<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 000-23217
COMPASS INTERNATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3540815
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Plaza
Suite 4430
New York, New York 10119
(Address of principal executive offices, including zip code)
(212) 967-7770
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 13, 1999, 14,405,973 Shares of Common Stock, par value $.01 per share,
were outstanding.
<PAGE> 2
COMPASS INTERNATIONAL SERVICES CORPORATION
FORM 10-Q
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (unaudited):
General Information 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 4
Consolidated Statement of Stockholders' Equity for
the Three Months Ended March 31, 1999 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 18
PART II OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities and Use of Proceeds 19
Item 6 Exhibits and Reports on Form 8-K 20
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
Compass International Services Corporation ("Compass" or the "Company") was
organized to create a leading provider of outsourced business services to public
and private entities throughout the United States. On March 4, 1998,
simultaneously with the closing of its initial public offering (the "Offering")
of its common stock (the "Common Stock"), Compass acquired all of the
outstanding capital stock of five companies providing accounts receivable
management services, mailing services and teleservices (the "Founding
Companies") in separate purchase transactions (the "Acquisitions"). The Founding
Companies included The Mail Box, Inc., National Credit Management Corporation,
B.R.M.C. of Delaware, Inc., Mid-Continent Agencies Inc. and Impact Telemarketing
Group, Inc. Prior to the Offering and the closing of the Founding Companies
Acquisitions, Compass had no operating activities. Subsequent to the Offering,
Compass completed nine additional acquisitions and reorganized certain of its
operating entities.
COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net revenues $ 41,720 $ 8,552
Cost of revenues 28,640 5,164
----------- -----------
Gross profit 13,080 3,388
Selling, general and
administrative expenses 9,469 2,348
Goodwill amortization 888 130
----------- -----------
Operating income 2,723 910
Interest expense
(income), net 1,174 (4)
----------- ------------
Income before provision
for income taxes 1,549 914
Provision for income taxes 692 416
---------- -----------
Net income $ 857 $ 498
========== ===========
Net income per share:
Basic and diluted $ 0.06 $ 0.10
========== ==========
Weighted average number of shares outstanding:
Basic 14,405,973 5,114,237
========== =========
Diluted 14,405,973 5,150,450
========== =========
</TABLE>
See Notes to Consolidated Financial Statements
3
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COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,075 $ 8,606
Cash held in trust for clients 5,690 4,346
Trade receivables, less
allowance of $737 at March 31, 1999
and $725 at December 31, 1998 21,783 20,704
Inventory 1,352 1,282
Postage on hand 1,790 2,067
Prepaid expenses and other current assets 1,308 1,819
Deferred income taxes 877 877
------ --------
Total current assets 41,875 39,701
Property and equipment, net 18,804 18,285
Goodwill, net 127,977 127,857
Other assets 1,056 1,495
-------- --------
Total assets $189,712 $187,338
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 6,709 $ 6,783
Accrued expenses 6,741 5,540
Accrued earn-outs payable 3,500 8,904
Collections due to clients 5,690 4,346
Customer postage advances and deposits 2,485 2,484
Notes payable 7,180 1,924
Capital lease obligations 1,702 1,798
-------- --------
Total current liabilities 34,007 31,779
Long-term debt 53,000 48,000
Notes payable 1,569 7,760
Capital lease obligations 3,124 2,644
Deferred income taxes 273 273
-------- --------
Total liabilities 91,973 90,456
-------- --------
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized
$.01 par value, no shares issued or outstanding - -
Common stock, 50,000,000 shares authorized
$.01 par value, 14,405,973 and 13,804,846 shares
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 144 138
Additional paid-in capital 87,536 85,041
Value of shares to be issued - 2,501
Retained earnings 10,059 9,202
-------- --------
Total stockholders' equity 97,739 96,882
-------- --------
Total liabilities and stockholders' equity $189,712 $187,338
======== ========
</TABLE>
See notes to Consolidated Financial Statements.
4
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COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1998 13,804,846 $138 $87,542 $9,202 $96,882
Shares issued for earn-outs 601,127 6 (6) - -
Net Income - - - 857 857
----------- ---- ------- ------- -------
Balance, March 31, 1999 14,405,973 $144 $87,536 $10,059 $97,739
========== ==== ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
5
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COMPASS INTERNATIONAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 857 $ 498
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 1,074 205
Amortization 888 130
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET
OF EFFECT FROM ACQUISITIONS:
Cash held in trust for clients (1,344) -
Trade receivables (1,079) 105
Inventory (70) 32
Postage on hand 277 (377)
Prepaid expenses and other current assets 916 (2)
Other liabilities - 51
Accounts payable and accrued expenses 1,127 388
Collections due to clients 1,344 461
Customer postage advances and deposits 1 474
Income taxes payable - 357
------- --------
Net cash provided by operating activities 3,991 2,322
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (699) (498)
Business acquisitions, net of cash acquired (6,378) (16,203)
------- -------
Net cash used in investing activities (7,077) (16,701)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (510) (70)
Net proceeds from initial public offering - 41,926
Proceeds from credit facility 5,000 -
Repayment of debt (935) (13,011)
------- --------
Net cash provided by financing activities 3,555 28,845
------- --------
Net increase in cash and cash equivalents 469 14,466
Cash and cash equivalents, beginning of period 8,606 -
------- --------
Cash and cash equivalents at end of period $ 9,075 $ 14,466
======= ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 986 $ 88
======= ========
Cash paid for income taxes $ 534 $ 2
======= ========
Non cash investing activities:
Fair value of net assets acquired $ 64,001
Value of common stock issued (45,660)
Value of warrants issued (50)
--------
Net cash paid 18,291
Cash acquired in acquisitions (2,088)
--------
Net cash paid for acquisitions $ 16,203
========
</TABLE>
In 1999, non-cash financing activities included $841 of capital lease
obligations incurred for equipment.
See Notes to Consolidated Financial Statements
6
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COMPASS INTERNATIONAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
NOTE 1 - BUSINESS AND ORGANIZATION
Compass International Services Corporation, a Delaware corporation
("Compass" or the "Company") is a leading provider of accounts receivable
management services and other complementary outsourced services. Compass'
Accounts Receivable Management segment provides a suite of accounts receivable
management solutions to clients, including traditional third party collection
services, pre-collection customer contact programs, innovative payment options,
credit report-related services, an attorney network for severely delinquent
accounts, and bankruptcy and probate collection strategies. Compass' Print and
Mail segment offers printing, mailing and related services which complement the
accounts receivable management services, including expertise and efficiency in
direct mail and billing, presorting, freight and drop shipping, data processing,
laser printing, mailing list rental and order fulfillment. The Company's
Teleservices segment provides state-of-the-art call management and reporting.
On March 4, 1998, simultaneously with the closing of the Company's
initial public offering ("IPO" or the "Offering") of its common stock, Compass
acquired in separate purchase transactions, all of the outstanding capital stock
of five companies providing accounts receivable management services, print and
mail services and teleservices (the "Founding Companies"). Prior to the
Offering, Compass had no operating activities. Since the Offering, Compass has
completed nine additional acquisitions and has reorganized certain of its
operating entities. These consolidated financial statements reflect the results
of operations of Compass and its subsidiaries subsequent to the IPO and initial
acquisitions.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions for Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of only
normal recurring items) considered necessary for a fair presentation have been
included. Operating results for the three month period ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999 or for any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K, as amended, filed
with the Securities and Exchange Commission.
7
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Principles of Consolidation
The consolidated financial statements include the accounts of Compass
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ from those estimates.
Earnings Per Share
Basic and diluted earnings per share have been calculated based upon
the provisions of FASB Statement No. 128, Earnings per Share. Basic earnings per
share ("Basic EPS") for the three months ended March 31, 1999 reflect the number
of shares of Common Stock outstanding for the entire period. The average market
price for the quarter was below the exercise price of all outstanding options
and warrants. Therefore, all outstanding options and warrants would have had an
anti-dilutive effect on earnings per share and have been excluded from the
calculation.
The computation of Basic EPS for the three months ended March 31, 1998
reflects the number of shares of Common Stock outstanding (1,682,769)
attributable to BGL Capital Partners, LLC and Compass management from January 1,
1998 until February 27, 1998, the number of shares following the Acquisitions
and Offering (11,218,460) from February 27, 1998 until the underwriters'
overallotment option was exercised on March 25, 1998 and 11,833,460 shares
thereafter until March 31, 1998. Diluted earnings per share ("Diluted EPS") for
the 1998 period includes the effect of options and warrants outstanding during
such period.
Shares used in the calculation of EPS for the three months ended March 31, 1998
are as follow:
Basic (weighted average shares outstanding) 5,114,237
Effect of dilutive potential securities 36,213
---------
Shares used in calculation of Diluted EPS 5,150,450
=========
NOTE 3 - ACQUISITIONS
Founding Companies
On March 4, 1998, Compass acquired the Founding Companies for
consideration consisting of common stock, cash and debt. The closing of the
Founding Companies Acquisitions and the Offering occurred on that date. The
Founding Companies include providers of accounts receivable management
8
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services: National Credit Management Corporation, B.R.M.C. of Delaware,
Inc., Mid-Continent Agencies, Inc.; print and mail services: The Mail Box, Inc.
("Mail Box"); and telemarketing services: Impact Telemarketing Group, Inc. Mail
Box has been identified as the accounting acquirer. Accordingly, in recording
the Founding Companies Acquisitions, the accounts of Mail Box continue to be
reflected on its historic basis of accounting, while the aggregate purchase
price for the other Founding Companies was allocated based on the fair value of
assets acquired and liabilities assumed.
Acquired Companies
Subsequent to the IPO, the Company made additional acquisitions in the
accounts receivable management services and the print and mail services
industries. These acquisitions included the following accounts receivable
management services companies: Professional American Collections, Inc.
Nationwide Debt Recovery, Ltd., Delivery Verification Service, Inc., Midwest
Collection Service, Inc., R.C. Wilson Company, and Rosenfeld Attorney Network.
The print and mail services companies acquired included: Metrowebb, Inc. and MWI
Laser Group, Inc., Maher & Associates Mailing Services, Inc. and Bender Direct
Mail Service, Inc. The businesses acquired by Compass subsequent to the IPO are
collectively referred to as the "Acquired Companies." The aggregate purchase
price for each acquisition has been assigned to their respective assets based
upon the fair value of the assets acquired and liabilities assumed. As each of
these acquisitions has been accounted for as a purchase, the Company's
consolidated financial statements reflect the operations of the acquired
companies subsequent to the respective date of the acquisition.
Pursuant to the acquisitions, the Company undertook a program to
consolidate and streamline the operations of the accounts receivable management
services operations and to eliminate certain other redundant positions. A total
charge amounting to $1,433 was recorded as part of the goodwill recorded in the
acquisition transactions. Of this amount, $1,333 related to the severance of
approximately 20 employees and $100 related to the close-down and consolidation
of operations. As of March 31, 1999, $409 was included in accrued expenses
relating to severance.
The following unaudited pro forma summary presents the combined results
of operations of the Company, the Founding Companies and the Acquired Companies,
as if the acquisitions and Compass' IPO occurred at January 1, 1998. The pro
forma amounts give effect to certain adjustments including: adjustments to
salaries, bonuses and benefits to former owners and key management of the
Founding Companies and the Acquired Companies, repayment of long-term debt
acquired, amortization of goodwill and other intangible assets resulting from
the acquisitions and the Founding Companies and the Acquired Companies, interest
expense on additional debt for the Acquired Companies and provision for income
taxes as if income were subject to corporate federal and state income taxes
during the period. The pro forma summary does not purport to represent what
Compass' operations would actually have been if such transactions had occurred
on January 1, 1998, and are not necessarily representative of Compass' results
of operations for any future period.
9
<PAGE> 10
Since the Founding Companies and the Acquired Companies were not under common
control or management prior to their acquisition by Compass, historical combined
results may not be comparable to, or indicative of, future performance.
MAR. 31, 1998
-------------
(Unaudited)
Net revenues $45,472
Operating income $6,208
Net income $2,975
Net income per share-basic $ 0.21
NOTE 4 - CREDIT FACILITY
On March 30, 1999, the Company's $55 million credit facility was
amended to: a) revise certain definitions, b) establish termination fees should
the facility be terminated prior to December 31, 1999, c) prohibit additional
acquisitions until the Leverage Ratio, as defined, is less than 2-to-1 for two
consecutive fiscal quarters, but at least until January 1, 2000, d) increase the
Maximum Leverage Ratio, as defined, from 2.0 to a quarterly scale ranging from
3.0-to-1 to 2.25-to-1, e) establish a Maximum Senior Leverage Ratio and f)
redefine the Debt-to-Capitalization Ratio. The Company was in compliance with
all of the covenants contained in the credit agreement for the period ended
March 31, 1999 and through the date of filing on Form 10-Q.
In addition, pursuant to the amendment, the interest rate under the credit
agreement was increased from 150 basis points to 225 basis points over the
Interbank Offered Rate or a Base Rate as defined in the Agreement.
NOTE 5 - BUSINESS SEGMENTS
The Company's operations are principally in three industry segments:
accounts receivable management services, print and mail services and
teleservices. The Company's operations are principally within the United States.
It should be noted that industry segment information might be of
limited usefulness in comparing an industry segment of the Company with a
similar industry segment of another enterprise.
10
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Selected information by industry segment is summarized below for the
quarters ended March 31, 1999 and 1998, respectively. The consolidated financial
statements reflect the results of operations of Compass and its subsidiaries
subsequent to the IPO. Therefore, the results of operations for the three months
ended March 31, 1998 reflect one month of operating activity.
<TABLE>
<CAPTION>
ACCOUNTS
RECEIVABLES PRINT & TELESER- CONSOLID-
MANAGEMENT MAIL VICES CORPORATE ATED
---------- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1999
- ---------------------------------
Net revenues $ 22,607 $14,827 $4,286 $ 41,720
======== ======= ====== ========
Operating income $ 3,651 $ 529 $ 367 $(1,824) $ 2,723
======== ======= ====== ======== ========
Total assets $122,747 $42,284 $7,473 $17,208 $189,712
======== ======= ====== ======= ========
Depreciation $ 400 $ 570 $ 51 $ 53 $ 1,074
======== ======= ====== ======= ========
Capital expend-
itures $ 85 $ 1,118 $ 25 $ 312 $ 1,540
======== ======= ====== ======= ========
Three months ended March 31, 1998
- ---------------------------------
Net revenues $ 3,849 $ 3,176 $ 1,527 $ 8,552
======= ======= ======= ========
Operating income $ 522 $ 572 $ 116 $ (300) $ 910
======= ======= ====== ========= ========
Total assets $54,703 $12,324 $8,090 $19,916 $ 95,033
======= ======= ====== ======= ========
Depreciation $ 96 $ 88 $ 21 $ - $ 205
======== ======= ====== ======= ========
Capital expend-
itures $ 123 $ 354 $ - $ 21 $ 498
======== ======= ====== ======= ========
</TABLE>
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for
Derivative Instruments and for Hedging Activities. The statement is effective
for fiscal years beginning after June 15, 1999 and defines a derivative and
establishes common accounting principles for all types of instruments. The
Company plans to adopt Statement No. 133 for the fiscal year ending December 31,
2000, however, management does not expect its adoption to have a significant
impact on the Company's financial position, results of operations or cash flows.
NOTE 7 - SUBSEQUENT EVENTS
On May 12, 1999, the Company signed a definitive agreement with NCO
Group, Inc. ("NCO"), a provider of accounts receivable management services,
under which NCO will acquire all outstanding shares of Compass in a
stock-for-stock transaction. Under the terms of the transaction, it is
anticipated that NCO will issue 0.23739 shares of NCO common stock in exchange
for each common share of Compass.
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In conjunction with the above transaction, Compass will divest its
Print and Mail business to a company formed by the division's current management
team for total cash consideration of approximately $35.1 million plus assumption
of certain obligations.
The NCO transaction is subject to customary closing conditions,
including Hart-Scott-Rodino approval, approval by Compass' shareholders and
completion of the management buyout of the Print and Mail division. Both
transactions are currently expected to close in the third quarter of 1999.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Compass and related notes thereto included herein and in
the Company's Form 10-K as amended and filed with the Securities and Exchange
Commission.
Presented below are discussions of the Company's results of operations on both a
historical and pro forma basis. Although the Company was formed in April, 1997,
there were no operating activities prior to the IPO and the closing of the
Founding Companies Acquisitions. Furthermore, since the Founding Companies
Acquisitions did not occur until March 4, 1998, the historical operating results
for the quarter ended March 31, 1998 include only one month of results from the
Founding Companies. The Company did not make any additional acquisitions in the
month of March 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998-HISTORICAL
NET REVENUES. Net revenues for the three months ended March 31, 1999 amounted to
$41.7 million. Among the segments, Accounts Receivable Management contributed
$22.6 million, or 54.2%, Print and Mail contributed $14.8 million, or 35.5%, and
Teleservices contributed $4.3 million, or 10.3%.
Net revenues for the three months ended March 31, 1998 amounted to $8.5
million. Among the segments, Accounts Receivable Management contributed $3.8
million, or 45.0%, Print and Mail contributed $3.2 million, or 37.1%, and
Teleservices contributed $1.5 million, or 17.9%.
COST OF REVENUES. Cost of revenues for the three months ended March 31, 1999
were $28.6 million, or 68.6% of net revenues. By segment, cost of revenues for
Accounts Receivable Management amounted to $13.9 million, or 61.5% of segment
net revenues. Cost of revenues for Print and Mail amounted to $11.5 million, or
77.3% of segment net revenues. Cost of revenues for Teleservices amounted to
$3.2 million, or 74.4% of net revenues.
Cost of revenues for the three months ended March 31, 1998 amounted to
$5.2 million or 60.4% of net revenues. Among the segments, cost of revenues for
Accounts Receivable Management amounted to $2.0 million, or 52.6% of net
revenues. Cost of revenues for Print and Mail amounted to $2.1 million, or
65.6% of net revenues. Cost of revenues for Teleservices amounted to $1.1
million, or 73.3% of net revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense for the three months ended March 31, 1999 were $10.3
million, or 24.7% of net revenues. Selling, general and administrative expenses
in the Accounts Receivable Management segment amounted to $4.9 million, or 21.7%
of segment net revenues. Selling, general and administrative expenses in the
Print and Mail segment amounted to $2.8 million, or 18.9% of segment net
revenues. Selling, general and administrative expenses for the Teleservices
segment amounted to $0.8 million, or 18.7% of segment net revenues.
Corporate expenses amounted to $1.8 million and included $0.3 million
relating to the evaluation of the Company's strategic investment alternatives.
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Selling, general and administrative expenses for the three months ended
March 31, 1998 were $2.5 million or 29% of net revenues.
INTEREST EXPENSE. Interest expense amounted to $1.2 million in the current
period. The interest primarily relates to borrowings under the Company's credit
facility, which were used to make acquisitions and loans from selling
shareholders in connection with the acquisition of their companies, and to
interest imputed on capital leases.
Interest income, net for the 1998 period was negligible as the Company
had not completed its credit facility and had made no acquisitions other than
the Founding Companies.
INCOME TAXES. The effective income tax rates used for the 1999 and 1998 periods
were 44.7% and 45.5%, respectively, as compared to the statutory rate of 35%.
The difference primarily relates to the effects of state income taxes and the
non-deductibility of goodwill arising primarily from the stock acquisitions.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998-PRO FORMA
Pro forma results of operations presented below assume that the IPO,
the Founding Companies Acquisitions and the subsequent acquisitions occurred on
January 1, 1998 and reflect certain pro forma adjustments. See Note 3 of Notes
to the Consolidated Financial Statements.
(Dollars in thousands)
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Net revenues $41,720 $45,472
Cost of revenues 28,640 30,151
------- -------
Gross Profit 13,080 15,321
Selling, general and
administrative expenses 10,357 9,113
------- -------
Operating income $ 2,723 $ 6,208
======= =======
NET REVENUES. Net revenues decreased $3.8 million, or 8.4%, from $45.5
million for the three months ended March 31, 1998 to $41.7 million for the three
months ended March 31, 1999.
Net revenues for the Accounts Receivable Management segment increased
$0.3 million, or 1.3%, from $22.3 million to $22.6 million.
Net revenues for the Print and Mail segment decreased $3.6 million, or
19.6%, from $18.4 million to $14.8 million. $3.2 million of the decrease
resulted from the segment's largest customer, who, as a result of competitive
pressures, changed direct mail advertising campaigns from long-run print and
mail roll-outs to short-run test packages. Net revenues for the segment included
a one-time large order in the first quarter of 1998. New customers and volume
increases with existing customers resulted in $1.1 million of new net revenues.
Net revenues for the Teleservices segment decreased $0.5 million, or
10%, from $4.8 million to $4.3 million. This decrease was expected as the
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segment implemented a strategy designed to replace high volume but low margin
business with more profitable client relationships.
COST OF REVENUES. Cost of revenues decreased $1.5 million, or 5.0%, from $30.1
million for the prior year three month period to $28.6 million for the current
year three month period. Cost of revenues as a percentage of net revenues
amounted to 68.6% for the 1999 period as compared to 66.3% for the 1998 period.
Cost of revenues for the Accounts Receivable Management segment
increased by $0.4 million, or 3%, from $13.5 million to $13.9 million. This
increase is reflective of a shift in the mix of service offerings in the
segment.
Cost of revenues for the Print and Mail segment decreased $1.6 million,
or 12.2%, from $13.1 million to $11.5 million. As a percentage of net revenues,
these costs increased from 71.2% to 77.3%. The increase reflects the excess
capacity that resulted from the reduced level of business during the current
quarter as compared to the same period of 1998.
Cost of revenues for the Teleservices segment decreased $0.4 million,
or 11.1%, from $3.6 million to $3.2 million. As a percentage of net revenues,
these costs amounted to 73.5% for the 1999 period as compared to 75.2% for the
same period of 1998. The decrease in cost of revenues as a percentage of net
revenues reflects management's efforts to focus on higher margin business as
well as a reduction in telecommunications expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the 1999 period increased $1.3 million, or 14.3%,
from $9.1 million to $10.4 million. As a percentage of net revenues, such
expenses increased to 24.8% in 1999 from 20.0% in 1998.
Selling, general and administrative expenses in the Accounts Receivable
Management segment increased $0.1 million, or 2.1%, from $4.8 million to $4.9
million. This increase is reflective of the continued cost of integration of the
separate business units within the segment.
Selling, general and administrative expenses in the Print and Mail
segment increased $0.4 million, or 16.0%, from $2.5 million to $2.9 million.
This increase is reflective of the cost of additional administrative personnel.
Selling, general and administrative expenses for the Teleservices
segment decreased $0.2 million, or 20%, from $1.0 million to $0.8 million. The
decrease reflects efficiencies gained from improved systems in the areas of
administration and client services.
Corporate expenses increased $1.0 million, or 125.0%, from $0.8 million
to $1.8 million. This increase reflects the addition of personnel, legal,
consulting and other professional fees and costs associated with evaluating the
strategic alternatives available to the Company.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1999, net cash provided by operating
activities amounted to $4.0 million. Operating activities included $2.8
15
<PAGE> 16
million of earnings before depreciation and amortization. Changes in operating
assets and liabilities added an additional $1.2 million in net cash.
Cash used in investing activities for the first quarter of 1999
included net cash paid for acquisitions completed in 1998, primarily related to
earn-out agreements, in the amount of $6.4 million, and $0.7 million in capital
expenditures which were primarily comprised of purchases of equipment for Print
and Mail Services.
Financing activities for the quarter ended March 31, 1999 generated net
cash in the amount of $3.6 million. Of this amount, proceeds in the amount of
$5.0 million were borrowed under the Company's revolving credit facility (which
is further discussed in the following paragraphs). Financing activities that
required cash included the repayment of acquired debt in the amount of $0.9
million and repayments of capital lease obligations of $0.5 million.
On March 30, 1999, the Company's $55 million credit facility (the
"Agreement") was amended to: a) revise certain definitions, b) establish
termination fees should the facility be terminated prior to December 31, 1999,
c) prohibit additional acquisitions until the Leverage Ratio, as defined, is
less than 2-to-1 for two consecutive fiscal quarters, but at least until January
1, 2000, d) increase the Maximum Leverage Ratio, as defined, from 2.0 to a
quarterly scale ranging from 3.0-to-1 to 2.25-to-1, e) establish a Maximum
Senior Leverage Ratio and f) redefine the Debt-to-Capitalization Ratio.
In addition, the interest rate under Agreement was increased from 150
basis points to 225 basis points over the Interbank Offered Rate or a Base Rate
as defined in the Agreement. The Company was in compliance with all of the
covenants under the Agreement for the period ended March 31, 1999.
At March 31, 1999, borrowings under the Agreement totaled $53 million,
there were $.8 million in outstanding letters of credit and $1.2 million
remained available for borrowing. An additional $0.7 million was borrowed in
April 1999.
During the three months ended March 31, 1999, the Company has paid $5.4
million in cash with respect to earn-out agreements, and the Company expects to
pay up to an additional $3.5 million (of which, $1.0 million was paid in April
1999). The cash payments under notes payable remaining to be paid during 1999 is
expected to be $0.5 million. The Company anticipates that the integration and
consolidation of acquired print and mail companies will result in cash payments
of approximately $1.4 million in 1999.
Based upon its current projections, management believes that cash flows
from operations combined with the remaining availability under the Agreement
will be sufficient to meet the Company's working capital needs in 1999.
SEASONALITY
The operations of Compass are not subject to seasonal factors that have
a material impact on the results of operations.
16
<PAGE> 17
RECENT DEVELOPMENTS
On May 12, 1999, the Company signed a definitive agreement with NCO, a
provider of accounts receivable management services, under which NCO will
acquire all outstanding shares of Compass in a stock-for-stock transaction.
Under the terms of the transaction, it is anticipated that NCO will issue
0.23739 shares of NCO common stock in exchange for each common share of Compass.
In conjunction with the above transaction, Compass will divest its
Print and Mail business to a company formed by the division's current management
team for total cash consideration of approximately $35.1 million plus assumption
of certain obligations.
The NCO transaction is subject to customary closing conditions,
including Hart-Scott-Rodino approval, approval and completion of the management
buyout of the Print and Mail division. Both transactions are currently expected
to close in the third quarter of 1999.
YEAR 2000
The Company has assembled a Year 2000 Task Force which continues
identifying and assessing potential operating and software problems related to
the "Year 2000" issue, both internally and externally. The Company's Year 2000
program is addressing both information technology and non-information
technology. The Company's Year 2000 Task Force has completed an inventory of the
hardware and software used in its operations, has prioritized the hardware and
software into "mission critical" and "non-mission critical" and has assessed the
Year 2000 readiness of all of the "mission-critical" and the majority of the
"non-mission critical" hardware and software inventoried. Based on this effort,
the Company has identified only non-material Year 2000 issues, all of which are
being remediated and will also be tested on or before September 30, 1999. Two of
the Company's acquisitions have non-compliant hardware and software, but the
hardware and software used by those acquisitions are in the process of being
replaced in the course of a broader upgrade which will bring them into
compliance. Additionally, the Company has communicated with landlords,
significant vendors and other critical service providers to determine if such
parties are year 2000 compliant or have effective plans in place to address the
year 2000 issue and to determine the extent of the Company's vulnerability to
the failure of such parties to remediate such issues. It has received responses
from many of these third parties and is awaiting responses and/or re-contacting
the non-responding third parties. None of the responses received to date have
identified any Year 2000 issues which are not on-track to be remediated well in
advance of the requisite date(s). The Company will continue to assess its risks
and develop appropriate contingency plans as needed if responses from landlords,
significant vendors and other critical service providers so warrant. The Company
does not believe that the costs of modifications, upgrades or replacements which
would not have been incurred but for the Year 2000 issue will be material.
The Company does not expect the impact of the Year 2000 to have a
material adverse impact on the Company's business or results of operations.
However, any failure to effectively complete the necessary changes to the
Company's financial and operating systems on a timely basis, or, the occurrence
of unanticipated or undiscovered Year 2000 compliance problems could have a
material adverse effect on the Company's business and results of operations. In
addition, there can be no assurance that Year 2000 non-compliance by any of the
17
<PAGE> 18
Company's clients or significant suppliers or vendors will not have a material
adverse effect on the Company's business or results of operations.
FORWARD-LOOKING INFORMATION-SAFE HARBOR STATEMENT
Certain statements contained in this discussion regarding future events
and financial performance are not based on historical facts and, as such,
constitute "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, that involve uncertainties and risk.
There can be no assurance that actual results will not differ materially from
the Company's expectations. Factors that could cause such differences include
the Company's ability to achieve expected growth in revenues, earnings and
operating efficiencies, year 2000 uncertainties and other risks described in the
Company's Form 10-K, as amended and Form S-1 filed with the Securities and
Exchange Commission at the time of the IPO.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk (i.e. the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed is interest
rates on debt.
At March 31, 1999, the Company had $13 million of debt subject to
variable interest rates. A one percent change in interest rates would impact
interest expense by $0.13 million with respect to the amount of debt that is
subject to variable interest rates.
The Company has entered into interest rate swap arrangements to reduce
the risk of increases in interest rates on $40 million of outstanding Revolver
debt through October 15, 2000. A one percent change in interest rates would have
affected interest expense by $0.4 million with respect to the amount of debt
covered by the interest rate swaps.
The Company does not hold or issue derivative financial instruments for
speculation or trading purposes.
Part II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 1997, Mid-Continent Agencies, Inc. (a Founding Company) and
its New York subsidiary filed a lawsuit in the State of New York, Supreme Court,
County of Erie (the "New York Supreme Court") against Vincent S. Burgio, Eric R.
Main and Michael Luksch (all of whom are former employees of Mid-Continent's
subsidiary), as well as Continental Commercial Group of New York, Inc. and L.A.
Commercial Group, Inc. The complaint alleges (i) breach of employment agreement;
(ii) breach of the duty of loyalty; (iii) interference with business
relationships; (iv) conversion of confidential information; and (v)
misappropriation of trade secrets, and seeks injunctive relief and unspecified
damages.
In February 1998, the defendants in the above-described lawsuit filed
two lawsuits in the New York Supreme Court. The first lawsuit, filed by Mr.
Burgio, names as defendants Mid-Continent, its New York subsidiary, and William
Vallecorse, an employee of the subsidiary, and alleges (i) breach of contract;
(ii) breach of contract and constructive discharge; (iii) fraud; (iv) tortious
interference with employment contract; and (v) unjust
18
<PAGE> 19
enrichment. The complaint seeks aggregate damages in excess of $1.3
million. The second lawsuit, filed by Messrs. Burgio, Main and Luksch, names as
defendants Mid-Continent, its New York subsidiary, Les J. Kirschbaum, Mr.
Vallecourse and Michelle Helmer (an employee of the New York subsidiary),
alleges defamation of Messrs. Burgio, Main and Luksch and seeks aggregate
compensatory damages of $1.5 million in addition to punitive damages. The
Company believes that the allegations against it and its co-defendants are
without merit, however, because this litigation is still at an early state, its
outcome cannot be predicted. The cases remain in the discovery stage. The former
stockholders of Mid-Continent Agencies, Inc. agreed, in the purchase agreement
whereby Compass agreed to purchase Mid-Continent, to indemnify the Company for
losses and damages, if any, arising from these lawsuits.
In October 1998, a subsidiary of one of the Founding Companies, Bomar
Credit Corporation, and Compass Receivable Management Corporation, a subsidiary
of the Company, received a Civil Investigative Demand from the Federal Trade
Commission's ("FTC") Chicago Regional Office requesting various categories of
information relating to compliance with the Fair Debt Collection Practices Act.
The Company is cooperating fully with the FTC's request. The Company, along with
counsel, has reviewed the requests, but since the matter is still in the very
early state, an assessment of its duration and outcome, and associated liability
and expense, if any, cannot reasonably be made at this time. However, there can
be no assurances that future developments relating to this matter will not have
a material adverse impact on the Company's business, financial condition or
results of operations.
The Company is not involved in any other legal proceedings material to
the business, financial condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 31, 1999, Compass issued 105,256 shares of common stock to
each of the Steven B. McCormick Trust, the David P. McCormick Trust, and the
Mark E. McCormick Trust pursuant to earn out provisions contained in the
acquisition agreement related to the Company's acquisition of Professional
American Collections, Inc. The shares were valued at a price of $4.03 per share.
This value represents the $5.88 closing price of the common stock on March 30,
1999, as discounted to reflect the remaining one and 3/4-year restriction on
transferability of the shares as provided in the acquisition agreement.
On March 31, 1999, Compass issued 142,680 shares of common stock to
David D. Schultz and 142,679 shares of common stock to Patricia A. Nowak
pursuant to earn out provisions contained in the acquisition agreement related
to the Company's acquisition of Nationwide Debt Recovery, Ltd. The shares were
valued at $4.30 per share. This value represents the $5.88 closing price of the
common stock on March 30, 1999, as discounted to reflect the remaining
approximate one and 1/2-year restriction on transferability of the shares as
provided in the acquisition agreement.
Such sales were exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended, as transactions not involving a public
offering.
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<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
2.1 Agreement and Plan of Merger dated May 12, 1999 among
the Company, NCO Group, Inc. and Cardinal Acquisition
Corporation. Registrant agrees to furnish
supplementally to the Commission, upon request, a
copy of any omitted schedule.
2.2 Stock Purchase Agreement dated May 12, 1999 between
the Company and Swiss-Irish Enterprises, Inc.
Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of any omitted
schedule.
2.3 Letter Agreement dated May 12, 1999 among the
Company and Kenneth W. Murphy.
10.1 Fourth Amendment dated March 30, 1999 to the Credit
Agreement dated March 17, 1998 among the Company and
Various Financial Institutions
10.2 Letter agreement between the Company and Leeds
Hackett dated March 9, 1999.
10.3 Agreement and Release between the Company and Leeds
Hackett dated April 13, 1999.
