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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): September 30, 1998
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COMPASS INTERNATIONAL SERVICES CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 000-23217 22-3540815
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(State or Other Jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.
One Penn Plaza, Suite 4430, New York, New York 10119
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 967-7770
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Pursuant to a Stock Purchase Agreement, dated as of September 30, 1998
(the "Purchase Agreement"), Compass Receivables Management Corporation ("CRMC"),
a Delaware corporation and a wholly-owned subsidiary of the Registrant, acquired
all of the outstanding common stock of Professional American Collections, Inc.,
an Illinois corporation ("PAC"), from trusts (the "Selling Stockholders")
established by Messrs. Steven McCormick, David McCormick and Mark McCormick (the
"Principals"). In consideration for the shares of PAC, the Selling Stockholders
received $10,425,000 in cash, 659,154 unregistered shares of common stock of the
Registrant and notes of the Registrant in the aggregate principal amount of
$5,850,000. CRMC also agreed to contribute $1,275,000 to PAC in respect of a
bonus paid by PAC to Mr. John McCormick. The Purchase Agreement provides that
contingent consideration, in the form of unregistered shares of common stock of
the Registrant, may be payable by the Registrant in calendar 1999 and 2000 based
on PAC attaining certain earnings levels during calendar 1998 and 1999. The
purchase price agreed upon by the Registrant and Principals was the result of
arms-length negotiations. The cash paid pursuant to the Purchase Agreement was
borrowed under the Registrant's existing revolving credit facility.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
a) Financial Statements.
As of the date of filing of this Current Report on Form 8-K,
it is impracticable for the Registrant to provide the
financial statements required by this Item 7(a). In accordance
with Item 7(a)(4) of Form 8-K, such financial statements shall
be filed by amendment as soon as practicable and in no event
later than 60 days after the filing date of this Report on
Form 8-K.
b) Pro Forma Financial Information.
As of the date of filing of this Current Report on Form 8-K,
it is impracticable for the Registrant to provide the pro
forma financial statements required by this Item 7(b). In
accordance with Item 7(b)(2) of Form 8-K, such pro forma
financial statements shall be filed by amendment as soon as
practicable and in no event later than 60 days after the
filing date of this Report on Form 8-K.
c) Exhibits.
2.1 Stock Purchase Agreement dated as of September 30,
1998, among the Registrant, Compass Receivables
Management Corporation and the Principals named
therein. Registrant agrees to furnish supplementally
to the Commission, upon request, a copy of any
omitted schedule.
4.1 Promissory Note, dated September 30, 1998, issued by
the Registrant to the Steven B. McCormick Trust in
the principal amount of $1,950,000.
4.2 Promissory Note, dated September 30, 1998, issued by
the Registrant to the David P. McCormick Trust in
the principal amount of $1,950,000.
4.3 Promissory Note, dated September 30, 1998, issued by
the Registrant to the Mark E. McCormick Trust in the
principal amount of $1,950,000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPASS INTERNATIONAL SERVICES
CORPORATION
Dated: October 15, 1998 By: /s/ MICHAEL J. CUNNINGHAM
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Michael J. Cunningham
Chief Executive Officer
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Exhibit Index
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Sequentially
Numbered
Exhibit # Item Pages
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2.1 Stock Purchase Agreement dated as of September 30,
1998, among the Registrant, Compass Receivables
Management Corporation and the Principals named
therein. Registrant agrees to furnish supplementally to
the Commission, upon request, a copy of any omitted
schedule.
4.1 Promissory Note, dated September 30, 1998, issued by
the Registrant to the Steven B. McCormick Trust in
the principal amount of $1,950,000.
4.2 Promissory Note, dated September 30, 1998, issued by
the Registrant to the David P. McCormick Trust in
the principal amount of $1,950,000.
4.3 Promissory Note, dated September 30, 1998, issued by
the Registrant to the Mark E. McCormick Trust in the
principal amount of $1,950,000.
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Exhibit 2.1
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STOCK PURCHASE AGREEMENT
AMONG
COMPASS RECEIVABLES MANAGEMENT CORPORATION
COMPASS INTERNATIONAL SERVICES CORPORATION
JOHN McCORMICK
STEVEN McCORMICK
DAVID McCORMICK
MARK McCORMICK
STEVEN B. McCORMICK TRUST
DAVID P. McCORMICK TRUST
AND
MARK E. McCORMICK TRUST
Dated as of September 30, 1998
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TABLE OF CONTENTS
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ARTICLE I
SALE AND PURCHASE OF THE SHARES
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1.1. Sale and Purchase of the Shares....................................................................1
1.2. Place and Date.....................................................................................2
1.3. Purchase Price.....................................................................................2
1.4. Earn-Outs..........................................................................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of the Principals...................................................4
2.1.1. Authorizations, etc.....................................................................4
2.1.2. Title to Shares, etc....................................................................5
2.1.3. No Conflicts, etc.......................................................................5
2.1.4. Litigation..............................................................................5
2.1.5. Disclosure..............................................................................5
2.1.6. Trust Status............................................................................6
2.2. Representations and Warranties of the Principals as to the Company.................................6
2.2.1. Capitalization..........................................................................6
2.2.2. No Conflicts, etc.......................................................................6
2.2.3. Corporate Status, Authorization.........................................................7
2.2.4. Investments.............................................................................7
2.2.5. Financial Statements....................................................................7
2.2.6. Undisclosed Liabilities, etc............................................................8
2.2.7. Absence of Changes......................................................................8
2.2.8. Tax Matters............................................................................10
2.2.9. Assets.................................................................................11
2.2.10. Real Property.........................................................................12
2.2.11. Contracts............................................................................12
2.2.12. Intellectual Property.................................................................13
2.2.13. Insurance.............................................................................14
2.2.14. Litigation............................................................................14
2.2.15. Compliance with Laws and Instruments; Consents........................................14
2.2.16. Environmental Matters.................................................................15
2.2.17. Affiliate Transactions................................................................16
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2.2.18. Employees, Labor Matters, etc.........................................................16
2.2.19. Employee Benefit Plans and Related Matters; ERISA.....................................16
2.2.20. Accounts Receivable...................................................................19
2.2.21. Clients...............................................................................19
2.2.22. Bank and Client Trust Accounts........................................................19
2.2.23. Brokers, Finders, etc.................................................................19
2.2.24. Working Capital.......................................................................20
2.3. Representations and Warranties of Compass.........................................................20
2.3.1. Corporate Status; Authorization, etc...................................................20
2.3.2. No Conflicts, etc......................................................................20
2.3.3. Litigation.............................................................................20
2.3.4. Brokers, Finders, etc..................................................................21
2.3.5. Capitalization.........................................................................21
2.3.6. No Equity Rights.......................................................................22
2.3.7. Compass SEC Reports and Financial Statements...........................................22
2.3.8. Investment Representation..............................................................23
ARTICLE III
COVENANTS
3.1. Further Assurances and Access to Records..........................................................23
3.2. Conveyance Taxes..................................................................................23
3.3. Confidentiality...................................................................................23
3.4. Non-Competition Covenant..........................................................................24
3.5. Tax Matters.......................................................................................25
3.6. Securities Law Matters............................................................................28
3.7. Compliance with Rule 144..........................................................................29
3.8. Profit Sharing Plan...............................................................................29
3.9. First Centennial..................................................................................29
3.10. Bonus............................................................................................29
3.11. Lease............................................................................................29
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ARTICLE IV
[Intentionally Omitted]
ARTICLE V
[Intentionally Omitted]
ARTICLE VI
DEFINITIONS, MISCELLANEOUS
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6.1. Definition of Certain Terms.......................................................................30
6.2. Indemnification...................................................................................39
6.3. Survival..........................................................................................42
6.4. Expenses..........................................................................................42
6.5. Severability......................................................................................43
6.6. Notices...........................................................................................43
6.7. Miscellaneous.....................................................................................44
6.7.1. Entire Agreement.......................................................................44
6.7.2. Counterparts; Headings.................................................................44
6.7.3. Governing Law, etc.....................................................................44
6.7.4. Binding Effect; No Third Party Beneficiaries...........................................46
6.7.5. Assignment.............................................................................46
6.7.6. Amendment; Waivers, etc................................................................46
6.7.7. Specific Performance...................................................................46
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EXHIBITS
EXHIBIT A Form of Note
EXHIBIT B Form of Employment Agreement
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SCHEDULES
Schedule 1.4(d) Adjusted EBITDA Calculations
Schedule 2.1.2 Title to Shares
Schedule 2.2.2 Conflicts
Schedule 2.2.3(b) Qualifications
Schedule 2.2.5(a) Financial Statements
Schedule 2.2.6 Undisclosed Liabilities
Schedule 2.2.7 Absence of Changes
Schedule 2.2.8 Tax Matters
Schedule 2.2.9 Assets
Schedule 2.2.10(a) Owned Real Property
Schedule 2.2.10(b) Leases
Schedule 2.2.11(a) Contracts
Schedule 2.2.11(b) Contract Enforceabilty
Schedule 2.2.12(a) Owned Intellectual Property
Schedule 2.2.12(b) Other Intellectual Property
Schedule 2.2.12(c) License Agreements
Schedule 2.2.12(d) Infringement
Schedule 2.2.12(e) Intellectual Property Litigation
Schedule 2.2.12(f) Year 2000
Schedule 2.2.13 Insurance
Schedule 2.2.14 Litigation
Schedule 2.2.15 Compliance With Laws and Instruments; Consents
Schedule 2.2.17 Affiliate Transactions
Schedule 2.2.18 Employees, Labor Matters
Schedule 2.2.19(a) Employee Benefits Plans
Schedule 2.2.20 Receivables
Schedule 2.2.21(a) Collection Clients
Schedule 2.2.21(b) Credit Reporting Clients
Schedule 2.2.22 Bank and Client Trust Accounts
Schedule 6.1 Permitted Liens
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of September 30, 1998, among
Compass Receivables Management Corporation, a Delaware corporation ("COMPASS"),
Compass International Services Corporation, a Delaware corporation ("COMPASS
PARENT"), John McCormick ("JOHN MCCORMICK"), Steven B. McCormick Trust ("STEVEN
TRUST"), David P. McCormick Trust ("DAVID TRUST"), Mark E. McCormick Trust
("MARK TRUST" and, together with Steven Trust and David Trust, the "TRUSTS"),
Steven McCormick ("STEVEN MCCORMICK"), David McCormick ("DAVID MCCORMICK") and
Mark McCormick ("MARK MCCORMICK", and together with Steven McCormick and David
McCormick in their capacities as trustees with their respective trusts, the
"TRUSTEES"). John McCormick, the Trusts and Trustees are collectively referred
to herein as the "Principals."
W I T N E S S E T H :
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WHEREAS, the Trusts own all of the issued and outstanding shares of
the common stock, no par value (the "SHARES"), of Professional American
Collections, Inc., an Illinois corporation (the "COMPANY"); and
WHEREAS, the Trustees wish to cause their respective Trusts to sell
the Shares to Compass Parent and, on behalf of Compass Parent, deliver the
Shares to Compass, and Compass Parent wishes to purchase the Shares from the
Trusts, on the terms and conditions and for the consideration described in this
Agreement (defined terms having the meanings indicated in Section 6.1);
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and warranties made herein and of the mutual benefits to be
derived herefrom, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SHARES
1.1. SALE AND PURCHASE OF THE SHARES. (a) Subject to and upon the
terms and conditions set forth in this Agreement, at the Closing the Trusts will
sell all of the Shares to Compass Parent and, on behalf of Compass Parent,
deliver the Shares to Compass, and Compass Parent will purchase all of the
Shares from the Trusts and pay to the Trusts the Purchase Price in the manner
set forth in Section 1.3.
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(b) The Purchase Price shall be allocated to the Shares.
(c) Compass Parent and the Principals shall prepare all Returns in a
manner that is consistent with the allocation of the Purchase Price set forth in
Section 1.1(b), to the extent permitted by applicable Tax law.
1.2. PLACE AND DATE. The closing of the sale and purchase of the
Shares (the "CLOSING") shall take place at the close of business on September
30, 1998. (The day on which the Closing actually occurs is herein sometimes
referred to as the "CLOSING DATE.")
1.3. PURCHASE PRICE. At the Closing: (i) Compass Parent will pay an
aggregate of $10.425 million (the "INITIAL CASH AMOUNT") to the Trustees, on
behalf of the Trusts, and make a capital contribution of $1.275 million to the
Company, for the purpose of paying a bonus accrued by the Company and payable to
John McCormick (the "CAPITAL CONTRIBUTION," and together with the Initial Cash
Amount, the "CASH AMOUNT"); (ii) Compass Parent will issue and deliver to the
Trustees notes of Compass Parent in the aggregate principal amount of $5.85
million, to be substantially in the form of Exhibit A hereto (the "NOTES");
(iii) Compass Parent will issue to the Trustees the number of shares, in the
aggregate, of common stock, par value $0.01 per share, of Compass Parent (the
"COMPASS STOCK") equal to $5.85 million divided by $8.875 (the closing trading
price for a share of Compass Stock on September 29, 1998, as quoted in the Wall
Street Journal) (the "COMPASS STOCK AMOUNT"), and shall deliver to the Trustees
one or more share certificates representing such shares of Compass Stock as
promptly as practicable after the Closing Date; (iv) Compass Parent shall grant
an option to purchase 10,000 shares of Compass Stock at an exercise price of
$10.50 per share, which options shall vest at a rate of 33 1/3% per year
commencing on the first anniversary of the Closing Date, to each of John
McCormick, Steven McCormick, David McCormick and Mark McCormick; and (v) the
Trustees will cause the Trusts to, on behalf of Compass Parent, deliver to
Compass, free and clear of any Liens, one or more certificates representing all
of the Shares, duly endorsed in blank or accompanied by stock powers or other
instruments of transfer duly executed in blank, and bearing or accompanied by
all requisite stock transfer stamps. The Cash Amount, amount of the Notes and
number of shares of Compass Stock that each Trustee will receive will be
determined on a PRO RATA basis, based on the number of shares owned by their
respective Trust.
