against Compass. The liability of Compass
------------------------------------
under Section 8.2(a) shall be limited to the Cap Amount in the aggregate;
--------------
provided, however that this limitation shall not apply to Losses arising
out of breaches of representations or warranties in Sections 5.2 and 5.4.1
------------ -----
and any Losses accruing thereunder shall not count towards such limitation.
8.7.6 Limitations Relating to Post-Closing Adjustment. In the event
-----------------------------------------------
a Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholder, the Stockholder shall not have any liability for the amount of
Losses pursuant to Section 8.1(a) arising out of such breach and the amount
--------------
of such Losses shall not be included in the calculation of the Threshold
Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholder and the Company; Time Limits on Indemnification Obligations.
- -----------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholder, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholder and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholder and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholder's obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
- ------ --- ---
performed by the Stockholder after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
----------- ---
within the applicable time period as specified
43
<PAGE>
below, shall expire one (1) year after the Closing Date, except with respect to
the Stockholder's obligations arising under or relating to (A) Section 4.16
------------
hereof, which shall survive until the expiration of the applicable periods
(including any extensions) of the respective statutes of limitation applicable
to the payment of the Taxes and (B) Section 4.2 hereof, which shall survive
-----------
indefinitely; and (ii) solely to the extent that Compass actually incurs
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.1(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.9 Survival of Representations, Warranties and Covenants of Compass; Time
----------------------------------------------------------------------
Limits on Indemnification Obligations. All representations, warranties,
- -------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, (i) that Compass'
obligations under Sections 8.2 (a) and (b), other than those relating to
---------------- ---
covenants and agreements to be performed by Compass after the Closing and other
than with respect to the obligations for which a claim is made as provided in
Section 8.3 or 8.4 hereof within the applicable time period as specified below,
- ----------- ---
shall expire one (1) year after Closing Date, except with respect to obligations
arising under or relating to Section 5.2 hereof which shall survive
-----------
indefinitely; and (ii) solely to the extent that the Stockholder actually incur
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.2(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
-----------------------------------------
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon
--------------------------------
fraud and except for equitable remedies, the remedies provided in this Article
-------
VIII constitute the sole and exclusive remedies for recovery of Losses against a
- ----
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
- -----------
Indemnity"), the Stockholder may satisfy his obligations for the Excess
Indemnity (i) by tendering to the Compass Indemnified Parties shares of Compass
Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholder's shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
44
<PAGE>
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholder (valuing the shares of
Compass Common Stock received by the Stockholder at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents, and
stockholders approvals required for the consummation of the Purchase or any
of the Other Purchases and the transactions contemplated hereby and by the
Other Stock Purchase Agreements shall have been obtained and be in effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase.
--------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the
Purchase shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
45
<PAGE>
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other Stock Purchase Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of
Compass contained in this Agreement and each Other Stock Purchase Agreement
shall be true and correct in all material respects on and as of the date
made and on and as of the Closing Date as if made at and as of such date,
and the Company shall have received a certificate of the Chief Executive
Officer or President of Compass to that effect;
(b) no governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value to the Stockholder of the Purchase;
(c) the Company and the Stockholder shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and the Stockholder;
(d) the Company and the Stockholder shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholder of Compass
Common Stock to be issued to the Stockholder pursuant to this Agreement
will not be taxable pursuant to Section 351 of the Code;
(e) the Stockholder shall have been afforded the opportunity to enter
into an employment agreement in the form attached hereto as Exhibit 9.2(e);
--------------
(f) Compass shall have delivered to the Company and the Underwriters a
certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the Secretary of State of the State of
Delaware, showing that Compass is in good standing;
(g) the Stockholder, the stockholders of the other Founding Companies
who are to receive shares of Compass Common Stock pursuant to the Other
Stock Purchase Agreements, and the other stockholders of Compass other than
those acquiring stock in the IPO shall have entered into a stockholders
agreement in the form attached hereto as Exhibit 9.2(g) (the "Stockholders'
--------------
Agreement"); and
(h) all conditions to the Other Purchases on substantially the same
terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and
46
<PAGE>
the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects on and as of
the date made and on and as of the Closing Date as if made at and as of
such date, and Compass and the Underwriters shall have received a
Certificate of the Chief Executive Officer or President of the Company to
that effect;
(b) the Stockholder shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the Closing Date and the representations and warranties of the
Stockholder contained in this Agreement shall be true and correct in all
material respects on and as of the date made and on and as of the Closing
Date as if made at and as of such date, and Compass and the Underwriters
shall have received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion from
Fagel & Haber, counsel to the Company, dated the Closing Date, in the form
attached hereto as Exhibit 9.3(c), the final form of such opinion to be in
--------------
form and substance acceptable to counsel for Compass and the Underwriters;
(d) the Stockholder shall have executed and delivered the employment
agreement referred to in Section 9.2(e);
--------------
(e) Compass and the Underwriters shall have received "Comfort" letters
in customary form from the Company's independent public accountants, dated
the effective date of the Registration Statement and the Closing Date (or
such other date reasonably acceptable to Compass), with respect to certain
financial statements and other financial information included in the
Registration Statement and any subsequent changes in specified balance
sheet and income statement items, including total assets, working capital,
total stockholders' equity, total revenues and the total and per share
amounts of net income;
(f) the Company shall have delivered to Compass and the Underwriters a
certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's and Company Subsidiary's state of incorporation and in each state
in which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is in
good standing;
(g) no Governmental Authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value to Compass of the Purchase;
(h) the Stockholder shall have executed the Stockholders' Agreement;
(i) the Stockholder shall have delivered to Compass an instrument in
the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholder against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the Stockholder;
47
<PAGE>
(j) all amounts owed by a Stockholder, any Affiliate of a Stockholder
or any Affiliate of the Company or any Company Subsidiary to the Company or
any Company Subsidiary, and all amounts owed by the Company or any Company
Subsidiary to a Stockholder, any Affiliate of a Stockholder or any
Affiliate of the Company or any Company Subsidiary, shall have been settled
and satisfied;
(k) the directors of the Company immediately prior to the Closing
shall have delivered to Compass their resignations as directors of the
Company; and
(l) the transactions contemplated under the Redemption Agreement shall
have been consummated.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholder,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholder or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or
any of the Stockholder or any of their affiliates or associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty (30)
days after written notice of such default is given to Compass; or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable court
order not entered at the request or with the support of Compass or any
of its 5% stockholders or any of their affiliates or associates;
48
<PAGE>
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Company by
Compass;
(iv) if the Stockholder (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in all material respects within thirty (30) days
after written notice of such default is given to the Stockholder by
Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholder, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
--------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
- --- --- --- ------------
10.3 Amendment. This Agreement may not be amended except by written
---------
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholder acknowledges that the shares of Compass Common Stock to be
delivered to the Stockholder pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by the
Stockholder pursuant to this Agreement is being acquired solely for the
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. The Stockholder represents and
-----------------------------
warrants to Compass that he is an "accredited investor" as defined in Regulation
D promulgated under the 1933 Act; that he is able to bear the economic risk of
an investment in the Compass Common Stock acquired pursuant to this Agreement
and can afford to sustain a total loss of such investment and has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of the proposed investment in the Compass Common
49
<PAGE>
Stock; and that he has had an adequate opportunity to ask questions and receive
answers from the officers of Compass concerning all matters relating to the
transactions described herein including, without limitation, the background and
experience of the current and proposed officers and directors of Compass, and
the plans for of operations of the business of Compass.
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholder or family members, the trustees of
which so agree), and subject to the provisions of Section 7.10, for a period of
------------
one (1) year from the Closing Date, the Stockholder shall not (a) sell, assign,
exchange, transfer, encumber, pledge, distribute or otherwise dispose of (i) any
shares of Compass Common Stock received by the Stockholder pursuant to this
Agreement, or (ii) any interest (including, without limitation, an option to buy
or sell) in any such shares of Compass Common Stock, in whole or in part, and no
such attempted transfer shall be treated as effective for any purpose; or (b)
engage in any transaction, whether or not with respect to any shares of Compass
Common Stock or any interest therein, the intent or effect of which is to reduce
the risk of owning the shares of Compass Common Stock acquired pursuant to
Article II hereof (including, without limitation, engaging in put, call, short-
- ----------
sale, straddle or similar market transactions). The certificates evidencing the
Compass Common Stock delivered to the Stockholder pursuant to Article II of this
----------
Agreement shall bear a legend substantially in the form set forth below and
containing such other information as Compass may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO
[INSERT FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST
OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT)
AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholder covenants, warrants and
-------------------
represents that none of the shares of Compass Common Stock issued to the
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC. All
certificates evidencing Company Common Stock delivered to the Stockholder
pursuant to Article II of this Agreement shall bear the following legend in
----------
addition to the legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
50
<PAGE>
(THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE
HOLDER HEREOF COMPLIES WITH THE ACT AND THE APPLICABLE SECURITIES LAW.
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. The Stockholder will not, for a period of five
---------------------
(5) years following the Closing Date, other than for the benefit of Compass,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of Compass (including the subsidiaries thereof) in a managerial
capacity for the purpose or with the intent of enticing such employee away
from or out of the employ of Compass (including the subsidiaries thereof),
or hire such person, provided that the Stockholder shall be permitted to
call upon and hire any member of his immediate family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit the Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, the Stockholder agrees that the foregoing
covenant may be enforced by Compass in the event of breach by the Stockholder,
by injunctions and restraining orders.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on the
-----------
Stockholder in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of Compass and the
Stockholder that such covenants be construed and enforced in accordance with the
changing activities and business of Compass (including the subsidiaries thereof)
throughout the term of this covenant.
51
<PAGE>
It is further agreed by the parties hereto that, in the event that the
Stockholder shall cease to be employed by Compass and/or a subsidiary thereof,
and the Stockholder shall enter into a business or pursue other activities not
in competition with Compass and/or any subsidiary thereof, or similar activities
or business in locations the operation of which, under such circumstances, does
not violate this Article XII and in any event such new business, activities or
location are not in violation of this Article XII or of the Stockholder's
obligations under this Article XII, the Stockholder shall not be chargeable with
-----------
a violation of this Article XII if Compass and/or any subsidiary thereof shall
-----------
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of the Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five
(5) years stated at the beginning of this Article XII, during which the
-----------
agreements and covenants of each Stockholder made in this Article XII shall be
-----------
effective, shall be computed by excluding from such computation any time during
which the Stockholder is in violation of any provision of this Article XII. The
-----------
covenants contained in Article XII shall not be affected by any breach of any
-----------
other provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholder hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholder Covenant. The Stockholder recognizes and acknowledges
--------------------
that he had in the past, currently has, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass' respective
businesses. The Stockholder agrees that he will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except
(a) to authorized representatives of Compass,
52
<PAGE>
(b) following the Closing, such information may be disclosed by the
Stockholder as is required in the course of performing their duties to
Compass,
(c) to counsel and other advisers, provided that such advisers (other
than counsel) agree to the confidentiality provisions of this Section 13.1,
(d) such information becomes known to the public generally through no
fault of the Stockholder,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, or
(g) pursuant to this Agreement or the Other Stock Purchase Agreements.
In the event of a breach or threatened breach by any of the Stockholder of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining the Stockholder from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 13.1, and because of
------------
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholder, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
Purchase or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or the Stockholder. Compass
represents and warrants that no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee (except for the fee described in
Schedule 14.1) or commission in connection with the Purchase or the transactions
- -------------
contemplated by this Agreement based upon arrangements made by or on behalf of
Compass or its stockholders (other than underwriting discounts and commission to
be paid in connection with the IPO).
53
<PAGE>
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
225 West Washington Street
Suite 1600
Chicago, Illinois 60606
Attn: Scott H. Lang
Facsimile No.: (312) 368-1988
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
14.2.2 If to the Company, to:
Mid-Continent Agencies, Inc.
3701 W. Algonquin Road
Rolling Meadows, Illinois 60008-3155
Attn: Leslie J. Kirschbaum, President
Facsimile No.: (847) 797-1504
with a copy to:
Fagel & Haber
140 South Dearborn Street
Suite 1400
Chicago, Illinois 60603
Attn: Joel A. Haber, Esq.
Facsimile No.: (312) 580-2201
14.2.3 If to the Stockholder, to:
Leslie J. Kirschbaum
1075 Elm Road
Lake Forest, Illinois 60045
54
<PAGE>
with a copy to:
Fagel & Haber
140 South Dearborn Street
Suite 1400
Chicago, Illinois 60603
Attn: Joel A. Haber, Esq.
Facsimile No.: (312) 580-2201
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary
intention appears, (i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term "person"
-------------------
shall mean any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated association, corporation, entity or government (whether
Federal, state, county, city or otherwise, including, without limitation, any
instrumentality, division, agency or department thereof), (ii) the term
"Affiliate" shall have the meaning given for that term in Rule 405 under the
1933 Act and shall include each past and present Affiliate of a person or entity
and the members of such Affiliate's immediate family or their spouses or
children and any trust the beneficiaries of which are such individuals or
relatives, and (iii) the term "to the knowledge of the Stockholder or the
Company" or any similar term shall mean actual knowledge of a fact or matter
possessed by the Stockholder, or by any of the officers or directors of the
Company.
14.5 Entire Agreement; Assignment. This Agreement (including the schedules
----------------------------
and exhibits attached hereto and the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise, without the prior written consent of the
parties hereto.
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. Lodwich shall be a third party beneficiary of
-------------------
this Agreement for purposes of enforcing his rights under Article VIII hereof.
This Agreement shall be binding
55
<PAGE>
upon and inure solely to the benefit of each party hereto, and except as
expressly set forth in herein, nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement, other than Lodwich's right to
indemnification by Compass in accordance with Article VIII hereof.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
- ------------ -----------
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or enforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
[remainder of page intentionally left blank]
56
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
--------------------------------------------
Its: Chairman and CEO
--------------------------------------------
MID-CONTINENT AGENCIES, INC.
By: /s/ Leslie J. Kirschbaum
--------------------------------------------
Its: President
--------------------------------------------
STOCKHOLDER
/s/ Leslie J. Kirschbaum
--------------------------------------------------
Leslie J. Kirschbaum
57
<PAGE>
EXHIBIT 2.5
----------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
COMPASS INTERNATIONAL SERVICES CORPORATION,
IMPACT TELEMARKETING GROUP, INC.
AND IMPACT TELEMARKETING, INC.
AND
THE STOCKHOLDERS OF IMPACT TELEMARKETING GROUP, INC.
AND IMPACT TELEMARKETING, INC.
DATED AS OF OCTOBER 3, 1997
----------------------------
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TABLE OF CONTENTS
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ARTICLE I
THE PURCHASE AND SALE OF STOCK............................................. 1
ARTICLE II
CONSIDERATION.............................................................. 2
2.1 Purchase Price................................................... 2
2.2 Exchange of Certificates for Consideration....................... 2
2.3 Payment of Aggregate Cash Consideration.......................... 2
2.4 Post-Closing Adjustment.......................................... 2
ARTICLE III
THE CLOSING AND CLOSING DATE............................................... 4
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS....................................................... 4
4.1 Organization and Qualification.................................. 4
4.2 Capitalization.................................................. 4
4.3 Company Subsidiaries............................................ 5
4.4 Authority; Non-Contravention; Approvals......................... 5
4.5 Financial Statements............................................ 6
4.6 Absence of Undisclosed Liabilities.............................. 7
4.7 Accounts and Notes Receivable................................... 7
4.8 Absence of Certain Changes or Events............................ 7
4.9 Litigation...................................................... 9
4.10 Compliance with Applicable Laws................................. 10
4.11 Licenses and Permits............................................ 10
4.12 Material Contracts.............................................. 11
4.13 Properties...................................................... 13
4.14 Intellectual Property........................................... 16
4.15 Minute Books and Stock Records.................................. 17
4.16 Taxes........................................................... 17
4.17 Employee Benefit Plans; ERISA................................... 18
4.18 Labor Matters................................................... 20
4.19 Environmental Matters........................................... 20
4.20 Insurance....................................................... 21
4.21 Interest in Customers and Suppliers; Affiliate Transactions..... 21
4.22 Business Relationships.......................................... 22
4.23 Compensation.................................................... 22
4.24 Bank Accounts................................................... 22
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4.25 Deemed Earnings Estimate........................................ 22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS.................................. 22
5.1 Organization and Qualification.................................. 23
5.2 Capitalization.................................................. 23
5.3 No Subsidiaries................................................. 23
5.4 Authority; Non-Contravention; Approvals......................... 23
5.5 Absence of Undisclosed Liabilities.............................. 25
5.6 Litigation...................................................... 25
5.7 Compliance with Applicable Laws................................. 25
5.8 Other Agreements................................................ 25
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS.......................................... 25
6.1 Conduct of Business Pending the Purchase........................ 25
6.2 No - Shop....................................................... 28
6.3 Schedules....................................................... 28
ARTICLE VII
ADDITIONAL AGREEMENTS...................................................... 29
7.1 Access to Information........................................... 29
7.2 Registration Statement.......................................... 30
7.3 Expenses and Fees............................................... 32
7.4 Agreement to Cooperate.......................................... 32
7.5 Public Statements............................................... 32
7.6 Preparation and Filing of Tax Returns........................... 32
7.7 Registration Rights............................................. 33
7.8 Rule 144 Reporting.............................................. 35
7.9 Release of Guarantees........................................... 35
7.10 Lock-Up Agreement............................................... 36
7.11 Obligations of Stockholders..................................... 36
ARTICLE VIII
INDEMNIFICATION............................................................ 36
8.1 Indemnification by the Stockholders and the Company............. 36
8.2 Indemnification by Compass...................................... 37
8.3 Indemnification Procedure for Third Party Claims................ 38
8.4 Direct Claims................................................... 40
8.5 Failure to Give Timely Notice................................... 40
8.6 Reduction of Loss............................................... 40
8.7 Limitation on Indemnities....................................... 41
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8.8 Survival of Representations, Warranties and Covenants of the
Stockholders and the Company; Time Limits on Indemnification
Obligations..................................................... 42
8.9 Survival of Representations, Warranties and Covenants of
Compass; Time Limits on Indemnification Obligations............ 43
8.10 Defense of Claims; Control of Proceedings....................... 43
8.11 Indemnification Exclusive Remedy................................ 43
8.12 Manner of Satisfying Indemnification Obligations................ 43
ARTICLE IX
CLOSING CONDITIONS......................................................... 43
9.1 Conditions to Each Party's Obligation to Effect the Purchase.... 43
9.2 Conditions to Obligation of the Company to Effect the
Purchase....................................................... 44
9.3 Conditions to Obligations of Compass to Effect the Purchase..... 45
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER.......................................... 47
10.1 Termination..................................................... 47
10.2 Effect of Termination........................................... 48
10.3 Amendment....................................................... 48
10.4 Waiver.......................................................... 48
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS......................... 48
11.1 Economic Risk; Sophistication................................... 48
11.2 Transfer Restrictions........................................... 49
11.3 Compliance with Law............................................. 49
ARTICLE XII
NONCOMPETITION............................................................. 50
12.1 Prohibited Activities........................................... 50
12.2 Damages......................................................... 50
12.3 Reasonable Restraint............................................ 50
12.4 Severability; Reformation....................................... 51
12.5 Independent Covenant............................................ 51
12.6 Materiality..................................................... 51
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION.................................. 51
13.1 Stockholders' Covenant.......................................... 51
13.2 Damages......................................................... 52
13.3 Survival........................................................ 52
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ARTICLE XIV
GENERAL PROVISIONS......................................................... 52
14.1 Brokers......................................................... 52
14.2 Notices......................................................... 53
14.3 Interpretation.................................................. 53
14.4 Certain Definitions............................................. 54
14.5 Entire Agreement; Assignment.................................... 54
14.6 Applicable Law.................................................. 54
14.7 Counterparts.................................................... 54
14.8 Parties in Interest............................................. 54
14.9 Severability.................................................... 54
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LIST OF SCHEDULES
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Schedule A Stockholders of Company
Schedule 2.1 Consideration
Schedule 2.4(a)-1 Deemed Earnings Estimate and Procedure for Determining
Deemed Earnings Estimate and Deemed Earnings Actuals
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Subsidiaries; Jurisdictions of Incorporation;
Investments
Schedule 4.4.2 Required Consents
Schedule 4.4.3 Required Notices
Schedule 4.6 Liabilities of Company and Company Subsidiaries
Schedule 4.8 Certain Changes and Events
Schedule 4.9 Litigation
Schedule 4.10 Noncompliance with Applicable Laws - Company and
Company Subsidiaries
Schedule 4.11 Licenses and Permits
Schedule 4.12 Material Contracts
Schedule 4.13.1-1 Real Property
Schedule 4.13.1-2(a) Pending Proceedings to Reduce General Real Estate Taxes
Schedule 4.13.1-2(b) Matters Relating to Leased Property
Schedule 4.13.2 Tangible Personal Property; Liens
Schedule 4.14 Intellectual Property
Schedule 4.15 Exceptions Regarding Corporate Records
Schedule 4.16.1 Tax Audits
Schedule 4.17.1 Exceptions Regarding Employee Plans
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Schedule 4.17.2 Description of Unwritten Employee Plans
Schedule 4.17.4 Certain Liabilities
Schedule 4.18 Strikes and Other Labor Matters
Schedule 4.19 Exceptions Regarding Environmental Matters
Schedule 4.20 List and Description of Insurance Policies
Schedule 4.21 Interests in Customers and Suppliers; Affiliate
Transactions
Schedule 4.22 Business Relationships
Schedule 4.23 Compensation
Schedule 4.24 Bank Accounts
Schedule 5.2 Compass' Capitalization
Schedule 5.4.2 Required Consents
Schedule 5.5 Liabilities of Compass
Schedule 5.7 Noncompliance with Applicable Laws
Schedule 7.9 Stockholders' Guarantees
Schedule 11.1 Non-Accredited Investors
Schedule 14.1-1 Company's and Stockholders' Broker
Schedule 14.1-2 Compass' Broker
Schedule 14.2.3 Stockholders and their Counsel
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LIST OF EXHIBITS
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Exhibit 6.1.2(a) Form of Compass' Amended and Restated Charter
Exhibit 9.2(c) Opinions of Compass' Counsel
Exhibit 9.2(e) Form of Employment Agreements
Exhibit 9.2(g) Stockholders Agreement
Exhibit 9.3(c) Opinions of Company's Counsel
Exhibit 9.3(i) Form of Stockholders' Release
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DEFINED TERMS
ADA.................................................Section 4.13.1(h)
Affiliate................................................Section 14.4
Affiliate Transactions..................................Section 4.2.1
Aggregate Cash Consideration..............................Section 2.1
Aggregate Purchase Consideration..........................Section 2.1
Agreement................................................Introduction
Business.................................................Section 4.12
Cap Amount..............................................Section 8.7.4
Claims..................................................Section 4.9.1
Closing...................................................Article III
Closing Date..............................................Article III
Code.....................................................Introduction
Company..................................................Introduction
Company Material Adverse Effect........................Section 4.8(r)
Company Representatives.................................Section 7.1.1
Company Stock...............................................Article I
Company Subsidiaries......................................Section 4.1
Compass..................................................Introduction
Compass Common Stock......................................Section 2.1
Compass Indemnified Parties...............................Section 8.1
Compass Indemnified Party.................................Section 8.1
Compass Material Adverse Effect.........................Section 5.4.3
(viii)
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Compass Representatives....................................Section 7.1.1
Compass Required Statutory Approvals.......................Section 5.4.3
Contracts...................................................Section 4.12
Copyrights..................................................Section 4.14
Deemed Earnings Actuals...................................Section 2.4(b)
Deemed Earnings Estimate..................................Section 2.4(a)
Deemed Earnings Excess....................................Section 2.4(f)
Deemed Earnings Shortfall.................................Section 2.4(g)
Defense Notice.............................................Section 8.3.1
Demand Registration........................................Section 7.7.2
Direct Claim.................................................Section 8.4
Employee Plan..........................................Section 4.17.5(a)
Environmental and Safety Requirements.......................Section 4.19
ERISA..................................................Section 4.17.5(b)
Excess Indemnity............................................Section 8.12
Final Deemed Earnings Actuals.............................Section 2.4(e)
Financial Statements.......................................Section 4.5.1
First Person...........................................Section 4.17.5(c)
Founding Companies..........................................Introduction
Governmental Authority.....................................Section 4.4.2
Hazardous Materials.........................................Section 4.19
herein......................................................Section 14.3
hereof......................................................Section 14.3
hereunder...................................................Section 14.3
(ix)
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Indemnified Party.......................................Section 8.3.1
Indemnifying Party......................................Section 8.3.1
Insurance Policies.......................................Section 4.20
Intellectual Property....................................Section 4.14
Intellectual Property Licenses...........................Section 4.14
IPO......................................................Introduction
IT.......................................................Introduction
ITG......................................................Introduction
Latest Balance Sheet....................................Section 4.5.1
Laws.....................................................Section 4.10
Leased Property........................................Section 4.13.1
Licenses.................................................Section 4.11
Liens...................................................Section 4.2.1
Loss......................................................Section 8.1
Losses....................................................Section 8.1
Market Price.............................................Section 8.12
Marks....................................................Section 4.14
Material Contracts.......................................Section 4.12
Minimum Value...........................................Section 8.7.2
Murphy.................................................Section 9.2(e)
1933 Act................................................Section 4.4.3
1934 Act...............................................Section 7.8(b)
Notice Period..........................................Section 2.4(c)
Other Agreements.........................................Introduction
(x)
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Other Founding Companies..................................Section 8.1
Other Stock Purchase Agreements..........................Introduction
Other Purchases..........................................Introduction
Owned Property.........................................Section 4.13.1
Patents..................................................Section 4.14
person...................................................Section 14.4
Plan Affiliate......................................Section 4.17.5(c)
Prospectus..............................................Section 7.2.1
Purchase.................................................Introduction
Real Property..........................................Section 4.13.1
Registration Statement..................................Section 4.4.3
Representatives.........................................Section 7.1.1
Returns................................................Section 4.16.1
Schedules.................................................Section 6.3
SEC.....................................................Section 4.4.3
Stockholder Indemnified Party.............................Section 8.2
Stockholders.............................................Introduction
Stockholders Agreement.................................Section 9.2(h)
Stockholders Notice....................................Section 2.4(c)
Taxes..................................................Section 4.16.2
Territory.............................................Section 12.1(a)
Third Party Claim.......................................Section 8.3.1
Threshold Amount........................................Section 8.7.2
to the knowledge of the Stockholders or the Company......Section 14.4
(xi)
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Trade Secrets............................................Section 4.14
Underwriters............................................Section 7.1.1
(xii)
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 3,
1997, by and among Compass International Services Corporation, a Delaware
corporation ("Compass"), Impact Telemarketing Group, Inc., a New Jersey
corporation ("ITG") and Impact Telemarketing, Inc., a New Jersey corporation
("IT" and, together with ITG, the "Company"), and the stockholders of the
Company identified on Schedule A to this Agreement (the "Stockholders").
WITNESSETH:
WHEREAS, the Stockholders desire to sell to Compass, and Compass desires to
purchase from the Stockholders, all of the issued and outstanding shares of
capital stock of the Company for the consideration and on the terms set forth in
this Agreement (the "Purchase");
WHEREAS, Compass is entering into other stock purchase agreements (the
"Other Stock Purchase Agreements", and together with the agreements entered into
in connection therewith, the "Other Agreements") substantially similar to this
Agreement with each of BRMC of Delaware, Inc., a Delaware corporation, Impact
Telemarketing Group, Inc., a New Jersey corporation ("ITG"), Impact
Telemarketing, Inc., a New Jersey corporation ("IT"), Mid-Continent Agencies,
Inc., an Illinois corporation, and National Credit Management Corp., a Maryland
corporation (which companies together with the Company are collectively referred
to herein as the "Founding Companies") and their respective stockholders, which
agreements provide for the purchase (collectively, the "Other Purchases") of all
of the issued and outstanding shares of capital stock of such companies
simultaneously with the Purchase;
WHEREAS, simultaneously with and as a condition to the consummation of the
Purchase, Compass will close an initial public offering (the "IPO") of Compass
Common Stock (hereinafter defined); and
WHEREAS, the parties intend the Purchase to qualify as a tax-free
transaction under the provisions of Section 351 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, for and in consideration of the premises and of the mutual
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE PURCHASE AND SALE OF STOCK
Upon the terms and subject to the conditions of this Agreement, at the
Closing (hereinafter defined), the Stockholders shall sell to Compass, and
Compass shall purchase from Stockholders, all of the outstanding shares of
capital stock of the Company, consisting of 100
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shares of Common Stock of ITG and 2,489 shares of common stock of LT, each
without par value (collectively, the "Company Stock").
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The purchase price for the shares of Company Stock
--------------
shall be as follows: At the Closing, for each share of Company Stock issued and
outstanding immediately prior to the Closing, the Stockholders shall be entitled
to receive from Compass (i) that number of shares of Common Stock, par value
$.01 per share, of Compass ("Compass Common Stock") set forth in Schedule 2.1
------------
and (ii) the amount of cash determined in accordance with the formula set forth
in Schedule 2.1 (the aggregate amount of cash so to be paid in respect of all of
------------
the Company Stock is herein referred to as the "Aggregate Cash Consideration")
and subject to the adjustment provided for in Section 2.4 below. The sum of (i)
-----------
the Aggregate Cash Consideration and (ii) the value (determined as set forth on
Schedule 2.1) of all shares of Compass Common Stock so to be issued to the
- ------------
Stockholders is herein referred to as "Aggregate Purchase Consideration."
2.2 Exchange of Certificates for Consideration. At the Closing, the
------------------------------------------
Stockholders shall deliver to Compass the original certificates representing the
Company Stock, duly endorsed in blank by the Stockholders or accompanied by
blank stock powers, in exchange for (i) issuance and delivery by Compass to the
Stockholders of certificates representing the number of shares of Compass Common
Stock determined in accordance with Section 2.1, and (ii) payment by Compass of
-----------
the Aggregate Cash Consideration in accordance with the provisions of Section
-------
2.3 below. The Stockholders agree promptly to cure any deficiencies with respect
- ---
to the endorsement of the certificates or other documents of conveyance with
respect to such Company Stock. The certificates representing Compass Common
Stock to be delivered pursuant to this Article II shall bear a legend as
----------
provided in Section 11.2 below. At the Closing, all shares of Company Stock
------------
shall be transferred and delivered to Compass, and each of the Stockholders
holding a certificate representing any such shares of Company Stock shall cease
to have any rights with respect thereto, except the right to receive that number
of shares of Compass Common Stock to be issued and cash to be paid in
consideration therefor upon exchange of such certificates in accordance with
this Section 2.2.
-----------
2.3 Payment of Aggregate Cash Consideration. At the Closing, Compass
---------------------------------------
shall pay to the Stockholders, by certified check, cashier's check or wire
transfer of immediately available funds to a bank account or bank accounts
specified by Stockholders in writing at least three (3) business days prior to
the Closing Date, an amount equal to the Aggregate Cash Consideration.
2.4 Post-Closing Adjustment. The Aggregate Purchase Consideration shall
-----------------------
be subject to a post-closing adjustment as set forth in this Section 2.4.