B. FORM 8-K
No reports on Form 8-K were filed during the period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1999 COMPASS INTERNATIONAL SERVICES
CORPORATION
By: /s/ MAHMUD U. HAQ
Mahmud U. Haq
Chief Executive Officer
20
<PAGE> 1
EXHIBIT 2.1
==============================================================
AGREEMENT AND PLAN OF MERGER
AMONG
NCO GROUP, INC.,
CARDINAL ACQUISITION CORPORATION
AND
COMPASS INTERNATIONAL SERVICES CORPORATION
Dated as of May 12, 1999
==============================================================
<PAGE> 2
<TABLE>
<CAPTION>
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
Page
----
ARTICLE I
THE MERGER
<S> <C> <C>
Section 1.1. The Merger.......................................................1
----------
Section 1.2. Certificate of Incorporation.....................................1
----------------------------
Section 1.3. By-Laws..........................................................2
-------
Section 1.4. Directors and Officers...........................................2
----------------------
Section 1.5. Effective Time...................................................2
--------------
ARTICLE II
CONVERSION OF SHARES
Section 2.1. Company Common Stock.............................................2
--------------------
Section 2.2. Fractional Interests.............................................3
--------------------
Section 2.3. Anti-Dilution Provisions.........................................3
------------------------
Section 2.4. Purchaser Common Stock...........................................3
----------------------
Section 2.5. Exchange of Shares...............................................3
------------------
Section 2.6. Employee Stock Options...........................................5
----------------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1. Organization.....................................................5
------------
Section 3.2. Capitalization...................................................6
--------------
Section 3.3. Authorization of this Agreement..................................7
-------------------------------
Section 3.4. Consents and Approvals; No Violation.............................7
------------------------------------
Section 3.5. Financial Statements and Reports.................................8
--------------------------------
Section 3.6. Absence of Material Adverse Change...............................9
----------------------------------
Section 3.7. Information in Proxy Statement/Prospectus, Registration
Statement and HSR Filings.......................................10
---------------------------------------------------------
Section 3.8. Undisclosed Liabilities..........................................10
-----------------------
Section 3.9. Taxes............................................................10
-----
Section 3.10. Litigation.......................................................11
----------
</TABLE>
i
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<TABLE>
<S> <C> <C>
Section 3.11. Compliance with Laws.............................................11
--------------------
Section 3.12. Real Property; Assets............................................11
---------------------
Section 3.13. Employment Agreements and Benefits, etc..........................13
---------------------------------------
Section 3.14. Opinion of Financial Advisor.....................................13
----------------------------
Section 3.15. Finders and Brokers..............................................14
-------------------
Section 3.16. Certain Contracts and Arrangements...............................14
----------------------------------
Section 3.17. Employee Relations...............................................15
------------------
Section 3.18. Intellectual Property; Software..................................15
-------------------------------
Section 3.19. Environmental Matters............................................16
---------------------
Section 3.20. Related Party and Affiliate Transactions.........................16
----------------------------------------
Section 3.21. Insurance........................................................16
---------
Section 3.22. Questionable Payments............................................17
---------------------
Section 3.23. Print and Mail Business..........................................17
-----------------------
Section 3.24. Disclosure.......................................................17
----------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
Section 4.1. Organization.....................................................17
------------
Section 4.2. Capitalization...................................................18
--------------
Section 4.3. Authorization of this Agreement..................................18
-------------------------------
Section 4.4. Consents and Approvals; No Violation.............................18
------------------------------------
Section 4.5. Financial Statements and Reports.................................19
--------------------------------
Section 4.6. Absence of Material Adverse Change...............................20
----------------------------------
Section 4.7. Information in Proxy Statement/Prospectus, Registration Statement
and HSR Filings..................................................20
----------------------------------------------------------------
Section 4.8. Finders and Investment Bankers...................................21
------------------------------
Section 4.9. Disclosure.......................................................21
----------
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1. Conduct of the Business of the Company............................21
--------------------------------------
Section 5.2. Conduct of the Business of Parent and the Purchaser...............24
---------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE VI
ADDITIONAL AGREEMENTS
<S> <C> <C>
Section 6.1. Proxy Statement/Prospectus; S-4 Registration Statement............24
------------------------------------------------------
Section 6.2. Access to Information.............................................25
---------------------
Section 6.3. Consents..........................................................26
--------
Section 6.4. Board Actions; Company Stockholder Meeting........................27
------------------------------------------
Section 6.5. Commercially Reasonable Efforts...................................27
-------------------------------
Section 6.6. Public Announcements..............................................28
--------------------
Section 6.7. Consent of the Parent.............................................28
---------------------
Section 6.8. No Solicitation...................................................28
---------------
Section 6.9. Indemnification...................................................30
---------------
Section 6.10. Employee Benefits.................................................31
-----------------
Section 6.11. Tax Covenants.....................................................32
-------------
Section 6.12. Print and Mail Sale Agreement.....................................32
-----------------------------
ARTICLE VII
CLOSING CONDITIONS
Section 7.1. Conditions to the Obligations of the Parent, the Purchaser
----------------------------------------------------------
and the Company....................................................32
---------------
Section 7.2. Conditions to the Obligations of the Parent and the Purchaser......33
-------------------------------------------------------------
Section 7.3. Conditions to the Obligations of the Company.......................35
--------------------------------------------
ARTICLE VIII
CLOSING
Section 8.1. Time and Place.....................................................36
--------------
Section 8.2. Filings at the Closing.............................................36
----------------------
ARTICLE IX
TERMINATION AND ABANDONMENT
Section 9.1. Termination........................................................36
-----------
Section 9.2. Procedure and Effect of Termination................................38
-----------------------------------
</TABLE>
iii
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<TABLE>
ARTICLE X
MISCELLANEOUS
<S> <C> <C>
Section 10.1. Amendment and Modification.........................................39
--------------------------
Section 10.2. Waiver of Compliance; Consents.....................................39
------------------------------
Section 10.3. Survival of Warranties.............................................39
----------------------
Section 10.4. Notices............................................................39
-------
Section 10.5. Assignment; Parties in Interest....................................40
-------------------------------
Section 10.6. Expenses...........................................................41
--------
Section 10.7. Specific Performance...............................................41
--------------------
Section 10.8. Governing Law......................................................41
-------------
Section 10.9. Counterparts.......................................................41
------------
Section 10.10. Interpretation.....................................................41
--------------
Section 10.11. Entire Agreement...................................................41
----------------
Section 10.12. Severability.......................................................41
-------------
Section 10.13. Jurisdiction and Process...........................................42
------------------------
Section 10.14. Interpretation of Representations..................................42
---------------------------------
Section 10.15. Reliance by Parent and Purchaser...................................42
--------------------------------
</TABLE>
ANNEX I: Defined Terms
ANNEX II: Form of Voting Agreement
ANNEX IIA: List of Stockholders signing Voting Agreement
ANNEX III: Form of Parent Tax Certificate
ANNEX IV: Form of Company Tax Certificate
ANNEX V: Form of Tax Opinion from Parent's Counsel
ANNEX VI: Form of Tax Opinion from Company's Counsel
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 12, 1999, among
NCO Group, Inc., a Pennsylvania corporation (the "Parent"), Cardinal Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of the Parent
(the "Purchaser"), and Compass International Services Corporation, a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of the Parent, the Purchaser
and the Company have approved the merger of the Purchaser with and into the
Company (the "Merger"), upon the terms and subject to the conditions set forth
herein;
WHEREAS, this Agreement is intended to be and is adopted as
plan of reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, concurrently with the execution of this Agreement,
and as a condition and inducement to Parent's willingness to enter into this
Agreement each stockholder of the Company listed on Annex IIA, is entering into
a Voting Agreement in the form attached hereto as Annex II.
NOW, THEREFORE, in consideration of the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER. (a) Upon the terms and subject to the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VII hereof, and in accordance with the provisions of this Agreement and the
General Corporation Law of the State of Delaware (the "DGCL"), the parties
hereto shall cause the Purchaser to be merged with and into the Company, and the
Company shall be the surviving corporation (hereinafter sometimes called the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware. At the Effective Time, the separate existence of
the Purchaser shall cease.
(b) The Surviving Corporation shall retain the name of the
Company and shall possess all the rights, privileges, immunities, powers and
franchises of the Purchaser and the Company and shall by operation of law become
liable for all the debts, liabilities and duties of the Company and the
Purchaser.
1.2. CERTIFICATE OF INCORPORATION. Subject to Section 6.9(a)
hereof, the Certificate of Incorporation of the Purchaser in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with provisions
thereof and as provided by law.
<PAGE> 7
1.3. BY-LAWS. Subject to Section 6.9(a) hereof, the By-Laws of
the Purchaser in effect immediately prior to the Effective Time shall be the
By-Laws of the Surviving Corporation until thereafter amended, altered or
repealed as provided therein and by law.
1.4. DIRECTORS AND OFFICERS. The directors and officers of the
Purchaser immediately prior to the Effective Time shall be the directors and
officers, respectively, of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
1.5. EFFECTIVE TIME. The Merger shall become effective at the
time when a properly executed certificate of merger (the "Certificate of
Merger"), together with any other documents required by law to effectuate the
Merger, shall be filed and recorded with the Secretary of State of the State of
Delaware in accordance with Sections 103 and 251 or 253 of the DGCL. The
Certificate of Merger shall be filed in accordance with Section 103 of the DGCL
as soon as practicable after the Closing. The date and time when the Merger
shall become effective is herein referred to as the "Effective Time."
ARTICLE II
CONVERSION OF SHARES
2.1. COMPANY COMMON STOCK. (a) Each share (a "Share") of
common stock, par value $0.01 per share (the "Common Stock"), of the Company
issued and outstanding immediately prior to the Effective Time (except for
Shares then owned beneficially or of record by the Company, the Parent, the
Purchaser or any of the other Parent Subsidiaries or the Company Subsidiaries,
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive 0.23739 (the "Exchange Ratio")
of a share of common stock, no par value, of the Parent ("Parent Common Stock")
(such fractional share, the "Merger Consideration").
(b) Each Share issued and outstanding immediately prior to the
Effective Time which is then owned beneficially or of record by the Company, the
Parent, the Purchaser or any of the other Parent Subsidiaries or the Company
Subsidiaries, shall, by virtue of the Merger and without any action on the part
of the holder thereof, be canceled and retired and cease to exist, without any
conversion thereof.
(c) Each Share issued and held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Merger, be
canceled and retired and cease to exist, without any conversion thereof.
(d) At the Effective Time the holders of certificates
representing Shares shall cease to have any rights as stockholders of the
Company, except for the right to
2
<PAGE> 8
receive the Merger Consideration and for such rights, if any, as they may have
pursuant to the DGCL.
2.2. FRACTIONAL INTERESTS. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and such fractional interests will not entitle the
owner thereof to any rights as a shareholder of the Parent. In lieu of a
fractional interest in a share of Parent Common Stock, each holder of Shares
exchanged pursuant to Section 2.1 who would otherwise have been entitled to
receive a fraction of a share of Parent Common Stock shall receive cash (without
interest) in an amount equal to the product of such fractional interest
multiplied by the Parent Common Stock Value.
2.3. ANTI-DILUTION PROVISIONS. The Exchange Ratio shall be
adjusted appropriately to reflect any stock dividends, splits, recapitalizations
or other similar transactions with respect to the Shares and the shares of
Parent Common Stock where the record date occurs prior to the Effective Time.
2.4. PURCHASER COMMON STOCK. Each share of common stock, par
value $0.01 per share ("Purchaser Common Stock"), of the Purchaser issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and exchangeable for one fully paid and non-assessable share of common
stock, par value $0.01 per share ("Surviving Corporation Common Stock"), of the
Surviving Corporation. From and after the Effective Time, each outstanding
certificate theretofore representing shares of Purchaser Common Stock shall be
deemed for all purposes to evidence ownership of and to represent the same
number of shares of Surviving Corporation Common Stock.
2.5. EXCHANGE OF SHARES. (a) Prior to the Effective Time, the
Parent shall deposit in trust with Chase Mellon Shareholder Services or another
exchange agent designated by the Purchaser and reasonably satisfactory to the
Company (the "Exchange Agent"), shares of Parent Common Stock in an amount
sufficient to pay the Merger Consideration payable pursuant to Section 2.1(a)
plus sufficient cash to make the payments required under Section 2.2 (such
amount being hereinafter referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions, issue the shares of Parent Common
Stock out of the stock portion of the Exchange Fund and make the payments
provided for in Section 2.2 of this Agreement out of the cash portion of the
Exchange Fund. The Exchange Agent shall invest the cash portion of the Exchange
Fund as the Parent directs, in direct obligations of the United States of
America, obligations for which the full faith and credit of the United States of
America is pledged to provide for the payment of all principal and interest,
commercial paper obligations receiving the highest rating from either Moody's
Investors Services, Inc. or Standard & Poor's Corpora tion, or certificates of
deposit, bank repurchase agreements or banker's acceptances of commercial banks
with capital exceeding $10,000,000,000. The Exchange Fund shall not be used for
any other purpose except as provided in this Agreement.
3
<PAGE> 9
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each record holder (other
than the Company, the Parent, the Purchaser or any of the other Parent
Subsidiaries or the Company Subsidiaries) as of the Effective Time of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented Shares (the "Certificates") a form letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor the number
of shares of Parent Common Stock equal to the product of the number of Shares
represented by such Certificate and the Exchange Ratio plus cash in lieu of
fractional shares, less any applicable withholding tax, and such Certificate
shall forthwith be canceled. No interest shall be paid or accrued on the shares
of Parent Common Stock or the cash payable upon the surrender of the
Certificates. If payment is to be made to a Person other than the Person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a Person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Exchange Agent and the Surviving
Corporation that such tax has been paid or is not applicable. Until surrendered
in accordance with the provisions of this Section 2.5, each Certificate (other
than Certificates representing Shares owned benefi cially or of record by the
Company, the Parent, the Purchaser or any of the other Parent Subsidiaries or
Company Subsidiaries) shall represent for all purposes the right to receive the
number of shares of Parent Common Stock equal to the product of the number of
Shares evidenced by such Certificate and the Exchange Ratio plus cash in lieu of
fractional shares, without any interest thereon.
(c) If any Certificate is lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Exchange Agent, the
Surviving Corporation or the Parent, the posting by such person of a bond in
such reasonable amount as such entity may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue, in exchange for such lost, stolen or destroyed Certificate, the
applicable portion of the Merger Consideration pursuant to this Agreement.
(d) After the Effective Time there shall be no transfers on
the stock transfer books of the Surviving Corporation of the Shares which were
outstanding immedi ately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for the applicable portion of the Merger Consideration
pursuant to this Agreement.
(e) Any portion of the Exchange Fund which remains unclaimed
by the stockholders of the Company for one year after the Effective Time
(including any interest
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received with respect thereto) shall be repaid to the Surviving Corporation,
upon demand. Any stockholders of the Company who have not theretofore complied
with Section 2.5(b) shall thereafter look only to the Surviving Corporation
(subject to abandoned property, escheat or other similar laws) for payment of
their proportionate claim for the Merger Consideration plus cash in lieu of
fractional shares, without any interest thereon, but shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under Delaware law.
2.6. EMPLOYEE STOCK OPTIONS. The Company's Employee Incentive
Compensation Plan (the "Company Option Plan") and all options to acquire Shares
granted pursuant to the Company Option Plan that are issued and outstanding
immediately before the Effective Time (collectively, the "Options"), shall be
assumed by the Parent on the Effective Time and shall continue in effect, as an
option plan of Parent and as options issued by Parent, respectively, in
accordance with the terms and conditions by which they are governed immediately
before the Effective Time (and each Option that becomes fully vested and
exercisable as a result of the Merger shall continue as a fully vested and
exercisable option of Parent), subject to the adjustments set forth in the next
sentence. On the Effective Time, each Option shall, by virtue of the Merger and
without any action on the part of the holder thereof, be automatically adjusted
to provide that (a) the number and type of shares issuable upon exercise of such
Option shall be that number of shares of Parent Common Stock (rounded off to the
nearest whole number of shares) equal to the number of Shares issuable upon
exercise of such Option immediately before the Effective Time, multiplied by the
Exchange Ratio, and (b) the exercise price per share of Parent Common Stock
under such Option shall be that amount (rounded up to the nearest whole cent)
equal to the exercise price per Share under such Option immediately before the
Effective Time, divided by the Exchange Ratio.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and the
Purchaser as follows:
3.1. ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the Company Subsidiaries which is a corporation is duly
organized, and each of the Company Subsidiaries which is a limited partnership
is duly formed, and each of the Company Subsidiaries is validly existing and in
good standing, in each case under the laws of the jurisdictions of its
incorporation or formation, as the case may be. Each of the Company and the
Company Subsidiaries has all requisite power and authority to own, lease and
operate its properties and to conduct its business as now being conducted.
Except as set forth in Section 3.1 of the disclosure letter delivered by the
Company to the Parent and Purchaser prior to the execution of this Agreement
(the "Company Disclosure Letter"),
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each of the Company and the Company Subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification nec essary, except where the failure to be so qualified
or licensed and in good standing would not have a material adverse effect on the
business or financial condition of the Company and the Company Subsidiaries
taken as a whole. Each of the Company Subsidiaries is listed in Section 3.1 of
the Company Disclosure Letter, and except as and to the extent set forth
therein, the Company owns beneficially and of record directly or indirectly all
of the issued and outstanding capital stock or limited partnership interests, as
the case may be, of each of the Company Subsidiaries, free and clear of any
liens, claims, charges, mortgages or other encumbrances (collectively, "Liens").
Except as set forth in Section 3.1 of the Company Disclosure Letter, neither the
Company nor any of the Company Subsidiaries owns, controls or holds with the
power to vote, directly or indirectly, of record, beneficially or otherwise, any
capital stock or any equity or ownership interest in any Person. The Company has
heretofore delivered to the Parent accurate and complete copies of the
Certificate of Incorporation and By-Laws of the Company and each of the Company
Subsidiaries, as currently in effect.
3.2. CAPITALIZATION. (a) The authorized capital stock of the
Company consists of (A) 50,000,000 shares of Common Stock of which, as of the
date hereof, there are 14,405,973 shares issued and outstanding, 2,000,000
shares reserved for issuance under the Company Option Plan, and no shares held
in the Company's treasury, and (B) 10,000,000 shares of Preferred Stock, par
value $0.01 per share ("Company Preferred Stock"), of which as of the date
hereof, none were issued or outstanding. No other capital stock or other
security of the Company is authorized, issued or outstanding. All issued and
outstanding Shares and capital stock of the Company Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable. Except for outstanding
options to acquire not more than 1,234,945 shares issued pursuant to the Company
Option Plan and except as set forth in Section 3.2 of the Company Disclosure
Letter, there are not now, and at the Effec tive Time there will not be, any
securities, options, warrants, calls, subscriptions, pre emptive rights,
earn-outs or other rights or other agreements or commitments whatsoever
obligating the Company or any of the Company Subsidiaries to issue, transfer,
deliver or sell or cause to be issued, transferred, delivered or sold any
additional shares of capital stock or other securities of the Company or any of
the Company Subsidiaries, or obligating the Company or any of the Company
Subsidiaries to grant, extend or enter into any such agreement or commitment.
There are no outstanding contractual obligations of the Company or any of the
Company Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of the Company Subsidiaries. There are no
outstanding contractual obligations of the Company or any of the Company
Subsidiaries to vote or to dispose of any shares of the capital stock of any of
the Company Subsidiaries.
(b) All issuances and grants of all outstanding Options, and
all offerings, sales and issuances by the Company and each of the Company
Subsidiaries of any shares of capital stock, including the Shares, were
conducted in compliance with all applicable
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laws and all requirements set forth in all applicable agreements or plans,
except where the failure to comply with such applicable laws, agreements or
plans would not, individually or in the aggregate, have a material adverse
effect on the business or financial condition of the Company and the Company
Subsidiaries taken as a whole.
(c) There is no stockholder rights plan (or similar plan
commonly referred to as a "poison pill") or similar existing agreement or plan
under which the Company or any of the Company Subsidiaries is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities.
3.3. AUTHORIZATION OF THIS AGREEMENT. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and the Print and Mail Sale Agreement and, subject to approval by the
stockholders of the Company, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Print and Mail
Sale Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized and approved by the Company's
Board of Directors, the Board of Directors has declared the advisability of this
Agreement and the consummation of the transactions contemplated hereby and
thereby, and, except for the adoption of this Agreement by the stockholders of
the Company, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or the Print and Mail Sale Agreement or
consummate the transactions contemplated hereby and thereby. Each of this
Agreement and the Print and Mail Sale Agreement has been duly and validly
executed and delivered by the Company, and each of this Agreement and the Print
and Mail Sale Agreement constitutes a valid and binding agreement of the
Company, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting the rights and remedies of creditors, and the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law). Assuming that
none of the Parent, the Purchaser or any affiliate or associate of the Parent or
Purchaser is an Interested Stockholder (as defined by Section 203 of the DGCL)
at the time of execution of this Agreement or the Voting Agreements, this
Agreement, the Merger and the Voting Agreements have been approved by the Board
of Directors of the Company so that Section 203 of the DGCL will not apply to
this Agreement, the Merger, the Voting Agreements or the transactions
contemplated hereby and thereby.
3.4. CONSENTS AND APPROVALS; NO VIOLATION. Except for (i)
filings required under the Securities Act of 1933, as amended (the "Securities
Act"), the Securities and Exchange Act of 1934, as amended (the "Exchange Act"),
(ii) the filing of a Pre-Merger Notification and Report Form by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"),
(iii) the filing and recordation of appropriate merger documents as required by
the DGCL and, if applicable, the laws of other states in which the Company is
qualified to do business, and (iv) filings under securities or blue sky laws or
takeover statutes of the various states, no filing with, and no permit,
authorization, consent or approval of, any public body or authority is necessary
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for the consummation by the Company of the transactions contemplated by this
Agree ment, the failure to make or obtain which is reasonably likely to have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby or on the business or financial condition of
the Company and the Company Subsidiaries taken as a whole. Neither the execution
and delivery of this Agreement nor the consum mation of the transactions
contemplated hereby nor compliance by the Company with any of the provisions
hereof will (i) conflict with or result in any violation of any provision of the
Certificate of Incorporation or By-Laws of the Company, (ii) result in a
violation or breach of, or constitute a default or give rise to any right of
termination, cancellation, loss of material benefits or acceleration or give to
any Person any interest in or result in the creation of any Lien upon any of the
properties or assets of the Company or any of the Company Subsidiaries, with or
without notice or lapse of time, or both, under the Certificate of Incorporation
or By-Laws of the Company or any note, bond, mortgage, indenture, license,
benefit plan, agreement or other instrument or obligation to which the Company
or any of the Company Subsidiaries is a party or by which any of them or any of
their properties or assets is bound or (iii) assuming the truth of the
representations and warranties of the Parent and the Purchaser contained herein
and their compliance with all agreements contained herein and assuming the due
making or obtaining of all filings, permits, authorizations, consents and
approvals referred to in the preceding sentence, violate any statute, rule,
regulation, order, injunction, writ or decree of any public body or authority by
which the Company or any of the Company Subsidiaries or any of their respective
assets or properties is bound, excluding from the foregoing clauses (ii) and
(iii) mortgages, leases and other agreements listed on Section 3.4 of the
Company Disclosure Letter, and other conflicts, violations, breaches, defaults
or rights which, either individually or in the aggregate, are not reasonably
likely to have a material adverse effect on the business or financial condition
of the Company and the Company Subsidiaries taken as a whole or to materially
impair the ability of the Company to perform its obligations hereunder or
consummate the transactions contemplated hereby.
3.5. FINANCIAL STATEMENTS AND REPORTS. (a) The Company has
filed all forms, reports and documents with the Securities and Exchange
Commission (the "SEC") required to be filed by it pursuant to the Securities Act
and the Exchange Act (collectively, the "Company SEC Filings"), all of which
have complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. None of such Company SEC Filings, at the
time filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company SEC Filings filed after the date of this
Agreement and prior to the Effective Time (i) will comply in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act and (ii) will not at the time they will be filed, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that, except as set forth in Section 3.7 hereof, no representation is made by
the
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Company with respect to the S-4 Registration Statement or the Proxy Statement/
Prospectus.
(b) The consolidated balance sheets and the related
consolidated statements of income, cash flow and changes in stockholder equity
of the Company and the Company Subsidiaries (i) contained in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30,
1998 and September 30, 1998 and the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 (collectively, the "1998 Financial Statements"),
and (ii) to be contained in Company SEC Filings filed after the date hereof
(collectively with the 1998 Financial Statements, the "Financial Statements"),
when filed (i) complied or will comply in all material respects as to form with
the published rules and regulations of the SEC and (ii) presented or will
present fairly the consolidated financial position of the Company and the
Company Subsidiaries as of such date, and the consolidated results of their
operations and their cash flows for the periods presented therein, in conformity
with GAAP applied on a consistent basis, except as otherwise noted therein, and
subject in the case of quarterly financial statements to normal year-end audit
adjustments and except that the quarterly financial statements do not or will
not contain all of the footnote disclosures required by GAAP.
(c) All funds collected on behalf of customers of the Company
or any Company Subsidiary have in all material respects been properly remitted
to the customer or are in all material respects properly reflected on the
Financial Statements of the Company and the Company Subsidiaries.
(d) The books and records of the Company and its Subsidiaries
have been prepared and maintained in form and substance adequate in all material
respects for preparing the Company's financial statements in accordance with
GAAP.
3.6. ABSENCE OF MATERIAL ADVERSE CHANGE. Since December 31,
1998, except as reflected in the Company's 1998 Financial Statements or on
Section 3.6 of the Company Disclosure Letter, (i) there has not been any
material adverse change in the business or financial condition of the Company
and the Company Subsidiaries taken as a whole, other than changes in general
economic or business conditions, changes that may result from the public
announcement of this Agreement, changes generally affecting companies operating
in the industries in which the Company and the Company Subsidiaries operate or
changes solely affecting the Print and Mail Business (as hereinafter defined),
(ii) the Company and the Company Subsidiaries have conducted their businesses in
the ordinary course of business and in a manner consistent with past practice in
all material respects, and (iii) neither the Company nor any of the Company
Subsidiaries has taken any of the actions or done any of the things described in
clauses (a) through (m) of Section 5.1.
3.7. INFORMATION IN PROXY STATEMENT/PROSPECTUS, REGISTRATION
STATEMENT AND HSR FILINGS. The Proxy Statement/Prospectus (or any amendment
thereof or supplement thereto), at the date mailed to Company stockholders and
at the time of the
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Company Stockholders Meeting, will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by Parent or Purchaser for inclusion in the Proxy
Statement/Prospectus. None of the information supplied by the Company for
inclusion or incorporation by reference in the S-4 Registration Statement will,
at the date it becomes effective and at the time of the Company Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/ Prospectus will comply in all material respects
with the provisions of the Securities Act and the Exchange Act and the rules and
regulations thereunder. To the knowledge of the Company, none of the information
supplied or to be supplied by or on behalf of the Company or any of the Company
Subsidiaries for inclusion or incorporation by reference in the filing or
filings required under the HSR Act, at the date filed, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. No representation
is made hereby with respect to statements made in such filing or filings based
on information supplied by Parent for inclusion therein.
3.8. UNDISCLOSED LIABILITIES. Except for liabilities or
obligations reflected or reserved against in the 1998 Financial Statements,
incurred in the ordinary course of business after December 31, 1998, or set
forth in Section 3.8 of the Company Disclosure Letter, none of the Company or
any of the Company Subsidiaries has any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) which are required by GAAP to be so
reflected or reserved against.
3.9. TAXES. Except as set forth in Section 3.9 of the Company
Disclosure Letter: (i) the Company and the Company Subsidiaries have filed with
the appropriate governmental agencies all material Tax Returns required to be
filed, taking into account any extension of time to file granted to or obtained
on behalf of the Company and the Company Subsidiaries; (ii) all material taxes
of the Company and the Company Subsidiaries required to be paid have been paid
to the proper authorities, other than such Taxes that are being contested in
good faith by appropriate proceedings and that are adequately reserved for in
accordance with GAAP; (iii) no deficiency has been asserted or assessed against
the Company or any of the Company Subsidiaries, and no examination of the
Company or any of the Company Subsidiaries is pending or, to the knowledge of
the Company, is threatened for any material amount of Tax by any taxing
authority; (iv) no extension of the period for assessment or collection of any
material Tax is currently in effect and none has been requested; (v) no material
Tax Liens have been filed with respect to any Taxes except Liens which are
disclosed in the balance sheet contained in the 1998 Financial Statements, Liens
for Taxes not yet due and payable and Liens for Taxes that are being contested
in good faith; (vi) since January 1, 1999, the Company and each of the
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<PAGE> 16
Company Subsidiaries have not made any voluntary adjustments by reason of a
change in their accounting methods for any taxable period on or before the
Effective Time; and (vii) the Company and the Company Subsidiaries are not
parties to any Tax sharing or Tax allocation agreement except as set forth in
the Print and Mail Sale Agreement. Except as set forth in Section 3.9 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries has made any material payments, is obligated to make any material
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any material payments that will not be deductible under Code
ss. 280G. Neither the Company nor any of the Company Subsidiaries has any
liability for the Taxes of any Person (other than any of the Company or any of
the Company Subsidiaries) under Reg. ss.1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise. For purposes of this Agreement, "Tax" or "Taxes" shall mean all
United States federal, state or local or foreign taxes and any other applicable
taxes, duties, levies, charges and assessments of any nature, including social
security payments and deductibles relating to wages, salaries and benefits and
payments to subcontractors (to the extent required under applicable tax law),
and also including all interest, penalties and additions imposed with respect to
such amounts; and "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any taxing
authority or jurisdiction (foreign or domestic) with respect to Taxes.
3.10. LITIGATION. Except as set forth in Section 3.10 of the
Company Disclosure Letter and except for such matters as are not reasonably
likely to result in liability to the Company or any of the Company Subsidiaries
in excess of $100,000, individually or in the aggregate for all related claims,
there are no (i) actions, suits or proceedings or investigations pending or, to
the knowledge of the Company, threatened, or (ii) outstanding awards, judgments,
orders, writs, injunctions or decrees, or, to the knowledge of the Company,
applications, requests or motions therefor, against or affecting the assets,
business, operations or financial condition of the Company or the Company
Subsidiaries at law or in equity in any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality.
3.11. COMPLIANCE WITH LAWS. Except as set forth in Section
3.11 of the Company Disclosure Letter, there are no violations or defaults by
the Company or any of the Company Subsidiaries under any statute, law,
ordinance, rule, regulation, judgment, order, decree, permit, concession, grant,
franchise, license or other governmental authorization or approval applicable to
them or any of their properties or their operations which are reasonably likely
to have a material adverse effect on the business or financial condition of the
Company and the Company Subsidiaries, taken as a whole.
3.12. REAL PROPERTY; ASSETS. (a) Section 3.12 of the Company
Disclosure Letter lists all material items of real property either owned by the
Company or the Company Subsidiaries (the "Company Owned Real Property") or
leased by the Company or the Company Subsidiaries (the "Company Leased Real
Property"). Except as set forth
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in Section 3.12 of the Company Disclosure Letter, the Company and the Company
Subsidiaries have good and marketable title to the Company Owned Real Property
listed on Section 3.12 of the Company Disclosure Letter and valid leasehold
interests in the Company Leased Real Property listed on Section 3.12 of the
Company Disclosure Letter, in each case, free and clear of all Liens, except as
set forth on Section 3.12 of the Company Disclosure Letter and except for (i)
Liens for taxes and other governmental charges and assessments which are not yet
due and payable or which are being contested in good faith by appropriate
proceedings, (ii) Liens of carriers, warehousemen, mechanics and materialmen and
other like Liens arising in the ordinary course of business, (iii) easements,
rights of way, title imperfections and restrictions, zoning ordinances and other
similar encumbrances affecting the real property which do not have a material
adverse effect on the use of the properties or assets subject thereto or
affected thereby, (iv) statutory Liens in favor of lessors arising in connection
with any property leased to the Company or the Company Subsidiaries, excluding
Liens arising from any default or breach by the Company or any of the Company
Subsidiaries, (v) Liens reflected in the Financial Statements and (vi) any other
Liens which are not material ("Permitted Company Liens").
(b) Each lease (including any option to purchase contained
therein) pursuant to which the Company or any of the Company Subsidiaries leases
any Company Leased Real Property listed on Section 3.12 of the Company
Disclosure Letter (the "Company Leases") is in full force and effect and, to the
knowledge of the Company, is enforceable against the landlord which is party
thereto in accordance with its terms. There exists no material default or event
of default (or any event with notice or lapse of time or both would become a
material default) on the part of the Company or any of the Company Subsidiaries
under any Company Leases. The Company has delivered to the Parent and the
Purchaser complete and correct copies of all Company Leases including all
amendments thereto. Except as set forth in Section 3.12 of the Company
Disclosure Letter, neither the Company nor any of the Company Subsidiaries has
received any notice of any default under any lease by which the Company leases
the Company Leased Real Property nor any other termination notice with respect
thereto.
(c) Except as set forth in Section 3.12 of the Company
Disclosure Letter, the Company and the Company Subsidiaries have legal and
beneficial ownership of all of their respective material tangible personal
property and assets reflected in the balance sheet forming part of the Financial
Statements, except for properties and assets disposed of in the ordinary course
of business since the date of such balance sheet, in each case, free and clear
of all Liens, except as set forth on Section 3.12 of the Company Disclosure
Letter and except for Permitted Company Liens. The Company and each of the
Company Subsidiaries possess all of their respective material assets and
property that are leased from other Persons under valid and enforceable
contracts.
(d) The Company and the Company Subsidiaries have all of the
assets which are necessary and material to the operation of its respective
businesses. The material assets of the Company and the Company Subsidiaries,
wherever located, are
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generally in operating condition, ordinary wear and tear excepted, other than
assets that are no longer used in the conduct of their businesses.
3.13. EMPLOYMENT AGREEMENTS AND BENEFITS, ETC. (a) Section
3.13 of the Company Disclosure Letter lists each employee benefit plan, program,
policy or form of contract of the Company or any of the Company Subsidiaries, or
to which there is an obligation to contribute by the Company or any of the
Company Subsidiaries, other than any such plans, programs, policies, contracts
or obligations, that, in the aggregate, are not material to the Company and the
Company Subsidiaries taken as a whole. Section 3.13 of the Company Disclosure
Letter sets forth, as of the date hereof, the number of options issued and
outstanding under the Company Option Plan, the vesting and exercisability of
which, pursuant to the terms of such plan, would be accelerated by reason of or
in connection with the execution of or consummation of the transactions
contemplated by this Agreement.
(b) ERISA. All employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and/or the Code,
currently maintained or contributed to, or to which there is an obligation to
contribute, by the Company or any of the Company Subsidiaries (the "Company
Plans") comply in all respects with the requirements of ERISA and the Code as
applicable, except for any failures to comply which, individually or in the
aggregate, are not reasonably likely to have a material adverse effect on the
Company and the Company Subsidiaries taken as a whole. No employee benefit plan
(other than a multiemployer plan as defined in sec tion 3(37) of ERISA) to which
the Company or any member of the same controlled group of corporations as the
Company within the meaning of section 4001 of ERISA contributes and which is
subject to Part 3 of Subtitle B of Title I of ERISA has incurred any "accumu
lated funding deficiency" within the meaning of section 302 of ERISA or section
412 of the Code and no material liability (other than for annual premiums) to
the Pension Benefit Guaranty Corporation has been incurred by the Company or any
of the Company Subsidiaries with respect to any such plan. None of the Company
or any of the Company Subsidiaries has incurred any material liability for any
tax or penalty imposed by sec tion 4975 of the Code or section 502(i) of ERISA.
None of the Company or any of the Company Subsidiaries has withdrawn at any time
within the preceding six years from any multiemployer plan, as defined in
section 3(37) of ERISA. There are no material pending or, to the Company's
knowledge, threatened claims by or on behalf of any of the Plans or by any
employee involving any such Company Plan (other than routine claims for
benefits).
3.14. OPINION OF FINANCIAL ADVISOR. The Board of Directors of
the Company has received an opinion of Lehman Brothers, Inc., dated as of the
date hereof, that the Exchange Ratio is fair, from a financial point of view, to
the holders of the Shares.
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3.15. FINDERS AND BROKERS. Except for Lehman Brothers, Inc.,
whose fees are set forth in the engagement letters attached to Section 3.15 of
the Company Disclosure Letter, no agent, investment banker, broker, finder,
intermediary or other Person acting on behalf of the Company or any of the
Company Subsidiaries, is or shall be entitled to any brokerage, or finder's or
other similar fee or commission in connection with the Merger, the sale of the
Print and Mail Business and the other transactions contemplated by this
Agreement. The Company has made available to Parent a copy of all commitments,
agreements or other documentation in respect of which fees, commissions or other
amounts may become payable to, and all indemnification and other contracts
related to the engagement of, Lehman Brothers, Inc.
3.16. CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth
in Section 3.16 of the Company Disclosure Letter and except for agreements,
arrangements or contracts which are exhibits to the Company SEC Filings, neither
the Company nor any of the Company Subsidiaries is a party to or bound by any,
is bound by, owns properties subject to, or receives benefits under: (a) any
agreement, arrangement or contract not made in the ordinary course of business
that (x) has been or would currently be required to be filed as an exhibit to
any Company SEC Filing under the Exchange Act or (y) is or may reasonably be
expected to be material to the financial condition, business or results of
operations of the Company and the Company Subsidiaries, taken as a whole; (b)
any agreement, indenture or other contract relating to the borrowing of money by
the Company or any of the Company Subsidiaries or the guarantee by the Company
or any of the Company Subsidiaries of any such obligation in each case, in an
amount in excess of $500,000 currently outstanding or guaranteed or relating to
future amounts which could reasonably be expected to exceed $500,000 (other than
agreements and instruments relating to transactions between the Company and any
of the Company Subsidiaries or between the Company Subsidiaries); (c) any
agreement, arrangement or commitment (with respect to which there exist pending
or future obligations) relating to the employment, election or retention of any
present or former director, officer or any key employee with a base salary in
excess of $100,000 of the Company or any of the Company Subsidiaries or
providing for severance, termination or similar payments (other than amounts
required by applicable law) to any such persons; and (d) any agreement
containing covenants that limit, in any respect material to the Company and the
Company Subsidiaries, the ability of the Company or any of the Company
Subsidiaries to compete in any line of business or with any person, or that
involve any restriction on the geographic area in which, or method by which, the
Company or any of the Company Subsidiaries may carry on its business, other than
standard agency or distribution agreements that provide for exclusive geographic
territories. Except as set forth in Section 3.16 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries, nor, to the
knowledge of the Company, any other party thereto, is in violation of or default
under any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company or any of the
Company Subsidiaries is a party or to which the Company or any of the Company
Subsidiaries or any of their respective properties, assets or business may be
subject, except for such violations or defaults which would not, individually or
in the aggregate, have had or would reasonably be expected to
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have a material adverse effect on the Company and the Company Subsidiaries taken
as a whole. Except as set forth in Section 3.16 of the Company Disclosure
Letter, neither the Company nor any of the Company Subsidiaries has given or
received written notice of a material default or notice of termination with
respect to any contract listed in Section 3.16 of the Company Disclosure Letter
or any contract which is an exhibit to any Company SEC Filing.
3.17. EMPLOYEE RELATIONS. Except as set forth in Section 3.17
of the Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to or bound by any union or collective bargaining
contract, nor is any such contract currently being negotiated by or on behalf of
Company or any of the Company Subsidiaries. There are no pending, nor, to the
knowledge of the Company, threatened walkouts, strikes, union organizing efforts
or labor disturbances or any pending arbitration, unfair labor practice,
grievance, or other proceeding of any kind with respect to the Company's or any
of the Company Subsidiaries' employees. Upon termination of the employment of
any of its employees, neither the Company nor any of the Company Subsidiaries
will by reason of any action taken or agreement, contract, arrangement or plan
be liable to any of its employees for severance pay or any other payments,
except as set forth in Section 3.17 of the Company Disclosure Letter. Except as
set forth in Section 3.17 of the Company Disclosure Letter, since December 31,
1998, no senior operations site manager of the Company or any Company Subsidiary
has, on or prior to the date hereof, indicated to Mahmud U. Haq or Les J.
Kirschbaum an intention to terminate employment with the Company or the Company
Subsidiaries. Since December 31, 1994, Company and the Company Subsidiaries have
not had an "employment loss" within the meaning of the Workers' Adjustment and
Retraining Notification Act ("WARN Act") and the regulations thereunder.