1.4. EARN-OUTS.
(a) The Trustees will be entitled to receive an earn-out payment (the
"1998 EARN-OUT") equal to 3.0 times the amount, if any, by which 1998 EBITDA (as
defined below) exceeds $4.5 million. The 1998 Earn-Out will be payable by
Compass Parent on
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March 31, 1999, and will be paid in shares of Compass Stock (the number of
shares of Compass Stock issued in payment of the 1998 Earn-Out being equal to
the 1998 Earn-Out divided by the closing trading price for a share of Compass
Stock on the last full trading day prior to March 31, 1999, as quoted in the
Wall Street Journal). The number of shares of Compass Stock that each Trustee
will receive as payment of the 1998 Earn-Out will be determined on a PRO RATA
basis, based on the number of shares owned by such Trustee's Trust.
(b) The Principals will also be entitled to receive an earn-out
payment (the "1999 EARN-OUT") equal to the lesser of (I) 3.0 times the amount,
if any, by which 1999 EBITDA (as defined below) exceeds $5.25 million and (II)
the difference of $5.6 million MINUS the 1998 Earn-Out. The 1999 Earn-Out will
be payable by Compass Parent on March 31, 2000, and will be paid in shares of
Compass Stock (the number of shares of Compass Stock issued in payment of the
1999 Earn-Out being equal to the 1999 Earn-Out divided by the closing trading
price for a share of Compass Stock on the last full trading day prior to March
31, 2000, as quoted in the Wall Street Journal). The number of shares of Compass
Stock that each Trustee will receive as payment of the 1999 Earn-Out will be
determined on a PRO RATA basis, based on the number of shares owned by such
Trustee's Trust.
(c) As promptly as practicable, but no later than March 15, 1999, in
the case of the 1998 Earn-Out, and March 15, 2000, in the case of the 1999
Earn-Out, Compass Parent will cause to be prepared by the firm of
PricewaterhouseCoopers (the "COMPASS ACCOUNTANTS") and will deliver to the
Trustees (I) the 1998 Income Statement (as defined below) or 1999 Income
Statement (as defined below), as the case may be, together with a report of the
Compass Accountants thereon, and (II) a certificate of the Compass Accountants,
setting forth the 1998 EBITDA or the 1999 EBITDA, as the case may be, with
supporting calculations in reasonable detail (collectively, the "1998 EARN-OUT
EBITDA NOTICE," or the "1999 EARN-OUT EBITDA NOTICE," as the case may be).
(d) The Trustees shall have ten (10) days from the receipt of the
1998 Earn-Out EBITDA Notice or the 1999 Earn-Out EBITDA Notice, as the case may
be, to notify Compass Parent if they dispute the amount of the 1998 EBITDA or
the 1999 EBITDA, as the case may be. If Compass Parent has not received notice
of any such dispute within such ten (10) day period, the EBITDA reflected in
such Earn-Out EBITDA Notice will be final and the respective Earn-Out shall be
paid by Compass Parent in accordance with this Section 1.4. If, however, the
Trustees have delivered notice of such a dispute to Compass Parent within such
10-day period, then Compass Accountants shall select an independent accounting
firm that has not represented any of the parties hereto within the preceding two
(2) years and is one of the five largest accounting firms in the United States
(each, a
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"NEW ACCOUNTING FIRM") to review the amount of the disputed EBITDA, the books of
the Company and those related to the Business, and the respective Earn-Out
EBITDA Notice (and related information) to determine the amount, if any, that
the disputed EBITDA is in error. Such New Accounting Firm shall be confirmed by
the Trustees and Compass Parent within five (5) days of its selection, unless
there is an actual conflict of interest. The New Accounting Firm shall make its
determination of the disputed EBITDA (the "REVISED EBITDA"), within thirty (30)
days of its selection. The Revised EBITDA shall be final and binding on the
parties hereto, and, upon such determination, the respective Earn-Out shall be
paid by Compass Parent as soon as practicable after such determination. The
costs of the New Accounting Firm shall be borne evenly between Compass Parent
and the Trustees.
(e) "1998 EBITDA" means the net income of the Business for the twelve
months ended December 31, 1998, plus interest, federal and state income taxes
(if any), depreciation and amortization of, or attributable to, the Business,
all as set forth on the 1998 Income Statement. "1998 INCOME STATEMENT" means the
audited statement of income of the Business for the twelve months ended as of
December 31, 1998, prepared on an accrual basis, consistent with Compass
Accountants' adjusted EBITDA calculations set forth on Schedule 1.4(d), and in
accordance with United States generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods presented in the Financial
Statements. "1999 EBITDA" means the net income of the Business for the twelve
months ended December 31, 1999, plus interest, federal and state income taxes
(if any), depreciation and amortization of, or attributable to, the Business,
all as set forth on the 1999 Income Statement. "1999 INCOME STATEMENT" means the
audited statement of income of the Business for the twelve months ended as of
December 31, 1999, prepared on an accrual basis, consistent with Compass
Accountants' adjusted EBITDA calculations set forth on Schedule 1.4(d), and in
accordance with GAAP applied on a consistent basis throughout the periods
presented in the Financial Statements.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS. As of the date
hereof and as of the Closing Date, each of the Principals, severally and not
jointly with the other, represents and warrants as to itself to Compass as
follows:
2.1.1. AUTHORIZATIONS, ETC. Such Principal has full power and
authority or full legal capacity to execute and deliver this Agreement and the
Employment Agreement to which it will be a party, to perform fully its
obligations hereunder or thereunder, and to
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consummate the transactions contemplated hereby and thereby. Such Principal has
duly executed and delivered this Agreement and concurrently herewith is duly
executing and delivering the Employment Agreement to which such Principal is a
party. This Agree ment constitutes, and such Employment Agreement will be,
legal, valid and binding obligations of such Principal enforceable against such
Principal in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other Laws relating to creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
2.1.2. TITLE TO SHARES, ETC. Each Trust owns beneficially and of
record, free and clear of any Liens, the number of Shares set forth next to its
name on Schedule 2.1.2. Upon the delivery of and payment for the Shares at the
Closing as provided for in this Agreement, Compass will acquire good and valid
title to all of such Shares, free and clear of any Lien other than any Lien
created by Compass.
2.1.3. NO CONFLICTS, ETC. (a) The execution, delivery and performance
by such Principal of this Agreement and the Employment Agreement to which such
Principal is a party and the consummation of the transactions contemplated
hereby and thereby, do not and will not conflict with or result in a violation
of or default under or give rise to a right of acceleration, termination,
vesting or increase payment under (with or without the giving of notice or the
lapse of time or both) or require approval under (I) any Law applicable to such
Principal or any of the properties or assets of such Principal, (II) any
material contract, agreement or other instrument to which such Principal is a
party or by which such Principal or any of its properties or assets may be bound
or affected or (III) in, the case of each Trust, its declaration of trust (or
similar Organizational Document).
(b) No Governmental Approval or Consent is required to be obtained by
such Principal in connection with the execution and delivery of this Agreement
and the Employment Agreement to which such Principal will be a party, or the
consummation of the transactions contemplated hereby and thereby.
2.1.4. LITIGATION. There is no action, claim, suit, proceeding,
arbitration or investigation pending, or to the knowledge of such Principal,
threatened against such Principal or relating to the transactions contemplated
by this Agreement or any action taken by such Principal or to be taken by such
Principal in connection with the consummation by such Principal of the
transactions contemplated hereby.
2.1.5. DISCLOSURE. No representation or warranty by or on behalf of
such Principal contained in this Agreement or the Employment Agreement to which
such
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Principal will be a party nor any of the statements or certificates furnished at
or prior to the Closing by or on behalf of such Principal to Compass or its
representatives in connection herewith or pursuant hereto, contains any untrue
statement of a material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not misleading.
There is no fact (other than matters of a general economic or political nature)
known to any such Principal that has not been disclosed by such Principal to
Compass that might reasonably be expected to have or result in a Material
Adverse Effect.
2.1.6. TRUST STATUS. Each Trust is duly formed and validly existing
under the laws of the State of Illinois and has all requisite trust power and
authority to carry on its business as now conducted. Each Trustee has all
requisite power and authority to act as Trustee of its respective Trust.
2.2. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS AS TO THE
COMPANY. As of the date hereof and as of the Closing Date, the Principals
jointly and severally represent and warrant to Compass as follows:
2.2.1. CAPITALIZATION. (a) AUTHORIZED CAPITAL STOCK OF THE COMPANY.
As of the date hereof, the authorized capital stock of the Company consists of
10,000 shares of common stock, no par value, all such shares that are issued and
outstanding, are held by the Trusts, and all such issued and outstanding shares
have been duly authorized and validly issued and are fully paid and
nonassessable.
(b) NO EQUITY RIGHTS. There are no preemptive or similar rights on
the part of any holders of any class of securities of the Company. Except for
this Agreement, no subscriptions, options, warrants, conversion or other rights,
agreements, commitments, arrangements or understandings of any kind obligating
the Principals or any other Person, contingently or otherwise, to issue or sell,
or cause to be issued or sold, any shares of capital stock of the Company or any
securities convertible into or exchangeable for any such shares, are
outstanding, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of the Principals
or any other Person to repurchase, redeem or otherwise acquire any outstanding
shares or other equity interests of the Company.
2.2.2. NO CONFLICTS, ETC. Except as set forth on Schedule 2.2.2, the
execution, delivery and performance of this Agreement and the Employment
Agreements by the Principals and the consummation of the transactions
contemplated hereby and thereby, do not and will not conflict with, contravene,
result in a violation or breach of or default under (with or without the giving
of notice or the lapse of time or both), create in any
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other Person a right or claim of termination, amendment, or require
modification, acceleration or cancellation of, or result in the creation of any
Lien (or any obligation to create any Lien) upon any of the properties or assets
of the Company under, (a) any Law applicable to the Company, or any of its
respective properties or assets, (b) any provision of any of the Organizational
Documents of the Company or (c) any material Contract, or any other material
agreement or instrument to which the Company is a party or by which any of its
properties or assets may be bound.
2.2.3. CORPORATE STATUS, AUTHORIZATION. (a) ORGANIZATION. The Company
is a corporation duly formed, validly existing and in good standing under the
laws of the State of Illinois, with all corporate power and authority to carry
on the Business and to own or lease and to operate its properties as and in the
places where such Business is conducted and such properties are owned, leased or
operated.
(b) QUALIFICATION. The Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions specified in
Schedule 2.2.3(b), which includes each jurisdiction in which the nature of its
business or the properties owned or leased by it makes such qualification or
licensing necessary.
(c) ORGANIZATIONAL DOCUMENTS. The Principals have made available to
Compass complete and correct copies of the Organizational Documents of the
Company, as amended or modified through and in effect on the date hereof. Each
of the Organizational Documents of the Company is in full force and effect. The
minute books of the Company, which have heretofore been made available to
Compass, correctly reflect (i) all corporate actions taken by the Company's
respective stockholders that such stockholders were required by applicable Law
to take, (ii) all corporate actions taken by the Company's respective directors
that such directors were required by applicable Law to take and (iii) all other
corporate actions taken by the Company's respective stockholders and directors
(including by any committee thereof).
2.2.4. INVESTMENTS. The Company does not own any shares of capital
stock or other securities, including, without limitation, any options, warrants,
conversion or other rights, of, or interest in, any other Person.
2.2.5. FINANCIAL STATEMENTS. (a) Set forth on Schedule 2.2.5(a) are
complete and correct copies of the balance sheet and statement of income and
retained earnings of the Company as of or for the fiscal years ending December
31, 1997, December 31, 1996 and December 31, 1995 and the balance sheet and
profit and loss report of the Company as of and for the eight months ending
August 31, 1998 (collectively, the "FINANCIAL STATEMENTS"). The Financial
Statements are complete and correct in all material respects,
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have been derived from the accounting books and records of the Company and have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods presented in the Financial Statements subject, in the case of
interim unaudited Financial Statements, only to normal recurring year-end
adjustments and the absence of footnotes.
(b) The balance sheets included in the Financial Statements present
fairly the financial position of the Company as at the respective dates thereof,
and the statements of income included in such Financial Statements present
fairly the results of operations of the Company for the respective periods
indicated.
2.2.6. UNDISCLOSED LIABILITIES, ETC. The Company does not have any
liabilities or obligations of any nature, whether known, unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, except (a) as
set forth in Schedule 2.2.6, (b) as and to the extent disclosed or provided for
in the balance sheet of the Company as of August 31, 1998 included in the
Financial Statements (the "BALANCE SHEET"), or specifically disclosed in the
notes thereto, and (c) for liabilities and obligations that (i) are incurred
after August 31, 1998 in the ordinary course of business and are not prohibited
by this Agreement and (ii) individually and in the aggregate, could not
reasonably be expected to be material to the Company. Since December 31, 1997,
there has not occurred or come to exist any Material Adverse Effect or any
event, occurrence, fact, condition, change, development or effect that,
individually or in the aggregate, could reasonably be expected to become or
result in a Material Adverse Effect.