-----------
(a) Attached hereto as Schedule 2.4(a)-1 is a good faith estimate of
-----------------
the Company's earnings for the calendar year ending on December 31, 1997,
calculated by the Company and the Stockholders in accordance with the procedure
set forth in Schedule 2.4(a)-1
-----------------
2
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(the "Deemed Earnings Estimate"), and utilized in calculating the Aggregate
Purchase Consideration as set forth in Schedule 2.1.
-------------
(b) No later than February 28, 1998, the Company shall deliver to the
Stockholders a calculation of the Company's actual earnings for the calendar
year ended on December 31, 1997, prepared by Price Waterhouse in accordance with
the procedure set forth in Schedule 2.4(a)-1 (the "Deemed Earnings Actuals").
-----------------
(c) If the Stockholders wish to assert in good faith that the Deemed
Earnings Actuals have not been determined in accordance with the procedure set
forth in Schedule 2.4(a)-1, the Stockholders shall notify Compass in writing
------------------
thereof (the "Stockholders Notice") within fifteen (15) days after delivery of
the Deemed Earnings Actuals to the Stockholders (the "Notice Period"). The
Stockholders Notice shall set forth in reasonable detail the alleged non-
conformance and the disputed amount. If the Stockholders do not deliver the
Stockholders Notice within the Notice Period, the Deemed Earnings Actuals shall
become final and binding upon all parties.
(d) If the Stockholders Notice is delivered within the Notice Period,
the Stockholders and Compass shall attempt in good faith to resolve all
dispute(s). If Compass and the Stockholders are unable to resolve any disputed
item within twenty (20) days after receipt of the Stockholders Notice, such
disputed item(s), together with each party's calculation of the Company's Deemed
Earnings Actuals, shall be submitted to a nationally recognized "Big Six"
accounting firm or its successor (other than Price Waterhouse) chosen by lot,
which accounting firm shall be instructed to arbitrate such disputed item(s) and
to determine the Deemed Earnings Actuals within forty five (45) days of its
selection. The resolution of disputes by the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon all parties.
The cost of such resolution by such accounting firm shall be borne: (a) by the
Stockholders, if the Deemed Earnings Actuals as initially calculated by Price
Waterhouse remain unchanged or are decreased or increased by five percent (5%)
or less, or (b) by Compass, if clause (a) does not apply.
(e) If the Deemed Earnings Actuals as determined in accordance with
Sections 2.4(b), (c) and (d) above (the "Final Deemed Earnings Actuals") are at
- --------------- --- ---
least ninety five percent (95%) of the Deemed Earnings Estimate, but no more
than one hundred five percent (105%) of the Deemed Earnings Estimate, then no
further payments by Compass or the Stockholders shall be due pursuant to this
Section 2.4.
- -----------
(f) If the Final Deemed Earnings Actuals are in excess of one hundred
five percent (105%) of the Deemed Earnings Estimate, then, within ten (10) days
of the determination of the Final Deemed Earnings Actuals, Compass shall pay to
the Stockholders, in the manner provided in Section 2.3 above, an amount in cash
-----------
equal to the Aggregate Purchase Consideration payable on account of the Deemed
Earnings Excess (hereinafter defined). The amount to be paid to the Stockholders
pursuant to this Section 2.4(f) shall be calculated by utilizing the formulae
--------------
set forth on Schedule 2.1. As used herein, "Deemed Earnings Excess" shall mean
-------------
an amount equal to five (5) percent of the Deemed Earnings Estimate.
3
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(g) If the Final Deemed Earnings Actuals fall short of ninety five
percent (95%) of the Deemed Earnings Estimate (the portion of such shortfall
below ninety five percent (95%) but not below eighty-five percent (85%) of the
Deemed Earnings Estimate herein referred to as "Deemed Earnings Shortfall"),
then, within ten (10) days of the determination of the Final Deemed Earnings
Actuals, the Stockholders shall pay to Compass an amount in cash equal to the
Aggregate Purchase Consideration paid on account of the Deemed Earnings
Shortfall. In no case shall the Stockholders' liability pursuant to this Section
2.4(g) exceed ten-percent (10%) of the Aggregate Purchase Consideration.
ARTICLE III
THE CLOSING AND CLOSING DATE
The consummation of the Purchase and delivery of shares referred to in
Articles I and II hereof and the other transactions contemplated by this
- ---------- --
Agreement (the "Closing") shall take place at the offices of Katten Muchin &
Zavis, Chicago, Illinois, contemporaneously with the closing of the IPO (the
"Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Each of the Company and Stockholders hereby jointly and severally
represents and warrants to Compass, as of the date hereof and, subject to
Section 6.3, as of the date on which Compass and the Representatives
- -----------
(hereinafter defined) execute and deliver an underwriting agreement in
connection with the IPO and as of the Closing Date, as follows:
4.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
New Jersey. Each of the Company's subsidiaries (collectively, the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation set forth on Schedule
--------
4.3. Each of the Company and the Company Subsidiaries has the requisite
- ----
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, and is
qualified to do business and is in good standing in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary. True, accurate and complete
copies of the Company's and each Company Subsidiary's Articles of Incorporation
and By-laws, in each case as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Compass.
4.2 Capitalization.
--------------
4.2.1 The authorized capital stock of each Company consists of 2,500
shares of Company Stock, of which 100 shares of ITG and 2,489 shares issued
of IT are issued and outstanding. All of such issued and outstanding shares
are validly issued and are fully paid, nonassessable and free of preemptive
rights. The Stockholders own
4
<PAGE>
beneficially and of record all of the issued and outstanding shares of the
Company Stock as set forth in Schedule 4.2, which constitute all of the
------------
outstanding shares of capital stock of the Company, in each case free and
clear of all claims, liens, charges, encumbrances, pledges, conditional
sales contracts, equity charges, restrictions or security interests of any
nature (collectively, "Liens"). Each Stockholder has good and marketable
title to the Company Stock owned by such Stockholder.
4.2.2 Except as set forth on Schedule 4.2, there are no outstanding
------------
subscriptions, options, calls, contracts, commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or a Company
Subsidiary or obligating the Company or a Company Subsidiary to grant,
extend or enter into any such agreement or commitment or obligating the
Stockholders to convey or transfer an Company Stock. There are no voting
trusts, proxies or other agreements or understandings to which the Company
or any Stockholder is a party or is bound with respect to the voting of any
shares of capital stock of the Company.
4.3 Company Subsidiaries. Schedule 4.3 sets forth the name and
-------------------- ------------
jurisdiction of formation of each Company Subsidiary, the authorized capital
stock of each Company Subsidiary, the number of shares held by the Company, and
the names of all shareholders of each Company Subsidiary (other than the
Company) and the number of shares held by each said shareholder. The outstanding
capital stock of each Company Subsidiary which is owned by the Company is
validly issued, fully paid and non-assessable. Except as set forth on Schedule
--------
4.3, the Company does not, directly or indirectly, own, of record or
- ---
beneficially, or control any capital stock, securities convertible into capital
stock or any other equity interest in any corporation, partnership, joint
venture or limited liability company.
4.4 Authority; Non-Contravention; Approvals.
---------------------------------------
4.4.1 Each of the Stockholders and the Company has full right,
capacity, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been
approved by the Board of Directors of the Company and by the Stockholders,
and no other corporate proceedings on the part of the Company are necessary
to authorize the execution and delivery of this Agreement or the
consummation by the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders, and, assuming the due authorization, execution and delivery
hereof by Compass, constitutes a valid and legally binding agreement of the
Company and the Stockholders, enforceable against the Company and the
Stockholders in accordance with its terms, except that such enforcement may
be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting or relating to enforcement of creditors'
rights generally and (ii) general equitable principles.
4.4.2 The execution and delivery of this Agreement by each of the
Company and the Stockholders do not violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would
5
<PAGE>
constitute a default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any Company Subsidiary under, any of
the terms, conditions or provisions of (i) the Articles of Incorporation or
By-laws of the Company or any Company Subsidiary, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ,
permit or license of any court or federal, state, provincial, local or
foreign government, or any subdivision, agency or authority of any thereof
("Governmental Authority") applicable to any Stockholder, the Company, any
Company Subsidiary, or the business, properties or assets of the Company or
any Company Subsidiary, (iii) any note, bond, mortgage, indenture or deed
of trust, or (iv) any material license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which the Company, any Company Subsidiary or any of the Stockholders is a
party or by which any of the Stockholders, the Company, any Company
Subsidiary or any of the properties or assets of the Company or any Company
Subsidiary may be bound or affected. The consummation by the Company and
the Stockholders of the transactions contemplated hereby will not result in
a violation, conflict, breach, right of termination or acceleration, or
creation of Liens, under the terms, conditions or provisions of the items
described in clauses (i) through (iv) of the preceding sentence, subject,
in the case of the terms, conditions or provisions of the items described
in clauses (iii) and (iv) above, to obtaining (prior to the Closing)
consents required from, or giving notices required to be provided to,
commercial lenders, lessors or other third parties, all of which required
consents and notices are listed on Schedule 4.4.2.
--------------
4.4.3 Except for (i) the filing in connection with the IPO of a
registration statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission ("SEC") pursuant to the Securities Act
of 1933, as amended (the "1933 Act"), (ii) the declaration of the
effectiveness thereof by the SEC and, if required, filings with various
state blue sky authorities and (iii) any notices of change-in-control
required with respect to any Licenses (hereinafter defined), all of which
notices are listed on Schedule 4.4.3, no declaration, filing or
--------------
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement by the Company and the Stockholders or the consummation by
the Company and the Stockholders of the transactions contemplated hereby.
4.5 Financial Statements.
--------------------
4.5.1 The Company has previously furnished to Compass copies of the
audited consolidated balance sheets of the Company and the Company
Subsidiaries as of December 31 in each of the years 1994 through 1996, and
the related audited consolidated statements of income, stockholders' equity
and cash flow for each of the fiscal years then ended, including all notes
thereto, and the unaudited consolidated balance sheet of the Company and
the Company Subsidiaries as of June 30, 1997 (the "Latest Balance Sheet")
and the related consolidated statement of income, stockholders equity and
cash flows for the six (6) months then ended (collectively, the "Financial
Statements"). Each of the Financial Statements is accurate and complete in
all material respects, is consistent with the books and records of the
Company and the Company
6
<PAGE>
Subsidiaries (which, in turn, are accurate and complete in all material
respects), and fairly presents the financial condition, assets and
liabilities of the Company and the Company Subsidiaries as of its date and
the results of operations and cash flows for the periods related thereto,
in each case in accordance with generally accepted accounting principles
applied on a consistent basis, subject, in the case of the unaudited
interim financial statements, to normal and customary year-end adjustments.
4.5.2 The Company and Company Subsidiaries, as a whole or on a
consolidated basis, have adequate net working capital to operate the
Business consistent with past practices.
4.6 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
4.6, neither the Company nor any Company Subsidiary had, as of the date of the
- ---
Latest Balance Sheet, nor has it incurred since that date, any liabilities or
obligations of any nature (whether known or unknown, absolute, contingent,
accrued, direct, indirect, perfected, inchoate, unliquidated or otherwise),
except (i) to the extent accrued or reserved for in the Financial Statements or
(ii) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business and consistent with past custom
and practices.
4.7 Accounts and Notes Receivable. All of the accounts receivable of the
-----------------------------
Company and each Company Subsidiary reflected in the Latest Balance Sheet or
arising from the date thereof until the Closing have arisen in the ordinary
course of business and are not subject to any defense, counterclaim or setoff
(net of the allowance for doubtful accounts reflected on the Latest Balance
Sheet).
4.8 Absence of Certain Changes or Events. Except as set forth on Schedule
------------------------------------ --------
4.8, since the date of the Latest Balance Sheet, each of the Company and the
- ---
Company Subsidiaries has conducted its business only in the ordinary course
consistent with past custom and practices. Except as set forth on Schedule 4.8,
------------
since the date of the Latest Balance Sheet, there has not been any:
(a) material adverse change in the operations, condition (financial
or otherwise), operating results, assets, liabilities, employee, customer
or supplier relations or business prospects of the Company or any Company
Subsidiary;
(b) damage, destruction or loss of any property owned or leased by
the Company or any Company Subsidiary, whether or not covered by insurance,
having a replacement cost or fair market value in excess of $100,000.00 in
the aggregate;
(c) voluntary or involuntary sale, transfer, surrender, cancellation,
abandonment, waiver, release or other disposition of any kind by the
Company or any Company Subsidiary of any right, power, claim, debt, asset
or property (having a replacement cost or fair market value in excess of
$100,000.00 in the aggregate), except in the ordinary course of business
consistent with past custom and practices;
(d) strike, picketing, boycott, work stoppage, union organizational
activity, allegation, charge, written complaint of employment
discrimination or other labor dispute
7
<PAGE>
or similar occurrence that might reasonably be expected to adversely affect
the Company, a Company Subsidiary or the Business;
(e) loan or advance by the Company or any Company Subsidiary to any
person, other than in the ordinary course of business consistent with past
custom and practices and travel and other business-related advances to
employees of the Company and Company Subsidiaries in the ordinary course of
business;
(f) notice (formal or otherwise) of any liability, potential
liability or claimed liability relating to environmental matters;
(g) declaration, setting aside, or payment of any dividend or other
distribution in respect of the Company's or a Company Subsidiary's capital
stock or any direct or indirect redemption, purchase, or other acquisition
of the Company's or any Company Subsidiary's capital stock, or the payment
of principal or interest on any note, bond, debt instrument or debt to any
Affiliate of the Company or any Company Subsidiary;
(h) incurrence by the Company or any Company Subsidiary of debts,
liabilities or obligations except current liabilities incurred in
connection with or for services rendered or goods supplied in the ordinary
course of business consistent with past custom and practices, liabilities
on account of taxes and governmental charges (but not penalties, interest
or fines in respect thereof), and obligations or liabilities incurred by
virtue of the execution of this Agreement;
(i) issuance by the Company or any Company Subsidiary of any notes,
bonds, or other debt securities or any equity securities or securities
convertible into or exchangeable for any equity securities;
(j) entry by the Company or any Company Subsidiary into, or material
amendment or termination of, any material commitment, contract, agreement,
or transaction, other than in the ordinary course of business and other
than expiration of contracts in accordance with their terms;
(k) loss or, to the knowledge of the Stockholders or the Company,
threatened loss of, or any material reduction or, to the knowledge of the
Stockholders or the Company, threatened material reduction in revenues
from, any client of the Company or any Company Subsidiary who accounted for
revenues during the last twelve months in excess of $250,000.00, or change
in the relationship of the Company or any Company Subsidiary with any
client or Governmental Authority which might reasonably be expected to
materially and adversely affect the Company, any Company Subsidiary or the
Business;
(l) change in accounting principles, methods or practices (including,
without limitation, any change in depreciation or amortization policies or
rates) utilized by the Company or any Company Subsidiary;
8
<PAGE>
(m) discharge or satisfaction by the Company or any Company
Subsidiary of any material liability or encumbrance or payment by the
Company or any Company Subsidiary of any material obligation or liability,
other than current liabilities paid in its ordinary course of business
consistent with past custom and practices;
(n) sale, lease or other disposition by the Company or any Company
Subsidiary of any tangible assets other than in the ordinary course of
business, or sale, assignment or transfer by the Company or any Company
Subsidiary of any trademarks, service marks, trade names, corporate names,
copyright registrations, trade secrets or other intangible assets or
disclosure of any proprietary confidential information of the Company or
any Company Subsidiary to any person other than Compass, and the other
Founding Companies and their respective officers, employees and agents;
(o) capital expenditures or commitments therefor by the Company or
any Company Subsidiary in excess of $100,000.00 individually or $200,000.00
in the aggregate;
(p) mortgage, pledge or other encumbrance of any asset of the Company
or any Company Subsidiary or creation of any easements, Liens or other
interests against or on any of the Real Property (hereinafter defined);
(q) adoption, amendment or termination of any Employee Plan
(hereinafter defined) or increase in the benefits provided under any
Employee Plan, or promise or commitment to undertake any of the foregoing
in the future; or
(r) an occurrence or event not included in clauses (a) through (q)
that has resulted or is expected to result in a material adverse effect on
the business, operations, property, assets, condition (financial or
otherwise), operating results, liabilities, employee, customer or supplier
relations or business prospects of the Company or any Company Subsidiary (a
"Company Material Adverse Effect").
4.9 Litigation. Except as set forth on Schedule 4.9 (which shall disclose
---------- ------------
the parties to, nature of and relief sought for each matter to be disclosed on
Schedule 4.9):
- ------------
4.9.1 There is no suit, action, proceeding, investigation, claim or
order pending or, to the knowledge of the Stockholders or the Company,
threatened against the Company or any Company Subsidiary, or with respect
to any Employee Plan, or any fiduciary of any such plan (or pending or, to
the knowledge of the Stockholders or the Company, threatened against any of
the officers, directors or employees of the Company or any Company
Subsidiary with respect to the Business or currently proposed business
activities of the Company or any Company Subsidiary), or to which the
Company or any Company Subsidiary is otherwise a party, or which may have
or is likely to have a Company Material Adverse Effect, before any court,
or before any Governmental Authority or arbitrator (collectively,
"Claims"), other than collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $10,000.00 and which in the aggregate do not
9
<PAGE>
exceed $50,000.00, and (ii) on behalf of third parties; nor, to the
knowledge of the Stockholders or the Company, is there any basis for any
such Claim.
4.9.2 Neither the Company nor any Company Subsidiary is subject to
any unsatisfied or continuing judgment, order or decree of any court or
Governmental Authority, and, to the knowledge of the Stockholders or the
Company, neither the Company nor any Company Subsidiary is otherwise
exposed, from a legal standpoint, to any liability or disadvantage which
may be material to the Business. Neither the Company nor any Company
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it other than collection actions by the Company or any
Company Subsidiary in the ordinary course of business, none of which is
greater than $10,000.00 and which in the aggregate do not exceed
$50,000.00, and for which the amount in dispute is presently ascertainable
with certainty.
4.9.3 Except for collection actions by the Company or any Company
Subsidiary in the ordinary course of business (i) on its own behalf, none
of which is greater than $10,000.00 and which in the aggregate do not
exceed $50,000.00, and (ii) on behalf of third parties, and in either case,
and for which the amount in dispute is presently ascertainable with
certainty, Schedule 4.9 sets forth all closed litigation matters to which
------------
the Company or any Company Subsidiary was a party during the five (5) years
preceding the Closing Date, the date such litigation was commenced and
concluded, and the nature of the resolution thereof (including amounts paid
in settlement or judgment).
4.10 Compliance with Applicable Laws. Except as set forth on Schedules
------------------------------- ---------
4.10 and 4.19, each of the Company and the Company Subsidiaries has complied in
- ---- ----
all material respects with all laws, rules, regulations, writs, injunctions,
decrees, ordinances and orders (collectively, "Laws") applicable to it or to the
operation of the Business, and has not received any notice of any alleged claim
or threatened claim, violation of or liability or potential responsibility under
any such Law which has not heretofore been cured and for which there is no
remaining liability and, to the knowledge of the Stockholders or the Company, no
event has occurred or circumstances exist that (with or without notice or lapse
of time) may constitute or result in a violation in any material respect by the
Company or any Company Subsidiary of any Law or may give rise to any material
liability on the part of the Company or any Company Subsidiary under any Law.
4.11 Licenses and Permits. Attached as Schedule 4.11 is a true and
-------------------- -------------
complete list of all notifications, licenses, permits (including, without
limitation, environmental, construction and operation permits), franchises,
certificates, approvals, exemptions, classifications, registrations and other
similar documents and authorizations, and applications therefor (collectively,
the "Licenses") held by the Company or any Company Subsidiary and issued by, or
submitted by the Company or any Company Subsidiary to, any Governmental
Authority or other person or entity, which constitute all such Licenses used by
the Company and the Company Subsidiaries in the conduct of the Business. Each of
the Company and the Company Subsidiaries possesses all of the Licenses which are
necessary to enable it to carry on the Business as presently conducted. All such
Licenses are valid, binding and in full force and effect. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not adversely affect any such Licenses.
The Company and the
10
<PAGE>
Company Subsidiaries have taken all necessary action to maintain such Licenses.
No loss or expiration of any such License is pending or, to the knowledge of the
Stockholders or the Company, threatened or reasonably anticipated.
4.12 Material Contracts. Except as listed or described on Schedule 4.12
------------------ -------------
(such contracts, or those which should have been listed on Schedule 4.12, are
-------------
herein referred to as the "Material Contracts"), as of or on the date hereof,
neither the Company nor any Company Subsidiary is a party to or bound by, any
written or oral leases, agreements or other contracts or legally binding
contractual rights or contractual obligations or contractual commitments
("Contracts") relating to or in any way affecting the operation or ownership of
the business of the Company and the Company Subsidiaries (the "Business") that
are of a type described below:
(a) any consulting agreement, employment agreement, change-in-control
agreement, and collective bargaining arrangement with any labor union and
any such agreements currently in negotiation or proposed;
(b) any Contract for capital expenditures or the acquisition or
construction of fixed assets in excess of $100,000.00.
(c) any Contract for the purchase, maintenance or acquisition, or the
sale or furnishing, of materials, supplies, merchandise, machinery,
equipment, parts or other property or services (except if such Contract is
made in the ordinary course of business and requires aggregate future
payments of less than $100,000.00);
(d) any Contract other than trade payables in the ordinary course of
business relating to the borrowing of money, or the guaranty of another
person's borrowing of money, including, without limitation, any notes,
mortgages, indentures and other obligations, guarantees of performance,
agreements and instruments for or relating to any lending or borrowing,
including assumed indebtedness;
(e) any Contract granting any person a Lien on all or any part of the
assets of the Company or any Company Subsidiary;
(f) any Contract for the cleanup, abatement or other actions in
connection with Hazardous Materials (hereinafter defined), the remediation
of any existing environmental liabilities or relating to the performance of
any environmental audit or study;
(g) any Contract granting to any person an option or a first refusal,
first-offer or similar preferential right to purchase or acquire any
material assets of the Company or any Company Subsidiary;
(h) any Contract with any agent, distributor or representative which
is not terminable by the Company or a Company Subsidiary upon ninety (90)
calendar days' or less notice without penalty;
(i) any Contract under which the Company or any Company Subsidiary is
(A) a lessee or sublessee of any machinery, equipment, vehicle or other
tangible personal
11
<PAGE>
property, or (B) a lessor of any tangible personal property owned by the
Company or any Company Subsidiary, in either case having an original value
in excess of $100,000.00;
(j) any Contract under which the Company or any Company Subsidiary
has granted or received a license or sublicense or under which it is
obligated to pay or has the right to receive a royalty, license fee or
similar payment;
(k) any Contract concerning an Affiliate Transaction (hereinafter
defined);
(l) any Contract providing for the indemnification or holding
harmless of any officer, director, employee or other person, other than as
provided in the by-laws of the Company or a Company Subsidiary;
(m) any Contract (A) for purchase or sale by the Company or any
Company Subsidiary of any real property on which the Company or any Company
Subsidiary conducts any aspect of the Business, (B) granting any options to
lease or purchase all or any portion of the Real Property, (C) providing
for labor, services or materials to the Real Property (including, without
limitation, brokerage or management services) involving aggregate future
payments of more than $100,000.00;
(n) any Contract limiting, restricting or prohibiting the Company or
any Company Subsidiary from conducting business anywhere in the United
States or elsewhere in the world;
(o) any joint venture or partnership Contract;
(p) any lease, sublease or associated agreements relating to the
Leased Property (hereinafter defined);
(q) any material Contract requiring prior notice, consent or other
approval upon a change of control in the equity ownership of the Company or
any Company Subsidiary (all such Contracts being clearly identified on
Schedule 4.4.2); or
--------------
(r) any other Contract, whether or not made in the ordinary course of
business, which involves future payments in excess of $100,000.00.
The Company and the Stockholders have provided Compass with a true and
complete copy of each written Material Contract and a true and complete summary
of each oral Material Contract, in each case including all amendments or other
modifications thereto. Except as set forth on Schedule 4.12, each Material
-------------
Contract is a valid and binding obligation of, and enforceable in accordance
with its terms against, the Company or a Company Subsidiary, as applicable, and,
to the knowledge of the Stockholders or the Company, the other parties thereto,
and is in full force and effect, subject only to bankruptcy, reorganization,
receivership and other laws affecting creditors' rights generally. Except as set
forth on Schedule 4.12, the Company or one of the Company Subsidiaries, as
-------------
applicable, has performed all obligations required to be performed by it as of
the date hereof and will have performed all obligations required to be performed
by it as of the Closing Date under each Material Contract and neither the
Company
12
<PAGE>
or Company Subsidiary, as applicable, nor, to the knowledge of the Stockholders
or the Company, any other party to any Material Contract is in breach or default
thereunder, and to the knowledge of the Stockholders or the Company there exists
no condition which would, with or without the lapse of time or the giving of
notice, or both, constitute a breach or default thereunder. The Company has not
been notified that any party to any Material Contract intends to cancel,
terminate, not renew, or exercise an option under any Material Contract, whether
in connection with the transactions contemplated hereby or otherwise.
4.13 Properties.
----------
4.13.1 Schedule 4.13.1-1 is a correct and complete list, and a brief
-----------------
description of, all real estate in which the Company or any of the Company
Subsidiaries has an ownership interest (the "Owned Property") and all real
property leased by the Company (the "Leased Property"), and all facilities
thereon. Except as lessee of Leased Property, neither the Company nor any
Company Subsidiary is a lessee under or otherwise a party to any lease,
sublease, license, concession or other agreement, whether written or oral,
pursuant to which another person or entity has granted to the Company or
any Company Subsidiary the right to use or occupy all or any portion of any
real property.
The Company or one of the Company Subsidiaries has good and marketable
fee simple title to the Owned Property and, assuming good title in the
Landlord, a valid leasehold interest in the Leased Property (the Owned
Property and the Leased Property being sometimes referred to herein as
"Real Property"), in each case free and clear of all Liens, assessments or
restrictions (including, without limitation, inchoate liens arising out of
the provision of labor, services or materials to any such real estate)
other than (a) mortgages shown on the Financial Statements as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a
default) exists, (b) Liens for current taxes not yet due, and (c) (i) minor
imperfections of title, including utility and access easements depicted on
subdivision plats for platted lots that do not impair the intended use of
the property, if any, none of which is substantial in amount, materially
detracts from the value or impairs the use of the property subject thereto,
or impairs the operations of the Company, and (ii) zoning laws and other
land use restrictions or restrictive covenants that do not materially
impair the present use of the property subject thereto. The Real Property
constitutes all real properties reflected on the Financial Statements or
used or occupied by the Company or any Company Subsidiary in connection
with the Business or otherwise.
With respect to the Owned Property, except as reflected on Schedule
--------
4.13.1-2(a):
-----------
(a) the Company or one of the Company Subsidiaries is in exclusive
possession thereof and no easements, licenses or rights are necessary to
conduct the Business thereon in addition to those which exist as of the
date hereof;
(b) no portion thereof is subject to any pending condemnation
proceeding or proceeding by any public or quasi-public authority materially
adverse to the Owned
13
<PAGE>
Property and, to the knowledge of the Stockholders or the Company, there is
no threatened condemnation or proceeding with respect thereto;
(c) the buildings, plants, improvements, structures and fixtures
owned, leased or used by the Company or one of the Company Subsidiaries at
the Owned Property, including, without limitation, heating, ventilation and
air conditioning systems, roofs, foundations and floors, are in good
operating condition and repair; the Owned Property is properly zoned for
its use by the Company or one of the Company Subsidiaries (without being a
legal nonconforming use or subject to a conditional use permit), and is
not, to the knowledge of the Stockholders or the Company, in violation of
any zoning, subdivision, health, safety, landmark preservation, wetlands
preservation, building, environmental, land use or other ordinances, laws,
codes or regulations or any covenants, restrictions or other documents of
record; nor has any notice of any claimed violation of any such ordinances,
laws, codes or regulations or any covenants, restrictions or other
documents of record been served on the Company or any Company Subsidiary;
and neither the Company nor any Company Subsidiary has received notice of,
and to the knowledge of the Stockholders or the Companies there has not
been, any change in such zoning, subdivision, health, safety, landmark
preservation, wetlands preservation, building, environmental, land use or
other ordinances, laws, codes or regulations that affects the Company's or
any Company Subsidiary's use of such Owned Property (without regard to any
non-conforming use or other so-called "grandfather" provision);
(d) since January 1, 1997, neither the Company nor any Company
Subsidiary has received notice of any increase in the assessed valuation of
the Owned Property nor notice of any contemplated special assessment;
Schedule 4.13.1-2(a) contains a true and correct description of all pending
--------------------
proceedings to reduce the general real estate taxes against the Owned
Property; none of the Owned Property is located in a special service
district, special service area, tax increment financing district or similar
district or area, or to the knowledge of the Stockholders or the Company,
subject to a threatened special assessment; and, to the knowledge of the
Stockholders or the Company, none of the Owned Property is located in an
area for which federal flood risk insurance is necessary;
(e) all facilities located on any parcel of the Owned Property are
supplied with utilities and other third-party services, such as water,
sewer, electricity, gas, roads, rail service and garbage collection,
necessary for the current operation of such facilities, all of which
services are adequate to conduct that portion of the Business conducted at
each of such facilities and such facilities are, to the knowledge of the
Stockholders or the Company, maintained in accordance with all laws,
ordinances, rules and regulations applicable to the Company, any Company
Subsidiary or the Owned Property;
(f) none of the Stockholders, the Company or the Company Subsidiaries
is a party to any written or oral agreements or undertakings with owners or
users of properties adjacent to any facility located on any parcel of the
Owned Property relating to the use, operation or maintenance of such
facility or any adjacent real property;
(g) neither the Company nor any Company Subsidiary is a lessor under
or otherwise a party to any lease, sublease, license, concession or other
agreement, whether
14
<PAGE>
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Owned Property;
(h) to the knowledge of the Stockholders or the Company, all
alterations, rehabilitations, structures, or improvements comply with the
provisions of the Americans with Disabilities Act, 42 USCA 1210, et seq.
and 28 CFR Part 36 (the "ADA"), after giving effect to applicable
"grandfather" provisions;
(i) there are no material defects in any improvements on or to the
Owned Property;
(j) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures, and fixtures on the Owned
Property are free from regulated quantities of asbestos;
(k) no portion of any parcel of the Owned Property is subject to any
roll-back tax, dual or exempt valuation tax, or contains any omitted
parcel;
(l) all assessments and taxes currently due and payable on such Owned
Property have been paid; and
(m) the buildings, plants, and structures on the Owned Property are
free from flooding and leaks.