3.18. INTELLECTUAL PROPERTY; SOFTWARE. (a) Except as,
individually or in the aggregate, would not reasonably be likely to have a
material adverse effect on the business or financial condition of the Company
and the Company's Subsidiaries taken as a whole, and except as set forth in
Section 3.18 of the Company Disclosure Letter, the conduct of the business of
the Company and the Company Subsidiaries does not, to the knowledge of the
Company, infringe upon any Intellectual Property (as defined below) right of any
Person; and except as set forth in Section 3.18 of the Company Disclosure Letter
and except for such matters as are not reasonably likely to result in liability
to the Company or any of the Company Subsidiaries in excess of $100,000
individually or in the aggregate for all related claims, there are no pending
or, to the knowledge of Company, threatened proceedings or litigation by any
person against the use by the Company or the Company Subsidiaries of any name,
corporate name, fictitious name, software, trademarks, trade names, service
marks, service names, logos, assumed names, copyrights, trade secrets, patents
and all registrations, and applications therefor, and all good will with respect
to the foregoing, which are owned by the Company or any of the Company
Subsidiaries or used in the operation of the Company's or any of the Company
Subsidiaries' business as currently conducted (collectively, the "Intellectual
Property").
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(b) Except as set forth in Section 3.18 of the Company
Disclosure Letter, the Company owns or has valid licenses or other rights to use
the Intellectual Property which are necessary to permit the Company to conduct
its operations as currently conducted and which are material to its operations.
(c) The Company and the Company Subsidiaries have conducted an
analysis of, and developed a compliance program (the "Compliance Program") with
respect to, the effect of Year 2000 (including the correct processing and
calculation of dates prior to, during and after the Year 2000) upon the
software, telecommunications and automated processes of the Company and the
Company Subsidiaries. The Company believes that the costs of implementing the
Compliance Program and completing the modifications necessary to become Year
2000 compliant, if any, will not be material.
3.19. ENVIRONMENTAL MATTERS. To the knowledge of the Company,
the Company and the Company Subsidiaries are in compliance with all applicable
health, safety and environmental laws, except to the extent that non-compliance
is not reasonably likely to have a material adverse effect on the business or
financial condition of the Company and the Company Subsidiaries, taken as a
whole. To the knowledge of the Company, except as set forth in Section 3.19 of
the Company Disclosure Letter, there is no matter which is reasonably likely to
expose the Company or any of the Company Subsidiaries to a material liability
pursuant to environmental laws to clean-up or remedy any release of hazardous
substances at any of the real property of the Company and the Company
Subsidiaries.
3.20. RELATED PARTY AND AFFILIATE TRANSACTIONS. Except as set
forth in Section 3.20 of the Company Disclosure Letter or in the Company SEC
Filings, no event has occurred that would be required to be reported by Company
pursuant to Item 404 of Regulation S-K promulgated by the SEC. Section 3.20 of
the Company Disclosure Letter identifies each person who is an "affiliate" (as
that term is used in Rule 145 under the Securities Act) of Company as of the
date of this Agreement.
3.21. INSURANCE. The Company and the Company Subsidiaries are
covered by valid and currently effective insurance policies issued in favor of
the Company or the Company Subsidiaries that are customary for companies of
similar size and financial condition. All such policies are in full force and
effect, all premiums due thereon have been paid and the Company has complied in
all material respects with the provisions of such policies. The Company has not
been advised in writing within the year prior to the date of this Agreement of
any defense to coverage in connection with any pending claim to coverage
asserted or noticed by the Company under or in connection with any of its
existing insurance policies, other than customary reservations of right. The
Company has not within the twelve months prior to the date of this Agreement
received any written notice from or on behalf of any insurance carrier issuing
policies or binders relating to or covering the Company and the Company
Subsidiaries that there will be a cancellation or non-renewal of existing
policies or binders.
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3.22. QUESTIONABLE PAYMENTS. To the knowledge of the Company,
within the last year no current or former director, executive, officer,
representative, agent or employee of the Company or any of the Company
Subsidiaries (when acting in such capacity or otherwise on behalf of the Company
or any of the Company Subsidiaries or any of their predecessors) (a) has made
any bribe, rebate, payoff, influence payment, kickback or other unlawful payment
of any nature using corporate funds or otherwise on behalf of the Company or any
of the Company Subsidiaries; or (b) made any material gift that is not
deductible for federal income tax purposes using corporate funds or otherwise on
behalf of the Company or any of the Company Subsidiaries.
3.23. PRINT AND MAIL BUSINESS. None of the Print and Mail
Subsidiaries provide accounts receivable management services or teleservices.
None of the assets of any of the Print and Mail Subsidiaries are used in the
operations of the accounts receivable management or teleservices businesses of
the Company and the Company's A/R and Teleservices Subsidiaries. Except as
described in Section 3.23 of the Company Disclosure Letter, there are no (i)
outstanding contracts, liabilities, obligations, loans, advances or guarantees
between or among any of the Print and Mail Subsidiaries, on the one hand, and
the Company or any Company A/R and Teleservices Subsidiary, on the other hand,
or (ii) outstanding guarantees given to any third party by the Company or any
Company A/R and Teleservices Subsidiary with respect to any contracts,
liabilities, obligations, loans, advances of any Print and Mail Subsidiary.
3.24. DISCLOSURE. No representation or warranty by the Company
in this Agreement (including the Company Disclosure Letter) contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
made, to make the statements herein or therein not misleading. There is no fact
known to the Company which would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company and the
Company Subsidiaries taken as a whole which has not been set forth in the
Company SEC Filings or in this Agreement (including the Company Disclosure
Letter).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser jointly and severally represent
and warrant to the Company as follows:
4.1. ORGANIZATION. The Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Pennsylvania. The Purchaser and each of the other Parent Subsidiaries is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Each of the Parent, the
Purchaser and the other Parent Subsidiaries has all requisite power and author
ity to own, lease and operate its properties and to conduct its business as now
being con ducted. Each of the Parent, the Purchaser and the other Parent
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or licensed and in good standing
would not have a material adverse effect on the business or financial condition
of the Parent, the Purchaser and the other Parent Subsidiaries taken as a
whole. Except as and to the extent set forth in the disclosure letter delivered
by the Parent and the Purchaser to the Company prior to the execution of this
Agreement (the "Parent Disclosure Letter") or in the Parent SEC Filings, the
Parent owns beneficially and of record directly or indirectly all of the issued
and outstanding capital stock of each of the Parent Subsidiaries, free and
clear of any Liens.
4.2. CAPITALIZATION. The authorized capital stock of the
Parent consists of (a) 37,500,000 shares of Parent Common Stock of which, as of
the date hereof, there are 21,473,897 shares issued and outstanding, 2,891,235
reserved for issuance under Parent's stock option plans, warrants and
convertible notes, and no shares held in the Parent's treasury, and (b)
5,000,000 shares of preferred stock, of which as of the date hereof, no shares
were issued or outstanding. No other capital stock of the Parent is authorized,
issued or outstanding. All issued and outstanding Shares and capital stock of
the Company Subsidiaries are duly authorized, validly issued, fully paid and
nonas sessable.
4.3. AUTHORIZATION OF THIS AGREEMENT. Each of the Parent and
the Purchaser has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Parent's and the Purchaser's respective Board of Directors, each
of the Board of Directors of the Parent and the Purchaser has declared the
advisability of this Agreement and the consummation of the transactions
contemplated hereby, and, no other corporate proceedings on the part of the
Parent and the Purchaser are necessary to authorize this Agreement or consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and
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<PAGE> 25
delivered by the Parent and the Purchaser, and this Agreement constitutes a
valid and binding agreement of the Parent and the Purchaser, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting the rights and remedies of creditors, and the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4. CONSENTS AND APPROVALS; NO VIOLATION. Except for (i)
filings required under the Securities Act and the Exchange Act, (ii) the filing
of a Pre-Merger Notification and Report Form by the Company under the HSR Act,
(iii) the filing and recordation of appropriate merger documents as required by
the DGCL and, if applicable, the laws of other states in which the Parent or the
Purchaser is qualified to do business, and (iv) filings under securities or blue
sky laws or takeover statutes of the various states, no filing with, and no
permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation by the Parent and the Purchaser of the trans
actions contemplated by this Agreement, the failure to make or obtain which is
reasonably likely to have a material adverse effect on the ability of the Parent
or the Purchaser to consummate the transactions contemplated hereby or on the
business or financial condition of the Parent, the Purchaser and the other
Parent Subsidiaries taken as a whole. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby nor
compliance by either the Parent or the Purchaser with any of the provisions
hereof will (i) conflict with or result in any violation of any provision of the
Certificate of Incorporation or By-Laws of the Parent or the Purchaser, (ii)
result in a violation or breach of, or constitute a default or give rise to any
right of termination, cancellation, loss of material benefits or acceleration or
give to any Person any interest in or result in the creation of any Lien upon
any of the properties or assets of the Parent, the Purchaser or any of the other
Parent Subsidiaries, with or without notice or lapse of time, or both, under the
Certificate of Incorporation or the By-Laws of the Parent or the Purchaser or
any note, bond, mortgage, indenture, license, benefit plan, agreement or other
instrument or obligation to which the Parent, the Purchaser or any of the other
Parent Subsidiaries is a party or by which any of them or any of their
properties or assets is bound or (iii) assuming the truth of the representations
and warranties of the Company contained herein and their compliance with all
agreements contained herein and assuming the due making or obtaining of all
filings, permits, authorizations, consents and approvals referred to in the
preceding sentence, violate any statute, rule, regulation, order, injunction,
writ or decree of any public body or authority by which the Parent, the
Purchaser or any of the other Parent Subsidiaries or any of their respective
assets or properties is bound, excluding from the foregoing clauses (ii) and
(iii) mortgages, leases and other agreements listed on Section 4.4 of the Parent
Disclosure Letter, and other conflicts, violations, breaches or defaults which,
either individually or in the aggregate, are not reasonably likely to have a
material adverse effect on the business or financial condition of the Parent,
the Purchaser and the other Parent Subsidiaries taken as a whole or to
materially impair the ability of the Parent or the Purchaser to perform their
respective obligations hereunder or consummate the transactions contemplated
hereby.
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4.5. FINANCIAL STATEMENTS AND REPORTS. (a) The Parent has
filed all forms, reports and documents with the SEC required to be filed by it
pursuant to the Securities Act and the Exchange Act (collectively, the "Parent
SEC Filings"), all of which have complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act. None of such
Parent SEC Filings, at the time filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Parent SEC Filings
filed after the date of this Agreement and prior to the Effective Time, (I) will
comply in all material respects with all applicable requirements of the
Securities Act and the Exchange Act and (II) will not at the time they will be
filed, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that, except as set forth in Section 4.7
hereof, no representation is made by the Parent or the Purchaser with respect to
the S-4 Registration Statement or the Proxy Statement/Prospectus.
(b) The consolidated balance sheets and the related
consolidated statements of income, cash flow and changes in shareholder equity
of the Parent and the Parent Subsidiaries (i) contained in the Parent's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30,
1998 and September 30, 1998 and the Parent's Annual Report on Form 10-K for the
year ended December 31, 1998 (collectively, the"Parent 1998 Financial
Statements"), and (ii) to be contained in Parent SEC Filings filed after the
date hereof (collectively with the 1998 Parent Financial Statements, the "Parent
Financial Statements"), when filed (i) complied or will comply in all material
respects as to form with the published rules and regulations of the SEC and (ii)
presented or will present fairly the consolidated financial position of the
Parent and the Parent Subsidiaries as of such date, and the consolidated results
of their operations and their cash flows for the periods presented therein, in
conformity with GAAP applied on a consistent basis, except as otherwise noted
therein, and subject in the case of quarterly financial statements to normal
year-end audit adjustments and except that the quarterly financial statements do
not contain all of the footnote disclosures required by GAAP.
4.6. ABSENCE OF MATERIAL ADVERSE CHANGE. Since December 31,
1998, except as reflected in the Parent 1998 Financial Statements or on Section
4.6 of the Parent Disclosure Letter, there has not been any material adverse
change in the business or financial condition of the Parent and the Parent
Subsidiaries taken as a whole, other than changes in general economic or
business conditions, changes that may result from the public announcement of
this Agreement, or changes generally affecting companies operating in the
industries in which the Parent and the Parent Subsidiaries operate.
4.7. INFORMATION IN PROXY STATEMENT/PROSPECTUS, REGISTRATION
STATEMENT AND HSR FILINGS. The S-4 Registration Statement (or any amendment
thereof or supplement thereto), at the date it becomes effective and at the time
of the Company Stockholders Meeting, will not contain any untrue statement of a
material fact or omit to
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state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation is made by Parent or
Purchaser with respect to statements made therein based on information supplied
by the Company for inclusion in the S-4 Registration Statement. None of the
information supplied by Parent or Purchaser for inclusion or incorporation by
reference in the Proxy Statement/Prospectus will, at the date mailed to
shareholders and at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The S-4
Registration Statement will comply in all material respects with the provisions
of the Securities Act and the rules and regulations thereunder. To the knowledge
of the Parent, none of the information supplied or to be supplied by or on
behalf of any of the Parent and the Parent Subsidiaries for inclusion or
incorporation by reference in the filing or filings required under the HSR Act,
at the date filed, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. No representation is made hereby with respect to
statements made in such filing or filings based on information supplied by
Company for inclusion therein.
4.8. FINDERS AND INVESTMENT BANKERS. Except for
Robinson-Humphry & Co., no agent, investment banker, broker, finder,
intermediary, or other Person acting on behalf of the Parent or any of the
Parent Subsidiaries is or shall be entitled to any brokerage, or finder's or
other similar fee or commission in connection with the Merger and the other
transactions contemplated by this Agreement.
4.9. DISCLOSURE. No representation or warranty by the Parent
or the Purchaser in this Agreement (including the Parent Disclosure Letter)
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, to make the statements herein or therein not
misleading. There is no fact known to the Parent or the Purchaser which would
reasonably be expected to have a material adverse effect on the business or
financial condition of the Parent and the Parent Subsidiaries taken as a whole
which has not been set forth in the Parent SEC Filings or in this Agreement
(including the Parent Disclosure Letter).
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
5.1. CONDUCT OF THE BUSINESS OF THE COMPANY. Except as
contemplated by this Agreement (including, without limitation, Section 7.2(f))
or as otherwise set forth on Section 5.1 of the Company Disclosure Letter,
during the period from the date of this Agreement to the Effective Time, the
Company and the Company Subsidiaries will each
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conduct its operations in all material respects according to its ordinary and
usual course of business, and will use commercially reasonable efforts to
preserve intact its business organization, to keep available the services of its
officers and employees and to maintain satisfactory relationships with
customers, suppliers and others having business relationships with it and will
take no action that could reasonably be deemed to have a material adverse effect
on the ability of the Company to consummate the transactions contemplated by
this Agreement, or the timing thereof. The Company shall consult regularly with
Parent on the management and business affairs of the Company and the Company
Subsidiaries. The Company will promptly advise the Parent in writing of any
change in the Company's or any of the Company Subsidiaries' business or
financial condition which is materially adverse to it and the Company
Subsidiaries taken as a whole. Without limiting the gene rality of the
foregoing, except as set forth on Section 5.1 of the Company Disclosure Letter,
and except as otherwise expressly contemplated by this Agreement (including,
without limitation, Section 7.2(f)), prior to the Effective Time, neither the
Company nor any of the Company Subsidiaries will, without the prior written
consent of the Parent:
(a) amend its Certificate of Incorporation or By-Laws;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of additional options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock of any
class or any securities convertible into or exercisable for shares of
capital stock of any class, except as required by any employee benefit
or stock option plan or agreement existing as of the date hereof and
listed in Section 5.1 of the Company Disclosure Letter;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock, or redeem or otherwise acquire any shares
of its capital stock, except any distribution made by any of the
Company Subsidiaries to the Company or any of the other Company
Subsidiaries (other than the Print and Mail Subsidiaries);
(d) (i) create, incur, assume, maintain or permit to exist any
debt (including obligations in respect of capital leases) other than as
in existence on the date hereof (or which, in the ordinary course of
business, replaces any such debt) in an aggregate amount for the
Company and the Company Subsidiaries taken as a whole exceeding
$500,000; (ii) except in the ordinary course of business and consistent
with past practices assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for
the obliga tions of any Person other than any of the Company
Subsidiaries (other than the Print and Mail Subsidiaries); or (iii)
make any loans, advances or capital contribu tions to, or investments
in, any Person other than any of the Company Subsidiaries (other than
the Print and Mail Subsidiaries), except for notes taken by the Company
pursuant to the terms of the Print and Mail Sale Agreement, and
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customary loans or advances to employees or trade credit in the
ordinary course of business and consistent with past practices, which
in any event will not exceed $25,000 in the aggregate;
(e) except in the ordinary course of business or as otherwise
contem plated by or described or referred to in the Company SEC Filings
filed on or before the date hereof, or as provided by the Print and
Mail Sale Agreement, sell, transfer, mortgage, lease, license or
otherwise dispose of or encumber, any assets of the Company or a
Company Subsidiary which have a value on the Company's books, either
individually or in the aggregate, in excess of $50,000;
(f) (i) increase in any manner the compensation of any of its
directors, officers or employees except in the ordinary course of
business, consistent with past practice as part of their regularly
scheduled review; (ii) pay or agree to pay any pension, retirement
allowance or other employee benefit not required, or enter into or
amend or agree to enter into or amend any agreement or arrangement with
any of its directors, officers or employees, whether past or present,
relating to any such pension, retirement allowance or other employee
benefit, except as required under currently existing agreements, plans
or arrangements; (iii) grant (other than as required pursuant to
existing agreements or plans) any severance or termination pay to, or
enter into or amend any employment, severance or change in control
agreement with, any of its directors, officers or employees; or (iv)
except as may be required to comply with applicable law, enter into or
become obligated under any collective bargaining agreement or any
agreement with, any labor union or association representing employees,
pension plan, welfare plan, multiemployer plan, employee benefit plan,
benefit arrangement, or similar plan or arrangement, which was not in
existence on the date hereof, including any bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other benefit plan,
agreement or arrangement, or employment or consulting agreement with or
for the benefit of any Person, or amend any of such plans or any of
such agreements in existence on the date hereof;
(g) authorize or commit to make any material capital
expenditures in excess of $100,000 per expenditure;
(h) make any material change in the accounting methods or
accounting practices followed by the Company, except as required by
GAAP;
(i) settle any action, suit, claim, investigation or
proceeding (legal, administrative or arbitrative) for an amount in
excess of $100,000;
(j) make any election under the Code;
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(k) enter into any contract that if entered into on or prior
to the date hereof would be required to be disclosed on Section 3.16 of
the Company Disclosure Letter;
(l) merge with or into or consolidate with any other Person
(other than between the Company Subsidiaries (other than the Print and
Mail Subsidiaries)) or make any acquisition of all or any part of the
assets or capital stock or business of any other Person except for
tangible property acquired in the ordinary course of business; or
(m) agree to do any of the foregoing.
5.2. CONDUCT OF THE BUSINESS OF PARENT AND THE PURCHASER.
Except as contemplated by this Agreement or as otherwise set forth on Section
5.2 of the Parent Disclosure Letter, during the period from the date of this
Agreement to the Effective Time, the Parent and the Parent Subsidiaries will
take no action that could reasonably be deemed to have a material adverse effect
on the ability of the parties to consummate the transactions contemplated by
this Agreement, or the timing thereof. Without limiting the generality of the
foregoing, and except as otherwise expressly contemplated by this Agree ment,
prior to the Effective Time, neither the Parent nor any of the Parent
Subsidiaries will, without the prior written consent of the Company:
(a) amend the Certificate of Incorporation or By-Laws of
Parent in a manner which would materially adversely change the rights
of holders of Parent Common Stock;
(b) during the Averaging Period (as hereinafter defined), pay
any dividend or other distribution (whether in cash, stock or property
or any combination thereof) in respect of its capital stock, except any
distribution made by any of the Parent Subsidiaries to the Parent or
any of the other Parent Subsidiaries; or
(c) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. PROXY STATEMENT/PROSPECTUS; S-4 REGISTRATION STATEMENT.
In connec tion with the solicitation of approval of the principal terms of this
Agreement and the Merger by the Company's stockholders, the Company, the Parent
and the Purchaser shall as promptly as practicable prepare and file with the
SEC, on a confidential basis (if practicable), a preliminary proxy statement
relating to the Merger and this Agreement and use commercially reasonable
efforts to obtain and furnish the information required to be
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included by the SEC in the Proxy Statement/Prospectus (as hereinafter defined).
The Company, after consultation with the Parent, shall respond as promptly as
practicable to any comments made by the SEC with respect to the preliminary
proxy statement and shall cause a definitive proxy statement to be mailed to its
shareholders at the earliest practicable date after the S-4 Registration
Statement (as hereinafter defined) has been declared effective. Such definitive
proxy statement shall also constitute a prospectus of Parent with respect to the
Parent Common Stock to be issued in the Merger (such proxy statement and
prospectus are referred to herein as the "Proxy Statement/Prospectus"), which
prospectus is to be filed with the SEC as part of a registration statement on
Form S-4 (the "S-4 Registration Statement") for the purpose of registering under
the Securities Act the Purchaser Common Stock to be issued pursuant to Section
2.1(a). The Parent shall as promptly as practicable prepare and file with the
SEC the S-4 Registration Statement after the SEC has advised that it will not
review, or has no further comments on, the Proxy Statement/Prospectus. The
Parent, after consultation with the Company, shall respond as promptly as
practicable to any comments made by the SEC with respect to the S-4 Registration
Statement, and shall use all commercially reasonable efforts to have the S-4
Registration Statement declared effective by the SEC. The Parent shall also take
any action required to be taken under applicable state securities laws in
connection with the issuance of Parent Common Stock in the Merger to
stockholders of the Company; PROVIDED, HOWEVER, that Parent shall not be
required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is now qualified or (ii) to file a general consent to
service of process in any jurisdiction. The Company shall furnish all
information concerning the Company and the holders of the Shares as may be
reasonably requested by Parent in connection with such action. If at any time
prior to the Effective Time any information relating to the Company or Parent,
or any of their respective affiliates, officer or directors, should be
discovered by the Company or Parent which should be set forth in an amendment or
supplement either the S-4 Registration Statement or the Proxy
Statement/Prospectus, so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and, to the
extent required by law, disseminated to the stockholders of the Company.
6.2. ACCESS TO INFORMATION. (a) The Company will (i) give
Parent and its authorized representatives reasonable access during normal
business hours to all offices and other facilities and to all books and records
of the Company and the Company Subsidiaries, in order to permit Parent to make
such inspections as it may reasonably require and (ii) will furnish Parent with
a copy of each report, schedule and other document filed or received by it,
during the period between the date hereof and the Effective Date, pursuant to
the requirements of federal and state securities laws and such financial and
operating data and other information with respect to the business and properties
of the Company and the Company Subsidiaries as Parent may from time to time
reasonably request.
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(b) Parent will furnish the Company with a copy of each
publicly available report, schedule and other document filed or received by it,
during the period between the date hereof and the Effective Date, pursuant to
the requirements of federal and state securities laws.
(c) Parent and the Company and their respective authorized
representatives shall continue to abide by the provisions of the Confidentiality
Agreement, dated January 25, 1999 (the "Confidentiality Agreement"), by and
between the Parent and the Company.
6.3. CONSENTS. (a) The Parent and the Company each shall use
their commercially reasonable efforts to obtain all consents of third parties
under the agreements set forth in Section 6.3 of the Company Disclosure Letter
or the Parent Disclosure Letter, as the case may be, obtain all material
consents of governmental authorities, and to make all governmental filings,
necessary to the consummation of the transactions contemplated by this
Agreement. The Company, the Parent and the Purchaser shall as soon as
practicable file Pre-Merger Notification and Report Forms under the HSR Act with
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") and shall use their
commercially reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
(b) Each of the parties hereto agrees to furnish to each other
party hereto such necessary information and commercially reasonable assistance
as such other party may request in connection with its preparation of necessary
filings or submissions to any regulatory or governmental agency or authority,
including, without limitation, any filing necessary under the provisions of the
HSR Act, or any other federal, state, local or foreign statute or regulations.
Each of the parties shall respond as promptly as practicable to (i) any
inquiries or requests from the FTC or the Antitrust Division for additional
information or documentation and (ii) any inquiries or requests received from
any state attorney general or other governmental entity in connection with
antitrust or related matters. Each of the parties shall (1) give the other party
prompt notice of the commence ment of any claim, action, suit or proceeding by
or before any governmental entity with respect to the Merger or any of the
transactions contemplated by this Agreement, (2) keep the other party informed
as to the status of any such claim, action, suit or pending or proceeding, and
(3) promptly inform the other party of any communication to or from the FTC or
the Antitrust Division or any other governmental entity regarding the Merger or
the transactions contemplated by this Agreement. Each of the parties will
consult and cooperate with one another, and will consider in good faith the
views of one another, in connection with any analysis, appearance, presentation,
memorandum, brief, argument, opinion or proposal made or submitted in connection
with any claim, action, suit or proceeding under or relating to the HSR or any
other federal or state antitrust or fair trade law. In addition, except as may
be prohibited by any governmental entity or by any applicable federal, state,
local or foreign laws, ordinances or regulations, in connection with any claim,
action, suit or proceeding under or relating to the HSR Act or any other
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federal or state antitrust or fair trade law or any other similar claim, action,
suit or proceeding, each of the parties will permit authorized representatives
of the other party to be present, to the extent reasonably practicable, at each
meeting or conference relating to any such claim, action, suit or proceeding and
to have access to and be consulted in connection with any document, opinion or
proposal made or submitted to any governmental entity in connection with any
such claim, action, suit or proceeding
(c) Notwithstanding anything to the contrary contained in this
Agreement, Parent shall not have any obligation under this Agreement: (i) to
dispose or cause any of the Parent Subsidiaries to dispose of any assets, or to
commit to cause the Company or any of the Company Subsidiaries to dispose of any
assets; (ii) to discontinue or cause any of the Parent Subsidiaries to
discontinue offering any product, or to commit to cause the Company or any of
the Company Subsidiaries to discontinue offering any product; (iii) to license
or otherwise make available, or cause any of the Parent Subsidiaries to license
or otherwise make available, to any persons, any technology, intellectual
property, software or other intangible assets, or to commit to cause the Company
or any of the Company Subsidiaries to license or otherwise make available to any
person any technology, intellectual property, software or other intangible
assets to the extent reasonably practicable; (iv) to hold separate or cause any
of the Parent Subsidiaries to hold separate any assets or operations, or to
commit to cause the Company or any of the Company Subsidiaries to hold separate
any assets or operations; or (v) to make or cause any of the Parent Subsidiaries
to make any commitment (to any governmental entity or otherwise) regarding its
future operations or the future operations of the Company or any of the Parent
Subsidiaries or Company Subsidiaries, if any of the actions described in (i)-(v)
above would materially interfere with Parent's anticipated benefits from the
trans actions contemplated hereby or have a material adverse effect on Parent.
6.4. BOARD ACTIONS; COMPANY STOCKHOLDER MEETING. (a) The Board
of Directors of the Company has determined that the Merger is advisable and in
the best interests of its stockholders and, subject to Section 6.8 hereof, (i)
the Board of Directors of the Company will recommend to the Company's
stockholders the adoption and approval of this Agreement and the transactions
contemplated hereby and the other matters to be submitted to the Company's
stockholders in connection herewith and use its commercially reasonable efforts
to obtain the necessary approvals by the Company's stockholders of this
Agreement and the transactions contemplated hereby; (ii) the Proxy
Statement/Prospectus shall include a statement to the effect that the Board of
Directors of the Company has recommended that the Company's stockholders vote in
favor of adopt and approve the Merger at the Company's Stockholders Meeting; and
(iii) neither the Board of Directors of the Company nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify, in a manner adverse to Parent, the recom mendation of the Board of
Directors of the Company that Company's stockholders vote in favor of and adopt
and approve the Merger.
(b) As soon as reasonably practicable after the date of the Agreement,
Company shall duly call, give notice of, convene and hold the Company
Stockholder Meeting for
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the purpose of approving this Agreement and the transactions contemplated by
this Agreement. The Company will convene the Company Stockholder Meeting, as
promptly as practicable and in any event use its reasonable best efforts to
convene such meetings within 45 days after the Form S-4 is declared effective by
the SEC.
6.5. COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions hereof, each of the parties hereto agrees to use its commercially
reasonable efforts consistent with applicable legal requirements to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary or proper and advisable under applicable laws and regulations to
ensure that the conditions set forth in Article VII hereof are satisfied and to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
6.6. PUBLIC ANNOUNCEMENTS. The Parent and the Company will
obtain the prior written consent of the other before issuing any press release
or otherwise making any public statements with respect to the Merger, except as
may be required by law or by obligations pursuant to any listing agreement with
any securities exchange.
6.7. CONSENT OF THE PARENT. The Parent, as the sole
stockholder of the Purchaser, by executing this Agreement consents to the
execution and delivery of this Agreement by the Purchaser and the consummation
of the Merger and the other transactions contemplated hereby, and such consent
shall be treated for all purposes as a vote duly cast at a meeting of the
stockholders of the Purchaser held for such purpose.
6.8. NO SOLICITATION. (a) The Company shall not, nor shall it
authorize or permit any of the Company Subsidiaries to, nor shall it authorize
or permit any of its, or the Company Subsidiaries', directors, officers or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by or acting on behalf of it or any of the Company
Subsidiaries to, directly or indirectly through another Person, (i) solicit,
initiate or knowingly encourage (including by way of furnishing non-public
information), or take any other action designed to facilitate, any inquiries or
the making of any proposal which constitutes a Company Takeover Proposal (as
hereinafter defined), (ii) participate in any discussions or negotiations
regarding any Company Takeover Proposal or (iii) enter into any letter of
intent, agreement in principle, acquisi tion agreement or similar agreement
(each a "Company Acquisition Agreement") with respect to a Company Takeover
Proposal, or (iv) approve, endorse or recommend a Company Takeover Proposal;
PROVIDED, HOWEVER, that if and to the extent that, at any time prior to the time
of the adoption of this Agreement by the Company's stockholders, the Board of
Directors of the Company determines in good faith, after consultation with
outside counsel, that failing to do so would violate its fiduciary duties to the
Company's stockholders under applicable law, the Company may, in response to any
Company Takeover Proposal which is a Company Superior Proposal (as hereinafter
defined) and which was not solicited by it and which did not otherwise result
from a breach of this Section 6.8(a); (x) furnish information with respect to
the Company and the Company Subsidiaries to any Person inquiring about or making
a Company Takeover Proposal
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pursuant to a customary confidentiality agreement (as determined by the Company
based on the advice of its outside counsel containing limitations no less
restrictive than the limitations imposed on Parent pursuant to the
Confidentiality Agreement); and (y) participate in discussions or negotiations
regarding such Company Takeover Proposal; PROVIDED that prior to or at the time
of furnishing any such information or entering into such discussions or
negotiations, the Company shall: (1) inform Parent in writing as to the fact
such information is to be provided, (2) furnish to Parent the identity of the
recipient of such information and/or the potential acquirer and the terms of
such Company Takeover Proposal and (3) furnish to or notify Parent of the
availability of such written information to Parent (to the extent such
information has not been previously furnished by the Company to Parent). Without
limiting the generality of the foregoing, the Company acknowledges and agrees
that any violation of the restrictions set forth in the preceding sentence by
any director, officer, employee, investment banker, financial advisor, attorney,
accountant or other representative of the Company or any of the Company
Subsidiaries shall be deemed to constitute a breach of this Section 6.8(a) by
the Company. The Company agrees that it will immediately cease and cause to be
terminated any existing discussions with any person that relate to any Company
Takeover Proposal. For purposes of this Agreement, "Company Takeover Proposal"
means any inquiry, proposal or offer from any Person relating to any Company
Takeover Event. For purposes of this Agreement, "Company Takeover Event" means
any direct or indirect acquisition or purchase of a business that constitutes
10% or more of the net revenues, net income or assets of the Company and the
Company Subsidiaries (other than the Print and Mail Subsidiaries (as hereinafter
defined)), taken as a whole, or 10% or more of any class of equity securities of
the Company, any tender offer or exchange offer that if consummated would result
in any Person beneficially owning 10% or more of any class of any equity
securities of the Company, or any sale, lease, exchange, transfer or license of
assets, or any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company (or any
Company Subsidiary (other than the Print and Mail Subsidiaries)) whose business
constitutes 10% or more of the net revenues, net income or assets of the Company
and the Company Subsidiaries taken as a whole, other than the transactions
contemplated by the Print and Mail Sale Agreement.
(b) Except as expressly permitted by this Section 6.8(b), the
Board of Directors of the Company shall not (i) withdraw or modify or propose
publicly to withdraw or modify, in a manner adverse to the Parent and the
Purchaser, its approval or recommendation of this Agreement, or (ii) approve or
recommend, or propose publicly to approve or recommend any Company Takeover
Proposal, unless (x) such Company Takeover Proposal is a Company Superior
Proposal, (y) the Board of Directors of the Company determines in good faith,
after consultation with outside counsel, that in light of a Company Superior
Proposal it is necessary to do so in order to comply with its fiduciary duties
under applicable law, and (z) neither the Company nor any Company Subsidiary nor
any representative of the Company or a Company Subsidiary shall have caused the
Company Superior Proposal to be made in violation of Section 6.8(a). For
purposes of this Agreement, the term "Company Superior Proposal" means any bona
fide written proposal to acquire, directly or indirectly, for consideration
consisting of cash
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and/or securities, more than a majority of the Shares then outstanding or all or
substantially all the assets of the Company, that the Board of Directors of the
Company determines in good faith, after taking into account advice from its
financial advisor, to be more favorable from a financial point of view to the
Company and its stockholders than the Merger.
(c) Nothing contained in this Section 6.8(c) shall prohibit
the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or from making
any disclosure to the Company's stockholders if, in the good faith judgment of
the Board of Directors of the Company, after consultation with outside counsel,
such disclosure is required under applicable law; PROVIDED that the Company does
not amend, withdraw or modify, or propose to amend, withdraw or modify, its
position with respect to the Merger, or approve, recommend or propose publicly
to approve or recommend a Company Takeover Proposal, unless the Company and the
Board of Directors has complied with the provisions of Section 6.8(b).
(d) Anything in this Agreement to the contrary
notwithstanding, the Company shall submit this Agreement for approval to the
stockholders of the Company at the Company Stockholder Meeting whether or not
the Board of Directors determines at any time subsequent to the date hereof that
the Agreement is no longer advisable and recommends that the stockholders reject
it.
6.9. INDEMNIFICATION. (a) For a period of six years after the
Effective Time, the Parent shall, and shall cause the Surviving Corporation to,
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and the Company Subsidiaries (other then the
Print and Mail Subsidiaries) (collectively, the "Indemnified Parties") from and
against, and pay or reimburse the Indemnified Parties for, all losses,
obligations, expenses, claims, damages or liabilities (whether or not resulting
from third-party claims and including interest, penalties, out-of-pocket
expenses and attorneys' fees incurred in the investigation or defense of any of
the same or in asserting any of their rights hereunder) resulting from or
arising out of actions or omissions occurring on or prior to the Effective Time
(including, without limitation, the transactions contemplated by this Agreement)
to the full extent permitted or required under applicable law as of the
Effective Time and, in the case of indemnification by the Surviving Corporation,
to the extent permitted under the provisions of the Certificate of Incorporation
and the By-Laws of the Company in effect at the date hereof (which provisions
shall not be amended in any manner which adversely affects any Indemnified
Party, for a period of six years), including provisions relating to payment and
advances of expenses incurred in the defense of any action or suit; PROVIDED
that in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of each such claim shall
continue until final disposition of such claim. Without limiting the foregoing,
in any case in which approval by the Surviving Corporation is required to
effectuate any indemnification, the Parent shall cause the Surviving Corporation
to direct, at the election of the Indemnified Party, that the determination of
any such approval shall be made by independent counsel jointly selected by the
Indemnified Party and the Parent.
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(b) For not less than six years after the Effective Time, the
Parent and the Purchaser shall maintain in effect directors' and officers'
liability insurance covering the Indemnified Parties who are currently covered
by the Company's existing directors' and officers' liability insurance, on terms
and conditions no less favorable to such directors and officers than those in
effect on the date hereof; PROVIDED that the deductible thereunder (which shall
be paid by the Parent) may be increased to no more than $25,000; and, PROVIDED,
FURTHER, that in no event shall the Parent be required to expend in any one year
an amount in excess of $250,000; and, PROVIDED, FURTHER, that if the annual
premiums of such insurance coverage exceed such amount, the Parent shall be
obligated to obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) Any Indemnified Party wishing to claim indemnification
under Section 6.9(a) shall provide notice to the Parent promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and (i) the Parent shall retain counsel satisfactory to the Parent, the
Indemnified Party and the insurer under any applicable directors' and officers'
liability insurance, (ii) the Parent shall pay all reasonable fees and expenses
of such counsel for the Indemnified Party promptly as statements therefor are
received, and (iii) the Parent will use all reasonable efforts to assist in the
vigorous defense of any such matter, PROVIDED that neither Parent nor the
Company shall be liable for any settlement of any claims effected without its
written consent, which consent, however, shall not be unreasonably withheld; and
PROVIDED, FURTHER, that neither Parent nor Company shall be obligated to pay the
fees and expenses of more than one counsel for all Indemnified Parties in any
single action unless in the reasonable judgment of any such Indemnified Party a
conflict of interest may exist between such Indemnified Party and any other
Indemnified Parties with respect to any claims. The omission by any Indemnified
Party to give notice as provided herein shall not relieve the Parent of its
indemnification obligation under this Agreement except to the extent that such
omission results in a failure of actual notice to the Parent and the Parent is
damaged as a result of such failure to give notice. The Parent and the
Indemnified Party shall cooperate in the defense of any action or claim subject
to this Section 6.9, including but not limited to furnishing all available
documentary or other evidence as is reasonably requested by the other.