2.2.7. ABSENCE OF CHANGES. Since the date of the Balance Sheet,
except as set forth in Schedule 2.2.7, the Company has been operated only in the
ordinary course of business and, without limiting the foregoing, the Company has
not:
(i) declared, set aside, made or paid any dividend, distribution or
any other amount to, or transferred any Asset to, any Principal or any
Affiliate thereof;
(ii) incurred any indebtedness for borrowed money, issued or sold any
debt securities or prepaid any debt (including, without limitation, any
borrowings from or prepayments to any Principal or any Affiliate thereof)
except for borrowings and repayments in the ordinary course of business;
(iii) forgiven, canceled, compromised, waived or released any debts,
claims or rights, except in the ordinary course of business consistent
with past practices;
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(iv) modified in any material way any existing Contract or, except in
the ordinary course of business, entered into any agreement or commitment
that, pursuant to its terms, is not cancelable without penalty on less
than 30 days' notice;
(v) paid any bonus to any manager, employee, sales representative,
agent or consultant, or granted to any manager, employee, sales
representative, agent or consultant any other increase in compensation in
any form, except in the ordinary course of business;
(vi) paid, provided or agreed or orally promised to pay or provide,
conditionally or otherwise, any bonus, incentive, retention, change in
control, termination, retirement, profit sharing, welfare, fringe,
severance, vacation or other benefit or compensation, to or in respect of
any current or former shareholder, partner, director, officer, other
employee, consultant or agent of the Company or entered into, instituted
or amended or committed to enter into, institute or amend any new or
existing employee or retiree benefit or compensation plan or agreement or
employment, consulting, collective bargaining, retention, termination,
change in control or similar agreement, contract or arrangement with or
for the benefit of any current or former shareholder, partner, director,
officer, other employee, consultant or agent of the Company;
(vii) suffered any damage, destruction or loss (whether or not
covered by insurance), or any strike or other employment-related problem,
or any change in relations with or any loss of a client or employee, that,
individually or in the aggregate, could reasonably be expected to have or
result in a Material Adverse Effect;
(viii) changed in any respect its accounting practices, policies or
principles;
(ix) incurred, assumed, guaranteed or otherwise become directly or
indirectly liable with respect to any liability or obligation in excess of
$10,000 in each case or $30,000 in the aggregate at any one time
outstanding (whether absolute, accrued, contingent or otherwise and
whether direct or indirect, or as guarantor or otherwise with respect to
any liability or obligation of any other Person);
(x) sold any assets with a value in excess of $10,000 in each case or
$50,000 in the aggregate, other than inventory in the ordinary course of
business;
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(xi) made any material changes in policies or practices relating to
selling practices, returns, discounts or other terms of sale or accounting
therefor or in policies of employment;
(xii) taken any action or omitted to take any action that would
reasonably be expected to result in the occurrence of any of the
foregoing;
(xiii) suffered any Material Adverse Effect.
2.2.8. TAX MATTERS. Except as set forth on Schedule 2.2.8, (a) (i)
all material Returns required to be filed with respect to the Company have been
filed, (ii) all such Returns are complete and correct in all material respects,
(iii) all Taxes (whether or not reflected on such Returns) required to be paid
with respect to the Company have been paid, (iv) all Taxes with respect to the
Company for any taxable period (or a portion thereof) ending on or prior to the
Closing Date which are not yet due and payable have been properly reserved for
on the books and records of the Company, and (v) all Taxes required to be
withheld by the Company have been duly and timely withheld, and such withheld
Taxes have been either duly and timely paid to the proper Governmental Authority
or properly set aside in accounts for such purpose and, to the extent due on or
prior to the Closing Date, will be duly and timely paid to the proper
Governmental Authority.
(b) No written agreement or other document waiving or extending, or
having the effect of waiving or extending, the statute of limitations or the
period of assessment or collection of any Taxes with respect to the Company, and
no written power of attorney with respect to any such Taxes, has been filed or
entered into with any Governmental Authority, in either case, that is currently
in effect.
(c) To the Principals' knowledge, no Taxes with respect to the
Company are currently under audit, examination or investigation by any
Governmental Authority. To the Principals' knowledge, no Governmental Authority
has asserted or threatened to assert in writing any deficiency, claim or issue
with respect to Taxes or any adjustment to Taxes against the Company.
(d) The Company (i) has not received or applied for a Tax ruling nor
has it entered into a closing agreement pursuant to Section 7121 of the Code (or
any predecessor provision or any similar provision of state or local law), in
either case that would materially affect the Taxes of the Company after the
Closing Date, (ii) is not party to or bound by, and does not have an obligation
under, any Tax allocation, sharing, indemnity or similar agreement or
arrangement (other than this Agreement) and (iii) is
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not or has not been a member of any consolidated, combined or unitary group for
purposes of filing Returns or paying Taxes.
(e) Neither Compass nor Compass Parent will be required to deduct or
withhold any consideration or amount paid to the Principals pursuant to Section
1445(a) of the Code in connection with the transactions contemplated hereby.
(f) True, correct and complete copies of all income, franchise, sales
and use tax returns and forms filed by or with respect to the Company for the
past three years have been made available to Compass or Compass Parent.
(g) There are no outstanding adjustments for Tax purposes applicable
to the Company as a result of changes in methods of accounting.
(h) The Company will not, as a result of the transaction contemplated
by this Agreement, make or become obligated to make any "parachute payment" as
defined in Section 280G of the Code pursuant to any agreement or arrangement in
effect prior to the Closing Date.
(i) None of the Assets is subject to any Tax liens (other than liens
for Taxes which are not yet due and payable).
(j) The Company made a valid election under Subchapter S of the Code
(and corresponding Illinois Tax law) to which all persons whose consent was
required gave such consent and such election became effective for the Company's
taxable year beginning January 1, 1997, and the Company is and has been since
such date an S Corporation (as defined in Section 1361 of the Code) for U.S.
federal and Illinois tax purposes.
2.2.9. ASSETS. The Company owns, or otherwise has full, exclusive,
sufficient and legally enforceable rights to use, all of the Assets. None of the
Assets used or held for use in connection with the Business are owned by the
Principals, the Partnership or any Affiliates thereof (other than the Company).
The Company has good, valid and indefeasible title to, or in the case of leased
property has good and valid leasehold interests in, all Assets that are material
to the Business, including but not limited to all such Assets reflected in the
Balance Sheet or acquired since August 31, 1998 (except as may have been
disposed of in the ordinary course of business), in each case free and clear of
any Lien, except Permitted Liens. Schedules 2.2.9, 2.2.10 (a) and 2.2.10(b)
together set forth a list of all tangible Assets that are material to the
Business, including but not limited to buildings, machinery, equipment, vehicles
and real property.
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2.2.10. REAL PROPERTY. (a) OWNED REAL PROPERTY. Schedule 2.2.10(a)
contains a complete and correct list of all Owned Real Property setting forth
the address of each parcel of Owned Real Property and describing all
improvements thereon. The Company has good, valid and marketable fee simple
title to the Owned Real Property, free and clear of any Liens other than
Permitted Liens.
(b) LEASES. Schedule 2.2.10(b) contains a complete and correct list
of all Leases setting forth the address and landlord for each Lease. The
Principals have made available to Compass correct and complete copies of the
Leases. Each Lease is legal, valid, binding, in full force and effect and
enforceable against the Company, and to the knowledge of the Principals, each
other party thereto. Each Lease grants the tenant under the Lease the exclusive
right to use and occupy the premises and rights demised and intended to be
demised thereunder. The Company enjoys peaceful and undisturbed possession under
its respective Leases for the Leased Real Property.
(c) NO PROCEEDINGS. There are no proceedings in eminent domain or
other similar proceedings pending or, to the knowledge of the Principals,
threatened affecting any portion of the Real Property. To the knowledge of the
Principals, there exists no writ, injunction, decree, order or judgment
outstanding, nor any Litigation, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of any Real
Property.
(d) CURRENT USE. The use and operation of the Real Property in the
conduct of the Business does not violate any instrument of record or agreement
affecting the Real Property. There is no material violation by the Company of
any covenant, condition, restriction, easement or agreement or order of any
Governmental Authority that affects the Real Property or the ownership,
operation, use or occupancy thereof. No material damage or destruction has
occurred with respect to any of the Real Property.
2.2.11. CONTRACTS. (a) DISCLOSURE. Schedule 2.2.11(a) contains a
complete and correct list, as of the date hereof, of all Contracts, other than
those terminable without penalty with no more than 60 days' prior written
notice. The Principals have made available to Compass complete and correct
copies of all written Contracts, and accurate descriptions of all material terms
of all oral Contracts, set forth or required to be set forth in Schedule
2.2.11(a).
(b) ENFORCEABILITY. All Contracts are legal, valid, binding, in full
force and effect and enforceable against the Company and, to the knowledge of
the Principals, each other party thereto, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other Laws
relating to creditors' rights
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generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Except as set
forth in Schedule 2.2.11(b), there does not exist under any Contract any
material violation, breach or event of default, or event or condition that,
after notice or lapse of time or both, would constitute a material violation,
breach or event of default thereunder, on the part of the Company or, to the
knowledge of the Principals, any other Person. Except as set forth in Schedule
2.2.11(b), the enforceability of all Contracts required to be scheduled on
Schedule 2.2.11(a) will not be affected in any manner by the execution, delivery
or performance of this Agreement, and no Contract contains any change in control
or other terms or conditions that will become applicable or inapplicable as a
result of the consummation of the transactions contemplated by this Agreement or
the Employment Agreements.
2.2.12. INTELLECTUAL PROPERTY. Schedule 2.2.12(a) sets forth a
complete and correct list of all Intellectual Property that is owned by the
Company (the "OWNED INTELLECTUAL PROPERTY"). The Owned Intellectual Property
constitutes all Intellectual Property used or held for use in connection with,
necessary for the conduct of, or otherwise material to the Business, except for
the Intellectual Property described on Schedule 2.2.12(b). Immediately after the
Closing, Compass will have the right to use all Intellectual Property described
on Schedule 2.2.12(b) and will own all Owned Intellectual Property, free from
any Liens (other than Permitted Liens). Schedule 2.2.12(c) sets forth a complete
and correct list of all written or oral licenses and arrangements, (I) pursuant
to which the use by any Person of Intellectual Property is permitted by the
Company and (II) pursuant to which the use by the Company of Intellectual
Property is permitted by any Person (collectively, the "INTELLECTUAL PROPERTY
LICENSES"). All Intellectual Property Licenses are in full force and effect in
accordance with their terms, and are free and clear of any Liens (other than
Permitted Liens). Neither the Company, nor, to the best knowledge of the
Principals, any other party is in default under any Intellectual Property
License, and no such default is currently threatened. To the knowledge of the
Principals, the conduct of the Business does not infringe the rights of any
third party in respect of any Intellectual Property, except as set forth on
Schedule 2.2.12(d). To the knowledge of the Principals, none of the Owned
Intellectual Property is being infringed by third parties. Except as set forth
on Schedule 2.2.12(e), there is no claim or demand of any Person pertaining to,
or any proceeding which is pending or, to the best knowledge of the Principals,
threatened, that challenges the rights of the Company in respect of any Owned
Intellectual Property or Intellectual Property License, or that claims that any
default exists under any Intellectual Property License. None of the Owned
Intellectual Property or the Intellectual Property Licenses is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any court,
tribunal, arbitrator, or other Governmental Authority. The Owned Intellectual
Property has been duly registered with, filed in or
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issued by, as the case may be, the United States Patent and Trademark Office and
United States Copyright Office or other filing offices, domestic or foreign, to
the extent necessary or desirable to ensure full protection under any
applicable Law, and the same remain in full force and effect. Except as set
forth on Schedule 2.2.12(f), to the knowledge of the Principals, all Software
used in the Business that contain or call on a calendar function, including but
not limited to any function that is indexed to a computer processing unit clock,
provides specific dates or calculates spans of dates, is able to record, store,
process and provide true and accurate dates and calculations for dates and spans
of dates including and following January 1, 2000.
2.2.13. INSURANCE. Schedule 2.2.13 contains a complete and correct
list and summary description of all insurance policies maintained by or on
behalf of the Company. The Principals have made available to Compass complete
and correct copies of all such policies together with all riders and amendments
thereto. Such policies are in full force and effect, and all premiums due
thereon have been paid. The Company has complied in all material respects with
the terms and provisions of such policies. In the good faith judgement of the
Principals, the insurance coverage provided by such policies is adequate and
suitable for the Business, and is on such terms (including without limitation as
to deductibles and self-insured retentions), covers such risks, contains such
deductibles and retentions, and is in such amounts, as the insurance customarily
carried by comparable companies of established reputation similarly situated and
carrying on the same or similar business.
2.2.14. LITIGATION. Except as set forth on Schedule 2.2.14, there is
no Litigation pending or, to the knowledge of the Principals, threatened that
involves a claim, potential recovery or could involve a loss by the Company (in
each case, if adversely determined, and without regard to whether the defense
thereof or liability in respect thereof is covered by policies of insurance or
any indemnity, contribution, cost sharing or similar agreement or arrangement by
or with any other Person) or which in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the transactions contemplated by this
Agreement. There are no outstanding orders, judgments, decrees or injunctions
issued by any Governmental Authority against the Company, or, to the knowledge
of the Principals, that in any way affect the Business.