With respect to the Leased Property, except as reflected on Schedule
--------
4.13.1-2(b):
- -----------
(i) the Company or one of the Company Subsidiaries is in
exclusive possession thereof and, to the knowledge of the Stockholders or
the Company, no easements, licenses or rights are necessary to conduct the
Business thereon in addition to those which exist as of the date hereof;
(ii) to the knowledge of the Stockholders or the Company, no
portion thereof is subject to any pending condemnation proceeding or
proceeding by any public or quasi-public authority materially adverse to
the Leased Property and there is no threatened condemnation or proceeding
with respect thereto;
(iii) to the knowledge of the Stockholders or the Company, the
buildings, plants, improvements, structures and fixtures at the Leased
Property, including, without limitation, heating, ventilation and air
conditioning systems, roofs, foundations and floors, are in good operating
condition and repair; the Leased Property is not, to the knowledge of the
Stockholders or the Company, in violation of any health, safety, building,
or environmental ordinances, laws, codes or regulations; nor has any notice
of any claimed violation of any such ordinances, laws, codes or regulations
been served on the Company or any Company Subsidiary;
(iv) the Leased Property is supplied with utilities and other
third-party services, such as water, sewer, electricity, gas, roads, rail
service and garbage collection,
15
<PAGE>
necessary for the current operation of the Business, and such Leased
Property is, to the knowledge of the Stockholders or the Company,
maintained in all material respects in accordance with all Laws applicable
to the Company, any Company Subsidiary or the Leased Property;
(v) none of the Stockholders, the Company or the Company
Subsidiaries is a party to any written or oral agreement or undertaking
with owners or users of properties adjacent to the Leased Property relating
to the use, operation or maintenance of such facility or any adjacent real
property;
(vi) neither the Company nor any Company Subsidiary is a party
to any lease, sublease, license, concession or other agreement, whether
written or oral, pursuant to which the Company or Company Subsidiary has
granted to any party or parties the right to use or occupy all or any
portion of the Leased Property;
(vii) to the extent that the Company or any Company Subsidiary
has responsibility under the lease(s) for the Leased Property for
compliance with the provisions of the ADA, to the knowledge of the
Stockholders or the Company, all alterations, rehabilitations, structures,
or improvements in the Leased Property comply with the ADA after giving
effect to applicable "grandfather" provisions;
(viii) to the knowledge of the Stockholders or the Company,
there are no material defects in any improvements on or to the Leased
Property;
(ix) to the knowledge of the Stockholders or the Company, the
Leased Property is free from regulated quantities of asbestos; and
(x) to the knowledge of the Stockholders or the Company, the
Leased Property is free from flooding and leaks.
4.13.2 The Latest Balance Sheet and/or Schedule 4.13.2 reflects all
---------------
material tangible personal property owned by the Company or any Company
Subsidiary, except as sold or otherwise disposed of or acquired in the
ordinary course of business. Except as set forth on Schedule 4.13.2, the
---------------
Company or one of the Company Subsidiaries has good and marketable title
to, or a valid leasehold interest in, such personal property (including,
without limitation, machinery, equipment and computers), in each case free
and clear of any Liens, and each such asset is in good working order and
has been well maintained and does not contain, to the knowledge of the
Stockholders or the Company, any material defect. Except as set forth in
Schedule 4.13.2, no personal property used by the Company or any Company
---------------
Subsidiary in connection with the Business is held under any lease,
security agreement, conditional sales contract or other title retention or
security arrangement or is located other than on the Real Property.
4.14 Intellectual Property. The (i) patents, patent applications,
---------------------
inventions and discoveries that may be patentable (collectively, the "Patents"),
(ii) registered and unregistered trademarks, trade names, company names,
fictional business names and service marks (collectively, the "Marks"), (iii)
copyrights (the "Copyrights"), and (iv) know how, trade
16
<PAGE>
secrets, confidential information, customer lists, software, technical
information, data, process technology, plans and drawings (collectively, the
"Trade Secrets") owned, used or licensed by the Company or any Company
Subsidiary (collectively, the "Intellectual Property") are all those necessary
to enable the Company and the Company Subsidiaries to conduct and to continue to
conduct the Business as it is currently conducted. Schedule 4.14 contains a
-------------
complete and accurate list of all material Patents, Marks and Copyrights and a
description of all material Trade Secrets owned or used by the Company or any
Company Subsidiary, and a list of all material license agreements and
arrangements with respect to any of the Intellectual Property to which the
Company or any Company Subsidiary is a party, whether as licensee, licensor or
otherwise (the "Intellectual Property Licenses"). Except as set forth on
Schedule 4.14, (i) all of the Intellectual Property is owned, or used under a
- -------------
valid Intellectual Property License, by the Company or one of the Company
Subsidiaries, and, is free and clear of all Liens and other adverse claims; (ii)
to the knowledge of the Stockholders or the Company, neither the Company nor any
Company Subsidiary has infringed on or misappropriated, is now infringing on or
misappropriating, or has received any notice that it is infringing on,
misappropriating, or otherwise conflicting with the intellectual property rights
of any third parties; (iii) there is no claim pending or, to the knowledge of
the Stockholders or the Company, threatened against the Company or any Company
Subsidiary with respect to the alleged infringement or misappropriation by the
Company or Company Subsidiary, or a conflict with, any intellectual property
rights of others; (iv) to the knowledge of the Stockholders or the Company, the
operation of any aspect of the Business in the manner in which it has heretofore
been operated or is presently operated does not give rise to any such
infringement or misappropriation; and (v) to the knowledge of the Stockholders
or the Company, there is no infringement or misappropriation of the Intellectual
Property by a third party or claim, pending or threatened, against any third
party with respect to the alleged infringement or misappropriation of the
Intellectual Property by such third party.
4.15 Minute Books and Stock Records. Except as set forth on Schedule 4.15,
------------------------------ -------------
(i) the minute books and stock records of the Company and each Company
Subsidiary, accurate copies of which have been made available to Compass, are
complete, true and correct, and (ii) in all material respects the minute books
of the Company and each Company Subsidiary contain accurate and complete records
of (A) the minutes of each meeting and (B) all written consents of the board of
directors and stockholders of the Company or Company Subsidiary, as applicable.
4.16 Taxes.
-----
4.16.1 Each of the Company and the Company Subsidiaries has timely
and accurately prepared and filed or will timely and accurately prepare and
file all federal, state, local and foreign returns, declarations and
reports, information returns and statements (collectively, "Returns") for
Taxes (hereinafter defined) required to be filed by or with respect to the
Company or the Company Subsidiaries on or before the Closing Date, and has
paid or caused to be paid, or has made adequate provision or set up an
adequate accrual or reserve for the payment of, all Taxes required to be
paid or accrued in respect of the periods prior to the Closing. All such
Returns are or will be true and correct and are not or will not be subject
to adjustment by the applicable taxing authority. The Company has delivered
to Compass true and complete copies of all Returns referred
17
<PAGE>
to in the first sentence of this Section 4.16.1 (including any amendments
--------------
thereof) for the five (5) most recent taxable years. Neither the Company
nor any Company Subsidiary is delinquent in the payment of any Tax, and no
deficiencies for any Tax, assessment or governmental charge have been
threatened, claimed, proposed or assessed, in each case in writing received
by the Company or Company Subsidiary. No waiver or extension of time to
assess any Taxes has been given or requested. No written claim, or any
other claim, by any taxing authority in any jurisdiction where the Company
or any Company Subsidiary does not file Tax returns is pending pursuant to
which the Company or Company Subsidiary, as applicable, is subject to
taxation by that jurisdiction. The Company's and the Company Subsidiaries'
Returns were last audited by the Internal Revenue Service or comparable
state, local or foreign agencies on the dates set forth on Schedule 4.16.1.
---------------
A valid S election has been filed for ITG and has been in effect from the
time of its incorporation until the Closing.
4.16.2 For purposes of this Agreement, the term "Taxes" shall mean
all taxes, charges, withholdings, fees, levies, penalties, additions,
interest or other assessments, including, without limitation, income, gross
receipts, excise, property, sales, employment, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes,
charges, fees, levies or other assessments, imposed by the United States,
or any state, local, foreign or provincial government or subdivision or any
agency thereof, whether computed on a separate, consolidated, unitary,
combined or any other basis.
4.17 Employee Benefit Plans; ERISA.
-----------------------------
4.17.1 Except as described in Schedule 4.17.1, neither the Company
---------------
nor any Company Subsidiary has or could have any liability (including
contingent liability) whether direct or indirect (and regardless of whether
it would be derived from a current or former Plan Affiliate (hereinafter
defined)) with respect to any of the following (whether written, unwritten
or terminated): (i) any employee welfare benefit plan, as defined in
Section 3(1) of "ERISA", including, but not limited to, any medical plan,
life insurance plan, short-term or long-term disability plan or dental
plan; (ii) any "employee pension benefit plan," as defined in Section 3(2)
of ERISA, including, but not limited to, any excess benefit plan, top hat
plan or deferred compensation plan or arrangement, nonqualified retirement
plan or arrangement, qualified defined contribution or defined benefit
arrangement; or (iii) any other benefit plan, policy, program, arrangement
or agreement, including, but not limited to, any material fringe benefit
plan or program, personnel policy, bonus or incentive plan, stock option,
restricted stock, stock bonus, holiday pay, vacation pay, sick pay, bonus
program, service award, moving expense, reimbursement program, deferred
bonus plan, salary reduction agreement, change-of-control agreement,
employment agreement or consulting agreement.
4.17.2 A complete copy of each written Employee Plan as amended
together with audited financial statements for the three (3) most recent
plan years, if any; a copy of each trust agreement or other funding vehicle
with respect to each such plan; a copy of any and all determination
letters, rulings or notices issued by a Governmental Authority
18
<PAGE>
with respect to such plan; a copy of the Form 5500 Annual Report for the
three (3) most recent plan years; and a copy of each and any general
explanation or communication which was required to be distributed or
otherwise provided to participants in such plan and which describes all or
any relevant aspect of each plan, including summary plan descriptions
and/or summary of material modifications, have been made available to
Compass. A description of each unwritten Employee Plan, including a
description of eligibility, participation, benefits, funding arrangements
and assets or other relevant aspects of the obligation, is set forth in
Schedule 4.17.2.
---------------
4.17.3 Except as could not give rise to any liability (including
contingent liability), whether direct or indirect, to the Company or any
Company Subsidiary, each Employee Plan (i) has been and is operated and
administered in compliance with its terms; (ii) has been and is operated,
administered, maintained and funded in compliance with the applicable
requirements of the Code in such a manner as to qualify, where appropriate
and intended, for both federal and state purposes, for income tax
exclusions, tax-exempt status, and the allowance of deductions and credits
with respect to contributions thereto; (iii) where appropriate, has
received a favorable determination letter from the Internal Revenue Service
upon which the sponsor of the plan may currently rely; (iv) has been and
currently complies in form and in operation in all respects with all
applicable requirements of ERISA and the Code and any applicable reporting
and disclosure requirements of Federal and state laws, including but not
limited to the requirement of Part 6 of subtitle B of Title I of ERISA and
Section 4980B of the Code. With respect to each Employee Plan, no person
has: (i) entered into any nonexempt "prohibited transaction," as such terms
are defined in ERISA or the Code; (ii) breached a material fiduciary
obligation, or (iii) any liability for any failure to act or comply in
connection with the administration or investment of the assets of such
plan; and no Employee Plan has any liability and there is no liability in
connection with any Employee Plan, other than a liability (i) which is
expressly and adequately reflected in the Latest Balance Sheets, (ii) which
is discretionary or terminable at will by the Company or one of the Company
Subsidiaries without incurring any such liability, or (iii) which is
adequately funded under a funding arrangement separate from the assets of
the Company or the Company Subsidiaries (and only to the extent of such
funding). Any contribution made or accrued with respect to any Employee
Plan is fully deductible by the Company, Company Subsidiary or a Plan
Affiliate.
4.17.4 Except as described in Schedule 4.17.4, neither the Company
---------------
nor any Company Subsidiary or Plan Affiliate has ever sponsored,
maintained, contributed to or been required to contribute to, or has any
liability, whether direct or indirect, with respect to any Employee Plan
which is or has ever been (i) a "multiemployer plan" as defined in Section
4001 of ERISA, (ii) a "multiemployer plan" within the meaning of Section
3(37) of ERISA, (iii) a "multiple employer plan" within the meaning of Code
Section 413(c), (iv) a "multiple employer welfare arrangement" within the
meaning of Section 3(40) of ERISA, (v) subject to the funding requirements
of Section 412 of the Code or to Title IV of ERISA, or (vi) provides for
post-retirement medical, life insurance or other welfare-type benefits.
19
<PAGE>
4.17.5 As used in this Agreement, the following terms shall have the
following respective meanings:
(a) the term "Employee Plan" shall mean any plan, policy,
program, arrangement or agreement described in Section 4.17.1, whether
--------------
or not scheduled;
(b) the term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended; and
(c) with respect to any person or entity ("First Person"),
the term "Plan Affiliate" shall mean any other person or entity with
whom the First Person constitutes or has constituted all or part of a
controlled group, or which would be treated or have been treated with
the First Person as under common control or whose employees would be
or have been treated as employed by the First Person, under Section
414 of the Code or Section 4001(b) of ERISA and any regulations,
administrative rulings and case law interpreting the foregoing.
4.18 Labor Matters. Except as set forth in Schedule 4.18, there is no, and
------------- -------------
within the last three (3) years neither the Company nor any Company Subsidiary
has experienced any, strike, picketing, boycott, work stoppage or slowdown or
other labor dispute, union organizational activity or charge, or, to the
knowledge of the Stockholders or the Company, allegation or complaint, of unfair
labor practice, employment discrimination or other matters relating to the
employment of labor pending or, to the knowledge of the Stockholders or the
Company, threatened against the Company or any Company Subsidiary, nor, to the
knowledge of the Stockholders or the Company, is there any basis for any such
allegation, charge, or complaint. There is no request for union representation
pending and, to the knowledge of the Stockholders or the Company, no question
concerning union representation has been raised. There is no grievance pending
which might have a Company Material Adverse Effect nor any arbitration
proceeding arising out of a union agreement. To the knowledge of the
Stockholders or the Company, no key employee and no group of employees has any
plans to terminate employment with the Company or any Company Subsidiary. Each
of the Company or any Company Subsidiary has complied in all material respects
with all applicable Laws relating to the employment of labor, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining and the payment of social security and other taxes. Neither the
Company nor any Company Subsidiary is liable for any arrears of wages or any
taxes or penalties for failure to comply with any such Laws.
4.19 Environmental Matters. Other than as disclosed on Schedule 4.19, (i)
--------------------- -------------
each of the Company and the Company Subsidiaries is operating and has operated
its business in compliance in all material respects with all applicable
Environmental and Safety Requirements (hereinafter defined); (ii) there are no
Hazardous Materials at, on or under the Owned Property or, to the knowledge of
the Stockholders or the Company, the Leased Property (other than those present
in normal and customary office supplies and cleaning/maintenance materials) that
could cause or give rise to liabilities or response obligations under any
Environmental and Safety Requirements; (iii) each of the Company and the Company
Subsidiaries has disposed of all waste materials generated by the Company or
such Company Subsidiary at the Real Property or at any other facilities formerly
owned or operated by the Company or such Company Subsidiary in
20
<PAGE>
compliance in all material respects with applicable Environmental and Safety
Requirements; and (iv) to the knowledge of the Stockholders or the Company,
there are and have been no facts, events, occurrences or conditions at or
related to the Real Property or any other facility formerly owned or operated by
the Company or any Company Subsidiary that could cause or give rise to
liabilities or response obligations under any Environmental and Safety
Requirements. The term "Environmental and Safety Requirements" means any
federal, state and local laws, statutes, regulations or other requirements
relating to the protection, preservation or conservation of the environment or
worker health and safety, all as amended or reauthorized. The term "Hazardous
Materials" means "hazardous substances", as defined by the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq., "hazardous wastes", as defined by the Resource Conservation Recovery Act,
42 U.S.C. (S) 6901 et seq., asbestos in any form or condition, polychlorinated
biphenyls and any other material, substance or waste to which liability or
standards of conduct may be imposed under any Environmental and Safety
Requirement.
4.20 Insurance. The Company has made available to Compass correct and
---------
complete copies of all insurance policies (including "self-insurance" programs)
now maintained by the Company or any Company Subsidiary (the "Insurance
Policies"). To the knowledge of the Stockholders or the Company, the coverage
provided by the Insurance Policies is adequate to cover all Claims. Schedule
--------
4.20 is a correct and complete list and description of Insurance Policies and
- ----
all general liability policies and environmental impairment liability insurance
policies maintained during the past three (3) years by the Company or any
Company Subsidiary. The Insurance Policies are fully paid and in full force and
effect, neither the Company nor any Company Subsidiary is in default under any
of them and no material claim for coverage thereunder has been denied with
respect to any matter. Except as set forth on Schedule 4.20, neither the
-------------
Company nor any Company Subsidiary is required to provide any bonding or other
financial security arrangements in any material amount in connection with any
transactions with any of its clientele or suppliers.
4.21 Interest in Customers and Suppliers; Affiliate Transactions. Except
-----------------------------------------------------------
as described on Schedule 4.21 ("Affiliate Transactions"), no Stockholder,
-------------
Affiliate (hereinafter defined) of a Stockholder or Affiliate of the Company or
any Company Subsidiary (i) possesses, directly or indirectly, any financial
interest in, or is a director, officer, employee or affiliate of, any
corporation, firm, association or business organization that is a client,
supplier, customer, lessor, lessee or competitor of the Company or any Company
Subsidiary, (ii) owns, directly or indirectly, in whole or in part, or has any
interest in any material tangible or intangible property used in the conduct of
the Business, or (iii) is a party to an agreement or relationship, that involves
the receipt by such person of compensation or property from the Company or any
Company Subsidiary other than through a customary employment relationship.
Except as disclosed on Schedule 4.21, each Affiliate Transaction was effected on
-------------
terms substantially equivalent to those which would have been established in an
arm's-length transaction. As of the Closing Date, all amounts owed by a
Stockholder, any Affiliate of a Stockholder or any Affiliate of the Company or
any Company Subsidiary to the Company or any Company Subsidiary, and all amounts
owed by the Company or any Company Subsidiary to a Stockholder, any Affiliate of
a Stockholder or any Affiliate of the Company or any Company Subsidiary, shall
have been settled and satisfied.
21
<PAGE>
4.22 Business Relationships. Schedule 4.22 contains an accurate list of
---------------------- -------------
all clients of the Company and each Company Subsidiary representing,
individually, five percent (5%) or more of the Company's or Company
Subsidiary's, as applicable, revenues for the twelve (12) months ended December
31, 1996 and for the period commencing on January 1, 1997 and ending on the date
of the Latest Balance Sheet. Except as set forth on Schedule 4.22, since the
-------------
date of the Latest Balance Sheet, none of such clients has canceled or
substantially reduced its business with the Company or Company Subsidiary, as
applicable, nor, to the knowledge of the Stockholders or the Company, are any of
such clients threatening or expected to do so. To the knowledge of the
Stockholders or the Company, no client or supplier of the Company or any Company
Subsidiary will cease to do business with, or substantially reduce its business
with, the Company or Company Subsidiary, as applicable, after the consummation
of the transactions contemplated hereby.
4.23 Compensation. Schedule 4.23 is a complete list setting forth the
------------ -------------
names and current total compensation, including, without limitation, salary and
bonuses, of each individual employed by the Company and each Company Subsidiary
as of the date hereof, who earned in 1996 or who is expected to earn in 1997
total compensation in excess of $75,000. Except as set forth in Schedule 4.23,
-------------
no person listed thereon has received any bonus or increase in compensation and
there has been no "general increase" in the compensation or rate of compensation
payable to any employees of the Company or any Company Subsidiary since the date
of the Latest Balance Sheet, nor since that date has there been any oral or
written promise to employees of any bonus or increase in compensation. The term
"general increase" as used herein means any increase generally applicable to a
class or group of employees, but does not include increases granted to
individual employees for merit, length of service or change in position or
responsibility made on the basis of an established policy of the Company or any
Company Subsidiary. Schedule 4.23 includes the date and amount of the last
-------------
bonus or increase in compensation for each listed employee.
4.24 Bank Accounts. Schedule 4.24 is a true and complete list of each
------------- -------------
bank in which the Company or any Company Subsidiary has an account or safe
deposit box, the number of each such account or box, and the names of all
persons authorized to draw thereon or to have access thereto.
4.25 Deemed Earnings Estimate. The Deemed Earnings Estimate attached
------------------------
hereto as Schedule 2.4(a)-1 is a good faith estimate of the Company's earnings
-----------------
for the calendar year ending on December 31, 1997, calculated in accordance with
the procedure set forth on Schedule 2.4(a)-2.
-----------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass represents and warrants to the Company and the Stockholders as
follows:
22
<PAGE>
5.1 Organization and Qualification.
------------------------------
5.1.1 Compass is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted.
True, accurate and complete copies of each of Compass's Certificate of
Incorporation and By-laws, as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to the Company.
5.2 Capitalization.
--------------
5.2.1 The authorized capital stock of Compass consists of 20,000
shares of Compass Common Stock, of which 15,000 shares were issued and
outstanding as of the date of this Agreement. All of the issued and
outstanding shares of Compass Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights. Immediately prior to
the Closing Date, the authorized capital stock of Compass will consist of
50,000,000 shares of Compass Common Stock, of which the number of shares
set forth in the Registration Statement will be issued and outstanding, and
10,000,000 shares of Preferred Stock, par value $.01 per share, none of
which will be issued and outstanding. Other than (i) shares of Compass
Common Stock issued pursuant to a split of the shares outstanding as of the
date of this Agreement and (ii) shares of Compass Common Stock issued in
accordance with the Purchase and the Other Purchases, no shares of Compass
Common Stock will be issued prior to the consummation of the IPO.
5.2.2 Except as set forth on Schedule 5.2, and as required upon the
------------
consummation of the transactions described in this Agreement and the Other
Stock Purchase Agreements, there are no outstanding subscriptions, options,
calls, contracts, commitments, understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement obligating Compass to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of Compass or obligating Compass to
grant, extend or enter into any such agreement or commitment. There are no
voting trusts, proxies or other agreements or understandings to which
Compass is a party or is bound with respect to the voting of any shares of
capital stock of Compass. The shares of Compass Common Stock to be issued
to the Stockholders pursuant to this Agreement and to be issued to the
stockholders of the Other Founding Companies in the Other Purchases will as
of the Closing be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights and Liens (other than Liens, if
any, due to acts of the Stockholders).
5.3 No Subsidiaries. Compass does not own any capital stock of any
---------------
corporation or any interest in any partnership, joint venture or limited
liability company.
5.4 Authority; Non-Contravention; Approvals.
---------------------------------------
5.4.1 Compass has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement
23
<PAGE>
has been approved by the Board of Directors and stockholders of Compass,
and no other corporate proceedings on the part of Compass are necessary to
authorize the execution and delivery of this Agreement or the consummation
by Compass of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Compass, and, assuming the due
authorization, execution and delivery hereof by the Company and the
Stockholders, constitutes a valid and legally binding agreement of Compass,
enforceable against Compass in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles.
5.4.2 The execution and delivery of this Agreement by Compass does
not violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any Lien
upon any of the properties or assets of Compass under any of the terms,
conditions or provisions of (i) the Certificate of Incorporation or By-laws
of Compass, as applicable, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or Governmental Authority applicable to Compass or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Compass is now a
party or by which Compass or any of its properties or assets, may be bound
or affected. The consummation by Compass of the transactions contemplated
hereby will not result in any violation, conflict, breach, right of
termination or acceleration or creation of liens under any of the terms,
conditions or provisions of the items described in clauses (i) through
(iii) of the preceding sentence, subject, in the case of the terms,
conditions or provisions of the items described in clause (ii) above, to
obtaining (prior to the Closing) Compass Required Statutory Approvals
(hereinafter defined) and, in the case of the terms, conditions or
provisions of the items described in clause (iii) above, to obtaining
(prior to the Closing) consents required from commercial lenders, lessors
or other third parties, all of which required consents are listed on
Schedule 5.4.2.
--------------
5.4.3 Except for (i) the filing of the Registration Statement the SEC
pursuant to the 1933 Act, and (ii) the declaration of the effectiveness
thereof by the SEC and, if required, filings with various state blue sky
authorities, (the filings and approvals referred to in clauses (i) and (ii)
are collectively referred to as the "Compass Required Statutory Approvals")
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by Compass or the consummation by Compass of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a material adverse
effect on the business, operations, properties, assets, condition
(financial or other), results of operations or prospects of Compass (a
"Compass Material Adverse Effect").
24
<PAGE>
5.5 Absence of Undisclosed Liabilities. Except as disclosed in Schedule
---------------------------------- --------
5.5, Compass has not incurred any liabilities or obligations (whether known or
- ---
unknown, absolute, contingent, direct, indirect, perfected, inchoate,
unliquidated or otherwise) of any nature, except those incurred in connection
with the Purchase, this Agreement, the Other Stock Purchase Agreements and the
IPO. Except as contemplated by the foregoing, Compass has not engaged in any
business activities of any type or kind whatsoever, nor entered into any
agreements nor is either of them bound by any obligation or undertaking.
5.6 Litigation. There is no suit, action, proceeding, investigation,
----------
claim or order pending or, to the knowledge of Compass, threatened against
Compass or which may affect its assets or business, before any court,
Governmental Authority or any arbitrator that seek to restrain or enjoin the
consummation of the Purchase, the Other Purchases or the IPO or which is likely,
either alone or in the aggregate with all such claims, actions or proceedings,
to have a Compass Material Adverse Effect.
5.7 Compliance with Applicable Laws. Except as set forth on Schedule 5.7,
------------------------------- ------------
Compass has complied with all Laws applicable to it, and has not received any
notice of any alleged claim or threatened claim, violation of or liability or
potential responsibility under any such Law which has not heretofore been cured
and for which there is no remaining liability and, to the knowledge of Compass,
no event has occurred or circumstances exist that (with or without notice or
lapse of time) may constitute or result in a violation by Compass of any Law or
may give rise to any Liability on the part of the Compass under any Law.
Without limiting the generality of the foregoing, except as set forth on
Schedule 5.7, Compass has complied in all respects with all applicable federal,
- ------------
state and local Laws relating to antitrust and trade regulations.
5.8 Other Agreements. True and correct copies of the Other Stock Purchase
----------------
Agreements have been delivered to the Stockholders and the Company. Compass will
not agree to any material amendment of or waive any material right or waive any
material condition to its obligations under any of the Other Stock Purchase
Agreements without the written consent of a majority of the Founding Companies
whose agreements have not been and will not be amended in a similar manner. For
purposes of determining a majority of the Founding Companies under this Section
-------
5.8, IT and ITG, collectively, shall only be counted as one (1) Founding
- ---
Company.
ARTICLE VI
CERTAIN COVENANTS AND OTHER TERMS
6.1 Conduct of Business Pending the Purchase.
----------------------------------------
6.1.1 Except as otherwise contemplated by this Agreement, after the
date hereof and prior to the Closing or earlier termination of this
Agreement, unless Compass shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), the Company shall, and shall cause
each Company Subsidiary to:
(a) conduct its businesses in the ordinary and usual course and
consistent with past practices;
25
<PAGE>
(b) not (i) amend its charter or by-laws, (ii) split, combine or
reclassify its outstanding capital stock or (iii) declare, set aside
or pay any dividend or distribution payable in cash, stock, property
or otherwise;
(c) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
options, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(d) not (i) incur or become contingently liable with respect to
any indebtedness for borrowed money other than (A) borrowings in the
ordinary course of business or (B) borrowings to refinance existing
indebtedness on terms comparable with or more favorable than those at
the date hereof, (ii) redeem, purchase, acquire or offer to purchase
or acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (iii) sell, pledge,
dispose of or encumber any assets or businesses other than
dispositions in the ordinary course of business or (iv) enter into any
contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(e) use all reasonable efforts to preserve intact its business
organizations and goodwill, keep available the services of its present
officers and key employees, and preserve the goodwill and business
relationships with clients and others having business relationships
with it and not engage in any action, directly or indirectly, with the
intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer as reasonably required by Compass with one or more
representatives of Compass to report material operational matters and
the general status of ongoing operations;
(g) not, (i) increase in any manner the base compensation of, or
enter into any new bonus or incentive agreement or arrangement with,
any of its employees, except as consistent with past practices of the
Company or Company Subsidiary, as applicable, (ii) pay or agree to pay
any additional pension, retirement allowance or other employee benefit
under any Employee Plan to any such employee, whether past or present,
other than as required pursuant to the terms thereof, (iii) enter into
any new employment, severance, consulting, or other compensation
agreement with any of its existing employees, (iv) amend or enter into
a new Employee Plan (except as required by Law) or amend or enter into
a new collective bargaining agreement, or (v) engage in any new
Affiliate Transaction;
(h) comply in all material respects with all applicable Laws;
26
<PAGE>
(i) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it;
(j) not sell, lease, license, encumber or otherwise dispose of,
or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets other than in the ordinary course of business;
(k) maintain with its current insurance carriers (or with
comparable carriers) insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(l) maintain adequate net working capital to operate the Business
consistent with past practices.
6.1.2 Except as otherwise contemplated by this Agreement, the Other
Stock Purchase Agreements and with respect to the IPO, after the date
hereof and prior to the Closing or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), Compass shall:
(a) not (i) amend its charter or by-laws (provided, however, that
Compass shall prior to the Closing, file an amended and restated
charter in substantially the form attached hereto as Exhibit
-------
6.1.2(a)), (ii) split, combine or reclassify its outstanding capital
---------
stock or (iii) declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise;
(b) not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of (i) any additional shares of, or any
option, warrants or rights of any kind to acquire any shares of, its
capital stock of any class, (ii) any debt with voting rights or (iii)
any debt or equity securities convertible into or exchangeable for, or
any rights, warrants, calls, subscriptions, or options to acquire, any
such capital stock, debt with voting rights or convertible securities;
(c) not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or
rights to acquire any of its capital stock or any security convertible
into or exchangeable for its capital stock, (ii) sell, pledge, dispose
of or encumber any assets or businesses other than dispositions in the
ordinary course of business or (iii) enter into any contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(d) comply in all material respects with all applicable Laws; and
27
<PAGE>
(e) not make any material investment in, directly or indirectly,
acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any businesses or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets not in the ordinary course of business in each case which are
material to it.
6.1.3 Notwithstanding the fact that such action might otherwise be
permitted pursuant to this Article VI, none of the parties hereto shall
----------
take, or permit any of their respective subsidiaries to take, any action
that would or is reasonably likely to result in any of the respective
representations or warranties of the parties hereto set forth in this
Agreement being untrue or in any of the conditions to the consummation of
the transactions contemplated hereunder set forth in Article IX not being
----------
satisfied.
6.2 No - Shop.
---------
(a) After the date hereof and prior to the Closing or earlier
termination of this Agreement, the Company and the Stockholders shall (i)
not, and the Company shall use its best efforts to cause the Company
Subsidiaries and any officer, director or employee of, or any attorney,
accountant, investment banker, financial advisor or other agent retained by
the Company or any Company Subsidiary not to, initiate, solicit, negotiate,
encourage, or provide non-public or confidential information to facilitate,
any proposal or offer to acquire all or any substantial part of the
business and properties of the Company or any Company Subsidiary, or any
capital stock of the Company or any Company Subsidiary, whether by merger,
purchase of stock or assets or otherwise, whether for cash, securities or
any other consideration or combination thereof, or enter into any joint
venture or partnership or similar arrangement, and (ii) promptly advise
Compass of the terms of any communications the Stockholders or the Company
may receive or become aware of relating to any bid for part or all of the
Company or any Company Subsidiary.