(d) This Section 6.9 is intended for the benefit of the
Indemnified Parties whether or not parties to this Agreement and each of the
Indemnified Parties shall be entitled to enforce the covenants contained herein.
(e) If the Parent or the Surviving Corporation or any of their
respective successors or assigns (i) reorganizes or consolidates with or merges
into any other Person and is not the resulting, continuing or surviving
corporation or entity of such reorganiza tion, consolidation or merger, or (ii)
liquidates, dissolves or transfers all or substantially all of its properties
and assets to any Person or Persons, then, and in such case, proper provision
will be made so that the successors and assigns of the Surviving Corporation
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assumes all of the obligations of the Parent or the Surviving Corporation, as
the case may be, set forth in this Section 6.9.
6.10. EMPLOYEE BENEFITS. Until the first anniversary of the
Closing, Parent shall maintain or caused to be maintained for the benefit of
each employee of the Parent or any of its Subsidiaries who was an employee of
the Company or any of its Subsidiaries immediately prior to the Closing employee
benefit plans and programs that provide such employee with benefits, rights and
entitlements which are comparable to similarly situated employees of the Parent.
Following the Effective Time, Parent shall cause the Surviving Company to honor
in accordance with their terms all employment, severance and other compensation
agreements and arrangements existing on or prior to the execution of this
Agreement which are between the Company and any of the Company Subsidiaries and
any officer, director or employee thereof.
6.11. TAX COVENANTS. Whether before or after the Effective
Time, neither the Parent nor the Company shall take (or permit any of their
Affiliates to) take any action that could reasonably be expected to jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code. Each of the Parent and the Company shall use its respective
commercially reasonable efforts (I) to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code and (II) to
cause its respective officers to furnish such representations to Blank Rome
Comisky & McCauley LLP ("Parent's Counsel") and Katten Muchin & Zavis
("Company's Counsel") as may be reasonably requested to enable such counsel to
deliver the opinions described in Sections 7.2(d) and 7.3(c).
6.12. PRINT AND MAIL SALE AGREEMENT. The Company shall use its
commercially reasonable efforts to consummate the transactions contemplated by
the Print and Mail Sale Agreement in accordance with its terms. The Company
shall advise Parent of, and consult with Parent with respect to, material
developments in connection with such sale. Neither the Company nor any Company
Subsidiary shall agree or consent to any amendment, waiver, consent,
modification or other change to, or the termination of, the Print and Mail Sale
Agreement unless it shall have first received the approval of Parent (which
shall not unreasonably be withheld).
ARTICLE VII
CLOSING CONDITIONS
7.1. CONDITIONS TO THE OBLIGATIONS OF THE PARENT, THE
PURCHASER AND THE COMPANY. The respective obligations of each party to effect
the Merger shall be subject to the fulfillment at or prior to the Effective Time
of the following conditions:
(a) There shall not be in effect any statute, rule or
regulation enacted, promulgated or deemed applicable by any
governmental authority of competent jurisdiction that makes
consummation of the Merger illegal and no temporary
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restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal restraint
or prohibition preventing the consummation of the Merger shall be in
effect; PROVIDED, HOWEVER, that each of the parties shall use their
commercially reasonable efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any
injunction or other order that may be entered.
(b) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of the requisite number of shares of
Common Stock in accordance with the Certificate of Incorporation and
By-Laws of the Company and the DGCL.
(c) Each of the Parent, the Company and any other person (as
defined in the HSR Act and the rules and regulations thereunder)
required in connection with the Merger to file a Pre-Merger
Notification and Report Form under the HSR Act with the FTC and the
Antitrust Division shall have made such filing and the applicable
waiting period with respect to each such filing (including any
extension thereof by reason of a request for additional information)
shall have expired or been terminated.
(d) The S-4 Registration Statement shall have become effective
under the Securities Act and shall not be the subject of any stop order
or proceedings seeking a stop order and no stop order or similar
restraining order shall be threatened or entered by the SEC or any
state securities administration preventing the Merger.
7.2. CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND THE
PURCHASER. The obligations of Parent and Purchaser to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions.
(a) The representations and warranties of the Company
contained in this Agreement that are qualified by materiality or
contained in Section 3.2 shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date and the representations and warranties of the Company
contained in this Agreement that are not so qualified shall be true and
correct in all material respects as of the date of this Agreement and
as of the Closing Date as though made on and as of the Closing Date
(except in each case to the extent any such representation or warranty
expressly speaks as of an earlier specified date, in which case, as of
such date), except (i) in each case where the failure of the
representations and warranties (other than the representations and
warranties set forth in Section 3.2) to be so true and correct (without
giving effect to any qualification as to "material,"
"materiality,""material adverse effect" or similar qualifications) are
not, individually or in the aggregate, reasonably likely to have a
material adverse effect on the Parent and the Parent Subsidiaries taken
as a whole or on the Company and the Company Subsidiaries (excluding
the Print
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and Mail Subsidiaries) taken as a whole, or (ii) in each case where the
failure of such representations and warranties to be so true and
correct (x) is with respect to representations and warranties relating
to the Print and Mail Business and (y) the sale of the Print and Mail
Business is consummated in accordance with the terms of the Print and
Mail Sale Agreement and (iii) in the case of Section 3.2, so long as
the number of shares of Company Common Stock outstanding or subject to
options on the Effective Date does not exceed that amount set forth in
Section 3.2 by more than 10,000 shares or by more than 10,000 option
shares in the aggregate, provided that the exercise prices of such
additional options equal or exceed $10.50 per share.
(b) The Company shall have, in all material respects,
performed all covenants and agreements and complied with all conditions
required by this Agreement to be performed or complied with by the
Company prior to or on the Closing Date. The Company shall deliver to
Parent a certificate of its Chief Executive Officer, solely in his
capacity as such, as to the satisfaction of the conditions in
paragraphs (a) and (b) of this Section 7.2.
(c) There shall not be pending any action, suit or proceeding
by a governmental entity (a) challenging or seeking to restrain or
prohibit the consum mation of the Merger; (b) relating to the Merger
and seeking material monetary damages from the Parent, the Company or
any of the Parent or Company Subsidiary; (c) seeking to prohibit or
limit in any material respect Parent's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with
respect to the capital stock of the Company; or (d) which would
materially and adversely affect the right of Parent, the Company or any
Parent or Company Subsidiary to own the assets or operate the business
of the Company after the Effective Time; PROVIDED that Parent shall use
reasonable efforts to resolve such matters.
(d) There shall not be pending any actions, suits or
proceeding: (i) which individually or in the aggregate, taking into
account the totality of the facts and circumstance and the probability
of an adverse judgement, are reasonably likely to have material adverse
effect on the Company and the Company A/R and Teleservices Subsidiaries
taken as a whole or on the Parent and the Parent Subsidiaries taken as
a whole and (ii) which (A) challenges or seeks to restrain or prohibit
the consummation of the Merger; (B) relates to the Merger and seeks to
obtain from Parent or any of its subsidiaries damages; (C) seeks to
prohibit or limit in any material respect Parent's ability to vote,
receive dividends with respect to or otherwise exercise ownership
rights with respect to the capital stock of the Company; or (D) affects
adversely the right of Parent, the Company or any subsidiary of Parent
to own the assets or operate the business of Company; provided,
however, that to the extent that any damages payable in connection with
any such claim, action, suit or proceeding will be fully reimbursed by
insurance coverage pursuant to insurance policies held by Company or
Parent, such damages shall be disregarded in determining the material
adverse effect of such claim, action, suit or proceeding on the policy
holder.
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(e) Parent shall have received from Parent's Counsel an
opinion in substantially the form attached hereto as Annex V, dated on
or about the date of mailing of the Proxy Statement/Prospectus, which
opinion shall be reconfirmed at the Effective Time, substantially to
the effect that the Merger will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, Parent's Counsel shall be entitled
to request and rely upon representations contained in certificates of
officers of Parent and Company, which certificates are in substantially
the form attached hereto as Annex III and Annex IV, as the case may be.
(f) Since the date hereof, there shall not have been any
material adverse change in the business or financial condition of the
Company and the Company Subsidiaries taken as a whole, other than
changes in general economic or business conditions, changes that may
result from the public announcement of this Agreement, changes
generally affecting companies operating in the industries in which the
Company and the Company Subsidiaries operate or changes solely
affecting the Print and Mail Subsidiaries.
(g) The sale of the Print and Mail Subsidiaries shall have
been consummated in accordance with the terms of the Print and Mail
Sale Agreement.
(h) Neither the Parent nor the Purchaser may rely on the
failure of any condition set forth in this Article VII to be satisfied
if such failure was caused by the Parent's or the Purchaser's failure
to use commercially reasonable efforts to consummate the transactions
contemplated by this Agreement.
7.3. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger shall be subject to the
fulfillment, at or prior to the Effective Time, of the following conditions:
(a) The representations and warranties of the Parent and the
Purchaser contained in this Agreement that are qualified by materiality
shall be true and correct in all respects as of the date of this
Agreement and as of the Closing Date and the representations and
warranties of the Parent contained in this Agreement that are not so
qualified shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except in each case to the extent any such
representation or warranty expressly speaks as of an earlier specified
date, in which case, as of such date), except in each case where the
failure of the representations and warranties to be so true and correct
(without giving effect to any qualification as to "material,"
"materiality,""material adverse effect" or similar qualifications) are
not, individually or in the aggregate, reasonably likely to have a
material adverse effect on the Parent and the Parent Subsidiaries taken
as a whole.
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(b) The Parent and the Purchaser shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with
by the Parent and the Purchaser prior to or on the Closing Date. The
Parent shall deliver to Company a certificate of its Chief Executive
Officer, solely in his capacity as such, as to the satisfaction of the
conditions in paragraphs (a) and (b) of this Section 7.3.
(c) Company shall have received from Company's Counsel an
opinion in substantially the form attached hereto as Annex VI, dated on
or about the date of mailing of the Proxy Statement/Prospectus, which
opinion shall be reconfirmed at the Effective Time, substantially to
the effect that the Merger will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, Company's Counsel shall be
entitled to request and rely upon representations contained in
certificates of officers of Parent and Company, which certificates are
in substantially the form attached hereto as Annex III and Annex IV, as
the case may be.
(d) The Company may not rely on the failure of any condition
set forth in this Article VII to be satisfied if such failure was
caused by the Company's failure to use commercially reasonable efforts
to consummate the transactions contemplated by this Agreement.
ARTICLE VIII
CLOSING
8.1. TIME AND PLACE. The closing of the Merger (the "Closing")
shall take place at the offices of Katten Muchin & Zavis, 525 West Monroe
Street, Suite 1600, Chicago, Illinois, as soon as practicable following
satisfaction or waiver, if permissible, of the conditions set forth in Article
VII. The date on which the Closing actually occurs is herein referred to as the
"Closing Date."
8.2. FILINGS AT THE CLOSING. At the Closing, the Parent, the
Purchaser and the Company shall cause the Certificate of Merger, together with
any other documents required by law to effectuate the Merger, to be filed and
recorded with the Secretary of State of the State of Delaware in accordance with
the provisions of Sections 103 and 251 or 253 of the DGCL and shall take any and
all other lawful actions and do any and all other lawful things necessary to
cause the Merger to become effective.
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ARTICLE IX
TERMINATION AND ABANDONMENT
9.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual consent of the Board of Directors of the Parent
and the Board of Directors of the Company;
(b) by either the Parent or the Company if the Merger shall
not have been consummated on or before October 31, 1999; PROVIDED,
HOWEVER, that the right to terminate this Agreement shall not be
available to any party whose failure to fulfill any obligation under or
breach of this Agreement has been the cause of, or resulted in, the
failure of the Merger to have occurred on or before the aforesaid date;
(c) by either the Parent or the Company, if any court of
competent jurisdiction in the United States or other governmental
agency of competent jurisdiction shall have issued an order, decree or
ruling or taken any other action restraining, permanently enjoining or
otherwise prohibiting the Merger, and such order, decree, ruling or
other action shall have become final and non-appealable;
(d) by either the Parent or the Company, if the approval of
the Merger by the stockholders of the Company shall not have been
obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of such stockholders or at any
adjournment or postponement thereof;
(e) by the Company:
(i) upon the breach of any representation, warranty,
covenant or other agreement of Parent contained in this Agreement, or
if any representation or warranty of Parent shall be or shall have
become inaccurate, in either case such that Parent fails to cure such
breach within fifteen (15) business days after receiving notice of such
breach (but only if such breach is capable of being cured) and such
breach would cause any of the conditions set forth in Section 7.3(a) or
(b) not to be satisfied at the time of such breach or at the time such
representation or warranty was or shall have become inaccurate or, if
capable of being cured, at the end of such cure period;
(ii) if the arithmetic per share average of the last
reported sales prices of one share of Parent Common Stock, as reported
on the NASDAQ National Market during the five (5) trading days ending
on and including the trading day one day before the Company Stockholder
Meeting (such 5-day period,
37
<PAGE> 44
the "Averaging Period"), is less than $27.50 (such amount to be
proportionately adjusted in the event the Parent Common Stock is
subdivided, whether by stock split, stock dividend or otherwise, into a
greater number or combined, whether by reverse stock split or
otherwise, into a lesser number).
(f) By Parent:
(i) upon the breach of any representation, warranty,
covenant or other agreement of the Company contained in this Agreement,
or if any repre sentation or warranty of the Company shall be or shall
become inaccurate, in either case such that the Company fails to cure
such breach within fifteen (15) business days after receiving notice of
such breach (but only if such breach is capable of being cured) and
such breach would cause any of the conditions set forth in Section
7.2(a) or (b) not to be satisfied at the time of such breach or at the
time such representation or warranty was or shall have become
inaccurate, or, if capable of being cured, at the end of such cure
period;
(ii) if (a) the Board of Directors of the Company
shall have failed to recommend, or shall for any reason have withdrawn
or shall have amended or modified in a manner adverse to Parent its
recommendation in favor of, the adoption and approval of the Merger;
(b) the Company shall have failed to include in the Proxy
Statement/Prospectus the recommendation of the Board of Directors of
the Company in favor of the adoption and approval of the Merger; (c)
the Company shall have entered into any Company Acquisition Agreement;
or (d) a tender or exchange offer relating to securities of the Company
shall have been commenced and the Company shall not have sent to its
stockholders and, if applicable, optionholder, within ten (10) business
days after the commencement of such tender or exchange offer, a
statement disclosing that the Company recommends rejection of such
tender or exchange offer.
9.2. PROCEDURE AND EFFECT OF TERMINATION. (a) In the event of
termina tion and abandonment of the Merger by the Parent, the Purchaser or the
Company pursuant to Section 9.1, written notice thereof shall forthwith be given
to the others, and this Agreement shall terminate and the Merger shall be
abandoned, without further action by any of the parties hereto. The Purchaser
agrees that any termination by the Parent shall be conclusively binding upon it,
whether given expressly on its behalf or not, and the Company shall have no
further obligation with respect to it. If this Agreement is terminated as
provided herein, no party hereto shall have any liability or further obligation
to any other party to this Agreement; PROVIDED that any termination shall be
without pre judice to the rights of any party hereto arising out of any
intentional breach by any other party of any covenant or agreement contained in
this Agreement, and PROVIDED, FURTHER, that the obligations set forth in
Sections 3.15, 4.8, 6.2 (last sentence), 9.2, 10.6 and 10.8 shall in any event
survive any termination.
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(b) (i) If this Agreement is terminated by Parent or the
Company pursuant to Section 9.1(d) and a Company Superior Proposal is
consummated at any time prior to the first anniversary date of this Agreement,
then, contemporaneously with the consummation of such transaction, the Company
shall pay to Parent by wire transfer of immediately available funds to an
account specified by Parent, a nonrefundable fee in an amount equal to
$3,500,000 plus an amount equal to the documented out-of-pocket costs and
expenses incurred by Parent in connection with the transactions contemplated by
this Agreement, not to exceed $1,200,000.
(ii) In the event of a termination of this Agreement
by Parent pursuant to Section 9.1(f)(ii), then the Company shall within ten
business days of such termination pay Parent by wire transfer of immediately
available funds to an account specified by Parent a non-refundable termination
fee of $3,500,000 plus an amount equal to the documented out-of-pocket costs and
expenses incurred by Parent in connection with the transactions contemplated by
this Agreement, not to exceed $1,200,000.
ARTICLE X
MISCELLANEOUS
10.1. AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of the Parent, the Purchaser and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein; PROVIDED that
after this Agreement is adopted by the Company's stockholders, no such amendment
or modification shall be made that reduces the amount or changes the form of the
Merger Consideration or otherwise ma terially and adversely affects the rights
of the Company's stockholders hereunder, without the further approval of such
stockholders.
10.2. WAIVER OF COMPLIANCE; CONSENTS. Any failure of the
Parent or the Purchaser, on the one hand, or the Company, on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived by the Company or the Parent, respectively, only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in this
Sec tion 10.2. The Purchaser hereby agrees that any consent or waiver of
compliance given by the Parent hereunder shall be conclusively binding upon it,
whether given expressly on its behalf or not.
10.3. SURVIVAL OF WARRANTIES. Each and every representation
and warranty made in this Agreement shall survive the date of this Agreement but
shall expire with, and
39
<PAGE> 46
be terminated and extinguished by, the Merger, or the termination of this
Agreement pursuant to Section 9.1. This Section 10.3 shall have no effect upon
any other obligation of the parties hereto, whether to be performed before or
after the Closing.
10.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if (A) delivered personally or by
overnight courier, (B) mailed by registered or certified mail, return receipt
requested, postage prepaid, or (C) transmitted by telecopy, and in each case,
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; PROVIDED that notices of a
change of address shall be effective only upon receipt thereof):
(a) if to the Parent or the Purchaser, to
NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washing, Pennsylvania 19034
Telecopy: (215) 793-2908
Attention: President
with copies to
NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washing, Pennsylvania 19034
Telecopy: (215) 793-2908
Attention: General Counsel
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Telecopy: (215) 793-2929
Attention: Francis E. Dehel, Esq.
(b) if to the Company, to
Compass International Service Corporation
One Penn Plaza, Suite 4430
New York, NY 10119
Attention: Julie Schechter
Facsimile No.: (212) 967-0650
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<PAGE> 47
with a copy to
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
Telecopy: (312) 902-1061
Attention: Howard S. Lanznar, Esq.
Any notice so addressed shall be deemed to be given (x) three business days
after being mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid and (y) upon delivery, if transmitted by hand
delivery, overnight courier or telecopy.
10.5. ASSIGNMENT; PARTIES IN INTEREST. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto without the prior written consent
of the other parties. Except for Section 6.9, which is intended for the benefit
of the Company's directors, officers, employees and agents, and Section 6.11,
which is intended for the benefit of the Company's stockholders, this Agreement
is not intended to confer upon any other Person except the parties any rights or
remedies under or by reason of this Agreement.
10.6. EXPENSES. Except as provided in Section 9.2(b), whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
10.7. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, as provided in Section 10.13, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.8. GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Delaware, without giving effect to the conflict of laws
rules thereof to the extent such rules would permit the application of the laws
of another jurisdiction.
10.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
41
<PAGE> 48
10.10. INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
10.11. ENTIRE AGREEMENT. This Agreement, including the Company
Disclosure Letter and the Parent Disclosure Letter, the Annexes hereto, the
Voting Agreement, and the Confidentiality Agreement, embody the entire agreement
and under standing of the parties hereto in respect of the subject matter
contained herein and supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
10.12. SEVERABILITY. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
10.13. JURISDICTION AND PROCESS. In any action between or
among any of the parties, whether arising out of this Agreement or otherwise,
(A) each of the parties irrevocably consents to the exclusive jurisdiction and
venue of the federal and state courts located in the State of Delaware, (B) if
any such action is commenced in a state court, then, subject to applicable law,
no party shall object to the removal of such action to any federal court located
in the State of Delaware, (C) each of the parties irrevocably waives the right
to trial by jury, (D) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance
with Section 10.4 and (E) the prevailing parties shall be entitled to recover
their reasonable attorneys' fees and court costs from the other parties.
10.14. INTERPRETATION OF REPRESENTATIONS; DISCLOSURE LETTERS.
Each represen tation and warranty made in this Agreement or pursuant hereto is
independent of all other representations and warranties made by the same
parties, whether or not covering related or similar matters, and must be
independently and separately satisfied. Except as set forth herein, exceptions
or qualifications to any such representation or warranty shall not be construed
as exceptions or qualifications to any other representation or warranty. The
parties acknowledge that the Company Disclosure Letter and the Parent Disclosure
Letter (i) relate to certain matters concerning the disclosures required and
transactions contemplated by this Agreement, (ii) are qualified in their
entirety by reference to specific provisions of this Agreement, (iii) are not
intended to constitute and shall not be construed as indicating that such matter
is required to be disclosed, nor shall such disclosure be construed as an
admission that such information is material with respect to the Company or
Parent, as the case may be, except to the extent required by this Agreement,
(iv) disclosure of the information contained in one section or part of the
Company Disclosure Letter or the Parent Disclosure Letter shall be deemed as
proper disclosure for all sections
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<PAGE> 49
or parts of the Company Disclosure Letter or the Parent Disclosure Letter, as
the case may be, only if appropriately cross-referenced or if the relevance
thereof is reasonably manifest on its face to be relevant and responsive to the
other section or sections where such disclosure is required; and (v) disclosure
of the information contained in one section of the Company Disclosure Letter or
the Parent Disclosure Letter shall be deemed as proper disclosure for each
provision in that section of the Agreement for which such disclosure is
required, even if such provision is not qualified by a reference to the Company
Disclosure Letter or the Parent Disclosure Letter, as the case may be, provided
that the relevance thereof is reasonably manifest on its face to be relevant and
responsive to the provisions in that section which are not qualified by a
reference to the Company Disclosure Letter or Parent Disclosure Letter, as the
case may be.
10.15. RELIANCE BY PARENT AND PURCHASER. Notwithstanding the
right of Parent and Purchaser to investigate the business, assets and financial
condition of the Company and the Company Subsidiaries, and notwithstanding any
knowledge obtained or obtainable by Parent and Purchaser as a result of such
investigation, Parent and Purchaser have the unqualified right to rely upon, and
have relied upon, each of the representations and warranties made by the Company
in this Agreement or pursuant hereto.
[remainder of page intentionally left blank - signature page to follow]
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<PAGE> 50
IN WITNESS WHEREOF, the Parent, the Purchaser and the Company
have caused this Agreement to be signed by their respective duly authorized
officers as of the date first above written.
PARENT: NCO GROUP, INC.
By:/s/ PAUL E. WEITZEL, JR.
--------------------------
Name: Paul E. Weitzel, Jr.
------------------------
Title: EVP
-----------------------
PURCHASER: CARDINAL ACQUISITION
CORPORATION
By: /s/ JOSHUA GINDIN
--------------------------
Name: Joshua Gindin
------------------------
Title: EVP
-----------------------
THE COMPANY COMPASS INTERNATIONAL
SERVICES CORPORATION
By: /s/ MICHAEL J. CUNNINGHAM
--------------------------
Name: Michael J. Cunningham
------------------------
Title: Chairman
-----------------------
44
<PAGE> 51
ANNEX I
DEFINED TERMS
ANTITRUST DIVISION: as defined in Section 6.3(a).
A/R AND TELESERVICES SUBSIDIARIES: the Company Subsidiaries other than
the Print and Mail Subsidiaries.
AVERAGING PERIOD: as defined in Section 9.1(e).
CERTIFICATE OF MERGER: as defined in Section 1.5.
CERTIFICATES: as defined in Section 2.5(b).
CLOSING: as defined in Section 8.1.
CLOSING DATE: as defined in Section 8.1.
CODE: as defined in the second recital of this Agreement.
COMMON STOCK: as defined in Section 2.1(a).
COMPANY: as defined in the first paragraph of this Agreement.
COMPANY ACQUISITION AGREEMENT: as defined in Section 6.8(a).
COMPANY DISCLOSURE LETTER: as defined in Section 3.1.
COMPANY LEASES: as defined in Section 3.12(b).
COMPANY LEASED REAL PROPERTY: as defined in Section 3.12(a).
COMPANY OPTION PLAN: as defined in Section 2.6.
COMPANY OWNED REAL PROPERTY: as defined in Section 3.12(a).
COMPANY PLANS: as defined in Section 3.13(b).
COMPANY PREFERRED STOCK: as defined in Section 3.2(a).
COMPANY SEC FILINGS: as defined in Section 3.5(a).
COMPANY STOCKHOLDER MEETING: the annual or special meeting of the
stockholders of the Company to be held to vote on the approval of this Agreement
and the transactions contemplated hereby.
<PAGE> 52
COMPANY SUBSIDIARY: means any corporation of which the outstanding
securities having ordinary voting power to elect a majority of the board of
directors are directly or indirectly owned by the Company or any limited
partnership of which the Company or any Company Subsidiary is the general
partner.
COMPANY SUPERIOR PROPOSAL: as defined in Section 6.8(a).
COMPANY TAKEOVER EVENT: as defined in Section 6.8(a).
COMPANY TAKEOVER PROPOSAL: as defined in Section 6.8(a).
COMPLIANCE PROGRAM: as defined in Section 3.18(c).
CONFIDENTIALITY AGREEMENT: as defined in Section 6.2(b)
DGCL: as defined in Section 1.1(a).
EFFECTIVE TIME: as defined in Section 1.5.
ERISA: as defined in Section 3.13(b).
EXCHANGE ACT: as defined in Section 3.4.
EXCHANGE AGENT: as defined in Section 2.6(a).
EXCHANGE FUND: as defined in Section 2.6(a).
EXCHANGE RATIO: as defined in Section 2.1(a)
FINANCIAL STATEMENTS: as defined in Section 3.5(b).
FTC: the Federal Trade Commission.
GAAP: generally accepted accounting principles as in effect in the
United States, consistently applied.
HSR ACT: as defined in Section 3.4.
INDEMNIFIED PARTIES: as defined in Section 6.8(a).
INTERESTED STOCKHOLDER: as defined in Section 3.3 (and Section 203 of
the DGCL).
INTELLECTUAL PROPERTY: as defined in Section 3.18(a).
2
<PAGE> 53
LIEN: as defined in Section 3.1.
MERGER: as defined in the first recital of this Agreement.
MERGER CONSIDERATION: as defined in Section 2.1(a).
OPTIONS: as defined in Section 2.6.
PARENT: as defined in the first paragraph of this Agreement.
PARENT COMMON STOCK: as defined in Section 2.1(a).
PARENT COMMON STOCK VALUE:
PARENT DISCLOSURE LETTER: as defined in the first paragraph of Article
IV of this Agreement.
PARENT FINANCIAL STATEMENTS: as defined in Section 4.5(b).
PARENT 1998 FINANCIAL STATEMENTS: as defined in Section 4.5(b).
PARENT SEC FILINGS: as defined in Section 4.5(a).
PARENT SUBSIDIARY: means any corporation of which the outstanding
securities having ordinary voting power to elect a majority of the board of
directors are directly or indirectly owned by Parent.
PER SHARE VALUE: as defined in Section 2.2(b).
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, governmental authority or other
entity.
PRINT AND MAIL BUSINESS: the business currently conducted through the
Print and Mail Subsidiaries.
PRINT AND MAIL SALE AGREEMENT: that certain Stock Purchase Agreement,
dated as of the date hereof by and between the Company and Swiss-Irish
Enterprises, Inc..
PRINT AND MAIL SUBSIDIARIES: Bender Direct Mail Service, Inc., Compass
Mail Services Holding Corporation, Compass Mail Services, Inc., Compass Mail
Services, L.P., Compass Print & Mail Services, Inc., Compass Print Services
Holding Corporation, Compass Print Services, L.P., MB Strategic Services, Ltd.,
MetroWebb, Inc., MWI Laser Group, Inc. and The Mail Box, Inc.
PROXY STATEMENT/PROSPECTUS: as defined in Section 6.1.
3
<PAGE> 54
PURCHASER: as defined in the first paragraph of this Agreement.
PURCHASER COMMON STOCK: as defined in Section 2.4.
S-4 REGISTRATION STATEMENT: as defined in Section 6.1.
SECURITIES ACT: as defined in Section 3.4.
SEC: as defined in Section 3.5(a).
SHARES: as defined in Section 2.1(a).
SURVIVING CORPORATION: as defined in Section 1.1(a).
SURVIVING CORPORATION COMMON STOCK: as defined in Section 2.4.
TAX OR TAXES: as defined in Section 3.9.
4
<PAGE> 55
ANNEX II
--------
VOTING AGREEMENT
PARTIES: THE STOCKHOLDERS LISTED ON THE
SIGNATURE PAGES HERETO
NCO GROUP, INC.
a Pennsylvania corporation ("Acquiror")
515 Pennsylvania Avenue
Fort Washington, Pennsylvania 19034
DATE: May ___, 1999
BACKGROUND: Acquiror, [ ], a Delaware corporation and a wholly owned subsidiary
of Acquiror ("Newco"), and [Cardinal], a Delaware corporation (the "Company"),
are entering into an Agreement and Plan of Merger dated as of the date hereof
(the "Merger Agreement"), which provides (subject to the conditions set forth
therein) for the merger, as amended and supplemented from time-to-time
hereafter, of Newco with and into the Company (the "Merger"). The persons listed
on the signature page under "Stockholders" (individually, a "Stockholder" and
collectively, the "Stockholders") are stockholders of the Company. As a
condition to the willingness of Acquiror and Newco to enter into the Merger
Agreement, Acquiror and Newco have required that the Stockholders enter into,
and in order to induce Acquiror and Newco to enter into the Merger Agreement,
the Stockholders have agreed to enter into, this Agreement. The parties agree
and acknowledge that this Agreement and the Proxy referred to in Section 3(b)
hereof shall terminate and become null and void with respect to any Stockholder
at the option of such Stockholder if after the date hereof the Exchange Ratio
(as defined in the Merger Agreement) shall be amended without the consent of
such Stockholder in any manner which is material and adverse to such
Stockholder.
INTENDING TO BE LEGALLY BOUND, in consideration of the foregoing and
the mutual agreements contained herein and in the Merger Agreement, the parties
hereto agree as follows:
1. CERTAIN DEFINITIONS
(a) All capitalized terms used but not otherwise defined in this
Agreement have the meanings ascribed to such terms in the Merger Agreement.
(b) "EXPIRATION DATE" shall mean the earlier of (i) the date upon
which the Merger Agreement is validly terminated pursuant to Section 9.1
thereof, and (ii) the date upon which the Merger becomes effective in accordance
with the terms and conditions of the Merger Agreement.
(c) A Stockholder shall be deemed to "OWN" or to have acquired
"OWNERSHIP" of a security if the Stockholder: (i) is a record owner of such
security; or (ii) is
<PAGE> 56
a "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act)
of such security.
(d) The "RECORD DATE" for a particular matter shall be the date
fixed for persons entitled: (i) to receive notice of, and to vote at, a meeting
of the stockholders of the Company called for the purpose of voting on such
matter; or (ii) to take action by written consent of the stockholders of the
Company with respect to such matter.
(e) "SUBJECT SECURITIES" shall mean with respect to each
Stockholder: (i) all securities of the Company (including shares of Company
Common Stock and all options, warrants and other rights to acquire shares of
Company Common Stock) Owned by the Stockholder (individually or jointly) as of
the date of this Agreement; and (ii) all additional securities of the Company
(including all additional shares of Company Common Stock and all additional
options, warrants and other rights to acquire shares of Company Common Stock) of
which the Stockholder (individually or jointly) acquires Ownership during the
period from the date of this Agreement through the Expiration Date.
(f) A Person shall be deemed to have effected a "TRANSFER" of a
security if such Person directly or indirectly: (i) sells, pledges, encumbers,
grants an option with respect to, transfers or disposes of such security or any
interest in such security including, without limitation, transfers of such
security to the shareholders, partners or equity holders of such person as a
dividend or other distribution; or (ii) enters into an agreement or commitment
contemplating the possible sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein including, without limitation, an agreement or commitment
contemplating the possible transfer of such security to the shareholders,
partners, or equity holders of such person as a dividend or distribution.
2. TRANSFER OF SUBJECT SECURITIES
(a) TRANSFEREE OF SUBJECT SECURITIES TO BE BOUND BY THIS
AGREEMENT. Each of the Stockholders agrees that, during the period from the date
of this Agreement through the Expiration Date, such Stockholder shall not cause
or permit any Transfer of any of the Subject Securities Owned by such
Stockholder to be effected unless each Person to which any of such Subject
Securities, or any interest in any of such Subject Securities, is or may be
transferred shall have executed a counterpart of this Agreement as a Stockholder
and a proxy in the form attached hereto as Exhibit A (with such modifications as
Acquiror may reasonably request) as a result of the Transfer.
(b) TRANSFER OF VOTING RIGHTS. Each of the Stockholders agrees
that, during the period from the date of this Agreement through the Expiration
Date, such Stockholder shall ensure that: (a) none of the Subject Securities
Owned by such Stockholder is deposited into a voting trust; and (b) no proxy is
granted, and no voting agreement or similar agreement (other than this
Agreement) is entered into, with respect to any of the Subject Securities Owned
by such Stockholder.
3. VOTING OF SHARES.
(a) AGREEMENT. Each of the Stockholders covenants and agrees that,
during the period from the date of this Agreement through the Expiration Date,
at any meeting of the stockholders of the Company, however called, and at every
adjournment or postponement thereof, and in any written action by consent of the
stockholders of the Company unless otherwise directed in writing by Acquiror,
such Stockholder shall (i) appear in person or by proxy, or cause the holder of
record as of the Record Date to appear in person or by proxy, at any annual or
special meeting of stockholders of the Company (including the Company
Stockholder Meeting) for the purpose of establishing a quorum, and (ii) vote or
cause to be voted all issued and outstanding shares of Company Common Stock that
are Owned by such Stockholder (individually or jointly) as of the Record Date in
favor of the Merger, the execution and delivery by the Company of the Merger
Agreement and the adoption and approval of the terms thereof and in favor of the
other transactions contemplated by the Merger Agreement and each of the actions
contemplated by the Merger Agreement and any action required in furtherance
thereof.
(b) PROXY. Contemporaneously with the execution of this Agreement:
(i) each of the Stockholders shall deliver to Acquiror a proxy in the form
attached hereto as Exhibit A, which shall be irrevocable to the fullest extent
permitted by law, with respect to the shares referred to therein (the "Proxy");
and (ii) each of the Stockholders shall cause to be delivered to Acquiror an
additional proxy (in the form attached hereto as Exhibit A) executed on behalf
of the record owner of any issued and outstanding shares of Company Common Stock
that are Owned (but are not owned of record) by such Stockholder.
4. NO SOLICITATION.
(a) Each Stockholder covenants and agrees that, during the period
commencing on the date of this Agreement and ending on the Expiration Date, such
Stockholder shall not, directly or indirectly through another Person, do any of
the things described in clauses (i) through (iv) of Section 6.8(a) of the Merger
Agreement.
(b) Each Stockholder shall immediately cease any existing
discussions with any Person that relate to any Company Takeover Proposal.
(c) Notwithstanding the restrictions set forth in this Section 4,
each of the Company and any person who is an officer or director of the Company
may take any action consistent with the terms of the Merger Agreement.
5. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each Stockholder,
severally and not jointly, represents and warrants to Acquiror as follows:
(a) AUTHORIZATION. Such Stockholder has the absolute and
unrestricted right, power, authority and capacity to execute and deliver this
Agreement and the Proxy and to perform such Stockholder's obligations hereunder
and thereunder. This Agreement and the Proxy have been duly executed and
delivered by such Stockholder and constitute the legal, valid and binding
obligations of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
<PAGE> 57
(b) NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(i) The execution and delivery of this Agreement and the Proxy
by such Stockholder does not, and the performance of this Agreement and the
Proxy by such Stockholder will not: (A) conflict with or violate any law, order,
decree or judgment applicable to such Stockholder or by which such Stockholder
or any of such Stockholder's properties are bound or affected; or (B) result in
any breach of or constitute a default or breach (immediately or after the giving
of notice, passage of time, or both) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the Subject Securities pursuant to, any contract to
which such Stockholder is a party or by which such Stockholder or any of such
Stockholder's properties is bound or affected.
(ii) The execution and delivery of this Agreement and the
Proxy by such Stockholder does not, and the performance of this Agreement and
the Proxy by such Stockholder will not, require any Consent of any Person.