2.2.15. COMPLIANCE WITH LAWS AND INSTRUMENTS; CONSENTS. (a)
COMPLIANCE. Except as set forth on Schedule 2.2.15(a), (i) the Company is not in
conflict with or in violation or breach of or default under (and there exists no
event that, with notice or passage of time or both, would constitute a conflict,
violation, breach or default with, of or under) (x) any Law applicable to it or
any of its properties, assets, operations or business (including, without
limitation, escheat and unclaimed property laws), (y) any
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provision of its Organizational Documents, or (z) any Contract, or any other
agreement or instrument to which it is party or by which it or any of its
properties or assets is bound or affected, except in the case of the foregoing
clause (z) for any such conflicts, breaches, violations and defaults that,
individually or in the aggregate, could not reasonably be expected to have or
result in a Material Adverse Effect, and (ii) the Principals have not received
any notice or have knowledge of any claim alleging any such conflict, violation,
breach or default.
(b) CONSENTS. (i) Except as specified in Schedule 2.2.15(b)(i), no
Governmental Approval or other Consent is required to be obtained or made by the
Company or any Principal in connection with the execution and delivery of this
Agreement and the Employment Agreements or the consummation of the transactions
contemplated hereby or thereby.
(ii) Schedule 2.2.15(b)(ii) also contains a complete and correct list
of all Governmental Approvals and other Consents necessary for, or otherwise
material to, the conduct of the Business. Except as set forth in Schedule
2.2.15(b)(i), all such Governmental Approvals and other Consents have been duly
obtained and are held by the Company and are in full force and effect. Except as
set forth in Schedule 2.2.15(b)(i), the execution, delivery and performance of
this Agreement and the Employment Agreements and the consummation of the
transactions contemplated hereby and thereby do not and will not violate any
such Governmental Approval or Consent, or result in any revocation,
cancellation, suspension, modification or nonrenewal thereof.
2.2.16. ENVIRONMENTAL MATTERS. (a) COMPLIANCE WITH ENVIRONMENTAL LAW.
The Company has complied and is in compliance in all material respects with all
applicable Environmental Laws pertaining to any of the properties and assets of
the Company (including the Real Property) and the use and ownership thereof, and
to the operation of the Business. No violation by the Company of any applicable
Environmental Law relating to any of the properties and assets of the Company or
the use or ownership thereof, or to the operation of the Business is being
alleged.
(b) OTHER ENVIRONMENTAL MATTERS. (i) Neither the Company nor any
other Person (including any tenant or subtenant), has caused or taken any action
that will result in, and the Company is not subject to, any liability or
obligation relating to (x) the environmental conditions on, under, or about the
Real Property or other properties or assets owned, leased, operated or used by
the Company or any predecessor thereto at the present time or in the past,
including without limitation, the air, soil and groundwater conditions at such
properties or (y) the past or present use, management, handling,
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transport, treatment, generation, storage, disposal or Release of any Hazardous
Substances.
(ii) The Principals have disclosed and made available to Compass all
information, including, without limitation, all studies, analyses and test
results, in the possession, custody or control of or otherwise known to any
Principal or the Company relating to (x) the environmental conditions on, under
or about the Real Property or other properties or assets owned, leased, operated
or used by the Company or any predecessor in interest thereto at the present
time or in the past, and (y) any Hazardous Substances used, managed, handled,
transported, treated, generated, stored or Released by the Company or any other
Person on, under, about or from any of the Real Property, or otherwise in
connection with the use or operation of any of the properties and assets of the
Company or the Business.
2.2.17. AFFILIATE TRANSACTIONS. Schedule 2.2.17 contains a complete
and correct list of all agreements, contracts, arrangements, understandings,
transfers of assets or liabilities or other commitments or transactions, whether
or not entered into in the ordinary course of business, to or by which the
Company, on the one hand, and any Principal, the Partnership or any of their
respective Affiliates, on the other hand, are a party or otherwise bound or
affected.
2.2.18. EMPLOYEES, LABOR MATTERS, ETC. Except as set forth on
Schedule 2.2.18, the Company is not a party to or bound by any collective
bargaining agreement, and there are no labor unions or other organizations
representing, purporting to represent or attempting to represent any employees
employed by the Company. Since January 1, 1996, there has not occurred or been
threatened any strike, slowdown, picketing, work stoppage, concerted refusal to
work overtime or other similar labor activity with respect to any employees of
the Company. Except as set forth on Schedule 2.2.18, there are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no representation petition pending or threatened with respect to any
employee of the Company. Except as set forth on Schedule 2.2.18, the Company has
complied with all applicable Laws pertaining to the employment or termination of
employment of their respective employees, including, without limitation, all
such Laws relating to labor relations, equal employment opportunities, fair
employment practices, prohibited discrimination or distinction and other similar
employment activities.
2.2.19. EMPLOYEE BENEFIT PLANS AND RELATED MATTERS; ERISA. (a)
EMPLOYEE BENEFIT PLANS. Schedule 2.2.19(a) sets forth a complete and correct
list of each "employee benefit plan", as such term is defined in Section 3(3) of
ERISA, and each bonus, incentive or deferred compensation, severance,
termination, retention, change of
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control, stock option, stock appreciation, stock purchase, phantom stock or
other equity- based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or understanding,
whether written or unwritten, that provides or may provide benefits or
compensation in respect of any employee or former employee of the Company or the
beneficiaries or dependents of any such employee or former employee
(collectively, the "EMPLOYEES") or under which any Employee is or may become
eligible to participate or derive a benefit and that is or has been maintained
or established by the Company or any other trade or business, whether or not
incorporated, which, together with the Company, is or would have been at any
date of determination occurring within the preceding six years, treated as a
single employer under Section 414 of the Code (such other trades and businesses
hereinafter referred to as the "RELATED PERSONS"), or to which the Company or
any Principal or any Related Person contributes or is or has been obligated or
required to contribute (collectively, the "PLANS"). With respect to each such
Plan, the Principals have made available to Compass complete and correct copies
of: (i) such Plan, if written, or a description of such Plan if not written, and
(ii) to the extent applicable to such Plan, all trust agreements, insurance
contracts or other funding arrangements, the two most recent actuarial and trust
reports, the two most recent Forms 5500 required to have been filed with the IRS
and all schedules thereto, the most recent IRS determination letter, all current
summary plan descriptions, all material communications received from or sent to
the IRS, the Pension Benefit Guaranty Corporation or the Department of Labor
(including a written description of any oral communication), any actuarial study
of any post-employment life or medical benefits provided under any such Plan, if
any, statements or other communications regarding withdrawal or other
multiemployer plan liabilities, if any, and all amendments and modifications to
any such document. None of the Company nor the Principals have communicated to
any Employee any intention or commitment to modify any Plan or to establish or
implement any other employee or retiree benefit or compensation plan or
arrangement.
(b) QUALIFICATION. Each Plan intended to be qualified under Section
401(a) of the Code, and the trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to its qualification under the
Code and to the effect that each such trust is exempt from taxation under
Section 501(a) of the Code, and to the Principals' knowledge nothing has
occurred since the date of such determination letter that could reasonably be
expected to adversely affect such qualification or tax-exempt status.
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(c) COMPLIANCE; LIABILITY.
(i) None of the Company, the Principals nor any Related Person has
been involved in any transaction that could cause the Company or, following the
Closing, Compass or Compass Parent, to be subject to liability under Section
4069 or 4212 of ERISA. The Company has not incurred (either directly or
indirectly, including as a result of an indemnification obligation) any material
liability under or pursuant to Title I or IV of ERISA or the penalty, excise Tax
or joint and several liability provisions of the Code relating to employee
benefit plans and no event, transaction or condition has occurred or exists that
could result in any such liability to the Company or, following the Closing,
Compass or any of its Affiliates. All contributions and premiums required to
have been paid by the Company, the Principals and each Related Person to any
employee benefit plan of the Company (within the meaning of Section 3(3) of
ERISA) (including each plan) under the terms of any such plan or its related
trust, insurance contract or other funding arrangement, or pursuant to any
applicable Law or collective bargaining agreement (including ERISA and the Code)
have been paid within the time prescribed by any such plan, agreement or
applicable Law.
(ii) Each of the Plans has been operated and administered in all
respects in compliance with its terms, all applicable Laws and all applicable
collective bargaining agreements, except for any failure so to comply that,
individually and in the aggregate, could not reasonably be expected to have or
result in a Material Adverse Effect. There are no material pending or, to the
knowledge of the Principals, threatened claims by or on behalf of any of the
Plans, by any Employee or otherwise involving any such Plan or the assets of any
Plan (other than routine claims for benefits, all of which have been fully
reserved for on the regularly prepared balance sheets of the Company).
(iii) No Plan is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA or a "multiple employer plan" within the meaning of Section
4063 or 4064 of ERISA.
(iv) No Plan is subject to Section 412 of the Code or Section 302 or
Title IV of ERISA.
(v) No Employee is or will become entitled to post-employment
benefits of any kind by reason of employment with the Company, including,
without limitation, death or medical benefits (whether or not insured), other
than (x) coverage mandated by the Law, (y) retirement benefits payable under any
Plan qualified under Section 401(a) of the Code or (z) deferred compensation
accrued as a liability on the Balance Sheet. The consummation of the
transactions contemplated by this Agreement and the Employment
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Agreements will not result in an increase in the amount of compensation or
benefits or the acceleration of the vesting or timing of payment of any
compensation or benefits payable to or in respect of any Employee.
2.2.20. ACCOUNTS RECEIVABLE. The Principals have made available to
Compass a complete and accurate aging of all accounts receivable of the Company
as of the end of each monthly period since January 1, 1998. All allowances,
rebates and cash discounts to clients of the Company are as shown on its books
and records and in no event exceed one percent of receivables to which they
relate.
2.2.21. CLIENTS. Schedule 2.2.21(a) sets forth as of August 17, 1998
the names and addresses of the clients of the Company and a list of the ten
largest clients in terms of total sales. Since the date of the Balance Sheet,
the Principals have not received any notice or otherwise have knowledge that
clients of the Company (i) have ceased, or will cease, to use the services of
the Company, (ii) have reduced or will reduce, the use of services of the
Company or (iii) have sought, or are seeking, to reduce the fees they will pay
for services of the Company, except to the extent that the foregoing, in the
aggregate, would not have a Material Adverse Effect on the Company.
2.2.22. BANK AND CLIENT TRUST ACCOUNTS. (a) Schedule 2.2.22(a) sets
forth a complete and correct list containing the names set forth of each bank in
which the Company has an account or safe deposit or lock box, the account or box
number, as the case may be, and the name of every person authorized to draw
thereon or having access thereto.
(b) Schedule 2.2.22(b) sets forth a complete and correct list of each
bank in which the Company has a client trust account and the name and number of
each such client trust account. Schedule 2.2.22(b) further sets forth the amount
held in trust for each such client, and no amount is or may be due or payable by
the Company to any client except for such amounts.
2.2.23. BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement, the Employment Agreements and the transactions contemplated hereby
and thereby have been carried on without the participation of any Person acting
on behalf of the Principals in such a manner as to, and the transactions
contemplated hereby and thereby will not otherwise, give rise to any valid claim
against the Company, Compass or any Affiliate thereof for any brokerage or
finder's commission, fee or similar compensation, or for any bonus payable to
any officer, director, employee, agent or representative of or consultant to the
Company upon consummation of the transactions contemplated hereby or thereby.
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2.2.24. WORKING CAPITAL. As of the Closing Date, the Company held
cash and cash equivalents that, in the aggregate was at least $200,000
(excluding cash held in any client trust account or set aside with respect to
Withheld Employment Taxes, as defined in Section 3.5(a)).
2.3. REPRESENTATIONS AND WARRANTIES OF COMPASS. Compass and Compass
Parent, jointly and severally, represent and warrant to the Principals as
follows:
2.3.1. CORPORATE STATUS; AUTHORIZATION, ETC. Each of Compass and
Compass Parent is a corporation duly formed, validly existing and in good
standing under the laws of the State of Delaware. Compass and Compass Parent
have full corporate power and authority to execute and deliver this Agreement
and the Employment Agreements, to perform their obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Employment Agreements, and
the consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all requisite corporate action of Compass and Compass Parent.
Compass and Compass Parent have duly executed and delivered this Agreement and
concurrently herewith is duly executing and delivering the Employment
Agreements. This Agreement and the Employment Agreements are valid and legally
binding obligations of Compass and Compass Parent, enforceable against Compass
and Compass Parent in accordance with their respective terms.
2.3.2. NO CONFLICTS, ETC. (a) The execution, delivery and performance
by Compass and Compass Parent of this Agreement and the Employment Agreements to
which they are a party, and the consummation of the transactions contemplated
hereby and thereby, do not and will not conflict with or result in a violation
of or a default under or give rise to a right of acceleration, termination or
vesting under (with or without the giving of notice or the lapse of time, or
both) (i) the certificate of incorporation or by-laws of Compass or Compass
Parent, (ii) any Law applicable to Compass, Compass Parent or any Affiliate
thereof or any properties or assets of Compass, Compass Parent or such Affiliate
or (iii) any contract, agreement or other instrument applicable to Compass,
Compass Parent or any Affiliate thereof or any of their respective properties or
assets.
(b) No Governmental Approval or Consent is required to be obtained by
Compass or Compass Parent in connection with the execution and delivery of this
Agreement and the Employment Agreements to which they are a party, or the
consummation of the transactions contemplated hereby and thereby.
2.3.3. LITIGATION. There is no action, claim, suit, proceeding,
arbitration or investigation pending or, to the knowledge of Compass and Compass
Parent, threatened
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against or relating to the transactions contemplated by this Agreement or any of
the Employment Agreements, and neither Compass nor Compass Parent knows of any
basis for the same. There are no claims, actions, suits, or proceedings, pending
or, to the knowledge of Compass or the Compass Parent, threatened against
Compass or Compass Parent at law or in equity, or before any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them that might reasonably be
expected to have or result in a material adverse effect on the business
operations, properties, assets or conditions, financial or otherwise of Compass
Parent and its subsidiaries taken as a whole, and no notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received.