(b) The Company and the Stockholders (i) acknowledge that a breach of
any of their covenants contained in this Section 6.2 will result in
-----------
irreparable harm to Compass which will not be compensable in money damages;
and (ii) agree that such covenant shall be specifically enforceable and
that specific performance and injunctive relief shall be a remedy properly
available to the other party for a breach of such covenant.
6.3 Schedules. Each party hereto agrees that with respect to the
---------
representations and warranties of such party contained in this Agreement, such
party shall have the continuing obligation until the Closing promptly to
supplement, amend or add and deliver to the other parties all of their
respective schedules to this Agreement (the "Schedules") to correct any matter
which would constitute a breach of any such party's representations and
warranties herein; provided, that no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Company Material Adverse Effect or
affects Schedules 4.2, 4.3 or 7.9 may be made unless Compass and a majority of
------------- --- ---
the other Founding Companies consent to such amendment,
28
<PAGE>
supplement or addition, and no amendment, supplement to or addition of a
Schedule that constitutes or reflects a Compass Material Adverse Effect or
affects Schedule 5.2 may be made unless a majority of the Founding Companies
------------
consent to such amendment, supplement or addition. For all purposes of this
Agreement, including, without limitation, for purposes of determining whether
the conditions set forth in Sections 9.2 and 9.3 have been fulfilled, the
------------ ---
Schedules hereto shall be deemed to be the Schedules as amended, supplemented or
added pursuant to this Section 6.3. In the event that (i) one of the other
-----------
Founding Companies seeks to amend, supplement or add a Schedule pursuant to
Section 6.3 of one of the Other Stock Purchase Agreements, (ii) such amendment,
- -----------
supplement or addition constitutes or reflects a material adverse effect on the
business, operations, property, assets, condition (financial or otherwise),
operating results, liabilities, employee, customer or supplier relations or
business prospects of such other Founding Company or any of its subsidiaries or
affects Schedules 4.2, 4.3 or 7.9 of such Other Stock Purchase Agreement, and
------------- --- ---
(iii) Compass and a majority of the Founding Companies (other than the Founding
Company providing such amended, supplemented or added Schedule) consent to such
amendment, supplement or addition, but the Company and the Stockholders do not,
or if any Other Stock Purchase Agreement is terminated by any party thereto
pursuant to Section 6.3 of such Other Stock Purchase Agreement or otherwise, the
-----------
Company and the Stockholders may terminate this Agreement at any time prior to
the Closing Date. In the event that (i) the Company seeks to amend, supplement
or add a Schedule pursuant to this Section 6.3, (ii) such amendment, supplement
-----------
or addition constitutes or reflects a Company Material Adverse Effect or affects
Schedules 4.2, 4.3 or 7.9, and (iii) Compass and a majority of the Founding
- ------------- --- ---
Companies do not consent to such amendment, supplement or addition, this
Agreement shall be deemed terminated as set forth in Section 10.1 hereof. No
------------
party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 6.3, unless this
-----------
Agreement is so terminated in connection with an amendment of, supplement to or
addition of a Schedule relating to a breach of a representation or warranty as
of the date of this Agreement. No amendment of, supplement to or addition of a
Schedule shall be made later than five (5) business days prior to the
anticipated effectiveness of the Registration Statement. For purposes of
determining a majority of the Founding Companies under this Section 6.3, IT and
-----------
ITG, collectively, shall only be counted as one (1) Founding Company.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Information.
---------------------
7.1.1 The Company shall and shall cause the Company Subsidiaries to
afford to Compass and its accountants, counsel, financial advisors and
other representatives, including, without limitation, Montgomery
Securities, Inc. and Lehman Brothers, as representatives (collectively, the
"Representatives") of the underwriters engaged in connection with the IPO
(the "Underwriters") and counsel for the Underwriters (collectively, the
"Compass Representatives"), and to the other Founding Companies and their
accountants, counsel, financial advisors and other representatives, and
Compass shall afford to the Stockholders and the Company and their
accountants, counsel, financial advisors and other representatives
(collectively, the "Company Representatives")
29
<PAGE>
full access during normal business hours throughout the period prior to the
Closing to all of their respective properties, books, contracts,
commitments and records (including, but not limited to, financial
statements and Tax Returns) and, during such period, shall furnish promptly
to one another all due diligence information requested by the other party.
Compass shall hold and shall use its reasonable best efforts to cause the
Compass Representatives to hold, and the Stockholders and the Company shall
hold and shall use their reasonable best efforts to cause the Company
Representatives to hold, in strict confidence all non-public information
furnished to it in connection with the transactions contemplated by this
Agreement or any of the Other Agreements, except that each of Compass, the
Stockholders and the Company may disclose any information that it is
required by law or judicial or administrative order to disclose, provided
it gives prior prompt written notice to the other party. In addition,
Compass will cause each of the other Founding Companies and their
stockholders to enter into a provision similar to this Section 7.1
-----------
requiring each such Founding Company to keep confidential and to use their
reasonable best efforts to cause their respective accountants, counsel,
financial advisors and other representatives to keep confidential any
information obtained by such Founding Company in connection with the
transactions contemplated by this Agreement or any of the Other Agreements.
7.1.2 In the event that this Agreement is terminated in accordance
with its terms, each party shall promptly return to the disclosing party
all written material provided pursuant to this Section 7.1 or pursuant to
-----------
the Other Agreements and shall not retain any copies, extracts or other
reproductions of such written material. In the event of such termination,
all documents, memoranda, notes and other writings prepared by and/or in
the possession of Compass or the Company based on the information obtained
pursuant to this Agreement or any of the Other Agreements shall be
destroyed (and Compass and the Company shall use their respective
reasonable best efforts to cause their advisors and representatives to
similarly destroy their documents, memoranda and notes), and such
destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
7.2 Registration Statement.
----------------------
7.2.1 Subject to the reasonable discretion of Compass as advised by
the Representatives, Compass shall file with the SEC as soon as is
reasonably practicable after the date hereof the Registration Statement and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable. Compass shall
also take any action required to be taken under applicable state blue sky
or securities laws in connection with the issuance of Compass Common Stock.
Compass, the Company and the Stockholders shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with making such filings. Without limiting the
generality of the foregoing, the Company and the Stockholders shall furnish
or cause to be furnished to Compass and the Representatives all of the
information concerning the Company, the Company Subsidiaries and the
Stockholders required for inclusion in, the Registration Statement and the
prospectus included therein (the "Prospectus"); including, without
limitation, audited consolidated balance sheets of the Company as of
September 30, 1997, and the related audited
30
<PAGE>
consolidated statements of income, stockholders' equity and cash flow for
the nine (9) months then ended (including all notes thereto), which shall
be furnished to Compass and the Underwriters no later than November 1,
1997. The Company and the Stockholders will cooperate with Compass and the
Representatives in the preparation of the Registration Statement and the
Prospectus. All financial statements provided by the Company for inclusion
in the Registration Statement and Prospectus shall (i) be accurate and
complete in all material respects, (ii) be consistent with the books and
records of the Company and the Company Subsidiaries (which, in turn, shall
be accurate and complete in all material respects), and (iii) fairly
present the financial condition, assets and liabilities of the Company and
Company Subsidiaries as of their respective dates and the results of
operations and cash flows for the respective period, in accordance with
generally accepted accounting principals applied on a consistent basis.
All information provided and to be provided by Compass and the Company,
respectively, for use in the Registration Statement (including, without
limitation, financial statements and schedules and financial and
statistical data) shall be true and correct in all material respects
without omission of any material fact which is required to make such
information not false or misleading as of the date thereof and in light of
the circumstances under which given or made. The Company and the
Stockholders agree promptly to advise Compass if at any time during the
period in which a prospectus relating to the offering is required to be
delivered under the 1933 Act, any information contained in the prospectus
concerning the Company, the Company Subsidiaries or the Stockholders
becomes incorrect or incomplete in any material respect, and to provide the
information needed to correct such inaccuracy or remedy such incompletion.
Insofar as the information relates solely to the Company, the Company
Subsidiaries or the Stockholders, each of the Company and the Stockholders
represents and warrants that the Registration Statement as of its effective
date, and the final prospectus, as of its date, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statement therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that this representation does not extend to any untrue statement
of a material fact if such untrue statement was made in or an omission
occurred in any preliminary prospectus and (i) the Company or Stockholders
provided, in writing, corrected information to Compass or its counsel for
inclusion in the final prospectus prior to distributing such prospectus,
and such information was not so included, or (ii) Compass did not provide
the Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission).
7.2.2 Compass agrees that it will provide to the Company and its
counsel copies of drafts of the Registration Statement containing any
material changes to the information relating to the Company, the Company
Subsidiaries or the Stockholders as they are prepared and will not (i) file
with the SEC, (ii) request the acceleration of the effectiveness of or
(iii) circulate any prospectus forming a part of, the Registration
Statement (or any amendment thereto) unless the Company and its counsel (x)
have had at least two days to review such revised information and (y) have
not objected to the substance of the information contained therein. Any
objections posed by the Company or its counsel shall be in writing and
state with specificity the material in question, the reason for the
objection, and the Company's proposed alternative. If the objection is
31
<PAGE>
founded upon a rule promulgated under the 1933 Act, the objection shall
cite the rule. Notwithstanding the foregoing, during the three (3)
business days immediately preceding the filing of the initial Registration
Statement and any amendment thereto, the Company and its counsel shall be
obligated to respond to the proposed changes electronically transmitted to
them within two (2) hours from the time of the completion of the
transmission of the proposed changes to the Company's counsel, provided
that Compass has provided to the Company or Company's counsel reasonably
adequate advance notice of the need for the Company and its counsel to
respond to such proposed changes.
7.3 Expenses and Fees. Compass shall pay the fees and expenses of the
-----------------
independent public accountants and legal counsel to Compass and all filing,
printing and other reasonable, documented fees and expenses associated with the
IPO. Neither the Company nor the Stockholders will be liable for any portion of
the above expenses in the event the IPO is not closed. Compass shall also pay
(i) the underwriting discounts and commissions payable in connection with the
registration, offering and sale of Compass Common Stock in the IPO, (ii) the
fees of Price Waterhouse incurred in connection with the audit of the Financial
Statements, and (iii) the fees and expenses incurred in delivering the tax
opinion set forth in Section 9.2(d). All other costs and expenses incurred in
--------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
7.4 Agreement to Cooperate. Subject to the terms and conditions herein
----------------------
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
7.5 Public Statements. Except as may be required by law, no party hereto
-----------------
shall issue any press release or any written public statement with respect to
this Agreement or the transactions contemplated hereby without the prior written
consent of Compass and the Company.
7.6 Preparation and Filing of Tax Returns.
-------------------------------------
7.6.1 Compass shall be responsible for causing the filing of the
final pre-Closing Returns for the Company and the Company Subsidiaries.
Each party hereto shall, and shall cause its Affiliates to, provide to each
of the other parties hereto such cooperation and information as any of them
reasonably may request in filing any return, amended return or claim for
refund, determining a liability for Taxes or a right to refund of Taxes or
in conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies at no cost to
the requesting party of all relevant portions of relevant returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by taxing authorities
and relevant records concerning the ownership and tax basis of property,
which such party may possess. Each party shall make its employees
reasonably available on a mutually convenient basis, at its cost, to
provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party
32
<PAGE>
required to file returns pursuant to this Agreement shall bear all costs of
filing such returns.
7.6.2 Each of the Company, Compass and the Stockholders shall comply
with the tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and shall treat the transaction as
subject to the provisions of Section 351 of the Code.
7.7 Registration Rights.
-------------------
7.7.1 At any time following the first anniversary of the Closing
Date, whenever Compass proposes to register any Compass Common Stock for
its own account or the account of others under the 1933 Act for a public
offering for cash other than a registration relating to employee benefit
plans, Compass will give each of the Stockholders prompt written notice of
its intent to do so. Upon the written request of any of the Stockholders
given within thirty (30) days after receipt of such notice, Compass will
use its best efforts to cause to be included in such registration all of
the Compass Common Stock which any such Stockholder requests, provided that
Compass shall have the right to reduce the number of shares included in
such registration to the extent that inclusion of such shares could, in the
opinion of tax counsel reasonably acceptable to the stockholders of the
Founding Companies, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free reorganization. In
addition, if Compass is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 7.7 that the number of shares to be sold by
persons other than Compass is greater than the number of such shares which
can be offered without adversely affecting the offering, Compass may reduce
pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by such person) to a number deemed
satisfactory by such managing underwriter, provided that such reduction
shall be made first by reducing the number of shares to be sold by persons
other than Compass and the stockholders of the Founding Companies, and
thereafter, if a further reduction is required, by reducing pro rata the
number of shares to be sold by the stockholders of the Founding Companies.
7.7.2 For one hundred eighty (180) days after the date which is
twenty (20) months after the Closing Date, the holders of an aggregate of
1,715,402 shares of Compass Common Stock issued to the stockholders of the
Founding Companies at Closing pursuant to this Agreement and the Other
Stock Purchase Agreements may request in writing that Compass file a
registration statement under the 1933 Act covering the registration of the
shares of Compass Common Stock so issued and then held by such stockholders
(a "Demand Registration"). Such request shall specify the intended method
of disposition of the shares. Within ten (10) days of the receipt of such
request, Compass shall give written notice of such request to all other
stockholders of the Founding Companies and shall use its best efforts to
effect as soon as practicable a registration under the 1933 Act that will
permit the disposition of the shares in accordance with the method
specified in the request. Compass shall be obligated to effect only one
Demand Registration pursuant to this Section 7.7.2. Compass may
-------------
33
<PAGE>
register in the same process other unregistered, previously issued Compass
Common Stock; provided, however, that the registration of such other
unregistered, previously issued Compass Common Stock shall not reduce the
number of shares of Compass Common Stock of stockholders of the Founding
Companies requested to be registered pursuant to this Section 7.7.2.
-------------
If, at the time of any request by the stockholders of the Founding
Companies for a Demand Registration, Compass has fixed plans to file within
sixty (60) days after such request for the sale of any of its securities in
a public offering under the 1933 Act, no registration of such stockholders'
Compass Common Stock shall be initiated under this Section 7.7.2 until
-------------
ninety (90) days after the effective date of such registration unless
Compass is no longer proceeding diligently to effect the right to
participate in such public offering pursuant to, and subject to, Section
-------
7.7.1 hereof.
-----
7.7.3 Except for underwriting commissions and discounts, all expenses
incurred in connection with the registrations under this Section 7.7
-----------
(including all registration, filing, qualification, legal, printer and
accounting fees) shall be paid by Compass. In connection with registrations
under this Section 7.7, Compass shall:
-----------
(a) use its best efforts to prepare and file with the SEC as soon
as reasonably practicable, a registration statement with respect to
the Compass Common Stock and use its best efforts to cause such
registration to promptly become and remain effective for a period of
at least one hundred twenty (120) days (or such shorter period during
which holders shall have sold all Compass Common Stock which they
requested to be registered);
(b) use its best efforts to register and qualify the Compass
Common Stock covered by such registration statement under applicable
state securities laws as the holders shall reasonably request for the
distribution for the Compass Common Stock; and
(c) take such other actions as are reasonable and necessary to
comply with the requirements of the 1933 Act and the regulations
thereunder.
7.7.4 In connection with each registration pursuant to this Section
-------
7.7 covering an underwritten registration public offering, Compass and each
---
participating holder agree to enter into a written agreement with the
managing underwriters in such form and containing such provisions as are
reasonable and customary in the securities business for such an arrangement
between such managing underwriters and companies of Compass' size and
investment stature, including indemnification.
7.7.5 Compass shall not be obligated to register shares of Compass
Common Stock held by any Stockholder at any time when (i) the Compass
Common Stock is listed on a recognized national or regional securities
exchange or traded in the NASDAQ National market, and (ii) the resale
provisions of Rule 144(k) promulgated under the 1933 Act are available to
such Stockholder.
34
<PAGE>
7.7.6 In consideration of the granting to the Stockholders of the
registration rights under this Section 7.7, and subject to the provisions
-----------
of Section 7.10 with respect to the transfer of shares of Compass Common
------------
Stock following the IPO, the Stockholders agree to enter into an agreement
with the Underwriters in connection with an underwritten registration to
the effect that they will not sell, transfer or otherwise dispose of,
including, without limitation, through put or short sale arrangements,
shares of Compass Common Stock in the ten (10) days prior to the
effectiveness of any registration of Compass Common Stock for sale to the
public and for up to ninety (90) days following the effectiveness of such
registration (except with respect to Compass Common Stock which is
registered pursuant to such registration), provided that all directors,
executive officers and holders of more than five percent (5%) of the
outstanding Compass stock agree to the same restrictions; and further
provided that, with respect to the first public offering of shares of the
Compass Common Stock within three (3) years following the IPO, the
Stockholders shall have been afforded a meaningful opportunity to include
shares in such registration after any reduction by reason of underwriters'
written advice.
7.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC that may permit the sale of Compass
Common Stock to the public without registration, Compass agrees to use its best
efforts to:
(a) make and keep public information regarding Compass available as
those terms are understood and defined in Rule 144 under the 1933 Act, at
all times from and after ninety (90) days following the effective date of
the first registration under the 1933 Act filed by Compass for an offering
of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of Compass under the 1933 Act and the Securities and
Exchange Act of 1934 (the "1934 Act") at any time after it has become
subject to such reporting requirements; and
(c) so long as a Stockholder owns any restricted Compass Common Stock,
furnish to each Stockholder forthwith upon written request a written
statement by Compass as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by Compass for an
offering of its securities to the general public), and of the 1933 Act and
the 1934 Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of
Compass, and such other reports and documents so filed as a Stockholder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Stockholder to sell any such shares without registration.
7.9 Release of Guarantees. Compass shall use all commercially reasonable
---------------------
efforts and good faith to have the Stockholders released from any and all
guarantees on any indebtedness that they personally guaranteed for the benefit
of the Company set forth on Schedule 7.9, with all such guarantees on
------------
indebtedness being assumed by Compass, if necessary to achieve such releases.
In the event that Compass cannot obtain such releases from the lenders of any
such
35
<PAGE>
guaranteed indebtedness, Compass will defend, indemnify and hold harmless the
Stockholders against any and all claims made by lenders under such guarantees
which arise as a result of Compass' failure to cause such guarantees to be
released, including, without limitation, if a Claim for payment is made with
respect to such guarantee subsequent to the Closing.
7.10 Lock-Up Agreement. Each Stockholder agrees, and agrees to enter into
-----------------
an agreement with the Representatives on or prior to the date on which
preliminary Prospectuses are delivered to the effect that, such Stockholder will
not offer, sell, contract to sell or otherwise dispose of any shares of Compass
Common Stock, or any Securities convertible into or exercisable or exchangeable
for Compass Common Stock, for a period of 180 days after the date of the final
Prospectus without the prior written consent of Montgomery Securities, Inc.
except for shares of Compass Common Stock disposed of as bona fide gifts,
subject to any remaining portion of the 180-day period applying to any shares so
disposed of.
7.11 Obligations of Stockholders. At or prior to the Closing, the
---------------------------
Stockholders shall cause the Company to perform all of the obligations and
agreements of the Company required to be performed by the Company at or prior to
the Closing.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by the Stockholders and the Company. The Stockholders
---------------------------------------------------
and the Company, jointly and severally, agree to indemnify, defend and save the
Compass Indemnified Parties (hereinafter defined), and each of them, harmless
from and against, and to promptly pay to a Compass Indemnified Party or
reimburse a Compass Indemnified Party for, any and all Losses (hereinafter
defined) sustained or incurred by any Compass Indemnified Party relating to,
resulting from, arising out of or otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by the Company or the Stockholders or any
action, demand or claim by any third party against or affecting any Company
Indemnified Party which, if successful, would give rise to a breach of any
such representation or warranty;
(b) any failure by the Company or the Stockholders to observe or
perform any of their covenants and agreements set forth herein;
(c) any liability under the 1933 Act, the 1934 Act or other federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to the IPO, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission to state
therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein
not misleading, and not provided to Compass or its counsel by the Company
or the Stockholders; provided, however, that
36
<PAGE>
such indemnity shall not inure to the benefit of any Compass Indemnified
Party to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and (i) the Company or Stockholders provided, in
writing, corrected information to Compass or its counsel for inclusion in
the final prospectus prior to distributing such prospectus, and such
information was not so included, or (ii) Compass did not provide the
Company and its counsel with the information required to be provided
pursuant to Section 7.2.2, and such information is the basis for the untrue
-------------
statement or omission (or alleged untrue statement or omission) giving rise
to the liability under this Section 8.1(c); and
--------------
(d) any adverse judgment or settlement of the action entitled Michele
C. McGowan vs. Impact Telemarketing, et al., or any other action arising
out of the same facts and circumstances, to the extent that the cost
thereof, together with related defense costs and the attorneys' fees,
exceed $25,000 in the aggregate.
As used herein, the "Compass Indemnified Parties" shall mean Compass, the
Founding Companies other than the Company (the "Other Founding Companies"), and
their respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other person dealing with any such plans;
provided, however, that the Other Founding Companies, and each of their
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall cease to be a "Compass Indemnified Party" for all purposes hereunder as of
the Closing, and thereafter such entities and persons shall have no further
rights and remedies under this Article VIII (except to the extent a person is an
------------
officer, director, employee or agent of Compass as a result of the consummation
of the transactions contemplated under the Other Stock Purchase Agreements).
Accordingly, for purposes of this Article VIII and subject to the limitations
------------
set forth in this Article VIII, the Other Founding Companies, and each of their
------------
respective officers, directors, employees, agents, employee plans and plan
fiduciaries, plan administrators or other persons dealing with any such plans,
shall be deemed to be third party beneficiaries of this Agreement.
As used herein, "Losses" shall mean the following: (i) in the event the
Agreement is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
any and all out-of-pocket costs and expenses (including reasonable fees and
expenses of the attorneys, accountants and other experts), or (ii) subsequent to
the Closing, any and all liabilities (whether contingent, fixed or unfixed,
liquidated or unliquidated, or otherwise), obligations, deficiencies, demands,
claims, suits, actions, or causes of action, assessments, losses, costs,
expenses, interests, fines, penalties, actual or punitive damages or costs or
expenses of any and all investigations, proceedings, judgments, orders,
environmental analyses, remediations, settlements and compromises (including
reasonable fees and expenses of the attorneys, accountants and other experts).
8.2 Indemnification by Compass. Compass agrees to indemnify, defend and
--------------------------
save each of the Stockholders and their respective Affiliates, and their
Affiliates' respective officers, directors, employees and agents (each, a
"Stockholder Indemnified Party"), and each of them, forever harmless from and
against, and to promptly pay to a Stockholder Indemnified Party or reimburse a
Stockholder Indemnified Party for, any and all Losses sustained or incurred by
any
37
<PAGE>
Stockholder Indemnified Party relating to, resulting from, arising out of or
otherwise by virtue of any of the following:
(a) any misrepresentation or breach of a representation or warranty
made herein or in any certificate, schedule, document, exhibit or other
instrument delivered hereunder by Compass or any action, demand or claim by
any third party against or affecting any Stockholder Indemnified Party
which, if successful, would give rise to a breach of any such
representation or warranty;
(b) any failure by Compass to observe or perform any of their
covenants and agreements set forth herein or in any document delivered
hereunder;
(c) any liability under the 1933 Act, the 1934 Act or other Federal or
state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to Compass or any of the Founding Companies other than the
Company contained in any preliminary prospectus relating to the IPO, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating
to Compass or any of the Founding Companies other than the Company required
to be stated therein or necessary to make the statements therein not
misleading.
(d) any liability under the 1933 Act, the 1934 Act, or other federal
or state law or regulation, at common law or otherwise, arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact relating to the Company or the Stockholders, contained in any
preliminary prospectus relating to IPO, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission to state therein a
material fact relating to the Company or the Stockholders required to be
stated therein or necessary to make the statements therein not misleading,
to the extent such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary
prospectus and (i) the Company or Stockholders provided, in writing,
corrected information to Compass or its counsel for inclusion in the final
prospectus prior to distributing such prospectus, and such information was
not so included, or (ii) Compass did not provide the Company and its
counsel with the information required to be provided pursuant to Section
-------
7.2.2, and such information is the basis for the untrue statement or
-----
omission (or alleged untrue statement or omission) giving rise to the
liability under this Section 8.2(d).
--------------
8.3 Indemnification Procedure for Third Party Claims.
------------------------------------------------
8.3.1 In the event any person or entity entitled to indemnification
under this Agreement (an "Indemnified Party") receives notice of the
assertion of any claim, issuance of any order or the commencement of any
action or proceeding by any person who is not a party to this Agreement or
an Affiliate of a party, including, without limitation, any domestic or
foreign court or Governmental Authority (a "Third Party Claim"), against
such Indemnified Party, against which a party to this Agreement is
38
<PAGE>
required to provide indemnification under this Agreement (an "Indemnifying
Party"), the Indemnified Party shall give written notice thereof together
with a statement of any available information regarding such claim to the
Indemnifying Party within thirty (30) days after learning of such claim (or
within such shorter time as may be necessary, in the Indemnified Party's
reasonable judgment, to give the Indemnifying Party a reasonable
opportunity to respond to and defend such claim); provided, however, that
the failure to give such notice shall not affect the right to indemnity
hereunder except to the extent the Indemnifying Party is prejudiced by such
delay. The Indemnifying Party shall have the right, upon written notice to
the Indemnified Party (the "Defense Notice") within thirty (30) days after
receipt from the Indemnified Party of notice of such claim, to conduct at
its expense the defense against such claim in its own name, or if necessary
in the name of the Indemnified Party; provided, however, that the
Indemnified Party shall have the right to approve the defense counsel
selected by the Indemnifying Party, which approval shall not be
unreasonably withheld, and in the event the Indemnifying Party and the
Indemnified Party cannot agree upon such counsel within ten (10) days after
the Defense Notice is provided, then the Indemnifying Party shall propose
an alternate defense counsel, who shall be subject again to the Indemnified
Party's approval.
8.3.2 In the event that the Indemnifying Party shall fail to timely
give the Defense Notice, it shall be deemed to have elected not to conduct
the defense of the subject claim, and in such event the Indemnified Party
shall have the right to conduct such defense in good faith and to
compromise and settle the claim only with the prior consent of the
Indemnifying Party (which consent shall not be unreasonably withheld or
delayed) and the Indemnifying Party will be liable for all costs, expenses,
settlement amounts or other Losses paid or incurred in connection
therewith.
8.3.3 In the event that the Indemnifying Party does elect to conduct
the defense of the subject claim, the Indemnified Party will cooperate with
and make available to the Indemnifying Party such assistance and materials
as may be reasonably requested by it, all at the expense of the
Indemnifying Party, and the Indemnified Party shall have the right at its
expense to participate in the defense assisted by counsel of its own
choosing, provided that the Indemnified Party shall have the right to
compromise and settle the claim only with the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. Without the prior written consent of the Indemnified Party, the
Indemnifying Party will not enter into any settlement of any Third Party
Claim or cease to defend against such claim, if pursuant to or as a result
of such settlement or cessation, (i) injunctive or other equitable relief
would be imposed against the Indemnified Party, or (ii) such settlement or
cessation would lead to liability or create any financial or other
obligation on the part of the Indemnified Party for which the Indemnified
Party is not entitled to indemnification hereunder, or (iii) such
settlement includes a written admission of guilt. The Indemnifying Party
shall not be entitled to control, and the Indemnified Party shall be
entitled to have sole control over, the defense or settlement of any claim
(A) to the extent that claim seeks an order, injunction or other equitable
relief against the Indemnified Party which, if successful, could materially
interfere with the business, operations, assets, condition (financial or
otherwise) or prospects of the Indemnified Party or (B) in a proceeding to
which the Indemnifying Party is also a party and the Indemnified Party
determines in good faith that joint
39
<PAGE>
representation would be inappropriate (and in each case the cost of such
defense shall constitute an amount for which the Indemnified Party is
entitled to indemnification hereunder); provided, however, that the
Indemnifying Party shall have the right to settle such claim only with the
prior written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. If an offer is made to settle a Third
Party Claim which all parties to such Third Party Claim (including the
Indemnifying Party) are prepared to settle and which offer the Indemnifying
Party is permitted to settle under this Section 8.3.2 only upon the prior
-------------
written consent of the Indemnified Party, the Indemnifying Party will give
prompt written notice to the Indemnified Party to that effect. If the
Indemnified Party fails to consent to such firm offer within (30) calendar
days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and, in such event, the maximum
liability of the Indemnifying Party as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the Indemnified Party through the end of such (30) day period.
8.3.4 Any judgment entered, order issued or settlement agreed upon in
the manner provided herein shall be binding upon the Indemnifying Party,
and shall conclusively be deemed to be an obligation with respect to which
the Indemnified Party is entitled to prompt indemnification hereunder.
8.4 Direct Claims. It is the intent of the parties hereto that all direct
-------------
claims by an Indemnified Party against a party hereto not arising out of Third
Party Claims shall be subject to and benefit from the terms of this Article
-------
VIII. Any claim under this Article VIII by an Indemnified Party for
- ---- ------------
indemnification other than indemnification against a Third Party Claim (a
"Direct Claim") will be asserted by giving the Indemnifying Party reasonably
prompt written notice thereof, together with a statement of any available
information regarding such claim, and the Indemnifying Party will have a period
of thirty (30) calendar days within which to satisfy such Direct Claim. If the
Indemnifying Party does not so respond within such thirty (30) calendar day
period, the Indemnifying Party will be deemed to have rejected such claim, in
which event the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party under this Article VIII.
------------
8.5 Failure to Give Timely Notice. A failure by an Indemnified Party to
-----------------------------
give timely, complete or accurate notice as provided in Section 8.3 or 8.4 will
----------- ---
not affect the rights or obligations of any party hereunder except and only to
the extent that, as a result of such failure, any party entitled to receive such
notice was deprived of its right to recover any payment under any applicable
insurance coverage, or deprived of its right to assert any claim because of
expiration of the applicable statute of limitations, or was otherwise directly
and materially damaged as a result of such failure to give timely notice.
8.6 Reduction of Loss. To the extent any Loss of an Indemnified Party is
-----------------
reduced by receipt of payment (i) under insurance policies (net of any
retroactive adjustment or other reimbursement to the insurer in respect of such
payment), or (ii) from third parties not affiliated with the Indemnified Party,
such payments (net of the expenses of the recovery thereof) shall be credited
against such Loss. The pendency of such payments shall not delay or reduce the
obligation of the Indemnifying Party to make payment to the Indemnified Party in
respect of
40
<PAGE>
such Loss, and the Indemnified Party shall have no obligation, hereunder or
otherwise, to pursue payment under or from any insurer or third party in respect
of such Loss. The Indemnified Party shall cooperate, at no expense to the
Indemnified Party, in any reasonable efforts of the Indemnifying Party in
pursuing such payments, including expressly acknowledging the Indemnifying
Party's right and standing to pursue such payments, and the Indemnified Party
will use its customary efforts short of litigating with an insurer or third
party to collect amounts due from such insurer or third party. If any insurance
or third party reimbursement is obtained subsequent to payment by an
Indemnifying Party in respect of a Loss, such reimbursement (to the extent of
amounts theretofore paid by the Indemnifying Party on account of such Loss)
shall be promptly paid over to the Indemnifying Party. The liability of the
Indemnifying Party with respect to any Direct Claim or Third Party Claim shall
be reduced by the income tax benefit actually realized by the Indemnified Party
as a result of any Losses upon which such Direct Claim or Third Party Claim is
based. An income tax benefit shall only be treated as realized if a Loss is
deductible in the income tax return for the taxable year of such Loss and if
such deduction produces an actual reduction of taxes paid for such year.