(c) TITLE TO SUBJECT SECURITIES. As of the date hereof, such
Stockholder Owns in the aggregate (including shares owned of record and shares
owned beneficially) the number of issued and outstanding shares of Company
Common Stock set forth below such Stockholder's name on the signature page
hereof, and the number of options, warrants and other rights to acquire shares
of Company Common Stock set forth below such Stockholder's name on the signature
page hereof, and does not directly or indirectly Own, any shares of capital
stock of the Company, or any option, warrant or other right to acquire any
shares of capital stock of the Company, other than the shares and options,
warrants and other rights set forth below such Stockholder's name on the
signature page hereof.
(d) ACCURACY OF REPRESENTATIONS. The representations and
warranties of such Stockholder contained in this Agreement are accurate in
all respects as of the date of this Agreement, will be accurate in all respects
at all times through the Expiration Date and will be accurate in all respects
as of the date of the consummation of the Merger as if made on that date.
6. OTHER COVENANTS OF THE STOCKHOLDERS.
(a) STOCKHOLDERS' MEETING AND PRE-CLOSING COOPERATION. Each of
the Stockholders covenants and agrees that upon the request of Acquiror, such
Stockholder shall promptly take any and all actions within his or her power that
are necessary or desirable to cause the Company Stockholder Meeting to be held
pursuant to Section 251 of the Delaware General Corporation Law, as amended, or
any other applicable law.
(b) FURTHER ASSURANCES. At any time and from time-to-time
after the date hereof through the Closing Date, and without additional
consideration, each of the Stockholders will take such action and execute and
deliver, or cause to be executed and delivered, such additional or further
transfers, assignments, endorsements, proxies, consents and other instruments as
Acquiror may reasonably request for the purpose of
<PAGE> 58
effectively carrying out this Agreement.
(c) LEGEND. Immediately after the execution of this Agreement
(and from time-to-time prior to the Expiration Date upon the acquisition by any
of the Stockholders (individually or jointly) of Ownership of any shares of
Company Common Stock), each of the Stockholders shall instruct the Company to
cause each certificate of such Stockholder evidencing any issued and outstanding
shares of Company Common Stock Owned by such Stockholder (individually or
jointly) to bear a legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THE AGREEMENT DATED AS OF MAY [ ], 1999, AS IT
MAY BE AMENDED, BY AND AMONG NCO GROUP, INC. AND THE RECORD AND/OR
BENEFICIAL OWNER OF THIS CERTIFICATE AND OTHER PERSONS, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
7. RULE 145
(a) Stockholder understands that the common stock of Acquiror
being issued in the Merger ("Acquiror Shares") will be issued pursuant to a
registration statement on Form S-4, and that Stockholder may be deemed an
"affiliate" of the Company as such term is defined for purposes of paragraphs
(c) and (d) of Rule 145 under the Securities Act of 1933, as amended (the "
Securities Act"). Stockholder agrees that Stockholder shall not effect any sale,
transfer or other disposition of any Acquiror Shares unless:
(i) such sale, transfer or other disposition is effected
pursuant to an effective registration statement under the Securities Act;
(ii) such sale, transfer or other disposition is made
in conformity with the requirements of Rule 145 under the Act, as evidenced by a
broker's letter and a representation letter executed by Stockholder(satisfactory
in form and content to Acquiror) stating that such requirements have been met;
(iii) counsel reasonably satisfactory to Acquiror
shall have advised Acquiror in a written opinion letter (satisfactory in form
and content to Acquiror), upon which Acquiror may rely, that such sale, transfer
or other disposition will be exempt from registration under the Act; or
(iv) an authorized representative of the SEC shall
have rendered written advice to Stockholder to the effect that the SEC would
take no action, or that the staff of the SEC would not recommend that the SEC
take action, with respect to such sale, transfer or other disposition, and a
copy of such written advice and all other related communications with the SEC
shall have been delivered to Acquiror.
(b) Stockholder acknowledges and agrees that (a) stop transfer
instructions will be given to Acquiror's transfer agent with respect to the
Acquiror Shares, and (b) each certificate representing any of such shares shall
bear a legend identical or
<PAGE> 59
similar in effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise):
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145(d) OF THE SECURITIES ACT OF 1933
APPLIES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF SUCH RULE OR AS OTHERWISE PROVIDED IN
SECTION 7 OF A VOTING AGREEMENT DATED AS OF MAY [ ], 1999,
BETWEEN THE REGISTERED HOLDER HEREOF AND THE ISSUER, A COPY OF
WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE ISSUER."
8. MISCELLANEOUS.
(a) NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. All representations, warranties and agreements made by the
Stockholders in this Agreement shall terminate upon the Expiration Date except
Section 7 which shall survive the Effective Time and remain in full force and
effect with respect to each Stockholder with the earlier of (i) such time as
that Stockholder has disposed of all of his Acquiror Shares in compliance with
Section 7(a), or (ii) such time as that Stockholder shall have satisfied the
requirements of Rule 145(d)(2) or (d)(3); provided, however, nothing in this
Section 8(a) shall relieve any Stockholder from liability after the Expiration
Date for any breach on or prior to the Expiration Date of any representation,
warranty, or agreement made by such Stockholder in this Agreement.
(b) NOTICES. All notices, consents or other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given when delivered personally or one (1)
business day after being sent by a nationally recognized overnight delivery
service, postage or delivery charges prepaid or five (5) business days after
being sent by registered or certified mail, return receipt requested, postage
charges prepaid. Notices also may be given by prepaid facsimile and shall be
effective on the date transmitted if confirmed within 48 hours thereafter by a
signed original sent in one of the manners provided in the preceding sentence.
Notices to Acquiror shall be sent to its address stated on page one of this
Agreement to the attention of Acquiror's General Counsel, with a copy sent
simultaneously to the same address to the attention of Blank Rome Comisky &
McCauley LLP, One Logan Square, Philadelphia, Pennsylvania, 19105, Attention:
Francis E. Dehel, Esquire . Notices to the Stockholders shall be sent to their
respective addresses stated on the signature page of this Agreement, with a copy
sent simultaneously to Katten Muchin & Zavis, 525 West Monroe Avenue - Suite
1600, Chicago, Illinois 60661-3693, Attention: Howard Lanznar. Any party may
change its address for notice and the address to which copies must be sent by
giving notice of the new addresses to the other parties in accordance with this
Section 8(b), provided that any such change of address notice shall not be
effective unless and until received.
(c) ENTIRE UNDERSTANDING. This Agreement and the other
agreements referred to herein, state the entire understanding among the parties
with respect to the subject matter hereof, and supersede all prior oral and
written communications and agreements, and all contemporaneous oral
communications and agreements, with respect
<PAGE> 60
to the subject matter hereof. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
(d) WAIVERS. Except as otherwise expressly provided herein, no
waiver with respect to this Agreement shall be enforceable unless in writing and
signed by the party against whom enforcement is sought. Except as otherwise
expressly provided herein, no failure to exercise, delay in exercising, or
single or partial exercise of any right, power or remedy by any party, and no
course of dealing between or among any of the parties, shall constitute a waiver
of or shall preclude any other for further exercise of, any right, power or
remedy.
(e) SEVERABILITY. If any provision of this Agreement or any
part of any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (i) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (ii) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (iii)
the invalidity or unenforceability of such provision or part thereof shall not
affect the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Agreement. Each
provision of this Agreement is separable from every other provision of this
Agreement, and each part of each provision of this Agreement is separable from
every other part of such provision.
(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original hereof, and it shall not be necessary in making proof of this Agreement
to produce or account for more than one counterpart hereof.
(g) SECTION HEADINGS. Section and subsection headings in this
Agreement are for convenience of reference only, do not constitute a part of
this Agreement, and shall not affect its interpretation.
(h) REFERENCES. All words used in this Agreement shall be
construed to be of such number and gender as the context requires or permits.
(i) CONTROLLING LAW. THIS AGREEMENT IS MADE UNDER, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
(j) JURISDICTION AND PROCESS. In any action between or among
any of the parties, whether arising out of this Agreement or otherwise, (i) each
of the parties irrevocably consents to the exclusive jurisdiction and venue of
the federal and state courts located in the State of Delaware, (ii) if any such
action is commenced in a state court, then, subject to applicable law, no party
shall object to the removal of such action to any federal court located in the
State of Delaware, (iii) each of the parties irrevocably waives
<PAGE> 61
the right to trial by jury, (iv) each of the parties irrevocably consents to
service of process by first class certified mail, return receipt requested,
postage prepaid, to the address at which such party is to receive notice in
accordance with Section 8(b), and (v) the prevailing parties shall be entitled
to recover their reasonable attorneys' fees and court costs from the other
parties.
(k) NON-EXCLUSIVITY. The rights and remedies of Acquiror
hereunder are not exclusive of or limited by any other rights or remedies which
Acquiror may have, whether at law, in equity, by contract or otherwise, all of
which shall be cumulative (and not alternative).
(l) BANKRUPTCY QUALIFICATION. Each representation or warranty
made in or pursuant to this Agreement regarding the enforceability of any
contract shall be qualified to the extent that such enforceability may be
effected by bankruptcy, insolvency and other similar laws or equitable
principles (but not those concerning fraudulent conveyance) generally affecting
creditors' rights and remedies.
(m) CONSTRUCTION. The parties hereto agree that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be applied in the construction or interpretation of
this Agreement. As used in this Agreement, the words "include" and "including"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation".
(n) ASSIGNMENT; BINDING EFFECT. Except as provided herein,
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either of the parties hereto (whether by operation of law
or otherwise) without the prior written consent of the other party. Subject to
the preceding sentence, this Agreement shall be binding upon each of the
Stockholders and his, her or its heirs, successors and assigns, and shall inure
to the benefit of Acquiror and its successors and assigns. Without limiting any
of the restrictions set forth in Section 2 or elsewhere in this Agreement, this
Agreement shall be binding upon any Person to whom any Subject Securities are
transferred. Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Agreement, expressed or implied, is intended to confer
on any Person other than the parties hereto or their respective heirs,
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
(o) SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that Acquiror shall be entitled to
an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of proper
jurisdiction, this being in addition to any other remedy to which Acquiror is
entitled at law or in equity.
(p) OTHER AGREEMENTS AND INDEPENDENCE OF OBLIGATIONS. Nothing
in this Agreement shall limit any of the rights or remedies of Acquiror or any
of the obligations of
<PAGE> 62
the Stockholders under any other agreement. The covenants and obligations of the
Stockholders set forth in this Agreement shall be construed as independent of
any other agreement or arrangement between any or all of the Stockholders, on
the one hand, and the Company or Acquiror, on the other. The existence of any
claim or cause of action by any or all of the Stockholders against the Acquiror
or the Company shall not constitute a defense to the enforcement of any of such
covenants or obligations against any or all of the Stockholders.
(q) OBLIGATIONS OF STOCKHOLDERS; SIGNATURES OF ALL
STOCKHOLDERS NOT REQUIRED. The obligations of the Stockholders under this
Agreement shall be several and not joint. Each Stockholder agrees that the
failure of any other Stockholder listed on the signature page to execute and
deliver this Agreement shall not affect in any way the validity or
enforceability of this Agreement with respect to those Stockholders who have
executed this Agreement or the rights of Acquiror under this Agreement.
[BALANCE OF PAGE INTENTIONALLY BLANK]
<PAGE> 63
IN WITNESS WHEREOF, each of the undersigned has caused this Voting
Agreement to be executed as of the date first stated above.
NCO GROUP, INC.
By:_________________________________________
Paul E. Weitzel, Jr.,
Executive Vice President -
Corporate Development
STOCKHOLDERS:
___________________________________________
Name:
Address:___________________________________
____________________________________________
Facsimile:__________________________________
Number of issued and
outstanding shares of
Company Common Stock Owned
of record as of the date of
this Agreement:
--------------
Number of additional issued
and outstanding shares of
Company Common Stock Owned
(but not of record) as of
the date of this Agreement:
---------------
Number of options, warrants
and other rights to acquire
shares of Company Common
Stock owned of record as of
the date of this Agreement:
---------------
Number of additional
options, warrants and other
rights to acquire shares of
Company Common Stock Owned
(but not of record) as of
the date of this Agreement:
---------------
<PAGE> 64
EXHIBIT A
FORM OF IRREVOCABLE PROXY
IRREVOCABLE PROXY
The undersigned Stockholder of [Cardinal], a Delaware corporation (the
"Company"), hereby irrevocably (to the fullest extent permitted by law) appoint
and constitutes Paul E. Weitzel, Jr., Steven L. Winokur and NCO Group, Inc., a
Pennsylvania corporation ("Acquiror"), and each of them, the attorneys and
proxies of the undersigned with full power of substitution and resubstitution,
to the full extent of the undersigned's rights with respect to (i) the issued
and outstanding shares of capital stock of the Company owned of record by the
undersigned as of the date of this proxy, which shares are specified on the
final page of this proxy and (ii) any and all other shares of capital stock of
the Company which the undersigned (individually or jointly) may acquire after
the date hereof. (The shares of the capital stock of the Company referred to in
clauses (i) and (ii) of the immediately preceding sentence are collectively
referred to as the "Shares.") Upon the execution hereof, all prior proxies given
by the undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with the Voting Agreement, dated as of May [ ], 1999 , between
Acquiror, the undersigned and other stockholders of the Company (the
"Agreement"), and is granted in consideration of Acquiror entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Acquiror,
[Newco]., a Delaware corporation and wholly owned subsidiary of Acquiror, and
the Company (the "Merger Agreement"). Capitalized terms used but not otherwise
defined in this proxy have the meanings ascribed to such terms in the Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, at any time during the period from the date hereof through
the Expiration Date at any meeting of the stockholders of the Company, however
called, and at every adjournment or postponement thereof, or in any written
action by consent of stockholders of the Company, to (i) appear, or cause the
holder of record as of the Record Date to appear, at any annual or special
meeting of stockholders of the Company (including the [Company's Stockholder
Meeting]) for the purpose of establishing a quorum, and (ii) vote or cause to be
voted the shares (A) in favor of the Merger and the other transactions
contemplated by the Merger Agreement, the execution and delivery by the Company
of the Merger Agreement and the adoption and approval of the terms thereof and
in favor of the Merger and each of the other actions contemplated by the Merger
Agreement and any action required in furtherance hereof and thereof; (B) against
any other action, agreement or transaction that would, directly or indirectly,
result in a Company Takeover Event; and (C) against any action, agreement or
transaction that is intended or could reasonably be expected (x) to facilitate a
person other than the Acquiror in acquiring the Company or (y) to impede,
interfere with, delay, postpone, discourage or materially adversely affect the
consummation of the Merger.
<PAGE> 65
The undersigned Stockholder[s] may vote the Shares on all other
matters.
This proxy shall be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
Any term or provision of this proxy which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
This proxy shall terminate upon the Expiration Date.
Dated: May [ ], 1999
STOCKHOLDER:
___________________________________
Name:
Number of shares
of Company Common
Stock owned of
record as of the
date of this
proxy:
--------------
<PAGE> 66
ANNEX IIA
----------
Richard Bainter
Michael Cunningham
David DuCoin
Edward DuCoin
John Erikson
Leeds Hackett
Mahmud Haq
Earl Johnson
Robert Jones
Les Kirschbaum
Scott Lang
Maurice Maher
David P. McCormick Trust
Mark E. McCormick Trust
Steven B. McCormick Trust
Robert Meador
Robert Meador, Trustee for 1998 RDM Trust
Kenneth W. Murphy Children's Trust
Kenneth W. Murphy
Billy Ray Pitcher
James Summers
<PAGE> 67
ANNEX III
---------
NCO GROUP, INC.
CARDINAL ACQUISITION CORPORATION
OFFICERS' CERTIFICATE
The undersigned officers of NCO Group, Inc., a Pennsylvania business
corporation ("NCO"), and Cardinal Acquisition Corporation, a Delaware
corporation which is a wholly-owned subsidiary of NCO ("Sub"), in connection
with the legal opinions to be delivered by Blank Rome Comisky & McCauley LLP and
Katten Muchin & Zavis relating to an Agreement and Plan of Reorganization
("Reorganization Agreement") and related Agreement and Plan of Merger dated ,
1999 ("Plan of Merger") (the Reorganization Agreement and the Plan of Merger as
mentioned collectively referred to as the "Merger Agreement") by and between NCO
Group, Inc. and Compass International Services Corporation, incorporated under
the Delaware General Corporation Law, as amended ("Compass"), and recognizing
that Blank Rome Comisky & McCauley LLP and Katten Muchin & Zavis will rely on
this Certificate in delivering such opinions, hereby certify that the facts
which are described in this Certificate relating to the proposed merger
("Merger") of Sub with and into Compass pursuant to the Merger Agreement are
true, complete and correct in all respects as of the date hereof and will be
true, complete and correct in all respects on the Effective Date of the Merger
as set forth in the Merger Agreement1, and further certify as follows:
1. I am familiar with the terms and provisions of the Merger Agreement
pursuant to which: (a) Sub will be merged with and into Compass, with Compass
surviving the Merger and (b) Compass shareholders will receive NCO Common Stock
- --------
1 All terms used and not defined herein shall have the meaning ascribed to
them in the Plan of Merger.
<PAGE> 68
pursuant to certain formula conversion ratios.
2. As to the matters set forth below, I either have personal knowledge
or have obtained information from officers and employees of NCO and Sub, in whom
I have confidence and whose duties require them to have personal knowledge
thereof.
3. I also have examined the Joint Proxy Statement/Prospectus (the
"Prospectus") of NCO and Compass dated on or about , 1999 relating to
the Merger (including the financial statements and exhibits that are a
part of or incorporated in the Prospectus), and to the best of my knowledge,
information and belief, the facts stated in or incorporated in the Prospectus
relating to NCO and Sub are true, correct and complete.
4. To the best of my knowledge, the fair market value of the NCO Common
Stock to be received by each shareholder of Compass will be approximately equal
to the fair market value of the Compass stock surrendered in exchange therefor.
5. Prior to the Merger, NCO will be in control of Sub within the
meaning of Section 368(c) of the Internal Revenue Code, as amended ("Code").
6. Following the Reorganization, Compass will hold at least ninety
percent (90%) of the fair market value of its net assets and at least seventy
percent (70%) of the fair market value of its gross assets and at least ninety
percent (90%) of the fair market value of Sub's net assets and at least seventy
percent (70%) of the fair market value of Sub's gross assets held immediately
prior to the transaction. For purposes of this representation, amounts paid by
Compass or Sub to shareholders who receive cash or other property, amounts used
by Compass or Sub to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Compass will be
included as assets of Compass or Sub, respectively, immediately prior to the
transaction.
7. Following the Merger, Compass will not issue additional shares of
its stock that would result in NCO losing control of Compass within the meaning
of Section
<PAGE> 69
368(c) of the Code.
8. NCO has no plan or intention to reacquire any of its stock to be
issued in the Merger.
9. NCO has no plan or intention to liquidate Compass; to merge Compass
into another corporation; to sell or otherwise dispose of the stock of Compass;
or to cause Compass to sell or otherwise dispose any of the assets of Compass or
any of the assets acquired from Sub, except for dispositions made in the
ordinary course of business or transfers described in Section 368(a)(2)(C) of
the Code.
10. Following the transaction, Compass will continue its historic
business or use a significant portion of Compass' business assets in a business.
11. NCO, Sub, Compass, and the shareholders of Compass will each pay
their respective expenses, if any, incurred in connection with the Merger.
12. There is no intercorporate indebtedness between NCO and Compass,
nor between Sub and Compass, that was issued, acquired, or will be settled at a
discount.
13. Neither NCO nor Sub are "investment companies" as defined in
Sections 368(a)(2)(F)(iii) or (iv) of the Code.
14. No Sub stock will be issued in the Merger.
15. None of the compensation received by any shareholder-employees of
Compass was separate consideration for, or allocable to, any of their shares of
Compass Common Stock; none of the shares of NCO Common Stock received by any
shareholder-employees were separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any stockholder-employees
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
16. In the Merger, shares of Compass stock representing "control" of
<PAGE> 70
Compass, as defined under Section 368(c) of the Code, will be exchanged solely
for NCO stock. For purposes of this representation, Compass stock exchanged for
cash or other property furnished by NCO will be considered as acquired by NCO.
Further, no liabilities of Compass or the Compass shareholders will be assumed
by NCO, nor will any of the Compass stock be subject to any liabilities.
17. NCO does not own, directly or indirectly, nor has it owned during
the past five (5) years, directly or indirectly, any Compass stock.
18. Sub is either (i) a newly created subsidiary of NCO created for the
sole purpose of effectuating the Merger, or (ii) an existing subsidiary of NCO,
if the use of such subsidiary does not prevent the issuance of the legal
opinions described in the initial paragraph hereof.
NCO GROUP, INC.:
DATED: , 1999. By:___________________________________
CARDINAL ACQUISITION CORPORATION:
DATED: , 1999. By:___________________________________
<PAGE> 71
ANNEX IV
--------
Compass International Services Corporation
----------------------
----------------------
COMPANY TAX CERTIFICATE
Katten Muchin & Zavis
525 W. Monroe Street, Suite 1600
Chicago, Il 60661
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Ladies and Gentlemen:
We refer to the Agreement dated as of May 12, 1999 (the "Agreement")
among NCO Group, Inc., a Pennsylvania corporation ("Parent"), Cardinal
Acquisition Corporation, a Delaware corporation and a transitory wholly-owned
subsidiary of Parent ("Merger Sub"), and Compass International Services
Corporation, a Delaware corporation (the "Company"), which provides for the
merger (the "Merger") of Merger Sub with and into the Company on the terms and
conditions therein set forth, the time at which the Merger becomes effective
being hereinafter referred to as the "Effective Time." It is a condition to the
obligations of the Company to effect the Merger that Katten Muchin & Zavis,
counsel to Company, pursuant to Section 7.3(c) of the Agreement, and it is a
condition of the obligation of Parent and Merger Sub to effect the Merger that
Blank Rome Comisky & McCauley LLP, counsel to Parent and Merger Sub, pursuant to
Section 7.2(e) of the Agreement, render opinions to Company and Parent,
respectively, regarding certain United States federal income tax consequences of
the Merger. Capitalized terms not defined herein have the meanings specified in
the Agreement.
In connection with such opinions to be rendered by each of you, and
acknowledging that each of you will rely upon the statements and representations
made in this letter, the Company hereby certifies and represents to each of you
that the statements and representations stated herein are true, correct and
complete in all respects at the date hereof and will be true, correct and
complete in all respects as of the Effective Time (as if made as of the
Effective Time).
1. The Company Common Stock is the only stock of the Company
issued and outstanding. The fair market value of the Parent Common
Stock and any cash in lieu of a fractional share of Parent Common Stock
received by each Company stockholder will be approximately equal to the
fair market value of the Company Common Stock surrendered in the
exchange. In connection with the Merger, no holder of Company stock
will receive in exchange for Company stock, directly or indirectly, any
consideration from Parent other than Parent Common Stock and cash in
lieu of a fractional share thereof.
<PAGE> 72
Compass International Services Corporation
_______ __, 1999
Page 2
2. At the Effective Time, the Company will hold at least 90%
of the fair market value of its net assets and at least 70% of the fair
market value of its gross assets held immediately prior to the
Effective Time. For purposes of this representation, amounts used by
the Company to pay Merger expenses, amounts paid by the Company to
redeem stock, securities, warrants or options of the Company as part of
any overall plan of which the Merger is part, and amounts distributed
by the Company to stockholders of the Company (except for regular,
normal dividends) as part of any overall plan of which the Merger is a
part, in each case will be treated as constituting assets of the
Company immediately prior to the Effective Time. Without limiting the
foregoing, all proceeds that have been received from the sales of stock
by the Company in connection with the Stock Purchase Agreement between
the Company and Swiss-Irish Enterprises, dated May __ 1999, have been
retained by the Company for use in its business.
3. Prior to and in connection with the Merger, (i) the
Company has not redeemed (and will not redeem) any Company stock and
has not made (and will not make) any extraordinary distributions with
respect thereto; and (ii) no person that is related to the Company
within the meaning of Temp. Treas. Reg. ss. 1.368-1T(e)(2)(ii) has
acquired (or will acquire) Company stock from any holder thereof.
4. Any dispositions prior to the Merger, in contemplation or
as part of the Merger, of assets held by the Company will be (or have
been) for full fair market value.
5. Each of the Company and its stockholders has paid and
will pay only their respective expenses, if any, incurred in connection
with the Merger, and the Company has not agreed to assume, nor will it
directly or indirectly assume, any expense or other liability, whether
fixed or contingent, of any holder of Company Common Stock.
6. There is no intercorporate indebtedness currently
existing between Parent and the Company or between Merger Sub and the
Company that was issued, was acquired or was or will be settled at a
discount.
7. The Company has no plan or intention to issue additional
shares of its stock after the Effective Time that would result in
Parent losing control of the Company within the meaning of Section
368(c) of the Code.
8. At the Effective Time, the Company will not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in the
Company that, if exercised or converted, would affect Parent's
acquisition or retention of control of the Company, as defined in
Section 368(c) of the Code. Immediately prior to the Effective Time,
other than options outstanding under the Company's Option Plan, there
will be no options, warrants, equity securities,
<PAGE> 73
Compass International Services Corporation
_______ __, 1999
Page 3
calls, rights, commitments or agreements of any character to which the
Company or any of its subsidiaries is a party or by which it is bound
obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock of the Company or any of its subsidiaries or obligating
the Company or any of its subsidiaries to grant or enter into any such
option, warrant, equity security, call, right, commitment or agreement.
9. The Company is not an investment company, as defined in
Sections 368(a)(2)(F)(iii) and (iv) of the Code.
10. The Company is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
11. At the Effective Time, the total fair market value of
the assets of the Company will exceed the sum of its liabilities, plus
(without duplication) the amount of any liabilities to which such
assets are subject.
12. None of the compensation to be received by any Company
stockholder who is an employee of the Company or any affiliate of the
Company at the Effective Time, whether for past or future services to
the Company, will be separate consideration for, or allocable to, any
of his or her shares of Company Common Stock.
13. None of the Parent Common Stock to be received in the
Merger by any Company stockholder who is an employee of the Company or
an affiliate of the Company at the Effective Time in exchange for
Company Common Stock will be separate consideration for, or allocable
to, any employment arrangement.
14. In the Merger, shares of Company stock representing
control of the Company (within the meaning of Section 368(c) of the
Code) will be exchanged solely for Parent Common Stock. No shares of
Company Common Stock are, or at the Effective Time will be, held by any
direct or indirect subsidiary of the Company. For purposes of this
paragraph 15, shares of Company stock to be exchanged for cash or other
property originating with Parent are treated as constituting
outstanding shares of the Company stock at the Effective Time.
15. Following the Merger, the Company will continue its
historic business or use a significant portion of its business assets
in a business.
16. The payment of cash in lieu of fractional shares of
Parent Common Stock is solely for the purposes of avoiding the expense
and inconvenience to Parent of issuing fractional shares and does not
represent separately bargained-for consideration. The total
<PAGE> 74
Compass International Services Corporation
_______ __, 1999
Page 4
cash consideration that will be paid in the Merger to the holders of
Company Capital Stock in lieu of issuing fractional shares of Parent
Common Stock will not exceed 1% of the total consideration that will be
issued in the Merger to the holders of the Company Common Stock in
exchange for their Company Common Stock. Except for any cases in which
a Company stockholder holds a beneficial interest in shares of Company
Common Stock through more than one account and such multiple accounts
cannot be aggregated by the Company, either because the beneficial
interests cannot be identified by the Company or it would be
impracticable for the Company to do so, the fractional share interests
of each Company stockholder will be aggregated, and no Company
stockholder will receive an amount of cash greater than the Share
Value.
17. At the Effective Time of the Merger, there will be no
accrued but unpaid dividends on Company Common Stock.
The Company hereby undertakes to inform each of you and Parent
immediately should any of the foregoing statements or representations become
untrue, incorrect or incomplete in any respect on or prior to the Effective
Time. This letter is being furnished to each of you solely for your benefit and
for use in rendering your opinions and is not to be used, circulated, quoted or
otherwise referred to for any other purpose (other than as referred to or
included in your opinions) without the express written consent of the Company.
Very truly yours,
By:________________________________
Name:
Title:
<PAGE> 75
ANNEX V
-------
(215) 569-5500
(215) 569-5555
@blankrome.com
NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washington, PA 19034
RE: ACQUISITION OF COMPASS INTERNATIONAL SERVICES CORPORATION
---------------------------------------------------------
Gentlemen:
You have requested our opinion concerning certain Federal income tax
consequences of the merger of Cardinal Acquisition Corporation, an entity
incorporated under the Delaware Corporation Law, as amended ("Sub"), and a
wholly-owned subsidiary of NCO Group, Inc., a Pennsylvania business corporation,
("Parent"), with and into Compass International Services Corporation, an entity
incorporated under the Delaware Corporation Law ("Compass"). The terms of the
merger are described in the Joint Proxy Statement/ Prospectus of Parent dated
, 1999 (the "Prospectus"). Our opinion is based upon our
understanding of the facts of and incident to the transaction, as are set forth
in the Prospectus, and upon the condition that those facts are true, correct and
complete. Further, our opinion is issued in reliance upon the Officer's
Certificates of Parent and Sub and the Officer's Certificate of Compass
(attached as exhibits hereto) relating to the truth, correctness and
completeness of those facts and the facts in the Prospectus, including the
financial statements and exhibits that are a part thereof. Those exhibits
include the Amended the Agreement and Plan of Merger both dated as of
, 1999 by and between Parent, Sub and Compass
(together, the "Plan of Merger"). This opinion is being furnished pursuant to
the Plan of Merger, and all capitalized terms herein, unless otherwise
specified, have the meanings assigned thereto in the Plan of Merger.
<PAGE> 76
NCO Group, Inc.
Page 2
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Plan of Merger, the Prospectus and such other documents as we have deemed
necessary or appropriate as a basis for the opinions set forth below. In our
examination we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such latter documents. As to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon statements and representations of officers and other
representatives of Parent, Sub, Compass and others. In particular, we have
relied upon certain representations of the managements of Parent, Sub and
Compass in the Officer's Certificates which are attached hereto.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986 as amended (the "Code")1, Treasury
Regulations and the pertinent judicial authorities and interpretive rulings of
the Internal Revenue Service (the "Service").
Based solely upon the foregoing and provided that the Merger and the
other transactions contemplated by the Plan of Merger are consummated in the
manner described in the Prospectus, we are of the opinion that under present
law, for federal income tax purposes:
1. The Merger of Sub into Compass will constitute a
reorganization within the meaning of Section 368(a) of the Code. Parent, Sub and
Compass each will be "a party to a reorganization" within the meaning of Section
368(b) of the Code.
2. Compass shareholders will recognize no gain or loss upon
their exchange of Compass stock for shares of Parent Common Stock. Code Section
354(a).
- --------
1 Unless otherwise indicated, all section references are to sections of the
Code.
<PAGE> 77
NCO Group, Inc.
Page 3
3. The basis of the Parent Common Stock received by the
shareholders of Compass (including fractional shares) will be the same as the
basis of the Compass stock surrendered in exchange. Code Section 358(a)(1).
4. The holding period of the Parent Common Stock received by a
Compass shareholder (including any fractional shares) will include the period
during which the Compass stock surrendered in exchange therefor was held by such
Compass shareholder, provided that the Compass stock surrendered was a capital
asset in the hands of such Compass shareholder on the date of the exchange. Code
Section 1223(a).
5. Cash received by shareholders of Compass in lieu of
fractional shares of Parent will be treated as a distribution in redemption of
their fractional share interests subject to the provisions and limitations of
Section 302 of the Code. Rev.
Rul. 66-365, 1966-2 C.B. 116.
This letter expresses our views only as to the specific issues
addressed above. No opinion is expressed concerning the Federal income tax
treatment of the transaction under any provision of the Code not specifically
referenced herein, including the tax treatment of the substitution by Parent of
any options to purchase Compass Common Stock. No opinion is expressed with
respect to state and local taxes, Federal or state securities law, or any other
Federal, state or local law not expressly referenced herein.
Our opinions set forth our legal judgement, and are not binding on the
Service or any other person. Therefore, there can be no assurance that the
conclusions set forth herein would be sustained by a court if challenged.
Further, the opinions set forth represent our conclusions based upon
the documents reviewed by us and the facts presented to us. Any material
amendments to such documents or changes in any significant fact could affect the
opinions expressed herein.
We are pleased to offer this opinion based upon the Federal income tax
laws
<PAGE> 78
NCO Group, Inc.
Page 4
as of this date. No assurances can be provided as to future changes in or
administrative or judicial interpretations of these laws.
This letter is solely for your use in connection with the transaction
referenced herein. It may not be reproduced, quoted in whole or in part,
referred to in any other context or filed with any governmental agency without
the prior written consent of this firm.
Very truly yours,
BLANK ROME COMISKY & McCAULEY LLP
cms
<PAGE> 79
ANNEX VI
--------
______, 1999
Compass International Services Corporation
Attention: Board of Directors
Ladies and Gentlemen:
We have been requested to render this opinion concerning certain
matters of federal income tax law in connection with the proposed merger of
Cardinal Acquisition Corporation, a newly formed corporation, organized and
existing under the laws of the State of Delaware ("Merger Sub") which is wholly
owned by NCO Group, Inc., a corporation organized and existing under the laws of
the State of Pennsylvania ("Parent"), with and into Compass International
Services Corporation, a corporation organized and existing under the laws of the
State of Delaware (the "Company"), with the Company surviving the merger and
becoming a wholly owned subsidiary of Parent, pursuant to the applicable
corporate law of the State of Delaware (the "Merger"), and in accordance with
that certain Agreement and Plan of Merger dated as of May 12, 1999, among the
Company, Parent and Merger Sub (the "Agreement") and related documents and
agreements referenced in the Agreement (together with the Agreement, the "Merger
Agreement"). Our opinion is being delivered to you pursuant to Section 7.3(c) of
the Agreement.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as special legal counsel to the Company in connection
with the Merger. As such, and for the purpose of rendering this opinion, we have
examined (or will examine on or prior to the Effective Time of the Merger) and
are relying (or will rely) upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all schedules and exhibits thereto):
1. The Merger Agreement;
2. The Stock Purchase Agreement between Compass International
Services Corporation and Swiss-Irish Enterprises, dated May
12, 1999 (the "Stock Purchase Agreement");
<PAGE> 80
_____, 1999
Page 2
3. Representations made to us by Parent and Merger Sub, including
those representations contained in that certain Parent Tax
Certificate dated _____;
4. Representations made to us by the Company, including those
representations contained in that certain Company Tax
Certificate dated ____;
5. Parent's Registration Statement on Form S-4, dated _____; and
6. Such other instruments and documents related to the formation,
organization and operation of the Company, Parent and Merger
Sub or the consummation of the Merger and the transactions
contemplated by the Merger Agreement as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic;
documents submitted to us as copies conform to the original
documents, and there has been (or will be by the Effective
Time of the Merger) due execution and delivery of all
documents where due execution and delivery are prerequisites
to the effectiveness thereof;
2. Any representation or statement referred to above made "to the
knowledge of" or otherwise similarly qualified is correct
without such qualification;
3. The Merger will be consummated pursuant to the Merger
Agreement and will be effective under the applicable state
law;
4. After the Merger, the Company will hold "substantially all" of
its and Merger Sub's properties within the meaning of Section
368(a)(2)(E)(i) of the Code and the regulations promulgated
thereunder;
5. Following the Merger, the Company will continue its historic
business or use a significant portion of its historic business
assets in a business;
6. No outstanding indebtedness of the Company, Parent or Merger
Sub has represented or will represent equity for tax purposes
(including, without limitation, any loans from Parent to the
Company); no outstanding equity of the Company, Parent or
Merger Sub has represented or will represent indebtedness for
tax purposes; no outstanding security (other than the Company
Option Plan),
<PAGE> 81
_____, 1999
Page 3
instrument, agreement or arrangement that provides for,
contains, or represents either a right to acquire the Company
stock or to share in the appreciation thereof constitutes or
will constitute "stock" for purposes of Section 368(c) of the
Code;
7. Each of Company, Parent and Merger Sub has paid and will pay
only its respective expenses, if any, incurred in connection
with the Merger, and neither Parent, Merger Sub nor Company
has agreed to assume, nor will it directly or indirectly
assume, any expense or other liability, whether fixed or
contingent, of any holder of Common Stock; and
8. Neither Parent, the Company nor Merger Sub is, or will be at
the time of the Merger: (a) an "investment company" within the
meaning of Section 368(a)(2)(F) of the Code; or (b) under the
jurisdiction of a court in a Title 11 or similar case within
the meaning of Section 368(a)(3)(A) of the Code.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, it is
our opinion, as special counsel for Company, that for federal income tax
purposes:
(i) the Merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Code, and the
Company, Merger Sub and Parent will each be a party
to such reorganization within the meaning of Section
368(b) of the Code;
(ii) no gain or loss will be recognized by Company,
Parent, or Merger Sub as a result of the Merger;
(iii) no gain or loss will be recognized by the
stockholders of the Company upon the exchange of
their Common Stock solely for shares of Parent Common
Stock pursuant to the Merger, except with respect to
cash, if any, received in lieu of fractional shares
of Parent Common Stock;
(iv) the aggregate tax basis of the shares of Parent
Common Stock received solely in exchange for Common
Stock pursuant to the Merger (including fractional
shares of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis
of the Common Stock exchanged therefor;
<PAGE> 82
_____, 1999
Page 4
(v) the holding period for shares of Parent Common Stock
received solely in exchange for Common Stock pursuant
to the Merger will include the holding period of the
Common Stock exchanged therefor, provided such Common
Stock was held as a capital asset by the stockholder
at the Effective Time; and
(vi) a stockholder of the Company who receives cash in
lieu of a fractional share of Parent Common Stock
will recognize gain or loss equal to the difference,
if any, between such stockholder's tax basis in such
fractional share (as described in clause (iv) above)
and the amount of cash received.