There are no judgments, orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
Compass or Compass Parent or against any of the properties of either of them
which might reasonably be expected to have a material adverse effect on the
business operations, properties, assets or conditions, financial or otherwise of
Compass Parent and its subsidiaries taken as a whole.
2.3.4. BROKERS, FINDERS, ETC. Except for the services provided by
Marion Financial Corp., all negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the participation
of any Person acting on behalf of Compass, Compass Parent or any of their
Affiliates in such manner as to give rise to any valid claim against the
Principals for any brokerage or finder's commission, fee or similar
compensation. Compass and Compass Parent shall indemnify and hold harmless
Principals from any claim of any Person for any such brokerage or finder's
commission, fee or similar compensation in connection with services to Compass,
Compass Parent or any of their Affiliates.
2.3.5. CAPITALIZATION. (a) AUTHORIZED CAPITAL STOCK OF COMPASS
PARENT. The authorized capital stock of Compass Parent consists of 50,000,000
shares of common stock, par value $0.01 per share, of which 13,122,352 shares
were issued and outstanding as of September 28, 1998. The Compass Stock has been
duly authorized, and when issued to the Principals at the Closing and delivered
as soon as practicable thereafter, validly issued and fully paid and
nonassessable. The Compass Stock to be issued in connection with the 1998
Earn-Out and the 1999 Earn-Out, as the case may be, will have been duly
authorized, and when issued to the Principals and delivered as soon as
practicable thereafter, validly issued and fully paid and nonassessable. All of
the shares of the Compass Stock to be issued to Principals in accordance with
this Agreement will be offered, issued, sold and delivered by Compass Parent in
compliance with all applicable state and federal laws concerning the issuance of
securities and none of such shares of
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Compass Stock was or will be issued in violation of the preemptive rights of any
shareholder of Compass Parent.
2.3.6. NO EQUITY RIGHTS. Except as disclosed in the Compass SEC
Documents, there are no preemptive or similar rights on the part of any holders
of any class of securities of Compass Parent. Except as disclosed in the Compass
SEC Documents, other than this Agreement, no subscriptions, options, warrants,
conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating Compass Parent or any other Person,
contingently or otherwise, to issue or sell, or cause to be issued or sold, any
shares of capital stock of any class of Compass Parent, or any securities
convertible into or exchangeable for any such shares, are outstanding, and no
authorization therefor has been given. There are no outstanding contractual or
other rights or obligations to or of Compass Parent or any other Person to
repurchase, redeem or otherwise acquire any outstanding shares of other equity
interests of Compass Parent.
2.3.7. COMPASS SEC REPORTS AND FINANCIAL STATEMENTS. Compass Parent
has timely filed with the U.S. Securities and Exchange Commission (the
"COMMISSION") all forms, reports and other documents required to be filed by it
since February 6, 1998 under the Securities and Exchange Act of 1934, as amended
(the "EXCHANGE ACT") or the Securities Act of 1933, as amended (the "SECURITIES
ACT") (as such documents have been amended through the date hereof,
collectively, the "COMPASS SEC DOCUMENTS"). The Compass SEC Documents, including
without limitation any financial statements or schedules included therein, at
the time filed, complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be. The
consolidated financial statements of Compass Parent included in the Compass SEC
Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments and for the absence of footnotes) the consolidated financial
position of Compass Parent and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flow for the
periods then ended. Since the filing of its most recent Compass SEC Document,
Compass Parent has no knowledge of any fact or event, other than facts or events
relating to general economic conditions or information generally within the
public domain, that would likely constitute a material adverse change in the
business of Compass Parent.
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2.3.8. INVESTMENT REPRESENTATION. The Shares are being acquired by
Compass Parent for its own account for investment, and not with a view to the
sale or distribution of any part thereof without registration under the
Securities Act or pursuant to an applicable exemption therefrom.
ARTICLE III
COVENANTS
3.1. FURTHER ASSURANCES AND ACCESS TO RECORDS. (a) Following the
Closing, the Principals shall execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall be
necessary, or otherwise reasonably requested by Compass, to confirm and assure
the rights and obligations provided for in this Agreement and the Employment
Agreements, and render effective the consummation of the transactions
contemplated hereby and thereby.
(b) Following the Closing, Compass shall, upon reasonable notice from
the Principals, provide to the Principals or their respective agents, attorneys
or accountants, reasonable access during normal business hours to the books and
records of the Company transferred to Compass pursuant to this Agreement or any
of the Employment Agreements made in connection with the transactions relating
to periods prior to the Closing Date, PROVIDED, THAT, such access is reasonably
requested and exercised. The access granted to the Principals shall include the
right to make copies of such documents or produce originals in any court or
administrative proceeding necessary to protect the legitimate interests of the
Principals, at the Principals' expense. Upon the completion of the utilization
of any original records pursuant to this paragraph, the Principals shall return
the same to Compass.
3.2. CONVEYANCE TAXES. The Principals on the one hand and Compass
Parent on the other hand shall be responsible for and shall pay equal portions
of all sales, use, transfer or other similar taxes imposed in connection with
the transactions contemplated by this Agreement.
3.3. CONFIDENTIALITY. The parties hereto shall, and shall cause their
respective Affiliates, directors, officers, employees, auditors, counsel,
agents, representatives, consultants and financial institutions to, keep
confidential any and all information relating to the Company, this Agreement or
the Employment Agreements, and the parties hereto shall not disclose (other than
to their respective directors, officers, employees, agents, auditors or counsel)
or use (other than for the sole purpose of consummating the transactions
contemplated by this Agreement or the Employment Agreements) any such
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information, PROVIDED, that such party may disclose or use any such information
with the prior written approval of the party to which such information relates
or as such in formation (a) becomes generally available to the public other than
through a breach of this Agreement by such party or their respective Affiliates,
directors, officers, employees, auditors, counsel, agents, representatives,
consultants, or financial institutions, (b) becomes available after the Closing
Date to such party on a non-confidential basis from a source other than another
party hereto or such other party's Affiliates, directors, officers, employees,
agents, auditors, representatives, consultants, financial institutions or
counsel, PROVIDED, that such source is not known by such party to be bound by a
confidentiality agreement or other obligation of secrecy, (c) may be required in
any report, statement or testimony required to be submitted to any Governmental
Authority having or claiming to have jurisdiction over it, or as may be
otherwise required by applicable Law, or as may be required in response to any
summons or subpoena or in connection with any litigation, (d) may be required to
obtain any Governmental Approval or Consent required in order to consummate the
transactions contemplated by this Agreement and the Employment Agreements or (e)
may be necessary to establish such party's rights under this Agreement or any
Employment Agreement; PROVIDED, FURTHER, that in the case of clauses (c) and
(d), the Person intending to disclose confidential information will promptly
notify the party to whom it is obliged to keep such information confidential
and, to the extent practicable, provide such party a reasonable opportunity to
prevent public disclosure of such information. The Principals acknowledge
responsibility for disclosures caused by any of their respective Affiliates,
employees, auditors, counsel, agents, representatives, consultants or financial
institutions.
3.4. NON-COMPETITION COVENANT. With respect to each Principal, (a)
during the period beginning on the Closing Date and ending on the two-year
anniversary of the termination of employment under such Principal's Employment
Agreement (the "RESTRICTION PERIOD"), such Principal will not, directly or
indirectly, alone or in conjunction with any Entity (as defined below), own,
manage, operate or control or participate in the ownership, management,
operation or control of, or become associated, as an employee, director,
officer, advisor, agent, consultant, principal, partner, member or independent
contractor with or lender to, any person, enterprise, firm, partnership,
corporation, limited liability entity, cooperative or other entity
(collectively, an "ENTITY") engaged in or aiding others to engage in any
business that competes with the Business anywhere in the United States.
Ownership by a Principal of less than 1% of the out standing voting shares of
any publicly held company which otherwise would be prohibited under this
paragraph shall not constitute a violation of this paragraph.
(b) NON-SOLICITATION OF EMPLOYEES. During the Restriction Period, the
Principals shall not directly or indirectly, for their own account or the
account of any
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other person or Entity with which they shall become associated in any capacity,
(i) solicit for employment or engagement or employ or otherwise engage any
person who at the time of, or at any point during the twelve months prior to,
such solicitation is or was employed by or otherwise engaged to perform services
for the Company or Compass or any Affiliate thereof, regardless of whether such
employment or engagement is direct or through an Entity with which such person
is employed or associated, or otherwise intentionally interfere with the
relationships of Compass or any Affiliate thereof, with any person or Entity who
or which is at the time employed by or otherwise engaged to perform services for
Compass or any Affiliate thereof, or (ii) induce any employee, officer,
director, consultant, advisor or contractor of the Compass or any Affiliate
thereof, who is a member of management to engage in any activity which any
Principal is prohibited from engaging in under this Agreement or to terminate
such employment or engagement. Notwithstanding the foregoing, the Principals
shall be permitted to employ or otherwise engage any person referred to in (i)
or (ii) above who, without any solicitation or inducement by the Principals,
solicits the Principals for employment, provided that Compass consents in
writing to such employment or engagement, which consent shall not be
unreasonably withheld.
(c) NON-SOLICITATION OF CLIENTS. The Principals acknowledge and agree
that business relationships with actual and potential clients and employees have
been of vital importance to the business, operations and success of the Company
and the Business. Substantial time and money has been and continues to be
devoted to developing and maintaining these relationships. During the
Restriction Period, none of the Principals shall directly or indirectly (i)
solicit, divert, appropriate or attempt to solicit, divert or appropriate or
advise others how to solicit, divert or appropriate or (ii) otherwise attempt to
establish for itself or any other Entity, whether for pay or otherwise, any
business relationship with any client of the Business with whom any Principal
conducted business or had regular contacts, nor shall any Principal derive any
financial benefit from or enjoy any financial interest in any Entity engaging in
the aforementioned activities.
3.5. TAX MATTERS. (a) THE PRINCIPALS' RESPONSIBILITY FOR TAXES. The
Principals shall be responsible for, and shall defend, indemnify and hold
harmless the Company and the Compass Indemnitees from and against, and shall pay
all Taxes with respect to the Company attributable to, arising from or relating
to any taxable period (or portion thereof) ending on or before the Closing Date;
PROVIDED that nothing herein shall cause the Principals to be liable for
employment Taxes withheld and properly set aside in cash or cash equivalents for
such purpose by the Company as of the close of the Closing Date ("Withheld
Employment Taxes"). For purposes of this Section 3.5, any liability, refund or
credit attributable to a taxable period which begins before and ends after the
Closing Date shall be apportioned between the portion of such period ending on
the Closing Date
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and the portion beginning on the day after the Closing Date on a "closing of the
books basis" by assuming that the books of the Company were closed at the close
of the Closing Date, except that deductions (such as depreciation) allowable on
a periodic basis and real and personal property Taxes shall be allocated on a
daily basis. Notwithstanding the foregoing provisions of this Section 3.5(a), if
the transactions contemplated by this Agreement result in the reassessment of
the value of any property owned by the Company for property Tax purposes, or the
imposition of any property Taxes at a rate which is different than the rate that
would have been imposed if such transactions had not occurred, then (Y) the
portion of such property Taxes for the portion of the taxable period ending on
and including the Closing Date shall be determined on a daily basis, using the
assessed value and Tax rate that would have applied had such transactions not
occurred, and (Z) the portion of such property Taxes for the portion of such
taxable period beginning after the Closing Date shall be the total property
Taxes for such taxable period beginning prior to the Closing Date and ending
after the Closing minus the amount described in clause (y) of this sentence.
(b) TAX RETURNS. (i) The Principals shall prepare and file (or cause
to be prepared and filed) all Returns of the Company for taxable years ending on
or before the Closing Date and shall remit any Taxes (other than Withheld
Employment Taxes, which shall be remitted by the Company) shown to be due on
such Returns to the appropriate Governmental Authorities, PROVIDED, HOWEVER, no
such Return shall be filed without the prior review and written consent of
Compass Parent, which consent shall not be unreasonably withheld. In the case of
any Return with respect to a taxable period which begins before and ends after
the Closing Date, such Return shall not be filed without the prior review and
written consent of the Representative, which consent shall not be unreasonably
withheld, the Company shall remit any Taxes shown to be due on such Return to
the appropriate Governmental Authority, and the Principals shall immediately pay
to Compass Parent an amount equal to the Principals' liability for such Taxes
pursuant to Section 3.5(a) hereof.
(ii) After the Closing Date, none of the Company or a Compass
Indemnitee shall amend, refile or otherwise modify any Tax Return relating in
whole or in part to the Company with respect to any taxable year or period (or
portion thereof) ending on or before the Closing Date without the prior written
consent of the Representative, which consent shall not be unreasonably withheld;
PROVIDED that with respect to any such amendment, refiling or other modification
that is not required by law or in connection with an adjustment relating to an
audit or similar proceeding, the Representative shall have the right to withhold
its consent in its sole discretion.
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(c) TAX CONTESTS. Compass Parent shall promptly notify or cause to be
notified the Representative in writing upon receipt by the Company, Compass
Parent, Compass or any Affiliate thereof of notice of any Tax audits,
examinations or assessments against the Company for Taxes with respect to any
taxable period (or portion thereof) ending on or prior to the Closing Date (a
"COVERED CLAIM"). The Representative and Compass Parent shall have the right (at
their own expenses) to jointly represent the Company in and to jointly control
all audits or administrative or judicial proceedings with respect to any Covered
Claim. No such Covered Claim shall be settled or compromised without the prior
written consent of each of the Representative and Compass Parent.