Calculation of the income tax benefit shall be made by a comparison of the
income taxes actually due with the tax returns and the income taxes that would
be due if the Loss was not deductible.
8.7 Limitation on Indemnities.
-------------------------
8.7.1 Liability Among the Stockholders and the Company. The Company
------------------------------------------------
shall have no liability pursuant to Section 8.1 after the Closing.
-----------
8.7.2 Threshold for the Stockholders and the Company. With respect
----------------------------------------------
to representations and warranties, the Stockholders and the Company shall
not have any liability pursuant to Section 8.1(a) hereof unless and until
--------------
and only to the extent that the aggregate amount of Losses accrued pursuant
to Section 8.1(a) exceeds the Threshold Amount (hereinafter defined);
--------------
provided, however, that this threshold shall not apply to Losses arising
out of breaches of representations or warranties contained in Sections 4.2,
------------
4.4.1, 4.16 and 4.25, and the Stockholders shall indemnify the Compass
----- ---- ----
Indemnified Parties for any Losses accruing thereunder in accordance with
this Article VIII without regard to such threshold. As used herein,
"Threshold Amount" shall mean the following amounts (as applicable): (i) in
the event the Agreement is terminated pursuant to Section 10.1 and the
------------
Closing does not occur, one percent (1%) of the "Minimum Value" as set
forth on Schedule 2.1 (the "Minimum Value"), or (ii) subsequent to the
------------
Closing, one percent (1%) of the Aggregate Purchase Consideration.
8.7.3 Threshold for Compass. With respect to representations and
---------------------
warranties, Compass shall not have any liability pursuant to Section 8.2(a)
--------------
hereof unless and until and only to the extent that the aggregate amount of
the Losses accrued pursuant to Section 8.2(a) exceeds the Threshold Amount;
--------------
provided, however that this threshold shall not apply to Losses arising out
of the breach of representations or warranties contained in Sections 5.2
------------
and 5.4.1 and Compass shall indemnify the Stockholder Indemnified Parties
-----
from any Losses occurring thereunder in accordance with this Article VIII
without regard to such threshold.
41
<PAGE>
8.7.4 Limitations on Claims Against the Stockholders and the
------------------------------------------------------
Company. The Stockholders' and the Company's liability for
-------
misrepresentations and breaches of representations and warranties under
Section 8.1(a) shall be limited to the Cap Amount (hereinafter defined) in
--------------
the aggregate; provided, however that this limitation shall not apply to
Losses arising out of breaches of representations or warranties contained
in Sections 4.2, 4.4.1, 4.16 and 4.25, and any Losses accruing thereunder
------------ ----- ---- ----
shall not count towards such limitation. As used herein, "Cap Amount" shall
mean the following amounts (as applicable): (i) in the event the Agreement
is terminated pursuant to Section 10.1 and the Closing does not occur,
------------
twenty percent (20%) of the Minimum Value, or (ii) subsequent to the
Closing, the Aggregate Purchase Consideration.
8.7.5 Limitation on Claims Against Compass. The liability of
------------------------------------
Compass under Section 8.2(a) shall be limited to the Cap Amount in the
--------------
aggregate; provided, however that this limitation shall not apply to Losses
arising out of breaches of representations or warranties in Sections 5.2
------------
and 5.4.1 and any Losses accruing thereunder shall not count towards such
-----
limitation.
8.7.6 Limitations Relating to Post-Closing Adjustment. In the event
-----------------------------------------------
a Deemed Earnings Shortfall occurs as a result of a breach of a
representation and warranty hereunder made by the Company or the
Stockholders, the Company and the Stockholders shall not have any liability
for the amount of Losses pursuant to Section 8.1(a) arising out of such
--------------
breach and the amount of such Losses shall not be included in the
calculation of the Threshold Amount under Section 8.7.2.
-------------
8.8 Survival of Representations, Warranties and Covenants of the
------------------------------------------------------------
Stockholders and the Company; Time Limits on Indemnification Obligations.
- ------------------------------------------------------------------------
Notwithstanding any right of Compass and the Other Founding Companies to fully
investigate the affairs of the Stockholders, the Company and the Business, and
notwithstanding any knowledge of facts determined or determinable by Compass and
the Other Founding Companies pursuant to such investigation or right of
investigation, Compass and the Other Founding Companies have the right to rely
fully upon the representations, warranties, covenants and agreements of the
Stockholders and the Company contained in this Agreement or in any certificate
delivered pursuant to any of the foregoing. All such representations,
warranties, covenants and agreements of the Stockholders and the Company shall
survive the execution and delivery of this Agreement and the Closing hereunder;
provided, however, (i) that the Stockholders' obligations pursuant to Sections
--------
8.1(a), (b) and (c), other than those relating to covenants and agreements to be
- -------------------
performed by the Stockholders after the Closing and other than with respect to
obligations for which a claim is made as provided in Section 8.3 or 8.4 hereof
----------- ---
within the applicable time period as specified below, shall expire one (1) year
after the Closing Date, except with respect to the Stockholders' obligations
arising under or relating to (A) Section 4.16 hereof, which shall survive until
------------
the expiration of the applicable periods (including any extensions) of the
respective statutes of limitation applicable to the payment of the Taxes and (B)
Section 4.2 hereof, which shall survive indefinitely; and (ii) solely to the
- -----------
extent that Compass actually incurs liability under the 1933 Act or the 1934
Act, the obligations under Section 8.1(c) above shall survive until the
--------------
expiration of any applicable statute of limitations with respect to such claims.
42
<PAGE>
8.9 Survival of Representations, Warranties and Covenants of Compass;
----------------------------------------------------------------
Time Limits on Indemnification Obligations. All representations, warranties,
- ------------------------------------------
covenants and agreements of Compass shall survive the execution and delivery of
this Agreement and the Closing hereunder; provided, however, (i) that Compass'
obligations under Sections 8.2 (a) and (b), other than those relating to
------------------------
covenants and agreements to be performed by Compass after the Closing and other
than with respect to the obligations for which a claim is made as provided in
Section 8.3 or 8.4 hereof within the applicable time period as specified below,
- ------------------
shall expire one (1) year after Closing Date, except with respect to obligations
arising under or relating to Section 5.2 hereof which shall survive
-----------
indefinitely; and (ii) solely to the extent that the Stockholders actually incur
liability under the 1933 Act or the 1934 Act, the obligations under Section
-------
8.2(c) above shall survive until the expiration of any applicable statute of
- ------
limitations with respect to such claims.
8.10 Defense of Claims; Control of Proceedings. Notwithstanding anything
-----------------------------------------
in this Agreement to the contrary, to the extent any Loss subject to
indemnification hereunder would exceed the Indemnifying Party's indemnity
obligations under this Agreement, the Indemnified Party shall be entitled to
control the defense of such claim or management of such proceeding with respect
to such excess Loss.
8.11 Indemnification Exclusive Remedy. Except for remedies based upon
--------------------------------
fraud and except for equitable remedies, the remedies provided in this Article
-------
VIII constitute the sole and exclusive remedies for recovery of Losses against a
- ----
party to this Agreement.
8.12 Manner of Satisfying Indemnification Obligations. Subsequent to the
------------------------------------------------
Closing, to the extent the aggregate amount of Losses accrued pursuant to
Section 8.1 exceeds the Aggregate Cash Consideration (such excess, the "Excess
- -----------
Indemnity"), the Stockholders may satisfy their respective obligations for the
Excess Indemnity (i) by tendering to the Compass Indemnified Parties shares of
Compass Common Stock, such shares to be valued at the Market Price (hereinafter
defined), or (ii) notwithstanding any restrictions set forth herein with respect
to the transfer and sale of the Stockholders' shares of Compass Common Stock
(other than the restrictions under the 1933 Act or other applicable state laws
and rules), with the proceeds of the sale of such shares to third parties;
provided, however, that if such transfer or sale to a third party occurs prior
to the termination of the restrictions with respect thereto set forth herein,
the transfer or sale shall not to be for a consideration in excess of the amount
of the Excess Indemnity. As used herein, "Market Price" shall mean the average
closing (last) price for a share of Compass Common Stock (as reported on the
exchange or market on which such shares are then listed or traded) for the most
recent twenty (20) days that such shares have traded ending on the date two (2)
days prior to the date tendered pursuant to clause (i) of the preceding
sentence, or, if such shares are not then listed or traded on an exchange or
other market, the fair market value of such shares as determined by an appraiser
reasonably agreed to by the parties.
ARTICLE IX
CLOSING CONDITIONS
9.1 Conditions to Each Party's Obligation to Effect the Purchase. The
------------------------------------------------------------
respective obligations of each party to effect the Purchase shall be subject to
the fulfillment at or prior to the Closing of the following conditions:
43
<PAGE>
(a) the Underwriting Agreement related to the IPO shall have been
executed and the closing of the sale of Compass Common Stock to the
Underwriters pursuant thereto shall have occurred simultaneously with the
Closing hereunder;
(b) the closings of the transactions contemplated under the Other
Stock Purchase Agreements shall have occurred simultaneously with the
Closing hereunder;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the 1933 Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities;
(d) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the IPO or
the Purchase or any of the Other Purchases shall have been issued and
remain in effect;
(e) the price to the public in the IPO shall be sufficient for the
total consideration received by the Stockholders (valuing the shares of
Compass Common Stock received by the Stockholders at such IPO price) to be
at least the Minimum Value, plus the additional amounts promised by Compass
under the Other Stock Purchase Agreements;
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Purchase or any of the Other Purchases or make the
consummation of the Purchase or any of the Other Purchases illegal; and
(g) all material governmental and third party waivers, consents,
stockholders and approvals required for the consummation of the Purchase or
any of the Other Purchases and the transactions contemplated hereby and by
the Other Stock Purchase Agreements shall have been obtained and be in
effect.
9.2 Conditions to Obligation of the Company to Effect the Purchase.
--------------------------------------------------------------
Unless waived by the Company, the obligation of the Company to effect the
Purchase shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Compass and each of the Other Founding Companies shall have
performed in all material respects their agreements contained in this
Agreement and each Other Stock Purchase Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of
Compass contained in this Agreement and each Other Stock Purchase Agreement
shall be true and correct in all material respects on and as of the date
made and on and as of the Closing Date as if made at and as of such date,
and the Company shall have received a certificate of the Chief Executive
Officer or President of Compass to that effect;
44
<PAGE>
(b) no governmental authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to the Stockholders of the Purchase;
(c) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, containing the
substantive opinions set forth on Exhibit 9.2(c), the final form of such
--------------
opinion to be in form and substance acceptable to counsel for the Company
and the Stockholders;
(d) the Company and the Stockholders shall have received an opinion
from Katten Muchin & Zavis, dated as of the Closing Date, customary for
transactions of this nature, that the receipt by the Stockholders of
Compass Common Stock to be issued to the Stockholders pursuant to this
Agreement will not be taxable pursuant to Section 351 of the Code;
(e) Edward A. DuCoin ("E.A. DuCoin") and David DuCoin ("D. DuCoin")
the Company's Co-Presidents, shall have been afforded the opportunity to
enter into an employment agreement in the form attached hereto as Exhibit
-------
9.2(e);
------
(f) Compass shall have delivered to the Company and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the Secretary of State of the State of
Delaware, showing that Compass is in good standing;
(g) each of the Stockholders, the stockholders of the other Founding
Companies who are to receive shares of Compass Common Stock pursuant to the
Other Stock Purchase Agreements, and the other stockholders of Compass
other than those acquiring stock in the IPO shall have entered into a
stockholders agreement (the "Stockholders Agreement") in the form attached
hereto as Exhibit 9.2(g); and
--------------
(h) all conditions to the Other Purchases, on substantially the same
terms as provided herein, shall have been satisfied or waived by the
applicable party thereto.
9.3 Conditions to Obligations of Compass to Effect the Purchase. Unless
-----------------------------------------------------------
waived by Compass, the obligations of Compass to effect the Purchase shall be
subject to the fulfillment at or prior to the Closing of the additional
following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Compass and the Underwriters shall have
received a Certificate of the Chief Executive Officer or President of the
Company to that effect;
(b) the Stockholders shall have performed in all material respects
their agreements contained in this Agreement required to be performed on or
prior to the
45
<PAGE>
Closing Date and the representations and warranties of the Stockholders
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and on and as of the Closing Date as if
made at and as of such date, and Compass and the Underwriters shall have
received a Certificate of each Stockholder to that effect;
(c) Compass and the Underwriters shall have received an opinion from
Robert Amron, Esq., counsel to the Company and the Stockholders, dated the
Closing Date, in the form attached hereto as Exhibit 9.3(c), the final form
--------------
of such opinion to be in form and substance acceptable to counsel for
Company and the Underwriters;
(d) E.A. DuCoin and D. DuCoin, shall have executed and delivered
employment agreements referred to in Sections 9.2(e) and 9.2(f);
--------------- ------
(e) Compass and the Underwriters shall have received "Comfort"
letters in customary form from the Company's independent public
accountants, dated the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Compass), with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues and the total
and per share amounts of net income;
(f) the Company shall have delivered to Compass and the Underwriters
a certificate, dated as of a date no later than ten (10) days prior to the
Closing Date, duly issued by the appropriate governmental authority in the
Company's and Company Subsidiary's state of incorporation and in each state
in which the Company or any Company Subsidiary is authorized to do
business, showing the Company or Company Subsidiary (as applicable) is in
good standing;
(g) no Governmental Authority shall have promulgated any statute,
rule or regulation which, when taken together with all such promulgations,
would materially impair the value to Compass of the Purchase;
(h) the Stockholders shall have executed the Stockholders Agreement;
(i) the Stockholders shall have delivered to Compass an instrument
in the form attached hereto as Exhibit 9.3(i), dated the Closing Date,
--------------
releasing the Company (including its subsidiaries) from any and all claims
of the Stockholders against the Company (including its subsidiaries) and
obligations of the Company (including its subsidiaries) to the
Stockholders;
(j) all amounts owed by a Stockholder, any Affiliate of a
Stockholder or any Affiliate of the Company or any Company Subsidiary to
the Company or any Company Subsidiary, and all amounts owed by the Company
or any Company Subsidiary to a Stockholder, any Affiliate of a Stockholder
or any Affiliate of the Company or any Company Subsidiary, shall have been
settled and satisfied; and
46
<PAGE>
(k) the directors of the Company immediately prior to the Closing
shall have delivered to Compass their resignations as directors of the
Company.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing Date:
(a) pursuant to Section 6.3;
-----------
(b) by the Company or the Stockholders,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of the Company or the
Stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of the
Company or any of the Stockholders or any of their affiliates or
associates;
(iii) if Compass (A) fails to perform in any material respect
any of its material covenants in this Agreement or the Other Stock
Purchase Agreements (with respect to the Other Stock Purchase
Agreements, other than such defaults which have been waived) and (B)
does not cure such default in all material respects within thirty
(30) days after written notice of such default is given to Compass;
or
(c) by Compass,
(i) if the Purchase is not completed by March 31, 1998, other
than on account of delay or default on the part of Compass or any of
its stockholders or any of their affiliates or associates;
(ii) if the Purchase is enjoined by a final, unappealable
court order not entered at the request or with the support of Compass
or any of its 5% stockholders or any of their affiliates or
associates;
(iii) if the Company (A) fails to perform in any material
respect any of its material covenants in this Agreement and (B) does
not cure such default in all material respects within thirty (30)
days after written notice of such default is given to the Company by
Compass;
(iv) if the Stockholders (A) fail to perform in any material
respect any of their material covenants in this Agreement and (B) do
not cure such default in
47
<PAGE>
all material respects within thirty (30) days after written notice of
such default is given to the Stockholders by Compass; or
(d) by mutual written consent of the parties hereto.
10.2 Effect of Termination. In the event of termination of this Agreement
---------------------
by either Compass or the Company, as provided in Section 10.1, this Agreement
------------
shall forthwith become void and there shall be no further obligation on the part
of the Company, the Stockholders, Compass or their respective officers or
directors (except the obligations set forth in this Section 10.2 and in Sections
------------ --------
7.1, 7.3 and 7.5 and Article VIII, all of which shall survive the termination).
- --- --- --- ------------
10.3 Amendment. This Agreement may not be amended except by written
consent of the parties hereto.
10.4 Waiver. At any time prior to the Closing, the parties hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant thereto and
(c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
1933 ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The Stockholders acknowledge that the shares of Compass Common Stock to be
delivered to the Stockholders pursuant to this Agreement have not been and will
not be registered under the 1933 Act and therefore may not be resold without
compliance with the 1933 Act. The Compass Common Stock to be acquired by each of
the Stockholders pursuant to this Agreement is being acquired solely for such
Stockholder's own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of it in connection
with a distribution.
11.1 Economic Risk; Sophistication. Except as set forth on Schedule 11.1,
----------------------------- -------------
each of the Stockholders represents and warrants to Compass that he or she is an
"accredited investor" as defined in Regulation D promulgated under the 1933 Act;
that he or she is able to bear the economic risk of an investment in the Compass
Common Stock acquired pursuant to this Agreement and can afford to sustain a
total loss of such investment and has such knowledge and experience in financial
and business matters that he or she is capable of evaluating the merits and
risks of the proposed investment in the Compass Common Stock; and that he or she
has had an adequate opportunity to ask questions and receive answers from the
officers of Compass concerning all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of Compass, and the plans for of
operations of the business of Compass.
48
<PAGE>
11.2 Transfer Restrictions. Except for transfers to immediate family
---------------------
members who agree to be bound by the restrictions set forth in this Section 11.2
------------
(or trusts for the benefit of the Stockholders or family members, the trustees
of which so agree), and subject to the provisions of Section 7.10, for a period
------------
of one (1) year from the Closing Date, the Stockholders shall not (a) sell,
assign, exchange, transfer, encumber, pledge, distribute or otherwise dispose of
(i) any shares of Compass Common Stock received by the Stockholders pursuant to
this Agreement, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Compass Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any purpose; or
(b) engage in any transaction, whether or not with respect to any shares of
Compass Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Compass Common Stock acquired
pursuant to Article II hereof (including, without limitation, engaging in put,
----------
call, short-sale, straddle or similar market transactions). The certificates
evidencing the Compass Common Stock delivered to the Stockholders pursuant to
Article II of this Agreement shall bear a legend substantially in the form set
- ----------
forth below and containing such other information as Compass may deem necessary
or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED OR
OTHERWISE DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER,
ENCUMBRANCE, PLEDGE, DISTRIBUTION OR OTHER DISPOSITION, PRIOR TO
[INSERT FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST
OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
11.3 Compliance with Law. The Stockholders covenant, warrant and
-------------------
represent that none of the shares of Compass Common Stock issued to such
Stockholders will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC. All
certificates evidencing Company Common Stock delivered to the Stockholders
pursuant to Article II of this Agreement shall bear the following legend in
----------
addition to the legend required under Section 11.2 of this Agreement:
------------
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND THE
APPLICABLE SECURITIES LAW.
49
<PAGE>
ARTICLE XII
NONCOMPETITION
12.1 Prohibited Activities. The Stockholders will not, for a period of
---------------------
five (5) years following the Closing Date, other than for the benefit of
Compass, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation or
business of whatever nature:
(a) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business in competition with the Business, as
conducted as of the Closing Date, within any business market where Compass,
the Company or any Founding Company conducted or conducts a similar
business at any time (the "Territory");
(b) call upon any person who is, at that time, within the Territory,
an employee of Compass (including the subsidiaries thereof) in a managerial
capacity for the purpose or with the intent of enticing such employee away
from or out of the employ of Compass (including the subsidiaries thereof),
or hire such person, provided that any Stockholder shall be permitted to
call upon and hire any member of his or her immediate family;
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than two
percent (2%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter so long as the Stockholder
does not consult with or is not employed by such competitor.
12.2 Damages. Because of the difficulty of measuring economic losses to
-------
Compass as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to Compass for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by Compass in the event of breach by such Stockholders,
by injunctions and restraining orders.
12.3 Reasonable Restraint. It is agreed by the parties hereto that the
--------------------
foregoing covenants in this Article XII impose a reasonable restraint on the
Stockholders in light of the activities and business of Compass (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of Compass; but it is also the intent of Compass and the
Stockholders that such covenants be construed and enforced in accordance with
the changing activities and business of Compass (including the subsidiaries
thereof) throughout the term of this covenant.
It is further agreed by the parties hereto that, in the event that any
Stockholder who has entered into an employment agreement with Compass and/or any
subsidiary thereof as set forth herein shall thereafter cease to be employed
thereunder, and such Stockholder shall enter into a business or pursue other
activities not in competition with Compass and/or any subsidiary thereof, or
similar activities or business in locations the operations of which, under such
50
<PAGE>
circumstances, does not violate this Article XII and in any event such new
-----------
business, activities or location are not in violation of this Article XII or of
-----------
such Stockholder's obligations under this Article XII, such Stockholder shall
-----------
not be chargeable with a violation of this Article XII if Compass and/or any
-----------
subsidiary thereof shall thereafter enter the same, similar or a competitive (i)
business, (ii) course of activities or (iii) location, as applicable.
12.4 Severability; Reformation. The covenants in this Article XII are
------------------------- -----------
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
12.5 Independent Covenant. All of the covenants in this Article XII shall
-------------------- -----------
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against Compass (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Compass of such covenants. It is specifically agreed that the period of five (5)
years stated at the beginning of this Article XII, during which the agreements
-----------
and covenants of each Stockholder made in this Article XII shall be effective,
-----------
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Article XII. The covenants
-----------
contained in Article XII shall not be affected by any breach of any other
-----------
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
12.6 Materiality. The Company and the Stockholders hereby agree that this
-----------
covenant is a material and substantial part of this transaction.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
13.1 Stockholders' Covenant. The Stockholders recognize and acknowledge
----------------------
that they had in the past, currently have, and in the future may possibly have,
access to certain confidential information of the Company, the other Founding
Companies, the Company Subsidiaries and/or Compass, such as strategic plans,
systems, operational policies, marketing plans, and pricing and cost policies
that are valuable, special and unique assets of the Company's, the other
Founding Companies', the Company Subsidiaries' and/or Compass' respective
businesses. The Stockholders agree that they will not disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose or reason whatsoever, except
(a) to authorized representatives of Compass,
(b) following the Closing, such information may be disclosed by the
Stockholders as is required in the course of performing their duties to
Compass,
51
<PAGE>
(c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this
Section 13.1,
------------
(d) such information becomes known to the public generally through
no fault of the Stockholders,
(e) disclosure is required by law or the order of any governmental
authority under color of law, provided that prior to disclosing any
information pursuant to this clause (ii), the Stockholder shall, if
possible, give prior written notice thereof to Compass and provide Compass
with the opportunity to contest such disclosure,
(f) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party, or
(g) pursuant to this Agreement or the Other Stock Purchase
Agreements.
In the event of a breach or threatened breach by any of the Stockholders of the
provisions of this Section 13.1, Compass shall be entitled to an injunction
------------
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting
Compass from pursuing any other available remedy for such breach or threatened
breach, including the recovery of damages.
13.2 Damages. Because of the difficulty of measuring economic losses as a
-------
result of the breach of the foregoing covenants in Section 13.1, and because of
------------
the immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, the parties hereto agree that, in the event of a
breach by any of them of the foregoing covenants, the covenant may be enforced
against the other parties by injunction and restraining orders.
13.3 Survival. The obligations of the parties under this Article XIII
-------- ------------
shall survive the termination of this Agreement.
ARTICLE XIV
GENERAL PROVISIONS
14.1 Brokers. The Company and the Stockholders, jointly and severally,
-------
represent and warrant that no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee (except for the fee described in Schedule
--------
14.1-1) or commission in connection with the Purchase or the transactions
- -------
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or the Stockholders. Compass represents and warrants that no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
(except for the fee described in Schedule 14.1-2) or commission in connection
----------------
with the Purchase or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Compass or its stockholders (other than
underwriting discounts and commission to be paid in connection with the IPO).
52
<PAGE>
14.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, sent by nationally
recognized overnight delivery service, mailed by registered or certified mail
(return receipt requested) or sent via facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
14.2.1 If to Compass, to:
c/o BGL Capital Partners, L.L.C.
225 West Washington Street
Suite 1600
Chicago, Illinois 60606
Attn: Scott H. Lang
Facsimile No.: (312) 368-1988
with a copy to:
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661-3693
Attn: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
14.2.2 If to the Company, to:
c/o Impact Telemarketing Group, Inc.
15 East Centre Street
Woodbury, New Jersey 08096
Attn: David DuCoin and
Edward DuCoin
Facsimile No.: (609) 853-6859
with a copy to:
Robert Amron
1236 Brace Road, Suite K
P.O. Box 2626
Cherry Hill, New Jersey 08034-0219
Attn:
Facsimile No.: (609) 354-7690
14.2.3 If to the Stockholders, addressed to them at their addresses set
forth on Schedule 14.2.3, with copies to such counsel as is set forthwith
---------------
respect to each Stockholder on such Schedule 14.2.3.
---------------
14.3 Interpretation. The headings contained in this Agreement are for
--------------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
53
<PAGE>
In this Agreement, unless a contrary intention appears, (i) the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other
subdivision and (ii) reference to any Article or Section means such Article or
Section hereof. No provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal representative
drafted such provision.
14.4 Certain Definitions. As used in this Agreement, (i) the term
-------------------
"person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, entity or government
(whether Federal, state, county, city or otherwise, including, without
limitation, any instrumentality, division, agency or department thereof), (ii)
the term "Affiliate" shall have the meaning given for that term in Rule 405
under the 1933 Act, and shall include each past and present Affiliate of a
person or entity and the members of such Affiliate's immediate family or their
spouses or children and any trust the beneficiaries of which are such
individuals or relatives, and (iii) the term "to the knowledge of the
Stockholders or the Company" or any similar term shall mean actual knowledge of
a fact or matter possessed by any of the Stockholders, by any of the officers or
directors of the Company.
14.5 Entire Agreement; Assignment. This Agreement (including the
----------------------------
schedules and exhibits attached hereto and the documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
other prior agreements and understandings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof and (b) shall
not be assigned by operation of law or otherwise, without the prior written
consent of the parties hereto.
14.6 Applicable Law. This Agreement shall be governed in all respects,
--------------
including validity, interpretation and effect, by the laws of the State of
Delaware applicable to contracts executed and to be performed wholly within such
state, without giving effect to its choice of law rules.
14.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
14.8 Parties in Interest. This Agreement shall be binding upon and inure
-------------------
solely to the benefit of each party hereto, and except as expressly set forth in
herein, nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
14.9 Severability. Without limiting in any way the applicability of
------------
Section 12.4 to the provisions of Article XII, if any other provision of this
- ------------ -----------
Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect. Any provision of this Agreement held invalid or enforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
54
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
COMPASS INTERNATIONAL SERVICES CORPORATION
By: /s/ Michael J. Cunningham
---------------------------------------
Its: Chairman and CEO
---------------------------------------
IMPACT TELEMARKETING GROUP, INC.
By: /s/ David T. DuCoin
---------------------------------------
Name: David T. DuCoin
---------------------------------------
Its: President
---------------------------------------
IMPACT TELEMARKETING, INC.
By: /s/ Edward A. DuCoin
---------------------------------------
Name: Edward A. DuCoin
---------------------------------------
Its: President
---------------------------------------
STOCKHOLDERS
/s/ David T. DuCoin
---------------------------------------------
David T. DuCoin
/s/ Edward A. DuCoin
---------------------------------------------
Edward A. DuCoin
55
<PAGE>
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COMPASS INTERNATIONAL SERVICES CORPORATION
(Original Certificate of Incorporation
filed April 29, 1997)
Compass International Services Corporation (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Law"), does hereby certify:
A. That the Board of Directors of the Corporation adopted a resolution
setting forth the Amended and Restated Certificate of Incorporation set forth
below, declaring it advisable and submitting it to the stockholders entitled to
vote in respect thereof for their consideration of such Amended and Restated
Certificate of Incorporation.
B. That by written consent executed in accordance with Section 228 of the
Law, the holders of a majority of the outstanding stock has voted in favor of
the adoption of the Amended and Restated Certificate of Incorporation set forth
below.
C. That the Amended and Restated Certificate of Incorporation set forth
below has been duly adopted in accordance with Sections 242 and 245 of the Law:
ARTICLE I
The name of the corporation is Compass International Services Corporation.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 30 Old Rudnick Lane, Suite 100, Dover, Delaware 19901, in the County of Kent.
The name of its registered agent at such address is Lexis Document Services.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the Law.
<PAGE>
ARTICLE IV
A. The Corporation shall have authority to issue the following classes of
stock, in the number of shares and at the par value as indicated opposite the
name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
--------------- ---------- -------------
<S> <C> <C>
Common Stock 50,000,000 $.01
Preferred Stock 10,000,000 $.01
</TABLE>
As of the date of the filing of this Amended and Restated Certificate of
Incorporation, each issued share of Common Stock of the Corporation shall be
reclassified and changed into 112.1846 shares of Common Stock having the terms
specified in this ARTICLE IV. Each outstanding stock certificate which
immediately prior to the date hereof represented a number of shares of Common
Stock shall, without any action on the part of the holder, hereupon and
hereafter, until surrendered as hereinafter provided, represent that number of
shares of Common Stock equal to 112.1846 times the number of shares of the
Common Stock represented by such certificate. The registered holder of each such
certificate may on or after the date hereof surrender such certificate to the
Corporation for cancellation and, upon such surrender, shall receive in exchange
therefor, without charge, a new certificate registered in the name of such
holder representing that number of shares of Common Stock equal to 112.1846
times the number of shares of Common Stock which, prior to the date of filing
hereof, was represented by the certificate(s) representing shares of Common
Stock.
B. The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
1. Common Stock.
------------
a. Voting Rights: Except as otherwise required by law or
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote
of the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
preferred stock, the holders of Common Stock shall be entitled to
receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation.
-2-
<PAGE>
c. Liquidation Rights: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential amounts to
which the holders of any outstanding shares of Preferred Stock shall
be entitled upon dissolution, liquidation or winding up, the assets of
the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the shares of Common Stock.
2. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more
series. Subject to the other provisions of this Amended and Restated
Certificate of Incorporation, the Board of Directors is authorized, subject
to any limitations prescribed by law, to provide for the issuance of and to
issue shares of the Preferred Stock in series, and by filing a certificate
pursuant to the laws of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of any Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing such series of Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors. The number of directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Initially, the number of directors shall be ten.