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below:
1. This opinion represents and is based upon our best judgment
regarding the application of federal income tax laws arising
under the Code, existing judicial decisions, administrative
regulations and published rulings and procedures. Our opinion
is not binding upon the Internal Revenue Service or the
courts, and the Internal Revenue Service is not precluded from
asserting a contrary position. Furthermore, no assurance can
be given that future legislative, judicial or administrative
changes, on either a prospective or retroactive basis, would
not adversely affect the accuracy of the opinion expressed
herein. Nevertheless, we undertake no responsibility to advise
you of any new developments in the application or
interpretation of the federal income tax laws.
2. Our opinion concerning certain of the federal tax consequences
of the Merger is limited to the specific federal tax
consequences presented above. No opinion is expressed as to
any transaction other than the Merger, including any
transaction undertaken in connection with the Merger. In
addition, this opinion does not address any other federal,
estate, gift, state, local or foreign tax consequences that
may result from the Merger.
3. No opinion is expressed if all the transactions described in
the Merger Agreement are not consummated in accordance with
the terms of such Merger Agreement and without waiver or
breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon
which we relied are not true and accurate at all relevant
times. In the event any one of the statements,
representations, warranties or assumptions upon which we have
relied to issue this
<PAGE> 83
_____, 1999
Page 5
opinion is incorrect, our opinion might be adversely affected
and may not be relied upon.
4. No ruling has been or will be requested from the Internal
Revenue Service concerning the federal income tax consequences
of the Merger. In reviewing this opinion, you should be aware
that the opinion set forth above represents our conclusions
regarding the application of existing federal income tax law
to the instant transaction. If the facts vary from those
relied upon (including if any representation, covenant,
warranty or assumption upon which we have relied is
inaccurate, incomplete, breached or ineffective), our opinion
contained herein could be inapplicable. You should be aware
that an opinion of counsel represents only counsel's best
legal judgment, and has no binding effect or official status
of any kind, and that no assurance can be given that contrary
positions will not be taken by the Internal Revenue Service or
that a court considering the issues would not hold otherwise.
5. This opinion is being delivered solely for the purpose of
satisfying the condition set forth in Section 7.3(c) of the
Merger Agreement. This opinion may not be relied upon or
utilized for any other purpose or by any other person or
entity, including the Company and its stockholders, and may
not be made available to any other person or entity, without
our prior written consent. We do, however, consent to the use
of our name in the Registration Statement wherever it appears.
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE> 1
Exhibit 2.2
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of May 12, 1999, by and between
Compass International Services Corporation, a Delaware corporation (the
"SELLER") and Swiss-Irish Enterprises, Inc., a Texas corporation (together with
its assignees, the "BUYER"). Capitalized terms used herein and not otherwise
defined shall have the meaning set forth in Article 8 hereof.
WHEREAS, the Seller owns all of the issued and outstanding shares of
(I) common stock, $0.01 par value (the "METROWEBB SHARES"), of MetroWebb, Inc.,
a Delaware corporation ("METROWEBB"); (II) common stock, $0.01 par value (the
"PRINT & MAIL SERVICES SHARES"), of Compass Print & Mail Services, Inc., a
Delaware corporation ("PRINT & MAIL SERVICES"); (III) common stock, $0.01 par
value (the "MAIL SERVICES SHARES"), of Compass Mail Services, Inc., a Delaware
corporation ("MAIL SERVICES"); (IV) common stock, $0.01 par value (the "MWI
SHARES"), of MWI Laser Group, Inc., a Delaware corporation ("MWI"); and (V)
common stock, $0.01 par value (the "BENDER SHARES", and together with the
MetroWebb Shares, Print & Mail Services Shares, Mail Services Shares and MWI
Shares, the "SHARES"), of Bender Direct Mail Services, Inc., a Delaware
corporation ("BENDER" and together with MetroWebb, Print & Mail Services, Mail
Services and MWI, the "COMPANIES", and each, a "COMPANY");
WHEREAS, the Seller wishes to sell the Shares to the Buyer, and the
Buyer wishes to purchase the Shares from the Seller, on the terms and conditions
and for the consideration described in this Agreement;
WHEREAS, concurrently with the execution of this Agreement, the Seller
is entering into an Agreement and Plan of Merger (as amended or supplemented
from time to time, the "NCO MERGER AGREEMENT") with NCO Group, Inc., ("NCO"),
pursuant to which the Seller is to be merged with a wholly owned subsidiary of
NCO (the "NCO MERGER");
WHEREAS, it is a condition to the consummation of the NCO Merger that
the transactions contemplated by this Agreement are consummated;
WHEREAS, the Buyer wishes to deposit or cause to be deposited into
escrow certain assets to secure Buyer's obligations under this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
<PAGE> 2
ARTICLE I
SALE AND PURCHASE OF THE SHARES
1.1. SALE AND PURCHASE OF THE SHARES. Subject to and upon the terms and
conditions set forth in this Agreement, at the Closing, the Seller shall sell to
the Buyer and the Buyer will purchase from Seller: (i) all of the Shares and
(ii) the Seller's interest in all tangible assets, if any, owned or leased by
Seller or any of its subsidiaries or affiliates located in the Dallas, Texas
metropolitan area or the Tulsa, Oklahoma metropolitan area used in Seller's
Print & Mail Business (the "Related Assets"), and the Buyer shall pay to the
Seller the Purchase Price in the manner set forth in Section 2.2(a) hereof.
1.2 ESCROW. (a) Concurrently with the execution of this Agreement, to
secure the Buyer's covenants, agreements and obligations hereunder, certain of
the Buyer's affiliates (the "Buyer Affiliates") shall, on behalf of the Buyer,
deposit (i) $2,000,000 and (ii) the Escrow Shares duly endorsed in blank or
accompanied by stock powers or other instruments of transfer duly executed in
blank, into escrow pursuant to an escrow agreement in the form set forth as
Exhibit 1.2-A hereto (the "Escrow Agreement"). In addition, concurrently with
the execution of this Agreement, each of the Buyer Affiliates shall execute and
deliver to the Seller a letter in the form and substance as set forth in Exhibit
1.2-B attached hereto. The Buyer hereby represents and warrants to the Seller
that the respective Buyer Affiliate has good and marketable title to the Escrow
Shares so deposited into escrow by such Buyer Affiliate and that the Escrow
Shares shall be deposited into escrow free and clear of all Liens or claims
whatsoever.
(b) Such $2,000,000 and the Escrow Shares shall be held by the Escrow
Agent (as defined in the Escrow Agreement) and released only pursuant to the
terms and conditions of the Escrow Agreement. The Seller and the Buyer agree
that such $2,000,000 (including any interest earned thereon) and the Escrow
Shares shall be immediately released and paid to the Seller as liquidated
damages in the event that the Agreement is terminated prior to the Closing
solely as a result of a breach or default by the Buyer under this Agreement. The
Seller and the Buyer also agree that such $2,000,000 (including any interest
earned thereon) and the Escrow Shares shall be immediately released to the Buyer
Affiliates if this Agreement is terminated prior to the Closing for any other
reason. The Seller and the Buyer also agree that such $2,000,000 (including any
interest earned thereon) and the Escrow Shares shall be released
contemporaneously with the Closing as the parties mutually agree in a manner to
facilitate the Closing as contemplated hereby. Each of the Seller and the Buyer
shall promptly execute and deliver to the Escrow Agent joint written
instructions consistent with the foregoing agreements.
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ARTICLE II
THE CLOSING
2.1. PLACE AND DATE. Subject to the satisfaction or waiver of the
conditions set forth in Section 6 hereof and subject to the parties rights of
termination under Section 7.1 hereof, the closing of the sale and purchase of
the Shares and the Related Assets, if any, (the "CLOSING") shall take place on
the earlier to occur of: (i) the thirtieth (30th) day following written notice
by the Buyer to the Seller that the Buyer is ready, willing and able to
consummate the Closing along with reasonable documentation supporting Buyer's
financial ability therefor (in which case, such notice shall include a waiver of
the condition set forth in Section 6.2(e)), or (ii) August 31, 1999 or, at the
option of the Seller such later date prior to October 31, 1999, in any case, at
the offices of Katten Muchin & Zavis, 525 West Monroe Street, Chicago, Illinois,
or such other time and place upon which the parties may agree. (The day on which
the Closing actually occurs is herein sometimes referred to as the "CLOSING
DATE.")
2.2. PURCHASE PRICE. At the Closing, (i) the Buyer shall pay to the
Seller an aggregate of $35,100,000 in immediately available funds (the "PURCHASE
PRICE"), and (ii) the Seller shall deliver to the Buyer, free and clear of any
Liens: (1) 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, (2)
assignments, deeds or bills of sale by the Seller and its subsidiaries,
necessary to transfer the Related Assets, if any, in form and substance
reasonably acceptable to Buyer, (3) all stock transfer records and minute books,
if any, and original partnership agreements, if any, to the extent they are in
possession of the Seller related to the Companies and the Company Subsidiaries
and (4) a release from any holder of any Lien (except for Liens described in
clauses (i), (ii), (iii), (iv) or (v) of Section 3.6, Liens securing
indebtedness of any Company or Company Subsidiary and Liens associated with a
contract or lease assigned or subleased pursuant to this Agreement on the assets
of the Companies and the Company Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
3.1. ORGANIZATION. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
the Companies is a corporation is duly organized, and is validly existing and in
good standing under the laws of the jurisdictions of its incorporation. Each of
the Company Subsidiaries which is a corporation is duly organized, and each of
the Company Subsidiaries which is a partnership is duly formed, and each of the
Company Subsidiaries is validly existing and in good standing, in each case
under the laws
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of the jurisdictions of its incorporation or formation, as the case may be. Each
of the Seller, the Companies and the Company Subsidiaries has all requisite
corporate or partnership power and authority to own, lease and operate its
properties and to conduct its business as now being con ducted. Except as set
forth in Section 3.1 of the letter delivered by the Seller to the Buyer prior to
the execution hereof (the "SELLER DISCLOSURE LETTER"), each of the Seller, the
Companies and the Company Subsidiaries is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified or licensed
and in good standing would not have a material adverse effect on the business or
financial condition of the Companies and the Company Subsidiaries taken as a
whole. Each of the Company Subsidiaries is listed in Section 3.1 of the Seller
Disclosure Letter, and except as and to the extent set forth therein, the
Companies own beneficially and of record directly or indirectly all of the
issued and outstanding capital stock or partnership interests, as the case may
be, of each of the Company Subsidiaries, free and clear of any liens, claims,
charges, mortgages or other encumbrances (collectively, "LIENS"). Except as set
forth in Section 3.1 of the Seller Disclosure Letter, neither the Companies nor
any of the Company Subsidiaries owns, controls or holds with the power to vote,
directly or indirectly, of record, beneficially or otherwise, any capital stock
or any equity or ownership interest in any Person. The Seller has heretofore
delivered to the Buyer accurate and complete copies of the certificate of
incorporation and by-laws or certificate of formation and limited partnership
agreement, as the case may be, of each of the Companies and the Company
Subsidiaries, as currently in effect.
3.2. CAPITALIZATION. The authorized capital stock of MetroWebb, Print &
Mail Services, Mail Services, MWI and Bender consist of 1,000 MetroWebb Shares,
3,000 Print & Mail Services Shares, 1,000 Mail Services Shares, 1,000 MWI Shares
and 1,000 Bender Shares, respectively, of which, as of the date hereof, 1,000
MetroWebb Shares, 500 Print & Mail Services Shares, 1,000 Mail Services Shares,
1,000 MWI Shares and 1,000 Bender Shares are issued and outstanding. No other
capital stock or other security of the Companies is authorized, issued or
outstanding. All issued and outstanding shares of capital stock of each Company
and each Company Subsidiary that is a corporation are duly authorized, validly
issued, fully paid and non assessable. There are not now and, on the Closing
Date, there will not be, any securities, options, warrants, calls,
subscriptions, preemptive rights or other rights or other agreements or
commitments whatsoever obligating the Seller, the Companies or the Company
Subsidiaries to issue, transfer, deliver or sell or cause to be issued,
transferred, delivered or sold any additional shares of capital stock or other
securities or partnership or other interests of any of the Companies or the
Company Subsidiaries, or obligating the Seller, the Companies or the Company
Subsidiaries to grant, extend or enter into any such agreement or commitment.
There are no outstanding contractual obligations of the Seller, the Companies or
the Company Subsidiaries to repurchase, redeem or otherwise acquire any shares
of capital stock of the Companies or the Company Subsidiaries. There are no
outstanding contractual obligations of the Seller, the Companies or the Company
Subsidiaries to vote or to dispose of any shares of the capital stock of any of
the Companies or the Company Subsidiaries. Except as set forth on Section 3.2 of
the Seller Disclosure Letter, Seller has good and marketable title to all of the
Shares, and each of the Companies owns good and marketable title to all issued
and outstanding shares of capital stock
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or partnership interests of each Subsidiary Company, in each case, free and
clear of all Liens except such Liens which shall be released at the Closing.
3.3. AUTHORIZATION OF THIS AGREEMENT. The Seller has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Board of Directors of the
Seller, and no other corporate proceedings on the part of the Seller is
necessary to authorize this Agreement or consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Seller and this Agreement constitutes a valid and binding
agreement of the Seller, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application relating to or affecting the rights and remedies of
creditors, and the application of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.4. CONSENTS AND APPROVALS; NO VIOLATION. Except for the filing of a
Pre-Merger Notification and Report Form by the Buyer under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR ACT"), no filing with, and no
permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation by the Seller of the transactions contemplated by
this Agreement, the failure to make or obtain which is reasonably likely to have
a material adverse effect on the ability of the Seller to consummate the
transactions contemplated hereby or on the business or financial condition of
the Companies and the Company Subsidiaries taken as a whole. Except as set forth
on Section 3.4 of the Seller Disclosure Letter, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby nor compliance by the Seller with any of the provisions hereof will (I)
con flict with or result in any violation of any provision of the certificate of
incorporation, by-laws or other organizational document of the Seller or any of
the Companies or Company Subsidiaries, (II) result in a default or breach or the
creation of a Lien upon the properties or assets of any of the Companies or the
Company Subsidiaries, with or without notice or lapse of time, or both, under
any material note, bond, mortgage, indenture, license, benefit plan, agreement
or other material instrument or obligation to which the Seller, or any of the
Companies or the Company Subsidiaries, is a party or by which any of them or any
of their properties or assets is bound or (III) assuming the truth of the
representations and warranties of the Buyer contained herein and its compliance
with all agreements contained herein and assuming the due making of all filings
referred to in the preceding sentence, violate any material statute, rule,
regulation, order, injunction, writ or decree of any public body or authority by
which the Seller, or any of the Companies or the Company Subsidiaries or any of
their respective assets or properties, is bound.
3.5. LITIGATION. Except as set forth in Section 3.5 of the Seller
Disclosure Letter, there are no material (I) actions, suits or proceedings or
investigations pending or, to the knowledge of the Seller, threatened, or (II)
outstanding awards, judgments, orders, writs, injunctions or decrees, or, to the
knowledge of the Seller, applications, requests or motion therefor, against or
affecting the assets, business, operations or financial condition of the Seller
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at law or in equity in any court or any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which are reasonably likely to materially impair the ability of the Seller to
perform its obligations hereunder or consummate the transactions contemplated
hereby.
3.6. NO MATERIAL TRANSFERS. Except as set forth in Section 3.6 of the
Seller Disclosure Letter, since the date of their respective acquisition by the
Seller, none of the Companies or Company Subsidiaries has: (a) transferred any
material assets or properties to the Seller or affiliates of the Seller (other
than to one or more of the other Companies or Company Subsidiaries); or (b)
imposed or permitted to exist Liens on the assets of the Companies other than
Liens that will be released on or prior to the Closing and (I) Liens for taxes
and other governmental charges and assessments which are not yet due and payable
or which are being contested in good faith by appropriate proceedings, (II)
Liens of carriers, warehousemen, mechanics and materialmen and other like Liens
arising in the ordinary course of business, (III) easements, rights of way,
title imperfections and restrictions, zoning ordinances and other similar
encumbrances affecting the real property which do not have a material adverse
effect on the use of the properties or assets subject thereto or affected
thereby, (IV) statutory Liens in favor of lessors arising in connection with any
property leased to the Companies or the Company Subsidiaries, excluding Liens
arising from any default or breach by any of the Companies or the Company
Subsidiaries and (V) any other Liens which in the aggregate are not reasonably
likely to exceed $50,000 (collectively, "PERMITTED LIENS").
3.7. NO MATERIAL CONTRACTS BY EXECUTIVE OFFICERS OF THE SELLER. Except
as set forth in Section 3.7 of the Seller Disclosure Letter, since the date of
their respective acquisition by the Seller, no executive officer of the Seller
has (i) executed a material contract on behalf of any of the Companies or
Company Subsidiaries or which burdens the assets of any of the Companies or the
Company Subsidiaries or the Related Assets, if any, or (ii) taken any action on
behalf of any of the Companies or Company Subsidiaries which has resulted in any
material liability to the Companies or the Company Subsidiaries or a material
Lien on the assets of the Companies or the Company Subsidiaries or the Related
Assets, if any, other than such contracts and actions which any of Kenneth
Murphy, Morrie Maher, Jim Summers, Bob Jones, Scott Madsen, Richard Bainter,
John Erickson, Earl Johnson, Robert Meador, Harold Chandler or Jim Yarborough
has or had knowledge.
3.8 ASSETS OF THE PRINT AND MAIL DIVISION. Other than the Related
Assets, if any, and the contracts listed on Section 5.10 of the Seller
Disclosure Letter, all of the assets and property used in the Print and Mail
Division of the Seller are owned by the Companies and the Company Subsidiaries.
3.9. TAXES. Except as set forth in Section 3.9 of the Seller Disclosure
Letter:
(a) Since March 4, 1998, (i) all Tax Returns required to be filed with
respect to any Company or any Company Subsidiary have been duly filed or the
time for filing such Tax Returns shall have been validly extended and (ii) all
such Tax Returns were correct and complete
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in all material respects and any taxes related thereto, to the extent then due
and payable, have been paid.
(b) As of the date hereof, no written agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any material Taxes with respect to any Company or any Company
Subsidiary has been executed or filed with the IRS or any other taxing
authority.
(c) As of the date hereof, no material Tax Return with respect to any
Company or any Company Subsidiary is currently under audit by any taxing
authority, and neither the IRS nor any other taxing authority is now asserting
in writing against any Company or any Company subsidiary any material deficiency
for additional Taxes or any material adjustment of Taxes.
(d) None of the Companies or the Company Subsidiaries are parties to or
bound by or have any obligation under any written Tax sharing agreement or
arrangement.
(e) All payments for withholding Taxes, unemployment insurance and
employment Taxes required to be withheld and deposited or paid to all relevant
taxing authorities have been so withheld, deposited or paid by or on behalf of
each Company or Company Subsidiary.
(f) No consent has been filed under Section 341(f) of the Code with
respect to the Company or the Company Subsidiary.
3.10. FINDERS AND INVESTMENT. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the intervention of any Person acting on behalf of the Seller in such manner as
to give rise to any valid claim against the Buyer or any of the Companies for
any broker's or finder's fee or similar compensation, except for Lehman
Brothers, Inc., whose fees shall be paid by the Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
4.1. ORGANIZATION. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. The Buyer
has all requisite power and authority to own, lease and operate its properties
and to conduct its business as now being conducted. The Buyer is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or
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licensed and in good standing would not have a material adverse effect on the
business or financial condition of the Buyer. The Buyer has heretofore delivered
to the Seller accurate and complete copies of the certificate of incorporation
and by-laws of the Buyer, as currently in effect.
4.2. AUTHORIZATION OF THIS AGREEMENT. The Buyer has all requisite
corporate power and authority to execute and deliver this Agreement and the
Escrow Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Escrow Agreement
and the consummation of the transactions contemplated hereby and thereby have
been duly and validly authorized and approved by the Board of Directors of the
Buyer, and no other proceedings on the part of the Buyer is necessary to
authorize this Agreement or consummate the transactions contemplated hereby and
thereby. This Agreement and the Escrow Agreement have been duly and validly
executed and delivered by the Buyer and this Agreement and the Escrow Agreement
constitute valid and binding agreements of the Buyer except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws of general application relating to
or affecting the rights and remedies of creditors, and the application of
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.3. CONSENTS AND APPROVALS; NO VIOLATION. Except for the filing of a
Pre-Merger Notification and Report Form by the Buyer under the HSR Act, no
filing with, and no permit, authorization, consent or approval of, any public
body or authority is necessary for the consummation by the Buyer of the
transactions contemplated by this Agreement, the failure to make or obtain which
is reasonably likely to have a material adverse effect on the ability of the
Buyer to consummate the transactions contemplated hereby. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby nor compliance by the Buyer with any of the provisions
hereof will (I) conflict with or result in any violation of any provision of the
certificate of incorporation or by-laws of the Buyer or (II) assuming the truth
of the representations and warranties of the Seller contained herein and its
compliance with all agreements contained herein and assuming the due making of
all filings referred to in the preced ing sentence, violate any material
statute, rule, regulation, order, injunction, writ or decree of any public body
or authority by which the Buyer is bound.
4.4. LITIGATION. There are no material (I) actions, suits or
proceedings or investigations pending or, to the knowledge of the Buyer,
threatened, or (II) outstanding awards, judgments, orders, writs, injunctions or
decrees, or, to the knowledge of the Buyer, applications, requests or motion
therefor, against or affecting the assets, business, operations or financial
condition of the Buyer at law or in equity in any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, which are reasonably likely to materially impair the ability of
the Buyer to perform its obligations hereunder or consummate the transactions
contemplated hereby.
4.5. FINDERS AND INVESTMENT BANKERS. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on without
the intervention of any
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Person acting on behalf of the Buyer in such manner as to give rise to any valid
claim against the Seller or any of the Companies for any broker's or finder's
fee or similar compensation.
ARTICLE V
COVENANTS
5.1. CONDUCT OF BUSINESS OF THE COMPANIES. Except as contemplated by
this Agreement or as otherwise set forth on Section 5.1 of the Seller Disclosure
Letter, during the period from the date of this Agreement to the Closing Date,
the Seller will use its commercially reasonable efforts to cause the Companies
and the Company Subsidiaries to conduct their respective operations in all
material respects according to its ordinary and usual course of business. The
Seller will promptly advise the Buyer in writing of any change in any of the
Companies' or the Company Subsidiaries' business or financial condition that is
materially adverse to the Companies and the Company Subsidiaries taken as a
whole. Without limiting the generality of the foregoing, and except as set forth
in Section 5.1 of the Seller Disclosure Letter or otherwise expressly
contemplated by this Agreement, prior to the Closing Date, none of the Companies
or the Company Subsidiaries will, without the prior written consent of the
Buyer:
(a) amend its certificate of incorporation or by-laws, or
certificate of formation or limited partnership agreement, as the case
may be;
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of additional options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any shares of capital stock of any
class or any partnership interests or any securities convertible into
or exercisable for shares of capital stock of any class or any
partnership interests;
(c) split, combine or reclassify any shares of its capital
stock or any limited partnership interests or redeem or otherwise
acquire any shares of its capital stock or any limited partnership
interests;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock or any partnership interests
or take any cash or transfer any assets out of the Companies and the
Company Subsidiaries, PROVIDED HOWEVER, in any event the Seller may
cause any Company or Company Subsidiary to make or pay distributions or
dividends: (i) to pay bills or satisfy obligations to third parties
(which bills or obligations are currently existing on the date hereof
or subsequently incurred in the ordinary course of business or with the
approval of management of the Print and Mail Division), on behalf of
the Print and Mail Division of the Seller, the Companies or Company
Subsidiaries, including without limitation any taxes (other than Taxes)
currently due and payable in the ordinary course of business and lease
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payments, whether such bills or obligations are in the name of the
Companies or the Company Subsidiaries or in the Seller's name or (ii)
between or among the Companies or the Company Subsidiaries.
(e) (i) take action to create, incur or assume any debt
(including obligations in respect of capital leases) other than as in
existence on the date hereof (or which, in the ordinary course of
business, replaces any debt owed to a unaffiliated third party); (II)
ex cept in the ordinary course of business and consistent with past
practices assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any Person other than any of the Companies or the
Company Subsidiaries; or (III) make any loans, advances or capital
contributions to, or investments in, any Person other than any of the
Companies or the Company Subsidiaries, except for customary loans or
advances to employees or trade credit in the ordinary course of
business and consistent with past practices;
(f) except in the ordinary course of business or Section 5.1
of the Seller Disclosure Letter, sell, transfer, mortgage or otherwise
dispose of or encumber, any of its assets;
(g) make any material election under the Code;
(h) merge with or into or consolidate with any other Person
(other than with one or more of the Companies or the Company
Subsidiaries) or make any acquisition of all or any part of the assets
or capital stock or business of any other Person except for tangible
property acquired in the ordinary course of business; or
(i) agree to do any of the foregoing.
Notwithstanding the foregoing, no actions in violation of this Section 5.1 taken
by persons affiliated with the Buyer (unless expressly directed in writing by
the Seller) shall be deemed a breach of this Section.
5.2. ACCESS TO INFORMATION. The Seller shall afford to the Buyer and to
the Buyer's financial advisors, legal counsel, accountants, consultants,
financing sources, and other authorized representatives access during normal
business hours throughout the period prior to the Closing Date to all of its
books, records, properties, plants and personnel related to any of the Companies
or the Company Subsidiaries and, during such period, shall furnish as promptly
as practicable to the Buyer all other information as the Buyer reasonably may
request.
5.3. FILINGS; OTHER ACTIONS. Each of the parties hereto agrees to
furnish to each other party hereto such necessary information and commercially
reasonable assistance as such other party may request in connection with its
preparation of necessary filings or submissions to any regulatory or
governmental agency or authority, including, without limitation, any filing
necessary under the provisions of the HSR Act, or any other federal, state,
local or foreign statute
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or regulations. Each of the parties shall respond as promptly as practicable to
(i) any inquiries or requests received from the FTC or the Antitrust Division
for additional information or documentation and (ii) any inquiries or requests
received from any state attorney general or other governmental entity in
connection with antitrust or related matters. Each of the parties shall (c) give
the other party prompt notice of the commencement of any claim, action, suit or
proceeding by or before any governmental entity with respect to any of the
transactions contemplated by this Agreement, (y) keep the other party informed
as to the status of any such claim, action, suit or proceeding, and (z) promptly
inform the other party of any communication to or from the FTC or the Antitrust
Division or any other governmental entity regarding the transactions
contemplated by this Agreement. Each of the parties will consult and cooperate
with one another, and will consider in good faith the views of one another, in
connection with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or submitted in connection with any claim,
action, suit or proceeding under or relating to the HSR Act or any other federal
or state antitrust or fair trade law. In addition, except as may be prohibited
by any governmental entity or by any applicable federal, state, local and
foreign laws, ordinances or regulations, in connection with any claim, action,
suit or proceeding under or relating to the HSR Act or any other federal or
state antitrust or fair trade law or any other similar claim, action, suit or
proceeding, each of the parties will permit authorized representatives of the
other party to be present, to the extent reasonably practicable, at each meeting
or conference relating to any such claim, action, suit or proceeding and to have
access to and be consulted in connection with any document, opinion or proposal
made or submitted to any governmental entity in connection with any such claim,
action, suit or proceeding.
5.4. COMMERCIALLY REASONABLE EFFORTS. Subject to the terms and
conditions hereof, the parties hereto agree to use their commercially reasonable
efforts consistent with applicable legal requirements to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary or
proper and advisable under applicable laws and regulations to ensure that the
conditions set forth in Article VI hereof are satisfied and to consummate and
make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
5.5. PUBLIC ANNOUNCEMENTS. The Seller and the Buyer will obtain the
prior written consent of the other before issuing any press release or otherwise
making any public statements with respect to this Agreement and the transactions
contemplated hereby, except as may be required by law or by obligations pursuant
to any listing agreement with any securities exchange.
5.6. CERTAIN ACTIONS. The Seller shall permit the President of the
Print and Mail Division to take any reasonable business actions necessary or
desirable to operate the Print and Mail Division so long as such actions can be
(i) funded from the existing financial resources of the Companies and the
Company Subsidiaries and (ii) taken without the Seller or any of its
subsidiaries (including the Companies and the Company Subsidiaries) incurring
any additional indebtedness or future liabilities. Notwithstanding the
foregoing, it shall be required that the President of the Print and Mail
Division obtain the prior written consent of the Seller prior to
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taking any significant personnel action with respect to the Print and Mail
Division. For purposes of this Section 5.6, a "significant personnel action"
means a termination of any officer of the Print and Mail Division or any of its
subdivisions, an increase of the compensation of any Print and Mail Division
personnel, except for normal cost-of-living or merit increases for non-officer
employees, an increase of the compensation of or execution of an employment
contract with any officer of the Print and Mail Division or any of its
subdivisions, or an implementation of a change to the existing employee benefit
and 401(k) plans.
5.7. TAX MATTERS.
(a) TERMINATION OF EXISTING TAX SHARING ARRANGEMENTS. As of the Closing
Date, all existing tax sharing agreements and arrangements (other than any tax
sharing agreement or arrangement provided hereof) between any Company or any
Company Subsidiary, on the one side, and the Seller or any Non-Company
Affiliate, on the other side, shall be terminated, and no additional payments
shall be made thereunder. After the Closing, neither the Companies, the Company
Subsidiaries, the Seller, nor the Non-Company Affiliates shall have any further
rights or liabilities under any such agreements or arrangements for any taxable
period (whether the current year, a future year, or a past year).
(b) SECTION 338(h)(10) ELECTION.
(i) The Buyer and the Seller (or the parent of any consolidated group
of which Seller is a member) shall make a timely election under section
338(h)(10) of the Code and section 1.338(h)(10)-1 of the Treasury Regulations
promulgated pursuant to the Code and any corresponding elections under state or
local tax law, with respect to the purchase and sale of the Shares and Buyer's
indirect acquisition of all outstanding ownership interests in the Company
Subsidiaries (collectively, the "338 ELECTION"). The Seller shall take all
actions reasonably requested by the Buyer (including, but not limited to, the
preparation, completion and timely joint filing by the Buyer and the Seller of
Form 8023 as provided below, and the preparation, completion and timely filing
of such other forms, returns, elections, schedules and other documents and
instruments reasonably requested by the Buyer) to effect a timely section
338(h)(10) election in accordance with section 338(h)(10) of the Code and
section 1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant to the
Code, and any corresponding elections under state or local tax law, with respect
to the purchase and sale of the Shares. Seller shall deliver to Buyer a duly
executed copy of Internal Revenue Service Form 8023 and any similar forms
required under state and local laws no later than 20 days prior to the date each
such form is required to be filed. The Buyer and Seller shall report the
purchase and sale of the Shares consistent with the 338 Election and
corresponding state elections and shall take no position contrary thereto or
inconsistent therewith in any tax return, or in any discussion with or any
proceeding before any taxing authority or other governmental body or otherwise
unless required to do so pursuant to a determination (as defined in section
1313(a) of the Code) or a similar determination under state law.
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(ii) The purchase price and all other items that comprise the "modified
aggregate deemed sale price" (as defined in, and required to be allocated
pursuant to, section 338(h)(10) of the Code) shall be allocated in accordance
with a schedule prepared by the Buyer and the Seller on a reasonable basis in
accordance with the requirements of the Code and the regulations thereunder as
agreed by Buyer and Seller on or before the Closing Date. Such allocation shall,
for tax purposes, be binding on the Seller and the Buyer. The Seller and the
Buyer shall file their respective tax returns in accordance with such allocation
and shall not take any position inconsistent with such allocation unless
required to do so pursuant to a determination (as defined in section 1313(a) of
the Code) or a similar determination under state law. In the event that such
allocation is disputed by any taxing authority, the party receiving notice of
such dispute shall promptly notify and consult with the other parties hereto
concerning resolution of such dispute and such dispute shall be settled or
comprised by the Seller.
(c) INDEMNIFICATION BY SELLER. Seller shall be responsible for and
shall indemnify, defend and hold harmless the Buyer and the entities acquired
pursuant hereto and all of their respective affiliates, against liability for or
payment of any (i) Taxes of or payable by, or chargeable as a lien upon the
assets of, any Company or Company Subsidiary arising with respect to any taxable
period (or portion thereof) which ends on or before the Closing Date
("Pre-Closing Period"), (ii) Taxes of any member (including any Company or any
Company Subsidiary) of a combined, consolidated or unitary tax group for which
any Company or any Subsidiary may be jointly or severally liable as a result of
its inclusion in such group on or prior to the Closing Date, (iii) Taxes arising
as a result of any transfer of any asset to any Company or any Company
Subsidiary upon or prior to the Closing pursuant to Section 6901 of the Code or
any comparable provision of state or local tax law, (iv) Taxes resulting from
the elections made under Section 338(h)(10) of the Code and any comparable
provisions of state and local law, described in Section 5.7(b) hereof, or
Seller's failure to timely and properly comply with its obligations under
Section 5.7(b) and (v) Taxes resulting from the transactions described in
Section 5.9 relating to forgiveness of intercompany indebtedness, other than
Taxes reflected as an adjustment to the Purchase Price in Section 5.7(d).
(d) INDEMNIFICATION BY THE BUYER AND ADJUSTMENT TO PURCHASE PRICE.
Notwithstanding anything contained in Section 5.7(c) above, Buyer will be
responsible for and will indemnify, defend and hold harmless Seller and their
affiliates against (i) the payment of any interest and penalties with respect to
any taxable period ending on or before the Closing Date to the extent due to the
failure of Buyer to timely file a Tax Return, extension of time to file, or to
make a payment of Tax required in connection with such Tax Return which the
Buyer is required to file or make pursuant to Section 5.7(e) below and (ii) the
payment of the Pre-Closing Adjustment (as defined below). Buyer shall pay Seller
as additional purchase price the amount determined in this Section 5.7(d) (the
"Pre-Closing Adjustment"). The Pre-Closing Adjustment shall be an amount equal
to the federal, state and local Tax liability for the Companies and Company
Subsidiaries with respect to taxable income recognized for the period beginning
July 1, 1999, and ending on the Closing Date (the "Adjustment Period")
(excluding, however, Taxes resulting from the election under Section 338(h)(10)
and comparable provisions of state or local law). Taxable income shall be
apportioned between the period ending June 30, 1999 and the Adjustment Period on
the basis of the actual activities of the relevant entity as determined from the
books and records of such entity
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for such taxable period (excluding, however, gain resulting from the election
under Section 338(h)(10) and comparable provisions of state or local law). After
determining the taxable income apportioned to the Adjustment Period, the
Companies and Company Subsidiaries shall determine their federal tax liability
on a separate member basis following the rules of Treasury Regulation Section
1.1552-1(a)(2)(ii) as if the Companies and Company Subsidiaries were a separate
consolidated group for federal income tax purposes. Any state or local income or
franchise tax based on income shall be computed for the Adjustment Period in the
same manner. Buyer will provide a reasonable good faith estimate of the
Pre-Closing Adjustment at least 5 days prior to the Closing Date and shall pay
such amount to the Seller at the Closing. No later than the due date of the
Seller's federal income tax return for the period which includes the Closing
Date, the Buyer shall provide a final statement of the Pre-Closing Adjustment.
To the extent the final Pre-Closing Adjustment is greater than the estimate, the
Buyer shall pay the difference to Seller at the time of the delivery of the
final statement and to the extent the final Pre-Closing Adjustment is less than
the estimate, the Seller shall pay the difference to Buyer within 15 days of the
receipt of the final statement. Any disagreement regarding the final Pre-Closing
Amount or final statement shall be resolved following the dispute resolution
procedure set forth in this Section 5.7.
(e) PREPARATION AND FILING OF RETURNS FOR PRE-CLOSING PERIODS. Seller
shall be responsible for the initial preparation of all Tax Returns of the
Companies and the Company Subsidiaries for taxable periods ending on or before
the Closing Date. Buyer shall have the right, directly or through its designated
representatives, to review at its expense any such returns that pertain to the
Companies, and the Company Subsidiaries at least 15 days prior to the filing
thereof. The taxable income (or loss) of the Company and the Company
Subsidiaries through the Closing Date will be included in the consolidated
federal Tax Return of Seller and in applicable state combined, unitary or
consolidated Tax Returns of the Seller. Seller will prepare and forward any
"separate company" state and local Tax Returns described in this Section 5.7(e)
due after the Closing Date to Buyer, which Tax Returns shall be true, correct
and complete in all material respects for signature and filing at least 5 days
prior to the (extended) due date of such returns. In the event the original due
date of any such return falls after the Closing Date and Seller wishes to seek
an extension of time to file such return, Seller shall forward to Buyer for
filing the appropriate extension to file forms together with the full amount of
the Tax required to be deposited in connection therewith at least 5 days prior
to the original due date of such return. Seller shall deliver to Buyer at least
5 days before any Tax Return or extension thereof required or permitted
hereunder is due the necessary payment of Tax or the full amount of tax required
to be deposited in connection with the extension. Seller shall have the right to
offset any Tax or estimate thereof required to be delivered by Seller to Buyer
under this Section 5.7(e) by the amount of any unpaid Pre-Closing Adjustment
owed by Buyer to Seller.