Notwithstanding anything to the contrary, if (i) the Representative notifies
Compass Parent in writing that the Principals are willing to accept the
settlement of a Covered Claim proposed by the relevant Governmental Authority
(the "PROPOSED SETTLEMENT") and (ii) Compass Parent is unwilling to accept such
Proposed Settlement, then Compass Parent shall have the sole right to (x)
represent the Company in and to control any audit or administrative or judicial
proceeding with respect to such Covered Claim and (y) compromise or settle such
Covered Claim without prior consent of the Representative or any Principal;
PROVIDED, however, that the liability of the Principals with respect to such
Covered Claim shall be limited to the amount for which the Principals would have
been liable had the Proposed Settlement occurred; PROVIDED further that if the
final Tax liability with respect to such Covered Claim is less than the amount
of the Proposed Settlement, then the Principals shall reimburse Compass Parent
for the reasonable out-of-pocket expenses (including, without limitation, legal
fees) incurred by Compass Parent (and its Affiliates) with respect to contesting
such Covered Claim to the extent that such expenses do not exceed an amount
equal to the difference between the Proposed Settlement amount and such final
Tax liability.
(d) REFUNDS. The Principals shall be entitled to the benefit of any
refund of (or credit with respect to) all Taxes with respect to any taxable
period (or portion thereof) ending on or before the Closing Date, and the
Company Parent agrees to pay promptly to the Principals (on a pro rata basis
according to the percentage of Company Shares held by each of the Principals as
of the beginning of the Closing Date) an amount equal to any such refund
actually received by the Compass Parent or any of its Affiliates (net of any
Taxes payable by the Company or any of its Affiliates with respect thereto) or
any such credit actually realized (as determined in the reasonable discretion of
Compass Parent) by the Company (net of any Taxes payable by the Company or any
of its Affiliates with respect thereto).
(e) BOOKS AND RECORDS; COOPERATION. The Principals shall (and shall
cause their Affiliates to) (i) provide Compass Parent and its Affiliates with
such assistance as may be reasonably requested in connection with the
preparation of any Return, audit or other
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examination by any Governmental Authority or judicial or administrative
proceeding relating to Taxes with respect to the Company; and (ii) retain (and
provide Compass Parent and its Affiliates with reasonable access to) all records
or information which may be relevant to such Return, audit, examination or
proceeding, PROVIDED that the foregoing shall be done in a manner so as not to
interfere unreasonably with the conduct of the business of the Principals or
their respective Affiliates. Compass Parent shall (and shall cause its
Affiliates to) (i) provide the Principals with such assistance as may be
reasonably requested in connection with the preparation of any of the
Principals' Returns, audits or other examinations by any Governmental Authority
or judicial or administrative proceeding relating to liability for Taxes of the
Principals in connection with their ownership interest in the Company before the
Closing, their liability for Taxes under this Agreement or the Returns required
to be filed by the Principals under Section 3.5(b); (ii) retain (and provide the
Principals with reasonable access to) all records or information which may be
relevant to any such Return, or any such audit, examination or proceeding, (iii)
furnish the Representative with reasonable powers of attorney necessary to
effectuate the purposes of Section 3.5(c); and (iv) furnish the Representative
with copies of all written correspondence received from any Governmental
Authority in connection with any Tax audit, examination or proceeding with
respect to any claim for Taxes with respect to any taxable period (or portion
thereof) ending on or prior to the Closing Date; PROVIDED that the foregoing
shall be done in a manner so as not to interfere unreasonably with the conduct
of the business of Compass Parent or any of its Affiliates.
(f) EFFECT OF DISCLOSURE, ETC.; NO DUPLICATIVE PAYMENTS. No (i)
setting aside, accrual, reservation or entry upon the books of the Company or
(ii) disclosure pursuant to Section 2.2.8 shall affect the express obligations
that the Principals otherwise have under this Section 3.5, PROVIDED that there
shall not be any duplicative payments with respect to the same item.
3.6. SECURITIES LAW MATTERS. Each of the Principals acknowledges (i)
receipt of advice from Compass Parent that the Compass Stock has not been
registered under the Securities Act or qualified under any state securities or
"blue sky" laws and (ii) that a notation shall be made in the appropriate
records of Compass Parent indicating that the Compass Stock is subject to
restrictions on transfer set forth in his Employment Agreement and, if Compass
Parent should in the future engage the services of a stock transfer agent,
appropriate stop-transfer restrictions will be issued to such transfer agent
with respect to the Compass Stock. Each of the Principals agrees that he will
not, directly or indirectly, offer, transfer, sell, pledge, hypothecate or
otherwise dispose of any of the Compass Stock (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of any Compass Stock), except in
compliance with (i) the Securities Act and the
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rules and regulations of the Commission thereunder, and (ii) applicable state
securities or "blue sky" laws.
3.7. COMPLIANCE WITH RULE 144 . Each of the Principals acknowledges
that dispositions of the Compass Stock without registration pursuant to Rule 144
promulgated under the Securities Act ("RULE 144") can be made only in limited
amounts in accordance with the terms and conditions of such Rule. If any of the
Compass Stock is to be disposed of by such Principal in accordance with Rule
144, such Principal shall transmit to Compass Parent an executed copy of Form
144 (if required by Rule 144) no later than the time such form is required to be
transmitted to the Commission for filing and such other documentation as Compass
Parent may reasonably require to assure compliance with Rule 144 in connection
with such disposition.
3.8. PROFIT SHARING PLAN. As soon as reasonably possible after the
Closing Date, Compass shall establish a cash and incentive plan for the
employees of the Company, the terms and conditions of which shall be
substantially similar to the Company's profit sharing plan; PROVIDED that after
1998, neither Compass nor any of its Affiliate shall be under any obligation to
continue such plan.
3.9. FIRST CENTENNIAL. As soon as reasonably possible after the
Closing Date, Compass shall cause the Company to sell, assign and transfer to
the Partnership all of the assets and liabilities related to First Centennial, a
division of the Company ("CENTENNIAL"), and the company cars used by John
McCormick, Steven McCormick, David McCormick and Mark McCormick in exchange for
the "MP Assets" of the Partnership as set forth on Schedule 2.2.9.
3.10. BONUS. The Trustees and Trusts shall be required to pay the
$3.2 million bonus accrued by the the Company to John McCormick, to the extent
it has not been paid on or prior to the Closing Date.
3.11. LEASE. As soon as reasonably possible after the Closing Date,
the parties hereto shall use reasonable best efforts to renegotiate in good
faith the lease, dated the date hereof, between the Company and the Partnership.
ARTICLE IV
[Intentionally Omitted]
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ARTICLE V
[Intentionally Omitted]
ARTICLE VI
DEFINITIONS, MISCELLANEOUS
6.1. DEFINITION OF CERTAIN TERMS. The terms defined in this Section
6.1, whenever used in this Agreement (including in the Schedules), shall have
the respective meanings indicated below for all purposes of this Agreement (each
such meaning to be equally applicable to the singular and the plural forms of
the respective terms so defined). All references herein to a Section, Article or
Schedule are to a Section, Article or Schedule of or to this Agreement, unless
otherwise indicated.
AFFILIATE: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first Person. "CONTROL" (including the
terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a Person, whether through the
ownership of voting securities, by contract or credit arrangement, as
trustee or executor, or otherwise.
AGREEMENT: this Stock Purchase Agreement, including the Schedules and
Exhibits hereto, as the same may be amended from time to time.
ASSETS: all of the properties and assets (real, personal or mixed,
tangible or intangible), used or held for use in connection with,
necessary for the conduct of, or otherwise material to, the Business.
BALANCE SHEET: as defined in Section 2.2.6.
BUSINESS: the business of the Company conducted as of the Closing by
the Company, excluding the business related to Centennial.
CASH AMOUNT: as defined in Section 1.3.
CENTENNIAL: as defined in Section 3.9.
CERCLA: the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Sec. 9601 ET SEQ.
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CLOSING: as defined in Section 1.2.
CLOSING DATE: as defined in Section 1.2.
CODE: the Internal Revenue Code of 1986, as amended.
COMMISSION: as defined in Section 2.3.7.
COMPANY: as defined in the first recital of this Agreement.
COMPASS: as defined in the first paragraph of this Agreement.
COMPASS ACCOUNTANTS: as defined in Section 1.4(c).
COMPASS INDEMNITEES: as defined in Section 6.2(a).
COMPASS PARENT: as defined in the first paragraph of this Agreement.
COMPASS SEC DOCUMENTS: as defined in Section 2.3.7.
COMPASS STOCK AMOUNT: as defined in Section 1.3.
CONSENT: any consent, approval, waiver, agreement, license, or report
or notice to, any Person.
CONTRACT: all loan agreements, indentures, letters of credit
(including related letter of credit applications and reimbursement
obligations), mortgages, security agreements, pledge agreements, deeds of
trust, bonds, notes, guarantees, surety obligations, warranties, licenses,
franchises, permits, powers of attorney, purchase orders, leases, and
other agreements, contracts, instruments, obligations, offers,
commitments, plans, arrangements and understandings, written or oral, to
which the Company is a party or by which it or any of its properties or
assets may be bound or affected, in each case as amended, supplemented,
waived or otherwise modified, that are of the types listed in clauses (i)
through (xiv) below:
(i) leases, subleases, licenses, occupancy agreements, permits,
franchises, insurance policies, agreements, Governmental Approvals and
other Contracts concerning or relating to the Real Property;
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(ii) employment, consulting, severance, agency, bonus, compensation,
or other trusts, funds and other Contracts (other than the Plans) relating
to or for the benefit of current, future or former employees, officers,
directors, sales representatives, distributors, dealers, agents,
independent contractors or consultants (whether or not legally binding),
including sales agency or distributorship agreements or arrangements for
the sale of any of the products or services of the Company;
(iii) loan agreements, indentures, letters of credit (including
related letter of credit applications and reimbursement obligations),
mortgages, security agreements, pledge agreements, deeds of trust, bonds,
notes, guarantees, instruments and other contracts relating to the
borrowing of money or obtaining of or extension of credit;
(iv) licenses, licensing arrangements and other Contracts providing
in whole or in part for the use of, or limiting the use of, any
Intellectual Property;
(v) finder's Contracts;
(vi) joint venture, partnership and similar Contracts involving a
sharing of profits or expenses;
(vii) stock purchase agreements, asset purchase agreements and other
acquisition or divestiture agreements, including but not limited to any
agreements relating to the acquisition, lease or disposition of the
Company, any material assets or properties (other than sales of inventory
made in the ordinary course of business), any business, or any capital
stock of or other interest in any Person by the Company or the Principals,
within the last five years, or involving continuing indemnity or other
obligations;
(viii) Contracts prohibiting or materially restricting the ability of
the Company or the Business to engage in any business or operate in any
geographical area or to compete with any Person;
(ix) orders and other Contracts for the purchase or sale of
materials, supplies, products or services, involving aggregate payments in
excess of $10,000 in each case or $10,000 in the aggregate;
(x) Contracts providing for future payments that are conditioned, in
whole or in part, on a change in control of any of the Company;
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(xi) powers of attorney, except routine powers of attorney relating
to representation before governmental agencies or given in connection with
qualification to conduct business in another jurisdiction;
(xii) Contracts not entered into in the ordinary course of business;
(xiii) Contract or series of related Contracts with respect to which
the aggregate amount that could reasonably expected to be paid or received
thereunder in the future exceeds $10,000 per annum or an aggregate of
$25,000 under the term of the Contract; and
(xiv) Contracts that are or will be material to the business,
operations, results of operations, condition (financial or otherwise),
assets or properties of the Company.
EMPLOYEES: all current or former employees or consultants employed or
formerly employed in the operation of the Business and/or the
beneficiaries or dependents of any such current or former employees or
consultants.
EMPLOYMENT AGREEMENT: an employment agreement between Compass and
each Principal, substantially in the form of Exhibit B hereto.
ENTITY: as defined in Section 3.4(a)
ENVIRONMENTAL LAWS: all applicable Laws relating to the protection of
the environment, to human health and safety, or to any use, sale,
manufacture, treatment, generation, processing, storage, disposal,
abatement, existence, Release, threatened Release, transportation or
handling of any Hazardous Substance, including, without limitation, (i)
CERCLA, the Resource Conservation and Recovery Act, and the Occupational
Safety and Health Act, (ii) all other requirements pertaining to
reporting, licensing, permitting, investigation or remediation of Releases
or threatened Releases of Hazardous Substances into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport
or handling of Hazardous Substances, and (iii) all other requirements
pertaining to the protection of the health and safety of employees or the
public.
ERISA: the Employee Retirement Income Security Act of 1974, as
amended.
EXCHANGE ACT: as defined in Section 2.3.7.
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FINANCIAL STATEMENTS: as defined in Section 2.2.5(a).
FIRPTA: the Foreign Investment in Real Property Tax Act of 1980, as
amended.
GAAP: as defined in Section 1.4(d).
GOVERNMENTAL APPROVAL: any consent, approval, authorization, waiver,
permit, concession, franchise, agreement, license, exemption or order of,
declaration or filing with, or report or notice to, any Governmental
Authority, PROVIDED, THAT, Governmental Approval shall not be deemed to
include any consent with regard to a client contract to which a
Governmental Authority is a party.
GOVERNMENTAL AUTHORITY: any Federal, state, local or foreign court,
arbitrator or governmental agency, authority, instrumentality or
regulatory body or any self-regulatory entity or body.