Such directors shall be divided into three classes, Class I, Class II and
Class III; with Class I having four members and Class II and Class III each
having three members. At the election of directors immediately following the
adoption of this Amended and Restated Certificate of Incorporation, Class I
directors will be elected for a term expiring at the annual meeting relating to
the Corporation's 1998 fiscal year (but occurring in calendar year 1999) (the
"1998 Annual Meeting"), Class II directors will be elected for a term expiring
at the annual meeting following the Corporation's 1999 fiscal year (but
occurring in calendar year 2000) and Class III directors will be elected for a
term expiring at the annual meeting relating to the Corporation's 2000 fiscal
year (but occurring in calendar year 2001). At each annual meeting of
stockholders commencing with the 1998 Annual Meeting, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes by the Board of Directors so as to
maintain the number
-3-
<PAGE>
of directors in each class as nearly equal as reasonably possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class. In no case will a decrease in the number of
directors shorten the term of any incumbent director even though such decrease
may result in an inequality of the classes until the expiration of such term. A
director shall hold office until the annual meeting of the year in which his or
her term expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement or removal
from office. No director elected by the stockholders of the Corporation may be
removed except for cause. Except as required by law or the provisions of this
Amended and Restated Certificate of Incorporation, all vacancies on the board of
directors and newly-created directorships shall be filled by the board of
directors. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the terms
of this Amended and Restated Certificate of Incorporation and any resolutions of
the Board of Directors applicable thereto, and such directors so elected shall
not be divided into classes pursuant to this Article V. Notwithstanding
anything to the contrary contained in this Amended and Restated Certificate of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of the shares entitled to vote generally in the election of directors
shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, this Article V.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the By-
laws of the Corporation.
ARTICLE VI
Election of Directors need not be by written ballot unless the By-laws of
the Corporation so provide.
ARTICLE VII
The Corporation reserves the right to amend, alter or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
-4-
<PAGE>
ARTICLE VIII
The Corporation shall, in accordance with and to the full extent now
or hereafter permitted by law, indemnify and upon request advance expenses to
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of the Corporation), by reason of his acting as a
director or officer of the Corporation (and the Corporation, in the discretion
of the Board of Directors, may so indemnify a person by reason of the fact that
he is or was an employee of the Corporation or is or was serving at the request
of the Corporation in any other capacity for or on behalf of the Corporation)
against any liability or expense (including attorneys' fees and expenses)
actually and reasonably incurred by such person in respect thereof; provided,
however, that the Corporation shall not be obligated to indemnify or advance
expenses to any such person (i) with respect to proceedings, claims or actions
initiated or brought voluntarily by such person and not by way of defense, or
(ii) for any amounts paid in settlement of an action effected without the prior
written consent of the Corporation to such settlement. Such indemnification is
not exclusive of any other right to indemnification provided by law, agreement
or otherwise.
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that this provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Law, or (iv) for any transaction from
which the director derived an improper personal benefit.
ARTICLE X
No amendment to or repeal of Articles VIII or IX of this Amended and
Restated Certificate of Incorporation shall apply to or have any effect on the
rights of any individual referred to in Articles VIII or IX for or with respect
to acts or omissions of such individual occurring prior to such amendment or
repeal.
ARTICLE XI
A. Written Consent. At any time after the closing of an initial
public offering of the Corporation's Common Stock, any action required or
permitted to be taken by the stockholders
-5-
<PAGE>
of the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
B. Special Meetings. Special meetings of stockholders of the
Corporation may be called upon not less than ten nor more than 60 days' written
notice only by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors.
C. Amendment. Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of the shares entitled to vote generally in the
election of directors shall be required to amend, alter or repeal, or to adopt
any provision inconsistent with, this Article XI.
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware as the By-Laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation.
ARTICLE XIII
The By-laws of the Corporation may be altered, amended, or repealed or
new By-laws may be adopted by the Board of Directors or by the vote of the
holders of 66-2/3% of the votes entitled to be cast by the shares entitled to
vote generally for the election of directors if notice of such alteration,
amendment, repeal or adoption of new By-laws is contained in the notice of such
special meeting.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer on _______________.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: ____________________________________
Name: ____________________________________
Its: ____________________________________
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<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
BY AND BETWEEN
THE MAIL BOX, INC.
AND
KENNETH W. MURPHY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between The Mail Box, Inc., a Texas corporation
(the "Company"), and Kenneth W. Murphy ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and the stockholders of the Company identified on Schedule A to the Purchase
----------
Agreement, providing for the purchase (the "Purchase") by Compass of all of the
outstanding capital stock of the Company, whereby the Company shall become a
wholly-owned subsidiary of Compass.
B. The Company provides billing, direct mail fulfillment, mailing list
rental, data processing, database management, list marketing, list maintenance,
laser printing services and other related services to major corporations
throughout the United States (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to
<PAGE>
time reasonably direct; provided, however, that such duties,
responsibilities, authority and services shall be commensurate with the
position of President and CEO of the Company. Employee agrees diligently
and faithfully to serve the Company and to devote Employee's best efforts,
highest talents and skills and full time and attention to the furtherance
and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the greater Dallas, Texas metropolitan area
as shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
available, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above, then the Base Salary for any partial year will be prorated based on
the number of days elapsed in such year during which services were actually
performed by Employee, and all such Base Salary which remains unpaid,
together with accrued but unused vacation and sick pay, if any, shall be
paid by the Company to the Employee within five days after the effective
date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependant coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
proceeding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first 60 days of the
Severance Period, provided that the timing of such consulting services
shall not unreasonably interfere with Employee's ability to obtain
other full-time employment. The Severance Benefits are intended to be
in lieu of all
-4-
<PAGE>
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under SECTION 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
- -
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Texas, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Kenneth W. Murphy
3700 Pipestone Road
Dallas, Texas 75212-6194
Facsimile No: (214) 637-4286
with a copy to:
Jenkins & Gilchrist
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202-2799
Attn: L. Steven Leshin, Esq.
Facsimile No.: (214) 855-4300
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<PAGE>
(b) If to the Company:
The Mail Box, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
---------------------
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
---------------------
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for
-11-
<PAGE>
injunctive relief for any alleged breach of the provisions of SECTION 3 as to
which the parties shall have the right to apply for relief in any court of
competent jurisdiction, shall be resolved by arbitration in Dallas, Texas, in
accordance with the Federal Arbitration Act and the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof and any party to the arbitration may, if such party
so elects, institute proceedings in any court having jurisdiction for the
specific performance of any such award. Without limiting the generality of the
foregoing sentence, the claims to which this provision shall apply include, but
are not limited to: (i) any claims arising out of or related to this Employment
Agreement or breach thereof ; (ii) any claims arising under any federal, state
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this SECTION 6.11
shall not apply to: (i) any claim by Employee for workers' compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of SECTION 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
THE MAIL BOX, INC.
By:
-----------------------------------
Its:
----------------------------------
EMPLOYEE:
--------------------------------------
KENNETH W. MURPHY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
-----------------------------------
Its:
----------------------------------
-13-
<PAGE>
EXHIBIT 10.7
STOCKHOLDERS' AGREEMENT
-----------------------
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is made as of ___________
1997, by and among BGL Capital Partners, L.L.C. ("BGL"), Michael J. Cunningham,
Mahmud U. Haq and Richard A. Alston, and each of the individuals listed on
Schedule I hereto (each such individual a "Founding Company Owner" and
collectively, the "Founding Company Owners").
WHEREAS, on the date hereof, BGL and Messrs. Cunningham, Haq and Alston are
the sole owners of the common stock, par value $.01 per share (the "Common
Stock") of Compass International Services Corporation (the "Corporation"); and
WHEREAS, upon the consummation of each of the separate Stock Purchase
Agreements dated October 3, 1997, by and among the Corporation, the Founding
Company Owners and the Founding Companies set forth on Schedule I hereto
(collectively, the "Stock Purchase Agreements"), the Founding Company Owners
will become owners of Common Stock; and
WHEREAS, each of the undersigned parties believes that the continuity of
management is essential to the success of the business of the Corporation, and
that to preserve such continuity, it is essential for the undersigned parties to
vote on shareholder proposals and for the election of the board of directors of
the Corporation (the "Board") as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned parties agree as
follows:
1. Composition of Board of Directors Immediately Following the Offering.
Immediately upon the closing of the Offering, the Board shall be composed of ten
members, consisting of (i) five Founding Company Owners (or their selected
representative), each designated by his or her respective Founding Company, (ii)
one director designated by BGL, (iii) Mr. Cunningham, (iv) Mr. Haq and (v) two
independent directors, not employed by the Corporation, the Founding Companies
or their respective subsidiaries or by BGL. The Board shall be divided into
three classes, with Class I consisting of four directors and Classes II and III
each consisting of three directors. The Class I directors shall initially be
elected for a term expiring at the Annual Meeting of the Corporation's
stockholders relating to the fiscal year ending December 31, 1998 but held in
1999 (the "1998 Annual Meeting"); the Class II directors shall initially be
elected for a term expiring at the Annual Meeting relating to the fiscal year
ending December 31, 1999 but held in 2000 (the "1999 Annual Meeting"); and the
Class III directors shall initially be elected for a term expiring at the Annual
Meeting relating to the fiscal year ending December 31, 2000 but held in 2001
(the "2000 Annual Meeting"). Thereafter, directors will be elected for three-
year terms. The initial members of the Board, the persons
<PAGE>
by whom they are designated, if applicable, and their Classes are set forth on
Schedule II hereto.
2. Nominations for Annual Meetings. With respect to each Annual Meeting
of the Corporation's stockholders beginning with the 1998 Annual Meeting up to
and including the Annual Meeting relating to the fiscal year ending December 31,
2002 but held in 2003 (the "2002 Annual Meeting"), and in each case at any
adjournment thereof, each of the undersigned parties shall take any and all
action necessary as a stockholder and/or director or officer of the Corporation
(in each case, subject to applicable fiduciary duties) to cause those directors
listed on Schedule II attached hereto whose terms are then expiring, or their
designated successors as provided in Section 4 herein, to be nominated for
election to the Board.
3. Election of Directors at the Annual Meetings. Each of the undersigned
parties shall vote the shares of Common Stock which it owns or hereafter
acquires, or over which it has voting control or hereafter acquires voting
control, in any manner necessary to cause all nominees nominated pursuant to
Section 2 herein to be elected to the Board at each Annual Meeting of the
Corporation's stockholders beginning with the 1998 Annual Meeting and up to and
including the 2002 Annual Meeting.
4. Successors. In the event that the Board determines (in its reasonable
discretion) that a member of the Board is unable for any protracted period to
discharge his/her duties to the Corporation, or such member resigns or is
removed from the Board or declines to stand for re-election to the Board, each
of the undersigned parties shall take any and all action necessary (subject to
applicable fiduciary duties) as a stockholder and/or director or officer of the
Corporation to cause the then-incumbent Board to nominate as a successor
director (i) if the director being replaced was designated by the former owners
of a Founding Company or by BGL, such individual as shall be designated by the
persons who originally designated such director and (ii) in all other cases,
such individual as shall be approved by a majority of the then-incumbent Board,
and each of the undersigned parties shall take any and all action necessary as a
stockholder and/or director or officer of the Corporation (in each case, subject
to applicable fiduciary duties) to elect such successor director to the Board.
5. Other Matters Brought to Vote; Best Efforts. In the event that any
matter other than election of directors is brought to the vote of stockholders
at any Annual Meeting beginning with the 1998 Annual Meeting and up to and
including the 2002 Annual Meeting, each of the undersigned parties shall vote
the shares of Common Stock which it owns or hereafter acquires or over which it
has voting control or hereafter acquires voting control, in accordance with the
recommendations of the incumbent Board.
6. Term. The term of this Agreement shall run from the date hereof until
immediately following the final adjournment of the 2002 Annual Meeting.
-2-
<PAGE>
7. Termination. If the Stock Purchase Agreements are not consummated by
March 31, 1998, this Agreement will terminate and its terms will be null and
void and of no force and effect.
8. Assignability/Transfers. Except with respect to the assignment of this
Agreement to a transferee of Common Stock owned by one or more of the parties
hereto, this Agreement shall only be assignable by the written consent of all of
the parties hereto. This Agreement shall be binding on all transferees of the
Common Stock owned by the parties hereto and no assignment or transfer permitted
pursuant to this Paragraph 8 shall be effective or be of any force or effect
whatsoever, unless and until any such assignee or transferee executes a
counterpart of this Agreement (unless, in the case of a transfer of Common
Stock, such transfer is a transfer or sale in connection with a registered
public securities offering or pursuant to Rule 144 under the Securities Act of
1933, as amended).
9. Expansion of Board of Directors. This Agreement is not intended to
limit in any respect the Board's authority to increase from time to time the
size of the Board in accordance with Article V of the Corporation's Amended and
Restated Certificate of Incorporation.
10. Amendment. This Agreement may be amended from time to time by an
instrument in writing signed by the holders of a majority of the aggregate
number of shares of outstanding Common Stock held by the signatories hereto at
the date of such amendment; provided, however, that no amendment shall be made
which would materially adversely affect the rights of any Founding Company
Owners or BGL without the consent of the persons so affected.
11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.
12. Governing Law. This Agreement shall be governed by and enforced in
accordance with the laws and decisions of the State of Delaware, without regard
to the choice of law provisions thereof.
-3-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed individually, and has entered into this Agreement effective the date
and year first above written.
BGL CAPITAL PARTNERS, L.L.C.
By: BGL Management Company, L.L.C.
By: ____________________________________
Scott H. Lang
Managing Partner
_________________________________________
Michael J. Cunningham
_________________________________________
Mahmud U. Haq
_________________________________________
Richard A. Alston
(Additional Signatures Follow)
-4-
<PAGE>
OWNERS OF THE MAIL BOX, INC.:
_________________________________________
Kenneth W. Murphy
Kenneth W. Murphy Childrens Trust
By: _____________________________________
Trustee
_________________________________________
Robert Meador
_________________________________________
Richard J. Bainter
_________________________________________
John Erickson
_________________________________________
Lynn Harris
_________________________________________
Earl Johnson
_________________________________________
Jack Padian
_________________________________________
Patty Bond
_________________________________________
Lee McNamara
(Additional Signatures Follow)
-5-
<PAGE>
OWNERS OF NATIONAL CREDIT MANAGEMENT CORPORATION:
_________________________________________
Leeds Hackett
_________________________________________
Thomas Gillespie
_________________________________________
Veronica Hackett
_________________________________________
Victoria C. McAndrews
_________________________________________
Richard M. Florito
_________________________________________
Russ C. Causey
_________________________________________
Paul Holt
_________________________________________
Sylvia Sorgel
(Additional Signatures Follow)
-6-
<PAGE>
OWNERS OF BRMC OF DELAWARE, INC.:
_________________________________________
Mary Maloney
_________________________________________
H. Eugene Collins
ADVANCED CREDIT SERVICES, INC.,
a Georgia corporation
By: _____________________________________
Its: ________________________________
_________________________________________
Billy Ray Pitcher
_________________________________________
Eddie Newton King, Jr.
_________________________________________
Peter Michael Grossman
_________________________________________
William Dale Graham
_________________________________________
Thomas Warren Hester
(Additional Signatures Follow)
-7-
<PAGE>
OWNER OF MID-CONTINENT AGENCIES, INC.:
_________________________________________
Leslie J. Kirschbaum
(Additional Signatures Follow)
-8-
<PAGE>
OWNERS OF IMPACT TELEMARKETING GROUP, INC.
AND IMPACT TELEMARKETING, INC.:
_________________________________________
Edward A. DuCoin
_________________________________________
David T. DuCoin
-9-
<PAGE>
SCHEDULE I
----------
NAME OF FOUNDING COMPANY AND OWNERS
-----------------------------------
THE MAIL BOX, INC.:
- -------------------
Kenneth W. Murphy
Kenneth W. Murphy Childrens Trust
Robert Meador
Richard J. Bainter
John Erickson
Lynn Harris
Earl Johnson
Jack Padian
Patty Bond
Lee McNamara
NATIONAL CREDIT MANAGEMENT CORPORATION:
- ---------------------------------------
Leeds Hackett
Thomas Gillespie
Veronica Hackett
Victoria McAndrews
Richard M. Florito
Russ C. Causey
Paul Holt
Sylvia Sorgel
I-1
<PAGE>
BRMC OF DELAWARE, INC.:
- -----------------------
Mary Maloney
H. Eugene Collins
Advanced Credit Services, Inc., a Georgia corporation
Billy Ray Pitcher
Eddie Newton King, Jr.
Peter Michael Grossman
William Dale Grossman
Thomas Warren Hester
MID-CONTINENT AGENCIES, INC.:
- -----------------------------
Leslie J. Kirschbaum
IMPACT TELEMARKETING GROUP, INC. AND
- ------------------------------------
IMPACT TELEMARKETING, INC.:
- ---------------------------
Edward A. DuCoin
David T. DuCoin
I-2
<PAGE>
SCHEDULE II
-----------
BOARD OF DIRECTORS
------------------
NAME CLASS DESIGNATED BY
- ------------------------- --------- -------------------------
Michael J. Cunningham III
Kenneth W. Murphy III Owners of Mail Box
Leeds Hackett III Owners of National Credit
Management Corp.
Independent Director/*/ II
Scott H. Lang II BGL
John Maloney II Owners of BRMC
Leslie J. Kirschbaum I Owners of Mid-Continent
Edward A. DuCoin I Owners of Impact
Independent Director/*/ I
Mahmud U. Haq I
- ---------------------
* To be named.
II-1
<PAGE>
Exhibit 10.8
BONUS AGREEMENT
---------------
THIS BONUS AGREEMENT (this "Agreement") is made as of October 2, 1997 by
and among Compass International Services Corporation, a Delaware corporation
("Compass"), National Credit Management Corp., a Maryland corporation (the
"Company"), and the stockholders of the Company identified in Schedule A to this
Agreement (the "Stockholders").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement, the parties
hereto are entering into a Stock Purchase Agreement (the "Purchase Agreement"),
whereby Compass is purchasing all of the issued and outstanding shares of
capital stock of the Company; and
WHEREAS, the Company is a party to certain litigation regarding United
States Letter Patent No. 5,504,667 entitled "Automatic Payment System and
Method" (the "Patent"), of which it is the owner, and which litigation is as
follows:
A. National Credit Management Corporation v. Western Union Financial
-----------------------------------------------------------------
Services, Inc., DC. SD. NY. Civil Action No. 96 Civ. 4609 (the "Western Union
- --------------
Litigation"); and
B. National Credit Management Corporation v. Novus Services, Inc. and Dean
-----------------------------------------------------------------------
Witter, Discovery & Co., DC. M.D. Civil Action No. K 96-3833 (the "Dean Witter
- -----------------------
Litigation"); and
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
<PAGE>
1. Defined Terms.
--------------
(a) Terms used herein with their initial letter capitalized shall, unless
otherwise defined herein, shall have the same meanings given such terms as in
the Purchase Agreement.
(b) "Applicable Transactions" shall mean, with respect to the Western Union
Litigation and the Dean Witter Litigation, those transactions on which a damage
award is based.
(c) "Closing Date" shall mean the date on which the transactions provided
for in the Purchase Agreement have closed.
(d) "Plaintiff Litigation" shall mean the Western Union Litigation and the
Dean Witter Litigation.
(e) "Pre-Closing Damages" shall mean, with respect to the Western Union
Litigation and the Dean Witter Litigation, that portion of the Proceeds (defined
herein) which are for or otherwise relate to the Applicable Transactions which
occurred prior to the Closing Date.
(f) "Proceeds" shall mean a monetary settlement or judgment in the Western
Union Litigation or the Dean Witter Litigation.
2. Western Union Litigation and Dean Witter Litigation.
----------------------------------------------------
(a) The Company intends to continue to pursue the Western Union Litigation
and Dean Witter Litigation. In the event that the Company receives Proceeds
from the Plaintiff Litigation, subject to subsection (b) below, such Proceeds
shall be divided between the
2
<PAGE>
Company and certain individuals, when and as received by the Company, in the
following order:
(1) First, to the Company in an amount necessary to pay any income or
other taxes, if any, which will be owed by the Company as a
result of receipt of the Proceeds;
(2) Second, to the Company in an amount necessary to reimburse it for
all fees and costs incurred in pursuing the Plaintiff Litigation,
including, without limitation, attorney fees and costs,
accountant fees and costs and other court costs;
(3) Third, an amount representing Pre-Closing Damages to be
distributed to certain individuals in such amounts to be
determined by the president of the Company with the approval of
Compass, such approval to not be unreasonably withheld.
(4) Fourth, all remaining Proceeds to the Company.
From and after the date of the judgment or settlement, all royalties or
other amounts received from exploitation of the Patent shall belong to the
Company.
(b) In the event that any portion of the Proceeds are not awarded on the
basis of Applicable Transactions or other criteria which can be determined as
occurring prior to or after the Closing Date, then such portion of the Proceeds
shall, after allocation of amounts set forth in (a)(1) and (2) above, be
allocated between the Company and those certain individuals in the same
proportion that the number of pre-Closing Date Applicable Transactions are to
the number of post-Closing Date Applicable Transactions. In the event
3
<PAGE>
that the parties are unable to determine the number of Applicable Transactions
which occurred pre-Closing Date and which occurred post-Closing Date, Proceeds
shall be allocated between the Company and those certain individuals, after
allocation of amounts set forth in (a)(1) and (2) above, based on a percentage
determined by taking the number of days prior to the Closing Date (for the
certain individuals) or after the Closing Date (for the Company) and dividing
said number in each case by the total number of days from the date reasonably
determined to be the first day of infringement to the date of settlement or
judgment.
(c) Any disputes between the parties as to the allocation of the Proceeds
shall be submitted to a mutually agreeable "Big-Six" (or "Big-Five") accounting
firm, other than one which then provides services to the Stockholders, the
Company or Compass, or, if the parties are unable to agree or no such accounting
firm agrees to take this engagement, then the Company's regularly engaged
auditors shall select any accounting firm (other than themselves) or other party
they believe suitable to resolve the dispute. The decision by the accounting
firm or other arbitor shall be binding upon the parties. Each of the parties
shall, if required, agree to indemnify such accounting firm or other arbitor for
any damages resulting from the engagement, other than damages which are a result
of willful misconduct or fraud. The fees of the accounting firm or other arbitor
shall be split equally between the parties hereto.
3. This Agreement and the performance hereunder shall be governed and
construed in accordance with the laws of the State of Delaware and the United
States of America.
4
<PAGE>
4. The Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, supersedes all other agreements and
understanding, whether written or oral and no agreements, warranties or
representations have been made by either of the parties to the other with
respect to said subject matter except as herein or therein expressly set forth
provided that nothing herein shall be deemed to affect or change any of the
provisions of the Merger Agreement.
5. Notwithstanding anything to the contrary which may be contained
herein, nothing in this Agreement shall be construed to modify any of the terms
and conditions of the Purchase Agreement, which Purchase Agreement remains in
full force and effect.
5
<PAGE>
IN WITNESS WHEREOF, the parties have agreed to this Agreement as of the
date first above written.
COMPASS INTERNATIONAL SERVICES CORPORATION
/s/ Michael Cunningham
----------------------------------------------
NATIONAL CREDIT MANAGEMENT CORP.
/s/ Leeds Hackett
----------------------------------------------
STOCKHOLDERS
/s/ Leeds Hackett
---------------------------------------------
LEEDS HACKETT
/s/ Veronica Hackett
---------------------------------------------
VERONICA HACKETT
/s/ Thomas Gillespie, Jr.
---------------------------------------------
THOMAS GILLESPIE, JR.
/s/ Victoria C. McAndrews
---------------------------------------------
VICTORIA C. McANDREWS
/s/ Richard M. Fiorito
---------------------------------------------
RICHARD M. FIORITO
/s/ Russ C. Causey
---------------------------------------------
RUSS C. CAUSEY
/s/ Paul Holt
---------------------------------------------
PAUL HOLT
/s/ Sylvia Sorgel
---------------------------------------------
SYLVIA SORGEL
6
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
BY AND BETWEEN
NATIONAL CREDIT MANAGEMENT CORP.
AND
LEEDS HACKETT
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between National Credit Management Corp., a
Maryland corporation (the "Company"), and Leeds Hackett ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and the stockholders of the Company identified on Schedule A to the Purchase
----------
Agreement (the "Stockholders"), providing for the purchase by Compass of all of
the issued and outstanding stock of the Company.
B. The Company provides accounts receivable management services and
patented telephonic check drafting services throughout the United States (the
"Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company, and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties and responsibilities, duties,
<PAGE>
authority and services shall be commensurate with the position of President
and CEO of the Company. Employee agrees diligently and faithfully to serve
the Company and to devote Employee's best efforts, highest talents and
skills and full time and attention to the furtherance and success of the
Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employees's services hereunder shall be
-------------------
rendered at such locations in the greater Baltimore metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 120 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
available, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index. All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above, or for any other reason, then the Base Salary for any partial year
will be prorated based on the number of days elapsed in such year during
which services were actually performed by Employee, and all such prorated
Base Salary which remains unpaid, together with accrued but unused vacation
and sick pay, if any, shall be paid by the Company to Employee within five
days after the effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgment, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and B(ii) above shall be paid in
equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payment required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, or (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United states of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period ("Termination Date") or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time,
(provided that the Company and Compass shall remain liable for all
obligations of Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Maryland, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Leeds Hackett
c/o National Credit Management Corporation
11350 McCormick Road
Suite 800, Executive Plaza III
Hunt Valley, MD 21031
with a copy to:
Earl S. Wellschlager
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, MD 21201
(b) If to the Company:
National Credit Management Corp.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
-10-
<PAGE>
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Baltimore, Maryland, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment
-11-
<PAGE>
Agreement or breach thereof; (ii) any claims arising under any federal, state,
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this SECTION 6.11
shall not apply to: (i) any claim by Employee for workers compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of SECTION 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
NATIONAL CREDIT MANAGEMENT CORP.
By:
-------------------------------------
Its:
-------------------------------------
EMPLOYEE:
-----------------------------------------
LEEDS HACKETT
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the obligations
of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
-------------------------------------
Its:
-------------------------------------
-13-
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
JOHN MALONEY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between BRMC of Delaware, Inc., a Delaware
corporation (the "Company"), and John Maloney ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and the stockholders of the Company identified on Schedule A to the Purchase
----------
Agreement, providing for the purchase (the "Purchase") by Compass of all of the
outstanding capital stock of the Company, whereby the Company shall become a
wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the Chief Operating Officer ("COO") of the Company, and Employee agrees to
accept such employment, all in accordance with the terms and conditions of
this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the COO and will have such
responsibilities, duties and authority, and will render such services for
the Company and its affiliates as the Board of Directors of Compass (the
"Board") shall from time to time reasonably direct; provided, however, that
such duties, responsibilities, authority and services shall be commensurate
with the position of COO of the Company. Employee agrees diligently
<PAGE>
and faithfully to serve the Company and to devote Employee's best efforts,
highest talents and skills and full time and attention to the furtherance
and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without his
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
-2-
<PAGE>
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employe and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole
judgment of the Compensation Committee, the Base Salary will be increased
as of January 1, 1999 to the level of the Base Salary of the other CEO's of
the Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the date of such
termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payments required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of COO of the Company or assigns the Employee duties and
responsibilities that are not commensurate with such position, (ii)
reduces Employee's Base Salary or materially reduces his employee
benefits and prerequisites, taken in the aggregate, or (iii) requires
Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
- -
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. John Maloney
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above,
each party to the arbitration shall bear his or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRMC OF DELAWARE, INC.
By:
---------------------------------
Its:
---------------------------------
EMPLOYEE:
-------------------------------------
JOHN MALONEY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
---------------------------------
Its:
--------------------------------
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<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
H. GENE COLLINS
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between BRMC of Delaware, Inc., a Delaware
corporation (the "Company"), and H. Gene Collins ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and the stockholders of the Company identified on Schedule A to the Purchase
----------
Agreement, providing for the purchase (the "Purchase") by Compass of all of the
outstanding capital stock of the Company, whereby the Company shall become a
wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the President and Chief Executive Officer ("CEO") of the Company, and
Employee agrees to accept such employment, all in accordance with the terms
and conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties, responsibilities, authority
<PAGE>
and services shall be commensurate with the position of President and CEO
of the Company. Employee agrees diligently and faithfully to serve the
Company and to devote Employee's best efforts, highest talents and skills
and full time and attention to the furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without his
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employe and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make himself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole
judgment of the Compensation Committee, the Base Salary will be increased
as of January 1, 1999 to the level of the Base Salary of the other CEO's of
the Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for
-3-
<PAGE>
the Bonus Program shall be established by the Compensation Committee at the
beginning of each fiscal year after consultation with Employee. All
bonuses awarded to Employee hereunder shall be payable in accordance with
Company policy. If the Employment Period is terminated pursuant to SECTION
1.5 above then the foregoing bonus for any partial year will be determined
based on annualizing results to the date of the termination and will be
prorated based upon the number of days elapsed in such year during which
services were actually performed by Employee, and shall be paid within five
days of the date of such termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis
-4-
<PAGE>
during the first sixty (60) days of the Severance Period, provided
that the timing of such consulting services shall not unreasonably
interfere with Employee's ability to obtain other full-time
employment. The Severance Benefits are intended to be in lieu of all
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under SECTION 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
- -
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
-5-
<PAGE>
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
-6-
<PAGE>
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
-7-
<PAGE>
3.5 Confidential Information. Other than in the performance of his duties
------------------------
hereunder, during the Restrictive Period and thereafter, Employee shall
keep secret and retain in strictest confidence, and shall not, without the
prior written consent of the Company, directly or indirectly furnish, make
available or disclose to any third party or use for the benefit of himself
or any third party, any Confidential Information. As used in this
Agreement, "Confidential Information" shall mean any information relating
to the business or affairs of the Company or the Business, including, but
not limited to, information relating to financial statements, employees,
customers, suppliers, pricing, marketing, equipment, programs, strategies,
analyses, profit margins, or other proprietary information of or used by
Compass, the Company or any other subsidiary of Compass in connection with
the Business; provided, however, that Confidential Information shall not
include any information which is in the public domain or becomes known in
the industry through no wrongful act on the part of Employee. Employee
acknowledges that the Confidential Information is vital, sensitive,
confidential and proprietary to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
-9-
<PAGE>
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall 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 shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. H. Gene Collins
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above,
each party to the arbitration shall bear his or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BOMAR RECEIVABLES MANAGEMENT CORPORATION
By:
---------------------------------
Its:
---------------------------------
EMPLOYEE:
-------------------------------------
H. GENE COLLINS
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
---------------------------------
Its:
---------------------------------
-13-
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
BY AND BETWEEN
BRMC OF DELAWARE, INC.
AND
MARY MALONEY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between BRMC of Delaware, Inc., a Delaware
corporation (the "Company"), and Mary Maloney ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement, dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and the stockholders of the Company identified on Schedule A to the Purchase
----------
Agreement, providing for the purchase (the "Purchase") by Compass of all of the
outstanding capital stock of the Company, whereby the Company shall become a
wholly-owned subsidiary of Compass.
B. The Company provides accounts receivable management services and
telephonic check drafting services (the "Business").