(f) PREPARATION AND FILING OF RETURNS FOR POST-CLOSING PERIODS. Buyer
shall cause to be prepared, and filed, all Tax Returns of the Company and the
Company Subsidiaries for all taxable periods ending after the Closing Date. For
any such Tax Return that includes a Pre-Closing Period, (i) to the extent
permissible under applicable law, the return for the taxable period prepared by
Buyer shall treat all material items in the Pre-Closing Period consistent with
the applicable returns for previous periods prepared by Seller and (ii) at least
15 days prior to the filing of the
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returns, Buyer shall submit a copy of the returns to Seller, for Seller's
approval. Buyer shall apportion any Tax due for a taxable period beginning
before the Closing Date and ending after the Closing Date with respect to the
Companies and the Company Subsidiaries between the portion of such taxable
period through and including the Closing Date and the balance of such taxable
period on the basis of the actual activities of the relevant entity as
determined from the books and records of such entity for such taxable period. At
least 15 days prior to the filing of such Tax Returns, Buyer shall notify Seller
of the amount of such Tax apportioned to the portion of such taxable period
through and including the Closing Date. Seller shall approve such Tax Returns
and pay to Buyer the amount of such Tax no later than 5 days prior to the due
date of the filing of such returns and the payment of such Taxes. Seller shall
have the right to offset any Tax or estimate thereof required to be delivered by
Seller to Buyer under this Section 5.7(f) by the amount of any unpaid
Pre-Closing Adjustment owed by Buyer to Seller.
(g) CERTIFICATE OF NON-FOREIGN STATUS. Seller shall deliver to Buyer at
the Closing a Certificate of Non-Foreign Status which meets the requirements of
Treasury Regulations Section 1.1445-2, duly executed and acknowledged,
certifying under penalties of perjury that as of the Closing each Company and
Company Subsidiary is not a foreign person for United States income tax
purposes.
(h) AMENDMENT OF RETURNS. Unless otherwise required by law, the Seller
shall not (and shall not permit any Non-Company Affiliate) to, amend any Tax
Return with respect to any Company or any Company Subsidiary for any taxable
period (including a portion thereof) ending on or prior to the Closing Date, in
a way that would reasonably be expected to increase the Tax liability or
obligation of any Company or any Company Subsidiary for any period ending after
the Closing Date without the prior written consent of the Buyer, which consent
shall not be unreasonably withheld. Unless otherwise required by law, the Buyer
shall not (and shall not permit any Company, any Company Subsidiary or any of
its other affiliates to) amend any Tax Return of any Company or any Company
Subsidiary for any taxable period (including a portion thereof) ending on or
prior to the Closing Date, in a way that would reasonably be expected to
increase the Tax liability or obligation of the Seller or any Non-Company
Affiliate without the prior written consent of the Seller, which consent shall
not be unreasonably withheld.
(i) REFUNDS. (i) The Seller or the Non-Company Affiliates shall be
entitled to retain (or shall be entitled to receive immediate payment from the
Buyer of) any refund or credit with respect to Taxes (plus any interest received
with respect thereto) from the applicable taxing authorities relating to any
Company or any Company Subsidiary that are the responsibility of the Seller
hereunder, and (ii) the Buyer, the Companies or the Company Subsidiaries shall
be entitled to retain (or shall be entitled to receive immediate payment from
the Seller of) any refund or credit with respect to Taxes (plus any interest
received with respect thereto) from the applicable taxing authorities relating
to any Company or any Company Subsidiary that are not described as being the
right of the Seller or the Non-Company Affiliates in clause (i) of this Section
5.7(i).
(j) AUDITS. Each of the Buyer and the Seller shall promptly (and shall
cause their respective affiliates to) notify the other in writing within 10
business days from receipt
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of notice of any pending or threatened Tax audits or assessments of any Company
or any Company Subsidiary relating to any taxable period (or a portion thereof)
ending on or prior to the Closing Date. The Seller shall have the right to
represent the interests of the Companies and the Company Subsidiaries (at
Seller's expense) in any Tax audit or administrative or court proceeding to the
extent relating to Taxes that are the responsibility of the Seller hereunder,
and to employ counsel of its choice at its expense, PROVIDED that the Seller
shall not (and shall not permit any Non-Company Affiliate to) compromise or
settle any issue relating to Taxes that would reasonably be expected to have a
material adverse effect on the Tax liabilities of any Company or any Company
Subsidiary without the Buyer's prior written consent, which consent shall not be
unreasonably withheld. Seller shall consult regularly and in good faith with
Buyer regarding the prosecution of any such contest. Buyer shall have the right
through its representatives, at its own expense, to review in advance and
comment on all submissions made in the course of such audits or proceedings. The
Buyer shall have the right to represent the interests of the Companies and the
Company Subsidiaries in any other Tax audit or administrative or court
proceeding not described as being the right of the Seller under this Section
5.7(j) and to employ counsel of its choice at its expense, PROVIDED that the
Buyer shall not (and shall not permit any Company, any Company Subsidiary or any
of its other affiliates to) compromise or settle any issue relating to Taxes
that would reasonably be expected to have a material adverse effect on the Tax
liabilities of the Seller or any Non-Company Affiliate or the Seller's
obligations set forth in Section 5.7(c) without the Seller's prior written
consent, which consent shall not be unreasonably withheld; PROVIDED further,
however, the Buyer shall be subject to any pre-existing right of any third party
to represent the interests of any Company or any Company Subsidiary. Buyer shall
consult regularly and in good faith with Seller regarding the prosecution of any
such contest. Seller shall have the right through its representatives, at its
own expense, to review in advance and comment on all submissions made in the
course of such audits or proceedings.
(k) TAX DISPUTE RESOLUTION MECHANISM. Wherever in this Agreement it
shall be provided that a dispute shall be resolved pursuant to the "TAX DISPUTE
RESOLUTION MECHANISM," such dispute shall be resolved as follows: (i) the
parties will in good faith attempt to negotiate a prompt settlement of the
dispute; (ii) if the parties are unable to negotiate a resolution of the dispute
within 10 days, the dispute will be submitted to the New York office of a firm
of independent accountants of nationally recognized standing reasonably
satisfactory to the Buyer and the Seller (or, if the Buyer and the Seller do not
agree on such a firm, then a firm chosen by the Arbitration and Mediation
Committee of the New York Society of Certified Public Accountants) (the "TAX
DISPUTE ACCOUNTANTS"); (iii) the parties will present their arguments and submit
the proposed amount of each item in dispute to the Tax Dispute Accountants
within 10 days after submission of the dispute to the Tax Dispute Accountants;
(iv) the Tax Dispute Accountants, whose decision shall be final, conclusive and
binding on the parties, shall resolve the dispute, in a fair and equitable
manner and in accordance with applicable Tax law and the provisions of this
Agreement, by selecting, for each item in dispute, the proposed amount for such
item submitted by one party or the other party within 10 days after the parties
have presented their arguments to the Tax Dispute Accountants; (v)
notwithstanding any other provision of this Agreement, any payment to be made as
a result of the resolution of a dispute shall be made, and any other action to
be taken as a result of the resolution of a dispute shall be taken, on or before
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the later of (x) the date on which such payment or action would otherwise be
required or (y) the third business day following the date on which the dispute
is resolved (in the case of a dispute resolved by the Tax Dispute Accountants,
such date being the date on which the parties receive written notice from the
Tax Dispute Accountants of their resolution); PROVIDED, that if a dispute with
respect to an item in a Tax Return shall not be resolved on or before the date
that is three business days prior to the latest date on which such Tax Return
may be filed under applicable Tax law, then the party having the responsibility
for filing such Tax Return shall file such Tax Return reflecting all disputed
items that have been resolved in the manner so resolved, and reflecting all
unresolved disputed items in the manner proposed by such party, and shall, if
necessary, upon the resolution of all such unresolved disputed items, file an
amended Tax Return reflecting the resolution thereof in the manner so resolved;
and (VI) the fees and expenses of the Tax Dispute Accountants in resolving a
dispute will be borne equally by the Buyer and the Seller.
(l) COOPERATION ON TAX MATTERS.
(i) The Buyer and the Seller shall (and shall cause their
respective affiliates to) cooperate with the other, with respect to the
preparation or filing of any Tax Returns referred to in Section 5.7(e)
or (f) and any Tax audit or administrative or court proceeding referred
to in Section 5.7(j). Such cooperation shall include providing such
information (including access to books and records) relating to any
Company or any Company Subsidiary as is reasonably necessary for the
preparation or filing of any such Tax Return or the preparation of any
such audit, proceeding, prosecution or defense and making personnel
available at and for reasonable times, including, without limitation,
to prepare responses to any taxing authority's requests for
information, PROVIDED that the foregoing shall be done in a manner so
as not to interfere unreasonably with the conduct of the business of
the parties.
(ii) Each of the Buyer and the Seller agrees to retain or
cause to be retained all books, records, Returns, schedules, documents,
work papers and other material items of information relating to Taxes
with respect to the Companies and the Company Subsidiaries for the
longer of (x) the seven-year period beginning on the Closing Date or
(y) the full period of the applicable statute of limitations, including
any extension thereof, and to abide by all record retention agreements
entered into with any taxing authority. Each of the Buyer and the
Seller agrees to give each other reasonable notice prior to
transferring, discarding or destroying any such materials relating to
Taxes with respect to the Companies and the Company Subsidiaries, and,
if the other party so requests, to allow the other party to take
possession of such materials.
(m) TAX TREATMENT. Any indemnity payment made pursuant to this
Section 5.7 shall be treated as an adjustment to the Purchase Price for Tax
purposes unless otherwise required by law.
(n) INDEMNIFICATION RIGHTS. At the Closing, the Buyer shall cause
each Company and Company Subsidiary to assign to the Seller all rights to
indemnification for any Pre-Closing Taxes under acquisition agreements to which
such Company or Company Subsidiary is a party.
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5.8. EMPLOYEE BENEFITS. Following the Closing Date, the Buyer
shall, or shall cause its subsidiaries and affiliates to, honor in accordance
with their terms all employment, severance and other compensation agreements and
arrangements existing on or prior to the execution of this Agreement, which are
set forth in Section 5.8 of the Seller Disclosure Letter or which were signed or
approved by any shareholder of the Buyer. The Buyer further agrees to, on an
ongoing basis, furnish coverage under the Companies' group health plans which
satisfies the provisions of Section 4980B of the Code and Sections 601 through
609 of ERISA with respect to employees of the Companies and the Company
Subsidiaries (whether their employment terminated before or after the Closing
Date) and their respective qualified beneficiaries.
5.9. NO INTER-COMPANY OBLIGATIONS. On or prior to the Closing
Date, the Seller shall take, and shall cause the Companies and the Company
Subsidiaries to take, any and all actions so that, other than as contemplated by
this Agreement including the exhibits and schedules hereto, as of or prior to
the Closing, all inter-company loans, accounts payable or account receivable
between the Seller and its subsidiaries (other than the Companies and the
Company Subsidiaries), on one hand, and the Companies and the Company
Subsidiaries, on the other hand, outstanding as of the date hereof shall be
forgiven.
5.10. ASSIGNMENT AND ASSUMPTION OF CERTAIN CONTRACTS. The parties
agree that, as soon as reasonably practicable after the date hereof but prior to
the Closing, Seller and/or certain of it subsidiaries shall assign to certain of
the Companies or Company Subsidiaries the contracts listed in Section 5.10 of
the Seller Disclosure Letter (which are necessary or desirable in the operation
of business of the Companies) pursuant to a form of assignment and assumption
agreement reasonably acceptable to the Seller and the Buyer.
ARTICLE VI
CLOSING CONDITIONS
6.1. CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE BUYER.
The respective obligations of each party to consummate the transactions
contemplated hereby shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) There shall not be in effect any statute, rule or
regulation enacted, promulgated or deemed applicable by any
governmental authority of competent jurisdiction that makes
consummation of the transactions contemplated hereby illegal and no
temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
transactions contemplated hereby shall be in effect; PROVIDED, HOWEVER,
that each of the parties shall use their commercially reasonable
efforts to prevent
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the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
(b) Each of the Seller, the Buyer and any other person (as
defined in the HSR Act and the rules and regulations thereunder)
required in connection with the transactions contemplated hereby to
file a Pre-Merger Notification and Report Form under the HSR Act with
the FTC and the Antitrust Division shall have made such filing and the
applicable waiting period with respect to each such filing (including
any extension thereof by reason of a request for additional
information) shall have expired or been terminated.
6.2. CONDITIONS TO THE OBLIGATIONS OF THE BUYER. The obligations
of the Buyer to effect the transactions contemplated hereby shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions
unless waived by Buyer.
(a) The representations and warranties of the Seller contained
in this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date.
(b) The Seller shall have, in all material respects, performed
all covenants and agreements and complied with all conditions required
by this Agreement to be performed or complied with by the Seller prior
to or on the Closing Date.
(c) The Seller shall have delivered to the Buyer a
certificate, as contemplated under and meeting the requirements of
section 1.1445-2(b)(2)(i) of the Treasury Regulations, to the effect
that the Seller is not a foreign person within the meaning of the Code
and applicable Treasury Regulations.
(d) There shall not have occurred any casualty loss to the
Companies which, after taking into account applicable insurance
coverage, has had a material adverse effect on the business or
financial condition of the Companies and the Company Subsidiaries taken
as a whole.
(e) The NCO Merger shall have been consummated in accordance
with the terms of the NCO Merger Agreement or is being consummated
simultaneously with the Closing.
6.3. CONDITIONS TO THE OBLIGATIONS OF THE SELLER. The obligations
of the Seller to effect the transactions contemplated hereby shall be subject to
the fulfillment, at or prior to the Closing Date, of the following conditions
unless waived by the Seller.
(a) The representations and warranties of the Buyer contained
in this Agreement shall be true and correct in all material respects as
of the date of this Agreement and as of the Closing Date as though made
on and as of the Closing Date.
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(b) The Buyer shall have, in all material respects, performed
all covenants and agreements and complied with all conditions required
by this Agreement to be performed or complied with by the Buyer prior
to or on the Closing Date.
(c) The NCO Merger shall have been consummated in accordance
with the terms of the NCO Merger Agreement; PROVIDED, HOWEVER, that if
(i) the NCO Merger Agreement has not been terminated, this condition
shall not be applicable if the Buyer delivers to the Seller fifteen
(15) days prior written notice that the Buyer is ready, willing and
able to pay the entire Purchase Price in cash at the Closing
accompanied by reasonable documentation demonstrating Buyer's financial
ability therefor, or (ii) if the NCO Merger Agreement has been
terminated, this condition shall not be applicable if the Buyer is
ready, willing and able to pay the entire Purchase Price in cash and
consummate the Closing before the later of June 30, 1999 or the
fifteenth (15th) day following the termination of the NCO Merger
Agreement, as evidenced by reasonable documentation demonstrating
Buyer's financial ability therefor.
(d) Unless the Closing is contemporaneous with the NCO Merger,
the lenders under Seller's existing credit agreement shall have given
their written consent to the sale of the Shares and the Related Assets,
if any, pursuant to this Agreement. The Seller shall use commercially
reasonable efforts to obtain such consent. If such lenders provide
their approval, Seller shall use commercially reasonable efforts to
satisfy any obligations or conditions imposed by such lenders without
looking to the Buyer for reimbursement or offset, including the payment
of all fees required by such lenders. If such lenders withhold their
consent or impose obligations or conditions that the Seller cannot
reasonably satisfy and this Agreement is terminated prior to the
Closing, then Seller shall be obligated to pay to Buyer up to
$1,000,000 of Buyer's documented out-of-pocket fees, cost and expenses
that Buyer incurs in connection with this transaction so long as (i)
Buyer is not in breach or default under this Agreement, (ii) but for
such consent Seller is otherwise obligated hereunder to consummate the
Closing and (iii) the Buyer is ready willing and able to consummate the
Closing hereunder by paying all of the Purchase Price in cash.
(e) The Seller shall have received either: (i) the written
consent from Petula Associates as lessor, to an assignment to the Buyer
and a novation fully releasing the Seller from its obligations under
that certain real property lease including any amendments thereto (the
"Petula Lease"), between the Seller and Petula Associates or (ii) on
the same terms and conditions as now exist, an assumption or sublease
of the Petula Lease by the Buyer, without a novation of the Seller, in
a form and substance reasonably acceptable to the Seller.
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ARTICLE VII
TERMINATION AND ABANDONMENT
7.1. Termination. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval by the stockholders of the
Seller:
(a) by mutual consent of the Board of Directors of the Seller
and the Board of Directors of the Buyer;
(b) by the Seller at any time after June 30, 1999, with
fifteen (15) days prior written notice to the Buyer if the NCO Merger
Agreement is terminated pursuant to its terms prior to the closing of
the NCO Merger, unless the Closing has occurred prior to such fifteenth
day pursuant to Section 6.3(c);
(c) by the Buyer if the NCO Merger Agreement is terminated
pursuant to its terms prior to the closing of the NCO Merger;
(d) by the Buyer by written notice to the Seller if any of the
conditions set forth in Sections 6.1 and 6.2 (including with respect to
any representations and warranties) shall not have been fulfilled by
October 31,1999, unless such failure shall be due to the failure of the
Buyer to perform or comply with any of the covenants, agreements or
conditions hereof to be performed or complied with by it prior to the
Closing; or
(e) by the Seller by written notice to the Buyer if any of the
conditions set forth in Sections 6.1 and 6.3 (including with respect to
any representations and warranties) shall not have been fulfilled by
August 31, 1999, unless such failure shall be due to the failure of the
Seller to perform or comply with any of the covenants, agreements or
conditions hereof to be performed or complied with by it prior to the
Closing.
7.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to the provisions of Section 7.1, except as expressly
provided in this Agreement, this Agreement shall become null and void and have
no effect, without any liability in respect hereof or of the transactions
contemplated hereby on the part of any non-breaching or non-defaulting party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders or affiliates. Notwithstanding the
termination of this Agreement, any breaching or defaulting party shall remain
fully liable hereunder for its breaches and defaults under this Agreement. The
Seller and the Buyer agree that the $2,000,000 (including any interest earned
thereon) and the Escrow Shares deposited by the Buyer Affiliates on behalf of
the Buyer pursuant to the Escrow Agreement and Section 1.2 hereof, shall be
immediately released and paid to the Seller as liquidated damages in the event
that the Agreement is terminated prior to the Closing solely as a result of a
breach or default by the Buyer under this Agreement. The Seller and the Buyer
also agree that such $2,000,000 (including any interest earned thereon) and the
Escrow Shares shall be immediately released to the Buyer Affiliates if this
Agreement is terminated prior to the Closing for any other reason. Each of the
Seller and the Buyer shall
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promptly execute and deliver to the Escrow Agent joint written instructions
consistent with the foregoing purposes. No termination of this Agreement shall
affect any rights or obligations of the parties under the Escrow Agreement.
ARTICLE VIII
DEFINED TERMS
8.1. DEFINITION OF CERTAIN TERMS. The terms defined in this
Section 8.1, whenever used in this Agreement (including in the Disclosure
Letters), 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 or Article are to a Section or Article of this Agreement, unless
otherwise indicated.
BENDER: as defined in the first recital of this Agreement.
BENDER SHARES: as defined in the first recital of this
Agreement.
BUYER: as defined in the first paragraph of this Agreement.
CLOSING: as defined in Section 2.1(a).
CLOSING DATE: as defined in Section 2.1(a).
CODE: shall mean the Internal Revenue Code of 1986, as
amended.
COMPANY OR COMPANIES: as defined in the first recital of this
Agreement.
COMPANY SUBSIDIARIES: means the entities listed on Section
3.1 of the Seller Disclosure Letter.
DISCLOSURE LETTERS: as defined in Section 4.1.
ESCROW SHARES: means 1,849,863 shares of common stock, $.01
par value per share, of the Seller and any shares of common stock, no par value,
of NCO which may be obtained or obtainable in exchange for such Seller shares
pursuant to the NCO Merger.
HSR ACT: as defined in Section 3.4.
LIENS: as defined in Section 3.1.
MAIL SERVICES: as defined in the first recital of this
Agreement.
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MAIL SERVICES SHARES: as defined in the first recital of
this Agreement.
METROWEBB: as defined in the first recital of this Agreement.
METROWEBB SHARES: as defined in the first recital of this
Agreement.
MWI: as defined in the first recital of this Agreement.
MWI SHARES: as defined in the first recital of this
Agreement.
NON-COMPANY AFFILIATE: shall mean any affiliate of the
Seller other than the Companies and the Company Subsidiaries.
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, governmental authority or other
entity.
PRE-CLOSING INCOME TAXES: shall mean (i) any Taxes
attributable to any taxable period ending on or prior to the Closing Date with
respect to any Company or Company Subsidiary, including any Taxes attributable
to any 338(h)(10) election pursuant to Section 5.7(b).
PRE-CLOSING INCOME TAX RETURNS: shall mean any Tax Returns
relating to any Pre- Closing Income Taxes.
PRINT & MAIL SERVICES: as defined in the first recital of this
Agreement.
PRINT & MAIL SERVICES SHARES: as defined in the first recital
of this Agreement.
PURCHASE PRICE: as defined in Section 2.2(a).
SELLER: as defined in the first paragraph of this Agreement.
SELLER DISCLOSURE LETTER: as defined in Section 3.1.
SHARES: as defined in the first recital of this Agreement.
TAX DISPUTE ACCOUNTANTS: shall have the meaning as
defined in Section 5.7(g).
TAX DISPUTE RESOLUTION MECHANISM: shall have the meaning as
defined in Section 5.7(g).
TAXES: shall mean all federal, state, local and foreign income
taxes (and state franchise taxes measured by or based on income), and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties applicable
thereto.
23
<PAGE> 24
TAX RETURNS: shall mean all federal, state, local and foreign
tax returns, declarations, statements, reports, schedules, forms and information
returns and any amendments to any of the foregoing relating to Taxes.
TREASURY REGULATIONS: shall mean the regulations prescribed
under the Code.
ARTICLE IX
MISCELLANEOUS
9.1. AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of the Buyer and the Seller, at any time prior to the Closing Date
with respect to any of the terms contained herein.
9.2. WAIVER OF COMPLIANCE; CONSENTS. Any failure of the
Seller, on the one hand, or the Buyer, on the other hand, to comply with any
obligation, covenant, agreement or condition herein may be waived by the Seller
or the Buyer, respectively, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.2.
9.3. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES UPON
CLOSING. Each and every representation and warranty contained in this Agreement
shall survive the date of this Agreement but shall expire and terminate upon
consummation of the Closing.
9.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if (a) delivered personally or by
overnight courier, (b) mailed by registered or certified mail, return receipt
requested, postage prepaid, or (c) transmitted by telecopy, and in each case,
addressed to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice; provided that notices of a
change of address shall be effective only upon receipt thereof):
(a) if to the Buyer, to:
Swiss-Irish Enterprises, Inc.
3700 Pipestone Road
Dallas, Texas 75212
Telecopy: (214) 637-4286
Attention: Kenneth W. Murphy
24
<PAGE> 25
with a copy to
Cleave Buchanan
13111 North Central Expressway
Suite 300
Dallas, Texas 75243
Telecopy: (972) 644-8088
(b) if to the Seller, to
Compass International Services Corporation
One Penn Plaza
Suite 4430
New York, New York 10119
Telecopy: (212) 629-4925
Attention: Julie Schechter, Esq.
with a copy to
Katten Muchin & Zavis
525 West Monroe Street
Chicago, Illinois 60661
Telecopy: 312-902-1061
Attention: Howard S. Lanznar, Esq.
and so long as the NCO Merger Agreement has not been
terminated, with additional copies to
NCO Group, Inc.
565 Pennsylvania Avenue
P.O. Box 7002
Fort Washington, PA 19034
Telecopy: (215) 793-2929
Attention: Joshua Ginden, Esq.
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Telecopy: (215) 569-5555
Attention: Francis E. Dehel, Esq.
25
<PAGE> 26
Any notice so addressed shall be deemed to be given (X) three business days
after being mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid and (Y) upon delivery, if transmitted by hand
delivery, overnight courier or telecopy.
9.5. ASSIGNMENT; PARTIES IN INTEREST. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. Any party may assign
its rights hereunder so long as the assignee agrees in writing to be bound by
this Agreement.
9.6. EXPENSES. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses.
9.7. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
9.8. GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Delaware, without giving effect to the conflict of laws
rules thereof to the extent such rules would permit the application of the laws
of another jurisdiction.
9.9. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.10. INTERPRETATION. The article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
9.11. ENTIRE AGREEMENT. This Agreement, including the
Disclosure Letters and the Confidentiality Agreement, embody the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and supersedes all prior agreements and the
understandings between the parties with respect to such subject matter.
9.12. SEVERABILITY. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provision in question invalid, inoperative or
unenforceable in any other case or circumstance, or of rendering any other
provision herein contained invalid, inoperative, or unenforceable to any extent
whatsoever.
26
<PAGE> 27
9.13. WAIVER OF JURY TRIAL; PROCESS AND LEGAL COSTS. In any
action between or among any of the parties, whether arising out of this
Agreement or otherwise (a) each of the parties irrevocably waives the right to
trial by jury and (b) each of the parties irrevocably consents to service of
process by first class certified mail, return receipt requested, postage
prepaid, to the address at which such party is to receive notice in accordance
with Section 9.4 and (c) the prevailing parties shall be entitled to recover
their reasonable attorneys' fees and court costs from the other parties.
9.14. INTERPRETATION OF REPRESENTATIONS; DISCLOSURE LETTERS.
Each representation and warranty made in this Agreement or pursuant hereto is
independent of all other representations and warranties made by the same
parties, whether or not covering related or similar matters, and must be
independently and separately satisfied. Exceptions or qualifications to any such
representation or warranty shall not be construed as exceptions or
qualifications to any other representation or warranty. The parties acknowledge
that the Disclosure Letters (i) relate to certain matters concerning the
disclosures required and transactions contemplated by this Agreement, (ii) are
qualified in their entirety by reference to specific provisions of this
Agreement, (iii) are not intended to constitute and shall not be construed as
indicating that such matter is required to be disclosed, nor shall such
disclosure be construed as an admission that such information is material with
respect to the Seller, the Companies, the Company Subsidiaries or the Buyer, as
the case may be, except to the extent required by this Agreement, and (iv)
disclosure of the information contained in one section or part of a Disclosure
Letter shall be deemed as proper disclosure for all sections or parts of such
Disclosure Letter, only if appropriately cross-referenced or if the relevance
thereof is reasonably apparent from the context in which it appears
9.15. KNOWLEDGE OF CERTAIN BUYER AFFILIATES. Notwithstanding
anything to the contrary in this Agreement, the Seller shall have no liability
for, and the Buyer shall have no right to terminate this Agreement due to, the
breach or alleged breach by the Seller of any of the Seller's representations
and warranties contained herein resulting from the failure to disclose any item
if and to the extent that such item was known by Kenneth Murphy, the President
of the Print & Mail Division of the Seller.
9.16 FURTHER ASSURANCES. Each party agrees that it and its
agents shall execute and deliver or cause to be executed and delivered from time
to time such instruments, documents, agreements, and assurances and take such
other action as the other party may reasonably request to more effectively
assign and transfer to and vest the Buyer with all right, title and interest in
and to the Shares and the Related Assets, if any.
* * * *
27
<PAGE> 28
IN WITNESS WHEREOF, the Buyer and the Seller have caused this
Stock Purchase Agreement to be signed by their respective duly authorized
officers as of the date first above written.
BUYER: SWISS-IRISH ENTERPRISES, INC.
By /s/ KENNETH W. MURPHY
---------------------------
Name: Kenneth W. Murphy
Title: President
SELLER: COMPASS INTERNATIONAL
SERVICES CORPORATION
By /s/ MICHAEL J. CUNNINGHAM
--------------------------
Name: Michael J. Cunningham
Title: Chairman
28
<PAGE> 29
Exhibit 1.2A to
Stock Purchase Agreement
ESCROW AGREEMENT
----------------
This ESCROW AGREEMENT (this "Escrow Agreement") is entered into as of
May 12, 1999, by and among Compass International Services Corporation, a
Delaware corporation (the "Seller"), Swiss-Irish Enterprises, Inc., a Texas
corporation (the "Buyer"), and Harris Trust and Savings Bank, an Illinois
banking corporation, as Escrow Agent ("Escrow Agent"). Buyer and Seller are
hereinafter sometimes referred to collectively as the "Parties."
RECITALS
--------
A. The Parties have entered into that certain Stock Purchase Agreement
(the "Purchase Agreement"), dated as of the date hereof, pursuant to which the
Buyer proposes to purchase all of the issued and outstanding shares of certain
of the Seller's subsidiaries.
B. Concurrently with the execution of the Purchase Agreement, the
Seller is entering into an Agreement and Plan of Merger (the "NCO Merger
Agreement") with NCO Group, Inc., a Pennsylvania corporation ("NCO"), pursuant
to which the Seller is to be merged with a wholly-owned subsidiary of NCO (the
"NCO Merger").
C. Pursuant to Section 1.2 of the Purchase Agreement, Buyer is required
to deposit or cause to be deposited (i) the amount of Two Million Dollars
($2,000,000) and (ii) 1,849,863 shares of common stock of the Seller and any
shares of common stock of NCO which may be obtained in exchange for such
1,849,863 shares of common stock of Seller pursuant to the NCO Merger Agreement
(the "Escrow Shares"), into the escrow created by this Escrow Agreement, which,
together with any interest accrued thereon in accordance with the provisions of
Section 4 hereof, shall be referred to as the "Escrow Funds."
D. The Escrow Funds are intended to serve as a guaranty of the
obligations of the Buyer under the Purchase Agreement and shall be paid to the
Seller as liquidated damages in the event that Buyer breaches the Purchase
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises set forth above and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. GOVERNING AGREEMENT. The Escrow Agreement shall govern the terms
upon which the Escrow Agent shall distribute the Escrow Funds to Buyer and
Seller. Notwithstanding the foregoing or anything else to the contrary contained
herein or in the Purchase Agreement, Escrow Agent shall not be required to make
a determination as to whether the Buyer has breached the terms of the Purchase
Agreement.
<PAGE> 30
2. APPOINTMENT OF ESCROW AGENT. Escrow Agent is hereby appointed
escrow agent in accordance with the instructions specifically set forth herein,
and no implied covenants or obligations shall be read into this Escrow Agreement
against the Escrow Agent.
3. DISTRIBUTION OF ESCROW FUNDS. The Escrow Agent shall only
distribute the Escrow Funds as directed in joint written instructions from the
Buyer and the Seller or as ordered by a Final Decision (as hereinafter defined).
As used herein, "Final Decision" means a decision, order, judgment or decree of
an arbitrator or court having jurisdiction which is either not subject to appeal
or as to which notice of appeal has not been timely filed or served. Such Final
Decision shall be accompanied by a legal opinion of counsel for the presenting
party satisfactory to the Escrow Agent to the effect that said decision order,
judgment or decree is final and enforceable and is not subject to further
appeal. The Escrow Agent shall act on such Final Decision and legal opinion
without further question.
4. ESCROW ACCOUNT INTEREST. The Escrow Funds shall be credited by
Escrow Agent and recorded in an escrow account. Escrow Agent shall be permitted
and is hereby authorized to deposit, transfer, hold and invest all of the cash
portion of the Escrow Funds, including principal and interest, in the J.P.
Morgan Institutional Service Prime Money Market Fund , a money market fund
and/or as jointly directed by the Buyer and the Seller to the Escrow Agent
during the period of this escrow in accordance with such instructions and
directions as may from time to time be provided to Escrow Agent in writing and
signed by the Buyer and the Seller. Any interest received by Escrow Agent with
respect to the Escrow Funds, including reinvested interest shall become part of
the Escrow Funds. The parties acknowledge that the Escrow Agent shall not be
responsible for any diminution in the Escrow Account as a result of losses
resulting from investments. The Escrow Agent may use its own Bond Department in
executing purchases and sales of permissible investments.
5. NOTICES. All notices, payment, and distributions required or
permitted to be given or delivered hereunder shall be deemed to have been
properly given or delivered to the following addresses, if delivered in person,
or, mailed, on the second business day following the date when mailed by
registered or certified mail, postage prepaid and addressed as follows:
If to Buyer: Swiss-Irish Enterprises, Inc.
3700 Pipestone Road
Dallas, Texas 75212
Attention: Kenneth W. Murphy
Facsimile No.: 214-637-4286
If to Seller: Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, NY 10119
Attention: Julie Schechter
Facsimile No.: 212-967-0650
2
<PAGE> 31
with copy to: NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washington, PA 19034
Attention: Paul Weitzel
Facsimile No.: 215-793-2908
If to Escrow Agent: Harris Trust and Savings Bank
311 W. Monroe Street, 12th Floor
Chicago, Illinois 60606
Attention: Escrow Division - Linda Garcia
Facsimile No.: 312-461-3525
Wires to Escrow Agent should be directed to the following:
Harris Trust and Savings Bank
ABA # 071000288
A/C # 109-211-3
Attn: Linda Garcia
or such other address as a party shall designate by written notice to all other
parties to the Escrow Agreement.
6. RELIANCE. Escrow Agent may act upon any instrument or other writing
believed by it in good faith to be genuine and to be signed or presented by the
proper person or persons and shall not be liable in connection with the
performance by it of its duties pursuant to the provisions hereof, except for
its own willful default or gross negligence. Buyer and Seller shall, jointly and
severally, indemnify and save harmless the Escrow Agent for all losses, costs,
and expenses which may be incurred by it without gross negligence or willful
misconduct on the part of Escrow Agent, arising out of or in connection with its
entering into this Escrow Agreement and carrying out its duties hereunder.
7. TERMINATION OF ESCROW. This escrow shall terminate upon a
distribution of all of the Escrow Funds to the Parties as set forth herein.
8. FEES AND EXPENSES. The Escrow Agent shall be entitled to
compensation for its services as stated in the fee schedule attached hereto as
Exhibit A, which compensation shall be paid equally by Buyer, on the one hand,
and Seller, on the other hand. The fee agreed upon for the services rendered
hereunder is intended as full compensation for the Escrow Agent's services as
contemplated by this Agreement; PROVIDED, HOWEVER, that in the event that the
conditions for the disbursement of funds under this Agreement are not fulfilled,
or the Escrow Agent renders any material service not contemplated in this
Agreement or there is any assignment of interest in the subject matter of this
Agreement, or any material modification hereof, or if any material controversy
arises hereunder, or the Escrow Agent is made a party to any litigation
pertaining to this Agreement, or the subject matter hereof, then the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs and expenses, including
3
<PAGE> 32
reasonable attorney's fees, occasioned by any delay, controversy, litigation or
event, and the same shall be recoverable jointly and severally from Seller and
Buyer, with each of Buyer and Seller having a right of contribution for one-half
of such recovery from the other party. To the extent such fees and expenses are
not paid by Buyer or Seller, the foregoing shall be paid from the Escrow Account
after written notice from the Escrow Agent to Buyer and Seller.
9. INDEMNIFICATION OF ESCROW AGENT. Buyer and Seller, jointly and
severally, hereby indemnify and hold harmless the Escrow Agent from and against,
any and all loss, liability, cost, damage and expense, including, without
limitation, reasonable counsel fees, which the Escrow Agent may suffer or incur
by reason of any action, claim or proceeding brought against the Escrow Agent
arising out of or relating in any way to this Agreement or any transaction to
which this Agreement relates unless such action, claim or proceeding is the
result of the willful misconduct of the Escrow Agent. The Escrow Agent may
consult counsel in respect of any question arising under the Agreement and the
Escrow Agent shall not be liable for any action taken or omitted in good faith
upon advice of such counsel. The costs and expenses of enforcing this right of
indemnification shall also be paid by Buyer and Seller. This right of
indemnification shall survive the termination of this Escrow Agreement and the
removal or resignation of the Escrow Agent.
10. ACCEPTANCE OF APPOINTMENT. Harris Trust and Savings Bank hereby
agrees to act as Escrow Agent under this Escrow Agreement. Escrow Agent shall
have no duty to enforce any provision hereof requiring performance by any other
party hereunder. In no event shall the Escrow Agent be liable to any party
hereto for any special, indirect or consequential loss or damage of any kind
whatsoever, even if Escrow Agent has been previously advised of such loss or
damage.
11. COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
12. RESIGNATION. Escrow Agent may resign upon thirty (30) day's advance
written notice to the parties hereto. If a successor escrow agent is not
appointed within the thirty (30) day period following such notice, Escrow Agent
may petition any court of competent jurisdiction to name a successor escrow
agent.
13. GOVERNING LAW. This Agreement shall be construed, performed, and
enforced in accordance with, and governed by, the internal laws of the State of
Illinois without giving effect to the principles of conflict of laws thereof.