HAZARDOUS SUBSTANCES: any substance that: (i) is or contains
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum- derived substances or wastes, radon gas or related
materials, (ii) requires investigation, removal or remediation under any
Environmental Law, or is defined, listed or identified as a "HAZARDOUS
WASTE" or "HAZARDOUS SUBSTANCE" thereunder, or (iii) is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is regulated by any Governmental Authority or
Environmental Law.
INDEMNIFIED PARTY: as defined in Section 6.2(c).
INDEMNIFYING PARTY: as defined in Section 6.2(c).
INTELLECTUAL PROPERTY: any and all United States and foreign: (a)
patents (including design patents, industrial designs and utility models)
and patent applications (including docketed patent disclosures awaiting
filing, reissues, divisions, continuations-in-part and extensions), patent
disclosures awaiting filing determination, inventions and improvements
thereto; (b) trademarks, service marks, trade names, trade dress, logos,
business and product names, slogans, and registrations and applications
for registration thereof; (c) copyrights (including Software) and registra
tions thereof; (d) inventions, processes, designs, formulae, trade
secrets, know-how, industrial models, confidential and technical
information, manufacturing, engineering and technical drawings, product
specifications and confidential business
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information; (e) mask work and other semiconductor chip rights and
registrations thereof; (f) intellectual property rights similar to any of
the foregoing; and (g) copies and tangible embodiments thereof (in
whatever form or medium, including electronic media).
INTELLECTUAL PROPERTY LICENSES: as defined in Section 2.2.12.
INITIAL CASH AMOUNT: as defined in Section 1.3.
IRS: the Internal Revenue Service.
KNOWLEDGE: shall mean that which is known or reasonably should have
been known.
LAW: all applicable provisions of all (a) constitutions, treaties,
statutes, laws (including the common law), codes, rules, regulations,
ordinances or orders of any Governmental Authority, (b) Governmental
Approvals and (c) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Authority.
LEASED REAL PROPERTY: all interests leased pursuant to Leases.
LEASES: the real property leases, subleases, licenses and occupancy
agreements pursuant to which the Company is lessee, sublessee, licensee or
occupant.
LIEN: any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy
agreement, adverse claim or interest, easement, covenant, encroachment,
burden, title defect, title retention agreement, voting trust agreement or
other voting agreement, transfer restriction, interest, equity, option,
lien, right of first refusal or offer, charge or other restrictions or
limitations of any nature whatsoever, including but not limited to such as
may arise under any Contracts.
LITIGATION: any action, cause of action, claim, demand, suit,
proceeding, citation, summons, subpoena, inquiry or investigation of any
nature, civil, criminal, regulatory or otherwise, in law or in equity,
pending or threatened, by or before any court, tribunal, arbitrator or
other Governmental Authority.
LOSSES: any and all liabilities, obligations, commitments, losses,
fines, penalties, sanctions, costs (including court costs), expenses,
interest, royalties, deficiencies or
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damages (whether absolute, accrued, conditional or otherwise and whether
or not resulting from third-party claims), including out-of-pocket
expenses and reasonable fees and expenses of attorneys, accountants,
consultants and expert witnesses incurred in the investigation or defense
of any of the same or in asserting any of the respective rights of the
Compass Indemnitees or the Principals under Section 6.2.
MATERIAL ADVERSE EFFECT: any event, occurrence, fact, condition,
change or effect that (i) is materially adverse to the Company or the
Business, operations, results of operations, condition (financial or
otherwise), properties, Assets or liabilities or (ii) would materially
impair the ability of the Company to perform its respective obligations
hereunder.
MULTIEMPLOYER PLAN: as defined in Section 2.2.19(c)(iii).
1998 EARN-OUT: as defined in Section 1.4(a).
1999 EARN-OUT: as defined in Section 1.4(b).
1998 EARN-OUT EBITDA NOTICE: as defined in Section 1.4(c).
1999 EARN-OUT EBITDA NOTICE: as defined in Section 1.4(c).
1998 EBITDA: as defined in Section 1.4(e).
1999 EBITDA: as defined in Section 1.4(e).
1998 INCOME STATEMENT: as defined in Section 1.4(e).
1999 INCOME STATEMENT: as defined in Section 1.4(e).
NEW ACCOUNTING FIRM: as defined in Section 1.4(d).
NOTES: as defined in Section 1.3.
OCCUPIED PROPERTY: any real property used or held by the Company that
is not owned by the Company.
ORGANIZATIONAL DOCUMENTS: as to any Person, its certificate or
articles of incorporation, by-laws and other organizational documents.
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OTHER LEASES: the leases, subleases, licenses and occupancy
agreements pursuant to which the Company is lessor, sublessor or licensor
of any part of the Real Property.
OWNED REAL PROPERTY: the real property owned by the Company, together
with all structures, facilities, improvements, fixtures, systems,
equipment and items of property presently or hereafter located thereon,
attached or appurtenant thereto or owned by the Company and all easements,
licenses and rights relating to the foregoing.
PARTNERSHIP: McCormick Partners, an Illinois general partnership.
PERMITTED LIENS: (i) Liens provided for in the Balance Sheet, to the
extent so reserved, that do not materially interfere with the use of the
property subject thereto or extend to or cover any assets of any other
Affiliate of Compass upon consummation of the transactions contemplated by
this Agreement, (ii) Liens for Taxes not yet due and payable, (iii) Liens
that, individually and in the aggregate, do not and would not materially
detract from the value of any of the property or assets of the Business or
materially interfere with the use thereof as currently used or proposed to
be used, (iv) Liens of landlords and Liens of carriers, warehouseman,
mechanics, materialman and other like Liens arising in the ordinary course
of business for services not yet done and payable, (v) Liens on Excluded
Assets or (vi) Liens set forth on Schedule 6.1.
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
PLANS: as defined in Section 2.2.19(a).
POST-CLOSING DATE LOSS: as defined in Section 3.5(b).
PRINCIPALS: as defined in the first paragraph of this Agreement.
PURCHASE PRICE: the Cash Amount, the amount of the Notes and the
Compass Stock Amount.
REAL PROPERTY: the Owned Real Property, the Leased Real Property and
the other Occupied Property.
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REBATES: rebates, refunds, incentives, allowances or other similar
benefits or payments.
RELATED PERSON: as defined in Section 2.2.19.
RELEASE: any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying,
seeping, dispersal, migration, transporting, placing and the like,
including without limitation, the moving of any materials through, into or
upon, any land, soil, surface water, ground water or air, or otherwise
entering into the environment.
REPRESENTATIVE: John McCormick.
RESTRICTION PERIOD: as defined in Section 3.4(a).
RETURN: any return, report, declaration, form, claim for refund or
information return or similar statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
REVISED EBITDA: as defined in Section 1.4(d).
RULE 144: as defined in Section 3.7.
SECURITIES ACT: as defined in Section 2.3.7.
SEPTEMBER EARNINGS: as defined in Section 1.3.
SHARES: as defined in the first recital of this Agreement.
SOFTWARE: all computer software, including all source code and object
code versions thereof, in any and all forms and media, whether recorded on
paper, magnetic media or other electronic or non-electronic media
(including data and related documentation, user manuals, training
materials, flow charts, diagrams, descriptive tests and programs, computer
print-outs, underlying tapes, computer databases and similar items) and
computer applications and operating programs.
SUBSIDIARIES: each corporation or other Person in which a Person owns
or controls, directly or indirectly, capital stock or other equity
interests representing at least 50% of the outstanding voting stock or
other equity interests.
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TAX: any federal, state, provincial, local, foreign or other income,
alternative, minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits, windfall profits,
gross receipts, value added, sales (including, without limitation, bulk
sales), use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording,
premium, severance, environmental (including, without limitation, taxes
under Section 59A of the Code), real property, personal property, ad
valorem, intangibles, rent, occupancy, license, occupational, employment,
unemployment insurance, social security, disability, workers'
compensation, payroll, health care, withholding, estimated or other
similar tax, levy, impost, fee, duty or other governmental charge or
assessment or deficiencies thereof (including all interest and penalties
thereon and additions thereto, whether disputed or not) imposed by any
Governmental Authority or other taxing authority.
TRANSACTION EXPENSES: as defined in Section 6.4.
TREASURY REGULATIONS: the regulations prescribed under the Code.
TRUSTEES: as defined in the first paragraph of this Agreement.
TRUSTS: as defined in the first paragraph of this Agreement.
6.2. INDEMNIFICATION. (a) BY THE PRINCIPALS. Each Principal covenants
and agrees, jointly and severally, to defend, indemnify and hold harmless
Compass, Compass Parent, their Affiliates and their officers, directors,
employees, and agents (collectively, the "COMPASS INDEMNITEES") from and
against, and pay or reimburse the Compass Indemnitees for, any and all Losses
(whether attributable in whole or in part to the acts or omissions of the
Compass Indemnitees) resulting from or arising out of:
(i) any inaccuracy of any representation or warranty made by the
Principals in any provision of this Agreement or under any Employment
Agreement or in connection herewith or therewith; and
(ii) any failure of the Principals to perform substantially any
covenant or agreement hereunder or under any Employment Agreement or
fulfill any other obligation in respect hereof or thereof.
The rights to indemnification under clauses (i) and (ii) of this Section 6.2(a)
are cumulative and the absence of a claim under any one such clause shall not
affect the right to a
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claim under any other such clause. Subject to Section 6.2(d), the liability of
the Principals under this Section 6.2(a) survives forever.
(b) BY COMPASS AND COMPASS PARENT. Compass and Compass Parent
covenant and agree to defend, indemnify and hold harmless the Principals and
their Affiliates from and against, and pay or reimburse the Principals and their
Affiliates for, any and all Losses (whether attributable in whole or in part to
the acts or omissions of the Principals) resulting from or arising out of:
(i) any inaccuracy in any representation or warranty made by Compass
or Compass Parent herein or under any Employment Agreement, or in
connection here with or therewith; or
(ii) any failure of Compass or Compass Parent to perform any covenant
or agreement hereunder or under any Employment Agreement, or fulfill any
other obligation in respect hereof or thereof,
except to the extent such Losses constitute Losses for which the Principals are
required to indemnify the Compass Indemnitees under Section 6.2(a).
The rights to indemnification under clauses (i) and (ii) of this
Section 6.2(b) are cumulative and the absence of a claim under any one such
clause shall not affect the right to a claim under any other such clause.
Subject to Section 6.2(d), the liability of Compass and Compass Parent under
this Section 6.2(b) survives forever.
(c) INDEMNIFICATION PROCEDURES. In the case of any claim asserted by
a third party against a party entitled to indemnification under this Agreement
(the "INDEMNIFIED PARTY"), notice shall be given by the Indemnified Party to the
party required to provide indemnification (the "INDEMNIFYING PARTY") promptly
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and the Indemnified Party shall permit the Indemnifying
Party (at the expense of such Indemnifying Party) to assume the defense of any
claim or any litigation resulting therefrom, PROVIDED, THAT, (i) the counsel for
the Indemnifying Party who shall conduct the defense of such claim or litigation
shall be reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may participate in such defense at such Indemnified Party's expense, and
(iii) the omission by any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its indemnification obligation under
this Agreement except to the extent that such omission results in a failure of
actual notice to the Indemnifying Party and such Indemnifying Party is
materially damaged as a result of such failure to give notice. Except with the
prior written consent of the Indemnified Party (such consent not
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to be unreasonably withheld), no Indemnifying Party, in the defense of any such
claim or litigation, shall consent to entry of any judgment or enter into any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a release
from all liability with respect to such claim or litigation. In the event that
the Indemnified Party shall in good faith determine that the conduct of the
defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by the Indemnifying Party might be expected to
affect adversely the Indemnified Party's Tax liability or the ability of Compass
or Compass Parent to conduct their respective businesses, or that the
Indemnified Party may have available to it one or more defenses or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to any
such claim at the sole cost of the Indemnifying Party, PROVIDED, THAT, if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the written consent of the
Indemnifying Party, such consent not to be unreasonably withheld. In the event
that the Indemnifying Party does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand and shall be entitled to settle or agree to pay in full
such claim or demand. In any event, the Indemnifying Party and the Indemnified
Party shall cooperate in the defense of any claim or litigation subject to this
Section 6.2 and the records of each shall be available to the other with respect
to such defense.
(d) TIME LIMITATION. All claims for indemnification under Section
6.2(a) or Section 6.2(b) must be asserted not later than 30 days after the
termination of the survival period set forth in Section 6.3.
(e) REMEDIES. Except with respect to Losses due to fraud or bad
faith, the rights and remedies herein provided are exclusive of any rights or
remedies that any party may otherwise have at law or in equity.
(f) TAX TREATMENT. Any payment made pursuant to this Section 6.2
shall be treated for Tax Purposes as an adjustment to the Purchase Price, unless
otherwise required by law.
(g) REDUCTION OF THE NOTES. So long as the Notes shall remain unpaid
and outstanding, Compass shall have the right, in its sole discretion, to
satisfy any claim it or any other Compass Indemnitee may have under this
Agreement by setting off such claim
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against the Notes, in which case the then unpaid principal amount of the Notes
shall be reduced by the amount of such claim, and Compass will execute an
amendment evidencing such reduction ; provided, however, that the amount of such
claim and the liability of the Principals hereunder therefore shall have been
agreed to by the Principals in writing or determined in a final and
non-appealable decision by a court of competent jurisdiction.
.
(h) MINIMUM. No claims for indemnification shall be made by any party
hereto unless the amount of Losses claimed by such party from time to time
exceed, in the aggregate, $75,000.