C. Employee has been a substantial stockholder of the Company since its
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
the Vice President and Secretary of the Company, and Employee agrees to
accept such employment, all in accordance with the terms and conditions of
this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's Vice President and
Secretary and will have such responsibilities, duties and authority, and
will render such services for the Company and its affiliates as the Board
of Directors of Compass (the "Board") shall from time to time reasonably
direct; provided, however, that such duties, responsibilities, authority
and services shall be commensurate with the position of Vice President and
<PAGE>
Secretary of the Company. Employee agrees diligently and faithfully to
serve the Company and to devote Employee's best efforts, highest talents
and skills and full time and attention to the furtherance and success of
the Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/her desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in Destin, Florida or the greater Pensacola,
Florida metropolitan area as shall be determined by the Board, subject to
such travel as may be reasonably required in connection with the Business.
Employee shall not be required to relocate to any other area without her
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of her employment constituting fraud or misappropriation
of Company property;
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
-2-
<PAGE>
(v) a material breach by Employee of any of the terms or conditions of
this Agreement if (A) written notice is delivered to Employee
describing such breach and (B) Employee has failed to cure or take
substantial steps to cure such breach after a reasonable time period,
as determined by the Board in its reasonable discretion (not to be
less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if she is unable to perform, by reason of physical or mental
incapacity, her material duties or obligations under this Agreement, with or
without reasonable accommodation, for a total period of 90 days in any 360-day
period. The Board shall determine, according to the facts then available,
whether and when the Disability of the Employee has occurred. Such
determination shall not be arbitrary or unreasonable and the Board will, if
possible, take into consideration the expert medical opinion of a physician
mutually agreed upon by Employe and the Company, after such physician has
completed an examination of Employee. Employee agrees to make reasonable
efforts to make herself available for such examination upon the reasonable
request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing her duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $100,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole
judgment of the Compensation Committee, the Base Salary will be increased
as of January 1, 1999 to the level of the Base Salary of the other CEO's of
the Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to SECTION 1.5 above, then the
Base Salary for any partial year will be prorated based on the number of
days elapsed in such year during which services were actually performed by
Employee, and all such prorated Base Salary which remains unpaid, together
with accrued but unused vacation and sick pay, if any, shall be paid by the
Company to Employee within five days after the effective date of
termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to SECTION 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the date of such
termination.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate her employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of her Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, her covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) her pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with SECTION 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first sixty (60) days of the Severance Period.
The Severance Benefits payable under (C) above shall be paid in a lump
sum in accordance with SECTION 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaws), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first sixty (60) days
of the Severance Period, provided that the timing of such consulting
services shall not unreasonably interfere with Employee's ability to
obtain other full-time employment. The Severance Benefits are
intended
-4-
<PAGE>
to be in lieu of all other payments to which Employee might otherwise
be entitled in respect of termination of Employee's employment without
Cause (except for the payments required under SECTION 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
payments required under SECTION 2.1), and the Company shall continue
to have all other rights available hereunder (including, without
limitation, all rights under SECTIONS 3 AND 4 hereof at law or in
equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of her death
or Disability, but shall continue to be payable during the Severance
Period if her employment is terminated without Cause or by reason of
Constructive Termination and she subsequently dies or becomes
disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of Vice President and Secretary of the Company or assigns the
Employee duties and responsibilities that are not commensurate with
such position, (ii) reduces Employee's Base Salary or materially
reduces her employee benefits and prerequisites, taken in the
aggregate, or (iii) requires Employee to relocate in violation of
SECTION 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for her normal out-of-pocket expenses incurred in the course of
performing her duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and her dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
she shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United States of
America (the "Territory"); provided, however, that nothing contained
herein shall be construed to prevent Employee from investing in up to
5% of the outstanding stock of any competing corporation that is
publicly-traded and listed on a recognized national, international or
regional securities exchange or traded in the U.S. over-the-counter
market, but only if Employee is not actively involved in and does not
render consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day ("Termination Date") of the Employment Period or that was known by
Employee to have been actively being solicited by the Company to
become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of her immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of her duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of her
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, and without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this SECTION 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that she will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of the Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Florida, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Ms. Mary Maloney
10065 West Emerald Coast Parkway
Suite B1
Destin, Florida 32541
Facsimile No.: (904) 650-6538
with a copy to:
Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: David E. Brown, Jr., Esq.
Facsimile No.: (404) 881-4777
and
-10-
<PAGE>
Emmanuel Sheppard & Condon
30 S. Spring Street
Pensacola, Florida 32501
Attn: Kramer Litvak, Esq.
Facsimile No.: (904) 434-7163
(b) If to the Company:
BRMC of Delaware, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
Facsimile No.: (312) 902-1061
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
-11-
<PAGE>
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Pensacola, Florida, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof ; (ii) any
claims arising under any federal, state or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this SECTION 6.11 shall not apply to: (i) any claim by
Employee for workers' compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of SECTION 3
hereof, which may be brought in any court of competent jurisdiction. EMPLOYEE
AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY THIS
SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of her or its reasonable costs and expenses of the arbitration as she
deems just and equitable under the circumstances. Except as provided above,
each party to the arbitration shall bear her or its own attorney's fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
BRMC OF DELAWARE, INC.
By:
--------------------------------------
Its:
--------------------------------------
EMPLOYEE:
-----------------------------------------
MARY MALONEY
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
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<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
BY AND BETWEEN
MID-CONTINENT AGENCIES, INC.
AND
LESLIE J. KIRSCHBAUM
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between Mid-Continent Agencies, Inc., an
Illinois corporation (the "Company"), and Leslie J. Kirschbaum ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Compass International Services Corporation, a Delaware corporation ("Compass"),
and Employee, providing for the purchase by Compass of all of the outstanding
capital stock of the Company.
B. The Company provides credit collection services to clients throughout
the United States, the United Kingdom, the Peoples Republic of China and other
foreign countries (the "Business").
C. Employee has been a substantial stockholder of the Company for more
than twenty years, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business of the
Company.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
----------
1.1 Engagement of Employee. The Company agrees to employ Employee as
----------------------
President and Chief Executive Officer ("CEO") of the Company and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
-----------------
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates, as the Board of Directors of
Compass (the "Board") shall from time to time reasonably direct; provided,
however, that such duties and responsibilities, duties,
<PAGE>
authority and services shall be commensurate with the position of President
and CEO of the Company. Employee agrees diligently and faithfully to serve
the Company and to devote Employee's best efforts, highest talents and
skills and full time and attention to the furtherance and success of the
Business.
1.3 Employment Period. Employee's employment under this Agreement
-----------------
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to SECTION 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
-------------------
rendered at such locations in the greater Chicago metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
--------------------------------------------------------
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to SECTION 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
-2-
<PAGE>
(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in SECTION 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 120 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if available, take into consideration the expert medical opinion of a
physician mutually agreed upon by Employee and the Company, after such
physician has completed an examination of Employee. Employee agrees to
make reasonable efforts to make himself available for such examination upon
the reasonable request of the Company.
2. Compensation and Benefits.
-------------------------
2.1 Salary. In consideration of Employee performing his duties under
------
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $150,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If the Employment Period is terminated pursuant to SECTION 1.5
above or for any other reason, then the Base Salary for any partial year
will be prorated based on the number of days elapsed in such year during
which services were actually performed by Employee, and all such prorated
Base Salary which remains unpaid, together with accrued but unused vacation
and sick pay, if any, shall be paid by the Company to Employee within five
days after the effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
-----
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the financial performance of the Company,
(ii) the financial performance of Compass, and/or (iii) the achievement of
personal performance goals. The criteria and/or goals for the Bonus
Program shall be established by the Compensation Committee at the beginning
of each fiscal year after consultation with Employee. All bonuses awarded
to Employee hereunder shall be payable in accordance with Company policy.
If the Employment
-3-
<PAGE>
Period is terminated pursuant to Section 1.5 above then the foregoing bonus
for any partial year will be determined based on annualizing results to the
date of the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of such
termination of the Employment Period.
2.3 Compensation After Termination of Employment.
--------------------------------------------
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
SECTION 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with Section 2.2 above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with Section 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination hereof,
including without limitation those arising under SECTIONS 3 AND 4
hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first 60 days of the
Severance Period, provided that the timing of such consulting services
shall not unreasonably interfere with Employee's ability to obtain
other full-time employment. The Severance Benefits are intended to be
in lieu of all
-4-
<PAGE>
other payments to which Employee might otherwise be entitled in
respect of termination of Employee's employment without Cause (except
for the payments required under Section 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be payable
during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
SECTION 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under SECTION 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under SECTIONS 3 AND 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(iii) requires Employee to relocate in violation of Section 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
-----------------------------------
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
3. Covenants.
---------
3.1 Employee's Acknowledgment. Employee acknowledges that:
-------------------------
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
-5-
<PAGE>
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this SECTION 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this SECTION 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
------------
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "RESTRICTIVE PERIOD"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere in the United States of America
(the "Territory"); provided, however, that nothing contained herein
shall be construed to prevent Employee from investing in up to 5% of
the outstanding stock of any competing corporation that is publicly-
traded and listed on a recognized national, international or regional
securities exchange or traded in the U.S. over-the-counter market, but
only if Employee is not actively involved in and does not render
consulting services to the business of said corporation,
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
known by Employee to have been actively being solicited by the Company
to become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period,
-6-
<PAGE>
unless such person has been out of the employ of the Company for at
least 180 days; provided, that the Employee shall be permitted to
solicit and hire any member of his immediate family, or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which the Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares, proxy
solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
----------------------------
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours. Employee
agrees that all right, title and interest in and to all such ideas,
discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to any aspect of the
prosecution of such rights in the United States and all other countries as
the Company may request at any time during the Employment Period or after
termination thereof.
3.4 Interference with Relationships. Other than in the performance
-------------------------------
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
------------------------
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the
-7-
<PAGE>
Company, directly or indirectly furnish, make available or disclose to any
third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Agreement, "Confidential
Information" shall mean any information relating to the business or affairs
of the Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers, pricing,
marketing, equipment, programs, strategies, analyses, profit margins, or
other proprietary information of or used by Compass, the Company or any
other subsidiary of Compass in connection with the Business; provided,
however, that Confidential Information shall not include any information
which is in the public domain or becomes known in the industry through no
wrongful act on the part of Employee. Employee acknowledges that the
Confidential Information is vital, sensitive, confidential and proprietary
to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
-----------
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this SECTION 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
--------------------------------------------
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
--------
set forth in this SECTION 3 (collectively, the "RESTRICTIVE COVENANTS") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
-8-
<PAGE>
3.9 Company. For purposes of this Section 3, the term "Company"
-------
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
---------------------
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in SECTIONS 2.3, 3, 4, 5 AND 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
--------------------
the intention of the Company to deduct all amounts paid under SECTION 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
-------------
6.1 Life Insurance. The Company may at its discretion and at any
--------------
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
----------
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the Company and Compass shall remain liable for all
obligations of Company hereunder) or any surviving entity following any
merger or consolidation of the Company and any other entity or (ii) in
connection with the sale of the Business by the Company. Except as
otherwise expressly provided herein, all covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind
and inure to the benefit of the respective legal representatives, heirs,
permitted successors and assigns of the parties hereto whether so expressed
or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
----------------
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if
-9-
<PAGE>
any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
-----------------------
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of Illinois, without giving effect to provisions thereof
regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
-------
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. Leslie J. Kirschbaum
c/o Mid-Continent Agencies, Inc.
3701 West Algonquin Road
Rolling Meadows, Illinois 60008-3155
with a copy to:
Fagel & Haber
140 South Dearborn, Suite 1400
Chicago, Illinois 60603
Attention: Joel A. Haber, Esq.
(b) If to the Company:
Mid-Continent Agencies, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
-10-
<PAGE>
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
------------------------------------
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement. The use of the word "including" in this Agreement shall be by way of
example rather than by limitation. The Preliminary Recitals set forth above are
incorporated by reference into this Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
----------------------
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
SECTION 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Chicago, Illinois, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment
-11-
<PAGE>
Agreement or breach thereof; (ii) any claims arising under any federal, state,
or local statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or denial of
equal employment opportunity based on sex, race, color, religion, national
origin, disability, age, marital status, or any other category protected by law;
(iii) any claims arising under the common law of the United States or any state
relating to Employee's employment with Company, including without limitation
claims alleging negligence, defamation, public policy, tort, infliction of
emotional distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment with
Company. Anything herein to the contrary notwithstanding, this Section 6.11
shall not apply to: (i) any claim by Employee for workers compensation benefits
or unemployment compensation benefits; or (ii) any claim by Company for
injunctive or equitable relief, including without limitation claims related to
the enforcement of Section 3 hereof, which may be brought in any court of
competent jurisdiction. EMPLOYEE AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO
RESOLVE ANY DISPUTE COVERED BY THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY
A JUDGE OR JURY. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect of all the
claims alleged by such party, the arbitrator shall include in any award in favor
of the prevailing party the amount of his or its reasonable costs and expenses
of the arbitration as he deems just and equitable under the circumstances.
Except as provided above, each party to the arbitration shall bear his or its
own attorney's fees and expenses and the parties shall bear equally all other
costs and expenses of the arbitration.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
MID-CONTINENT AGENCIES, INC.
By:
--------------------------------------
Its:
--------------------------------------
EMPLOYEE:
-----------------------------------------
LESLIE J. KIRSCHBAUM
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the obligations
of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
--------------------------------------
Its:
--------------------------------------
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<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
BY AND BETWEEN
IMPACT TELEMARKETING GROUP, INC.
AND
Edward A. DuCoin
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of __________________, 1997, by and between Impact Telemarketing Group, Inc.,
a New Jersey corporation (the "Company"), and Edward A. DuCoin ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement dated
as of ___________________, 1997 (the "Purchase Agreement"), by and among the
Company, Impact Telemarketing, Inc. ("IT"), Compass International Services
Corporation, a Delaware corporation ("Compass"), and the Stockholders of the
Company and IT identified on Schedule A to the Purchase Agreement, providing for
the purchase by Compass of all of the issued and outstanding stock of the
Company and IT.
B. The Company and IT provide outbound and inbound telemarketing
services to national and regional companies throughout the United States (the
"Business").
C. Employee has been a substantial owner of the Company and IT since
their inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business of the
Company and IT.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement
that the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
of the parties hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
1.1 Engagement of Employee. The Company agrees to employ Employee
as President and Chief Executive Officer ("CEO") of the Company and
Employee agrees to accept such employment, all in accordance with the
terms and conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period
(as defined herein), Employee will serve as the Company's President
and CEO and will have such responsibilities, duties and authority, and
will render such services for the Company and its affiliates, as the
Board of Directors of Compass (the "Board") shall from time to time
reasonably direct; provided, however, that such duties and
responsibilities, duties,
<PAGE>
authority and services shall be commensurate with the position of
President and CEO of the Company. Employee agrees diligently and
faithfully to serve the Company and to devote Employee's best efforts,
highest talents and skills and full time and attention to the
furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year
period shall be referred to herein as a "Renewal Period") unless
either the Company or Employee, as the case may be, provides written
notice to the other party at least ninety (90) days prior to the
termination of any such period, stating its/his desire to terminate
this Agreement. The Initial Employment Period and each successive
Renewal Period shall be referred to herein together as the "Employment
Period". Notwithstanding anything to the contrary contained herein,
the Employment Period is subject to termination pursuant to Section
1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
rendered at such locations in the greater Philadelphia metropolitan
area as shall be determined by the Board, subject to such travel as
may be reasonably required in connection with the Business. Employee
shall not be required to relocate to any other area without his
consent.
1.5 Termination of Employment for Cause, Death or Disability. The
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be
terminated upon the death or the Disability (as hereinafter defined)
of Employee. Any such termination shall be effective upon the date of
service of such notice pursuant to Section 6.7 hereof, in the case of
termination for Cause, or immediately upon the death or Disability of
Employee, and the Employment Period shall terminate as of the
effective date of such termination.
"Cause," as used herein, means the occurrence of any of the
following events:
(i) final non-appealable conviction of (A) a felony or (B)
any crime involving moral turpitude;
(ii) the willful failure of Employee to comply with
reasonable and lawful directions of the Board after (A) written
notice is delivered to Employee describing such willful failure
and (B) Employee has failed to cure or take substantial steps to
cure such willful failure after a reasonable time period, as
determined by the Board in its reasonable discretion (not to be
less than 60 days);
(iii) the good faith determination by the Board in the
exercise of its reasonable judgment that Employee has committed
an act or acts in the course of his employment constituting fraud
or misappropriation of material Company property;
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(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in Section 3 of this Agreement;
or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered
to Employee describing such breach and (B) Employee has failed to
cure or take substantial steps to cure such breach after a
reasonable time period, as determined by the Board in its
reasonable discretion (not to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of
this Agreement if he is unable to perform, by reason of physical or
mental incapacity, his material duties or obligations under this
Agreement, with or without reasonable accommodation, for a total
period of 120 days in any 360-day period. The Board shall determine,
according to the facts then available, whether and when the Disability
of the Employee has occurred. Such determination shall not be
arbitrary or unreasonable and the Board will, if available, take into
consideration the expert medical opinion of a physician mutually
agreed upon by Employee and the Company, after such physician has
completed an examination of Employee. Employee agrees to make
reasonable efforts to make himself available for such examination upon
the reasonable request of the Company.
2. Compensation and Benefits.
2.1 Salary. In consideration of Employee performing his duties
under this Agreement during the Employment Period, the Company will
pay Employee a base salary at a rate of $110,000 per annum (the "Base
Salary"), payable in accordance with the Company's regular payroll
policy for salaried employees. The Base Salary may be increased (but
not decreased), from time to time during the Employment Period, as
determined by the Compensation Committee of the Board (the
"Compensation Committee"), in its sole discretion, and in any event
will be increased on January 1 of each year beginning January 1, 1999
to reflect corresponding increases in the United States Department of
Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban
Consumers, United States City Average, all items (1982-88=100). If
warranted by the growth of the Business, in the sole judgment of the
Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of
the Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to Section 1.5 above or for
any other reason, then the Base Salary for any partial year will be
prorated based on the number of days elapsed in such year during which
services were actually performed by Employee, and all such prorated
Base Salary which remains unpaid, together with accrued but unused
vacation and sick pay, if any, shall be paid by the Company to
Employee within five days after the effective date of termination of
the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
Compensation Program (the "Bonus Program"), under which Employee shall
be eligible to earn an annual bonus of up to 100% of Employee's Base
Salary based upon such factors as (i) the financial performance of the
Company, (ii) the financial performance of Compass, and/or (iii) the
achievement of personal performance goals. The criteria and/or goals
for
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the Bonus Program shall be established by the Compensation Committee
at the beginning of each fiscal year after consultation with Employee.
All bonuses awarded to Employee hereunder shall be payable in
accordance with Company policy. If the Employment Period is terminated
pursuant to Section 1.5 above then the foregoing bonus for any partial
year will be determined based on annualizing results to the date of
the termination and will be prorated based upon the number of days
elapsed in such year during which services were actually performed by
Employee, and shall be paid within five days of the effective date of
such termination of the Employment Period.
2.3 Compensation After Termination of Employment.
(a) If the Company shall terminate Employee's employment
during the Employment Period for any reason (other than for Cause
pursuant to Section 1.5 of this Agreement), or if Employee shall
voluntarily terminate his employment during the Employment Period
and within 60 days after a Constructive Termination (as defined
below), Employee shall be entitled to receive severance
compensation equal to (A) the amount of his Base Salary for a
period of two years commencing on the last day of the Employment
Period (the "Severance Period"), (B) (i) if permitted under
Company's group health insurance coverage, continuation at the
cost of Company of coverage thereunder for Employee and, if
dependent coverage is then in effect, his covered dependents
(subject to such changes in coverage as shall apply to Company's
employees generally and provided that if the cost of dependent
coverage prior to termination of employment was being paid by
Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the
premiums for group health insurance coverage otherwise payable by
Employee under COBRA, until the end of the Severance Period or
until other employment is obtained, whichever occurs first, and
(C) his pro rated bonus, as determined by the Compensation
Committee in its good faith judgement, for the period of any
partial fiscal year immediately preceding the termination date in
accordance with Section 2.2. above ((A), (B) and (C)
collectively, the "Severance Benefits"). The Severance Benefits
payable under (A) and (B)(ii) above shall be paid in equal
installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a
lump sum in accordance with Section 2.2 above. It shall be a
condition to Employee's right to receive the Severance Benefits
that (i) Employee shall execute and deliver to the Company a
written separation agreement, in form and substance reasonably
satisfactory to the Company (but not inconsistent with this
Agreement), which agreement shall, among other things, contain a
general release by Employee of all claims arising out of
Employee's employment or termination of employment (but excluding
claims for indemnification for third party claims pursuant to the
Company's articles of incorporation and/or bylaw), and (ii)
Employee shall be in compliance with all of Employee's
obligations which expressly survive termination hereof, including
without limitation those arising under Sections 3 and 4 hereof.
In addition, the Company may, as a condition to such Severance
Benefits, require that Employee provide consulting services to
the Company on a reasonable basis during the first
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60 days of the Severance Period, provided that the timing of such
consulting services shall not unreasonably interfere with
Employee's ability to obtain other full-time employment. The
Severance Benefits are intended to be in lieu of all other
payments to which Employee might otherwise be entitled in respect
of termination of Employee's employment without Cause (except for
the payments required under Section 2.1). Except as expressly
provided above, no fringe or other employee benefits shall be
payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
Section 1.5, the Company shall have no further obligations
hereunder or otherwise with respect to Employee's employment from
and after the effective date of the termination of the Employment
Period (except for the payments required under Section 2.1), and
the Company shall continue to have all other rights available
hereunder (including, without limitation, all rights under
Sections 3 and 4 hereof at law or in equity).
(c) For the avoidance of doubt, Severance Benefits shall not
be payable if Employee's employment is terminated by reason of
his death or Disability, but shall continue to be payable during
the Severance Period if his employment is terminated without
Cause or by reason of Constructive Termination and he
subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be
deemed to have occurred if the Company (i) demotes Employee to a
position below that of President and CEO of the Company or
assigns the Employee duties and responsibilities that are not
commensurate with such position, (ii) reduces Employee's Base
Salary or materially reduces his employee benefits and
prerequisites, taken in the aggregate, or (ii) requires Employee
to relocate in violation of Section 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
Period, the Company agrees to provide to Employee such fringe and
other employee benefits as are generally provided, from time to time,
to senior officers of the subsidiaries of Compass (upon no less
favorable terms as provided to such officers), including without
limitation, vacation, health and insurance benefits, and the
opportunity to participate in the Compass Stock Option Plan and
Compass Stock Purchase Plan. The Company shall retain the right to
discontinue or modify any employee benefit program at any time. The
Company will reimburse Employee in accordance with Company policy for
his normal out-of-pocket expenses incurred in the course of performing
his duties hereunder.
3. Covenants.
3.1 Employee's Acknowledgment. Employee acknowledges that:
(i) the Company is and will be engaged in the Business
during the Employment Period and thereafter;
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(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and
confidence with the Company after the date of this Agreement, and
during the Employment Period and Employee's employment under this
Agreement, Employee will become familiar with the Company's
proprietary and confidential information concerning the Company
and the Business;
(iv) the agreements and covenants contained in this Section
3 are essential to protect the Company and the goodwill of the
Business and are a condition precedent to the Company's entering
into this Agreement;
(v) Employee's employment with the Company has special,
unique and extraordinary value to the Company and the Company
would be irreparably damaged if Employee were to provide services
to any person or entity in violation of the provisions of this
Agreement; and
(vi) Employee has means to support himself and his
dependents other than by engaging in the Business, or a business
substantially similar to the Business, and the provisions of this
Section 3 will not impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the
Employment Period and through the period ending with the second
anniversary of the last day of the Employment Period (collectively,
the "Restrictive Period"), he shall not, for any reason whatsoever,
directly or indirectly, whether individually or as an officer,
director, shareholder, owner, partner, joint venturer, employee,
independent contractor, consultant or advisor to or of any entity, or
in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere in the United States of
America (the "Territory"); provided, however, that nothing
contained herein shall be construed to prevent Employee from
investing in up to 5% of the outstanding stock of any competing
corporation that is publicly-traded and listed on a recognized
national, international or regional securities exchange or traded
in the U.S. over-the-counter market, but only if Employee is not
actively involved in and does not render consulting services to
the business of said corporation,
(ii) sell or provide any competitive products or services
to, or solicit for the purpose of selling or providing any
competitive products or services to, any person or entity that
was a customer of the Company at any time during the one-year
period ending on the last day of the Employment Period (the
"Termination Date") or that was known by Employee to have been
actively being solicited by the Company to become a customer of
the Company at any time during such period,
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(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to
be employed or engaged, any person who is employed or engaged by
the Company in a managerial capacity on the Termination Date or
during the Restrictive Period, unless such person has been out of
the employ of the Company for at least 180 days; provided, that
the Employee shall be permitted to solicit and hire any member of
his immediate family, or
(iv) enter into, or call upon or request non-public
information for the purpose of entering into, an Acquisition
Transaction with any entity with respect to which Company has
made an offer or proposal for, or entered into discussions or
negotiations for, or evaluated with the intent of making a
proposal for, an Acquisition Transaction, within the six-month
period immediately preceding the Termination Date.
For purposes of this Agreement, an "Acquisition Transaction"
means a merger, consolidation, purchase of material assets, purchase
of a material equity interest, tender offer, recapitalization,
accumulation of shares, proxy solicitation or other business
combination.
3.3 Intellectual Property Rights. Employee will promptly
communicate, disclose and transfer to the Company free of all
encumbrances and restrictions (and will execute and deliver any papers
and take any reasonable action at any time deemed reasonably necessary
by the Company to further establish such transfer) all of Employee's
right, title and interest in and to all ideas, discoveries, inventions
and improvements relating to the Business created, originated,
developed or conceived of by Employee solely or jointly with others
during the term of Employee's employment hereunder, whether or not
during normal working hours. Employee agrees that all right, title and
interest in and to all such ideas, discoveries, inventions and
improvements shall belong solely to the Company, whether or not they
are protected or protectible under applicable patent, trademark,
service mark, copyright or trade secret laws. Employee agrees that all
work or other material containing or reflecting any such ideas,
discoveries, inventions or improvements shall be deemed work made for
hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark
and service mark rights, and trade secret rights (if any) to such
ideas, discoveries, inventions and improvements in the United States
and in all other countries. Employee further agrees, at the expense of
the Company, to take all such reasonable actions and to execute and
deliver all such assignments and other lawful papers relating to any
aspect of the prosecution of such rights in the United States and all
other countries as the Company may request at any time during the
Employment Period or after termination thereof.
3.4 Interference with Relationships. Other than in the
performance of his duties hereunder, during the Restrictive Period,
Employee shall not, directly or indirectly, as employee, agent,
consultant, stockholder, director, partner or in any other individual
or representative capacity, solicit or intentionally encourage any
present or
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<PAGE>
future customer, supplier or other third party to terminate or
otherwise alter his, her or its relationship with the Company.
3.5 Confidential Information. Other than in the performance of
his duties hereunder, during the Restrictive Period and thereafter,
Employee shall keep secret and retain in strictest confidence, and
shall not, without the prior written consent of the Company, directly
or indirectly furnish, make available or disclose to any third party
or use for the benefit of himself or any third party, any Confidential
Information. As used in this Agreement, "Confidential Information"
shall mean any information relating to the business or affairs of the
Company or the Business, including, but not limited to, information
relating to financial statements, employees, customers, suppliers,
pricing, marketing, equipment, programs, strategies, analyses, profit
margins, or other proprietary information of or used by Compass, the
Company or any other subsidiary of Compass in connection with the
Business; provided, however, that Confidential Information shall not
include any information which is in the public domain or becomes known
in the industry through no wrongful act on the part of Employee.
Employee acknowledges that the Confidential Information is vital,
sensitive, confidential and proprietary to the Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at
any time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this Section 3 shall nevertheless
stand, the Restrictive Period herein shall be deemed to be the longest
period permissible by law under the circumstances and the Territory
herein shall be deemed to comprise the largest territory permissible
by law under the circumstances. The court in each case shall reduce
the time period and/or territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and
other supplier information, financial information, memoranda,
correspondence and other records or documents including information
stored on computer disks or in computer readable form, containing
Confidential Information prepared by Employee or coming into
Employee's possession by virtue of Employee's employment by the
Company is and shall remain the property of the Company and that upon
termination of Employee's employment hereunder, Employee shall return
immediately to the Company all such items, together with all copies
thereof, in Employee's possession.
3.8 Remedies. Employee acknowledges and agrees that the covenants
set forth in this Section 3 (collectively, the "Restrictive
Covenants") are reasonable and necessary for the protection of the
Company's business interests, that irreparable injury will result to
the Company if Employee breaches any of the terms of said Restrictive
Covenants, and that in the event Employee breaches or threatens to
breach any such Restrictive Covenants, the Company will have no
adequate remedy at law. Employee accordingly agrees that in the event
Employee breaches or threatens to breach any of the Restrictive
Covenants, the Company shall be entitled to immediate temporary
injunctive and other equitable relief, without the necessity of
showing actual monetary damages.
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<PAGE>
Nothing contained herein shall be construed as prohibiting the Company
from pursuing any other remedies available to it for such breach or
the threat of such a breach by Employee, including the recovery of any
damages which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company"
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the
Company or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in Sections 2.3, 3, 4, 5 and 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it
is the intention of the Company to deduct all amounts paid under Section 2
hereof as ordinary and necessary business expenses for income tax purposes.
Employee agrees and represents that he will treat all such amounts as required
pursuant to all applicable tax laws and regulations.
6. Miscellaneous.
6.1 Life Insurance. The Company may at its discretion and at any
time apply for and procure as owner and for its own benefit and at its
own expense, insurance on the life of Employee in such amounts and in
such form or forms as the Company may choose. Employee shall cooperate
with the Company in procuring such insurance and shall, at the request
of the Company, submit to such medical examinations, supply such
information and execute such documents as may be reasonably and
customarily required by the insurance company or companies to whom the
Company has applied for such insurance. Employee shall have no
interest whatsoever in any such policy or policies, except that, upon
the termination of Employee's employment hereunder, Employee may
purchase any and all such insurance from the Company for an amount
equal to the actual premiums thereon previously paid by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
rights or obligations hereunder without the prior written consent of
the other party hereto; provided, however, that the Company shall have
the right to assign all or any part of its rights and obligations
under this Agreement upon written notice to Employee (i) to any
affiliate of the Company to which the Business of the Company is
assigned at any time (provided that the Company and Compass shall
remain liable for all obligations of Company hereunder) or any
surviving entity following any merger or consolidation of the Company
and any other entity or (ii) in connection with the sale of the
Business by the Company. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the
benefit of the respective legal representatives, heirs, permitted
successors and assigns of the parties hereto whether so expressed or
not.