14. AMENDMENTS. This Agreement may be amended or modified, and any of
the terms, covenants, representations, warranties, or conditions hereof may be
waived, only by a written instrument executed by all of the parties hereto, or
in the case of a waiver, by the party waiving compliance. Any waiver by any
party of any condition, or of the breach of any provision, term, covenant,
representation, or warranty contained in the Agreement, in any one or more
instances, shall not be deemed to be nor construed as further or continuing
waiver of any such conditions,
4
<PAGE> 33
or of the breach of any other provision, term, covenant, representation, or
warranty of this Agreement.
15. SECTION HEADINGS. The section headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
16. SEVERABILITY. In the event that any part of this Agreement is
declared by any court or other judicial or administrative body to be null, void,
or unenforceable, said provision shall survive to the extent it is not so
declared, and all of the other provisions of this Agreement shall remain in full
force and effect.
BUYER:
SWISS-IRISH ENTERPRISES, INC.
By:_________________________________
Its:________________________________
SELLER:
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:_________________________________
Its:________________________________
ESCROW AGENT:
HARRIS TRUST AND SAVINGS BANK,
as Escrow Agent
By: _________________________________
Its:_________________________________
5
<PAGE> 34
CORPORATE TRUST SERVICES
Exhibit A
Schedule of Fees
as
Escrow Agent
for
Compass International Services Corporation and
Swiss-Irish Enterprises, Inc.
Acceptance Fee ......................................................$ 1,500
- in-house legal review of escrow document
- administrative review of documents
- establishment of appropriate accounts
- participation in pre-closing and closing
Annual Administration Fee............................................$ 2,500
- routine administrative functions under the agreement
- custody of investments
Activity Fees
- deposit, delivery of securities (per event)................$ 35
- deposit of funds...........................................$ 20
- disbursement (checks, wires, etc.).........................$ 20
- international wires........................................$ 40
- purchases, sales of individual securities (per event)......$ 100
- investment in selected money market mutual funds...........No Charge
- asset/transaction report (per statement)...................$ 10
Out of Pocket
Additionally, the cost of items that can be directly allocated such as
postage, telephone, overnight delivery, etc. incurred during the routine
administration of the agreement will be billed separately.
Acceptance of the appointment as escrow agent is contingent upon our mutual
agreement to and execution of an escrow document.
This schedule applies to Escrow Agent appointments requiring the usual amount
of responsibility, time and attention. Fees are subject to reasonable
adjustment as changes in laws, procedures, or costs of doing business demand. If
in any specific situation, the agent's duties and responsibilities are greater
than customary or additional work becomes necessary because of the imposition
of governmental legislation or regulation, we reserve the right to adjust our
fees. Fees for services not specifically covered in this schedule will be
assessed in an amount commensurate with the services rendered. The acceptance
fee and first year's administration fee are billed at closing.
Harris Trust and Savings Bank [HARRIS BANK LOGO] Vicki Buresh
111 West Monroe (312) 461-1385
Chicago, IL 60603 5/10/99
<PAGE> 35
EXHIBIT 1.2-B
-------------
May 12, 1999
Compass International Services Corporation
One Penn Plaza, Suite 4430
New York, New York 10119
Reference is made to that certain Stock Purchase Agreement (the
"Purchase Agreement") dated as of May 12, 1999 between Compass International
Services Corporation, a Delaware corporation (the "Seller"), and Swiss-Irish
Enterprises, Inc., a Texas corporation (the "Buyer"), and to that certain Escrow
Agreement dated as of May 12, 1999 between the Seller, the Buyer and Harris
Trust and Savings Bank, as escrow agent (the "Escrow Agreement"). Capitalized
terms used but not defined herein are used herein as defined in the Purchase
Agreement.
In order to induce the Seller to enter into the Purchase Agreement, and
for other good and valuable consideration, the receipt and sufficiency of which
I hereby acknowledge, I hereby represent, warrant, acknowledge and agree as
follows:
1. On the date hereof, I will deposit or will cause to be
deposited into the escrow created by the Escrow Agreement (the
"Escrow Account"), the amount of cash and shares of Seller
Common Stock set forth across from my name on EXHIBIT A
attached hereto.
2. I have good and marketable title to the Escrow Shares being
deposited into the Escrow Account by me and such Escrow Shares
shall be deposited into the Escrow Account free and clear of
all Liens or claims whatsoever.
3. I understand and agree that such Escrow Shares and cash are
subject to the terms and conditions of the Purchase Agreement
and the Escrow Agreement, which shall be controlling in all
events and binding upon me.
4. I UNDERSTAND AND AGREE THAT PURSUANT TO THE TERMS AND
CONDITIONS OF THE PURCHASE AGREEMENT AND THE ESCROW AGREEMENT,
SUCH ESCROW SHARES AND CASH MAY BE FORFEITED TO THE SELLER AS
DAMAGES OR LIQUIDATED DAMAGES PURSUANT TO THE PURCHASE
AGREEMENT AND/OR THE ESCROW AGREEMENT WITHOUT ANY FURTHER
NOTICE TO ME OR CONSENT ON MY PART.
5. I have had the opportunity to confer with anyone of my choice
(including an attorney) concerning this letter agreement, the
Purchase Agreement and the Escrow
<PAGE> 36
Compass International Services Corporation
May , 1999
Page 1
Agreement. I additionally have had ample time to consider this
letter agreement and am executing it voluntarily with an
intent to be legally bound by it.
Sincerely,
---------------------------
<PAGE> 1
Exhibit 2.3
May 12, 1999
Kenneth W. Murphy
3700 Pipestone Road
Dallas, Texas 75212
Dear Ken:
Reference is made to that certain Stock Purchase Agreement (the
"Purchase Agreement") dated as of May 12, 1999 between Compass International
Services Corporation, a Delaware corporation (the "Seller"), and Swiss-Irish
Enterprises, Inc., a Texas corporation (the "Buyer"), an entity controlled by
you. Capitalized terms used but not defined herein are used herein as defined in
the Purchase Agreement.
As President of the Print and Mail Division of the Seller, you have had
and will continue to have significant ability to influence the operations of the
Companies and the Company Subsidiaries prior to the closing under the Purchase
Agreement. You have indicated that, in your capacity as President of the Print
and Mail Division of the Seller, you will use your best efforts to cause the
Seller to comply with its agreements and covenants contained in the Purchase
Agreement.
In order to induce the Seller to enter into the Stock Purchase
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by you, you have agreed that, from
the date hereof until the earlier of (i) the consummation of the transactions
contemplated by the Purchase Agreement and (ii) the termination of the Purchase
Agreement in accordance with its terms, you shall cause the Companies and the
Company Subsidiaries to conduct their respective operations according to its
ordinary course of business consistent with past practices. You agree that
without the written consent of an executive officer of the Seller, you shall not
permit the Companies or the Company Subsidiaries to take any business action
which cannot be funded from the existing financial resources of the Companies
and the Company Subsidiaries, without the Seller or any of its subsidiaries
(including the Companies and Company Subsidiaries) incurring any additional
indebtedness or future liabilities. You also agree that you shall obtain the
prior written consent of the Seller prior to taking any significant personnel
action with respect to the Print and Mail Division. For purposes of this letter,
a "significant personnel action" means a termination of any officer of the Print
and Mail Division or any of its subdivisions, an increase of the compensation of
any Print and Mail Division personnel, except for normal cost-of-living or merit
increases for non-officer employees, an increase in the compensation of or
entering into an employment contract with any officer of the Print and Mail
Division or any of its subdivisions, or an implementation of a change to the
existing employee benefit and 401(k) plans.
<PAGE> 2
You acknowledge hereby that (i) you have read and reviewed the entire
Purchase Agreement including the Seller Disclosure Letter and the other exhibits
and schedules thereto and (ii) to your knowledge, all of the representations and
warranties made by the Seller therein are true and correct in all material
respects.
Please indicate your agreement to the foregoing by signing a copy of
this letter in the space provided below.
Sincerely,
Compass International Services Corporation
By: /s/ MICHAEL J. CUNNINGHAM
---------------------------
Its: Chairman
---------------------------
Agreed:
/s/ KENNETH W. MURPHY
- --------------------------
Kenneth W. Murphy
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDMENT
THIS FOURTH AMENDMENT dated as of March 30, 1999 (this "Fourth
Amendment") amends the Credit Agreement dated as of March 17, 1998 (as amended,
the "Credit Agreement") among COMPASS INTERNATIONAL SERVICES CORPORATION (the
"Company"), various financial institutions and Bank of America National Trust
and Savings Association, as Administrative Agent. Terms defined in the Credit
Agreement are, unless otherwise defined herein or the context otherwise
requires, used herein as defined therein.
WHEREAS, the Company, the Lenders and the Agent desire to amend the
Credit Agreement as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1 AMENDMENTS. Effective on (and subject to the occurrence of)
the Fourth Amendment Effective Date (as defined below), the Credit Agreement
shall be amended as set forth below:
SECTION 1.1 ADDITION OF DEFINITIONS. The following definitions are
added to Section 1.1 in appropriate alphabetical sequence:
SENIOR FUNDED DEBT means all Funded Debt other than Subordinated Debt.
SENIOR LEVERAGE RATIO means, as of any date, the ratio of (i)
the aggregate outstanding principal amount of all Senior Funded Debt as
of such date to (ii) EBITDA for the Computation Period most recently
ended on or before such date for which financial statements have been
delivered pursuant to SECTION 7.1.
SECTION 1.2 AMENDMENT OF DEFINITION OF EBITDA. The definition of EBITDA
in Section 1.1 is amended by deleting the reference to "Borrowing Availability
Amount" therein and substituting the following language therefor "Senior
Leverage Ratio and for purposes of the first proviso to the paragraph of text in
SCHEDULE 1.1" therefor.
SECTION 1.3 AMENDMENT OF DEFINITION OF INDEBTEDNESS. The definition of
Indebtedness in Section 1.1 is amended by adding the following clause
immediately prior to the semicolon at the end of clause (b) therein:
", including all obligations of the Company or any of its
Subsidiaries to pay cash earn-outs or similar items (including
the cash earn-outs listed on SCHEDULE 8.5), it being
understood that the amount of Indebtedness arising with
respect to any cash earn-out or similar item shall be the
maximum amount reasonably expected to be payable thereunder".
SECTION 1.4 AMENDMENT TO SECTION 2.1. The proviso to Section 2.1 is
amended in its entirety to read as follows:
"PROVIDED that, after giving effect to any Borrowing of Loans,
the Outstandings shall not exceed the Commitment Amount."
<PAGE> 2
SECTION 1.5 AMENDMENT TO SECTION 2.3(a)(ii)(A). The proviso to Section
2.3(a)(ii)(A) is deleted.
SECTION 1.6 AMENDMENT TO SECTION 2.7. Section 2.7 is amended in its
entirety to read as follows:
"2.7 [Intentionally Deleted.] "
SECTION 1.7 AMENDMENT TO SECTION 2.10(b). Section 2.10(b) is amended by
deleting the words "and at any time that the Borrowing Availability Amount is
less than the Commitment Amount" at the end of such section.
SECTION 1.8 ADDITION OF SECTION 2.10(c). The following SECTION 2.10(c)
is added in appropriate numerical sequence:
"(c) TERMINATION FEES. The Company shall pay to the
Administrative Agent for the account of each Lender a
termination fee in the amount of (i) 0.25% of such Lender's
Percentage of the Commitment Amount (as in effect on March 30,
1999, subject to any changes resulting from assignments) if
the Commitments are terminated on or before July 31, 1999,
(ii) 0.15% of such Lender's Percentage of the Commitment
Amount ( as in effect on March 30, 1999, subject to any
changes resulting from assignments) if the Commitments are
terminated after July 31, 1999 but on or before September 30,
1999 and (iii) 0.10% of such Lender's Percentage of the
Commitment Amount (as in effect on March 30, 1999, subject to
any changes resulting from assignments) if the Commitments are
terminated after September 30, 1999 but on or before December
31, 1999."
SECTION 1.9 AMENDMENT TO SECTION 3.1(a)(i)(B)(1). Section
3.1(a)(i)(B)(1) is amended by deleting the words "or the Borrowing Availability
Amount" at the end of such clause.
SECTION 1.10 AMENDMENT TO SECTION 8.4(h). Section 8.4(h) is amended by
(a) deleting the word "and" immediately before clause (vi) therein and (b)
adding the following provisions immediately prior to the semicolon at the end of
such section:
"and (vii) the Leverage Ratio is less than 2.00 to 1.0 for the
two consecutive fiscal quarters immediately preceding such
Acquisition; IT BEING UNDERSTOOD that the Company and its
Subsidiaries shall not be permitted to consummate Acquisitions
pursuant to this clause (h) prior to January 1, 2000"
SECTION 1.11 AMENDMENT TO SECTION 8.5. Section 8.5 is amended by (a)
deleting the word "and" at the end of clause (i) therein, (b) deleting the
existing clause (j) therein and substituting the following therefor:
"(j) Indebtedness incurred in connection with the
notes and cash earn-outs described on Schedule 8.5; and
<PAGE> 3
(k) after all of the notes and cash earn-outs
described on SCHEDULE 8.5 are repaid in full, other
Indebtedness in an aggregate amount not at any time exceeding
$1,000,000."
SECTION 1.12 AMENDMENT TO SECTION 8.11. Section 8.11 is amended in its
entirety to read as follows:
"8.11 MAXIMUM LEVERAGE RATIO. The Company will not permit
the Leverage Ratio to exceed the applicable ratio set forth
below during any period set forth below:
Period: Leverage Ratio:
------- ---------------
12/31/98 through 3/30/99 2.50 to 1.0
3/31/99 through 6/29/99 3.00 to 1.0
6/30/99 through 9/30/99 2.75 to 1.0
10/1/99 through 9/30/00 2.50 to 1.0
10/1/00 and thereafter 2.25 to 1.0."
SECTION 1.13 AMENDMENT TO SECTION 8.12. Section 8.12 is amended in its
entirety to read as follows:
"8.12 DEBT TO CAPITALIZATION RATIO. The Company shall not as
of the end of any fiscal quarter permit the ratio of (a)
Funded Debt to (b) the sum of Funded Debt plus the Company's
consolidated stockholders' equity to be greater than the
applicable ratio set forth below:
Fiscal Quarter Ending: Debt to Capitalization Ratio
---------------------- ----------------------------
3/31/99 0.45 to 1.0
6/30/99 0.42 to 1.0
9/30/99 and 12/31/99 0.40 to 1.0
3/31/00 and thereafter 0.375 to 1.0
SECTION 1.14 ADDITION OF COVENANT. The following new Section 8.22 is
added in appropriate numerical sequence:
"8.22 MAXIMUM SENIOR LEVERAGE RATIO. The Company will not
permit the Senior Leverage Ratio to exceed the applicable
ratio set forth below during any period set forth below:
Period: Senior Leverage Ratio:
------- ----------------------
6/30/99 through 9/30/99 2.50 to 1.0
10/1/99 through 9/30/00 2.25 to 1.0
10/1/00 and thereafter 2.00 to 1.0."
SECTION 1.15 AMENDMENT TO SCHEDULE 1.1. Schedule 1.1 is amended in its
entirety to read as set forth on Schedule 1.1 hereto.
SECTION 1.16 ADDITION OF SCHEDULE 8.5. SCHEDULE 8.5 hereto is added in
appropriate numerical sequence.
<PAGE> 4
SECTION 2 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Agent and the Lenders that (a) each representation and warranty
set forth in Section 6 of the Credit Agreement is true and correct as of the
date of the execution and delivery of this Fourth Amendment by the Company, with
the same effect as if made on such date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date); (b) the execution and
delivery by the Company of this Fourth Amendment and the performance by the
Company of its obligations under the Credit Agreement as amended hereby (as so
amended, the "Amended Credit Agreement"), (i) are within the corporate powers of
the Company, (ii) have been duly authorized by all necessary corporate action on
the part of the Company, (iii) have received all necessary governmental and
regulatory approval and (iv) do not and will not contravene or conflict with, or
result in or require the creation or imposition of any Lien under, any provision
of law or of the charter or by-laws of the Company or any Subsidiary or of any
agreement, instrument, order or decree which is binding upon the Company or any
Subsidiary; and (c) the Amended Credit Agreement is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its respective terms, except as enforceability may be limited by bankruptcy,
insolvency or other similar laws of general application affecting the
enforcement of creditors' rights or by general principles of equity limiting the
availability of equitable remedies.
SECTION 3 EFFECTIVENESS. The amendments set forth in Section 1 above
shall become effective on the date (the "Fourth Amendment Effective Date") when
the Administrative Agent shall have received each of the following documents,
each in form and substance satisfactory to the Administrative Agent:
(a) counterparts of this Fourth Amendment executed by the Company, the
Required Lenders and the Administrative Agent (it being understood that the
Administrative Agent may conclusively rely on any counterpart signature hereof
received by facsimile);
(b) a certificate of the secretary or an assistant secretary of the
Company as to:
(i) resolutions of the Board of Directors of the Company
authorizing the execution and delivery of this Fourth Amendment and the
performance by the Company of its obligations under the Amended Credit
Agreement, and
(ii) the incumbency and signatures of those of its officers
authorized to execute and deliver this Fourth Amendment;
(c) a Confirmation, executed by the Company and each Subsidiary,
substantially in the form of EXHIBIT A hereto;
(d) a legal opinion of Katten Muchin & Zavis, counsel to the Company,
in form and substance satisfactory to the Administrative Agent; and
(e) such other documents as the Administrative Agent may reasonably
request.
SECTION 4 MISCELLANEOUS.
<PAGE> 5
SECTION 4.1 CONTINUING EFFECTIVENESS, ETC. As herein amended, the
Credit Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects. After the Fourth Amendment Effective Date, all
references in the Credit Agreement and the other Loan Documents to "Credit
Agreement" or similar terms shall refer to the Amended Credit Agreement.
SECTION 4.2 COUNTERPARTS. This Fourth Amendment may be executed in any
number of counterparts and by the different parties on separate counterparts,
and each such counterpart shall be deemed to be an original but all such
counterparts shall together constitute one and the same Fourth Amendment.
SECTION 4.3 GOVERNING LAW. This Fourth Amendment shall be governed by,
and construed in accordance with, the internal law of the State of Illinois;
provided that the Administrative Agent and the Lenders shall retain all rights
arising under federal law.
SECTION 4.4 SUCCESSORS AND ASSIGNS. This Fourth Amendment shall be
binding upon the Company, the Lenders and the Administrative Agent and their
respective successors and assigns, and shall inure to the benefit of the
Company, the Lenders and the Administrative Agent and the respective successors
and assigns of the Company, the Lenders and the Administrative Agent.
<PAGE> 6
Delivered at Chicago, Illinois, as of the day and year first above
written.
COMPASS INTERNATIONAL SERVICES
CORPORATION
By:
Title:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/
----------------------------
Title:
--------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Lender and as a Lender
By: /s/
----------------------------
Title:
--------------------------
FIRST NATIONAL BANK OF MARYLAND
By: /s/
----------------------------
Title:
--------------------------
FLEET NATIONAL BANK
By: /s/
----------------------------
Title:
--------------------------
PNC BANK, NATIONAL ASSOCIATION
By: /s/
----------------------------
Title:
--------------------------
<PAGE> 7
SCHEDULE 1.1
PRICING SCHEDULE
<TABLE>
<CAPTION>
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
Applicable Applicable
Margin for Margin for Base
Senior Leverage Ratio/ Offshore Rate Loans Rate Loans Commitment
Leverage Ratio Fee Rate L/C Fee Rate
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
<S> <C> <C> <C> <C>
2.50:1 2.25% 1.00% 0.50% 2.25%
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
2.50:1 but
2.00:1 2.00% 0.75% 0.50% 2.00%
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
2.00:1
but 1.50:1 1.75% 0.50% 0.45% 1.75%
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
1.50:1
but 1.00:1 1.50% 0.25% 0.40% 1.50%
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
1.00:1 1.25% 0% 0.35% 1.25%
- ------------------------------ ---------------------- ------------------ ------------------ ------------------------
</TABLE>
As of March 30, 1999, the Applicable Margin for Offshore Rate Loans,
the Applicable Margin for Base Rate Loans, the Commitment Fee Rate and the L/C
Fee Rate shall be 2.25%, 1.00%, 0.50% and 2.25%, respectively. The Applicable
Margins, the Commitment Fee Rate and the L/C Fee Rate shall be adjusted, to the
extent applicable, (i) May 15, 1999 based on the Leverage Ratio as of March 31,
1999 and (ii) 45 days (or, in the case of the last fiscal quarter of any fiscal
year, 90 days) after the end of each fiscal quarter thereafter (beginning with
the fiscal quarter ending June 30, 1999) based on the Senior Leverage Ratio as
of the last day of such fiscal quarter; provided that if as of the last day of
any fiscal quarter (commencing with the fiscal quarter ending December 31, 1999)
the Commitment Amount is greater than $45,000,000 and EBITDA for the four
consecutive fiscal quarters then ending is less than $24,500,000, then the
Applicable Margins and the L/C Fee Rate shall be increased by 0.25% for the
period from the date which is 45 days (or, in the case of the last fiscal
quarter of any fiscal year, 90 days) after such fiscal quarter to the next date
on which the Applicable Margins and the L/C Fee Rate are subject to adjustment
(regardless of whether actually adjusted) pursuant to the provisions above;
PROVIDED FURTHER that if the Company fails to deliver the financial statements
required by SECTION 7.1 by the 45th day (or, if applicable, the 90th day) after
any fiscal quarter, the Applicable Margins, the Commitment Fee Rate and the L/C
Fee Rate that would apply if the Leverage Ratio or the Senior Leverage Ratio, as
applicable, were greater than 2.50 to 1 shall apply until such financial
statements are delivered (plus 0.25% pursuant to the first proviso above, if
applicable).
27
<PAGE> 8
SCHEDULE 8.5
PERMITTED INDEBTEDNESS
<TABLE>
<CAPTION>
Company Due Date 1999 Status Due Date 2000 Status Due Date 2001
- ------- -------- ---------- --------- ---------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes
MetroWeb 5/22/99 $ 220,000 5/22/00 $150,000 5/22/01 $130,000
RC Wilson 1/1/00 $500,000 Note 1
Rosenfeld 1/15/00 $333,333 1/15/01 $333,333
DVS 5/13/99 $ 300,000 Note 1
PAC 3/1/00 $5,850,000 Note 2
---------- ----------- ---------
Total Notes $ 520,000 $6,833,333 $463,333
Cash Earn-Outs
Rosenfeld 3/31/99 $2,175,000
Rosenfeld 9/30/99 $1,062,500 Est.(Note 2) 3/31/00 $325,000 Note 2
NDR 3/31/99 $5,030,000 Est.
Total Cash Earn-Outs $8,267,500
Total Notes & Cash Earn-Outs $8,787,500 $7,158,333
</TABLE>
Note 1 These Notes are subject to adjustment in the event that certain earning
requirements are not met.
Note 2 These Notes accelerate in the event of a change of control.
<PAGE> 1
EXHIBIT 10.2
March 8, 1999
Mr. Leeds Hackett
Re: Employment Agreement
Dear Leeds:
As we have discussed, you have indicated your desire to leave the Company
after the consummation of a transaction (if any) with a prospective purchaser.
In light of these plans, I wanted to memorialize our understanding with respect
to the application of the severance terms under your Employment Agreement with
NCMC dated March 4, 1998.
The Employment Agreement denotes your job as President and CEO of NCMC.
Since the time of the Employment Agreement, we asked you to move to New York and
to serve as Chief Financial Officer of Compass International, which you
graciously agreed to do. Notwithstanding this reassignment, it was understood
between us that your service as CFO might be transitional, and that you were not
interested in holding this position long term.
Accordingly, this letter confirms that if you leave the Company upon the
consummation of a transaction during 1999 involving the sale of Compass
International, you will be entitled to the Severance Benefits outlined in
Section 2.3 of the Employment Agreement.
Please let me know if you would like to discuss this letter. Otherwise,
please sign it in the space provided below to acknowledge your agreement.
Sincerely,
/s/ Michael J. Cunningham
-------------------------
Michael J. Cunningham
Chairman
Acknowledged and Agreed:
/s/ Leeds Hackett
- ------------------------
Leeds Hackett
<PAGE> 1
EXHIBIT 10.3
AGREEMENT AND RELEASE
This Agreement and Release ("Agreement"), dated as of April 13, 1999
is between Leeds Hackett ("Hackett") and Compass International Services
Corporation (the "Company"), a corporation organized under the laws of Delaware.
WHEREAS, Hackett entered into an Employment Agreement dated as of
March 4, 1998 with National Credit Management Corp. ("NCMC"), which was merged
into a wholly-owned subsidiary of the Company (the "Employment Agreement"); and
WHEREAS, the Company subsequently requested that Hackett accept
reassignment to headquarters in New York to act as Chief Financial Officer
("CFO") of the Company pursuant to the terms of his Employment Agreement and he
agreed to do so; and
WHEREAS, Hackett voluntarily tendered his resignation as the CFO of
the Company effective April 13, 1999 (the "Termination Date"), which was duly
accepted by the Company; and
WHEREAS, the Company and Hackett wish to settle, compromise and
resolve any and all employment-related claims Hackett has or may have against
the Company or any of the Compass Released Parties (as defined below);
NOW, THEREFORE, Hackett and the Company agree as follows:
1. In full and final settlement of all amounts due to Hackett, the
Company agrees to continue to pay his Base Salary at the rate of $150,000 per
annum for the period from the Termination Date through October 12, 2000 (the
"Severance Period") in accordance with the Company's normal payroll practices,
subject to any applicable withholdings. The Company will also pay Hackett for
any accrued vacation time and reimburse the cost of COBRA premiums for Hackett
(and any dependents of Hackett covered under the Company's health plan
immediately prior to the Termination Date) for a period of eighteen months from
the Termination Date, provided Hackett applies for such coverage, is eligible
for such coverage and provided
<PAGE> 2
further that if he becomes eligible to be covered under any other
non-contributory group health plan (as an employee or otherwise) which does not
have a significant exclusion for pre-existing conditions, the Company shall have
no further obligations to pay COBRA premiums. The amounts specified in this
paragraph are in full and final payment of any and all sums due to Hackett on
account of wages, bonuses, salary, severance pay, vacation pay, benefits or any
other form of compensation.
2. Hackett hereby resigns his positions as an employee, officer or
director of any and all of the subsidiaries and affiliates of the Company,
effective as of the Termination Date, except that he shall continue to serve as
a member of the Board of Directors of the Company. It is agreed that Hackett
will be entitled to the normal compensation, if any, paid to outside directors
of the Company from the date of this Agreement forward.
3. In exchange for the amounts provided for in this Agreement and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Hackett, as Releasor, on behalf of himself, his heirs,
executors, administrators, representatives and assigns, hereby forever
unconditionally and irrevocably releases and discharges the Company, NCMC, their
affiliates, subsidiaries (wholly-owned or not), predecessors, successors and
assigns, and each and all of their respective current and former officers,
directors, employees, trustees, agents, attorneys, representatives, partners,
advisors and shareholders (collectively and individually, the "Compass Released
Parties"), from any and all claims, charges, causes of action, complaints,
agreements, promises, contracts, undertakings, covenants, guarantees,
grievances, liabilities, obligations, damages, rights, expenses, debts and
demands of any kind whatsoever, in law or equity, known or unknown, and of
whatsoever kind or nature arising out of, in connection with or with respect to
Hackett's employment with the Company, the Employment Agreement or the cessation
of his employment which Hackett, his heirs, executors, administrators,
representatives and assigns ever had, now have or hereafter can, shall or may
have, for, upon, or by reason of any alleged or actual matter, cause or thing
from the beginning of time until the date Hackett signs this Agreement, except
that this paragraph shall not release any rights Hackett may have to
indemnification from third party claims pursuant to the Company's articles of
incorporation or bylaws. Notwithstanding the foregoing, this release shall
2
<PAGE> 3
not extend to claims Hackett may have, now or in the future, in his capacity as
a director or shareholder of the Company or claims for indemnification provided
to him as a director or during his tenure as an employee of the Company.
Without limiting the foregoing, this release includes any claims
under federal, state, city, county and local laws prohibiting discrimination on
the basis of age, sex, race, color, disability, religion, creed, national
origin, ancestry, sexual orientation, handicap, marital status, citizenship or
any other protected factor or characteristic, prohibiting discrimination for
requesting or taking a family or medical leave, prohibiting discrimination with
regard to benefits or any other terms and conditions of employment and
prohibiting retaliation in connection with any complaint or claim of alleged
discrimination or harassment. As such, this release includes, but is not limited
to, any claims arising under the Age Discrimination in Employment Act of 1967
("ADEA"), as amended, the Older Workers Benefit Protection Act, the Civil Rights
Act of 1991, the Americans with Disabilities Act ("ADA"), Title VII of the Civil
Rights Act of 1964, as amended, the Civil Rights Act of 1866, as amended, the
Family Medical Leave Act of 1993 ("FMLA") the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Maryland Fair Employment
Practices Act, the Maryland Equal Pay for Equal Work Law, the New York State
Executive Law and the New York City Human Rights Law.
4. In further consideration of the foregoing, Hackett covenants and
agrees never to bring any action, complaint or suit in any court or commence an
arbitration proceeding against any of the Compass Released Parties arising out
of, in connection with or with respect to his employment, the Employment
Agreement or the cessation of his employment, provided that nothing in this
Agreement shall be construed to release the Company from its obligation to make
the payments provided for hereunder or to waive Hackett's right to sue for
indemnification or to enforce his rights under this Agreement or in his capacity
as a director or shareholder of the Company. In the event Hackett violates this
paragraph of the Agreement, he agrees to pay all costs and expenses of defending
against any such action, complaint, suit or arbitration proceeding incurred by
any of the Compass Released Parties, including reasonable attorneys' fees.
3
<PAGE> 4
5. Hackett hereby acknowledges that:
(a) the consideration provided for in this Agreement exceeds what he
would have received if he had not signed this Agreement;
(b) he has been advised by the Company that he should consult with
an attorney concerning the terms of this Agreement and its effect on him before
signing it;
(c) he has in fact read this Agreement, he has had an adequate
opportunity to fully consider the terms of this Agreement, he understands its
terms and consequences and he is executing it freely and voluntarily; and
(d) he was told by the Company that he had a period of 21 calendar
days from the date this Agreement was delivered to him in which to decide
whether to sign this Agreement.
6. For a period of seven (7) calendar days following Hackett's
execution and delivery of this Agreement, he may revoke it by delivering written
notice revoking same within that time period to Michael Cunningham, Chairman,
Compass International Services Corporation, One Penn Plaza Suite 4430, New York,
New York 10119. If the Agreement is not revoked during that seven (7) day
period, it shall become final. In the event the Agreement is revoked by Hackett
during the revocation period, the Agreement shall be null and void in all
respects.
7. Hackett acknowledges that during his employment he had access to
and possession of confidential business information about the Company and its
affiliates, its financial relationships, its business and financial results, and
its clients. He agrees that he will not, without the prior written consent of
the Company, disclose any such information, or express his personal opinions to
the extent they may have the effect of revealing or implying such information,
to any third party (except in his capacity as a board member of the Company in
discussions with other board members) unless such information has been
previously disclosed publicly by the Company, has become public through
appropriate means
4
<PAGE> 5
without improper disclosure by another source, or is required to be disclosed by
law.
8. Hackett agrees that during the Severance Period, he shall not,
for any reason whatsoever, directly or indirectly, whether individually or as an
officer, director, shareholder, owner, partner, joint venturer, employee,
independent contractor, consultant or advisor to or of any entity other than the
Company, or in any other capacity except on behalf of the Company in his
capacity as board member of the Company:
(i) engage, participate or invest in any business which is
competitive with the Business anywhere within the United
States of America (the "territory); provided, however, that
nothing contained herein shall be construed to prevent
Hackett from investing in up to 5% of the outstanding stock
of any competing corporation that is publicly-traded and
listed on a recognized national, international or regional
securities exchange or traded in the U.S. over-the-counter
market, but only if Hackett is not actively involved in and
does not render consulting services to the business of said
corporation;
(ii) sell or provide any competitive products or services to, or
solicit for the purpose of selling or providing any
competitive products or services to, any person or entity
that was a customer of the Company at any time during the
one-year period ending on the last day of the Employment
Period ("Termination Date") or that was known by Hackett to
have been actively being solicited by the Company to become
a customer of the Company at any time during such period;
(iii) solicit for employment or engagement, or influence or
induce to leave the Company's employment, or knowingly
cause to be employed or engaged, any person who is employed
or engaged by the Company in a managerial capacity on the
Termination Date or during the Severance Period unless such
person has been out of the employ of the Company for at
least 180 days;
5
<PAGE> 6
provided that Hackett shall be permitted to solicit and
hire any member of his immediate family;
(iv) enter into, or call upon or request non-public information
for the purpose of entering into, an Acquisition
Transaction with any entity with respect to which the
Company has made an offer or proposal for, or entered into
discussions or negotiations for, or evaluated with the
intent of making a proposal for, an Acquisition
Transaction, within the six-month period immediately
preceding the Termination Date. For purposes of this
Agreement, an "Acquisition Transaction" means a merger,
consolidation, purchase of material assets, purchase of a
material equity interest, tender offer, recapitalization,
accumulation of shares, proxy solicitation or other
business combination; or
(v) solicit or intentionally encourage any present or future
customer, supplier or other third party to terminate or
otherwise alter his, her or its relationship with the
Company.
For purposes of this Section 8, "Business" is defined as accounts receivable
management services and telephonic check drafting services anywhere in the
United States.
9. During the Severance Period, Hackett agrees to provide reasonable
cooperation, consistent with the demands of any future employment, in all
respects with the Company (or any of the Compass Released Parties) in connection
with any and all existing or future investigations, proceedings, litigations or
examinations that relate to his service with the Company.
10. Hackett represents that he has returned to the Company all
Company property and equipment in his possession or control. This includes,
without limitation, computer equipment (hardware and software), company credit
cards, telephones, communication devices, office keys, security access cards,
badges, identification cards and all copies (including drafts) of any
documentation or information (however stored) relating to the business of the
Company, its clients or prospective clients and any of the Compass Released
Parties; provided however, that
6
<PAGE> 7
Hackett has retained information provided to him in his capacity as a board
member of the Company.
11. This Agreement amicably resolves any employment related issues
between Hackett and the Company and it is agreed that this Agreement shall not
be deemed an admission of any wrongdoing or liability of any kind on the part of
any person.
12. This Agreement and any claims arising hereunder shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws.
13. Any controversy or claim arising out of or relating to this
Agreement, the making, interpretation or breach thereof, other than a claim
solely for injunctive relief for any alleged breach of the provisions of
sections 1 or 8 (after providing notice and a thirty-day period to cure the
problem created by the act complained of) as to which the parties shall have the
right to apply for relief in any court of competent jurisdiction, shall be
resolved by arbitration in Baltimore, Maryland, in accordance with the Federal
Arbitration Act and the National Rules for the Resolution of Employment Disputes
of the American Arbitration Association. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof and any
party to the arbitration may, if such party so elects, institute proceedings in
any court having jurisdiction for the specific performance of any such award.
HACKETT AND COMPANY EXPRESSLY WAIVE ANY RIGHT TO RESOLVE ANY DISPUTE COVERED BY
THIS SECTION BY FILING SUIT IN COURT FOR TRIAL BY A JUDGE OR JURY. The
arbitrator shall include in any award in the prevailing party's favor costs and
expenses of the arbitration. In the event the arbitrator does not rule in favor
of the prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Each party to the arbitration
shall bear his or its own attorney's fees and expenses and, except as provided
above, the parties shall bear equally all other costs and expenses of the
arbitration.
7
<PAGE> 8
14. This Agreement contains the entire agreement between Hackett and
the Company and supersedes and cancels any prior agreement or understanding
between the parties on the subjects covered here. No agreements, representations
or statements of either party related to Hackett's employment with the Company
and not contained in this Agreement shall bind that party. This Agreement can be
modified only in writing signed by both parties.
15. In the event that any provision or term of this Agreement is
held to be invalid, prohibited or unenforceable for any reason, the Company may
elect to enforce the remainder of the Agreement or cancel it and get back from
Hackett or heirs, executors or representatives, any consideration paid.
16. This Agreement shall be binding on and shall inure to the
benefit of Hackett's heirs, executors, administrators, representatives and
assigns and the Company's successors in interest and assigns. Hackett represents
that he has not assigned or transferred or attempted to assign or transfer any
claim or rights that are the subject of this Agreement to any third party prior
to the time he signed this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement and
Release.
Compass International Services Corporation
By: /s/ Michael Cunningham
--------------------------------------
Title: Chairman
-----------------------------------
Date:
------------------------------------
By: /s/ Leeds Hackett
--------------------------------------
Leeds Hackett
Date:
------------------------------------
8
<PAGE> 9
ACKNOWLEDGMENT
STATE OF NEW YORK)
: ss.:
COUNTY OF )
On this __ day of ___________, 1999, before me, a Notary Public in
and for the State of New York, personally appeared Leeds Hackett, to me known
and known to me to be the person named in and who signed the foregoing Agreement
and Release and who acknowledged it to be his own free act and deed.
-------------------------------
Notary Public
My Commission Expires:
9
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