(i) MAXIMUM LOSSES. The maximum aggregate liability of the Principals
for indemnification under this Agreement shall be $23.4 million. The maximum
aggregate liability of Compass and Compass Parent for indemnification under this
Agreement shall be $23.4 million.
6.3. SURVIVAL. The representations and warranties and all
indemnification obligations contained in this Agreement shall survive the
execution and delivery of this Agreement, any examination by or on behalf of the
parties hereto and the completion of the transactions contemplated herein, but
only to the extent specified below:
(a) except as set forth in clauses (b) and (c) below, the
representations and warranties contained in Section 2.1 and 2.3 shall
survive until the earlier of (I) March 31, 2000, and (II) the date on
which Compass shall receive a report from its accountants with respect to
the financial statements of the Business for the first full fiscal year
following the Closing Date;
(b) the representations and warranties contained in Sections 2.1.1,
2.1.2 and 2.1.3, 2.2.1, 2.2.2, 2.2.3, 2.2.15, 2.3.1, 2.3.2 and 2.3.5 shall
survive without limitation; and
(c) the representations and warranties of the Principals contained in
Section 2.2.8 shall survive as to any Tax covered by such representations
and warranties for so long as any statute of limitations for such Tax
remains open, in whole or in part, including without limitation by reason
of waiver of such statute of limitations.
6.4. EXPENSES. The Principals, on the one hand, and Compass and
Compass Parent, on the other hand, shall bear their respective expenses, costs
and fees (including attorneys' and auditors') in connection with the
transactions contemplated hereby,
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including the preparation, execution and delivery of this Agreement and the
Employment Agreements, and compliance herewith and therewith (the "TRANSACTION
EXPENSES"), and any Transaction Expenses of the Company and the Principals shall
be paid by the Principals.
6.5. SEVERABILITY. If any provision of this Agreement is inoperative
or unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever. The
invalidity of any one or more phrases, sentences, clauses, Sections or
subsections of this Agreement shall not affect the remaining portions of this
Agreement.
6.6. NOTICES. All notices and other communications made in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given if (a) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, (b) transmitted by hand delivery, (c) sent by
next-day or overnight mail or delivery or (d) sent by fax, telecopy or telegram,
addressed as follows:
(i) if to Compass and/or Compass Parent,
Compass Receivables Management Corporation
and/or Compass International Services Corporation
1 Penn Plaza
Suite 4430
New York, New York 10119
Telecopy: (212) 967-0650
Attention: Julie Schechter, Esq.
General Counsel
with copies to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Telephone: (212) 909-6000
Attention: Franci J. Blassberg, Esq.
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(ii) if to John McCormick, Steven McCormick, David McCormick or
Mark McCormick
101 Overland Drive
North Aurora, Illinois 60542
Telecopy: (630) 897-6700
Telephone: (630) 897-7409
with copies to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Telecopy: (312) 853-7036
Telephone: (312) 853-7000
Attention: Dennis Osimitz, Esq.
or, in each case, at such other address as may be specified in writing to the
other party hereto.
6.7. MISCELLANEOUS.
6.7.1. ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto) and the Employment Agreements (when executed and delivered) constitute
the entire agreement and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof.
6.7.2. COUNTERPARTS; HEADINGS. This Agreement may be executed in
several counterparts, each of which shall be deemed an original and all of which
shall together constitute one and the same instrument. The headings contained in
this Agreement are for purposes of convenience only and shall not affect the
meaning or interpretation of this Agreement.
6.7.3. GOVERNING LAW, ETC. (a) THIS AGREEMENT SHALL BE GOV ERNED IN
ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS RULES THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS OF
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THE UNITED STATES OF AMERICA LOCATED IN THE COUNTY OF NEW YORK SOLELY IN RESPECT
OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF
THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY. EACH PARTY HEREBY WAIVES AND AGREES NOT TO
ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION
AND ENFORCEMENT HEREOF, OR ANY SUCH DOCUMENT OR IN RESPECT OF ANY SUCH
TRANSACTION, THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT
MAINTAINABLE IN SUCH COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR
THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS. EACH PARTY HEREBY CONSENTS TO AND GRANTS ANY SUCH COURT JURISDICTION
OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH DISPUTE
AND AGREE THAT THE MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION WITH ANY
SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 6.6 OR IN SUCH OTHER
MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT SERVICE
THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OR ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 6.7.3(b).
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6.7.4. BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors and permitted assigns. Except as provided in
Section 6.2 with respect to indemnification of Indemnified Parties hereunder,
nothing in this Agreement shall confer any rights upon any person or entity
other than the parties hereto and their respective heirs, successors and
permitted assigns.
6.7.5. ASSIGNMENT. This Agreement shall not be assignable by any of
the parties hereto without the prior written consent of the other parties,
PROVIDED, THAT, Compass or Compass Parent may assign this Agreement to any
lender to Compass or Compass Parent or any Subsidiary or Affiliate thereof as
security for obligations to such lender, and PROVIDED, FURTHER, that no
assignment to any such lender shall in any way affect Compass's or Compass
Parent's obligations or liabilities under this Agreement.
6.7.6. AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies of any party
based upon, arising out of or otherwise in respect of any inaccuracy or breach
of any representation, warranty, covenant or agreement or failure to fulfill any
condition shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
The representations and warranties of the Principals shall not be affected or
deemed waived by reason of any investigation made by or on behalf of Compass or
Compass Parent (including but not limited to by any of their advisors,
consultants or representatives) or by reason of the fact that Compass, Compass
Parent or any of their advisors, consultants or representatives knew or should
have known that any such representation or warranty is or might be inaccurate.
6.7.7. SPECIFIC PERFORMANCE. The parties hereto acknowledge that the
covenants to be performed under Sections 3.3 and 3.4 hereof are unique and that
damages would be
46
<PAGE> 53
an inadequate remedy for breach thereof and accordingly agree that the party to
whom performance is owed under any such section, in addition to any other rights
and remedies available under this Agreement or otherwise, shall be entitled to
an injunction to be issued or specific enforcement to be required (without the
necessity of the posting of any bond) restricting the party breaching or
threatening breach of any such provision from committing or continuing any such
breach.
47
<PAGE> 54
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
COMPASS RECEIVABLES MANAGEMENT
CORPORATION
By: /s/ Mahmud U. Haq
-----------------------------
Mahmud U. Haq
President
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Mahmud U. Haq
-----------------------------
Mahmud U. Haq
President
/s/ John McCormick
---------------------------------
John McCormick
/s/ Steven McCormick
---------------------------------
Steven McCormick
/s/ David McCormick
---------------------------------
David McCormick
/s/ Mark McCormick
---------------------------------
Mark McCormick
48
<PAGE> 55
STEVEN B. McCORMICK TRUST
/s/ Steven McCormick
---------------------------------
Steven McCormick, as trustee of the
Steven B. McCormick Trust
DAVID P. McCORMICK TRUST
/s/ David McCormick
---------------------------------
David McCormick, as trustee of the
David P. McCormick Trust
MARK E. McCORMICK TRUST
/s/ Mark McCormick
---------------------------------
Mark McCormick, as trustee of the
Mark E. McCormick Trust
49
<PAGE> 1
Exhibit 4.1
PROMISSORY NOTE
$1,950,000.00 As of September 30, 1998
FOR VALUE RECEIVED, the undersigned, Compass International
Services Corporation, a Delaware corporation (the "MAKER"), hereby promises to
pay to the Steven B. McCormick Trust (the "PAYEE"), or to its lawful order, the
principal amount of ONE MILLION NINE HUNDRED AND FIFTY THOUSAND United States
Dollars ($1,950,000.00) PLUS interest from the date hereof on the unpaid balance
of such principal amount at the rate of 8% per annum. The principal amount of
this note (the "NOTE") and all accrued interest shall be payable on September
30, 1999.
This Note may be prepaid in whole or in part at any time or
from time to time without penalty or premium.
The principal amount of this Note is subject to reduction
pursuant to the terms of the Stock Purchase Agreement, dated as of September 30,
1998, by and among the Maker, the Payee, Compass Receivables Management
Corporation, a Delaware corporation, David P. McCormick Trust, Mark E. McCormick
Trust, John McCormick, Steven McCormick, Mark McCormick and David McCormick.
Upon any reduction of the principal amount of this Note, the amount of accrued
interest shall be reduced by a PRO RATA amount.
Payments of principal and interest on this Note shall be made
to the Payee (i) in lawful money of the United States of America and (ii) at 101
Overland Drive, North Aurora, Illinois 60542, or such other place as the Payee
may designate in writing.
The undersigned, for itself and its legal representatives,
successors and assigns, and any others who may at any time become liable for
payment hereunder, hereby (a) consents to any and all extensions of time,
renewals, waivers, or modifications if any, that may be granted or consented to
by the Payee with regard to the time of payment hereunder or any other
provisions hereof, (b) waives presentment, demand, protest, notice of dishonor,
notice of non-payment, diligence in collection, and any right of setoff and (c)
covenants and agrees to make all payments, when due, on this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PROVISIONS THEREOF.
<PAGE> 2
IN WITNESS WHEREOF, the Maker has caused this Note to be
signed in its corporate name by its duly authorized officer, and to be dated as
of the date first above written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Mahmud U. Haq
-----------------------------
Mahmud U. Haq
President
2
<PAGE> 1
Exhibit 4.2
PROMISSORY NOTE
$1,950,000.00 As of September 30, 1998
FOR VALUE RECEIVED, the undersigned, Compass International
Services Corporation, a Delaware corporation (the "MAKER"), hereby promises to
pay to the David P. McCormick Trust (the "PAYEE"), or to its lawful order, the
principal amount of ONE MILLION NINE HUNDRED AND FIFTY THOUSAND United States
Dollars ($1,950,000.00) PLUS interest from the date hereof on the unpaid balance
of such principal amount at the rate of 8% per annum. The principal amount of
this note (the "NOTE") and all accrued interest shall be payable on September
30, 1999.
This Note may be prepaid in whole or in part at any time or
from time to time without penalty or premium.
The principal amount of this Note is subject to reduction
pursuant to the terms of the Stock Purchase Agreement, dated as of September 30,
1998, by and among the Maker, the Payee, Compass Receivables Management
Corporation, a Delaware corporation, Steven B. McCormick Trust, Mark E.
McCormick Trust, John McCormick, Steven McCormick, Mark McCormick and David
McCormick. Upon any reduction of the principal amount of this Note, the amount
of accrued interest shall be reduced by a PRO RATA amount.
Payments of principal and interest on this Note shall be made
to the Payee (i) in lawful money of the United States of America and (ii) at 101
Overland Drive, North Aurora, Illinois 60542, or such other place as the Payee
may designate in writing.
The undersigned, for itself and its legal representatives,
successors and assigns, and any others who may at any time become liable for
payment hereunder, hereby (a) consents to any and all extensions of time,
renewals, waivers, or modifications if any, that may be granted or consented to
by the Payee with regard to the time of payment hereunder or any other
provisions hereof, (b) waives presentment, demand, protest, notice of dishonor,
notice of non-payment, diligence in collection, and any right of setoff and (c)
covenants and agrees to make all payments, when due, on this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PROVISIONS THEREOF.
<PAGE> 2
IN WITNESS WHEREOF, the Maker has caused this Note to be
signed in its corporate name by its duly authorized officer, and to be dated as
of the date first above written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Mahmud U. Haq
-----------------------------
Mahmud U. Haq
President
2
<PAGE> 1
Exhibit 4.3
PROMISSORY NOTE
$1,950,000.00 As of September 30, 1998
FOR VALUE RECEIVED, the undersigned, Compass International
Services Corporation, a Delaware corporation (the "MAKER"), hereby promises to
pay to the Mark E. McCormick Trust (the "PAYEE"), or to its lawful order, the
principal amount of ONE MILLION NINE HUNDRED AND FIFTY THOUSAND United States
Dollars ($1,950,000.00) PLUS interest from the date hereof on the unpaid balance
of such principal amount at the rate of 8% per annum. The principal amount of
this note (the "NOTE") and all accrued interest shall be payable on September
30, 1999.
This Note may be prepaid in whole or in part at any time or
from time to time without penalty or premium.
The principal amount of this Note is subject to reduction
pursuant to the terms of the Stock Purchase Agreement, dated as of September 30,
1998, by and among the Maker, the Payee, Compass Receivables Management
Corporation, a Delaware corporation, Steven B. McCormick Trust, David P.
McCormick Trust, John McCormick, Steven McCormick, Mark McCormick and David
McCormick. Upon any reduction of the principal amount of this Note, the amount
of accrued interest shall be reduced by a pro rata amount.
Payments of principal and interest on this Note shall be made
to the Payee (i) in lawful money of the United States of America and (ii) at 101
Overland Drive, North Aurora, Illinois 60542, or such other place as the Payee
may designate in writing.
The undersigned, for itself and its legal representatives,
successors and assigns, and any others who may at any time become liable for
payment hereunder, hereby (a) consents to any and all extensions of time,
renewals, waivers, or modifications if any, that may be granted or consented to
by the Payee with regard to the time of payment hereunder or any other
provisions hereof, (b) waives presentment, demand, protest, notice of dishonor,
notice of non-payment, diligence in collection, and any right of setoff and (c)
covenants and agrees to make all payments, when due, on this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PROVISIONS THEREOF.
<PAGE> 2
IN WITNESS WHEREOF, the Maker has caused this Note to be
signed in its corporate name by its duly authorized officer, and to be dated as
of the date first above written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ Mahmud U. Haq
----------------------------
Mahmud U. Haq
President
2