6.3 Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement sets forth the entire understanding of the
parties, and supersedes and preempts
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all prior oral or written understandings and agreements, with respect
to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
Agreement shall 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 shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the
party against whom enforcement of such amendment, modification or
waiver is sought. No waiver shall be deemed a continuing waiver or a
waiver in respect of any subsequent breach or default, either of a
similar or different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced
in accordance with, and all questions concerning the construction,
validity, interpretation and performance of this Agreement shall be
governed by, the laws of the State of New Jersey, without giving
effect to provisions thereof regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been
properly served if (a) delivered personally, (b) delivered by a
nationally recognized overnight courier service, (c) sent by certified
or registered mail, return receipt requested and first class postage
prepaid, or (d) sent by facsimile transmission followed by a
confirmation copy delivered by a nationally recognized overnight
courier service the next day. Such notices, demands and other
communications shall be sent to the addresses indicated below:
(a) If to Employee:
Mr. Edward A. DuCoin
c/o Impact Telemarketing Group, Inc.
15 East Center Street
Woodbury, NJ 08090
with a copy to:
Robert Amron
1236 Brace Road, Suite K
P.O. Box 2626
Cherry Hill, NJ 08034-0219
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<PAGE>
(b) If to the Company:
Impact Telemarketing Group, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention
of such other person or entity as the recipient party has
specified by prior written notice to the sending party. Date of
service of such notice shall be (i) the date such notice is
personally delivered or sent by facsimile transmission (with
issuance by the transmitting machine of a confirmation of
successful transmission), (ii) five business days after the date
of mailing if sent by certified or registered mail or (iii) one
business day after date of delivery to the overnight courier if
sent by overnight courier.
6.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive
headings in this Agreement are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. The use of the word "including" in
this Agreement shall be by way of example rather than by limitation.
The Preliminary Recitals set forth above are incorporated by reference
into this Agreement.
6.10 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties hereto to
express their mutual interest, and no rule of strict construction will
be applied against any party hereto.
6.11 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach
thereof, other than a claim solely for injunctive relief for any
alleged breach of the provisions of Section 3 as to which the parties
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shall have the right to apply for relief in any court of competent
jurisdiction, shall be resolved by arbitration in Philadelphia,
Pennsylvania, in accordance with the Federal Arbitration Act and the
National Rules for the Resolution of Employment Disputes of the
American Arbitration Association. Judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if such party so elects,
institute proceedings in any court having jurisdiction for the
specific performance of any such award. Without limiting the
generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims
arising out of or related to this Employment Agreement or breach
thereof; (ii) any claims arising under any federal, state, or local
statute or the common law of any state, regarding compensation or
employee benefits, or discrimination, retaliation, harassment, or
denial of equal employment opportunity based on sex, race, color,
religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the
common law of the United States or any state relating to Employee's
employment with Company, including without limitation claims alleging
negligence, defamation, public policy, tort, infliction of emotional
distress, fraud, or misrepresentation; or (iv) any civil claims that
Company may have against Employee relating to Employee's employment
with Company. Anything herein to the contrary notwithstanding, this
Section 6.11 shall not apply to: (i) any claim by Employee for workers
compensation benefits or unemployment compensation benefits; or (ii)
any claim by Company for injunctive or equitable relief, including
without limitation claims related to the enforcement of Section 3
hereof, which may be brought in any court of competent jurisdiction.
Employee and Company expressly waive any right to resolve any dispute
covered by this Section by filing suit in court for trial by a judge
or jury. The arbitrator shall include in any award in the prevailing
party's favor costs and expenses of the arbitration. In the event the
arbitrator does not rule in favor of the prevailing party in respect
of all the claims alleged by such party, the arbitrator shall include
in any award in favor of the prevailing party the amount of his or its
reasonable costs and expenses of the arbitration as he deems just and
equitable under the circumstances. Except as provided above, each
party to the arbitration shall bear his or its own attorney's fees and
expenses and the parties shall bear equally all other costs and
expenses of the arbitration.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
IMPACT TELEMARKETING GROUP, INC.
By:
--------------------------------------
Its:
-------------------------------------
EMPLOYEE:
-----------------------------------------
Edward A. DuCoin
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
--------------------------------------
Its:
-------------------------------------
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EXHIBIT 10.16
EMPLOYMENT AGREEMENT
BY AND BETWEEN
IMPACT TELEMARKETING GROUP, INC.
AND
David T. DuCoin
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
__________________, 1997, by and between Impact Telemarketing Group, Inc., a New
Jersey corporation (the "Company"), and David T. DuCoin ("Employee").
PRELIMINARY RECITALS
A. Reference is made to that certain Stock Purchase Agreement dated as of
___________________, 1997 (the "Purchase Agreement"), by and among the Company,
Impact Telemarketing, Inc. ("IT"), Compass International Services Corporation, a
Delaware corporation ("Compass"), and the Stockholders of the Company and IT
identified on Schedule A to the Purchase Agreement, providing for the purchase
by Compass of all of the issued and outstanding stock of the Company and IT.
B. The Company and IT provide outbound and inbound telemarketing services
to national and regional companies throughout the United States (the
"Business").
C. Employee has been a substantial owner of the Company and IT since their
inception, and has extensive knowledge and a unique understanding of the
Business and has developed longstanding business relationships with customers
and other business constituencies who are involved in the Business of the
Company and IT.
D. The Company desires to employ Employee, and Employee desires to be
employed by the Company, all under the terms and conditions set forth herein.
E. It is a condition to the consummation of the Purchase Agreement that
the Company and Employee enter into this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Employment.
1.1 Engagement of Employee. The Company agrees to employ Employee as
President and Chief Executive Officer ("CEO") of the Company and Employee
agrees to accept such employment, all in accordance with the terms and
conditions of this Agreement.
1.2 Duties and Powers. At all times during the Employment Period (as
defined herein), Employee will serve as the Company's President and CEO and
will have such responsibilities, duties and authority, and will render such
services for the Company and its affiliates, as the Board of Directors of
Compass (the "Board") shall from time to time
<PAGE>
reasonably direct; provided, however, that such duties and
responsibilities, duties, authority and services shall be commensurate with
the position of President and CEO of the Company. Employee agrees
diligently and faithfully to serve the Company and to devote Employee's
best efforts, highest talents and skills and full time and attention to the
furtherance and success of the Business.
1.3 Employment Period. Employee's employment under this Agreement
shall be for a period of five years beginning as of the date of this
Agreement (the "Initial Employment Period"). This Agreement shall
automatically renew for successive one-year periods (each one-year period
shall be referred to herein as a "Renewal Period") unless either the
Company or Employee, as the case may be, provides written notice to the
other party at least ninety (90) days prior to the termination of any such
period, stating its/his desire to terminate this Agreement. The Initial
Employment Period and each successive Renewal Period shall be referred to
herein together as the "Employment Period". Notwithstanding anything to
the contrary contained herein, the Employment Period is subject to
termination pursuant to Section 1.5 below.
1.4 Place of Employment. Employee's services hereunder shall be
rendered at such locations in the greater Philadelphia metropolitan area as
shall be determined by the Board, subject to such travel as may be
reasonably required in connection with the Business. Employee shall not be
required to relocate to any other area without his consent.
1.5 Termination of Employment for Cause, Death or Disability. The
Company has the right to terminate Employee's employment under this
Agreement, by notice to Employee in writing at any time, for Cause (as
hereinafter defined), and such employment shall automatically be terminated
upon the death or the Disability (as hereinafter defined) of Employee. Any
such termination shall be effective upon the date of service of such notice
pursuant to Section 6.7 hereof, in the case of termination for Cause, or
immediately upon the death or Disability of Employee, and the Employment
Period shall terminate as of the effective date of such termination.
"Cause," as used herein, means the occurrence of any of the following
events:
(i) final non-appealable conviction of (A) a felony or (B) any
crime involving moral turpitude;
(ii) the willful failure of Employee to comply with reasonable
and lawful directions of the Board after (A) written notice is
delivered to Employee describing such willful failure and (B) Employee
has failed to cure or take substantial steps to cure such willful
failure after a reasonable time period, as determined by the Board in
its reasonable discretion (not to be less than 60 days);
(iii) the good faith determination by the Board in the exercise
of its reasonable judgment that Employee has committed an act or acts
in the course of his employment constituting fraud or misappropriation
of material Company property;
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(iv) a material breach by Employee of any of the terms,
conditions or covenants set forth in Section 3 of this Agreement; or
(v) a material breach by Employee of any of the terms or
conditions of this Agreement if (A) written notice is delivered to
Employee describing such breach and (B) Employee has failed to cure or
take substantial steps to cure such breach after a reasonable time
period, as determined by the Board in its reasonable discretion (not
to be less than 60 days).
Employee shall be deemed to have a "Disability" for purposes of this
Agreement if he is unable to perform, by reason of physical or mental
incapacity, his material duties or obligations under this Agreement, with
or without reasonable accommodation, for a total period of 120 days in any
360-day period. The Board shall determine, according to the facts then
available, whether and when the Disability of the Employee has occurred.
Such determination shall not be arbitrary or unreasonable and the Board
will, if available, take into consideration the expert medical opinion of a
physician mutually agreed upon by Employee and the Company, after such
physician has completed an examination of Employee. Employee agrees to
make reasonable efforts to make himself available for such examination upon
the reasonable request of the Company.
2. Compensation and Benefits.
2.1 Salary. In consideration of Employee performing his duties under
this Agreement during the Employment Period, the Company will pay Employee
a base salary at a rate of $110,000 per annum (the "Base Salary"), payable
in accordance with the Company's regular payroll policy for salaried
employees. The Base Salary may be increased (but not decreased), from time
to time during the Employment Period, as determined by the Compensation
Committee of the Board (the "Compensation Committee"), in its sole
discretion, and in any event will be increased on January 1 of each year
beginning January 1, 1999 to reflect corresponding increases in the United
States Department of Labor, Bureau of Labor Statistics, Consumer Price
Index, All Urban Consumers, United States City Average, all items (1982-
88=100). If warranted by the growth of the Business, in the sole judgment
of the Compensation Committee, the Base Salary will be increased as of
January 1, 1999 to the level of the Base Salary of the other CEO's of the
Founding Companies (as defined in the Purchase Agreement). If the
Employment Period is terminated pursuant to Section 1.5 above or for any
other reason, then the Base Salary for any partial year will be prorated
based on the number of days elapsed in such year during which services were
actually performed by Employee, and all such prorated Base Salary which
remains unpaid, together with accrued but unused vacation and sick pay, if
any, shall be paid by the Company to Employee within five days after the
effective date of termination of the Employment Period.
2.2 Bonus. Employee shall participate in Compass' Executive
Compensation Program (the "Bonus Program"), under which Employee shall be
eligible to earn an annual bonus of up to 100% of Employee's Base Salary
based upon such factors as (i) the
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financial performance of the Company, (ii) the financial performance of
Compass, and/or (iii) the achievement of personal performance goals. The
criteria and/or goals for the Bonus Program shall be established by the
Compensation Committee at the beginning of each fiscal year after
consultation with Employee. All bonuses awarded to Employee hereunder shall
be payable in accordance with Company policy. If the Employment Period is
terminated pursuant to Section 1.5 above then the foregoing bonus for any
partial year will be determined based on annualizing results to the date of
the termination and will be prorated based upon the number of days elapsed
in such year during which services were actually performed by Employee, and
shall be paid within five days of the effective date of such termination of
the Employment Period.
2.3 Compensation After Termination of Employment.
(a) If the Company shall terminate Employee's employment during
the Employment Period for any reason (other than for Cause pursuant to
Section 1.5 of this Agreement), or if Employee shall voluntarily
terminate his employment during the Employment Period and within 60
days after a Constructive Termination (as defined below), Employee
shall be entitled to receive severance compensation equal to (A) the
amount of his Base Salary for a period of two years commencing on the
last day of the Employment Period (the "Severance Period"), (B) (i) if
permitted under Company's group health insurance coverage,
continuation at the cost of Company of coverage thereunder for
Employee and, if dependent coverage is then in effect, his covered
dependents (subject to such changes in coverage as shall apply to
Company's employees generally and provided that if the cost of
dependent coverage prior to termination of employment was being paid
by Employee, such cost shall continue to be payable by Employee) or
(ii) if not so permitted, reimbursement by the Company of the premiums
for group health insurance coverage otherwise payable by Employee
under COBRA, until the end of the Severance Period or until other
employment is obtained, whichever occurs first, and (C) his pro rated
bonus, as determined by the Compensation Committee in its good faith
judgement, for the period of any partial fiscal year immediately
preceding the termination date in accordance with Section 2.2. above
((A), (B) and (C) collectively, the "Severance Benefits"). The
Severance Benefits payable under (A) and (B)(ii) above shall be paid
in equal installments on the Company's normal payroll payment dates
occurring during the first 60 days of the Severance Period. The
Severance Benefits payable under (C) above shall be paid in a lump sum
in accordance with Section 2.2 above. It shall be a condition to
Employee's right to receive the Severance Benefits that (i) Employee
shall execute and deliver to the Company a written separation
agreement, in form and substance reasonably satisfactory to the
Company (but not inconsistent with this Agreement), which agreement
shall, among other things, contain a general release by Employee of
all claims arising out of Employee's employment or termination of
employment (but excluding claims for indemnification for third party
claims pursuant to the Company's articles of incorporation and/or
bylaw), and (ii) Employee shall be in compliance with all of
Employee's obligations which expressly survive termination
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hereof, including without limitation those arising under Sections 3
and 4 hereof. In addition, the Company may, as a condition to such
Severance Benefits, require that Employee provide consulting services
to the Company on a reasonable basis during the first 60 days of the
Severance Period, provided that the timing of such consulting services
shall not unreasonably interfere with Employee's ability to obtain
other full-time employment. The Severance Benefits are intended to be
in lieu of all other payments to which Employee might otherwise be
entitled in respect of termination of Employee's employment without
Cause (except for the payments required under Section 2.1). Except as
expressly provided above, no fringe or other employee benefits shall
be payable during or after the Severance Period.
(b) If Employee's employment shall be terminated pursuant to
Section 1.5, the Company shall have no further obligations hereunder
or otherwise with respect to Employee's employment from and after the
effective date of the termination of the Employment Period (except for
the payments required under Section 2.1), and the Company shall
continue to have all other rights available hereunder (including,
without limitation, all rights under Sections 3 and 4 hereof at law or
in equity).
(c) For the avoidance of doubt, Severance Benefits shall not be
payable if Employee's employment is terminated by reason of his death
or Disability, but shall continue to be payable during the Severance
Period if his employment is terminated without Cause or by reason of
Constructive Termination and he subsequently dies or becomes disabled.
(d) "Constructive Termination" as used herein, shall be deemed to
have occurred if the Company (i) demotes Employee to a position below
that of President and CEO of the Company or assigns the Employee
duties and responsibilities that are not commensurate with such
position, (ii) reduces Employee's Base Salary or materially reduces
his employee benefits and prerequisites, taken in the aggregate, or
(ii) requires Employee to relocate in violation of Section 1.4.
2.4 Benefits, Expenses and Pension Plan. During the Employment
Period, the Company agrees to provide to Employee such fringe and other
employee benefits as are generally provided, from time to time, to senior
officers of the subsidiaries of Compass (upon no less favorable terms as
provided to such officers), including without limitation, vacation, health
and insurance benefits, and the opportunity to participate in the Compass
Stock Option Plan and Compass Stock Purchase Plan. The Company shall
retain the right to discontinue or modify any employee benefit program at
any time. The Company will reimburse Employee in accordance with Company
policy for his normal out-of-pocket expenses incurred in the course of
performing his duties hereunder.
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3. Covenants.
3.1 Employee's Acknowledgment. Employee acknowledges that:
(i) the Company is and will be engaged in the Business during the
Employment Period and thereafter;
(ii) Employee is one of a limited number of persons who will
manage the Business;
(iii) Employee will occupy a position of trust and confidence
with the Company after the date of this Agreement, and during the
Employment Period and Employee's employment under this Agreement,
Employee will become familiar with the Company's proprietary and
confidential information concerning the Company and the Business;
(iv) the agreements and covenants contained in this Section 3 are
essential to protect the Company and the goodwill of the Business and
are a condition precedent to the Company's entering into this
Agreement;
(v) Employee's employment with the Company has special, unique
and extraordinary value to the Company and the Company would be
irreparably damaged if Employee were to provide services to any person
or entity in violation of the provisions of this Agreement; and
(vi) Employee has means to support himself and his dependents
other than by engaging in the Business, or a business substantially
similar to the Business, and the provisions of this Section 3 will not
impair such ability.
3.2 Non-Compete. Employee hereby agrees that during the Employment
Period and through the period ending with the second anniversary of the
last day of the Employment Period (collectively, the "Restrictive Period"),
he shall not, for any reason whatsoever, directly or indirectly, whether
individually or as an officer, director, shareholder, owner, partner, joint
venturer, employee, independent contractor, consultant or advisor to or of
any entity, or in any other capacity:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere in the United States of America
(the "Territory"); provided, however, that nothing contained herein
shall be construed to prevent Employee from investing in up to 5% of
the outstanding stock of any competing corporation that is publicly-
traded and listed on a recognized national, international or regional
securities exchange or traded in the U.S. over-the-counter market, but
only if Employee is not actively involved in and does not render
consulting services to the business of said corporation,
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(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any competitive
products or services to, any person or entity that was a customer of
the Company at any time during the one-year period ending on the last
day of the Employment Period (the "Termination Date") or that was
known by Employee to have been actively being solicited by the Company
to become a customer of the Company at any time during such period,
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly cause to be
employed or engaged, any person who is employed or engaged by the
Company in a managerial capacity on the Termination Date or during the
Restrictive Period, unless such person has been out of the employ of
the Company for at least 180 days; provided, that the Employee shall
be permitted to solicit and hire any member of his immediate family,
or
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition Transaction with any
entity with respect to which Company has made an offer or proposal
for, or entered into discussions or negotiations for, or evaluated
with the intent of making a proposal for, an Acquisition Transaction,
within the six-month period immediately preceding the Termination
Date.
For purposes of this Agreement, an "Acquisition Transaction" means a
merger, consolidation, purchase of material assets, purchase of a material
equity interest, tender offer, recapitalization, accumulation of shares,
proxy solicitation or other business combination.
3.3 Intellectual Property Rights. Employee will promptly
communicate, disclose and transfer to the Company free of all encumbrances
and restrictions (and will execute and deliver any papers and take any
reasonable action at any time deemed reasonably necessary by the Company to
further establish such transfer) all of Employee's right, title and
interest in and to all ideas, discoveries, inventions and improvements
relating to the Business created, originated, developed or conceived of by
Employee solely or jointly with others during the term of Employee's
employment hereunder, whether or not during normal working hours.
Employee agrees that all right, title and interest in and to all such
ideas, discoveries, inventions and improvements shall belong solely to the
Company, whether or not they are protected or protectible under applicable
patent, trademark, service mark, copyright or trade secret laws. Employee
agrees that all work or other material containing or reflecting any such
ideas, discoveries, inventions or improvements shall be deemed work made
for hire as defined in Section 101 of the Copyright Act, 15 U.S.C.(S)101.
Such transfer shall include all patent rights, copyrights, trademark and
service mark rights, and trade secret rights (if any) to such ideas,
discoveries, inventions and improvements in the United States and in all
other countries. Employee further agrees, at the expense of the Company,
to take all such reasonable actions and to execute and deliver all such
assignments and other lawful papers relating to
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any aspect of the prosecution of such rights in the United States and all
other countries as the Company may request at any time during the
Employment Period or after termination thereof.
3.4 Interference with Relationships. Other than in the performance
of his duties hereunder, during the Restrictive Period, Employee shall not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, partner or in any other individual or representative capacity,
solicit or intentionally encourage any present or future customer, supplier
or other third party to terminate or otherwise alter his, her or its
relationship with the Company.
3.5 Confidential Information. Other than in the performance of his
duties hereunder, during the Restrictive Period and thereafter, Employee
shall keep secret and retain in strictest confidence, and shall not,
without the prior written consent of the Company, directly or indirectly
furnish, make available or disclose to any third party or use for the
benefit of himself or any third party, any Confidential Information. As
used in this Agreement, "Confidential Information" shall mean any
information relating to the business or affairs of the Company or the
Business, including, but not limited to, information relating to financial
statements, employees, customers, suppliers, pricing, marketing, equipment,
programs, strategies, analyses, profit margins, or other proprietary
information of or used by Compass, the Company or any other subsidiary of
Compass in connection with the Business; provided, however, that
Confidential Information shall not include any information which is in the
public domain or becomes known in the industry through no wrongful act on
the part of Employee. Employee acknowledges that the Confidential
Information is vital, sensitive, confidential and proprietary to the
Company and Compass.
3.6 Blue-Pencil. If any court of competent jurisdiction shall at any
time deem the Restrictive Period too lengthy or the Territory too
extensive, the other provisions of this Section 3 shall nevertheless stand,
the Restrictive Period herein shall be deemed to be the longest period
permissible by law under the circumstances and the Territory herein shall
be deemed to comprise the largest territory permissible by law under the
circumstances. The court in each case shall reduce the time period and/or
territory to permissible duration or size.
3.7 Return of Company Materials Upon Termination. Employee
acknowledges that all price lists, sales manuals, catalogs, binders,
customer lists and other customer information, supplier lists and other
supplier information, financial information, memoranda, correspondence and
other records or documents including information stored on computer disks
or in computer readable form, containing Confidential Information prepared
by Employee or coming into Employee's possession by virtue of Employee's
employment by the Company is and shall remain the property of the Company
and that upon termination of Employee's employment hereunder, Employee
shall return immediately to the Company all such items, together with all
copies thereof, in Employee's possession.
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3.8 Remedies. Employee acknowledges and agrees that the covenants
set forth in this Section 3 (collectively, the "Restrictive Covenants") are
reasonable and necessary for the protection of the Company's business
interests, that irreparable injury will result to the Company if Employee
breaches any of the terms of said Restrictive Covenants, and that in the
event Employee breaches or threatens to breach any such Restrictive
Covenants, the Company will have no adequate remedy at law. Employee
accordingly agrees that in the event Employee breaches or threatens to
breach any of the Restrictive Covenants, the Company shall be entitled to
immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages. Nothing contained herein
shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or the threat of such a breach by
Employee, including the recovery of any damages which it is able to prove.
3.9 Company. For purposes of this Section 3, the term "Company"
shall include the Company and its respective subsidiaries, affiliates,
permitted assignees and any permitted successors in interest of the Company
or its subsidiaries or affiliates.
4. Effect of Termination. If Employee or the Company should terminate
Employee's employment for any reason, then, notwithstanding such termination,
those provisions contained in Sections 2.3, 3, 4, 5 and 6 hereof shall remain in
full force and effect.
5. Income Tax Treatment. Employee and the Company acknowledge that it is
the intention of the Company to deduct all amounts paid under Section 2 hereof
as ordinary and necessary business expenses for income tax purposes. Employee
agrees and represents that he will treat all such amounts as required pursuant
to all applicable tax laws and regulations.
6. Miscellaneous.
6.1 Life Insurance. The Company may at its discretion and at any
time apply for and procure as owner and for its own benefit and at its own
expense, insurance on the life of Employee in such amounts and in such form
or forms as the Company may choose. Employee shall cooperate with the
Company in procuring such insurance and shall, at the request of the
Company, submit to such medical examinations, supply such information and
execute such documents as may be reasonably and customarily required by the
insurance company or companies to whom the Company has applied for such
insurance. Employee shall have no interest whatsoever in any such policy
or policies, except that, upon the termination of Employee's employment
hereunder, Employee may purchase any and all such insurance from the
Company for an amount equal to the actual premiums thereon previously paid
by the Company.
6.2 Assignment. No party hereto may assign or delegate any of its
rights or obligations hereunder without the prior written consent of the
other party hereto; provided, however, that the Company shall have the
right to assign all or any part of its rights and obligations under this
Agreement upon written notice to Employee (i) to any affiliate of the
Company to which the Business of the Company is assigned at any time
(provided that the
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Company and Compass shall remain liable for all obligations of Company
hereunder) or any surviving entity following any merger or consolidation of
the Company and any other entity or (ii) in connection with the sale of the
Business by the Company. Except as otherwise expressly provided herein, all
covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
legal representatives, heirs, permitted successors and assigns of the
parties hereto whether so expressed or not.
6.3 Entire Agreement. Except as otherwise expressly set forth
herein, this Agreement sets forth the entire understanding of the parties,
and supersedes and preempts all prior oral or written understandings and
agreements, with respect to the subject matter hereof.
6.4 Severability. Whenever possible, each provision of this
Agreement shall 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 shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
6.5 Amendment; Modification. No amendment or modification of this
Agreement and no waiver by any party of the breach of any covenant
contained herein shall be binding unless executed in writing by the party
against whom enforcement of such amendment, modification or waiver is
sought. No waiver shall be deemed a continuing waiver or a waiver in
respect of any subsequent breach or default, either of a similar or
different nature, unless expressly so stated in writing.
6.6 Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by, the
laws of the State of New Jersey, without giving effect to provisions
thereof regarding conflict of laws.
6.7 Notices. All notices, demands or other communications to be
given or delivered hereunder or by reason of the provisions of this
Agreement shall be in writing and shall be deemed to have been properly
served if (a) delivered personally, (b) delivered by a nationally
recognized overnight courier service, (c) sent by certified or registered
mail, return receipt requested and first class postage prepaid, or (d) sent
by facsimile transmission followed by a confirmation copy delivered by a
nationally recognized overnight courier service the next day. Such
notices, demands and other communications shall be sent to the addresses
indicated below:
(a) If to Employee:
Mr. David T. DuCoin
c/o Impact Telemarketing Group, Inc.
15 East Center Street
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Woodbury, NJ 08090
with a copy to:
Robert Amron
1236 Brace Road, Suite K
P.O. Box 2626
Cherry Hill, NJ 08034-0219
(b) If to the Company:
Impact Telemarketing Group, Inc.
c/o Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Compass International Services Corporation
5 Independence Way, Suite 300
Princeton, NJ 08540
Attention: President
with a copy to:
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, IL 60661
Attention: Howard S. Lanznar, Esq.
or to such other address or facsimile number or to the attention of such
other person or entity as the recipient party has specified by prior
written notice to the sending party. Date of service of such notice shall
be (i) the date such notice is personally delivered or sent by facsimile
transmission (with issuance by the transmitting machine of a confirmation
of successful transmission), (ii) five business days after the date of
mailing if sent by certified or registered mail or (iii) one business day
after date of delivery to the overnight courier if sent by overnight
courier.
6.8 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
6.9 Descriptive Headings; Interpretation. The descriptive headings in
this Agreement are inserted for convenience of reference only and are not
intended to be part of or to affect the
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meaning or interpretation of this Agreement. The use of the word "including" in
this Agreement shall be by way of example rather than by limitation. The
Preliminary Recitals set forth above are incorporated by reference into this
Agreement.
6.10 No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
interest, and no rule of strict construction will be applied against any party
hereto.
6.11 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, the making, interpretation or the breach thereof, other than a
claim solely for injunctive relief for any alleged breach of the provisions of
Section 3 as to which the parties shall have the right to apply for relief in
any court of competent jurisdiction, shall be resolved by arbitration in
Philadelphia, Pennsylvania, in accordance with the Federal Arbitration Act and
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association. Judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof and any party to the
arbitration may, if such party so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. Without
limiting the generality of the foregoing sentence, the claims to which this
provision shall apply include, but are not limited to: (i) any claims arising
out of or related to this Employment Agreement or breach thereof; (ii) any
claims arising under any federal, state, or local statute or the common law of
any state, regarding compensation or employee benefits, or discrimination,
retaliation, harassment, or denial of equal employment opportunity based on sex,
race, color, religion, national origin, disability, age, marital status, or any
other category protected by law; (iii) any claims arising under the common law
of the United States or any state relating to Employee's employment with
Company, including without limitation claims alleging negligence, defamation,
public policy, tort, infliction of emotional distress, fraud, or
misrepresentation; or (iv) any civil claims that Company may have against
Employee relating to Employee's employment with Company. Anything herein to the
contrary notwithstanding, this Section 6.11 shall not apply to: (i) any claim by
Employee for workers compensation benefits or unemployment compensation
benefits; or (ii) any claim by Company for injunctive or equitable relief,
including without limitation claims related to the enforcement of Section 3
hereof, which may be brought in any court of competent jurisdiction. Employee
and Company expressly waive any right to resolve any dispute covered by this
Section by filing suit in court for trial by a judge or jury. The arbitrator
shall include in any award in the prevailing party's favor costs and expenses of
the arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above, each
party to the arbitration shall bear his or its own attorney's fees and expenses
and the parties shall bear equally all other costs and expenses of the
arbitration.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY:
IMPACT TELEMARKETING GROUP, INC.
By:
--------------------------------------
Its:
-------------------------------------
EMPLOYEE:
------------------------------------------
David T. DuCoin
For good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby unconditionally guarantees the payment and
performance of the obligations of the Company hereunder.
COMPASS INTERNATIONAL SERVICES CORPORATION
By:
--------------------------------------
Its:
-------------------------------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports relating to the respective
financial statements which appear in such Prospectus.
Financial Statements Date
- -------------------- ----
Compass International Services Corporation November 5, 1997
The Mail Box, Inc. November 5, 1997
Mid-Continent Agencies, Inc. October 31, 1997
Impact Telemarketing Group, Inc. November 6, 1997
We also consent to the reference to us under the heading "Experts".
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
November 12, 1997
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
November 12, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 24, 1997, with respect to the financial
statements of BRMC of Delaware, Inc. included in the Registration Statement
(Form S-1 No. 333-37205) and related Prospectus of Compass International
Services Corporation for the registration of 4,715,000 shares of its common
stock.
/s/ Ernst & Young LLP
November 11, 1997
Atlanta, Georgia
<PAGE>
Exhibit 23.11
Consent
I, Howard L. Clark, Jr., do hereby consent to the inclusion of biographical
information about me, including my name, age, position as a director of Compass
International Services Corporation, a Delaware corporation (the "Company"), my
expected term as a director of the Company and the other information required to
be provided in the Company's Registration Statement on Form S-1 (the
"Registration Statement"), as amended by Amendment No. 1 thereto, to be filed
with the Securities and Exchange Commission on or about November , 1997 which
information will appear in the section entitled "Management -- Executive
Officers and Directors." I further consent to the filing of this consent as an
exhibit to the Registration Statement.
/s/ HOWARD L. CLARK, JR.
------------------------
Howard L. Clark, Jr.
Dated: November 12, 1997
02A (07150-00003-7) 342223
<PAGE>
EXHIBIT 23.10
CONSENT
I, Tommaso Zanzotto, do hereby consent to the inclusion of biographical
information about me, including my name, age, position as a director of Compass
International Services Corporation, a Delaware corporation (the "Company"), my
expected term as a director of the Company and the other information required to
be provided in the Company's Registration Statement on Form S-1 (the
"Registration Statement"), as amended by Amendment No. 1 thereto, to be filed
with the Securities and Exchange Commission on or about November 12, 1997 which
information will appear in the section entitled "Management -- Executive
Officers and Directors." I further consent to the filing of this consent as an
exhibit to the Registration Statement.
/s/ Tommaso Zanzotto
-----------------------------
Tommaso Zanzotto
Dated: November 11, 1997
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